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This thesis studies how mispricing caused by investors' biased expectations of future cash flow affects the cross-section of stock returns. Since the Capital Asset Pricing Model (CAPM), asset pricing models have long been associated with risk-based explanations, and the standard finance paradigm fails to account for investor irrationality. Studying the conditional CAPM model and using cuttingedge machine learning algorithms, this thesis provides novel evidence demonstrating that mispricing from the cash flow channel is systematic and explains characteristic-based anomaly returns. In the Second Chapter, I explore the conditional version of the CAPM on sentiment to provide a behavioural intuition behind the value premium and other anomalies. I find betas and the market risk premium to vary over time across different sentiment indices and portfolios. More importantly, the state beta derived from this sentiment-scaled model provides a behavioural explanation of the value premium and several anomalies. Different from the static beta-return relation that gives a flat security market line, I document upward-sloping security market lines when plotting portfolio returns against their state betas and portfolios with higher state betas earn higher returns. The Third Chapter extends the exploration of the relation between the timevarying sentiment effects and the cross-section of returns by analysing how beta overpricing drives returns of a large set of long-short anomaly strategies. Highbeta stocks are more prone to speculative overpricing (Hong and Sraer; 2016). I find that anomaly-shorts comprise more high-beta stocks, especially during optimistic periods, and thus earn lower returns than longs. Further supporting beta-driven anomalies, the principal component analysis shows that both long and short legs exhibit strong beta comovement. More importantly, beta overpricing gets attenuated in recent years, consistent with the post-publication decay in anomaly returns. I summarise two sources contributing to beta overpricing-investors' biased expectation and leverage constraints and show that these two channels do not contradict each other but co-exist and affect prices of high-beta stocks simultaneously. In the Fourth Chapter, I use classification-based machine-learning methods to decompose 32 anomaly payoffs into risk exposures and mispricing. The component driven by risk earns statistically insignificant returns, despite its efficacy in explaining the time-series variation in anomaly payoffs. The mispricing component is driven by biased cash flow expectations and earns significant returns that subsume anomaly payoffs. These findings indicate that the unconditional averages of anomaly returns can be fully explained by biased expectations, whereas risk exposures play an important role in explaining the time-series variation in anomaly returns. This thesis contributes to both behavioural and asset pricing studies in several ways. First, findings in this thesis demonstrate that sentiment is an important conditional variable to the CAPM and incorporating it into the CAPM improves its ability to explain the cross-sectional variations in stock returns substantially. Moreover, by studying the sentiment-scaled CAPM I provide a behavioural insight to the value premium that the value effect arises from overpricing of growth stocks. Second, I consider overpricing of high-beta stocks as a mispricing-based explanation for a large number of characteristic-based anomalies; the attenuation to beta overpricing seems to drive the post-publication attenuation in anomaly payoffs. Finally, I develop a classification-based machine learning test to disentangle the risk- and mispricing- driven components in anomaly returns. I also introduce the real-time bias in analysts' earning forecasts as proxies for investors' biased expectations to examine the mispricing-based explanation for out-of-sample anomaly returns. My findings suggest that these anomalies are related more to investors' incorrect expectations on future cash flows rather than a reflection of exposures to risk factors.

We extend the methodology proposed by Carr, Geman and Madan [11] for pricing and hedging in incomplete markets to more general probability spaces and prove a result, which shows the equivalence between the notion of the absence of strictly acceptable opportunities and the existence of a representative state pricing function. We also give examples of how to construct valuation test measures. We also extend the methodology to the discrete-time setting with a finite time horizon. We specify a finite set of single-period probability measures at each non-terminating node of a tree, which are then used to generate a set of probability measures for the entire tree by pasting together these single-period measures across all the nodes. We define the concept of a strictly acceptable opportunity in this new framework and state a result, which gives the condition that guarantees the absence of strictly acceptable opportunities. We also consider a Lucas-type pure exchange economy (see [37]) consisting of N infinitely long-lived agents, who have access to the same information regarding the stochastic evolution of a process. However, these agents do not interpret the information in the same way. We work in a continuous-time model as discussed in Brown and Rogers [10]. Further, we assume that the agents have a homogeneous coefficient of relative risk aversion. We then give a characterisation of the equilibrium, which does not depend on any form of the utility function. Thereafter, we assume that each agent has a power utility function, and we obtain concrete results for the price of the traded asset. We also obtain an expression for the agent's wealth process and give the dynamics of the state-price density and the asset price.

In this thesis, I investigate the relationship between conservatism and earnings quality and its consequences on stock pricing. The principle of conservatism plays a vital role in dealing with uncertainties in recognizing accounting transactions. Past literature emphasizes the important role of accounting conservatism in contracting, litigation, taxation, and regulatory environment. However, few studies attempted to explore the effect of accounting conservatism on the equity market. In this thesis, I provide evidence on how the relationship between conservatism and earnings attributes affects stock pricing in three pieces of empirical work. First, I investigate the effect of accounting conservatism on earnings quality using investors' reaction to earnings news. To do so, I study the effect of accounting conservatism on the short-window returns and the long-window returns after earnings announcements. I find that, conditional on earnings surprise, higher accounting conservatism results in both a higher short-window earnings response (ERC) and a higher subsequent long-window earnings response (a larger post-earnings announcement drift (PEAD)). The results indicate that investors cannot understand the characteristics of earnings affected by accounting conservatism and need longer time to assimilate these earnings. My unified test complements the existing literature on studying the value relevance of conservative earnings by examining not only the short-term earnings response coefficient (e.g. D'Augusta et al. 2016) but also the PEAD, as I show that the use of PEAD can differentiate the information quality of conservative earnings that cannot be done when ERC alone is studied. Second, I study the effect of accounting conservatism on investors' expectation errors. I find that high (low) conservatism stocks have higher (lower) returns on earnings announcement days compared to non-announcement days. This asymmetric effect cannot be explained by changes in risk on announcement days, but can be explained by stock mispricing. That is, when forming their expectation, investors form downward (upward) expectations about high (low) conservative companies, which results in an upward (downward) price correction when earnings are released. In addition, I find that conservatism amplifies the expectation error of the other mispricing factors. This research is the first to find such a piece of evidence. Third, I examine the role of conservatism in mispricing the growth of long-term assets. I show that asset write-downs decrease earnings persistence and result in stock mispricing. The higher the write-downs, the less the persistence of earnings and the larger stock underpricing. The results indicate that a significant portion of mispricing long-term assets' growth is attributed to accounting conservatism. This study extends Fairfield et al. (2003) and Richardson et al. (2005), who find that investors misprice the growth in long-term assets, by finding that asset write-downs are a major cause of long-term assets mispricing. Overall, this research provides further evidence that accounting conservatism affects the capital market and leads to post-earnings announcement drift and mispricing. The source of such information inefficiency seems to be originated in the effect of conservatism on earnings continuity. Investors do not fully understand the nature of the conservatism practice and incorrectly extrapolate earnings, which leads to mispricing.

High-frequency intraday financial data are commonly used in stock market volatility estimation and forecasting because they produce accurate results. However, little work to date has focused on the stylised facts of high-frequency returns, such as their tail properties, autocorrelations and leverage effects. One of the most discussed features of high-frequency returns is intraday periodicity, yet it is not well known how this feature operates in returns from data with different sampling schemes and frequencies. In addition, macroeconomic news announcements have been shown to have a large impact on first-moment and second-moment responses in financial markets. However, few existing models consider the effect of news on volatility estimation and forecasting, and those that do tend to treat it as a dummy variable, limiting its analytical power.  This thesis addresses these issues by reporting a study of the stylised facts of returns from S&P 500 stocks and the SPY index, and standardised returns from the latter, using various volatility measures in different financial regimes (i.e. before, during and after the 2008 financial crisis). It presents a comparison of the intraday patterns, jump frequencies, jump components and volatility forecasting of stock returns from calendar-time and business-time sampling schemes, as well as how these features are affected by intraday periodicity. It assesses the direct impact of macroeconomic news announcements on volatility estimation and forecasting for stock returns by incorporating significant news announcements as an index to identify the jumps caused by news in heterogeneous autoregressive (HAR) class models.  The results suggest that absolute intraday returns for high-frequency data exhibit autocorrelations and that aggregated returns display heavy tails. Standardising the returns of the SPY index using eleven different volatility measures produces distributions that are closer to a normal distribution. We find that various volatility measures are significantly correlated with trading volume, and hence that HAR-class models that include trading volume yield better volatility forecasting results than existing models. However, this effect may be limited to data from the relatively non-volatile pre-crisis and post-crisis periods. High-frequency returns based on business-time sampling have smaller jump frequencies, jump components and intraday periodicity patterns, than calendar-time data, which may be useful for volatility analysis. Intraday periodicity has a notable impact on jumps for both sampling schemes, however, and adjusting for intraday periodicity produces fewer jumps for all returns and smaller jump components for the majority. We also find that the forecasting results for less volatile data, such as healthcare stocks and data from the post-crisis period, improved after filtering for intraday periodicity. Finally, macroeconomic news announcements can affect jump components, and considering news outlets in HAR models can improve the forecasting results. The thesis thus contributes to our understanding of the factors affecting stock market volatility by providing evidence in support of including trading volume, efficient intraday periodicity estimators and news surprise in volatility estimation and forecasting models.

