World Financial Markets Sharply Lower

The Analysis of Financial Markets Financial markets are one of the most crucial aspects of the global economy, as they provide a platform for investors to buy and sell securities, currencies, and commodities. The analysis of financial markets is a complex task that requires a deep understanding of economic and financial concepts, as well as a comprehensive knowledge of the global economic landscape. In this essay, I will discuss the importance of financial markets, the different types of financial markets, the factors that influence financial markets, and the tools used to analyze financial markets. The importance of financial markets cannot be overstated, as they play a critical role in the allocation of capital and the pricing of assets. Financial markets enable businesses and governments to raise capital by issuing securities, such as stocks and bonds, which are then bought by investors. This capital can be used to fund new projects, expand operations, or pay off debts. Financial markets also provide a platform for individuals and institutions to invest their savings, earn returns, and build wealth over time. In addition, financial markets facilitate the transfer of risk from those who are not willing to bear it to those who are willing to do so. There are several types of financial markets, each with its unique characteristics and functions. The stock market is perhaps the most well-known financial market, where companies issue shares that can be bought and sold by investors. The bond market is another important financial market, where governments and corporations issue bonds to raise capital. The foreign exchange market is a global market where currencies are bought and sold. The commodities market is where raw materials such as gold, oil, and wheat are traded. Finally, the derivatives market is where financial instruments such as options and futures are traded. Several factors influence financial markets, including economic indicators, geopolitical events, and market sentiment. Economic indicators such as GDP growth, inflation, and unemployment rates can have a significant impact on financial markets. For example, if the GDP growth rate is high, investors may be more optimistic about the future prospects of the economy and may be more willing to invest in the stock market. On the other hand, if the unemployment rate is high, investors may be more cautious and may prefer to invest in safer assets such as bonds. Geopolitical events such as wars,natural disasters, and political instability can also affect financial markets.For instance, if there is a war in the Middle East, the price of oil may increase, which could have a ripple effect on the global economy. Finally, market sentiment, which refers to the overall mood of investors, can influence financial markets. If investors are optimistic, they may be more willing to take risks and invest in riskier assets such as stocks. Conversely, if investors are pessimistic, they may prefer to invest in safer assets such as bonds. To analyze financial markets, analysts use a variety of tools such as technical analysis, fundamental analysis, and quantitative analysis. Technical analysis involves studying charts and graphs to identify patterns and trends in the market. This type of analysis is based on the belief that past market behavior can predict future market behavior. Fundamental analysis, on the other hand, involves analyzing economic and financial data to determine the intrinsic value of a security. This type of analysis is based on the belief that the market is not always efficient and that there may be opportunities to buy undervalued securities. Finally, quantitative analysis involves using mathematical models and statistical techniques to analyze financial data. This type of analysis is often used by institutional investors such as hedge funds and pension funds. In conclusion, the analysis of financial markets is a complex task that requires a deep understanding of economic and financial concepts, as well as a comprehensive knowledge of the global economic landscape. Financial markets are essential to the functioning of the global economy, as they provide a platform for investors to buy and sell securities, currencies, and commodities. There are several types of financial markets, each with its unique characteristics and functions. Several factors influence financial markets, including economic indicators, geopolitical events, and market sentiment. Finally, analysts use a variety of tools such as technical analysis, fundamental analysis, andquantitative analysis to analyze financial markets.。

贸易英语阅读文章贸易是人类进行商品和服务交易的重要方式,同时也是推动人类社会前进和经济发展的核心驱动力。

下面是店铺带来的贸易英语阅读文章，欢迎阅读!贸易英语阅读文章1欧元区经济经受住英国脱欧首轮冲击The eurozone’s slow economic recovery appears to have weathered the initial shock ofBritain’s vote to leave the EU with a closely watched survey of business activity reaching itshighest level in seven months.欧元区缓慢的经济复苏似乎经受住了英国脱欧公投的首轮冲击，一项备受关注的调查显示，欧元区商业活动达到了7个月来最高水平。

The purchasing managers’ index — which measures orders, production and deliveries to providea snapshot of corporate health — rose in August to 53.3 from 53.2 in July; a reading above 50signals economic expansion.8月份采购经理人指数(PMI)升至53.3，7月为53.2。

该指数衡量订单、生产和交货情况，提供了企业健康概况，50以上表示经济扩张。

Coupled with a rise in a separate eurozone economic sentiment indicator, published by theEuropean Commission, the data are the latest to confound expectations of a sharp drop-offfollowing the Brexit vote.同时欧盟委员会(European Commission)发布的欧元区经济信心指标也出现上升。

Chapter One Functions of Financial Markets 一．Translate the following sentences into Chinese.1.China’s banking industry is now supervised by the PBC and CBRC. In addition, the MOFis in charge of financial accounting and taxation part of banking regulation and management.目前中国银行业主要由中国人民银行和银监会进行监管。

此外，财政部负责银行业监管的财务会计及税收方面。

2.Currently Chinese fund management companies are engaged in the following business:securities investment fund, entrusted asset management, investment consultancy, management of national social security funds, enterprise pension funds and QDII businesses.目前中国的基金管理公司主要从事以下业务：证券投资基金业务、受托资产管理业务、投资咨询业务、社保基金管理业务、企业年金管理业务和合格境内机构投资者业务等。

3.China's economy had 10% growth rate in the years before the world financial crisisof 2008. That economic expansion resulted from big trade surpluses and full investment.Now China is seeking to move away from that growth model. The country is working to balance exports with demand at home.在2008年世界经济危机之前的那些年，中国经济增长速度曾达到10%。

