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The governance of capital market institutions did not receive much interest compared to their banking sector counterparts, partly due to their different ownership structures. Recent trends; increased competition, technological advances, structural changes, globalization, all had their share of impact on governance systems of capital markets institutions particularly on exchanges. Corporate governance of non-financial firms and capital markets institutions differ in several ways. Firstly the role of risk management differs since they may impose systemic risks to the financial system. Secondly well-implemented governance structures and processes are required but are not sufficient in capital markets since there are several conflicts of interests to be addressed. Therefore whether and how effectively they function is what matters. Thirdly the governance structures of such institutions exhibit different effectiveness on their decisions.The governance of FIs in capital markets is discussed in terms of board structure and management, risk governance, supervisors, shareholders, executive compensation, role of regulators, authorities and values and culture. The role of stock exchanges in corporate governance are discussed separately in terms of implementing corporate governance codes, demutualisation and its impact on regulations, transparency and accountability issues and the effects of M&As among exchanges. Market needs strong analytical tools and reliable benchmarks to assess governance risk. The corporate control and the regulation of the institutions by the exchanges when the corporations (regulated) are the competitors of the exchanges (regulators) or owned by the stockholders of the exchanges must be addressed. The risk of regulatory arbitrage, calls for the need of harmonisation among regulators. Better regulation of FIs and greater global coordination among regulators are seen as the most two important issues to prevent another crisis.

During recent years, financial economists have made a significant contribution to the rapid development of a vibrant and growing literature on organization structure and corporate governance. In reviewing the development of this literature, it becomes easy to see how the seminal contributions of Ronald Coase (awarded the Nobel Prize in Economics in 1991) have become the cornerstone of a new institutional economics. In particular, researchers following in Coase’s footsteps have clarified the conditions under which voluntary contracts between private agents can resolve a wide variety of so-called “agency problems.” More than just representing an important discovery of the significance of transaction costs and property rights for the institutional structure and functioning of the economy, Coase’s work has become an important foundation for the theory of contracts and for the whole field of “organization economics.”

In tandem with the drastic increase of IJVs, the academic research regarding various issues about them has also augmented. Myriad of studies examining the antecedents and outcomes of partner/location selection, different control and safeguarding mechanisms, performance, and stability of IJVs have appeared in revered scholarly outlets. A review of the previous research on IJVs reveals that a vast amount of these studies is focused on their formation (e.g., Kogut, 1988) and the advantages of them as governance structures (e.g., Hennart, 1988).

Purpose – This research pinpoints the limitations of conventional models for evaluating the performance of hedge funds and attempts to provide a new framework for modeling the dynamics of risk structures of hedge funds.

Methodology/approach – This chapter aims to explore how the systematic risk exposures of hedge funds vary over time and depend on exogenous variables that managers are supposed to use in their dynamic investment strategies. To achieve this, we used a Bayesian time-varying CAPM-based beta model within a state space technology.

Findings – The results showed that the volatility, term spread rate, and shocks in liquidity influence significantly on the time variation of hedge funds. Besides, the dynamics of beta indicates that the transmission channels of systematic risk are mainly the leverage levels of hedge funds and liquidity shocks.

Originality/value of chapter – These results are original because they help to explain how expected and unexpected hedge fund returns are correlated with the systematic risk factors via the beta dynamics.

Following the Supreme Court’s 1988 decision in Basic, securities class plaintiffs can invoke the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” [the “fraud-on-the-market” doctrine] to prove classwide reliance. Although this requires plaintiffs to prove that the security traded in an informationally efficient market throughout the class period, Basic did not identify what constituted adequate proof of efficiency for reliance purposes.

Market efficiency cannot be presumed without proof because even large publicly traded stocks do not always trade in efficient markets, as documented in the economic literature that has grown significantly since Basic. For instance, during the recent global financial crisis, lack of liquidity limited arbitrage (the mechanism that renders markets efficient) and led to significant price distortions in many asset markets. Yet, lower courts following Basic have frequently granted class certification based on a mechanical review of some factors that are considered intuitive “proxies” of market efficiency (albeit incorrectly, according to recent studies and our own analysis). Such factors have little probative value and their review does not constitute the rigorous analysis demanded by the Supreme Court.

Instead, to invoke fraud-on-the-market, plaintiffs must first establish that the security traded in a weak-form efficient market (absent which a security cannot, as a logical matter, trade in a “semi-strong form” efficient market, the standard required for reliance purposes) using well-accepted tests. Only then do event study results, which are commonly used to demonstrate “cause and effect” (i.e., prove that the security’s price reacted quickly to news – a hallmark of a semi-strong form efficient market), have any merit. Even then, to claim classwide reliance, plaintiffs must prove such cause-and-effect relationship throughout the class period, not simply on selected disclosure dates identified in the complaint as plaintiffs often do.

These issues have policy implications because, once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.

This chapter is concerned with finding the optimal arbitrage path in a foreign exchange market. First, an algorithm for the optimal arbitrage path is derived. Then, the Markov chain solution to the problem of most profitable path is given. Also, a game theory perspective to the problem is given.