Finance Commons^™

Applications Of Machine Learning And Deep Learning In Macroeconomic And Financial Forecasting, Andi Cupallari

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters.

In the first chapter I propose a novel approach to forecast risk premia selecting relevant predictors among hundreds of correlated stock characteristics. I adapt a recently developed method from the deep learning literature, Deep Neural Networks with Group Lasso Regular- ization. This method achieves high out of sample R2, and at the same time yields a sparse representation of the characteristics space that allows for interpretability of the otherwise black box deep learning model. For each period, the model chooses a subset of characteris- tics to be relevant for the risk premia forecast. Our …

The Impact Of External Debt On Agricultural Production In Nigeria (1980-2016): Autoregressive Distributed Lag Modelling, Aishatu U. Yerima, Hussaini M. Tahir

Bullion

The study analyzed the impact of external debt on Nigeria's agricultural production from 1980 to 2016 using secondary data obtained from Central Bank of Nigeria (CBN) statistical bulletin and the World Development Indicators (WDI). Augmented DickeyFuller unit root test and the autoregressive distributed lag (ARDL) bound testing approach to co-integration were utilized, to achieve the objectives of the study. Empirical results revealed that the variables were cointegrated, indicating that they exhibited long run relationship, both in the short and the long run. External debt stock (EDS) had a significant positive impact on agricultural production (AGP), indicating that EDS positively impacted …

Essays In Financial Economics And Applied Macroeconomics, Marius Mihai

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters that cover topics in finance and macroeconomics.

Chapter 1 - Do Credit Booms Predict U.S. Recessions?

This paper investigates the role of bank credit in predicting U.S. recessions since the 1960s in the context of a bivariate probit model. A set of results emerge. First, credit booms are shown to have strong positive effects in predicting declines in the business cycle at horizons ranging from six to nine months. Second, by isolating the effect of credit booms, I identify their contributions to recession probabilities which range between three and four percentage points at a …

Economics Of Higher Education Productivity, Uchenna K. Oparah

Dissertations, Theses, and Capstone Projects

How does spending affect academic outcomes in higher education institutions? Postsecondary schools incur costs to provide services to its student body. In this study, I introduce multiple outcome variables, a two-stage production function, and current-year expenditures on core services to evaluate how school spending affects academic outcomes.

The empirical analysis includes 28 group sample parameter estimates from four outcome variables, the pooled sample, and group samples for each of six sectors. The fixed effects/instrumental variable (FE-IV) instructional expenditure parameter estimates were positive for 20 of the 28 group samples. The sign and size of the estimated academic output effects varied …

Stochastic Capacity Management In The Presence Of Production Resource Disruption, Boya Yang

Dissertations and Theses Collection (Open Access)

This dissertation studies the capacity investment decision of a manufacturing firm facing demand uncertainty in the presence of shortage possibility in production resources, as often ignored in the literature. These production resources can be physical resources (component / raw material) or financial resources (working capital / budget). The shortage in these resources can be caused by a variety of supply chain disruptions; examples include global disruptions like COVID-19 and financial crisis in 2008 and local disruptions like shortage of components/workforce. The dissertation analyses two important issues related to capacity management: (i) the effect of production resource disruption on the capacity …

Examining The Impact Of It Investment On Insurer Productivity: A Bootstrapped Malmquist Frontier Analysis Approach, Jee Yuen Yew

Dissertations and Theses Collection (Open Access)

This paper attempts to examine productivity changes of insurance companies in Singapore as represented by bootstrapped Malmquist indices, generated from a data envelopment analysis (DEA)-based frontier analysis, and attribute these changes to an increasing investment in information technology infrastructure and equipment, and increasing investment in staff enhancement. Through this analysis, the author finds that there has been a general increase in productivity and efficiency from 2011 – 2017, as seen from changes in the kernel density functions of productivity change between the two periods. The author also finds, through running a panel tobit regression model, that there is a positive …

Estimating The Benefits And Costs Of Forming Business Partnerships, Jungho Lee

Research Collection School Of Economics

I estimate a matching model of business‐partnership formation to quantify the relative importance of productivity gains, financing gains, and the coordination failure of effort provision (moral hazard) among partners. Productivity gains account for 61% of the gain from the observed partnerships. For partners in the first quartile of the wealth distribution, however, financing accounts for 93% of the gain. The cost of moral hazard corresponds to 42% of the entire gain from partnerships. A loan policy specifically targeting partnerships is less effective in improving welfare than a conventional loan policy that provides loans to individual entrepreneurs.