英文financial markets定义
"Financial markets"的中文翻译是"金融市场"。

金融市场是指用于进行各种金融资产买卖和资本流动的场所或平台。

这些市场提供了不同类型金融工具的买卖和交易，使得投资者、公司和政府能够进行融资、投资和风险管理。

金融市场通常分为两大类：
1.证券市场（Securities Markets）：这包括股票市场和债券市场，其中股票市场用于股票的交易，而债券市场用于债券的买卖。

证券市场提供给公司和政府融资的途径，并为投资者提供投资和资本增值的机会。

2.货币市场（Money Markets）：这是短期借款和贷款的市场，包括短期政府债券、银行同业拆借、商业票据等。

货币市场为金融机构提供短期融资，同时也为投资者提供短期投资的选择。

金融市场的重要性体现在它们为经济提供了资金流动的渠道，促进了企业的发展和经济的增长。

金融市场的运作涉及到投资者、经济体系、金融机构和政府等多方面的参与者。

金融市场还有助于价格发现、风险分散和资本配置的有效性。

金融学专业术语中英文B 半强式效率semi-strong efficiency 指在证券价格充分反映了所有的公开信息（包括历史价格和交易情况，但不局限于此。

）半通货膨胀Semi-inflation 当经济逐渐接近充分就业时，货币供给增加所形成的过度总需求一方面使产出增加，另一方面又使价格逐渐上升。

保险合约insurance contract 是保险公司与被保险人之间签订的当某一事件发生时按约定的费率给予被保险人赔偿的合约。

本金principal 本期收益率current yield 本位币standard money 按照国家规定的金属、单位货币的名称和重量铸造的货币。

边际储蓄倾向Marginal Propensity to Save ,MPS 反映可支配收入每增加以单位时储蓄支出增加的数量。

边际消费倾向Marginal Propensity to Concume ,MPC 反映可支配收入每增加一个单位时小分支出增加的数量。

补偿性公共支出compensatory public spending 政府财政预算应于社会经济条件保持相同的步调，即政府应在萧条期间实施结构性预算赤字的政策，而在经济繁荣时，就要保持适当的盈余。

不动产信用控制real estate credit control 指中央银行对商业银行等金融机构向客户提供不动产抵押贷款的管理 措施。

C 财富效应wealth effect 财富变动对消费和储蓄倾向的影响。

财务担保guarantee 贷款人要求担保人为借款人的借款提供经济担保，当借款人无力偿还借款时，由担保人负责偿还的一种经济合同。

财务公司financial company 通过发行商业票据、股票或从银行借款获得资金，再利用这些资金对个人或企业进行小额贷款。

财政赤字论fiscal deficit theory 克鲁格曼（Krugman,1979）提出财政赤字导致货币危机的理论。

财政性通货膨胀理论fiscal inflation theory 通过财政政策来鼓励通货膨胀的理论。

The world economy will receive a significant boost from lower oil prices this year despite fears of deflation and persistently weak spending, leading economists attending the World Economic Forum told the Financial Times.Ahead of the gathering at the Swiss resort, which begins today, most economists had a more optimistic outlook than the International Monetary Fund, although they recognised that the recovery remained uneven and were less optimistic than a year ago.But there were specific worries that advanced economies had lost the ability to share the proceeds of growth more widely across their populations, which could undermine future prospects.In response to divergent prospects for the economies of the US and eurozone, the European Central Bank is tomorrow expected to unveil an ambitious programme of quantitative easing, while the US Federal Reserve is forecast to tighten monetary policy this year. However, a majority of economists, including four Nobel Prize winners, believed markets would take these potentially destabilising moves in their stride.Since crude prices began to slide last year, most economists and policy makers have expected growth to accelerate because the boost cheaper energy would give to consumption in oil-importing countries would outweigh the negative impact on oil producing nations.Yesterday, the IMF confounded some of these hopes, cutting its global growth forecasts for both 2015 and 2016 by 0.3 percentage points. The fund said deep underlying problems with the recovery would outweigh the “shot in the arm” from cheaper oil.But many of the economists attending Davos are optimistic that, despite its troubles, the global economy can overcome these difficulties.Michael Spence, economics professor at the Stern School of Business, New York University, agreed there were problems in parts of the global economy, but cheaper energy would boost economies with demand problems.“With China still growing and the US improving . . . I doubt the [oil] price decline could be attributed to a sharply negative view of the global economy,” the 2001 Nobel laureate said.Another Nobel winner, Professor Chris Pissarides from London School of Economics, was unconcerned about yesterday’s fall in China’s growth. “The slowdown was bound to happen and the Chinese are prepared for it,” he said.Ian Goldin, professor of globalisation and development at Oxford university, said: “Global prospects of aggregate growth above 3 per cent remain good by hi storical standards.” The IMF’s forecasts still predicted 3.5 per cent growth in 2015, rising to 3.7 per cent in 2016.Some economists, however, thought the boost would be modest and the bigger effect would be a redistribution of income from oil producers to consumers.“The distributional effects may come to dominate the news,” said Ricardo Hausmann, director of the Harvard Center for International Development at the Kennedy School of Government. “We may see financial disruptions triggered by overleveraged oil exporting countries and corporations that could then spread in unanticipated ways.”Meanwhile Edmund Phelps, director of the Center on Capitalism and Society at Columbia University, gave a gloomy assessment. “Europe has been imploding and Asia needs time to build a more innovative economy, so I do not expect appreciable global growth in the next couple of years,” he said. “The US may have got ahead of itself in the past year.”In general, there was confidence that markets could cope with an expected loosening of monetary policy at the ECB at the same time as the Fed prepared to raise rates for the first time since 2006.Lord Turner, former head of the UK financial regulator and now senior fellow at the Institute for New Economic Thinking, said there was “no reason why 2.5 per cent interest rates in the US and zero per cent in the eurozone would necessarily produce huge instability”.Robert Shiller, professor of Economics at Yale University, who won the Nobel Prize in 2013, said there might not be that much divergence in wider financial markets even with the two central banks moving in opposite directions. “Despite anticipation of tightening, long-term US interest rates have been declining for the past year, to really low levels,” he said.One area of widespread concern, however, was how advanced economies had found it difficult to ensure the benefits of growth were widely shared. The exception was Kenneth Rogoff, of Harvard University. “As the recovery continues in places such as the US and UK, wages should begin to strengthen notably in 2015,” he said.But other economists said rising inequality was perhaps the biggest challenge facing industrialised economies.更多英语学习方法：企业英语培训/。

