Abstract: How does the development of the financial sector affect industrial growth? What effect does it have on the composition of industry, and the size distribution of firms? What is the relative importance of financial institutions and financial markets, and does it depend on the stage of economic growth? How do financial systems differ in their vulnerability to crisis? This paper attempts to provide an answer to these questions based on the current state of empirical research. Copyright 2001, Oxford University Press.

Abstract: Market Models provides an authoritative and up–to–date treatment of the use of market data to develop models for financial analysis. Written by a leading figure in the field of financial data analysis, this book is the first of its kind to address the vital techniques required for model selection and development. Model developers are faced with many decisions, about the pricing, the data, the statistical methodology and the calibration and testing of the model prior to implementation. It is important to make the right choices and Carol Alexander′s clear exposition provides valuable insights at every stage. In each of the 13 Chapters, Market Models presents real world illustrations to motivate theoretical developments. The accompanying CD contains spreadsheets with data and programs; this enables you to implement and adapt many of the examples. The pricing of options using normal mixture density functions to model returns; the use of Monte Carlo simulation to calculate the VaR of an options portfolio; modifying the covariance VaR to allow for fat–tailed PL the calculation of implied, EWMA and ′historic′ volatilities; GARCH volatility term structure forecasting; principal components analysis; and many more are all included. Carol Alexander brings many new insights to the pricing and hedging of options with her understanding of volatility and correlation, and the uncertainty which surrounds these key determinants of option portfolio risk. Modelling the market risk of portfolios is covered where the main focus is on a linear algebraic approach; the covariance matrix and principal component analysis are developed as key tools for the analysis of financial systems. The traditional time series econometric approach is also explained with coverage ranging from the application cointegration to long–short equity hedge funds, to high–frequency data prediction using neural networks and nearest neighbour algorithms. Throughout this text the emphasis is on understanding concepts and implementing solutions. It has been designed to be accessible to a very wide audience: the coverage is comprehensive and complete and the technical appendix makes the book largely self–contained. Market Models: A Guide to Financial Data Analysis is the ideal reference for all those involved in market risk measurement, quantitative trading and investment analysis.

Abstract: This paper offers a whole range of areas in which the latest work on psychology, social psychology and behavioral finance could offer competitive advantage both to financial markets as well as individual firms. The aim is to identify potential applications of experimental and organizational psychology to improve the efficiency of financial institutions. The focus is on two major areas of application: trading and dealing in currencies, and investment decision-making. The paper reviews the seven deadly sins in individual decision-making showing how the financial decision-maker may fall prey to them. It also suggests how this knowledge can be put to use in improving efficiency in financial strategy, marketing, and human resource management (selection, training, decision-aiding, and control). The paper concludes by identifying important questions for the financial markets to consider if they are serious about improving managerial practices.

