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TABLE OF CONTENTS NOTICE OF COPYRIGHT………………………………………………………………………………..i ABSTRACT…………………………………………………………………………….…………………...ii ACKNOWLEDGEMENTS……………………………………………………………………………….iii TABLE OF CONTENTS………………………………………………………………………………….iv LIST OF TABLES…………………………………………………………………….…………………..vii INTRODUCTION…………………………………………………………………………………………..1 CHAPTER 1: AN INTERNATIONAL CCAPM WITH "KEEPING UP WITH THE JONESES" PREFERENCES…………………………………………….7 CHAPTER 3: VARIABILITY OF STOCK RETURNS AND MACROECONOMIC FUNDAMENTALS UNDER DIFFERENT EXCHANGE RATE REGIMES: THEORY AND APPLICATION TO HONG KONG DATA…………………………………………78 3.1 INTRODUCTION…………………………………………………………………………...79 vi 3.2 THE MODEL……………………………………………………………………………….82 3.2.1 THE (MAIN BODY OF THE) STOCHASTIC DANAMIC M UNDELL-FLEMING MODEL…………………………………………….83 3.2.2 THE STOCHASTIC DANAMIC M UNDELL-FLEMING MODEL UNDER A FIXED EXCHANGE RATE REGIME…………………………87 3.2.3 THE STOCHASTIC DANAMIC M UNDELL-FLEMING MODEL UNDER A FLEXIBLE EXCHANGE RATE REGIME……………………90 3.3 TESTABLE PROPOSITIONS UNDER TWO EXTREME CASES FOR THE DEGREE OF PRICE RIGIDITY……………………………………………93 3.3.1 THE CLASSICAL CASE (θ θ = 0)………………………………………...……94 3.3.2 THE KEYNESIAN CASE (θ θ = 1)……………………………………………..97 3.4 CONDITIONAL VARIANCE AND THE DATA………………………………………101 3.5 MAJOR RESLUTS………………………………………………………………………..102 3.6 CONCLUSIONS…………………………………………………………………………...105

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