Finance Commons^™

Essays On The Application Of The Machine Learning Methods In Finance And Policy Evaluation, Olga Guska

Dissertations, Theses, and Capstone Projects

In the age when "Big Data" is becoming almost a household word, such abundance of information in different forms and representations can be of a great help for one's decision-making let it be a trader betting on a stock, or a policy-maker assessing the potential impact of proposed regulation. Whereas traditional economic research is primarily based on the use of numerical data continuous or discrete, there is a great deal of useful information that can be extracted from text data. Such information can power novel identification strategies or help perceive solutions from a different angle, but observed volumes of such …

New Factor Structure Models And Idiosyncratic Volatility, Ossama Elhadary

Dissertations, Theses, and Capstone Projects

In this dissertation, I propose new factor structures that are based on the Fama-French style factors but include additional locations like the industry groups and the exchanges where the stocks are traded. I show that the stock returns are clustered around the industry groups and the exchanges. Idiosyncratic volatility calculated using the new factor structure models tend to be smaller than those calculated using the traditional Fama-French model. By sorting portfolios using the idiosyncratic volatility computed using the new factor models, a trader can gain larger profits compared to sorting the portfolio using the traditionally calculated idiosyncratic volatility.

Essays On Applied Machine Learning For Implied Volatility Interpolation And Artificial Counterfactuals, Pablo A. Crespo

Dissertations, Theses, and Capstone Projects

This dissertation consists of two chapters.

Chapter 1: Volatility estimates under the risk neutral density have become a much revisited topic of interest in recent years. The density proves itself a powerful tool for sentiment analysis, since its moments provide insights about expectations in price trends. A standard procedure for its extraction utilizes artificial volatility predictions to form a dense enough grid for approximating a complete probability distribution. This paper proposes two common machine learning technique variations to produce implied volatility predictions when data is very scarce. First, a model using regularization through a variation of a generalized LASSO path …

Objectively-Measured And Subjectively-Perceived Financial Literacy, Wenyi Lu

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters on financial literacy. The chapters examine the impact of financial literacy on households’ risk tolerance and financial planning behavior. Financial literacy was assessed in two dimensions: an objectively-measured financial literacy score, and a subjectively-perceived financial literacy level.

The first chapter reviews the literature measuring financial literacy, and raises concerns about the prevalent state of financial-literacy overconfidence, which can lead to underprepared financial planning and irrational financial behavior. This chapter uses the survey data from the Financial Regulatory Authority’s (FINRAs) 2009, 2012 and 2015 National Financial Capability Study (NFCS) to explore how individual and regional …

Essays On The Equity Premium Puzzle, Oren Shmuel

Dissertations, Theses, and Capstone Projects

The equity premium puzzle emanates from the inability of the theoretical models to explain the empirically observed high equity premium (when the average stock returns so much higher than the average bond returns). The puzzle is that in order to reconcile the much higher return on stock compared to the return on government bonds in the United States, individuals must have very high (unrealistic) risk aversion according to standard economics models.

Mehra and Prescott (1985) [35] found that for high values of relative risk aversion coefficients (=RRA), and a given small variance of the growth rate in the per capita …

Shapes And Transitions Of The Interest Rate Term Structure, Biwei Chen

Dissertations, Theses, and Capstone Projects

I analyze different shapes of Treasury yield curves in order to better reflect and predict the U.S. economy. Since the late 1980s, macroeconomists have found that the slope of the yield curve predicts economic activity such as inflation, output growth, and recessions, but they have not fully examined the links between various shapes of yield curve and the macroeconomy. To fill the gap, I classify yield curve shapes with the U.S. Treasury yield data, detect the shape patterns over the business cycles, and map these shapes onto corresponding inflation and production states. Although the downward-sloping yield curve reliably predicts U.S. …

Time-Series And Cross-Section Variation Of Bond Risk Premia, Niloofar Sahebalzamany

Dissertations, Theses, and Capstone Projects

A long-term bond that is sold before its maturity has an uncertain excess return over the certain return from a shorter-term risk-free bond maturing at the time of sale. There is strong evidence that this excess return is predictable and that the predicted excess return, or risk premium, is time varying. Cochrane and Piazzesi (2005) use five forward rates to predict excess returns on one to five-year maturity bonds. I extend and improve their approach in multiple aspects. Firstly, the data set for the US market is expanded in two dimensions: cross-section and time series. In the cross-section dimension, one- …

Essays On Banking And Corporate Finance, Alev Isil Yildirim

Dissertations, Theses, and Capstone Projects

This dissertation consists of two chapters.

