The Journal of Finance

A Model of International Asset Pricing with a Constraint on the Foreign Equity Ownership

Published: 9/1986,  Volume: 41,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1986.tb04555.x  |  Cited by: 157

CHEOL S. EUN, S. JANAKIRAMANAN

This paper derives a closed‐form valuation model in a two‐country world in which the domestic investors are constrained to own at most a fraction, δ , of the number of shares outstanding of the foreign firms. When the “ δ constraint” is binding, two different prices rule in the foreign securities market, reflecting the premium offered by the domestic investors over the price under no constraints and the discount demanded by the foreign investors. The premium is shown to be a multiple of the discount, the multiple being the ratio of the aggregate risk aversion of the domestic and foreign investors. Given the aggregate risk‐aversion parameters, the equilibrium premium and discount are determined by the severity of the δ constraint and the “pure” foreign market risk.

Cross‐Border Listings and Price Discovery: Evidence from U.S.‐Listed Canadian Stocks

Published: 3/21/2003,  Volume: 58,  Issue: 2  |  DOI: 10.1111/1540-6261.00537  |  Cited by: 285

Cheol S. Eun, Sanjiv Sabherwal

We examine the contribution of cross‐listings to price discovery for a sample of Canadian stocks listed on both the Toronto Stock Exchange (TSE) and a U.S. exchange. We find that prices on the TSE and U.S. exchange are cointegrated and mutually adjusting. The U.S. share of price discovery ranges from 0.2 percent to 98.2 percent, with an average of 38.1 percent. The U.S. share is directly related to the U.S. share of trading and to the ratio of proportions of informative trades on the U.S. exchange and the TSE, and inversely related to the ratio of bid‐ask spreads.

Estimating the Correlation Structure of International Share Prices

Published: 12/1984,  Volume: 39,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1984.tb04909.x  |  Cited by: 51

CHEOL S. EUN, BRUCE G. RESNICK

Recently, the case for international portfolio diversification has been convincingly argued in the framework of mean‐variance portfolio analysis by a number of researchers. However, virtually no empirical documentation exists concerning the best method for estimating the correlation structure of international share prices. In this paper, 12 models for estimating the international correlation matrix are presented and empirically tested relative to full historical extrapolation. The major evaluation criteria are the mean squared error and stochastic dominance based on the frequency distribution of the squared forecast errors. The results indicate that the National Mean Model strictly dominates all the others in terms of forecasting accuracy.

Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection

Published: 3/1988,  Volume: 43,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1988.tb02597.x  |  Cited by: 247

CHEOL S. EUN, BRUCE G. RESNICK

In this paper, ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates. It is shown that exchange rate uncertainty is a largely nondiversifiable factor adversely affecting the performance of international portfolios. Therefore, it is essential to effectively control exchange rate volatility. For that purpose, two methods of exchange risk reduction are simultaneously employed: multicurrency diversification and hedging via forward exchange contracts. The empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the U.S. domestic portfolio in out‐of‐sample periods.

Asset Pricing and Dual Listing on Foreign Capital Markets: A Note

Published: 3/1987,  Volume: 42,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1987.tb02556.x  |  Cited by: 219

GORDON J. ALEXANDER, CHEOL S. EUN, S. JANAKIRAMANAN

International Arbitrage Pricing Theory: An Empirical Investigation

Published: 6/1986,  Volume: 41,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1986.tb05038.x  |  Cited by: 157

D. CHINHYUNG CHO, CHEOL S. EUN, LEMMA W. SENBET

In this paper, we test the arbitrage pricing theory (APT) in an international setting. Inter‐battery factor analysis is used to estimate the international common factors and the Chow test is used in testing the validity of the APT. Our inter‐battery factor analysis results show that the number of common factors between a pair of countries ranges from one to five, and our cross‐sectional test results lead us to reject the joint hypothesis that the international capital market is integrated and that the APT is internationally valid. Our results, however, do not rule out the possibility that the APT holds locally or regionally in segmented capital markets. Finally, the basic results of both the inter‐battery factor analysis and the cross‐sectional tests are largely invariant to the numeraire currency chosen.

Monitoring and Structure of Debt Contracts

Published: 10/2000,  Volume: 55,  Issue: 5  |  DOI: 10.1111/0022-1082.00283  |  Cited by: 299

Cheol Park

This paper presents a theory of optimal debt structure when the moral hazard problem is severe. The main idea is that the optimal debt contract delegates monitoring to a single senior lender and that seniority allows the monitoring senior lender to appropriate the full return from his monitoring activities. The theory explains (i) why debt contracts are prioritized, (ii) why short‐term debt is senior to long‐term debt, and (iii) why financial intermediaries usually hold short‐term senior debt whereas long‐term junior debt is widely held. Another implication of the theory is that covenant and maturity structures will be set to conform to the seniority structure.