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This document covers the economical information and analysis of the tourism industry of Austria during the pandemic. As most of the countries, the economy and other related sides of the chosen country has damaged by the cause of Covid. The only reason for getting this country as a sample is Austria is a beautiful and well-developed country in the European Union., This document covers the economical information and analysis of the tourism industry of Austria during the pandemic.

This dissertation studies the effects of asymmetric information and learning on asset prices and investor decision-making. Two main themes run through the work. The first is the linkage between investor decisions and the information used to make those decisions; that is, portfolio choices reflect the nature and quality of available information. The second theme is the interaction between investor learning and price informativeness. The information held by individual investors is reflected in market prices through their trading decisions, and prices thus transmit this information to other investors.In the first chapter, Asymmetric Information in Financial Markets: Anything Goes, I study a standard Grossman and Stiglitz (1980) noisy rational expectations economy, but relax the usual assumption of the joint normality of asset payoff and supply. The primary contribution is to characterize how the equilibrium relation between price and fundamentals depends on the way in which investors react to the information contained in price. My solution approach dispenses with the typical “conjecture and verify” method, which allows me to analytically solve an entire class of previously intractable nonlinear models that nests the standard model. This simple generalization provides a purely information-based channel for many common phenomena. In particular, price jumps and crashes may arise endogenously, purely due to learning effects, and observation of the net trading volume may be valuable for investors in the economy as it can provide a refinement of the information conveyed by price. Furthermore, the value of acquiring information may be non-monotonic in the number of informed traders, leading to multiple equilibria in the information market. I show also that the relation between investor disagreement and returns is ambiguous and depends on higher moments of the return distribution. In short, many of the standard results from noisy rational expectations models are not robust. I introduce monotone likelihood ratio conditions that determine the signs of the various comparative statics, which represents the first demonstration of the implicit importance of the MLRP in the noisy rational expectations literature.In the second chapter Do Fund Managers Make Informed Asset Allocation Decisions?, a joint work with Jacob S. Sagi, we derive a dynamic model in which mutual fund managers make asset allocation decisions based on private and public information. The model predicts that the portfolio market weights of better informed managers will mean revert faster and be more variable. Conversely, portfolio weights that mean revert faster and are more variable should have better forecasting power for expected returns. We test the model on a large dataset of US mutual fund domestic equity holdings and find evidence consistent with the hypothesis of timing ability, especially at three- to 12-month forecasting horizons. Nevertheless, whatever timing ability may be reflected in portfolio weights does not appear to translate into higher realized returns on funds' portfolios.

This dissertation presents one of the first empirical studies of the implementation of the Equator Principles by some of the largest private financial institutions in the world. These banks created this regime of private global governance to standardize industry approaches to risk management of large-scale infrastructure projects. Particularly when constructed in weak regulatory environments, these projects historically have been criticized for their adverse impacts on local populations, including environmental degradation and forced resettlement. To prevent such "problem projects" from being financed, banks adopting the Equator Principles commit to imposing on their borrowers World Bank environmental and social risk management standards and procedures, and pledge to withhold or withdraw funding from any project found not to be compliant with these standards. Using the EPs as a case study, this dissertation explores different ways to evaluate the effectiveness of self-regulation. Overall, the study finds that a majority of the 24 surveyed institutions, which constitute a representative sample of the larger population of participating institutions along key criteria, made considerable organizational changes to implement the Principles. Though key stakeholders--a global network of NGOs--have been less than satisfied with the EPs, there is considerable evidence that they have made a substantial impact on the project finance industry.The study also uses the example of the Equator Principles as a further empirical setting in which to analyze a long-standing debate across several fields: whether (and to what extent) isomorphic external pressures from institutional environments, the power of reputational concerns, and the quest for organizational legitimacy are sufficient forces to shape organizational behavior absent strong mechanisms of enforcement. Though the challenges of data gathering and measurability constrain the researcher's ability to draw strong conclusions with respect to causality, the study offers considerable evidence of the influence of external actors on bank behavior and the force of reputational concerns as a driver of "compliance."

This dissertation explores the intersection between labor and financial markets, in which labor mobility plays a fundamental role. Unlike physical assets such as buildings or machines, human capital can actually walk away from the firm as employees and managers switch employers. The interaction between labor mobility, firm risk and human capital has been remarkably under-researched until now. The main question of this broad project is how differences in the flexibility of workers to find employment across different industries--labor mobility--affects the owners of human and physical capital. The three parts of the dissertation look at this question from different angles.The first part, Labor Mobility and the Cross-Section of Expected Returns, focuses on the effect of labor mobility on the degree of operating leverage of a firm and thus on asset returns. I construct a dynamic model where worker's employment decisions affect the productivity of capital and asset prices in predictable ways. The model shows that reliance on a workforce with flexibility to enter and exit an industry translates into a form of operating leverage that amplifies equity-holders' exposure to productivity shocks. Consequently, firms in an industry with mobile workers have higher systematic risk loadings and higher expected asset returns. I use data from the Bureau of Labor Statistics to construct a novel measure of labor supply mobility, in line with the model, based on the composition of occupations across industries over time. I document a positive and economically significant cross-sectional relation between measures of labor mobility, operating leverage, and expected asset returns. This relation is not explained by firm characteristics known in the literature to predict expected returns. The second part, Aggregate Asset-Pricing Implications of Human Capital Mobility in General Equilibrium, extends the model in the first chapter to consider the general equilibrium implications of labor mobility. The setup is based on a multi-industry dynamic economy with production. The extended model shows that mobility of labor affects not only cash-flows, but also aggregate risk, and the equity premium. This part considers two different types of human capital. Generalist human capital can move between industries, while specialized human capital and physical capital cannot. The greater relative mobility of human capital relative to physical capital affects how aggregate risk in the economy is split between these two components of total wealth. The model shows that aggregate consumption and wealth increase when human capital is more mobile. However, at the same time, aggregate risk and the equity risk premium also increase under human capital mobility. I assume that the workforce in the economy is exogenously given in the first two chapters of this dissertation. This assumption is relaxed in the third chapter, Investments in Human Capital and Expected Asset Returns, where I endogenize the composition of occupations to discuss the interaction between human capital investments and labor mobility. This chapter focuses on the decision of workers to acquire different types of costly human capital with different degrees of associated labor mobility. This part introduces a two-sector general-equilibrium model with production and investments in human capital (i.e. education). Ex-ante identical workers face a trade-off between breadth and depth in the acquisition of industry-specific labor productivity. This chapter derives sufficient conditions for the existence of mobile workers. When these conditions are met, a fraction of workers chooses to acquire mobile but less productive generalist skills, even when labor risk can be fully hedged in financial markets.