Chapter 1: The Effect of Relationship Banking on Firm Efficiency

This paper analyzes the impact of relationship bank oversight on firm operational efficiency and default risk. I find that a new loan from a relationship bank improves the technical efficiency of inefficient firms that have an elevated probability of default. Moreover, borrowing firms with elevated default risk exposure experience reductions in their probabilities of default in the years following new relationship bank loans, benefiting both banks and borrowers. Thus, the benefits of relationship bank monitoring are most apparent the higher the ex ante default …

Essays On Wealth Inequality And Asset Pricing, Georgios Koimisis

Dissertations, Theses, and Capstone Projects

Economic and financial theories are often found to be in conflict with empirical evidence, suggesting revisions and elaborations of existing models. There are usually many revisions proposed in response to these "puzzles", but often the true resolution may be a factor not yet realized. This dissertation consists of three chapters and contributes to the explanation of a persistent and significant anomaly, the equity premium puzzle, by taking into account the implications of wealth inequality on consumer preferences and, consequently, on asset prices.

The first chapter examines how wealth inequality affects asset prices in a complete market setting. Wealth inequality is …

Bayesian State Space Representation Model: Applications To Macroeconomics And International Finance, Hiroshi Morita

Dissertations, Theses, and Capstone Projects

This dissertation develops three new econometric models using Bayesian state space representation model in order to apply to macroeconomics and international finance. It consists of 3 chapters. Chapter 1 develops a Markov mixture model of macroeconomic fundamentals to analyze the short-run dynamics of foreign exchange rates. In our model, foreign exchange rates are simultaneously determined by three parities: the interest rate parity, the inflation rate parity, and the equity return rate parity. Using four exchange rates: the U.S. dollar price of the British pound, the German mark, the Japanese yen, and the Canadian dollar, the findings are: (1) Our model …

Essays On Inequality And Macroeconomic Stability, Thomas Hauner

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters. . .

Chapter 1: Aggregate Wealth and Its Distribution as Determinants of Financial Crises: Panel Evidence This essay investigates the relationship between wealth inequality and financial crises across a panel of nine advanced economies over the past 100 years. While substantiation of a role for income inequality is ambiguous in the literature, evidence is presented suggesting a unique capacity for the accumulation of assets to increase the likelihood of a future financial crisis episode. Testing long-run panel data with a reduced form, two-way fixed effects model, estimates suggest that increasing wealth inequality, in an …

Essays In Financial Development And Income Inequality, Samuel M. Jung

Dissertations, Theses, and Capstone Projects

This dissertation consists of three essays of original research. Chapter 1 is a survey of the literature on the theoretical and empirical interactions among financial development, economic growth, and income inequality.

Chapter 2 describes empirical research on the relationship between financial development and income inequality based on Generalized Method of Moments (GMM) method using a Chinese provincial dataset between 1998 and 2014. The empirical findings support the notion that well-developed financial markets increase income inequality in China. After adding a year dummy for 2001 to examine the impact of China’s entry into the World Trade Organization, which caused the financial …

Essays On The Impact Of Exchange Rate Movements On Stock Return And Country Output, Junnan Zhao

Dissertations, Theses, and Capstone Projects

Exchange rate movements are widely believed to be a major source of uncertainty at both micro- and macro-economic levels. At the microeconomic level, corporate managers controlling risk and investors seeking to hedge their portfolios are both obviously interested in estimates of a firm’s exchange rate exposure ̶ i.e., how much of the value of a firm will be affected by exchange rate movements. At the macroeconomic level, a currency appreciation may have a contractionary effect on a country's output.

Chapter 1 tests whether the launch of the euro around 1999 significantly reduced stock market volatility and exchange rate risk exposure …

Gender And Financial Risk Aversion, Efstathia Korkou

Dissertations, Theses, and Capstone Projects

The primary goal of this dissertation is the study and measurement of the effect of gender in the process of financial decision making and investment decision making in particular, under uncertainty. In terms of investment decisions, researchers have linked investors’ risk aversion to several individual characteristics of theirs, such as their age, their income or their financial knowledge. However, an investor’s characteristic, somehow overlooked or not properly investigated, has been the investor’s gender, and the latter’s bearing on investment decision making. Research from the 1990s suggested that once individuals are called to allocate their wealth and make investment decisions, women …

Three Essays On The European Sovereign Debt Crisis With A Special Focus On Greece, Flora Leventi

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters where I examine several aspects of the European sovereign debt crisis. The first chapter focuses on systemic risk. Following the financial crisis of 2007-08, both in academic as well as policy circles, much of the research has focused toward the systemic importance of financial institutions. Parallel to that research, but to somewhat lesser extent, there have been improvements in our understanding of how risk is transmitted from the financial system to the real economy. This chapter investigates a related yet distinct manifestation of systemic risk, namely systemic sovereign risk. Using data on sovereign credit …

