This thesis consists of four chapters that investigate the performance and capital flows of hedge funds. The first two chapters of the thesis focus on hedge funds that have a pure emerging market strategy. Hedge funds should be well equipped to take advantage of opportunities in emerging markets due to their flexibility in investment strategy and lockup periods. However, the results show that, at the strategy level, emerging market hedge funds have only generated risk-adjusted returns in the most recent years of the sample period. Although emerging market hedge funds have performed poorly in the past, an important finding is the upward trend over time in performance. Given that other hedge fund strategies have a declining trend in alpha during the same period, the emerging market strategy may be where future alpha can be found. The third chapter investigates if there are capacity constraints in hedge fund strategies. The idea is that the alpha opportunities in the markets are limited. Thus, the more capital coming in to hedge funds, the higher competition for the investment opportunities. The findings reveal that mainly strategies that rely on liquidity in their underlying market show evidence of capacity constraints. That is, high past capital flows have a negative effect on current risk-adjusted returns. The last chapter investigates the out-of-sample performance of five allocation models relative to an equally weighted portfolio, when optimizing over hedge fund strategies. The findings show that for hedge fund investors the naive allocation model (1/N) with equal weights in each asset is not an efficient allocation. The risk-adjusted performance can be improved by using an optimal sample-based allocation model. Moreover, significant improvement in out-of-sample alpha can be made if the investor optimizes over non-systematic returns instead of total returns, which is an important results for investors seeking alpha. / <p>Diss. Stockholm : Handelshögskolan, 2008</p>

Asian efforts towards bond market development are driven by the 1997-98 financial crises; Central and Eastern European efforts by the transition towards EMU. The small size of most of the economies underlying these still "emerging" bond markets poses the question of minimum efficient scale and which options to pursue. We argue that the joint bond funds and regional bond market linkups that follow existing trade, FDI and bank ties will broaden the sources of finance, can improve market discipline, provide signals to the market, and thus increase financial stability. Based upon bond market data and analysis of regional efforts like the Asian Bond Funds, we argue that bond market development should be given more attention to foster growth and stability. (author's abstract) / Series: EI Working Papers / Europainstitut

The four essays included in this dissertation are in the field of open economy Macroeconomics. Essays I, II and IV deal with a work-horse model in this field – a two-sector small open economy growth model with traded and nontraded goods. Writing down such a model requires an assumption about the role of traded and nontraded goods in domestic consumption and investments. While several empirical studies have looked at the consumption side, a systematic examination of the role of traded and nontraded goods in investments is missing. Essay I aims to fill this gap. Drawing on extensive empirical evidence, we show that aggregate investment expenditure shares on traded and nontraded goods are very similar in rich and poor countries. Furthermore, the two expenditure shares have remained close to constant over time, with the average nontraded expenditure share varying between 0.54-0.60 over the 1960-2002 period. Combined with the fact that the relative price of nontraded goods correlates positively with income and exhibits large differences across space and time, our findings suggest that investment can be modeled using the Cobb-Douglas aggregator. The results of this essay offer a new restriction for the two-sector growth model, which can alter the conclusions drawn from the model. To demonstrate this, we apply the new restriction to a study by Hsieh and Klenow (2003), which argues that differences in relative productivity between traded and nontraded sectors, i.e., the Balassa-Samuelson effect, is the main cause of higher PPP-adjusted investment rates in rich countries. With the restriction imposed on the model, no more than 25 percent of the differences in PPP-adjusted investment rates between rich and poor counties can be attributed to the Balassa-Samuelson effect. In Essays II and IV the same two-sector growth model is put to the test using the recent economic developments in countries of Eastern and Central Europe. Essay II investigates whether the two-sector growth model can explain the magnitudes and the timing of the trade flows in the Baltic countries. The model is calibrated for each of the three countries, which we simulate as small closed economies that suddenly open up to international trade and capital flows. The results show that the model can account for the observed magnitudes of the trade deficits in the 1995-2001 period. Introducing a real interest rate risk premium in the model increases its explanatory power. According to the model, trade balances will turn positive in the Baltic states around 2010. Essay IV starts by summarizing empirical regularities for the key aggregate real sector variables in the eight countries that joined the EU in May 2004. It is shown that, following the reforms in the early 1990s, real sector developments in all eight countries exhibit remarkable similarities. Interestingly, this is the case despite the fact that different reform policies were pursued in several dimensions (e.g., privatization, nominal exchange rate). Next, we show that a calibrated two-sector small open economy growth model can account for most of the real sector adjustments in early post-reform years. Empirical studies have found rapid traded sector productivity growth in Central and Eastern European countries over the last decade. When traded sector productivity growth is added to the model, it captures the development in all key real sector variables during the post-reform period. Finally, Essay III contributes to the study of financial crises in emerging markets. In contrast to the other essays, this paper develops a highly stylized theoretical model that allows us to study analytically government response to financial crises. In particular, Essay III develops a framework for analyzing optimal government bailout policy in a dynamic stochastic general equilibrium model where financial crises are exogenous. Important elements of the model are that private borrowers internalize only part of the social cost of foreign borrowing in the emerging market and that the private sector is illiquid in the event of a crisis. The distinguishing feature of our paper is that it addresses the optimal bailout policy in an environment where there are both costs and benefits of bailouts, and where bailout guarantees potentially distort investment decisions in the private sector. We show that it is always optimal to commit to a bailout policy that only partially protects investment against inefficient liquidation, both in a centralized economy and a market economy. Due to overinvestment in the market economy, the government's optimal level of bailout guarantees is lower than in the social optimum. Further, we show that, in contrast to a social planner, the government in the market economy should optimally bail out a smaller fraction of private investments when the probability of a crisis is higher. / Diss. Stockholm : Handelshögskolan, 2005 S. i-x: sammanfattning, s. 1-187: 4 uppsatser

