The Abstract: Will a Dollar Decline End the Current Account Deficit?

A roundup of recent noteworthy research:

Asset Prices, Exchange Rates and the Current Account
Marcel Fratzscher of the ECB, Luciana Juvenal of the St. Louis Fed, and Lucio Sarno of the University of Warwick
"This paper analyzes the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. We find that equity market shocks and housing price shocks have been major determinants of the US current account in the past, accounting for up to 32% of the movements of the US trade balance at a horizon of 20 quarters. By contrast, shocks to the real exchange rate have been much less relevant, explaining less than 7% and exerting a more temporary effect on the US trade balance. Our findings suggest that sizeable exchange rate movements may not necessarily be a key element of an adjustment of today's large current account imbalances, and that in
particular relative global asset price changes could be a more potent source of adjustment."

Friends or Foes? The Stock Price Impact of Sovereign Wealth Fund Investments and the Price of Keeping Secrets
Jason Kotter and Ugur Lel of the Federal Reserve
"This paper examines the stock price impact of 163 announcements of Sovereign Wealth Fund (SWF) investments. We document an average positive risk-adjusted return of 2.1 percent for target firms during two days surrounding SWF acquisition announcements. The announcement effect is both statistically and economically significant...the degree of transparency of SWF activities is an important determinant of the market reaction, and both the SWF and the existing shareholders of the target firm benefit from improved SWF disclosure. In addition, target firms' profitability, growth, and governance do not change significantly in the three-year period following the SWF investment relative to a control sample. These results are robust to a battery of tests. Overall, our findings suggest that SWF investments convey a positive signal to market participants about the target firm, increased SWF transparency is enjoyed by both the SWF and existing shareholders, and SWFs are passive investors."

Do Steroids Help Athletic Performance?
I wrote last month about a new study showing that players named in the infamous Mitchell Report performed better than their counterparts. JC at Sabernomics has been having a back-and-forth with the paper's authors over the validity of the findings. The most important issue at hand is that when the study is run without Barry Bonds, the results are no longer significant. The arguments are technical, but I'd have to give the edge to JC.