Surplus Consumption, Habit Utility And Moody Investors, Jun Lou

Dissertations, Theses, and Capstone Projects

The thesis examines a blend of Asset Pricing topics: joint stock-bond pricing, consumption-based asset pricing puzzles, time variation in risk preference, among others. In chapter one, I first review the literature on respective topics in search of a consolidated framework of resolution. I then propose one, a consumption-based affine model that jointly prices bond and stock in closed form. The tractable feature of the price solutions remains standard as in affine termstructure of interest rates, but presents novelty for the stock prices. In chapter two, I discuss the GMM based procedures for model estimation. In chapter three, I interpret the …

Essays In Corporate Responsibility And Finance, Mert Demir

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters:

Chapter 1: The Effects of Corporate Social Performance and Social Norms on Market Valuation of Nonfinancial Disclosures Using a novel measure of the quality of corporate social responsibility (CSR) disclosures by global companies, this paper analyzes how CSR report quality affects firm value when mediating roles of social pressure and CSR performance are considered. I find that firms operating in socially controversial industries enjoy higher valuations when they issue high-quality CSR reports. I also find that for firms with poor CSR performance, higher-quality CSR disclosure is associated with a decline in firm value, while …

Essays On The Law Of One Price In Financial Markets And The Recent Financial Crisis, Igor Sorkin

Dissertations, Theses, and Capstone Projects

Essay 1: The theory of the Law of One Price (LOOP) is one of the most important theories in International Economics. I use financial markets to revisit the validity of the LOOP in the short run, and then extend the analysis into the long-run to examine whether events such as the Financial Crisis of 2007-2009 can lead to the failure of the LOOP or worsen deviations from it. Using the data on Canadian companies cross-listed on the New York Stock Exchange, I find strong support that the LOOP holds in a cross-sectional framework despite the fact that the sample includes …

Losing Values: Illiquidity, Personhood, And The Return Of Authoritarianism In Skopje, Macedonia, Fabio Mattioli

Dissertations, Theses, and Capstone Projects

On May 17, 2015, over 50,000 people took to the streets of Skopje, the capital of the Republic of Macedonia, protesting against Prime Minister Gruevski and his party, the conservative neoliberal Internal Revolutionary Organization of Macedonia (VMRO). After nine years of authoritarian government, it was the first significant demonstration in which the population demanded accountability for Gruevski's despotic system of rule. This dissertation is the story of how Gruevski's system of power was built and why it lasted for so long. I argue that a series of failing financial processes, which included the use of illiquidity, created the material and …

The Transatlantic Oarsmen Cooperative: Doubling Down On A Transatlantic Financial Regulatory Regime, Joselyn Muhleisen

Dissertations, Theses, and Capstone Projects

This project argues that, in the wake of the 2007-09 financial crisis, the United States (US) and European Union (EU) are doubling down on finance-led domestic growth strategies and that this is their goal in constructing a transatlantic financial regulatory regime. The regime’s goal privileges the input of industry actors over other civil society actors. The construction of this regime is in response to pressure from emerging markets and to service domestic industry actors after the financial crisis. The regime is intended to allow the US and EU to maintain their dominance within the international financial regulatory regime and continue …

Predictability Of Bond Risk Premia With An Affine Term Structure Model, Sibel Korkmaz

Dissertations, Theses, and Capstone Projects

This thesis focuses on zero-coupon bond risk premia. In chapter 1 first I summarize the literature that defines expectation hypothesis, time variation in bond risk premia, well known macroeconomic and variety of technical indicators which predict bond return forecasts. Then, I continue with introducing a high dimensional affine dynamic term structure model and unscented Kalman filtering as its estimation technique.In chapter 2, I explore predictive capacity of the estimated latent states of this term structure model. I constructed a single return forecasting factor by using these states. I report comparison of well known excess bond return forecasting factors' predictive performance …

Essays In Chinese Financial Markets, Chang Xia

Dissertations, Theses, and Capstone Projects

Chapter 1 adopted the constraint dummy variables regression model in Cao, Harris and Wang (2007) to examine seasonality in the returns, volatility, and turnover of Shanghai ‘A’, Shanghai ‘B’, Shenzhen ‘A’, and Shenzhen ‘B’ composite indexes in the Chinese Stock Market. Daily data of four composite indexes (Shanghai ‘A’, Shanghai ‘B’, Shenzhen ‘A’, and Shenzhen ‘B’) was collected: the opening index value, the closing index value, the maximum index value, the minimum index value and the volume traded. Volatility (a realized volatility that is based on the daily trading range), trading volume, and three return series of the four indexes …