Cross-Border Technology Investments In Recessions, Juliana Yu Sun, Huanhuan Zheng

Research Collection School Of Economics

Utilizing industry-level foreign direct investment (FDI) from 72 source markets to 122 destination markets between 2003 to 2018, we apply a differences-in-differences approach to evaluate the response of technology FDI to recessions. We find that research and development (R&D) intensive FDI drops when the destination market is in recession and the source market is in a normal state, and recovers to the pre-recession levels when both destination and source markets are in recession. The result is particularly pronounced in deep and long recessions, during the propagation stage of recessions, and in destination markets with stronger intellectual property protection, looser FDI …

House Ownership In Selangor: A Qualitative Study On Consumers Preferences And Challenges, Packeer Mohamed Nur Syafiqah

Student Works (2020-2029)

The residential real estate market in Selangor offers diverse house types following the fact that the state has highest number of workers. It is important for a proper decision-making process by taking consider a few factors such as financial and neighbourhood factors in a house purchase. Based on residential housing market data in Selangor, Petaling district was found to have the most purchases and the 2 to 2 and a half storey house type is the most purchased out of the variety, and there are also cases where there are completed houses that were not purchased by the residents, even …

Ceo Political Ideology And Management Earnings Forecast, Md Noman Hossain, Ahmed Elnahas, Lei Gao

School of Economics and Finance Faculty Publications

Republican CEOs are more likely to issue earnings forecasts and to issue forecasts that are more accurate and timely. Republican CEOs favor range and less optimistic forecasts, convey more negative news, and have more positive earnings surprises. We address endogeneity using propensity score matching and difference-in-difference estimates. Our results are robust to controlling for CEO characteristics, incentives, overconfidence, and managerial ability, and are stronger for firms with a high level of institutional ownership and litigation risk. The preference for threat and ambiguity avoidance of conservative CEOs seem to outweigh the tendency to seize on information associated with their authoritarian personalities.

Shareholder Litigation Rights And Capital Structure Decisions, Nam H. Nguyen, Hieu V. Phan, Eunju Lee

School of Economics and Finance Faculty Publications

We exploit the staggered adoption of the universal demand (UD) laws across U.S. states, which impedes shareholder rights to initiate derivative lawsuits, as a quasi-natural experiment to examine the relation between shareholder litigation rights and firm capital structures. We find that weaker shareholder litigation rights due to the UD laws adoption lead to higher financial leverage, which enhances firm value. Furthermore, the positive relation between the UD laws adoption and financial leverage is more pronounced for firms exposed to higher shareholder litigation risk ex ante or financially constrained firms. Our evidence is consistent with lower shareholder litigation threats motivating firms …

Shareholder Litigation Rights And Corporate Acquisitions, Chune Young Chung, Incheol Kim, Monika K. Rabarison, Thomas Y. To, Eliza Wu

School of Economics and Finance Faculty Publications

We examine the effect of shareholder litigation rights on managers’ acquisition decisions. Our experimental design exploits a U.S. Ninth Circuit Court of Appeals ruling on July 2, 1999 that resulted in a reduction in shareholder class actions. We find that, since the ruling, firms in Ninth Circuit states acquire larger targets. Furthermore, acquirers’ returns are lower in these states, especially for those with weaker corporate governance. Further analysis shows that value destruction is the result of managers’ freedom to conduct empire-building acquisitions using overvalued equity. Overall, our findings indicate the importance of shareholder litigation as an external governance mechanism.

Financing Patterns In Transition Economies: Privatized Former Soes Versus Ab Initio Private Firms, Yu Liu, Nilesh Sah, Barkat Ullah, Zuobao Wei

School of Economics and Finance Faculty Publications

We employ 19,521 unique firms in 30 transition economies to investigate the relation between the origins of private firms and their financing patterns. In our sample, the private firms are either privatized former state-owned enterprises (SOEs) or ab initio (from the beginning) private firms. Our results show that privatized former SOEs finance a higher proportion of their fixed assets from bank finance and supplier credit, while ab initio private firms rely more on informal finance. We argue that privatized former SOEs continue to benefit from the political and financial connections established during their SOE era. We further document that financial …