This thesis has applied the theory from behavioural finance theory and by merging with the concept of chaos theory from natural science, this thesis focuses on the impact of positive feedback trading on the price formation process. By using the Hurst exponent estimation and calculating the correlation dimension value, the market index and individual firms from China have presented the nonlinearity and chaotic characteristics, thus demonstrating the source of complexity. This thesis proposes a new model that uses the Hurst exponent as the signal for thresholds to indicate changes in market conditions. The result suggested, by combining the threshold and assumptions from the positive feedback model, that the new model offers a better explanation for the complexity of the stock market which presents chaos. The model is found to be statistically significant and superiorin all comparative testing.

The mortgage market plays a crucial role in the UK economy. It enables hundreds of thousands of consumers every year to buy their homes or to refinance existing mortgages. In this thesis, we try to understand the mortgage market and general credit conditions, from macro-, micro- and policy perspectives. First, we look at the mortgage market from a macro angle. We aim at identifying the relative role of demand and supply conditions in driving the erratic evolution of UK mortgage credit. We aim at distinguishing demand from supply using a disequilibrium econometric model to then compare and contrast credit cycles for the past 20 years. We found that the periods of recession coincide with credit rationing and the periods of economic growth coincide with excess supply. Second, we look at the mortgage market from a micro perspective. In particular, we analyse the role of mortgage intermediaries and whether their incentives are misaligned with consumers they serve in terms of finding the best deal. For example, mortgage intermediaries need to spend time and resources to identify the right product for the borrower in terms of price, suitability and likelihood of approval by the lender. Lenders pay commissions (procuration fees) to intermediaries potentially distorting incentives of the intermediaries. Moreover, borrowers have little information or do not have tools to compare intermediaries. So we analyse how the price of similar mortgage products for like-for-like consumers varies across intermediary firms and what the drivers of the dispersion are. We find that the difference in average price of mortgage products can be as high as £800 over the incentivised rate period for the median loan amount. We find little evidence that intermediaries selling highly priced mortgages also receive high procuration fees and that the average price of the mortgages an intermediary sells is negatively correlated with the number of lenders used. Third, we evaluate impacts of the Financial Policy Committee (FPC) policy that aims at reducing risks of financial instability in the economy by limiting excessive household leverage in mortgages and unsustainable credit growth. It recommends that "mortgage lenders do not extend more than 15% of their total number of new residential mortgages at Loan to Income ratios at or greater than 4.5". We are interested in understanding whether it has any impact on consumers in terms of the redistribution consequences and price. The paper finds that after implementation of the recommendation the average loan size for high LTI mortgages increased by 4-7%. This suggests that lenders originated high LTI loans for borrowers with higher incomes. As a result, we find robust evidence of changes in composition of high LTI borrowers: 1) an increase in the proportion of home movers; 2) a decrease in the proportion of first-time buyers; 3) an increase in the proportion of joint income applicants. After implementation, although the overall proportion of high LTI mortgages to the total number of sales in the market stays around 10%, lenders' individual exposure to high LTI mortgages changed. Some lenders, whose share of high LTI mortgages had been closer to the 15% limit, reduced their proportion of high LTI. In contrast, some lenders that previously had a low share of high LTI mortgages increased their proportion of them. After controlling for borrower, product, and lender characteristics, we find that post-implementation the mortgage price for high LTI mortgages on average decreased. The fall in the mortgage price was stronger for lenders that used to be closer to the 15% constraint. Fourth, we take a step back and look at the monetary and fiscal policies in the context of New Keynesian models with real rigidities and an economy at the zero lower bound. In this chapter, we are particularly interested in identifying optimal fiscal and monetary policies under strategic interaction among price- and wage-setting agents under zero lower bound. We found that the optimal length of the forward commitment concerning interest rates at the zero bound and key outcomes such as the magnitude of expected inflation or the depth of the recession under optimal policy depend crucially on the assumed degree of real rigidity in the model. In addition to simple parametric assumptions, more fundamental structural assumptions about the nature of the labour market play an important role in this regard. Labour market segmentation and the presence of staggered wage adjustment were shown to have particularly significant consequences for the type of policy one might wish to implement in an economy hit by a large shock that depresses demand. In those circumstances, it is a good idea for governments to lean against the wind in two different ways. First, an increase in government spending when output is low (and vice versa) stabilises output (and prices) but this policy can be justified almost wholly with reference to static public finance considerations. Second, an increase in taxes when output is low (and vice versa) stabilises prices via their impact on marginal cost. The results interact in interesting ways with the initial conditions in the economy. With higher inherited debt, fiscal sustainability considerations matter more for monetary and tax policy and the explained differences across market structures grow larger.

This study purports to empirically investigate the influence of utilitarian and hedonic benefits on behavioural intention with regards to unit trust investment within the Malaysian context. This study builds on previous works on utilitarian versus hedonic considerations. Due to the study exploratory nature, a mixed method methodology that combins both qualitative and quantitative techniques was employed. The qualitative approach utilises a semi-structured interview involving 16 working individuals was conducted. The major aim of qualitative study is to explore the key product attributes/features for unit trust and the individual's value expectation from those features. The respondents mentioned that the key product features that they look for in choosing and deciding to purchase unit trust are brand recognition, service quality, financial advice, financial return, fund types, overall fund manager reputation, whether the fund is legal or not, and the fund liquidity. It is surprising that financial return is not the first key product feature that most of the respondents consider while making investment choice and decision. This was followed by quantitative work using experimental design study. The main objective of quantitative work is to examine the causal effect of unit trust product features, choice decision, value expectation, and behavioural intention. The experimental design in the second part of the study involves fictitious unit trust provider, in which respondents were allocated to one of six treatment groups with different product types (conventional and Islamic unit trust) and product features (utilitarian dominant vs. hedonic dominant vs. equally utilitarian and hedonic). The survey was participated by 569 respondents, involving undergraduates from business faculty of public universities. This study expects to find variation in the perceived utilitarian and hedonic pertaining to unit trust investment. no differences were recorded. Neverthless, the results from qualitative study did provide evidence that unit trust investment contains both utilitarian and hedonic elements, and both elements deliver some values to be considered when purchasing unit trust funds. Given that Malaysia is a multi-cultural nation, the findings of the study suggest that culture and religion had some effect on individuals' fund decision. Therefore, fund management companies might make use of the information provided by this study in better promoting their funds.

This thesis investigates the impact of market competition on hedge fund performance over hedge funds' lifecycle and their market mispricing chasing behaviour. There has been a rapid growth in hedge funds in recent decades. Hedge Fund Research, Inc. estimates that the total capital in the hedge fund industry amounted to almost $3.235 trillion globally in 2018, with over 10,000 active hedge funds. In comparison there were only 1,200 hedge funds managing $200 billion in 1997. As the hedge fund market becomes more competitive, there has been growing interest from both academia and investors in how hedge funds deliver a superior performance under increasing market competition. In this thesis, we first examine the effect of market competition on the hedge fund lifecycle performance from several different perspectives, including (a) timeseries market competition effect on hedge funds' inception and failure; and (b) crosssectional market competition, to assess individual hedge fund performance. Furthermore, to investigate the hedge fund managers' mispricing chasing behaviour under market competition, we employ the mispricing timing skills models to measure the hedge fund manager's market mispricing timing skills in the equity market and fixed income market. In addition, we introduce a fund classification model to classify individual funds into different types in terms of their mispricing timing skills. The empirical findings of this thesis show that market competition in the timesseries analysis induces more hedge fund inception and hedge fund failure. In addition, market competition subsequently leads to superior hedge fund overall performance in the early stages of the hedge fund lifecycle. However, a cross-sectional market competition will decrease the individual hedge funds' overall performance, together with several other factors, including hedge fund age, hedge funds' risk-taking preference and hedge fund market co-movement. Finally, we also find that hedge fund managers can time the stock market mispricing and bond market mispricing opportunities by adjusting their market exposure during the underpriced and undervalued market periods.

China is now the world second largest capital market and mergers & acquisitions (M&As) have taken up a large share of investment. With the rapid growth of China's M&As, the value of consulting business of financial advisors also greatly increased. Understanding and evaluating the role of financial advisors in the unique Chinese financial market can potentially benefit firms, investors and market regulators. This thesis uses Chinese M&As as empirical setting to examine the role and mechanism of value-creation of Chinese financial advisors, specially, I focus on the financial advisors’ external political connections, the reputation, as well as the advisors’ teamwork. My thesis document that political connected, and top-tier financial advisors create value for shareholders, and the underlying mechanism of this value creation mainly from advisors’ ability to design and negotiate better deal term. In addition, small-size advisor team benefits firms and investors because of their lower co-ordination costs. The main results remain hold after addressing endogeneity and carrying out additional robustness check. The findings of this thesis have important implications to academics and practitioner: financial advisors’ reputation, their networks (i.e. political connections) and teamwork do matter in corporate takeover process.

Rulemaking undertaken by the Commodity Futures Trading Commission (CFTC) between 2010 and 2016 for the regulation of over-the-counter (OTC) commodity derivatives comprised an essential component in the implementation of the post-financial crisis Dodd-Frank Act reforms. This study analyzes how the CFTC determined which OTC commodity derivatives would be regulated pursuant to the Dodd-Frank regime, examining the administrative agency’s rulemaking for commodity and trade options in addition to the so-called forward contract exclusion. The rulemaking analysis is informed by the theoretical framework of Cultural Political Economy (CPE). In following this analytical approach, this research identifies and assesses how semiotic and extra-semiotic factors interacted and co-evolved to influence how CFTC policymakers constructed the regulation of OTC commodity derivatives and, thus, variation in, and the selection and retention of, these officials’ codified regulatory stance(s) towards these same financial instruments. This study also posits a Dodd-Frank imaginary, and traces how, and explains why, it evolved over the multi-step OTC commodity derivative rulemaking sequence. It is demonstrated that, as well as explained why, CFTC policymakers’ construction of OTC commodity derivative regulations changed over the course of the six-year rulemaking span to largely exclude or exempt from regulation under the Dodd-Frank Act the OTC commodity derivative transactions of most marketplace participants.

