Panel unit root tests represent a significant advancement in addressing the low power of unit root tests by exploiting cross-sectional and time-series information. In this article we employ Monte Carlo techniques to quantify the power improvements due to cross-sectional information and assess test sensitivity to heterogeneous data. Pooling the data alleviates negative effects of slowly adjusting equilibrium relations as well as persistence in the forcing variable. However, if the panel contains a mixture of unit root and stationary series, the power of the test decreases substantially and the interpretation of the results becomes tenuous. The Southern Finance Association and the Southwestern Finance Association.
Fair value pricing is a critical issue for mutual funds with international market exposure because trading in the underlying foreign securities is not synchronous with US market trading. Using a sample of Japanese open‐end mutual funds that trade in the USA, this paper explores the potential for exploitation of common mutual fund pricing practices and identifies much larger pricing errors than previously reported. A simple, objective solution to the fair value pricing quandary is proposed. The solution, based on foreign exchange‐traded funds and the S&P 500, provides a timely, objective pricing alternative that is less exploitable than current mutual fund pricing practices.
If free trade is a no-brainer, why isn't trade free?" Students often express such sentiments at the conclusion of a typical international trade course, during which they have learned that free trade is optimal, but that countries continue to restrict trade substantially. This article describes a simulation of a round of trade liberalization under the auspices of the World Trade Organization (WTO). The simulation differs from others in the literature in that it represents a substantial component of the course, but it is not the course's focal point. Because the simulation has proven beneficial to students, the article attempts to provide a blueprint that will enable other professors to implement the project with minimal start-up costs.
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