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As a resource based economy international engagement plays a critical role for the growth and development of New Zealand. One of the most notable trends over the past 15 years has been the rise of some of the largest markets around the world, that have led to a rapid and substantial increase in international trade and investment flows. The liberalisation and consequently the rise of emerging markets has today changed the economic geography for the business world, with companies entering these markets with the hope of getting superior returns arising from rapid economic growth and related market opportunities. Amongst other emerging markets, the economic resurgence of the Indian market in the recent years has been widely noticed and in many senses has influenced and changed the structure and operations of businesses around the world. The prospects offered by India have allowed firms to substantially expand their activities beyond their domestic borders and access new growth opportunities generating significant productive growth. The benefits that markets like India today generate are likely to be particularly significance for New Zealand, given the small size of the domestic market. Indeed, increasing New Zealand’s exporting and international investing activity is vital to raising New Zealand’s growth rate. The rapid rise and deregulation of the Indian market has seen a rise in the number of New Zealand businesses keen to tap into the vast prospects across different sectors over the recent years. Nevertheless, New Zealand businesses have not been participating to nearly the same extent as most businesses from other small developed countries currently operating in the Indian market. Reasons for this limited interaction are unclear and not well documented in the current literature that examines the economic activities amongst the two markets. Given the importance of international engagement New Zealand businesses cannot afford to isolate themselves from the opportunities provided by the Indian market. Considering this, the main aim of this research is to focus on the opportunities that India provides and the benefits that New Zealand businesses stand to gain from those. On identifying, this may help devise actions that might lead to substantially increased levels of international investments by New Zealand firms, given the challenges of entering the Indian base from a small remote country. Drawing on insights gained from existing literature and case studies of companies operating in India, the research will identify appropriate strategies and policies that might help New Zealand businesses to succeed and better direct operations in India.

The Stock Exchange of Thailand (SET) is an important source of funds for firms and provides opportunities for investors. However, the economic boom of 1990-1996, the Asian Economic Crisis and the recession of 1997-2002 have affected the performance of firms listed at SET. The dividend policies of listed firms have also been influenced by these fluctuations in the business cycle.This study investigates the phenomenon of disappearing dividends in the developing capital market of Thailand. It adopts a similar methodology to Fama and French (2001) by classifying listed firms in line with changes in their dividend polices over the period 1990 to 2002. More specifically, the study explores the characteristics of firms which pay dividends, non-payers, former payers and firms which have never paid dividends. These characteristics include profitability, investment opportunities and firm size. The analysis uses firm characteristics for predicting the dividend policies of listed firms. Changes in firm characteristics and the propensity to pay dividends are identified in this process.The analysis suggests that firms which pay dividends tend to be large and highly profitable, although they possess low investment opportunities. The study also suggests that the characteristics of firms which paid dividends changed slightly before the crisis of 1997 and changed markedly during the crisis. However, after the crisis (1998-2002) the characteristics of firms are similar to those observed before the crisis. This result is attributed to the fact that some firms have resumed paying dividends after briefly ceasing this payment during the crisis. More importantly, when firm characteristics are held constant, the propensity to pay dividends of listed firms declined slightly before the crisis and declined strongly after the crisis. Consequently, the majority of new firms and many mature firms do not pay dividends.The findings of this study are consistent with the results of Fama and French (2001), particularly with regard to the characteristics of firms and changes in the propensity to pay dividends. However, this study extends the knowledge on the phenomenon of disappearing dividends by focussing on a developing economy, Thailand. Finally, this study suggests that investors should consider the characteristics of firms, changes in these characteristics and the propensity to pay dividends when identifying opportunities for investment.