We develop sentiment indexes to study the relationship between sentiment and stock returns. For the first index, we use only market return data; for the second, we use traditional indicators including the closed-end fund discount, NYSE share turnover, and the equity-share of new issues. In sample we find that rising sentiment leads to rising returns and lower risk. We also show that sentiment cycles lead bear markets. In a forecasting exercise we develop two-stage model averaging (2SMA). 2SMA is a flexible framework that allows researchers to incorporate prior economic information into their forecasts. Through 2SMA we develop two-stage Bayesian model averaging (2SBMA) and two-stage equal-weighted averaging (2SEWA). With these techniques we forecast stock returns using investor sentiment. We find that the 2SBMA and 2SEWA forecasts beat their traditional model-averaging counterparts and beat the benchmark random-walk plus drift in a statistically significant manner.

First chapter of this thesis finds a new consumption growth predictor linked to macroeconomic fundamentals: the technology gap, the dierence between potential and actual productivity of capital. I construct a representative firm business cycle model, in which the technology gap generates specic patterns of short- and long-run consumption growth, and consumption growth volatility. Intuitively, a high technology gap acts as an economic shock that increases consumption in the long term due to a higher future productivitylevel. I use quality-adjusted price indices of durable investment goods to create a proxy for the technology gap. Consistent with the model, I find empirical evidence that a high technology gap predicts: (i) strong consumption growth at longer horizons, (ii) high consumption growth volatility, and (iii) high risk-free rate.Second chapter demonstrates the relationship between research and development expenditure, and firm productivity. I construct a model which implies that firm-level R&D optimal policy should be dependent on ex-ante productivity. Firms ex-ante further from the frontier optimally invest more in R&D. Ex-post productivity depends on the amount of R&D investment and the match between new technology and existing production factors. Firms investing more in R&D are ex-post on average closer to the frontier, controllingfor theoretically motivated endogeneity. I present empirical evidence supporting the model. Using data envelopment, I construct a measure of firm-level distance from industry-wide productivity frontier. On average, a 1% larger distance from the frontier causes a 0.5% increase in R&D intensity next quarter. R&D activity in turn predicts high stock return volatility. Third chapter tests the existing durable consumption-based asset pricing model of Yogo (2006). Consumption risk is measured by the covariance between asset returns and future durable consumption growth, rather than contemporaneous growth, as in the original model. I present empirical evidence that excess returns on Fama-French portfolios are correlated more with future than contemporaneous durable consumption growth. I transform the original Euler equations of the model to use information aboutthe future consumption growth. As its correlation with returns is higher, the estimate of risk aversion from the model decreases substantially compared with Yogo (2006). I also find that the altered consumption risk measure increases the explanatory power of themodel. I approximate the original model and show that it can be estimated in the simple OLS framework. Cross-sectional R square is highest when the consumption growth is sampled over six to eight quarters ahead. This result is robust to dierent sets of test assets.

In the theory of finance, uncertainty plays a crucial role.Economists often use the terms uncertainty and volatilityinterchangeably, yet volatility is not the only form of uncertainty.Firms face uncertainty about whether the economy is in anexpansionary or recessionary state, industries face regulatoryuncertainty, and individuals face uncertainty about risk premia. Inthis dissertation, I consider the role that uncertainty about growthrates, regulatory policy, and risk premia play in the investmentdecisions of firms and individuals. The key theme linking the threechapters is learning in dynamic environments.In Chapter 1, I study the effects of demand growth uncertainty oncorporate investment decisions. In particular, how does uncertaintyabout the state of the economy and the state of demand growth affecta firm's decision to allocate capital to irreversible investmentprojects? In the model, firms are able to choose both the timingand scale of their investments, and the optimal scale will depend onthe unobserved state of demand growth. This second decision gives rise to an incentive to delay investment that does not exist instandard real option models: When investment is irreversible, firmsrisk allocating a sub-optimal level of capital to a project. Theoretically, I show how this incentive to delay is closely linkedto the benefits of learning about the economy. Empirically, usingestimated probabilities filtered from GDP growth, I find that 1)beliefs about the economy inform corporate investment decisions, and 2) the relationship between investment and beliefs is quadratic.In Chapter 2, I study an empirical extension of the model. Manyindustries in the United States face regulatory uncertainty, and anatural conjecture is that increased regulatory uncertainty has adampening effect on investment if 1) regulatory policy affects thecash flows of the firm, 2) firms have flexibility over the scale oftheir investments, and 3) regulatory uncertainty resolves quickly.While regulatory uncertainty is not observable, I consider twoproxies: A variable indicating Presidential election years, and avariable indicating divided government. The former is meant tocapture policy uncertainty associated with the possibility of achange in government, while the latter is meant to capture policyuncertainty associated with ideological variance. Empirically, bothmeasures are associated with a decrease in corporate investmentrates, consistent with the theoretical framework. The secondpurpose of this chapter is to highlight the dangers of makinginferences about investment using inconsistent estimators andregressions that fail to account for plausible alternativehypotheses. Previous work linking investment to the political cyclerelies on least squares estimators that are inconsistent because thefirm-specific control variables are endogenous to the investmentdecision. For a specific sub-sample of non-manufacturing firms, Ishow that least squares estimates easily reject the null hypothesis,while consistent first-difference estimates fail to do so. Finally,I include a control for the fiscal environment of the federalgovernment, which helps to uncover important dynamics betweeninvestment, the budget deficit, and the election cycle.In chapter 3, I consider the currency hedging problem of arisk-averse international investor who faces an unobservablecurrency risk premium. A non-zero risk premium introduces aspeculative motive for holding foreign currency in the optimalportfolio, and a time-varying risk premium introduces amarket-timing strategy. Uncertainty about the stochastic propertiesof the risk premium significantly tames both the speculative andmarket timing components, especially at long investment horizons,and the optimal hedge approaches a complete hedge as risk aversion and the investment horizon increase. However, an investor who ignores the risk premium and fully hedges foreign investments faces a substantial opportunity cost because she forgoes the benefits of dynamic learning.