Subspace Portfolios: Design And Performance Comparison, Anqi Xiong

Dissertations

Data processing and engineering techniques enable people to observe and better understand the natural and human-made systems and processes that generate huge amounts of various data types. Data engineers collect data created in almost all fields and formats, such as images, audio, and text streams, biological and financial signals, sensing and many others. They develop and implement state-of-the art machine learning (ML) and artificial intelligence (AI) algorithms using big data to infer valuable information with social and economic value. Furthermore, ML/AI methodologies lead to automate many decision making processes with real-time applications serving people and businesses. As an example, mathematical …

Irving Fisher, The Debt-Deflation Theory, And The Crisis Of 2008-2009, Zacharie Quiviger

Undergraduate Economic Review

Irving Fisher’s 1932 Booms and Depressions presents a fully specified, nine-pronged model of financial crises that has been widely forgotten by modern macroeconomists. This article builds on the renewed interest in Fisher’s Debt-Deflation Theory to explore its pertinence to the Great Recession. By parsing through macroeconomic data from the 2000s, it finds evidence of debt-deflation spiraling and of the nine Fisherian “main factors” co-varying as the author had predicted during the 2008-2009 financial crisis. The article concludes in assessing the uses of Fisher’s work in current macroeconomics and in arguing for a greater consideration of its insights.

Total Factor Productivity And Idiosyncratic Volatility Trends, Hussein Abdoh, Yu Liu

School of Economics and Finance Faculty Publications

Firms’ idiosyncratic stock return volatility has become more volatile in the US since the 1960s. This paper investigates why individual stocks became more volatile over the 1964–2013 period using firm-level total factor productivity (TFP). On average, the volatility of idiosyncratic TFP growth rate has increased, being associated with higher idiosyncratic return volatility. The connection between TFP growth and economic profits provides an explanation for the increase in the idiosyncratic volatility of fundamental cash flows. The results are robust when using timeseries and panel regressions and controlling for cash flow and earnings variability, size, book-to-market, leverage, profitability, age, dividend yield, and …

Buffett’S Derivatives: Disruptive Financing At Low Cost, Florencia Roca, Juan Carlos Sanchez Meyer

Journal of New Finance

The well-established methodology for valuing options, the Black & Scholes formula, has been successfully challenged by Warren Buffet; who not only has been critical of the formula for the case of long-dated options, but has also applied a different approach in multi-billion derivative contracts. We study Berkshire Hathaway’s Equity Put transactions from a value-investing point of view. We show that Buffett is not using them as speculative investments, but as a disruptive -and cheap- financing source. We uncover Buffett’s methodology for valuing long-dated Equity Puts as long-term loans.

Is Modern Finance Geared Up To Support Financial Regulation?, Massimiliano Neri

Journal of New Finance

The chief intellectual assumptions behind financial regulation are that capital markets are efficient and market participants act rationally. These assumptions have always been subject to some challenges and their empirical verification occupies a large portion of modern finance literature. Nevertheless, they represented the leading financial market theory during the decades preceding the 2007-8 crisis. The crisis demonstrated that modern theory does not allow for solid risk assessment and reliable macroeconomic forecasting. Such challenges suggest that modern finance may be facing a paradigm crisis. While a debate must be opened to assess how to move forward from the current mainstream paradigm, …

Are Coco Bonds Suitable As Core Capital Instruments?, Kevin Dowd

Journal of New Finance

Basel III introduced significant innovations in bank regulation. One of them is the minimum required leverage ratio. To help banks implementing the new measure , Basel III created two different core capital measures: Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1). Since raising capital for CET1 is expensive, other instruments are used to build up AT1 in case of need, like for example Contingent Convertible (CoCo), which can convert to equity or written-down when a bank is under stress. In this paper we show that CoCos are not suitable as regulatory core capital instruments. Problems of timing, incentives, …

Examining The Popularity Concept In The Initial Public Offering (Ipo) Market, Preston Rad

University Honors Theses

Popularity is the act of being liked. In Popularity: A Bridge Between Classical and Behavioral Finance, authors Roger Ibbotson, Thomas Idzorek, Paul Kaplan, and James Xiong (hereafter IIDX) explore the concept of Popularity in capital market theory. IIDX argue that certain companies have Popular characteristics that leads to overpricing caused by a Popularity premium. This paper begins with an overview of the historical methods of asset pricing, starting with the Capital Asset Pricing Model (CAPM). It progresses through the expansion of the model by financial theorists such as Eugene Fama and Kenneth French. Jay Ritter (1991) has documented the …