We use a simple model in which the expected returns in emerging markets depend on their systematic risk as measured by their beta relative to the world portfolio as well as on the level of integration in that market. The level of integration is a time-varying variable that depends on the market value of the assets that can be held by domestic investors only versus the market value of the assets that can be traded freely. Our empirical analysis for 30 emerging markets shows that there are strong e¤ects of the level of integration or segmentation on the expected returns in emerging markets. The expected returns depend both on the level of segmentation of the emerging market itself and on the regional segmentation level. We also …nd that there is signi…cant time-variation in the betas relative to the world portfolio because of the level of segmentation. For the composite index of the emerging markets we …nd an annual increase in beta of 0.09 due to decreased segmentation of the emerging markets in our sample period. In terms of expected returns the total e¤ect on the composite index translates into an average decrease of 4.5 percent per annum. As predicted by our model, the noninvestable assets are more sensitive to the local and less to the regional level of segmentation than the investable assets. These conclusions do not change when using additional control variables. We do not …nd a clear pattern between volatility and segmentation, however.

Is intergenerational risk sharing desirable and feasible in funded pension schemes? Using a multi-period OLG model, we study risk sharing between generations for a variety of realistic collective funded pension schemes, where pension benefits and contributions may depend on the funding ratio and the asset returns. We find that well-structured intergenerational risk sharing via collective schemes can be welfare-enhancing vis-à-vis the optimal individual benchmark. Moreover, from an ex ante perspective the expected welfare gain of the current entry cohort is not at the cost of the older and future cohorts.

Citation for published version (APA):de Jong, F. C. J. M. (1997). Time-series and cross section information in affine term structure models. (Discussion papers / CentER for Economic Research; Vol. 1997-86). Tilburg: Econometrics. General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. [n thís paper we provide an empirical analysis of the term structure of interest rates using the affine class of terru structure models introducrd hy nuffie and Kan. Ve estimate these models by combining time-series and cross-section information in a theoretically consistent way. In the estimation we use an exact discretization of the continuous time factor process and allow for a general measurement error structure. We provide evidence that at least two correlated factors are necessary to dcscribe the term structure. The generalized CIR specification is close to the most general two-factor affinc model and is preferred over the Vasicek model. However, there is some evidence that a two factor affine model is misspecified.

We propose a simple jump-diffusion model for an exchange rate target zone. The model captures most stylized facts from the existing target zone models while remaining analytically tractable. The model is based on a modi®ed two-limit version of the COX, INGERSOLL and ROSS (1985) model. In the model the exchange rate is kept within the band because the variance decreases as the exchange rate approaches the upper or lower limits of the band. We also consider an extension of the model with parity adjustments, which are modeled as Poisson jumps. Estimation of the model is by GMM based on conditional moments. We derive prices of currency options in our model, assuming that realignment jump risk is idiosyncratic. Throughout, we apply the theory to EMS exchange rate data. We show that, after the EMS crisis of 1993, currencies remain in an implicit target zone which is narrower than the of®cially announced target zones.