Over a period of time, the researcher observed that real estate investment decisions were made under uncertainty in sub-Saharan Africa, and that this was due to unreliable and outdated economic and market data. The phenomenological study was an investigation of the investment decision phenomenon on how real estate investment decisions were made under uncertainty in sub-Saharan Africa. Firstly, through reflection on the phenomenon and research question, the researcher was able to place the phenomenon in the correct epistemological framework from which the methodology and methods were selected. Phenomenological research was chosen and an interpretive qualitative research methodology applied. The literature was reviewed widely, from Von Neumann and Morgenstein to Kahneman and Tversky. The focus of the literature review was on expected utility theory, decision making under uncertainty and behavioural finance. Interviews were applied as the primary method of data collection during which co-researchers gave descriptions of their experience of the phenomenon. The data was analysed, as described by Moustakas and other researchers, and conclusions were drawn. NVIVO software was also applied to enable an in-depth analysis of the data structures and essences. From the essences, a descriptive method was identified and a risk uncertainty matrix developed. The risk-uncertainty matrix could be applied universally in similar real estate investment environments as those in the data sample (namely, in conditions akin to those of sub-Saharan Africa). The findings of the research, from the analysis of the descriptions given by the co-researchers, confirmed that there was a lack of credible economic and market data in practice. From the case studies analysis, it was evident that the decision process was subjective and depended, to a great extent, on the experience of the decision-maker and their intuition. Biases and heuristics were evident in the descriptions of the researcher and co-researchers’ experiences. The research confirmed its original contribution to knowledge by identifying a descriptive matrix for decision-making under uncertainty in real estate investment in sub-Saharan Africa.

This study addresses issues around the dynamics of the commercial property market which are closely tied to the economic fluctuations that determine economic busts and booms. The main goal of this work was to build a framework for the sustainable management of the commercial property market. The research question was how the best practice in other countries, defined by analysing a broad spectrum of criteria that influence the dynamics of commercial property markets, can be applied in a comprehensive way, to resolve issues related to the sustainable management of the UK`s commercial property market. The selection, grouping and determination of the significance of criteria, established using a survey presented to experts from different countries, are among the key objectives of this work, helping to establish a system of ranked criteria. Further analysis was carried out using multi-criteria decision-making (MCDM) methods. MCDM methods allow the analyses of both quantitative and qualitative criteria affecting the dynamics of commercial property and to compare selected countries. The thesis contains the outcomes of a comparative analysis of criteria that affect the commercial property dynamics in the UK, France, Germany and Sweden. According to the literature, the global crisis did not see any decline in commercial property prices in Germany, Norway, Sweden, France, Austria or Switzerland (Section 2.4.1.). Germany, Sweden and France were selected for this study because the commercial property markets aligned to these countries are among the largest and, as such, can be used for comparison with the UK. The study explores commercial property transactions and rentals market fluctuations via the criteria affecting such dynamics. Using MCDM methods, a framework was developed to potentially help the national governments, lenders, borrowers and investors make various decisions with respect to the dynamics of the commercial property market, both on a national and international level. This thesis is expected to be instrumental for future research, to facilitate a broader examination of market dynamics, to help evaluate economic and social, environmental, emotional, and legal and regulatory criteria, as well as the impact thereof, in an integrated manner for the purposes of making decisions in the dynamic environment of the commercial property market.

This thesis consists of three essays on the discussion about superiority among different government security issuance mechanisms: book-building, discriminatory auctions, and uniform auctions. Using a large Chinese government primary and secondary bond market data set, I analyse the revenue rankings of these mechanisms. Results suggest that uniform auctions are superior to book building and discriminatory auctions in generating revenues. Further, results suggest that uniform auctions are better in mitigating bond losses compared to discriminatory auctions. The first essay compares the primary rate between book building and uniform auctions, using data from Chinese local government bonds. Results show that book building procedures lead to a higher primary rate than uniform auction procedures, which reduces the issuers' revenue. These findings are robust across different revenue measurements: primary rates, primary rates normalized by T-bond daily yield rate one day prior to issuance day and primary rates normalized by five days' average T-bond daily yield rate before issuance day. Therefore, uniform auctions generate higher income than book building. The second essay exploits a large-size auction experiment conducted by two Chinese Government bond issuers-the Chinese Development Bank and the Export-Import Bank-to investigate whether Treasury securities should be sold through uniform or discriminatory auction mechanisms. Based on the outcomes of more than 300 Treasury securities issued through an alternating auction-rule market experiment, the study finds that auction outcome yield rates of the two auction formats are not statistically different. Further, these estimates indicate that there is no significant economic difference in terms of revenue between the two auction mechanisms. This result is robust across different bond-yield rate measurements and participation behaviour. The third essay documents the existence of primary dealers' losses in Treasury bond markets and investigates how these losses affect dealers' market value. Using a novel data set that tracks more than 2,350 primary-to-secondary transactions, the study finds that bond losses for primary dealers are prevalent and were severe during the financial crisis. Results indicate that liquidity constraints are a major source of bond losses observed in primary-to-secondary trades. Results also find that financial sector value is correlated with these losses. Using an alternating market experiment, the study shows that bond losses are higher under discriminatory auctions as compared to uniform auctions.

Using the Panel Study of Income Dynamics, I find that stockholders subject to more negative skewness in earnings growth hold a lower share of their financial wealth in stocks. Moreover, I also find that skewness in earnings growth affects the mean and skewness in consumption growth, and this effect is stronger for stockholders than nonstockholders. Using a life-cycle model incorporating business cycle variation in expected growth and skewness in earnings shocks, I investigate these relationships from an asset allocation perspective. During expansions (recessions), households consume more (less), and also invest a higher (lower) share of their wealth in the stock market, because of a higher (lower) expected future earnings growth rate. Negative skewness in the earnings process during recessions further reduces households' stock market exposure and consumption. The model shows how countercyclical skewness in earnings shocks is extremely important to match quantitatively observed portfolio choice and wealth accumulation over the life cycle, while simultaneously leading to countercyclical skewness in consumption growth. Moreover, the quantitative predictions are consistent with evidence from aggregate Flow of Funds data and match the observed degree of wealth inequality in the U.S.

This thesis investigates the consequences of exchange-traded fund industry growth. In particular, I study the ETF arbitrage mechanism, the impact of ETF trading on international diversification and on price efficiency of distressed stocks. In the first chapter, I show that, although low on average, ETF premiums/ discounts can be as high as 16% when considering international country-level ETFs. I propose a risk-based limits to arbitrage explanation of such deviations. I show that while currency and equity illiquidity risks are important in explaining ETF premiums there is still a large portion of premium that remains unexplained. I argue that ETF premiums represent a reward arbitrageurs demand for being exposed to financial frictions risk and show that the absolute value of ETF deviations is a good proxy for multiple dimensions of financial frictions such as funding illiquidity, credit risk and information uncertainty. I show that it can be used as an aggregate financial friction proxy at the country-level and that it is priced in the cross-section of stock returns internationally. In the second chapter, I show that investment decisions of ETF market participants when trading country ETFs are driven by shocks to U.S. fundamentals, rather than local risks. Investors react only to negative news about local economies. When U.S. economic uncertainty increases, investors switch to Cash ETFs. I demonstrate that ETF arbitrage mechanism is one of the key channels through which U.S. shocks propagate to local economies leading to increased return correlation with the U.S. market, limiting the benefits from international diversification. I find that countries with stronger ETF price discovery and lower limits to arbitrage have a higher comovement with the U.S. market. In the third chapter, I examine the effect of exchange traded funds on the underlying stocks conditional on the credit quality of securities in the basket. I show that U.S. industry ETFs help to alleviate the short-selling constraint present for distressed securities at the individual stock level by providing the alternative trading route to gain the negative exposure via cheap short-selling of ETFs. As a result, ETF basket membership has a positive effect on distressed stocks price efficiency. In addition, I show that distressed stocks that are members of ETF basket do not show signs of distress anomaly unlike the non-member securities.

Recent years have seen the emergence of impact bonds, which are a striking case of both the post-crisis ‘social turn’ of finance and the financialisation of social and development policy. In an impact bond, investors pre-finance new social interventions for marginalised target groups. If such a programme can demonstrate positive effects on the lives of the target group, investors are compensated by a public or charitable institution. This thesis offers an in-depth examination of the wider rationalities through which actors ‘make sense’ of and authorise such vehicles—and what political consequences this has. Using a Foucault-inspired analytics of governmentality framework, I develop three case studies of impact bonds that address homelessness and long-term health conditions in the UK, and the gender gap in educational attainment in India, respectively. My investigation is based on document analysis, 32 semi-structured interviews with project stakeholders, and participant observation at project sites and conferences. It demonstrates that, rather than simply reproducing a financial ‘script’, these programmes configure scientific, ethical, managerial, financial, and socio-political rationalities into a programmatic form that employs a fact-based approach to addressing social ills. I unpack how the focus on evidenced results both reassures individuals that they are not mistaken about what it means to invest for good and immunises projects against political confrontation. These considerations lead me to make three interventions to emphasise the ambiguity of impact bonds: (i) outcome measurement is more provisional than commonly suggested, (ii) impact bonds not only finance experimental projects but become a normalised contracting model, and (iii) their focus on ‘victims’ obscures broader socio-economic causes of the social problems addressed. At the same time, however, impact bonds also rework exclusionary constellations ‘from within’ and enable the operation of new (if imperfect) projects and everyday face-to-face interactions. They thus constitute contingent ethical moments that require ongoing engagement.