Abstract: What is a Financial System? The purpose of a financial system is to channel funds from agents with surpluses to agents with deficits. In the traditional literature there have been two approaches to analyzing this process. The first is to consider how agents interact through financial markets. The second looks at the operation of financial intermediaries such as banks and insurance companies. Fifty years ago, the financial system could be neatly bifurcated in this way. Rich households and large firms used the equity and bond markets, while less wealthy households and medium and small firms used banks, insurance companies and other financial institutions. Table 1, for example, shows the ownership of corporate equities in 1950. Households owned over 90 percent. By 2000 it can be seen that the situation had changed dramatically. By then households held less than 40 percent, nonbank intermediaries, primarily pension funds and mutual funds, held over 40 percent. This change illustrates why it is no longer possible to consider the role of financial markets and financial institutions separately. Rather than intermediating directly between households and firms, financial institutions have increasingly come to intermediate between households and markets, on the one hand, and between firms and markets, on the other. This makes it necessary to consider the financial system as an irreducible whole. The notion that a financial system transfers resources between households and firms is, of course, a simplification. Governments usually play a significant role in the financial system. They are major borrowers, particularly during times of war, recession, or when large infrastructure projects are being undertaken. They sometimes also have significant amounts of funds. For example, when countries such as Norway and many Middle Eastern States have access to large amounts of natural resources (oil), the government may acquire large trust funds on behalf of the population. In addition to their roles as borrowers or savers, governments usually play a number of other important roles. Central banks typically issue fiat money and are extensively involved in the payments system. Financial systems with unregulated markets and intermediaries, such as the US in the late nineteenth century, often experience financial crises (Gorton (1988) and Calomiris and Gorton (1991)). The desire to eliminate these crises led many governments to intervene in a significant way in the financial system. Central banks or some other regulatory authority are charged with regulating the banking system and other intermediaries, such as insurance companies. So in most countries governments play an important role in the operation of financial systems. This intervention means that the political system, which determines the government and its policies, is also relevant for the financial system. There are some historical instances where financial markets and institutions have operated in the absence of a well-defined legal system, relying instead on reputation and other implicit mechanisms. However, in most financial systems the law plays an important role. It determines what kinds of contacts are feasible, what kinds of governance mechanisms can be used for corporations, the restrictions that can be placed on securities and so forth. Hence, the legal system is an important component of a financial system. A financial system is much more than all of this, however. An important pre-requisite of the ability to write contracts and enforce rights of various kinds is a system of accounting. In addition to allowing contracts to be written, an accounting system allows investors to value a company more easily and to assess how much it would be prudent to lend to it. Accounting information is only one type of information (albeit the most important) required by financial systems. The incentives to generate and disseminate information are crucial features of a financial system. Without significant amounts of human capital it will not be possible for any of these components of a financial system to operate effectively. Well-trained lawyers, accountants and financial professionals such as bankers are crucial for an effective financial system, as the experience of Eastern Europe demonstrates. The literature on comparative financial systems is at an early stage. Our survey builds on previous overviews by Allen (1993), Allen and Gale (1995) and Thakor (1996). These overviews have focused on two sets of issues. Normative: How effective are different types of financial systems at various functions? Positive: What drives the evolution of the financial system? The first set of issues of considered in sections 2-6, which focus on issues of investment and saving, growth, risk sharing, information provision and corporate governance, respectively. Section 7 considers the influence of law and politics on the financial system while Section 8 looks at the role financial crises have had in shaping the financial system. Section 9 contains concluding remarks.

Abstract: This article provides evidence consistent with recent policy proposals calling for a greater role for market forces in promoting a safe and sound financial system. The authors' empirical results indicate a measure of expected default probability distilled from equity prices helps predict the financial condition of individual banking organizations, as reflected in their supervisory ratings. Moreover, the stock market data have predictive power over and above the information in the quarterly financial statements available to supervisors between inspections. These findings suggest financial markets can provide useful information to supplement supervisory assessments, particularly between inspections, and point to the value of additional research to further clarify the information content of market prices and quantities.

Abstract: An issuer models financial instruments (e.g., proposed securities) with initial financial parameters to facilitate defining a financial instrument with final financial parameters for actual issuance in the primary offering. The issuer models the initial financial parameter data associated with a corresponding proposed financial instrument based on at least market data relevant to the issuance of the proposed financial instrument. The initial financial parameter data is communicated between an issuer and an underwriter in a posting document via a communications network. The issuer and the underwriter collaborate via electronic communications to determine the final financial parameters of a financial instrument to be issued in the primary offering based on the initial parameter data and an agreement between the issuer and the underwriter.

Abstract: Theories about trading in financial markets are well developed and practically influential. However, traders’ behaviour within these markets appears to deviate substantially from that predicted by theory. Using data from a study of traders within financial markets in London, this article seeks to document this apparent paradox and assess its implications. General theories about how the financial world works are distinct from, but compatible with, more instrumental behavioural rules about how to work in the financial world. The latter may be seen as internally consistent recipes for action which require concurrent belief in both the validity of the general theories - for example about the relationship between risk and return - and in the ability of individual agency to secure outcomes which, in terms of the general theory, have low probability.

