Peggy E. Swanson

Firm Characteristics, Relative Efficiency, and Equity Returns

This study uses a stochastic frontier approach to evaluate firm efficiency. The resulting efficiency score, based on firm characteristics, is the input for performance evaluation. The portfolio composed of highly efficient firms significantly underperforms the portfolio composed of inefficient firms even after adjustment for firm characteristics and risk factors, suggesting a required premium for the inefficient firms. The difference in performance between the two portfolios remains for at least five years after the portfolio formation year. In addition, firm efficiency exhibits significant explanatory power for average equity returns in cross-sectional analysis.

Comparative measures of performance for U.S.-based international equity mutual funds

Abstract This paper compares an international two-index model to an International Arbitrage Pricing Theory (IAPT) two-factor model to evaluate the performance of 37 U.S.-based international mutual funds over the 1985–1993 period. Results from the index model confirm prior research that international funds perform as well as the market proxy. In contrast, the IAPT model implies superior investment performance by the international funds. Moreover, the two models produce different relative performance rankings. Intertemporal comparisons of the models indicate that the multifactor IAPT model better reflects the international equity return-generating process.

Capital market integration over the past decade: The case of the US dollar

Abstract This study investigates changing capital market integration over the decade 1973–83 as measured by the relationship between Eurodollar and domestic US dollar yields. The findings reveal that capital market integration has increased appreciably since the end of 1981.

Equity market integration: The case of North America

Abstract This study addresses one aspect of financial market integration in North America—the relationship between equity markets in the United States, Canada, and Mexico. Two primary issues are investigated: (a) which markets lead/lag the other markets as indications of relative strength of the markets, and (b) are these relationships stable over time? The results are interesting, especially in light of the expected effects of NAFTA, in that more causal relationships are identified during periods of economic uncertainty than during periods of relative calm. This implies that the potential benefits associated with diversification across equity markets within the North American system appear to be diminished during periods of economic uncertainty.

The international transmission of interest rates: A note on causal relationships between short-term external and domestic U.S. dollar returns

Abstract This study extends the literature of capital market integration by investigating the relationship between U.S. dollar yield behavior in the domestic and in the external dollar market. Recognizing recent increases in world capital market speed of adjustment, the analysis is based on daily changes in yields. Using Granger causality tests, much of the adjustmemt appears to be contemporaneous if contemporaneous is defined as weekly (as opposed to daily) changes, and the Eurodollar market adjusts more rapidly and more completely to changes in the domestic market than the domestic market adjusts to changes in the Eurodollar market.

The interrelatedness of global equity markets, money markets, and foreign exchange markets

Abstract This article investigates different aspects of global financial markets, specifically relationships among equity markets, money markets, and foreign exchange markets across countries. To represent the three major financial markets of the world, Japan is the proxy for Asia, Germany is the proxy for Europe, and the United States is the proxy for North America. Strong evidence exists that international money markets and international equity markets are becoming increasingly integrated over time. This article incorporates foreign exchange values as partial determinants of equity returns and money market returns and investigates the interactions among these three asset markets from a global perspective.

Measuring global money market interrelationships: An investigation of five major world currencies

Abstract This paper extends the study of global money market integration in two primary directions. First, a technique which combines stationarity and cointegration tests as a basis for constructing an error correction model is applied to assess the existence of long-run equilibrium relationships between money market series. Second, analysis for the increasingly significant Asian offshore markets of Singapore and Hong Kong is added to traditional European and national markets analysis. Major findings are (1) the error correction model is an appropriate technique for identifying causality relationships and (2) major domestic markets and included offshore markets are partially segmented.

The performance of international bond funds

Abstract This paper evaluates the performance of U.S. based international bond mutual funds over the November 1988–March 1994 period. The funds are evaluated against single- and multi-index benchmarks. Our tests indicate that the funds, in general, were unable to outperform either benchmark over the total sample period. Fund managers did, however, outperform the multi-index during the 1988–1991 subperiod. We run further tests that indicate that the multi-index model is the more appropriate model to use in evaluating international bond fund performance.

The Performance, Asset Allocation, and Investment Style of International Equity Managers

This paper evaluates the performance of 114 international equity managers over the January 1988–December 1997 period. Performance tests are conducted using Sharpe (1966) and Jensen (1968) performance methodologies. The managers are divided into mutual fund (n=54) and separately managed fund (n=60) investment management categories. Each management category is further divided by foreign and world (global) investment objectives. Three major findings are reported. First, international equity managers, on average, were unable to outperform the MSCI World market proxy during the sample period. However, world managers did perform better than their foreign counterparts. Second, geographic asset allocation and equity style allocation decisions enhanced the performance of international managers during the sample period. Third, separately managed funds outperformed mutual funds during the period studied when mutual fund returns are measured net of management fees. The apparent managed performance advantage abates, however, when mutual fund returns are adjusted to include management fees. Thus, we find no significant difference in the performance of the management categories when returns are measured gross of fees.

The relationship between international bond markets and international stock markets

Abstract This paper investigates interrelationships between international bond and international stock markets over the period November 1988 through December 1993. The analysis employs the Morgan Stanley Capital International World index as a proxy for international equity markets and the Salomon Brothers World Bond index as a proxy for international bond markets. Using cointegration and Granger causality methodology, the study finds that (1) bidirectional causality exists between stock market returns and bond market returns; and (2) international markets were more inefficient during the first half of the study period than during the second half.