This paper assesses empirically whether speculation affects oil price dynamics. The growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations. Strategies of this kind foster feedback trading that may cause large departures of prices from their fundamental values. We investigate this hypothesis using a modified CAPM that follows Shiller (1984) and Sentana and Wadhwani (1992). At first, a univariate GARCH(1,1)-M is estimated assuming that the risk premium is a function of the conditional oil price volatility. The single factor model, however, is outperformed by the multifactor ICAPM (Merton, 1973) which takes into account a larger investment opportunity set. The analysis is then carried out using a trivariate CCC GARCH-M model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior. We find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affect both the CAPM and feedback trading components of the model. Despite the difficulties, we identify a significant role of speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices. A clear evidence that it is not a fundamentalsdriven market. Thus, from a policy point of view-given the impact of volatile oil prices on global inflation and growth-actions that monitor more effectively speculative activities on commodity markets are to be welcomed.

The financial crisis has affected the landscape of the banking sector around the world. We use a sample of transactions taking place in Europe in 2007-2010 to study the acquirer's stock price market reaction to announcements and completions of acquisitions. We find that there are no significant abnormal returns around the announcement of an acquisition while there are positive abnormal returns at completions. We study the cross-sectional determinants of abnormal returns and find that announcement returns are mainly explained by the acquirer bank characteristics, while completion returns depend on opacity of the target and in large part on the drop in volatility associated with a reduction of uncertainty. 3 1. Introduction.

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We examine the relationship between leverage and residual income for a sample of international banks using an unbalanced panel over the period 2005-2011. Our GMM-based econometric model considers both bank-level and country-level variables to control for several other factors aside from equity capital and allows for endogeneity and unobservable heterogeneity. We document a significant positive non-monotonic link between the capital ratio and residual income for the international banking industry. These results are robust to a number of different model specifications.Keyword implied cost of capital; residual income; capital structure; dynamic system GMM; banking industry *Corresponding author: Andrea Beltratti, tel. 0039 02 58361. We thank Andrea Sironi, an anonymous reviewer and the Editor for useful comments. AbstractWe examine the relationship between leverage and residual income for a sample of international banks using an unbalanced panel over the period 2005-2011. Our GMM-based econometric model considers both bank-level and country-level variables to control for several other factors aside from equity capital and allows for endogeneity and unobservable heterogeneity. We document a significant positive non-monotonic link between the capital ratio and residual income for the international banking industry. These results are robust to a number of different model specifications.

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