Machine learning methods have been successfully applied to stock price forecasting. Although finance practitioners and academics have advocated for the benefits of using fundamental and technical analyses together, the machine learning research has been focused on using the technical analysis based indicators almost exclusively. The main target for prediction by machine learning researchers have been forecasting of next day's price for a market index or a firm's stock. Another challenge presented in stock price forecasting is the impact of the overall stock market volatility on the individual stock prices. The aim of this thesis was to investigate into the impact on machine learning-based stock price forecasting by using various inputs (technical, fundamental, and combined) and also by accounting for the states of stock market. A framework is proposed which enables the selection of the best performing model with relevant inputs and which can also factor insensitivity of the stock's price to various states of the market. The initial simulations were run for 147 companies with 252 days out stock price forecasting, and further simulations were undertaken for 85 companies with 126 days out stock price forecasting. We show the importance and relevance of using the fundamental indicators and combination of the technical and fundamental indicators when forecasting financial time-series into the horizons of 126 and 252 days. The proposed approach for integrating the moods exhibited by the stock market is embedded into the forecasting process. The explicit identification and inclusion of the market states were more effective for 126 days than for 252 days, but also when the combined indicator set was not being used as the input. Another contribution of the thesis was the framework that provided an improved structured approach for conducting financial time series forecasting (RMSE of 0.0614 vs. 0.3175 of the Random Walk model).

The severity of the consequences of financial instability calls for studies of financial markets from many different angles to develop a comprehensive picture of possible causes. These causes were, as will be argued in this thesis, of little concern to pre-crisis financial regulation. Instead, regulation focussed on the market process as a regulatory mechanism, a stance commonly adopted under the ideology of neoliberalism that permeated political discourse from the late 1970s. Neoliberalism derived its faith in the market process from the neoclassical conception of the market. Neoclassicists believed that the market did not need a regulatory framework to efficiently allocate resources to the benefit of society. Their belief was so strong that they ignored concerns over financial instability with dire consequences that materialised during the global financial crisis. This thesis will employ the Financial Instability Hypothesis (FIH) to discuss the inherent instabilities of financial systems that are in large part attributable to financial innovation. Policymakers used financial innovation and, particularly, securitisation in the Basel Accords on capital requirements to give capital markets the power to allocate capital to the benefit of society. The FIH will reveal that securitisation contributed to driving increases in leverage and housing prices in pre-crisis years to a point where the financial system collapsed. The issues to be discussed should feature in post-crisis regulatory developments. To determine the extent to which this is the case, this thesis will discuss Basel III in light of the discussion of the FIH and securitisation. It will become apparent that Basel III introduces many important reforms, especially in the context of liquidity and leverage requirements. Since the Basel Accords used securitisation as a tool in pre-crisis years, this thesis will discuss whether Basel III continues to be informed by the neoclassical conception of the market in its market discipline mechanism. It will ultimately conclude that Basel III does not address the regulatory failures that allowed securitisation to drive the housing price bubble. It continues to believe in the efficiency of the market process.

This thesis studies the behavior of mutual fund managers. I explore the determinants of mutual fund performance heterogeneity, the drivers of their investment decisions with consequences for asset returns, and how they communicate with their investors. Chapter 2 studies the relationship between U.S. mutual funds' common holdings and fund performance. In a network where funds are connected through portfolio overlap, degree centrality of each fund represents the level of similarity with peers. The results show that holdings similarity leads to lower abnormal fund returns. Further tests suggest that information asymmetry is a potential explanation for this relationship. The negative association between holdings similarity and fund performance widens in volatile markets. In uncertain times, mutual funds move towards their benchmark due to asset management constraints. This creates negative price pressure on commonly held assets. A portfolio based on stocks owned by low vs. high degree centrality funds yields abnormal returns of 7% per year. This chapter provides new evidence of the informational advantage hypothesis as a driver of fund performance. It also highlights negative externalities of asset management contracts. In chapter 3, jointly with Dr. Constantinos Antoniou, we examine whether mutual fund managers invest more heavily in firms in which they have previously experienced higher returns. Using data from actively managed U.S. equity mutual funds, we find results that support this hypothesis. Experienced returns affect how managers rebalance their portfolios in response to flows, and influence investments at the style level. Experienced returns do not affect the investments of index-tracking funds. Experienced returns, when aggregated at the fund level across stocks, predict more aggressive trading behavior and lower fund returns, and when aggregated across managers at the stock level, predict lower stock returns. Finally, chapter 4 measures the extent of economic policy uncertainty language in mutual fund communication and its effects on flows. I test the hypothesis that mutual funds communicating more about uncertainty do so to obfuscate financially relevant information. I find that the U.S. active mutual funds that use more words related to economic policy uncertainty tend to be risky and poorly performing funds. The use of uncertain economic terms has a positive effect on fund flows. The effect is stronger for retail funds and in expansion periods. Initial fees become less salient when funds communicate more about economic uncertainty. The evidence presented in this chapter suggest that mutual fund communication matters for fund flows.

Green municipal bonds are a novel way to help unlock finance for investment in sustainable and urban infrastructure in the US. However, issuance lags in the US market due to negative perceptions such as high cost, low returns, and greater risk. In this study we aim to demonstrate that US green municipal bond performance is consistent with the returns of general municipal bonds, which can improve investor confidence and increase demand. The performance of this bond sector is assessed through two different means: through the creation of a green municipal bond index and benchmarking its performance against an overall municipal bond index; and by looking for a price difference between green municipal bonds and their conven- tional counterparts through yield curve assessment. Increased investment in this sector could be triggered by showing that the green municipal bond sector performs similarly to, or better than, conventional municipal bonds. We found that an in- dex comprised of green muni bonds outperforms the closest equivalent S&P index from 2014-2017, and there is a statistically significant green premium ("greenium") present in the secondary muni bond market of at least 3 basis points in 2017. There was no conclusive evidence for the presence of greenium at issue in the primary market, however there are some signs that this could change, and furthermore we do not observe that green muni bonds come to market at a discount. These results are key to encouraging growth in the green municipal bond market, which can help American cities to target ESG and SRI investors and unlock more capital for green and climate-aligned infrastructure projects.

This thesis examines the effect of board characteristics on mutual funds' risk-taking, return, and market share in the Chinese mutual fund industry, over the period of 2005 to 2015. The thesis investigates the impact of ownership structure on funds' return and market share in the Chinese mutual fund industry between 2005 and 2015. Moreover, the thesis examines the effect of fund managerial attributes on mutual fund performance, as proxied by efficiency and risk-adjusted return during the period from 2005 to 2013. Firstly, this thesis is the first study to investigate the interplay between board characteristics and risk-taking behavior of Chinese mutual funds. Due to data limitation, we manage to collect manually the governance variables, for instance board size, board structure and gender. We adopt two different measurements of funds' risk-taking, namely funds' total risk and concentration risk. Larger board size leads to a lower stock concentration risk. A greater percentage of independent directors in a board are associated with a lower bond concentration risk. In addition, the representation of female directors on a board not only increases total risk, but also increases concentration risk.

This dissertation comprises three empirical studies that aim to investigate the role of financial regulation in curtailing the systemic risk posed by shadow banks. The focus of this work is on money market funds (MMFs), a type of shadow bank. In the first empirical study, we examine prime MMFs after the introduction of the minimum liquidity requirements mandated in the 2010 Amendments to rule 2a-7 of the US Investment Company Act of 1940. We show that liquidity requirements have considerably increased the resilience of prime funds. We also show that funds increase their liquidity to meet expected redemptions. But liquidity does not shelter risky funds from lower inflows in a crisis. In the second empirical study, we assess the response of MMFs and their investors to the 2016 Amendments to rule 2a-7. We show that following the segregation of retail and institutional prime MMFs required by the new rules, these funds have become different in their liquidity positions, maturity structure, competitiveness and risk management. Institutional prime MMFs maintain higher liquidity and tend to increase their liquidity actively as they increase the credit risk of their portfolios. On the contrary, retail prime MMFs have become more relaxed in their liquidity management, possibly because of lower market discipline that was previously enforced by the presence of institutional investors in their shareholder mix. In the third study, we look at the changes in MMFs after the introduction of floating net asset value (NAV) requirements as mandated by the 2016 Amendments. We show that the floating NAV is seen by institutional investors as a new indicator of performance that they utilize to make investment decisions. Institutional investors prefer funds that maintain higher NAV in order to benefit from capital gains. Furthermore, we observe that to increase NAV, funds tend to keep liquidity low, invest in longer maturity, higher risk securities. So, to boost NAV a fund must take on more risk, which could lead to amplification of risk during crisis periods.