This dissertation is comprised of three chapters, each of which contributes to the field of behavioral finance. Two of the chapters focus on topics in environmental economics and the third on U.S. household finance. All of the papers analyze the incentives and behavior of individuals (or firms in the case of the first chapter) to provide insight into macro phenomena."The Effects of Carbon Markets on Equity Prices and Volatility" uses a firm-level dataset of carbon assets and liabilities between 2005 and 2007 to examine the impact of volatile carbon prices on equity prices. I find that the changes to firms' market capitalizations during a period of falling carbon prices are explained by the change in the net present value of emission permit holdings. Equity prices respond to changes in the mark-to-market value of firms' carbon permit shortfalls or surpluses and carbon price volatility increases the volatility of equity prices. I also document considerable delays in the equity and options markets responses to developments in carbon markets and attribute these lagged responses to information constraints and the novelty of carbon markets."Outstanding Debt and the Household Portfolio," co-written with my classmate Reza Shabani, alters a simple portfolio choice model to allow households to retire outstanding debt and realize a risk-free rate of return equal to the interest rate on that debt. Using the Survey of Consumer Finances we find that households with mortgage debt are 10 percent less likely to own stocks and 37 percent less likely to own bonds compared to similar households with no outstanding mortgage debt. To show that our results are not driven by irrational behavior amongst a subset of households, we construct two proxy variables for financial naivete. Finally we calculate the costs of non-optimal investment decisions in the presence of various forms of household debt including mortgages, home equity loans and credit card debt. We find that 26 percent of households should forego equity market participation on account of the high interest rates that they pay on their debt."Crude Drilling: An Analysis of Incentives and Behavior in the Oil Industry During the 1860s" explains why rates of oil extraction in the nascent oil industry far exceeded the profit maximizing levels predicted by the economic theory of non-renewable resources. The analysis combines historical narrative accounts with property sale and lease data and information on oil well owners to explain how individual incentives led to aggregate over-drilling. In particular, I focus on the incentives of under-capitalized wildcat drillers as an explanation for the excessive waste and under-investment that characterized the early oil market. I find that these poorer prospectors were incentivized to extract oil at higher than optimal rates because of the characteristics of their property lease contracts and the low-cost drilling technology they used to bore exploratory wells. Low barriers to entry in the early oil drilling business led to an influx of wildcat drillers into the nascent oil market and delayed the entry of additional well-capitalized drillers. The result was a market characterized by cyclical supply shocks, low levels of investment in storage and conservation, and corresponding price instability.

This dissertation examines investors' expectations of loss persistence. Loss persistence varies across firms. I develop a model to forecast loss firms' future earnings based on Joos and Plesko (2005). This model produces smaller forecast errors than random walk models or a model that assumes losses are transitory. Using the forecast earnings generated by the model, I classify losses observations into predicted persistent losses and transitory losses. Predicted persistent losses are loss observations with forecast earnings in the lowest quintile of the quarterly distribution, while predicted transitory losses are loss observations in the highest quintile of the distribution.Using the Mishkin (1983) framework, I examine investors' expectations of loss persistence embedded in the stock prices. The results suggest that investors do not fully distinguish the differences in loss persistence captured by the model, and instead appear to assume that all losses are transitory. Consequently, investors are surprised by future announcements of negative earnings for firms with predicted persistent losses, and these firms experience significantly negative abnormal returns over the following four quarters. Consistent with market underreacting to loss persistence of firms with predicted persistent losses, the future negative abnormal returns of these firms are clustered around future earnings announcement dates. Security analysts and institutional investors are sophisticated market participants. The expectations embedded in analyst forecasts, albeit optimistic, largely capture the difference in loss persistence. As a result, the future negative returns of firms with predicted persistent losses are smaller in magnitude when these firms are followed by more analysts. The future negative returns of firms with predicted persistent losses are also smaller in magnitude when these firms have higher institutional holdings, suggesting that the optimistic bias about loss persistence is concentrated in naive retail investors.The results are robust to controls for various risk factors and price anomalies. The results are not driven by short sales constraints or influential observations. Finally, the results are not driven by factors related to the new economy industries.