Abstract: Methods and system for allowing a user, through a computer in telecommunication link with a system having access to financial and market data, to predict the performance of a financial vehicle and thereby provide training for trading options or evaluating predictions are provided. One method includes providing a user interface, via the computer, which allows the user to specify a financial vehicle; displaying, via the user interface, historical performance data for the financial vehicle specified by the user; displaying, via the user interface, projected performance data for the financial vehicle; receiving from the user, via the user interface, performance prediction for the financial vehicle for a time period; receiving from the user, via the user interface, amount of money to leverage relating to the performance prediction for the financial vehicle for the time period; storing the performance prediction for the financial vehicle and the amount of money leveraged; calculating payoff amount based on the performance prediction for the financial vehicle and the amount of money leveraged; and displaying, via the user interface, the calculated payoff amount.

Abstract: In accordance with the present invention, there is provided a method of communicating trade orders in a marketplace for financial instruments through an on-line trading account with a financial institution. The method includes receiving trade trigger criteria and market data for use by market analysis software. The method further includes accessing the market analysis software to generate a trade decision using the trade trigger criteria and the market data. The method further includes automatically communicating a trade order, based upon the trade decision, to the marketplace via the on-line trading account.

Abstract: The adoption of electronic trading systems has transformed the economic landscape of trading venues and is proving a force for change in market architecture and consequential trading possibilities. The term “electronic trading” is used in many ways. In this paper, it refers mainly to trading in wholesale financial markets (as opposed to e-commerce more generally see, for example, Long (2000) for a survey of the latter) and focuses on the central feature of electronic trading systems, automation of trade execution. Such systems usually also feature electronic order routing and dissemination of trade information and may link through to clearing and settlement. Electronic trading both removes geographical restraints and allows continuous multilateral interaction (whereas telephone trading allows only the former and floor trading only the latter). It allows much higher volumes of trades to be handled, and in customised ways that until recently would have been technically impossible or prohibitively expensive. This paper considers areas where these enabling effects have been particularly important in wholesale financial markets and how they raise wider, policy implications.

Abstract: Systems and methods are disclosed for providing financials products to customers. Preferably, a financial product is provided to a customer in association with one or more other financial products. The financial products may correspond to different product categories and may be particularly adapted or suited according to a customer's financial needs. In addition, different product combinations may be offered to customers. For example, a financial product for investing or generating income (such as a savings account, a money market account or a CD account) may be provided in association with a financial product for conducting financial transactions (such as a loan, a mortgage or a credit card account). Additionally, one financial product may be used as security for another financial product of the customer. The financial products may also be structured to maximize the total return and/or utility received by the customer.

Abstract: A method and system for providing a financial analysis for enhanced wireless communication services provides a financial analysis for a service provider or another user interested in the provision of enhanced wireless communications services. The method includes accepting user input related to an existing wireless communications service and a proposed enhanced wireless communications service. A reference database is accessed for reference to general market data related to the proposed enhanced wireless communication service and a standard adoption curve for adoption of the enhanced wireless communication service. The standard adoption curve is adjusted to obtain an adjusted adoption curve based on the accepted user-specific input. A graphical depiction of a financial analysis is presented to the user based on an evaluation of the adjusted adoption curve and the general market data.

Abstract: This paper assesses the extent to which stock market information may help bank regulators identify bank financial distress. The research specifies a variety of stock return and other market-related variables that might contain elements of longer-term trends and be capable of anticipating changes in regulatory ratings of commercial banks and thrift institutions. Univariate tests confirm a remarkable tendency for market-related variables to decline, or otherwise move, far in advance of formal regulatory rating downgrades, a finding suggesting that these variables may have useful predictive content. Furthermore, multivariate tests support the notion that market-related variables add predictive value to the value contained in publicly available Call Report financial data. The evidence supports the use of market-related variables in off-site monitoring applications.