This thesis aims to examine the long-run determinants of the real exchange rate, and to identify the sources of real exchange rate and relative stock price short-run fluctuations. In chapter 1, I incorporate the relative stock prices into the Dornbusch's Mundell-Fleming Real Exchange Rate Model in order to investigate the long-run relationship between the money, goods and stock markets. In chapter 2, I build on the work of Dornbusch (1976), Clarida and Gali (1994), Malliaropulos (1998) and Hoffmann and MacDonald (2000) in order to form the sticky-price equilibrium solution for identifying the source of real exchange rate fluctuation. In chapter 3, I empirically investigate whether the financial crises, the US monetary policy and the exchange rate regime switching of a country affect the real exchange rate co-moment. In addition to the cross-country real exchange rates correlation, the evolution of the equilibrium real exchange rates equicorrelation and temporary real exchange rates equicorrelation are also examined. In chapter 4, I present a model which builds on the stochastic rational expectations open macro model presented by Obstfeld (1985) and Clarida and Gali (1994) and incorporates Malliaropulos's (1998) theoretical relationship between the real exchange rate and the relative stock differential. The model provides both the short- and long-run flexible price solution for identifying the source of relative stock prices. In chapter 5, I attempt to investigate whether the exchange rate can predict future changes in the stock market return and in the economic performance of a country. I present a model that can be used for analysing whether the real exchange rate or the real exchange rate misalignment would contain an economically significant predictable component on forecasting the future stock price movement and the real output.

The current thesis is a collection of essays on costly signaling, smoothing (partial adjustment), and risk shifting through various pay outs by bank holding firms. The thesis is based on three chapters, or sections, which are through econometric investigations on the above mentioned topics. The major findings of the investigations are, one, a detailed firm level information content analysis of costly signaling by banks via different pay out methods, two, that partial adjustment or smoothing via pay outs can also be perceived as costly signals which is based on the information content of allied measures like bank specific speed of adjustments, and half-life periods, three, that rather than dividend pay outs share repurchases play relatively significant role in risk shifting exhibited by banking firms. Chapter 1 is devoted to the analysis of different types of dividend and other pay out signaling under information asymmetry (between the outsider shareholders of banks and the insider managers), and impact of various bank specific variables on the levels of pay outs/ signaling, thus revealing the information content of such signaling. Both panel data analysis and vector auto regression analysis have been conducted to achieve these findings. Another finding in this section is a comparative analysis between share repurchases and dividend pay outs by bank holding firms. Chapter2 is devoted to the investigation of bank specific partial adjustments of dividends, a modified partial adjustment model is used which is capable of investigating bank specific speeds of adjustments and half-life periods which may vary over periods. Such a model is an improvement over basic smoothing models in the standard literature which have mainly investigated the industry average speed of adjustment, and hence less efficient in investigating the bank specific information content of such measures. Chapter 3 provides analysis based on a system of equations model on, one, whether risk shifting has been exhibited by the bank holding firms for a comprehensive period between 1990-2015, and two, which are the specific pay out channels through which such risk shifting or wealth transfers have taken place.

Several theoretical studies suggest the importance of the macroeconomy for credit default swap (CDS) pricing. However, only few studies empirically investigate the effect of macroeconomic variables on CDS spreads. The previous analysis is further limited to only one or two macroeconomic variables. This provides a motivation for this PhD thesis to conduct an extended analysis on how macroeconomic variables, capturing various dimensions of the economy, affect CDS spreads. In addition, in contrast to the previous literature, the analysis here examines not only the effect of macroeconomic fundamentals but also macroeconomic uncertainty. The thesis comprises three empirical chapters, all employing U.S. CDS data between March 2009 and December 2016. Chapter 3 employs the time series framework to explore how macroeconomic variables affect spreads of investment-grade and high-yield CDX, which are traded CDS indices. Chapter 4 accounts for the firm heterogeneity by incorporating firmspecific variables and explores how macroeconomic level and macroeconomic volatility affect single-name CDS spreads within the panel data analysis framework. Chapter 5 adopts a different angle by studying how macroeconomic news announcements affect CDS spreads. Chapter 3 finds that CDX spreads decrease with total nonfarm payroll growth but increase with industrial production growth volatility. A larger share of explained variation in CDX spreads is accounted for by macroeconomic level variables, while macroeconomic volatility is responsible for a smaller but, nevertheless, sizable share of explained variation. High-yield CDX spreads are more sensitive than investment-grade CDX spreads to macroeconomic variables. Chapter 4 further finds that single-name CDS spreads increase with leverage, industrial production growth volatility and 3-month Treasury Bill rate volatility but decrease with total nonfarm payroll growth. Firm-specific variables account for more than 90% of explained variation in single-name CDS spreads, with macroeconomic variables explaining a considerably smaller remaining share of variation. Similar to CDX spreads, single-name CDS spreads of high and low credit quality differ in their sensitivity to macroeconomic variables. Furthermore, Chapter 5 finds that unexpected announcements in total nonfarm payroll, advanced retail sales, and the ISM manufacturing index reduce CDX spreads. Unexpected announcements in total nonfarm payroll have the most profound effect. The analysis in all empirical chapters highlight the importance of nonfarm payroll, an employment indicator which has not been previously investigated in the CDS pricing literature, indicating its relevance for future theoretical and empirical CDS pricing models.

The global financial crisis towards the end of the last decade saw an increasing need in the role of risk measurement and management in the mainstream financial investment market. Among other things, the measurement and management of market risk, credit risk, and operational risk have become pronounced than ever before. Different strategies have been employed in dealing with the unpredictable nature of the market. This research focuses on the risk-driven investment in public real estate. The aims of this research are threefold 1. To examine whether the real estate allocation based on risk parity leads to better performance compared to other allocation methods 2. To assess the performance of market risk models, namely value at risk (VaR) and expected shortfall on the real estate market. 3. To investigate the volatility transmission of the UK implied volatility index and UK REITs with traded options The results for the risk allocation generally show that risk parity does in some instances perform better than other allocation methods. Concerning market risk modelling, VaR offers much simple modelling in comparison to expected shortfall. The challenge in the expected shortfall is in its time-consuming nature but it does address the shortcoming of VaR. With regards to the volatility transmission, the results are significant there showing that there is a volatility spillover (transmission) between the changes in implied volatility of the FTSE 100 volatility index, the REIT companies with traded options and the UK REIT index prices.

The theory of stock price models under fixed transaction costs is a relatively little explored area of modern mathematical finance. This thesis introduces a fixed transaction cost process and uses it to not only explore the world of fixed transaction costs, but also combine fixed transaction costs with proportional transaction costs (so-called combined transaction costs). We prove a no-arbitrage equivalent condition for a model under combined transaction costs by re-visiting the existing no-arbitrage conditions for proportional and fixed costs respectively, and proving each of them, by taking a first principles approach. This result can be seen as the fundamental theorem for a model under combined transaction costs. This research on combined transaction costs also presents an extensive contribution to the analysis of European derivative securities. A distinction is made between the situation when the number of derivatives that can be traded on demand is limited compared to when it is unlimited. It will be shown that the ask and bid prices of a derivative security are unchanged by the presence of a fixed transaction cost when the derivative can be purchased in unlimited quantities. One of the main achievements here is a risk-neutral representation for the ask and bid prices of European derivative securities under combined transaction costs when the quantity of the derivatives that can be purchased on demand is restricted, as it overcomes hurdles connected to the lack of convexity which is involved in the combined cost ask price calculation algorithm.

This thesis is built on three different topics in corporate dividend policy and governance. The first paper, studied in the second chapter, empirically examines the determinants of the dividend policy of nonfinancial nonutility widely traded firms in Gulf Cooperation Countries (GCC) markets. Applying a multivariate logit model, with Fama and Macbeth statistical methodology (1973), to yearly unbalanced panel data for a sample of 199 GCC-listed firms over the period 1996-2011. The findings indicate that dividends-paying firms are older, more lucrative and internally generate funds with various opportunities to expand than those firms that do not payout dividends. In addition, the findings emphasize that the main determinants that help explaining the variation in GCC firms' dividend policy are profitability, assets growth, firm size, leverage, ownership structure and retained earnings. The results show a significant positive relationship between the propensity of the firm to pay dividends, size of the firm, retained earnings and institutional investors, but a significant negative relationship with growth, block holding and leverage. However, so long as firms grow, their cash balances and historical dividends became immaterial to their tendency to payout dividends. These findings are consistent with the life cycle theory and free cash flow hypothesis of agency cost theory. The second paper, examined in the third chapter, is on the dynamic nature of the linkage between the ownership structure of a firm and its performance as measured through Tobin's Q ratio. The study consists of 290 nonfinancial nonutility companies incorporated in GCC financial markets, over the period 2008-2013. It uses a dynamic approach (i.e. system dynamic generalized method of moments (SDGMM) estimator) to address the 'dynamic endogeneity' issue considered by Wintoki et al. (2012) and Nugyen et al. (2014). The findings emphasise the role of the 'dynamic nature' of the relationship in enhancing the firms' performance. Specifically, concentrated ownership (as a proxy for internal corporate governance mechanisms), do substitute the poor external corporate control by markets of GCC countries. The third paper, examined in the fourth chapter, builds a bridge between the first and the second paper by examining the linkage between the corporate dividend policy and corporate governance. Given the fact that dividends can be substituted with gender-manifold boards in mitigating agency-related costs (Saeed and Sameer, 2017). For this effect, this chapter will investigate the impact of gender diversity on the probability of the firm to pay dividends. The Logit model is estimated to bilateral (treated vs. control firms) data over the period 2006-2016, after employing two statistical methods, namely, (i) the propensity score matching method to address selection biases; and (ii) all independent variables are one-year lagged to mitigate the effect of unobserved omitted variables (Chen et al., 2017). The findings indicate that female directors do influence the decision making of corporate's board they work for. The inclusion of the female in corporates' boards has a significant positive impact on dividends payout decision. In addition, using different specifications and identifications did not change the main conclusion approached by applying Logit model.