Chapter One Functions of Financial Markets 一．Translate the following sentences into Chinese.1.China’s banking industry is now supervised by the PBC and CBRC. In addition, the MOFis in charge of financial accounting and taxation part of banking regulation and management.目前中国银行业主要由中国人民银行和银监会进行监管。

此外，财政部负责银行业监管的财务会计及税收方面。

2.Currently Chinese fund management companies are engaged in the following business:securities investment fund, entrusted asset management, investment consultancy, management of national social security funds, enterprise pension funds and QDII businesses.目前中国的基金管理公司主要从事以下业务：证券投资基金业务、受托资产管理业务、投资咨询业务、社保基金管理业务、企业年金管理业务和合格境内机构投资者业务等。

3.China's economy had 10% growth rate in the years before the world financial crisisof 2008. That economic expansion resulted from big trade surpluses and full investment.Now China is seeking to move away from that growth model. The country is working to balance exports with demand at home.在2008年世界经济危机之前的那些年，中国经济增长速度曾达到10%。

赣南师范大学大学英语成人高考期末考试第一节AI hate nosy (爱管闲事的) neighbors and it’s very unlucky that I had one for myself. They moved in a cou ple of months back and although I never felt that they were a strange family, My garbage cans were near their lawn. For so me strange reason, I found the wife looking through my garb age cans. I felt angry but since they were from a different cult ure, I thought that maybe it was “normal” from their ideas. That afternoon, the couple knocked on my front door. When I opened, they gave me a plastic bag. Inside were my old daily bills, credit cards and bank statements, and an old birthday c ard that my old uncle sent. They said that they were returning them to me because these documents contained very private information that may be used by others.their very own experi ence, which forced them to leave their home and move next door to us. The wife told me that she never destroyed the bill s. They also had a “nosy neighbor” who looked through the ir garbage cans which they actually thought was pretty strang e. Little did they know that this “nosy neighbor” was collecting their personal information from their rubbish. Then all the ir money was taken out from the bank by their neighbor.It was a very painful experience for all of them and they want ed to leave them all behind so they left. I was very thankful. T hey were not nosy neighbors. They simply didn’t want us to experience the same thing that they did.1.What made the author angry?A. His neighbor’s wife was looking through his rubbish.B. His neighbors were mowing their lawn one morning.C. His neighbors got too close to his own home.D. His neighbors came to knock at his door at night.2.Why did the couple come to the author’s home?A. To introduce themselves to the author.B. To get to know each other better.C. To return the documents to the author.D. To borrow some money from the author.3.The neighbors came to live next door to the author becauseA. they no longer had money to live in their former homeB. they didn’t want to live in such a noisy home as beforeC. their personal documents were used by their former neigh borD. they thought the author was much better than their former neighbor4. Which of the following can we infer from the last paragrap h?A. The author was kind and helpful to the neighbors.B. The neighbors had to move from place to place.C. The neighbors didn’t have enough money.D. The author changed his idea about his neighbors.BPeople have always been wondering about what our futu re will look like. Go on reading this text, and you will know wh at will happen in the next fifty years.How can we know what the future will look like? To be ab le to understand the future, you must know the past. What ha s taken us to where we are today and what has changed alon g the way? The world has changed a lot in the last 150 years, but we humans are driven by the same basic needs as we wer e 150 years ago. Will this change in the next 150 years? No.What inventions have really made a difference in the last 150 years? In the past years, the inventions that have affected most people around the world for everyday living are the tel ephone, electricity, radio, television, computer, the car and the ability to communicate through the Internet. Then we of co urse have a lot of inventions that have made life easier, like n ew medicine, faster transports etc. In general, human beings have been working hard in the last 150 years to make the inv entions so that they will be able to get control of the time an d the world. Since there is still much to do in this area, this wil l be the focus at least for the next 150 years.Why do we need to predict the future? Predicting the fut ure is important for two reasons: first we need to start to thin k about what kind of future we would like for ourselves and t o pass on to the next generation, and then we need to know what decisions we need to make today that will give the best result in the future.5. What does the author try to tell us in the second paragraph?A. Our basic needs will not change in the future.B. The world is quite different from what it was.C. Humans will no longer enjoy food in the future.D. The world will be completely changed tomorrow.6. Our past inventions have made .A. our daily life more stressfulB. it easy for us to liveC. our work easily doneD. us work less time7. What will humans do in order to keep the world under control?A. To produce more cars for transportation.B. To spend more time working on the Internet.C. To work much harder to achieve their goals.D. To focus on making more inventions.8. What is the main idea of the last paragraph?A. What result we’ll receive in the future.B. The two reasons of predicting the future.C. The importance of predicting the future.D. The decisions we make for our future.CPasta has become popular, for one thing, because it is ch eap pasta. It tastes good and fills your stomach. It produces enerLegend has it that Marco Polo brought pasta back to Ital y with him but this is not true. Arabs probably brought a noo dle-like dish to Sicily in the 8th century. Farmers have been gr owing wheat, the main ingredient of pasta, there for ages. The worldwide sales of pasta have risen sharply over the past decade. Italy leads the pasta-eating community of the world. The Italians are the number one consumers followed by Vene zuela and Tunisia.9. In which country do people eat pasta most?A. Mexico.B. Venezuela.C. The Philippines.D. South Africa.10. Sports people often have pasta because .A. it costs less moneyB. it can be kept longerC. it provides proper energyD. it contains no carbohydrates11. One reason why pasta is favored is that .A. it is rich in nutritionB. it smells just like breadC. people like a simple lifestyleD. Italian food stands for fashi on12. What would be the best title for the text?A. The origin of pastaB. Italians’ love for pastaC. Pasta — the world’s favorite foodD. Pasta is changing people’s way of lifeDGold has exercised power for ages. People have been loo king for gold since the beginning of mankind. Whole empires have been built on gold. The Spanish conquered all of Central and South America in order to bring gold back to their home country. Inca and Maya civilizations worshipped gold and th ought it came from the sun. Explorers traveled for thousands of miles in search of the precious metal.Gold is, once again, in demand. People want to have gold as a kind of security in unstable times. They invest in (投资于) gold instead of saving their money in banks. Many people argue that since 9/11 the world has become a more dangero us place. When in 2008 the financial markets collapsed (崩溃), the major currencies of the world became weaker. Investo rs were no longer sure how safe their money was. They boug ht more and more gold which made the price of the yellow m etal rise.One of the reasons why gold is so valuable is that it pract ically cannot be destroyed. It always stays the same and never changes. It can be recycled and afterwards be used for many things. In Iraq poor people collect gold dust and bring it back to jewellery shops to be recycled. Recycling gold is also a big business in Japan, where gold is collected from old mobile p hones and other industrial waste.The demand for the metal and increased production lead s to a number of environmental problems. A single ounce of gold produces over 30 tons of waste, more than any other m etal on earth. Poisonous substances can leak into rivers and c ontaminate the water. In Peru and Brazil wide areas of the Am azon rainforest are cut down by the illegal mining of gold.13. Spain made war on Central America .A. to expand the empireB. to defend their beliefsC. to get a precious metalD. to enslave people there14. Investors are more fond of gold because .A. its price has never gone downB. its production is becoming lessC. it can ensure the value for longD. it is the best material for jewelries15. It can be inferred from the text that .A. gold has very stable (稳定的) physical characterB. collecting gold dust is a career in JapanC. around 30 tons of gold is made each yearD. new-style mobile phones begin to use gold第二节根据短文内容，从短文后的选项中选出能填入空白处的最佳选项。