Abstract: The editor asked to me write a short paper for the inaugural issue of the journal. I thought that it would be most fitting to write on the truly fundamental transformation of financial markets brought by the most important network of the last fifty years, the Internet. Technology always had an impact on financial markets. Often, as in the case of the telegraph, it was the use of new technology in the financial realm that necessitated the installation of the new network. Moreover, frequently, the introduction of new technology had tremendous and sometimes unexpected effects on the structure of financial markets. For example, many historians explain the eventual primacy of the New York Stock Exchange over the Philadelphia Stock Exchange on the liquidity New York attracted from orders collected over the telegraph. In the absence of the telegraph, both exchanges could survive as equals. But once the telegraph was installed, it led to the supremacy of one of the two. In another example, in recent years, another technological change, the availability of mathematical formulas for the pricing of options, spurred the mushrooming of the derivatives markets. Thus, a new global network is expected to have an impact on financial markets. In fact, the Internet, now in its eighth year as a commercial network, already has had an impact, and is expected to have a truly transforming influence on financial markets as it matures.

Abstract: This article focuses on financial 'model risk' supervision as a test case for a reflexive approach to the sociology of contemporary financial markets. Model risk is customarily defined as a statistically significant relation between the expectation of a trading loss by a firm and its strategic use of, somehow flawed, econometric models for asset pricing and market trading purposes. It made its first public appearance in the mid-1990s, as a component of a new generation of financial risk management systems for the financial derivatives industry. Since then it has been assimilated by the most sophisticated national and international financial regulatory bodies. A perfect illustration of the thesis of the progressive 'embedding of the economy into economics', the forensic practice of financial reliability trials (backtesting) faces a deep pragmatic dilemma: how to distinguish truly unpredictable error from negligent risk management behaviour in a wildly randomized social environment.

Abstract: This paper investigates the effects of the continuation of globalization and technological developments on the future of national-level financial markets and trading centres, particularly in smaller countries such as Canada. We foresee the development of a single global market in the most-liquid assets based on equity-market linkages.

Abstract: This paper constructs a model for the evolution of a risky security that is consistent with a set of observed call option prices. It explicitly treats the fact that only a discrete data set can be observed in practice. The framework is general and allows for state dependent volatility and jumps. The theoretical properties are studied. An easy procedure to check for arbitrage opportunities in market data is proven and then used to ensure the feasibility of our approach. The implementation is discussed: testing on market data reveals a U-shaped form for the "local volatility" depending on the state and surprisingly, a large probability for strong price movements.

Abstract: 647 Please send product news information and images to Kate Maynard at the BDJ, Nature Publishing Group, The Macmillan Building, 4–6 Crinan Street, London, N1 9XW. Product news is provided as a service to readers using text and images from the manufacturer, supplier or distributor and does not imply endorsement by the BDJ. Normal and prudent research should be exercised before purchase or use of any product mentioned. RO D U C T N EW S New products and focus on oral health and profitable practice

Abstract: In an on-line financial screening service, a database of financial and intellectual property information is searched to find at least one financial security matching user defined financial search criteria. Selection preferences for a financial security are defined as search criteria. The financial search criteria includes but is not limited to the following: Stock Price, Price/Earnings Ratio, Current Ratio, Debt/Equity Ratio, Cash/Price ratio, Earnings per Share Growth-1 Yr, Earnings per Share Growth-5 Yr, Insider Trades, Institutional Holdings %, Price/Book Ratio, Price/Cash Flow Ratio. The databases are repeatedly searched for records matching the financial selection criteria preferences of the user. Financial securities meeting the users search criteria are then matched to an intellectual property database to determine the number of patents a financial security has been issued.

Abstract: We investigate how the relative contribution of external factors to stock price movements varies with the degree of financial development. We find that financial development makes stock markets more susceptible to external influences (both financial and macroeconomic). Interestingly, this effect is present even after having accounted for capital controls and international trade effects.