This thesis consists of three essays on equity financing by UK firms, focusing primarily on Private Placement (PPs). PPs have dominated the Seasoned Equity Offering (SEO) landscape in the UK since 2000, whereas Rights Issues had done so previously. While the SEOs have traditionally been the preserve of large firms, in the UK, this has changed in the past decade. The Alternative Investment Market (AIM), with light touch, self-regulated equity market provisions has been the facilitating factor. Since firms issuing PPs are often financially constrained, it is puzzling that institutional investors participate. Chapter 2 provides an answer to this puzzle by investigating the misvaluation, growth prospects, underpricing and use of proceeds of PP firms. Results show that firms engaging inPPs are undervalued, belong to undervalued sectors and have higher growth prospects than firms making public offers. These aspects and deep discounts make them attractive to sophisticated investors despite being resource constrained. Short run undervaluation is associated with significant post-issue increases in total assets and capital expenditures whilst growth prospects positively impact R&D. In Chapter 3 short and long term market reactions are evaluated. The market reaction to private placements is nearly 3% as measured by cumulative abnormal returns five days around the issue date. The long term reaction, measured by buy-and-hold abnormal returns over three years post-issue, is insignificant. Chapter 4 investigates the impact on leverage of frequent equity issuers. We find 65% of UK firms have repeatedly issued equity during 1995-2015 and have higher leverage ratios than single issuers, implying that proceeds are not used to reduce debt. There is no significant difference in the cash flow sensitivity of debt and cash holdings between multiple and single issuers. Differences appear when we take into consideration the market the firm is listed (AIMversus main market).

The main focus of the research reported in this thesis is the dividend signalling theory. More specifically, I investigate the dividend signalling theory from the perspective of orthodox finance and from the perspectives of two unorthodox areas of finance (behavioural finance and the calendar anomalies literature) using a sample of firms from the FTSE 350 index observed between 1990 and 2015. The thesis revolves around four research questions. First, do dividend changes contain any information about future earnings? Second, do dividend-increase (decrease) announcements have a positive (negative) effect on stock returns? Third, does investor sentiment play any role in the reaction of the stock market to dividend announcements? And fourth, do calendar anomalies play any role in the relationship between dividend announcements and stock returns? My thesis employs an empirical approach and makes original contributions to the behavioural finance literature, the corporate finance literature and the literature on calendar anomalies. According to my analysis, there is no evidence that dividend-increase (decrease) announcements are followed by increases (decreases) in firm earnings. However, at the same time, I document that dividend-increase (decrease) announcements are accompanied by abnormal increases (decreases) in stock market returns. These conflicting findings represent a puzzle that I would hope to investigate in my future research. From a behavioural finance point of view, I also find some evidence that investor sentiment influences the response of stock prices to dividend announcements. More specifically, I document that dividend-decrease announcements have a smaller than usual negative effect on stock returns when temperature in London is high and, as a result, investor sentiment is likely positive. Similarly, I find that the negative impact of dividend-decrease announcements on returns is bigger than usual when the air pollution level in London is high and, as a result, investor sentiment is negative. With regards to calendar effects, consistent with the "sell in May and go away" anomaly, I document that the stock market reacts more positively to dividend-increase announcements during the November-April period than during the rest of the year, and the stock market reacts less negatively to dividend-decrease announcements during the November-April period than during the rest of the year. Regarding the turn-of-the-month anomaly, I find that that the stock market reacts less negatively (actually positively) to dividend-decrease announcements if they occur at the turn of the month than if they occur during the rest of the month. Counter-intuitively, the stock market seems to react less positively (more negatively) to dividend-increase (decrease) announcements if they occur in January than if they occur during the rest of the year. Previous investigations of the dividend-signalling theory have relied exclusively on an orthodox approach; the findings documented in this thesis suggest that future investigations about this theory could benefit from the insights produced by the behavioural finance literature and the literature on calendar anomalies.

I use a unique sample of 617 U.S. firms adopting the dual class structures for at least a period of their lifetime from 1994 to 2013 to examine the relation between the presence of disproportional voting rights and outside shareholder wealth. I find that the presence of restricted-voting shares is insignificantly related to the buy-and-hold-abnormal returns for the windows of 1-, 3- and 5-year after the initial public offerings. In addition, the presence of dual class structures would reduce a firm’s probability of being taken over by around 20% but would not increase the amount of takeover premium conditional on the successful takeover. Theses empirical findings are consistent with the theoretical prediction that dual class structures may have both positive and negative impact upon shareholder wealth and it is difficult to tell whether the positive or the negative impact prevails. Practically, the finding implies that, for policy makers, the decisions to allow for or abolish dual class structures may depend on the country’s legal environment.

This doctoral thesis investigates the incentives that affect the decisions of firms to undertake R&D investment and examining the impact of financial constraints on the levels of R&D expenditure of AIM-listed firms in the UK. The thesis comprises six chapters. The first chapter provides an introduction to the research, followed by an overview of the Alternative Investment Market in Chapter 2. Chapter 3 investigates the incentives that influence a firm’s decision to carry out R&D investment. The key empirical findings from a dynamic logistic regression suggest that large sized firms are better at generating innovative activities, that young firms tend to be more likely to innovate, that competitive markets are better at stimulating innovative activities, and that corporate income tax rates have a positive impact on this probability. Chapter 4 explores the impact of financing constraints on the levels of R&D expenditure. Using a system GMM estimator, the empirical findings suggest that working capital buffers R&D levels from transitory financial shocks, thus avoiding the high adjustments costs associated with any change in levels of R&D investment. Chapter 5 investigates the impact of the proceeds from the disposal of fixed assets on R&D expenditure. In contrast to prior literature, the main findings of this chapter suggest that there is a negative association between R&D expenditure and the cash raised from voluntary asset sales, indicating severe binding financing constraints. Practical implementations, promising ideas for future research, and the main findings of this research are summarized in the concluding chapter of the thesis.

This PhD dissertation comprises four essays on forecasting financial markets with unsupervised predictive analytics techniques, most notably time series extrapolation methods and artificial neural networks. Key objectives of the research were reproducibility and replicability, which are fundamental principles in management science and, as such, the implementation of all of the suggested algorithms has been fully automated and completely unsupervised in R. As with any predictive analytics exercise, computational intensiveness is a significant challenge and criterion of performance and, thus, both forecasting accuracy and uncertainty as well as computational times are reported in all essays. Multiple horizons, multiple methods and benchmarks and multiple metrics are employed as dictated by good practice in empirical forecasting exercises. The essays evolve in nature as each one is based on the previous one, testing one more condition as the essays progress, outlined in sequence as follows: which method wins overall in a very extensive evaluation over five frequencies (yearly, quarterly, monthly, weekly and daily data) over 18 time series of stocks with the biggest capitalization from the FTSE 100, over the last 20 years (first essay); the impact of horizon in this exercise and how this promotes different winners for different horizons (second essay); the impact of using uncertainty in the form of maximum-minimum values per period, despite still being interested in forecasting the mean expected value over the next period; and introducing a second variable capturing all other aspects of the behavioural nature of the financial environment – the trading volume – and evaluating whether this improves forecasting performance or not. The whole endeavour required the use of the High Performance Computing Wales (HPC Wales) for a significant amount of time, incurring computational costs that ultimately paid off in terms of increased forecasting accuracy for the AI approaches; the whole exercise for one series can be repeated on a fast laptop device (i7 with 16 GB of memory). Overall (forecasting) horses for (data) courses were once again proved to perform best, and the fact that one method cannot win under all conditions was once more evidenced. The introduction of uncertainty (in terms of range for every period), as well as volume as a second variable capturing environmental aspects, was beneficial with regard to forecasting accuracy and, overall, the research provided empirical evidence that predictive analytics approaches have a future in such a forecasting context. Given this was a predictive analytics exercise, focus was placed on forecasting levels (monetary values) and not log-returns; and out-of-sample forecasting accuracy, rather than causality, was a primary objective, thus multiple regression models were not considered as benchmarks. As in any empirical predicting analytics exercise, more time series, more artificial intelligence methods, more metrics and more data can be employed so as to allow for full generalization of the results, as long as all of these can be fully automated and forecast unsupervised in a freeware environment – in this thesis that being R.

Sell-side analysts represent something of an enigma; the literature suggests they are optimistic and conflicted in their stock recommendations, yet these same stock recommendations impact share prices and so are clearly important for capital markets. To unlock and explore this conundrum, this study conceptualises stock recommendation decisions as primarily social in nature. Consequently, this situates the research outside of the predominantly neo-classical economic model reflected in the mainstream analyst literature. Giving voice to the sell-side analyst participants was central to the study. It explored their experiences of making decisions in the midst of a complex, changing social environment. Based on a field study, the empirical evidence was collected from focus groups and semistructured interviews with sell-side analysts. Semi-structured interviews were extended into the analysts' network to include internal clients, external investment managers and corporate officials. Strong structuration theory was drawn upon extensively through every stage of the research as a revealing lens to sensitise the researcher to the structural and agential aspects of analyst practices, with a specific focus on rating decisions. The findings suggest that regulatory tightening over the last decade has created an independent causal external structure that materially constrains and transforms the practices of sell-side analysts. Power dynamics, the levying of sanctions, a diverse analyst habitus and the exercise of resistance all remain integral to understanding company-analyst relations and action. Fieldwork evidence reveals that the sales force, largely ignored in the mainstream literature, represents a powerful agent cluster in close time-space proximity to analysts. By viewing the conduct of analysts as the outcome of cycles of structuration, further light can be shed on the low level of sell recommendations in the market, the use of calculative routines to legitimise ratings and the capitulation point, whereby an analyst abandons a poorly performing stock call.