Globalization's Dual Power1. At the edge of a new century, globalization is a double-edged sword: a powerful vehicle that raises economic growth, spreads new technology and increases living standards in rich and poor countries alike, but also an immensely controversial process that assaults national sovereignty, erodes local culture and tradition and threatens economic and social instability.在新世纪即将到来之际，全球化是一把双刃剑：它不仅仅是富国和穷国促进经济增长、传播新技术、提高生活水平的一种强有力的手段，还是一个颇具争议的过程，这一过程会侵犯国家主权，侵蚀本土的文化传统，并且威胁到经济与社会稳定。

2. A daunting question of the 21st century is whether nations will control this great upheaval or whether it will come to control them.21世纪所面临的一个令人畏惧的问题是：究竟是各个国家将控制这一剧变，还是这一剧变将控制它们。

3. In some respects globalization is merely a trendy word for an old process. What we call the market is simply the joining of buyers and sellers, producers and consumers, and savers and investors. Economic history consists largely of the story of the market's expansion: from farm to town, from region to nation and from nation to nation. In the 20th century, the Depression and two world wars retarded the market's growth. But after World War II ended, it reaccelerated, driven by political pressures and better technology.在某些方面，全球化只不过是一个用来形容一种由来已久的过程的时髦词。

THE JOURNAL OF FINANCE•VOL.LX,NO.4•AUGUST2005The Limits of Financial GlobalizationREN´E M.STULZ∗ABSTRACTDespite the dramatic reduction in explicit barriers to international investment activ-ity over the last60years,the impact of financial globalization has been surprisinglylimited.I argue that country attributes are still critical to financial decision-makingbecause of“twin agency problems”that arise because rulers of sovereign states andcorporate insiders pursue their own interests at the expense of outside investors.Whenthese twin agency problems are significant,diffuse ownership is inefficient and cor-porate insiders must co-invest with other investors,retaining substantial equity.Theresulting ownership concentration limits economic growth,financial development,and the ability of a country to take advantage of financial globalization.A T THE END OF WORLD WAR II,the financial markets of most countries were closed to cross-border trade in financial assets.Since then,many countries have sharply reduced such barriers.The liberalization of trade in financial assets is often called“financial globalization.”In neoclassical models,financial globalization generates major economic ben-efits.In particular,it enables investors worldwide to share risks better,it allows capital to flow where its productivity is highest,and it provides countries an opportunity to reap the benefits of their respective comparative advantages (see Stulz(1999a),for a review).Using models in which the only friction is the existence of explicit barriers to trading in financial assets across countries,such as taxes on international trade in financial assets,economists conclude that financial globalization is beneficial because aggregate welfare is higher absent this friction.With com-plete financial globalization and perfect markets within countries,a country irrelevance proposition holds according to which asset prices,portfolios,and firm financial policies are not country dependent.The empirical evidence for the predictions of these neoclassical models is mixed.While some authors find a positive impact of financial globalization on∗Reese Chair in Banking and Monetary Economics at the Ohio State University and Research Associate at the NBER.I am grateful to Warren Bailey,Steve Buser,Henrik Cronqvist,Harry DeAngelo,Linda DeAngelo,Craig Doidge,Vihang Errunza,Mara Faccio,Rudi Fahlenbrach,Eugene Fama,Peter Henry,David Hirshleifer,Steve Kaplan,Andrew Karolyi,Ravi Kumar,Anil Makhija, John Persons,Patricia Reagan,Andrei Shleifer,Frank Warnock,Ingrid Werner,Randy Westerfield, Rohan Williamson,Ishay Yafeh,and Luigi Zingales for comments and discussions.I also thank Kuan-Hui Lee and Carrie Pan for research assistance and Sandra Sizer for editorial assistance.This is the text of my presidential address delivered to the membership of the American Finance Association in Philadelphia on January8,2005.15951596The Journal of Financegrowth(see,for instance,Bekaert,Harvey,and Lundblad(2005)),abundant evidence shows that,so far,the positive impact of financial globalization is limited.Indeed,a2003International Monetary Fund(IMF)study on the ef-fects of financial globalization on developing countries concludes that“Thus, while there is no proof in the data that financial globalization has benefited growth,there is evidence that some countries may have experienced greater consumption volatility as a result”(see Prasad et al.(2003)).Even now,a typical investor’s portfolio is heavily weighted toward stocks from his home country and a country’s investment is closely tied to the amount it saves.Although neoclassical theory predicts large capital flows toward develop-ing countries,empirically,net equity flows to these countries are negative from 1996to2004.1As Obstfeld and Taylor(2003)put it,“Capital transactions seem to be mostly a rich[country]–rich[country]affair”(p.175),with the country factor emerging as the most important factor in asset returns.A firm’s country of incorporation is a more important determinant of its financial policies than its industry.Many of these facts have become paradoxes that are explored in many papers.What I refer to here as the traditional theory of international finance explores the implications for asset prices,portfolios,and corporate finance of exogenous cross-border barriers to international investment in models in which the coun-try irrelevance proposition holds when barriers are removed(see Karolyi and Stulz(2003),for a review).This approach to international finance has proved useful in characterizing the impact on asset prices and portfolio choice of bar-riers to international investment.However,it cannot explain why countries remain relevant for finance because explicit barriers are now much lower and it does not shed much light on the nature of other,implicit,barriers.2In this paper,I outline an alternative to the neoclassical model that explains the limited impact of financial globalization,shows why the country irrelevance proposition does not hold,and provides a foundation for a new