The field of household finance has established a correlation between savings behavior and education, income, and race. This is partly explained by a high discount rate ultimately leading to low social status. Chapter 1 establishes causation in the opposite direction, with a relatively low social status position leading to a relatively high discount rate. The method used is experimental, with 154 subjects interacting in high- or low-status assignments. The subsequent change in intertemporal preference is significantly determined by the status assignment. The effect is strongest among the subjects who initially have higher discount rates and does not depend on the sex of the subject. This result implies low status consumers have higher discount rates and make worse financial choices because of their low social status, a finding that must be addressed in the regulation of consumer financial products.The evolution of uniquely exaggerated traits in humans is a topic that generates considerable interest and debate. In Chapter 2 I present an integrated theory that is based on the relationship between the individual and the group. This relationship involves diverse incentives---rewards and punishments---being applied by societies to their members, creating an evolutionary force. While the implications of direct incentives have been considered previously, I propose an indirect and potentially far more powerful incentive: social status. Through the awarding and withholding of social status, societies favor diverse psychological and morphological traits including intelligence, knowledge, norm-following, language ability, singing ability, and altruism towards one's group. Social status grants individuals proximate benefits in social interactions and ultimate benefits in inclusive fitness, at least in pre-industrial societies. Hence social status acts as a social incentive and is a component of a wider evolutionary force that I term prosocial selection. In discussing the social bases of prosocial selection, I highlight both the desire of group members to have incentive systems that benefit themselves, and group selection, here the selection of groups with fitter incentive systems. In discussing the psychological bases of prosocial selection, I highlight genetic predisposition, behavioral conditioning, awareness of intrinsic incentives, and awareness of social incentives. Finally, I discuss the altruism generated through prosocial selection, termed social altruism, and contrast it with established theories of altruism. As a coherent theory of the evolution of many human behaviors, prosocial selection requires a considered debate.Why are low-income households less likely to save than high-income households? In Chapter 3, I argue the cross-sectional relationship is explained by low status consumers being more impulsive. Formal tests using the Survey of Consumer Finances support this Status and Impulsiveness Hypothesis, while the Permanent Income Hypothesis and the Life Cycle Hypothesis are not supported. A decomposition of income allows me to determine the relative contributions of the different hypotheses towards the Income-Savings relationship: the SIH explains 85%; the PIH 14%; and the LCH 1%.

This dissertation is composed of three essays on theoretical and empirical investigations into the U.S. housing market. Chapter 1 is to extend a two-sector dynamic general equilibrium model from Ravn, Grohe, and Uribe (2006) deep-habit framework to study asset pricing, particularly housing price. It allows interaction between nondurable and housing markets on both the supply-side and the demand-side. Due to the interaction between the two sectors, the parameter change in the single sector can affect markups of both goods at the steady-state. The findings indicate that the interaction between these two sectors reflects important cross-sector roles of these influential factors in explaining markups. Chapter 2 is to investigate the seeds of the recent housing and economic crisis by investigating the interrelationship between the recent bust in the housing market, economic recession, and related monetary policies undertaken by the Federal Reserve. A bi-factor dynamic factor model is developed to represent the housing market and the business cycles, and they are allowed to follow different two-state Markov-switching processes. They are linked through monetary policy as reflected in interest rates movements. We find a strong correlation between the business cycle and interest rates, and between the housing cycle and interest rates, and between the two cycles. However, the close relationship changes since the 2001 recession as interest rates end its low-level due to the uncertainty and the slow recovery after this recession. The missed linkage between the business cycle and the housing cycle worked as a seed of the housing market bust and the economic recession in 2007-2009.Chapter 3 aims to investigate the effect of a potential important driver of the recent housing price boom and bust - people's expectations on the U.S. housing asset returns. Particularly, it extends the volatility feedback model proposed in Kim, Morley and Nelson (KMN 2004) to study the relationship between housing volatility and returns during 1963-2007. The analysis considers two alternative breakpoints--1984Q1 and 1999Q1-- to distinguish permanent structural breakpoints from Markov-switching. The results indicate that the relationship between the U.S. housing volatility and the expected returns is significantly positive. Thus, the important role of people's expectation is strongly supported. The current U.S. housing bubble can be explained by the relationship between housing volatility and realized returns, and that between housing volatility and expected returns. Corresponding to Chapter 2, this chapter also indicates a strong association between housing cycles and business cycles, and a remarkable uncertainty in the U.S. housing market during the post-1999.