The thesis focuses on the impacts of market distress conditions and firms’ default probability on two key investment strategies in the UK. These are investment decisions in value firms versus growth firms (chapter 3), and well-performing firms versus poorly-performing firms (chapter 4). Although distress risk (measured by the market conditions and default probability) is a relevant factor in explaining the general movement of stock returns, this is the first study addressing a direct link between these distress elements and the above two investment choices. The thesis employs a range of distress indicators, including the following: firm-specific proxies such as Fama-French’s (1993) three factors (i.e. the market beta, firm size and book-to-market factors), idiosyncratic volatility, default risk, and market-related factors (e.g. business cycles, market downturn and upturn conditions). More recent data and well-developed proxies are used to make sure the results are valid and robust. First of all, the thesis finds positive abnormal returns from investing in value and momentum companies. Among these investment strategies, momentum stocks generate significant profitability in the short run. However, the value firms’ investments generate positive but insignificant profit. In terms of explanatory ability, distress risk is found to play an important role in explaining value and momentum anomalies. For example, there is evidence that highly volatile stocks tend to suffer greater default risk, and that stocks with a higher default risk generate lower returns. The results in this study also suggest that momentum-oriented investors would benefit from significantly high returns during market upturns, however these strategies would lead to great losses during recessions.

This thesis investigates the various roles that the information provided by Exchange Traded Funds (ETFs) could play in asset pricing and market prediction. The empirical analysis contains three parts: The first part extracts information from the US ETFs market and constructs explanatory returns to price the Fama-French portfolios. It aims to provide a parsimonious model (the ETF-factor model) that is able to compete with the five-factor model of Fama and French (2015) and the q-factor model of Hou, Xue, and Zhang (2015). The second part applies the ETF-factor model, along with other conventional pricing models, to measure US equity fund performance. In addition, it attempts to develop relative pricing models as passive benchmarks for measuring US fixed-income fund performance by using information from bond ETFs. The purpose of the third part is to develop a new measure of Chinese investor behaviour that has predictive power for the Chinese market by using the information provided by respective ETFs. The results suggest that ETFs deserve more attention in academic research. In line with conventional financial theory, ETFs’ market dramatically increases the investment universe and securitizes illiquid assets. It comes as no surprise that the risk factors developed from ETFs have explanatory power for a cross-section of stock returns. In addition, a proxy for the bond market can be developed from bond ETFs. This avoids the subjective selection of the bond index as a passive benchmark and can provide a unique pricing model for bonds. Furthermore, research on ETFs contributes to the behavioural finance literature. Investor sentiment is a very important concept in behavioural finance. This thesis finds evidence that the investor behaviour that uses information from ETFs explains and predicts the Chinese market. In addition, it could lead to a profitable high-frequency trading strategy in actual trading. Overall, this thesis researches ETFs from a new perspective. It does not view the ETFs as an investment vehicle but consider ETFs as a type of fundamental asset in the economy. The findings of this thesis contribute to the literature of asset pricing, behavioral finance, and market prediction, and identifies new areas for future research.

I study questions related to risk premia in international equity markets and broad asset classes, and the role of financial intermediaries – market makers (dealers) and institutional investors – in shaping the price dynamics. This thesis consists of four essays. In the first essay, we study the importance of foreign institutional investors in the capital allocation process worldwide. We find that stocks that are held more by foreign institutional investors have more informative prices unconditionally and conditional on the same level of local institutional ownership. Foreign investors contribute to price informativeness about as much as local investors, especially for stocks in non-U.S. countries. The magnitude of the effect is robust to various endogeneity concerns. In the second essay, we use a unique transaction-level dataset on over-the-counter foreign exchange derivatives – forwards, swaps and cross-currency swaps – to study the failure of textbook no-arbitrage condition in FX markets, the covered interest rate parity (CIP). Empirically, we show that the newly introduced regulatory requirement on the balance sheet contributes to the violation of CIP. We solve the endogeneity issue by using an exogenous variation arising from the implementation of UK leverage ratio framework. In the third essay, we construct a strategy that buys securities with low past overnight returns and sell securities with high past overnight returns generates sizeable out-of-sample excess returns and Sharpe ratios. This strategy outperforms the conventional short-term reversal strategy for major international equity markets and futures written on equity indices, interest rates, commodities, and currencies. We find that the cross-sectional return volatility explains the returns from this strategy consistent with time-varying limits to arbitrage. In contrast, traditional risk factors fail to price these excess returns. In the last essay, we carry out the first cross-country analysis of the correlation risk premium. We examine the statistical properties of the implied and realized correlation in European equity markets and relate the resulting premium to the US equity market correlation risk and a global correlation risk factor. We find evidence of strong co-movement of correlation risk premia in European and US equity markets. The results support the hypothesis that a global correlation risk factor exists and that it is priced in international equity option markets. Finally, we document the relationship between the correlation risk premium on macroeconomic policy uncertainty and other uncertainty measures.

With the growing importance of defined contribution (DC) pension funds around the world, concerns have arisen over their ability to provide adequate income replacement for members and the liquidity of their invesments. The first part of this thesis focuses on the illiquidity associated with real estate investments. The first chapter provides a discussion of liquidity within the context of DC pension funds. The second empirical chapter employs the tracking error optimisation procedure in the construction of portfolios that include direct real estate and selected liquid, publicly traded assets. We find that this helps to improve the performance of these blended portfolios. In the second part of this thesis, we look at various ways in which the real value of DC pension contributions can be preserved. The third empirical uses contemporary econometric approaches in the analysis of the dynamic relationship between asset returns and inflation/interest rate changes. Real estate and bonds were found to be a hedge against all the inflation/interest rates measures analysed. Some non-UK assets were also found to be a good hedge against selected benchmarks. The fourth empirical chapter of this PhD thesis examines the optimal allocation within portfolios designed to hedge against the various inflation and interest rate benchmarks. When the investment objective is to strictly track these benchmarks, bonds and real estate dominate the portfolios. Real estate, stocks and alternative assets receive significant allocations within the portfolios constructed to provide maximum risk adjusted returns relative to the minimum return benchmarks. We observe that the allocation to real estate reduced significantly following the global financial crisis period with bonds appearing to take its place. On the whole, this thesis contributes to the discussion on how best DC pension portfolios could be designed to comply with current investment regulations regarding liquidity and minimum returns requirements.

This thesis consists of a number of publications which deal with various aspects of the financial aspects of UK occupational defined benefit pension schemes. It is divided into six main sections covering (1) the history of pensions and medieval corrodies, (2) the asset allocation decision and asset-liability models, (3) valuing schemes and setting the contribution rate-actuaries versus economists, (4) different scheme designs and the redistribution of penSion wealth, (5) interactions between the sponsor and the scheme and how they affect scheme asset allocation and scheme mergers, and (6) the replication of annuities. The common theme of these papers is the application of the techniques of financial economics to defined benefit occupational pension schemes, as opposed to those of the actuarial profession. This allows the application ofa logical and consistent methodology that sheds new light on old problems.

Mutual fund is a burgeoning business in not only US but the world. There is a growing tendency that participations of individual investors in financial market are migrated to mutual funds, an indirect channel to invest. Thus, the flows to and out of mutual funds, once a neglected topic, are becoming a new field for financial study. The primary instrument and subject of my PhD is mutual fund flows. Mutual fund flows have special merits for academic research. Firstly, it is purely driven by demands but not supplies, as the supply elasticity of mutual fund is nearly infinite. The characteristic reveals investor behaviours and decisions in a mass scale. Traditional instruments for behaviour studies relies on asset prices and volumes, which are less exogeneous as they are driven by both demand and supply. Secondly, mutual funds specify their objectives and asset classes in prospectus. The characteristics help us understand how investors respond to changing market conditions by changing their exposures on asset classes or styles. Thirdly, a majority of individual investors in mutual funds (as suggested by ICI statistics) provides a natural field for behavioural finance. Fortunately, data is available not only at aggregated level, but also individual and account level, which serve as a great supplement to the existing studies using trading data. The second chapter is based on a simple hypothesis: if flows are (rationally) responding to fund performance, what information does the flow-performance sensitivity convey? How flow, a measure of actual fund investor trading decisions, helps us decompose and finely measure the outcome of these investors? The study is based on several established papers on flow performance relationships in mutual fund market. Warther (1995) is a pioneer paper that discovers a significant correlation between flows and performance. Sirri and Tufano (1998) discovers a convex-shaped flow-performance function and attributes the cause to asymmetrical information. Berk and Green (2004) established a model in which investors trade against good performers and against bad performers but funds themselves suffer from diseconomy of scale. As the fund change in size, it deviates from optimal portfolio size and IV result to better or worse performance. Huang, Wei and Yan (2012) argues that flow performance sensitivity is a rational investor learning process. Based on their arguments, I obtain a simple but effective proxy for investor sophistication: the sensitivity of flows to recent (abnormal) performances. To granularly measure their respective performance, I decompose their performance into three aspects: abnormal returns, fees and timings, a scheme proposed in Fama (1972). The abnormal return is alpha on a four-factor model, which is a traditional before fee, relative measure of whether a fund has beat the market. Fee selection takes into account the average fees that jeopardize the performance and timing cost is measured by “performance gap”, a concept used in Nesbitt (1995); Dichev (2007); Friesen and Sapp (2007); Bullard, Friesen and Sapp (2008). The result is that sophisticated investors earn higher risk adjusted returns and avoid high fees. In addition, investors’ timing performance can be greatly improved by trading less, with the most significant improvements seen on most sophisticated investors. The research question in third chapter is: is there a calendar effect for flow-performance relationship? Does the shape of the function change across the months and what drives the change? The study fills the gap by emphasizing several exogeneous factor of flow-return relationship such as portfolio rebalance and tax-loss selling which interact with calendar dates. Previous literature commonly finds a convex function. Chevalier and Ellison (1997) is first to document the convexity and they argue the convexity may incentivize agency problems. Sirri and Tufano (1998) explained using information search cost and Lynch and Musto (2003) explained with survivalship bias of mutual fund strategies. However, all the study examines only average shape of the flow-performance function. None of them attempt to tackle calendar effect. Calendar effect is potentially a strong determinant of flow performance relationship. Factors such as tax-loss selling (Constantinides (1983)), portfolio rebalance, disposition effect (Kaustia 2011)) and seasonal variation in risk appetite (Kamstra et al. 2017) may interact with dates and change the flow-performance relationship. In this study, I conduct a similar flow-performance regression for each month. The regression is piecewise which separates the sensitivity of mutual fund flows to returns into five parts. I also construct a concise measure of whether a group of funds are bought or sold at any time during the year to disentangle several confounding effects. I find that the shape of the function does change throughout the year and they are affected by tax-loss selling and portfolio rebalance. In fourth chapter, I focus on a special group of funds, the leveraged funds, which mainly caters for day traders. The research question is whether their flows reflect market wide sentiment. Leveraged funds are funds that allows investors to bet on daily performance of stock indexes with leverage and direction. As these funds track only daily index returns and investment horizon longer than one day will result to material deviation from index returns, these funds are unlikely used by mid- or long-term optimizers. As common study suggest too much trading can be harmful (Barber and Odean 2000), I notice that the flows for these funds may be sentiment driven. In this study, I obtain daily flows of nearly 100 largest leveraged funds trading in US and extract the first principal component from these funds. In addition, I follow Baker and Wurgler (2006a) to construct a daily sentiment index (the alternative sentiment measure) from several market variables, which are purposely chosen to be unrelated to fund markets. I find that the first component from leveraged funds is associated with investors’ migration between bull and bear funds and it has strong correlation with our alternative daily sentiment measure. In a later test, the two sentiment measures have similar price impact as a hypothetical sentiment measure would have. I have also examined the limits of arbitrage effect proposed in Shleifer and Vishny (1997). The sentiment component predicts similar cross-section of price revision for up to 7 days into future.

