Facoltà di scienze economiche

Financial market integration and asset prices

Sandulescu, Paula Mirela ; Trojani, Fabio (Dir.) ; Gagliardini, Patrick (Codir.)

Thèse de doctorat : Università della Svizzera italiana, 2020 ; 2020ECO008.

My doctoral thesis examines the relationships among the degree of financial market integration and the pricing of different classes of assets. The first chapter provides a theoretical framework that uncovers in a model-free way the relationship between international stochastic discount factors (SDFs), stochastic wedges, and financial market structures. Exchange rates are in general different... More

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    Summary
    My doctoral thesis examines the relationships among the degree of financial market integration and the pricing of different classes of assets. The first chapter provides a theoretical framework that uncovers in a model-free way the relationship between international stochastic discount factors (SDFs), stochastic wedges, and financial market structures. Exchange rates are in general different from the ratio of international SDFs in incomplete markets, as captured by a stochastic wedge. Theoretically, this wedge can be zero in incomplete and integrated markets. Market segmentation breaks the strong link between exchange rates and international SDFs, which helps address salient features of international asset returns, while keeping the volatility and cross-country correlation of SDFs at moderate levels. The second chapter studies the degree of market integration between US corporate bonds and stocks of the corresponding issuing firms, accounting for their characteristics. I document that short-selling constraints are essential restrictions to optimal Sharpe ratio portfolios in order to yield admissible portfolio positions. Moreover, the implied cross-market pricing errors are small and contained within quoted bid-ask spreads. My empirical evidence suggests that markets are more integrated for larger firms, with more liquid corporate bonds and stocks. Similarly, firms that are more leveraged, have a higher asset growth and profitability feature a greater extent of integration between their debt and equity securities.