This dissertation explores the effects of fluctuations in housing values on household saving and investment decisions. Chapter 1 examines the relationship between changes in housing values and household saving decisions. Fluctuations in housing values may affect household saving and consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. Moreover, the increased liquidity of home equity during the recent housing boom may have led household behavior to respond more than in past years to changes in housing wealth. This chapter is the first analysis to provide evidence from household-level microdata suggesting that the housing wealth effect may have increased in line with increased access to housing-collateralized debt. Using data from the Survey of Income and Program Participation for the years 1984 - 2003, I estimate an average elasticity of household active saving with respect to MSA-level house prices of -0.222, which corresponds to a 1 cent decrease in annual active saving when housing wealth increases by 1 dollar. When I estimate housing wealth effects separately between 1984 and 1990, and between 1996 and 2003, I find smaller effects during the earlier period, but large and significant effects during the later period. During the later period, I estimate an average elasticity of household active saving with respect to MSA-level house prices of -1.044, which corresponds to a 3 cent decrease in annual active saving when housing wealth increases by 1 dollar. Further evidence comparing the magnitude of the wealth effect between different subpopulations -- older homeowners versus younger homeowners, and recent homebuyers versus those with longer tenure -- suggests that a relaxation of liquidity constraints, rather than changes in the composition of the homeowner population, is a central factor contributing to the increase in the housing wealth effect.Chapter 2 explores the connection between growth in housing values, uncertainty over future housing values, and property owners' investments in housing. Residential housing is a significant share of most American households' asset holdings. As such, the decision to build, to buy, or to make significant improvements to a home is driven not only by consumption considerations, but is also an investment decision. By modeling property owners' housing investment decisions using a framework of optimal capital investment where investments are irreversible and there is uncertainty in future asset values, this analysis theoretically predicts and empirically estimates the extent to which property owners respond to changes in the profitability of housing investment by making investments in their stock of housing. Using a unique dataset of residential sales, geographic information, and the universe of building permits issued in Los Angeles between 1999 and 2008, and focusing on nonresident landlords and "improver-movers" - owner-occupiers who make improvements to their properties and subsequently sell the property, I find that when housing values increase, property owners are more likely to make capital investments, and that the value and square footage of these investments is larger. When house price volatility is high, property owners are less likely to make investments. However, conditional on the decision to invest, the value and square footage of investments is larger. This result is shown to be a consequence of property owners' optimally delaying capital investment when uncertainty over future prices is high.Chapter 3 documents the extent to which residential real estate development is cyclical - exhibiting periods of rapid expansion followed by periods of rapid contraction - using New York City as a case study. This chapter provides an overview of residential development activity in New York City during the years 2000 - 2008. In this analysis, I describe the effects of this real estate "boom" on the housing market in New York City during these years, and characterize the long-term effects of the "boom" and subsequent "bust" in residential development on the composition of the City's housing stock. Economic theories of cyclicality in real estate markets, outlined in this chapter, show that uncertainty over the exact timing of price declines coupled with a long development lag can lead to buildings being completed and new units entering the market even as prices decline. Although the elasticity of housing supply is lower in New York City than in other areas, building activity tends to follow a boom-and-bust pattern similar to other areas. Neighborhoods with higher levels of amenities experienced more growth in residential housing supply, and public involvement in development activity (both to facilitate and to restrict development) became less important for builders as the boom progressed. As building activity slows, City officials and developers are taking steps to ensure that stalled construction sites, rather than becoming eyesores and safety hazards, are preserved for future use.

The main theme of this dissertation is multivariate modeling in financial econometrics. The first chapter uses the fundamental properties of the multivariate distributions of independent random variables to develop a new specification testing methodology for dynamic models. The second chapter generalizes this methodology to tests of distributional assumptions and dynamic specification in multivariate models. In the third chapter we focus on testing and modeling asymmetries in the second moments of multiple equity returns.The methodological advances in nonlinear time series models with non-normal density functions and in density forecasting have emphasized the need for developing dynamic specification tests for the joint hypothesis of i.i.d.-ness and density functional form. In Chapter I, we propose a new battery of tests that rely on the fundamental properties of independent random variables with identical distributions and we introduce a graphical device -the autocontour-that helps to visualize the modeling problems. Based on the theoretical probability coverage of the autocontours, we construct a battery of asymptotic t-tests and chi-squared tests, which have standard convergence rates. The tests are very powerful against violations of both hypotheses. They do not require either a transformation of the original data or an assessment of goodness-of-fit à-la Kolmogorov and explicitly account for parameter uncertainty. Monte Carlo simulations show that their finite sample performance is very good even in relatively small samples. We illustrate the usefulness of this methodology within the context of GARCH and ACD models using returns and duration data from the US equity markets.In Chapter II, we generalize the testing methodology developed in Chapter I to time series models with multivariate GARCH disturbances. The tests are applied to the vector of generalized errors that must be i.i.d. with a certain parametric multivariate probability density function under the null hypothesis of correct specification. We develop t-tests based on a single autocontour and also more powerful chi-squared tests based on multiple autocontours. In the spirit of goodness-of-fit tests, we also propose an additional test that focuses on the multivariate density functional form of the vector of innovations. We perform Monte-Carlo simulations to investigate the size and power properties of the test statistics in finite samples. We apply our tests to multivariate GARCH models fitted to excess returns on portfolios sorted according to market capitalization.In Chapter III we test and model asymmetries in time-varying means, volatilities, correlations, and betas of equity returns in a multivariate threshold framework. We consider alternative specifications in which the threshold variable is based on market excess return, the Fama-French size and value factors, realized volatility of the market portfolio, and variables reflecting economic fundamentals. We find strong threshold effects with respect to market excess return, value premium, and term spread. Our results indicate that the threshold model based on market excess return provides a flexible and computationally inexpensive specification for modeling asymmetries, especially when dimensionality is high. We find that small caps, value stocks, and the Durables industry exhibit the strongest expected return asymmetries. Correlations of small caps, value firms, and defensive industries with the market tend to be significantly larger during market downturns. Correlation asymmetry usually translates into asymmetry in beta. Regime dependent volatility is a common characteristic of all portfolio groups. We evaluate performance of the proposed threshold models in an out-of-sample setup and find that there can be substantial economic gains in incorporating asymmetries in portfolio decisions.

