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1 Rogoff (1996) PPP holds in the very long run (3-5 year mean reversion) but is useless in the short-term. Real exchange rates are highly volality despite theory predicting stability.
2 Fama (1984) High IR currencies appreciate rather than dep which is the opposite of UIP. this means carry trades are profitable which under UIP it should technically not occur.
3 Reinhart and Rogoff (2009) High government debt consistently surpasses soverign default and banking crises across history. Countries serially default which impairs growth once debt/GDP exceeds sustainable levels.
4 Calvo (1998) Current account deficits funded by short-term caputal inflows can reverse abruptly forcing devaluation and recessions. E.g Turkey 2018 which had a 40% dep in months
5 Baker, Bloom & Davis (2016) Constructed an index measuring economic policy uncertainty from news, expiring tax provisions and forecaster disagreement. High EPU measurably reduces investment and hiring, indicating political uncertainty has real econmic costs.
6 Maurco (1995) Empirically shown that higher corruption levels significantly reduce investement ratios and growth. First study which quantified corrption level as an eceonomic risk factor and not just a moral issue
7 Stulz (1999) When capital markets intergrate, investors diversify globally so only world systemtic risk is placed and not domestic risk which reduces RR and thereby reduces cost of equity.
8 Bekaert & Harvey (2000) Provided evidence that capital markets opening redcues cost of equity supporting ICAPM prediction.
9 Coffee (1999) shows cross listing is not just about capital access but also signals governance quality and credibly commits frism to higher investor production standards.
10 Toyota every 1 yen strengthening against the USD costs 35 billion yen in annual operating profit therefore manufactures globablly creating a natural hedge.
Created by: csrix
 

 



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