Throughout the history, different types of businesses have reflected the zeitgeist of the specific era. Today, the globalization has led to the rise of the third wave of internationalization, which has increased the importance of emerging markets in the global business environment. An additional global trend that reflects today’s businesses is to fulfill social purposes along with making profit. The latter global trend entails the rise of the social sector in industrialized countries, including social enterprises. There is currently no universal definition of social enterprises as well as a lack of theoretical contribution on those; however, there is a lot of passion for the topic. In Sweden, social enterprises are associated with work integration social enterprises (WISEs), although other types of social enterprises exist, for example those finding opportunities in social issues in emerging markets. The purpose of this thesis is therefore to increase the holistic awareness for a wider concept of social enterprises in Sweden. To be able to increase this awareness, the aim is to examine how Swedish social enterprises turn social issues in emerging markets into business opportunities. It is further interesting to emphasize the challenges social enterprises are facing, as well as how they use their business models and strategies inorder to cope with the challenges. This study is carried out through a qualitative case-study of three Swedish social enterprises that are or were operating in emerging markets to some extent. Semi-structured interviews were conducted with one representative from each enterprise. The findings show that social enterprises have the ability to turn social issues into business opportunities. In addition, being able to balance making social impact with profit-making is one main challenge for Swedish social enterprises, especially in emerging markets as the enterprises’ core mission might be questioned regarding who their operations will benefit. The findings of this thesis have also shown that social enterprises commonly are taking the whole value-chain into account. Furthermore, as emerging markets are fast-changing and uncertain, it is difficult to plan ahead for what to come. Finally, as this thesis’ purpose states, it is thus crucial to increase the awareness and knowledge of these kinds of social enterprises since this will help them improving and increase their social impact.

[pt] Mercados emergentes de renda fixa desenvolveram-se rapidamente nesta última década. No contexto de mercados de renda fixa, a estrutura a termo da taxa de juros desempenha papel fundamental. No entanto, muitos dos métodos estatísticos e econométricos aplicados a problemas relacionados à estrutura a termo em mercados desenvolvidos não são úteis em mercados emergentes. A maior dificuldade encontra-se normalmente na falta de informações e na baixa liquidez. Neste trabalho,apresentamos uma extensão do modelo de estimação de estruturas a termo em mercados emergentes proposto em Almeida et al. [1998], e usamos este modelo para obter três diferentes aplicações em mercados emergentes de renda fixa: alocação de carteiras, evolução da estrutura a termo da taxa de juros e estimação de risco. / [en] Fixed income emerging markets developed quickly during the last decade. In the context of studying fixed income markets, the term structure of interest rates appears as a fundamental tool. However, many statistical and econometrics methods used to solve problems related to the term structure in developed markets are not useful in the context of emerging markets. The greatest difficulty is usually related to the lack of information and liquidity. In this work, we present an extension of a model for the estimation of term structures in emerging markets proposed in Almeida et al. [1998], and apply this model to obtain three different applications in fixed income emerging markets: portfolio allocation, term structure evolution and risk estimation. / [es] Mercados emergentes de renta fija se desarrollaron rápidamente en esta última década. En el contexto de mercados de renta fija, la extructura a término de la tasa de interés desempeña un papel fundamental. Sin embargo, muchos de los métodos estadísticos y econométricos aplicados a problemas relacionados a la extructura a término en mercados desarrollados no son útiles en mercados emergentes. La mayor dificuldad se encuentra normalmente en la falta de informaciones y en la baja liquidez. En este trabajo,presentamos una extensión del modelo de estimación de extructuras a término en mercados emergentes propuesto en Almeida et al. [1998], y usamos este modelo para analizar tres aplicaciones diferentes en mercados emergentes de renta fija: asignación de carteras, evolución de la extructura a término de la tasa de interés y estimación de riesgo.