theory of inter-national finance that recognizes countries are relevant even in the absence of cross-border barriers to international investment.My model is grounded in the stylized fact of the La Porta,Lopez-de-Silanes, and Shleifer(1999)study,namely that outside the United States and the United Kingdom,firms rarely enjoy diffuse ownership but rather are typically con-trolled by large shareholders(see also Claessens,Djankov,and Lang(2000), Faccio and Lang(2002)).In my model,all investors risk expropriation by the state and outside in-vestors additionally risk expropriation by those who control firms,whom I call corporate insiders,since they are sometimes managers and at other times controlling shareholders.Efficient contracting dictates that when the risks of expropriation by corporate insiders and the state are higher,corporate insid-ers must co-invest more with other investors in equilibrium.These risks are 1Using data from the World Economic Outlook of the IMF,the sum of net equity flows to less developed countries from1996to2004is−67.4billion U.S.dollars.2This criticism applies to my dissertation,Stulz(1980).See Adler and Dumas(1983)and Karolyi and Stulz(2003)for reviews of the results of this approach for asset pricing and portfolio choice.The Limits of Financial Globalization1597 country-specific because,subject to constraints and trade-offs that depend on country characteristics,such as history,laws,location,and economic develop-ment,those who control a country’s state can establish,enforce,and break rules that affect investors’payoffs within that country.When expropriation risks are significant,it is optimal for corporate own-ership to be highly concentrated,which limits economic growth,risk-sharing, financial development,and the impact of financial globalization.In particular, both the limited resources and the risk aversion of corporate insiders decrease the extent of their co-investment response to a reduction in the cost of capital brought about by financial globalization.Thus,the impact of financial global-ization is smaller than it would be in a model without frictions.Corporate insiders appropriate private benefits,and thereby expropriate in-vestors because they maximize their own welfare rather than the welfare of outside investors.In doing so,they create what I refer to as“the agency problem of corporate insider discretion.”These private benefits can take many different forms,from excessive spending on corporate planes to outright theft.Through the rights they grant investors in corporations and the degree to which they protect these rights,states affect the cost to corporate insiders of extracting private benefits from the firms they control.When the cost of appropriating private benefits is low for corporate insiders, diffuse ownership is dominated by concentrated ownership,since co-investment by corporate insiders aligns their incentives better with minority shareholders and,therefore,reduces expropriation of these shareholders.North(1981)distinguishes between a predatory and a contracting theory of the state.With the contracting theory,the state makes it easier for private par-ties to enter mutually advantageous contracts and it enforces these contracts. How well a state performs this role depends on the country’s endowments,on its level of financial and economic development,on its institutions,and on the incentives of its rulers.3The state cannot perform this role when anarchy and disorder prevail.However,as emphasized by Djankov et al.(2004),state rulers with powers to fight anarchy and disorder can use these powers to maximize their own welfare.As they do so,they affect the payoffs of investors and corpo-rate insiders,benefiting some and hurting others.For simplicity,I use the term“expropriation by the state”to denote actions that state rulers take to improve their welfare by reducing the return on cor-porate investments.State rulers can use the powers of the state to expropriate investors by actions ranging from outright confiscation to regulations that favor the constituencies of the current rulers of the state and include redistributive taxes.The discretion of rulers to use the state for their own benefit creates an agency problem that I refer to as“the agency problem of state ruler discretion.”When this agency problem is significant,corporations with professional man-agers and atomistic shareholders are inefficient.The dispersed ownership or-ganizational form is inefficient because managers can best reduce the risks of state expropriation by taking actions that both increase their discretion and 3See Fukuyama(2004)for a discussion of the obstacles states face in performing various func-tions and of the difficulties involved in surmounting these obstacles.1598The Journal of Financealso make it harder to monitor their actions.In this case,managers become entrenched and can more easily take advantage of atomistic shareholders.In contrast,controlling shareholders who are also managers have weaker incentives to consume private benefits than do professional managers,but they have far greater incentives to take actions that decrease expropriation by the state.Therefore,ownership concentration increases as the importance of the state ruler agency problem increases.As the twin agency problems—those associated with corporate insiders and state rulers—worsen,greater ownership concentration becomes more efficient and corporate insiders must co-invest more with other investors.The risk-sharing benefit of financial globalization is inversely related to how much co-investment occurs in equilibrium because when corporate insiders co-invest, their portfolios are overweighted in the equity of their firm.Strikingly,eliminating a country’s barriers to international investment can lower investment and economic growth because of the capital flight that takes place when the twin agency problems are severe.However,my analysis shows that the neoclassical model ignores a crucial ben-efit of financial globalization:financial globalization will lead to a reduction in the importance of the twin agency problems over time.In particular,by open-ing borders,financial globalization provides means and incentives for corporate insiders to protect the rights of their minority investors more through