Abstract: Information is the lifeblood of most market economies. Nevertheless, attempts to jump start information flow by creating Market Information Services for food and agriculture usually fail. The author distills experiences and lessons from other studies and individual experts in the field on the reasons for such common failures and what can be done to avoid them. Critical topics such as institutional structure, dissemination methods, and funding are outlined to guide the reader through the basic issues that must be addressed in order to create a successful Market Information Service.

Abstract: This paper proposes a model of international financial crises that is based on the statistical mechanics. In our model the international stock market is composed of two groups of traders mutually influencing each other with respect to their decision behavior, and financial contagion between markets occurs as a result of attempts by traders in the domestic market to imitate the behavior of traders who participate into exchange in a foreign market. This provides a channel through which a crisis in one market such as contemporaneous stock market crashes can be transmitted to other markets. We show that the model can explain the stylized facts characterizing periods of recent international financial crises.

Abstract: A system for automated trading of U.S. Treasury, Liquid Agency, and Zero Coupon STRIP financial instruments comprises an update system database; an updatable offering inventory database which receives real time price and quantity information pertaining to each financial instrument from a market data feed; and a system proprietor operative to determine a national best bid and offer price and a derived price for each financial instrument in the offering inventory. The system proprietor applies a price improvement process to a trade in the event that an offsetting trade occurs, and updates the system database and offering inventory to reflect transactions executed by the system. Advantageously, the system provides users with a mechanism to provide the best price at the time of execution. Historical data is utilized to (i) price securities that are spread off a benchmark where an active quote for a particular security is unavailable, and (ii) retrieve prices for future analysis. The global fixed income market is thereby provided with a system that can sustain long term industry needs and readily adapt to a changing environment.

Abstract: media add to the message is nothing but noise, which, in an ideal world, could be eliminated resulting in perfect transmission. The classic formulation of such a ’transportation theory’ of communication was developed by Claude Shannon and Warren Weaver.3 However, a different approach to communication media, one that could be called a ’transformation theory’, has also been developed, most prominently by Marshall McLuhan. One of his central but most misunderstood

Abstract: This paper investigates banking and capital market developments in Europe and the moves towards the creation of a single financial services market. A critical element in the integration process is the success of the EU's Financial Services Action Plan (FSAP). This seeks to introduce a wide range of legislation aimed at reducing barriers and promoting cross-border trade in financial services especially for capital markets and retail / SME financial service areas. As was the case in 1992, it is likely that the expectation of further financial market integration will encourage market participants to adjust their strategies in the light of these developments. Or to put it another way, many banks are likely to accelerate their plans to sell financial products cross-border given the changing environment. Stock and derivative markets will be encouraged to consolidate and investment and pension funds in the Euro zone will increasingly embrace the equity market culture and so on. Regulatory standards in the financial sector will move in line with international best practise and further harmonisation will take place. The challenge for the financial services industry is to reorganise and adapt to this new environment. Targeting a successful pan-European strategy post-2005 (the deadline for the FSAP) will be of critical importance for financial services firms in general.

Abstract: The paper provides new insights into the role of financial liberalization in the South Korean financial crisis using a number of novel approaches. Firstly, primary information regarding the relaxation of financial restraints, such as interest rate ceilings, capital controls and reserve requirements, is collected and summarised. Secondly, this information is used to construct summary measures of financial liberalization. Thirdly, qualitative information on the role of financial liberalization in the financial crisis is presented from a new survey of 44 IMF, World Bank and Korean officials who had direct exposure to the events surrounding the financial crisis. Fourthly, the effects of financial liberalization on the evolution of banking and financial risks are estimated utilising a conditional CAPM with time-varying market risk. Finally, qualitative and quantitative findings are juxtaposed, allowing insights into the extent to which financial markets recognized the increased banking and financial risks, which emanated from financial liberalization.