Cette thèse tente d'évaluer l'intégration des marchés émergents dans une perspective régionale et intra-régionale. Elle contribue à la littérature existante en développant un modèle dynamique d’évaluation des actifs financiers à l’international (ICAPM) avec changement de régime. Spécifiquement, les rentabilités attendues peuvent passer du régime de segmentation parfaite au régime d’intégration parfaite ou inversement en fonction d’un certain nombre de facteurs nationaux, régionaux et internationaux qui sont susceptibles d’influencer le processus d’intégration financière. Le champ d’étude s’étend aux pays de l’Asie de Sud-est, d’Europe Sud-est, de l’Amérique Latine et du Moyen Orient sur la période 1996-2008. Nous développons le modèle de Bekaert et Harvey (1995) où la PPA n’est pas vérifiée, et les variances et covariances conditionnelles sont modélisées grâce à un processus GARCH multivarié. Cette approche permet de déterminer simultanément le niveau d’intégration au cours du temps de toutes les zones dans le marché mondial et le niveau d’intégration intra-régionale dans chaque région. Il permet aussi d’analyser la formation de la prime de risque totale. Nos résultats empiriques montrent que les marchés émergents restent encore très segmentés du marché mondial et des marchés régionaux. Ces résultats suggèrent que l’inclusion des actifs des marchés émergents continue à générer des gains de diversification substantiels, et que les règles d’évaluation devraient être conformes à un état d’intégration partielle. / The purpose of this thesis is to study the dynamics of the global integration process of four emerging market regions into the world and the regional market, while taking into account the importance of exchange rate and local market risk. An international capital asset pricing model suitable for partially integrated markets and departure from purchasing power parity was developed in the spirit of Bekaert and Harvey (1995)’s regime-switching model in order to explain the time-variations in expected returns on regional emerging market indices. In its fully functional form, the model allows the market integration measure as well as the global and local risk premiums to vary through time. We mainly find that the integration degree in emerging market regions (Latin America, Asia, Southeastern Europe, and the Middle East) varied widely through time over the period 1996-2008 and is satisfactorily explained by global, regional and national factors. Even though it reaches fairly high values during several periods, and exhibit an upward trend towards the end of the estimation period, the emerging market regions under consideration still remain segmented from the world and regional market. These results thus suggest that diversification into emerging market assets continue to produce substantial profits and that the asset pricing rules should reflect a state of partial integration. Our investigation, which addresses the evolution and formation of total risk premiums, confirm this empirically.

Esta pesquisa busca investigar quais os direcionadores-chave da estrutura de capital corporativa na América Latina durante o período de 1996 a 2006. Para tanto, são levantados 28 potenciais determinantes do endividamento organizacional a partir da literatura, sendo os mesmos segmentados em fatores específicos da empresa, do setor e do país. A análise dos dados consiste na estimação de um modelo estático e um dinâmico, os quais controlam qualquer efeito constante no tempo que afete o nível de dívida das empresas. A partir dos resultados, verifica-se que 10 variáveis apresentaram efeito significativo sobre o grau de alavancagem corporativa, sendo as mesmas relativamente bem distribuídas entre os grupos de fatores explicativos. Comparando os sinais dos coeficientes encontrados com os preconizados pela literatura, é constatado que a teoria do tradeoff estático, dos custos de agência e da assimetria de informação e pecking order se complementam ao explicar as estimativas obtidas. Uma comparação entre os determinantes do endividamento corporativo da América Latina e dos Estados Unidos apresenta indícios de que as imperfeições de mercado superiores que as empresas latino-americanas enfrentam são mais relevantes para a tomada de decisão de estrutura de capital. Por fim, verifica-se que os fatores específicos das empresas são os direcionadores-chave do endividamento das organizações latino-americanas. / This study aims to investigate which are the key drivers of corporate capital structure in Latin America during the period from 1996 to 2006. To do so, I select 28 potential determinants of firms' debt ratio based on the literature, which are divided into firm, industry and country-specific factors. The data analysis consists in the estimation of a static and a dynamic model, where both control any effect constant through time that affect the level of firm debt. The results show that 10 variables have a significant effect on the degree of corporate leverage. These variables are relatively well distributed among the groups of explanatory factors. Comparing the signs of the coefficients found with those predicted by the literature, one can observe evidence that the static tradeoff, the agency costs and the asymmetric information and pecking order theories complement each other to explain the estimates obtained. A comparison between the determinants of corporate leverage in Latin America and United States shows vestiges that the superior market imperfections Latin American companies face are more relevant to the capital structure decision making. Lastly, I find that firm-specific factors are the key drivers of the Latin American firms' leverage.