better corporate governance.Further,open borders shackle the“grabbing hand,”to use the felicitous expression of Shleifer and Vishny(1999).This paper proceeds as follows.In Section I,I assess the extent of finan-cial globalization.In Section II,I discuss the limits of financial globalization and possible explanations.In Section III,I present a one-period model of an all-equity firm in which corporate insiders and state rulers can expropriate in-vestors.In Section IV,I examine the determinants of state ruler agency costs and their implications for my model of the all-equity firm.In Section V,I show that the twin agency problems affect corporate ownership concentration and explore how the two agency problems interact.In Sections VI and VII,I demon-strate how these agency problems help explain the limits of financial globaliza-tion.I focus first on well-known international finance puzzles and then turn to corporate finance.I explain how financial globalization helps reduce the twin agency problems in Section VIII.Section IX concludes.I.The Extent of Financial GlobalizationIf financial globalization means a reduction in formal barriers to trade in financial assets,then the process has been dramatic.Many authors attempt to construct indices to quantify the extent of formal barriers to trade in financial assets and how these barriers evolve over time.Eichengreen(2001)discusses many of these indices and their limitations.Here,I use three of these indices to document this process of financial globalization.Since1950,the IMF has published yearly information on restrictions on fi-nancial transactions.Quinn(1997)carefully codes this information to constructThe Limits of Financial Globalization1599 an index of openness,where the index takes a value of12for a country that is completely open and a value of zero for a country that is completely closed. Quinn’s index shows that the United States is completely open except during a brief period.However,the United States is an exception.For instance,for the United Kingdom,the index was3.5in1950and rose to12only in1979.In1997, the last year for which the index is available for a large number of countries, only a handful of countries that are not among the developed countries were fully open.For a constant sample of developed countries,the average index increases from4.16in1950to11.6in1999.For a constant sample of68developing countries,the index is5.6in1973,reaching8.34in1997.On average,developing countries in1997have the same degree of openness as the developed countries in the late1970s,but there is more variance in the index among developing countries in1997than there was among developed countries in the late1970s. Kaminsky and Schmuckler(2002)provide another index,which measures the liberalization of equity investment,the financial sector,and the capital ac-count.For each component,the index identifies three regimes:fully liberalized, partially liberalized,and repressed.In the index,a value of1indicates that a sector is repressed and a value of3indicates that it is fully liberalized.The openness index is the average of the three sector indexes.Kaminsky and Schmuckler compute the index for28countries and include both the highly developed and the less developed countries.In1973,the first year for which the index is available,the cross-country average was1.43.No country was fully liberalized at the start of the index.By October2002,the average was2.82.Only three of the28countries were not fully liberalized, namely,Argentina,Malaysia,and the Philippines.A third index,constructed by Edison and Warnock(2003),shows the fraction of a country’s equity capitalization represented by shares that foreign investors are not allowed to acquire.This measure exists only for less developed coun-tries.The index starts in1989,when only33%of the market capitalization was available to foreign investors for the14countries for which the authors report data.By2000,this fraction,computed across28countries,had risen to76%. Instead of measuring barriers to international trade in financial assets to gauge the extent of financial globalization,I assess the extent to which trade takes place.I do this in two different ways.First,updating the data from Obstfeld and Taylor(2003),in Figure1I plot the foreign assets held by in-vestors in countries for which continuous data are available as a fraction of GDP.4Figure1shows a dramatic increase in foreign assets to GDP since1945 that has accelerated in recent years.Second,Figure2plots gross cross-border trading by foreign investors in the United States.The figure shows the sum of transactions in long-term securities (stocks and bonds)in the United States between foreign investors and resi-dents from1977to2003.Over that period,the ratio of these transactions to GDP 4I use the data from Obstfeld and Taylor(2003)from1870to1995.The data for2002is obtained from the International Financial Statistics.1600The Journal of Finance0.00.10.20.30.40.50.60.70.80.91.0187019001914193019381945196019801985199019952002F o r e i g n a s s e t s /G D PFigure 1.Foreign assets relative to GDP .The figure uses the data from Obstfeld and Taylor (2003).The GDP figure is the sum of the GDPs of the countries for which there are data on foreign assets.0.00.51.01.52.02.53.03.54.019771979198119831985198719891991199319951997199920012003G r o s s f l o w s / G D PFigure 2.Gross cross-border flows to GDP .The figure uses U.S.Treasury International Capital System (TIC)data reported by the U.S.Treasury for gross purchases and gross sales of securities between foreign investors and U.S.residents.The aggregate trading activity is the sum of purchases and sales.The Limits of Financial Globalization1601 increased from5.76%to344.18%,or by a factor of60.In contrast,the ratio of the dollar volume on the NYSE to GDP grew from7.4%to88.2%,or by a factor of12.5The increase in cross-border gross flows is consistent with a substantial reduction in barriers to trade in securities across countries.6II.The Limits of GlobalizationWith such a dramatic increase in cross-border securities trading and the disappearance of many formal barriers to international investment,we would expect countries,per se,to matter little in finance.However,this is not the case:countries remain very important.The empirical