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We investigate the potential for manipulation due to the interaction between secondary market trading prior to a seasoned equity offering (SO) and the pricing of the offering. Informed traders acting strategically may attempt to manipulate offering prices by selling shares prior to the SO, and profit subsequently from lower prices in the offering. The model predicts increased selling prior to a SO, leading to increases in the market maker's inventory and temporary price decreases. Further, since manipulation conceals information, the ratio of temporary to permanent components of the price movements is predicted to increase.IN 1988, THE National Association of Securities Dealers, Inc. (NASD) adopted rule 10b-21 which prohibits the covering of short positions established after the announcement of a seasoned equity offering (SO) with securities purchased in the offering. The NASD was concerned that traders could manipulate new issue prices by short selling in the pre-issue market to drive prices down, and profit at the expense of the issuer by subsequently repurchasing the securities at reduced prices in the offering. Some indication that manipulation of this type occurs is provided by Barclay and Litzenberger (1988) and Lease, Masulis, and Page (1991). For a sample of seasoned equity offerings by NYSE and AMEX firms, Barclay and Litzenberger document both significant issue discounts and significant negative excess stock returns prior to the issue date. They suggest that the pre-issue price drops may be due to short sales. Similar price patterns around SOs are documented by Lease et al.This paper models the interaction between secondary market trading prior to a SO and the setting of the offer price 1 to investigate the nature and effects of stock price manipulation around a SO. To ensure success of the offering and compensate uninformed investors for the winner's curse problem they face, new shares have to be issued at a discount from secondary market prices. A strategic trader possessing private information about the security value can influence the offer price by trading in the secondary market prior to bidding in the offering. We show that, even if the strategic trader has positive ;,Graduate School of Business Administration, University of Southern California. The authors wish to thank Rene Stulz (the editor) and an anonymous referee for very helpful suggestions. The paper benefited from comments and discussions

We test the conditional capital asset pricing model (CAPM) for the world's eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity (GARCH) parameterization. Our methodology can be applied simultaneously to many assets and, at the same time, accommodate general dynamics of the conditional moments. The evidence supports most of the pricing restrictions of the model, but some of the variation in risk‐adjusted excess returns remains predictable during periods of high interest rates. Our estimates indicate that, although severe market declines are contagious, the expected gains from international diversification for a U.S. investor average 2.11 percent per year and have not significantly declined over the last two decades.

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In 2006 all ECB publications feature a motif taken from the €5 banknote. WO R K I N G PA P E R S E R I E S N O 6 8 3 / O C TO B E R 2 0 0 6This paper can be downloaded without charge from http://www.ecb.int or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=936591 C O N T E N T S Tables and figures AbstractThis study assesses the degree of financial integration for a selected number of new EU member states between themselves and with the euro zone. Within the framework of a factor model for market returns, we measure integration as the amount of variance explained by the common factor relative to the local components. We show that this measure of integration coincides with return correlation. Correlations are proxied by comovements, estimated via a regression quantile-based methodology. We find that the largest new member states, the Czech Republic, Hungary and Poland, exhibit strong comovements both between themselves and with the euro area. As for smaller countries, only Estonia and to a less extent Cyprus show increased integration both with the euro zone and the block of large economies. In the bond markets, we document an increase in integration only for the Czech Republic versus Germany and Poland. Lastly, all these countries went through these changes at a roughly similar pace.There is no unanimous definition of integration in the literature. A quite general definition relates market and economic integration to a strengthening of the financial and real linkages between economies. The empirical analyses which refer to this background are usually conducted by investigating the changes in the comovements across countries between selected financial asset returns. In this paper we follow this approach.We study integration between new EU member states and the euro zone across two different periods: the pre-convergence and the convergence periods. We employ a simple factor model for market returns which distinguishes between common and local components. The model allows us to adopt an intuitive measure of integration: the higher the amount of return variance explained by the common factor relative to the local components, the higher the degree of integration. The related economic intuition that, as trade barriers and capital controls are removed within an economic area, firms' cash flows will become more subject to common shocks. Ceteris paribus this implies an increase in comovements of firms' returns. Therefore, although we express market returns in terms of a factor model, differently from previous studies on integration we do not estimate the model itself nor its loading factors, but rather exploit its implication in terms of return comovements.Return comovements are estimated with the methodology introduced by Cappiello, Gérard and Manganelli (2005). This approach possesses, inter alia, two advantages. First, contrary to standard correlation measures, it is robust to time varying volatility and departure from normality. Second, it offers a simple and intuitive vi...