This Ph.D thesis focuses on two applied frameworks of stochastic con- trolling and optimisation in financial economics. The first focus (Chapter 1) is on the convergence trading with testing cross-listed stock arbitrage. The second (Chapter 2 to Chapter 4) is on the sequential studies of wealth inequality. In Chapter 1, the convergence trading is established by dynamic pro- gramming, by setting objective at maximising trading utility function with constraint characterising the mean-reversion between price spread. Compared to past research that Liu and Timmermann (2013), the cointe- grating vector has been inserted inside, meanwhile the volatility factor has been split into multiple layers attributed by the relevant information sets. A wide range of empirical tests have been conducted for the cross-listed stock trading, including both in-the-sample and out-of-sample tests for Eurozone, UK, US and China stock exchanges based on shares and CFD trading. The testing result is convincing that stochastic optimal control has the potentiality to amplify statistical arbitrages. Chapter 2, initiates the research of wealth inequality. It first replicates the consumption-saving framework proposed by Karatzas (1991) under stochastic general equilibrium, by applying convex duality optimisation. This is to study the influence from a household’s homogenous preference of consumption on the dynamical evolutions of wealth and concentration. Assuming that the household’s income is exogenously given and adopting simulation. The simulation results suggest that consumption preference has no significant impact on wealth inequality but on the volatility of wealth inequality. Chapter 3 simplifies the endogenous price density dependent on an agent’s risk aversion. Meanwhile the standard (Pareto) optimal consumption is re- modified by maximising the utility for both household’s consumption and the expected saving the end of the dynasty, other than maximizing con- sumption only. The simulation illustrates that although the homogenous (heterogenous) risk aversion of a household’s consumption could affect the progression of wealth concentration but it has no obvious association with wealth inequality. Moreover the discreteness of heterogenous risk aversion has no significant impact on wealth inequality throughout the dynastic horizon, when each household’s income exogenously given. Chapter 4 endogenizes the labour income and capital gain into the house- hold revenue. Wage is endogenous from the technology progress (Total Factor Productivity) of the industry. While capital gain is endogenous from a completed competitive financial market with zero-profit condi- tion for financial intermediates. Each household’s income is endogenously driven by technology progress following the neoclassical economic growth framework. At each development stage, the attributions of wage and capi- tal gain follow contingent claim analysis and the consumptions satisfy the Pareto optimal, inherited from the solution in Chapter 3 with convex du- ality optimisation. Our structural model not only endogenously features agent risk aversion but also the productive factor growth, human capital, TFP and labor force, which further makes it possible the analysis of the effects of all these factors on wealth inequality as a whole.

Depuis les années 90, on a observé une accélération du changement dans le secteur financier en général et ceci a l'échelle planétaire. Particulièrement innovatrices dans le domaine des instruments financiers, les banques et les maisons de courtage en valeur mobilière ont peut-etre pavé la voie à des restructurations et réorganisations encore plus importantes dans l'ensemble des secteurs de l'économie. Nous pensons qu'à la base, des outils de gestion du risque permettront aux administrateurs de se concentrer davantage sur des objectifs stratégiques de leur entreprise que sur des problèmes d'ordre opérationnel. Nous connaissons en effet, grâce à ce mouvement, une augmentation en volume, en variété et en éfficacité des nouveaux instruments financiers (NIF) et des transactions sur des produits dérivés des titres financiers classiques. Cette thèse vise à développer un cadre d'analyse en ce qui concerne les placements dans les instruments financiers dérivatifs par le moyen de véhicules juridiques transparents. L'intérêt de la question repose sur une base théorique et pratique. Sur un plan théorique, on constate de plus en plus de difficultés à cerner la nature et la qualification des NIFs. En outre, les instruments financiers dérivatifs, les hybrides, les contrats de crédit croisé ou autres véhicules de placements modernes comportent des éléments d'une telle complexité juridique, financière et fiscale qu'une expertise particulière est parfois nécessaire afin d'en connaître les effets possibles. Bien que l'on sache que les NIFs peuvent servir dans diverses situations en matière de risque financier, il est difficile de cerner exactement les attributs pour lesquels leurs détenteurs en font l'acquisition et si ces raisons sont justifiées. Par exemple on cherchera à savoir si leur qualification officielle est juste et équitable et s'il est opportun de les representer aux états financiers pour les tiers et les lecteurs des rapports annuels. Ceci rappelle les controverses concernant la présentation aux états financiers de passifs éventuels reliés à ces instruments dans des faillites notoires, alors que très peu d'information probante permettait de détérminer avec précision les montants des garanties en cause. Ce n'est qu'après des préjudices importants que toutes ces faits seraient connus de façon claire tandis qu'ils auraient jusqu'alors été voilés sous le couvert de questions théoriques. (Abstract shortened by UMI.)

Recent events in global capital markets have underscored the impotence of securities regulation and paucity of ethical behaviour. With the resurgence of virtue ethics it only seems appropriate that a concerted effort should be undertaken to apply this model to the financial services industry. This thesis will apply Alasdair MacIntyre's tripartite notion of virtue ethics as explicated in his highly acclaimed work After Virtue to the role of the Investment Advisor in the Canadian financial services industry. MacIntyre's concepts of practice, narrative order of a single human life and the notion of tradition will be applied to the role of the Investment Advisor and the institutions that accommodate the profession. It will be concluded that MacIntyre's notions of practice and narrative order of a single human life is readily applicable but due to MacIntyre's profound criticism of capitalism, the notion of tradition is more difficult to incorporate comprehensively.

Issuing stocks is the key method to raise money for corporations. Today, stocks have become the most important financial instruments. Currently, there are several methods by which one can predict financial markets, but none of them is quite accurate. After introducing same basic concepts and the history of stocks, this work continues to introduce some typical fundamental and technical analysis methods already developed by economists, and then presents a relatively new system to forecast the stack market using revised Back Propagation (BP) algorithms. The system exploits BP neural networks to help find the correlation between stock price and the affecting factors hidden behind the financial market. The topology is a typical three-layer neural network with one input layer, one hidden layer and one output layer. The supervised algorithms are the Feed-forward, Cascade-forward, and Elman BP. They are trained respectively by seven BP techniques: the Gradient Descent BP, the Gradient Descent With Momentum BP, the Gradient Descent With Adaptive Learning Rate BP, the Gradient Descent With Momentum & Adaptive Learning Rate BP, the Levenberg-Marquardt BP, the Broyden-Fletcher-Goldfarb-Shanno (BFGS) Quasi-Newton, and the Resilient Propagation (RPROP) BP. Data used to train and test the neural networks involve the Shanghai Stock Exchange Composite Index, and the Shenzhen Stock Exchange Component Index.