evidence shows that they matter for portfolio choice,savings and investment,stock returns,and the size of the stock market.Portfolio choice:The fact that investors overweight domestic securities in their portfolios has been puzzling researchers for at least30years(for reviews of the evidence,see Lewis(1999),Karolyi and Stulz(2003)).While this home bias has decreased over time,it still remains large.I use the home-bias measure of Ahearne,Griever,and Warnock(2004).This measure is one minus the ratio of the portfolio share of foreign equity for investors in a country and the portfolio share of the equity of that country in the world market portfolio.If investors hold the world market portfolio and there is no home bias,the measure is zero. Figure3shows how the home-bias measure has evolved over time for the United States.7In2001,the portfolio share of foreign equities of U.S.investors was22%of what it would have been had these investors held the world market portfolio;thus the home-bias measure was78%.(The measure averaged63%in 2001for a sample of18developed countries;see Sorensen et al.(2004).)Figure3 also shows that the portfolio share of foreign stocks for U.S.investors was trivial before increasing sharply in the early1990s,after which it stagnated.It has increased again in recent years.Savings and investment:Feldstein and Horioka(1980)show that savings and investment levels were very close for most countries.This finding came to be known as the Feldstein–Horioka puzzle.As investors diversify internationally, a country’s savings,which depends on income and wealth,and a country’s in-vestment,which depends on growth opportunities,should become less closely related to each other.Since Feldstein and Horioka,this expected evolution has happened to some extent,but recent studies mostly conclude that the puzzle is still strong.For instance,Aizenman,Pinto,and Radziwill(2004)show that across developing countries,the fraction of investment financed by local savings did not change in the1990s.A related puzzle is the Lucas paradox.Lucas(1990)points out that if pro-duction functions are the same across countries,then neoclassical models im-ply that the productivity of capital must be very high in developing countries, 5NYSE Factbook,different years.6Tesar and Werner(1995)were the first to show that foreign investors have a high turnover.7I am grateful to Frank Warnock for providing me with these data.1602The Journal ofFinance0.00.10.20.30.40.50.60.70.80.91.0S e p -77S e p -78S e p -79S e p -80S e p -81S e p -82S e p -83S e p -84S e p -85S e p -86S e p -87S e p -88S e p -89S e p -90S e p -91S e p -92S e p -93S e p -94S e p -95S e p -96S e p -97S e p -98S e p -99S e p -00S e p -01S e p -02S e p -03R a t i oFigure 3.The home bias for U.S.investors.This figure shows the home-bias measure for U.S.investors and the ratio of foreign stocks in the portfolios of U.S.investors.The home-bias measure,introduced by Ahearne et al.(2004),is one minus the ratio of the portfolio share of foreign stocks in U.S.portfolios divided by the portfolio share of foreign stocks in the world market portfolio.If there were no home bias and investors held the world market portfolio,the home-bias measure would equal zero.since wages are very low in these ing these models,we might predict large capital flows toward these countries.However,such flows do not take place.Strikingly ,in 2000,developed countries’investment per capita was US$6,000,whereas in developing countries,investment per capita was only US$400(see Wolf (2004),pp.114–115).Consumption :In a fully integrated world,investors would share consumption risks across countries.As a result,the consumption growth of investors who have the same preferences for goods and who face the same relative prices would be perfectly correlated,regardless of where these investors are located (see Stulz (1981),for an early derivation of these conditions).Backus,Kehoe,and Kydland (1992)are the first to show that consumption growth rates are even less correlated internationally than are output growth rates.Obstfeld (1994)finds that consumption risk-sharing has increased over ing more recent data,however,Sorensen et al.(2004)find that,while income risk-sharing has increased over time,consumption risk-sharing has not.Stock returns :Over the last 10years or so,there has been much debate in fi-nance as to whether countries matter more or less than industries for stock returns.For a period of time,it even looked like industries might matterThe Limits of Financial Globalization1603 more than countries(see Cavaglia,Brightman,and Aked(2000)).However, researchers quickly discovered that this impression was due to the high cor-relation of internet and telecom stocks across countries in the late1990s(see Brooks and Del Negro(2002)).At present,country factors are important for stock returns among developed countries and even more so among less devel-oped countries.Size of stock market:The ratio of stock market capitalization to GDP varies widely across countries.This ratio is typically viewed as a measure of financial development.All these empirical facts are related and can be explained in one of three ways.First,it could be argued that even though many formal barriers to in-ternational finance trade have been removed,many obstacles to international investment remain.There is some truth to this explanation.For instance,as Ammer et al.(2004)show,increasing the accessibility of foreign shares through ADR programs can have a very significant impact on American investors’own-ership of these shares.However,this explanation can only go so far,given the spectacular increase in gross flows.Second,the simple neoclassical model’s predictions could be inappropriate because the model ignores important individual characteristics.For instance, individuals might tilt their portfolios toward domestic assets because of behav-ioral biases.