This thesis has developed alternative approaches for inflation forecasting and analysed the inflation risk premium in the context of commodity futures and options markets. Chapter 1 proposes an approach to tackle the non-availability of exchange-traded inflation futures price data. The composition of the consumer price index enables us to recognise the commodities which correspond to the consumption goods in the CPI. By averaging the commodity futures prices in the same way as the CPI is composed, we construct a synthetic futures contract written on the consumer price index, i.e. a futures on the CPI proxy, based on which we derive a ‘point’ forecast of inflation rate. Chapter 2 analyses the term structures of futures on the CPI proxy using the Schwartz (1997) method. Inspired by the Schwartz (1997)’s framework, we develop a two-factor valuation model filtering the spot consumer price index and the instantaneous real interest rate. The Kalman filter is applied to estimate the two-factor valuation model parameters. The filtered spot consumer price index may help alleviate the publication lag in the U.S. CPI-U index. What’s more, the two-factor valuation model is capable of forecasting the downward trend in the U.S. CPI inflation rate during May 2014 to December 2014. Chapter 3 forecasts the inflation rate from the perspective of commodity futures option market. We construct a synthetic option contract written on the futures on the CPI proxy. Based on a synthetic option implied volatility surface, we derive an interval estimate for the one-year ahead expected inflation rate. Moreover, the fact that commodity futures option market data is high-frequency enables our method of inflation forecasting to theoretically capture the market expectation of price level evolution in the real time. Chapter 4 estimates the inflation risk premium using commodity market data. We derive a link between the inflation risk premium and the risk premium associated with the futures on the CPI proxy. The negative inflation risk premium estimates in our result are consistent with the recent inflation risk premium estimates in the macroeconomic inflation risk premium literature.

This thesis contributes to the broad body of research in the area of money markets, and focuses on repurchase agreements (repos). In the three main chapters of the thesis, I empirically investigate the determinants of the funding liquidity in the repo markets, and the interconnections between the repo markets and the sovereign bond markets. First, I evaluate the impact of sovereign bond riskiness, repo riskiness and treasury auctions on the security-specific costs of procuring Italian government bonds as collaterals (which I call repo specialness) for 1-day repo contracts. I provide evidence that bond supply and riskiness, repo liquidity,speculative demand, bond fire-sales and the unconventional interventions by the European Central Bank (ECB) drive the repo specialness. Additionally, I identify recurrent patterns for specialness around bond auctions, which are consistent with an overbidding behaviour of primary dealers. Next, I explain the intraday variations of the spread between the rate of Italian GC overnight repos and the ECB deposit rate. The intraday repo spread is higher in the morning than in the afternoon, suggesting that banks ensure funding liquidity at the beginning of the day for prudential liquidity management. Collateral riskiness, repo riskiness, and the excess liquidity provided by the ECB affect the intraday repo spread. Moreover, bond supply, liquidity, modified duration, repo specialness and the margin costs determine the selection of bonds used in GC repos. Finally, I analyse which factors explain the use of CCP-based repos with respect to bilaterally-traded (BIL) repos on Italian Treasuries, as well as the difference of their repo rates. When general market uncertainty increases, CCP repos are preferred to bilateral-traded repos. However, banks demand a risk premium on top of the BIL repo rate when the margin costs are above their median value, suggesting that higher margins make it less attractive to trade via CCPs.

The global financial system was marked by several crises frequently connected to Commercial Real Estate (CRE). As a precursor to financial crisis events, the phase of Financial Instability (FI) is generally considered from a more macroeconomic perspective with a focus on systemic risk to better identify environmental dynamics in the run-up to such a crisis. However, there is no common understanding about FI on a corporate level that enables organisations to undertake such a strategic analysis. This study aims to explore the corporate meaning of the phenomenon from a managerial perspective. It emphasises executives` lived experience in FI and the underlying procedures in organizational sensemaking. The data was collected using semi-structured interviews with senior executives of German CRE companies with reference to the Global Financial Crisis (GFC) 2007/08. Within the social constructivist paradigm, the study adopts a hermeneutic phenomenological research approach using the theoretical lenses of van Manen's 'lifeworld existentials' and Weick's 'properties of sensemaking'. The corporate definition of FI that emerged from this study extends existing ones. The revealed procedures indicate that organisational sensemaking was underrepresented in such a phase. From this, qualitative indicators and implications are developed grounded in behavioural dynamics of the market participants. The findings of this research contribute to theoretical and applied knowledge about FI. The study proposes the systematic incorporation of this definition and sensemaking procedures by executives and institutionalises the monitoring of the developed indicators in SM to better control a CRE company prior, during, or after a phase of FI.

This thesis makes two main contributions to the literature. The first is to establish the existence of a capital supply channel, in particular a bank lending channel of monetary policy transmission in the UK using a clean measure of bank loan supply. In this study we exploit the revealed debt preferences of debt issuing firms by using the Becker and Ivashina (2014) fixed effects framework to isolate the impact of credit supply. By conditioning the sample on non-financial firms whose debt issuance is observed, we are able to eliminate the effects of credit demand and to isolate a clean measure for bank loan supply. In this thesis, we find that the tendency by unconstrained, non-financial firms to substitute corporate bonds for bank loans at different points of the financial cycle reflects changes in bank loan supply. We also find that the patterns of substitutability are consistent among more granular classifications of heterogeneous debt. Our results reveal that among unconstrained firms, the proportion of new bank loan issuance declines, while the proportions of corporate bonds and program debt issuance tend to increase, when faced with unfavourable credit market conditions. We then create a loan to bond substitution measure based on observed substitution behaviour of unconstrained firms. We find that this measure explains the out of sample bank loan issuance behaviour of constrained firms. As a result we conclude that the measure is able to cleanly capture changes in bank loan supply. We extend the study to examine the impact of bank loan supply on the financing, hiring and investment decisions of UK non-financial corporations. We find that bank loan supply disruptions significantly and disproportionately affect the hiring and inventory investment decisions of bank dependent firms relative to those of non-bank dependent firms. The propensity to invest or hire among bank dependent UK non-financial firms declines relative to non-bank dependent firms when bank loan supply deteriorates. Moreover, the fixed investment decisions of non-bank dependent firms tend to decline following adverse bank loan supply shocks. These results confirm the existence of a bank lending channel among UK non-financial firms, and the findings are in line with the narrow credit view of monetary policy transmission. Our second central contribution is to analyse the impact of orthogonal QE shocks, credit supply shocks, credit demand shocks, and monetary policy shocks on the aggregate debt issuance behaviour of UK non-financial firms. Using structural vector error correction models (SVECM), we show that QE shocks increase corporate bond issuance and compress term spreads, but have no effect on the policy rate. Moreover, we observe that unexpected increases in the monetary policy rate lead to a decline in corporate bonds in the short term. While credit supply shocks move aggregate bank lending and aggregate corporate bond issuance in the same direction, corporate bond issuance responds with a lag to fluctuation in credit supply. This implies that adverse credit supply shocks may produce amplified negative effects on capital supply as both corporate bonds and bank loan decline. We also establish a counterfactual for corporate bonds and bank loan issues based on our structural model. We find that the QE policies result in the Bank of England averting a decline in corporate bond issuance of between 3% and 10% during the QE period. Our findings in this thesis point towards the existence of a portfolio balance channel of QE that operates in the UK corporate bond markets during the QE period.