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The role of Institutional investors in alleviating the agent problem of management and its valuation effect has been studied extensively in corporate finance. We complement this stream of research by exploring management's control over institutional investors with misaligned objectives, particularly public pension fund, and the consequential valuation effect. We investigate the politic motive of public pension fund's shareholder activism and its impact on the target firms' operational performance, address the control of a strong management on public pension funds' self-serving agenda, and finally we compare the ownership adjustment pattern of public pension funds to other institutional investors to conclude public pension funds' ownership adjustment reflects their private pursuit. The first chapter explores the politic facet and performance effect of shareholder activism sponsored by public pension fund. In this study, we show that having a public pension fund as the leading sponsor of a shareholder proposal significantly improves the proposal's likelihood of being accepted by the target firm. The increased acceptance rate sources from the subset of proposals addressing a social responsibility issue, and targeting firms with weak insider control. An investigation of the public pension board reveals that the board's political profile is the primary determinant of public pension fund's propensity to lead a proposal, and the target firm's acceptance rate. We also assess the performance impact of shareholder proposals. For target firms with strong insider control, the performance impact of accepted social responsibility proposals is significantly positive; that of governance proposals is negligible. For target firms with weak insider control, the performance impact associated with public pension funds is either negative or negligible. These results suggest that the motive driving public pension funds' dominant presence in shareholder activism is not market based, but laden with purpose other than value creation. In the second chapter, we postulate that the widely documented negative valuation effect of ownership by public pension will be weak on firms with extra managerial control mechanism and/or whose managerial ownership of cash flow is high. For firms with high level managerial ownership of cash flow, management bears higher cost for a concession made with public pension fund's misaligned objective. An efficient market will expect this effect and value the managerial control over public pension fund to the extent that the management's benefit is aligned with outside shareholders. Consequently, the cross section valuation difference of firms held by public pension funds can be explained by the managerial ownership of cash flow, managerial control derived from extra mechanism such as dual class share, however, has no explanative power. The last chapter investigates the link between private benefits and institutional holding change. We assume the cross section equilibrium of block holding will break when market sentiment is high. Consequently, block holder tends to shed more shares loaded with less private benefits by taking advantage of opportunities available in a high sentiment market. The empirical results support this conjecture. When the market sentiment is high, Institutional block holders tend to shed more private benefits meager dual-class share than private benefits affluent non-dual class share. This pattern does not exist when the market sentiment is low. Most importantly, public pension fund is identified as the major driver of this effect.

This dissertation studies the association between CEO ability and various aspects of corporate governance, specifically firm performance, executive compensation contracts and firm opacity. In the first essay of this dissertation (Chapter 2), I examine the effect of CEO ability on firm performance. My analysis uses a unique instrument of CEO ability that is based on a CEO's commitment decisions in US presidential elections. Intuitively, CEO ability is measured based on how well they forecast US presidential elections, one year prior to the race, relative to the candidates expected chances of winning. I find that this instrument of CEO ability is positively related to firm performance. Interestingly, I find that high ability CEOs have a greater impact on Tobin's q in small firms than in large firms. Yet, high ability CEOs have the greatest dollar impact on shareholder value in large firms. In addition, CEO ability appears to be quite important to outside shareholders in high growth firms. Lastly, I find that CEO ability is positively associated to merger announcement returns, which implies that higher ability CEOs engage in value-creating merger activities. The results are robust to industry and time controls, as well as various tests that consider an alternative explanation focusing on political influence. The second essay (Chapter 3) explores the effect of CEO ability on the structure and level of compensation contracts. I find that CEO ability is positively associated with total compensation level. CEOs in the highest quartile of the ability proxy earn almost $2.2 million more than CEOs in the lowest quartile of CEO ability. Further analysis indicates that CEO compensation structure differs markedly between the highest and lowest ability CEOs. Specifically, I find that the high ability CEOs receive 2.1% more stock based incentives than low ability CEOs. Thus, the low ability CEOs receive more of their pay in the form of cash compensation than do high ability CEOs. Further tests indicate that high ability CEOs have significantly greater variance in their pay than low ability CEOs, specifically due to the higher variance in stock based incentives. Overall, I provide evidence that CEO pay is associated with CEO ability and that CEO ability appears a key issue in designing CEO compensation contracts. In the third essay (Chapter 4), I examine whether CEO ability is related to corporate opacity. I argue that high-ability CEOs may seek to create greater transparency to convey their ability to the market. Simultaneously, low-ability CEOs may be signal-jamming the market's inferences about their talent by limiting the available information. An alternative aspect is that the results are driven by low-ability CEOs who seek to work in opaque firms. My analysis indicates that firms with high-ability CEOs are significantly less opaque than firms with low-ability CEOs. These findings are also robust to using a propensity score matched sample. Finally, I show that the deteriorating impact of corporate opacity on firm performance decreases when the decision belongs to a high-ability CEO, suggesting that opacity is not necessarily value-destructing decision for corporations. Overall, my analysis suggests that CEO ability is an important factor for corporate opacity.