(See Bailey,Kumar,and Ng(2004),Graham,Harvey,and Huang (2004),for recent analyses of behavioral biases that may worsen the home bias.) Third,market imperfections could make neoclassical models inappropriate for predicting the impact of financial globalization.A well-known explanation for some of the puzzles I discuss above that relies on a goods market imperfection is the work of Obstfeld and Rogoff(2001).Their explanation relies on the fact that investors who live in different countries face different relative prices because of transportation costs.Such explanations are based on the role of distance,since transportation costs increase with distance. Unfortunately,the role of distance cannot explain why borders and sovereign states are so important for corporate finance.More generally,transportation costs or behavioral explanations cannot ex-plain why borders are important for corporate ownership,firm size,capital structure,and governance.Corporate ownership:The composition of firm ownership varies systemati-cally across Porta et al.(1999)find that,except in countries with good investor protection,few firms are widely held.Typically,most firms have a family as a controlling shareholder.In countries that protect shareholder rights well,they find that47.92%of firms are widely held,in that no share-holder holds more than20%of the ing that criterion(p.494),these authors find that in countries with poor shareholder rights,only12.67%of the firms are widely held.Figure4reports the distribution of insider ownership across countries for 48countries in2002.For each country,I use data reported on Worldscope to compute the percentage of market capitalization held by corporate insiders as well as the average of the percentage of firm equity capitalization held by corporate insiders.These data have important limitations,since the reporting1604The Journal ofFinance102030405060708090100T a i w a C a n a d I r e l a n U K o r e U S S w e d e V e n e z u e l a A u s t r a l i a F i n l a n N e t h e r l a n d N o r w a J a p a S w i t z e r l a n S r i L a n k a D e n m a r M a l a y s i I t a l Z i m b a b w N e w Z e a l a n S p a i I n d i S o u t h A f r i c a L u x e m b o u r J o r d a B e l g i u m A r g e n t i n a P a k i s t a n H o n g K o n T h a i l a n S i n g a p o r G r e e c C h i n a I s r a e l H u n g a r T u r k e y F r a n c A u s t r i a P o l a n P o r t u g a B r a z i l G e r m a n I n d o n e s i C h i l e P e r u P h i l i p p i n e M e x i c C z e c h R e E W A v e r a g e o f C l o s e l y -H e l d S h a r e s (%)102030405060708090100I r e l a n d U U S N e t h e r l a n d s A u s t r a l i a S w i t z e r l a n d C a n a d a K o r e a T a i w a n F i n l a n d S w e d e n S r i L a n k a V e n e z u e l a F r a n c e N o r w a y J a p a n P o r t u g a l I t a l y H u n g a r y I s r a e l D e n m a r k S o u t h A f r i c a Z i m b a b w B e l g i u m G e r m a n y B r a z i l A r g e n t i n a S p a i n N e w Z e a l a n d L u x e m b o u r g M a l a y s i a T h a i l a n d I n d i a S i n g a p o r e G r e e c e A u s t r i a P h i l i p p i n e s H o n g K o n g C h i l e T u r k e y I n d o n e s i a P o l a n d J o r d a n C h i n a P a k i s t a n C z e c h R e p M e x i c o P e r uV W A v e r a g e o f C l o s e l y -H e l d S h a r e s (%)Figure 4.The distribution of corporate ownership.The figure shows the equally weighted (EW)average percentage and the value-weighted (VW)average percentage of shares held by cor-porate insiders across countries in 2002,where shares held by corporate insiders are proxied by the block holdings reported by Worldscope.requirements and accuracy of firm disclosures vary widely across countries. Further,insider ownership consists of the sum of blocks of shares owned,which may include blocks unrelated to the controlling shareholders.Nevertheless,us-ing these data,it is clear that most countries have substantial insider owner-ship.Not surprisingly,the United Kingdom and the United States are at the extreme left-hand tail of the ownership distribution.Though the fraction of market capitalization held by insiders in the United States in2002is15.68%, the median for the sample of48countries is50.78%.Firm size:Kumar,Rajan,and Zingales(2001)find that firm size differs sys-tematically across countries.They examine15European countries and conclude that firms are larger in countries in which the judicial system is more efficient. Capital structure:Studies that find that country factors help explain capital structures include Booth et al.(2001).These authors examine10emerging mar-ket countries and conclude that country factors are more important in explain-ing capital structures in these countries than are the traditional firm-specific variables.Focusing on developed countries,however,Rajan and Zingales(1995) show that the qualitative relations between firm-specific variables and capital structure are often the same across the G-7countries.Fan,Titman,and Twite(2003)consider a sample of39developed and devel-oping countries.They find that“a corporation’s capital structure is determined more by the country in which it is located than by its industry affiliation.”They also conclude that“countries that are more corrupt tend to be more levered and use more short-term debt.”Governance:Countries explain an extremely large fraction of the variation of governance indexes across firms.Dyck and Zingales(2004)and Nenova(2003) show that control premia vary systematically across countries.Further,Doidge, Karolyi,and Stulz(2004b)find that country characteristics explain more than 70%of the variation in the S&P Governance rankings.III.Investor Protection,Government Expropriation,and Co-investmentSince formal barriers to asset trade cannot explain why corporate finance differs across countries,some other friction must explain why the country irrel-evance proposition fails to hold.This friction is the existence of country-specific contracting costs which in turn lead to differences in the importance of the twin agency problems across countries.I now present a model that I use to analyze the implications of the twin agency problems for the impact of financial globalization.My model builds on recent studies that emphasize the relation between investor protection and the extraction of private benefits by corporate insiders.8However,my model differs from this literature in three important ways.First,it considers the possibility of state expropriation.Second,it takes into account risk,which is generally 8See Johnson et al.(2000),Lombardo and Pagano(2002),La Porta et al.(2002),Durnev and Kim(2005),Shleifer and Wolfenzon(2002),and Doidge et al.(2004a,2004b).。