The costs and constraints to financing, and the factors that influence them, play critical roles in the determination of corporate capital structures. Chapter 1 estimates firm-specific marginal cost of debt functions for a large panel of companies between 1980 and 2007. The marginal cost curves are identified by exogenous variation in the marginal tax benefits of debt. The location of a given company's cost of debt function varies with characteristics such as asset collateral, size, book-to-market, intangible assets, cash flows, and whether the firm pays dividends. Quantifying, the total cost of debt is on average 7.9% of asset value at observed levels, reaching as high as 17.8%. Expected default costs constitute approximately half of the total ex ante cost of debt. Chapter 2 uses the intersection between marginal cost of debt functions and marginal benefit of debt functions to examine optimal capital structure. By integrating the area between benefit and cost functions, net benefit of debt at equilibrium levels of leverage is calculated to be 3.5% of asset value, resulting from an estimated gross benefit of debt of 10.4% of asset value and an estimated cost of debt of 6.9%. Furthermore, the cost of being overlevered is asymmetrically higher than the cost of being underlevered. Case studies of several firms reveal that, for some firms, the cost of being suboptimally levered is small while, for other firms, this cost is large, suggesting firms face differing sensitivities to the capital structure choice. Finally, Chapter 3 examines the role of financing constraints on intertemporal capital structure choices of the firm via a structural model of capital investment. In the model, firms maximize value by choosing the amount of capital to invest and the amount of debt to issue. Firms face a dividend non-negativity constraint that restricts them from issuing equity and a debt capacity constraint that restricts them from issuing non-secured debt. The Lagrange multipliers on the two constraints capture the shadow values of being constrained from equity and debt financing, respectively. The two financing constraint measures are parameterized using firm characteristics and are estimated using GMM. The results indicate that these measures capture observed corporate financing behaviors and describe financially constrained firms. Finally, between the two financing constraints, the limiting constraint is the debt restriction, suggesting that firms care about preserving financial slack.

This thesis describes a first experimental project using a recursive parameter estimation and Kalman filter approach to on-line modelling and prediction of stock market time-series. On-line (real-time) and daily closing price stock data are identified as Box-Jenkins ARIMA models. Differencing is performed to obtain a locally wide sense stationary process which is identified through spectral estimation methods. The initial model parameters are updated on-line via the Recursive Prediction Error algorithm and predictions are performed using the Kalman filter. This approach is studied and compared to the traditional Box-Jenkins SISO approach. The daily stock processes are also modeled as autoregressive processes embedded in white noise, which make an ideal investigation for the Kalman filter.

The objective of this thesis is to study the operation of exchange rate regimes in the context of possible regime switches. An intuitive survey of the regime switching literature is given in Chapter 1, and three independent essays are presented in Chapters 2, 3, and 4. Using the theory of regulated Brownian motion, Chapter 2 derives the nonlinear relationship between the nominal exchange rate and its fundamentals during the transition period from the current free-float to a specified target zone (TZ), triggered at an announced state-dependent switch. It is shown that the derived nonlinear relationship is in general different from the relationship corresponding to a return to a fixed exchange rate regime. This is due to a "reflecting effect", the mirror image of the well known "honeymoon effect" of a target zone. and a "bandwidth effect". Also derived is a locus of "benchmark cases" demarcating the factors that lead to an immediate appreciation or depreciation of the domestic currency at the announcement of the future TZ. The target zone model developed in Chapter 3 incorporates the possibility of a future change in the trend in the fundamentals of the exchange rate as policy reaction to specific events (e.g., impending speculative attacks and nominal anchor debates). The market has subjective expectations about this possible trend revision, which can affect the exchange rate level even if the change in trend is not implemented. These expectations are treated, first, as entirely exogenous and, second, as state-varying. In both cases various correlation patterns between the exchange rate and interest rate differentials are possible. This result is consistent with the observed behaviour of the exchange rate and interest rate differentials within the European Monetary System. Chapter 4 studies an announced (state-dependent) regime shift from a free-floating to a permanently fixed exchange rate regime and introduces specific welfare considerations. The welfare issues introduced here try to explain why a specific exchange rate target level would be chosen instead of another one, if a return to a fixed exchange rate were on the public policy agenda and a given range for its pegged value had already been proposed. While this model does not provide a theory of choice between free-float and fixed rate regimes, it proposes a criterion to choose between fixed exchange rate regimes, taking into account the transition period from the free-float to the implementation of the fixed regime.

The focus of our empirical assessment is on studying two bound theories proposed by Ritchken (1985) and Ryan (1997). The study embarks on two tasks. One task is to answer how much tighter Ryan bounds are. The second is to propose a method to detect the pricing bias problem for a bound theory. The test data set consists of 1910 samples recorded at 9:00am, 11:00am and 2:00pm Central Time at Chicago Board Options Exchange, in total, 20875 S&P 500 index call options. Analysis with our test data set shows that by adding in an additional constraint, Ryan bounds are approximately 22% tighter than Ritchken bounds. The empirical analysis also shows that the proposed method has successfully detected the pricing bias problem for the Ritchken's theory when a lognormal distribution is assumed.

he impact on the global landscape of the (re-)entry into the international financial system of a large number of middle-income transition and developing countries---the so-called "emerging markets"---has taken many observers by surprise. The Mexican and Asian crises were but two examples of the materialization and worldwide reverberations of inherent contradictions within the emerging market phenomenon; i.e. contradictions between powerful, disembedded and unaccountable financial forces and political forces that are still organized on a territorial basis within relatively weak and vulnerable economics. This thesis deploys a neo-Gramscian constructivist analysis to examine efforts by elements within a nascent transnational historical bloc of financial forces to overcome the risk of a Polanyian double movement to protect emerging market societies. More precisely, as this thesis reveals. there is mounting evidence of an hegemonic project seeking to bolster the emerging synthesis of material capabilities, ideas and institutions appropriate for an eventual hegemonic dominance of financial capital over emerging markets. Eschewing a problem-solving approach to financial matters, this thesis critically examines the roles (i) of material capabilities wielded through collectively allocated financial capital flows, (ii) of the intersubjective meanings given to financial globalization and the subsequent blueprint for commonsensical policymaking, and (iii) of central banks, credit-raters and the IMF in institutionalizing the coercive and consensual power relations at the heart of the emerging hegemonic bloc.

Depuis le debut des annees septante, les marches financiers ont affiche des taux d'interet eleves et et surtout plus oscillants qu'auparavant. Parallelement a cette tendance, les deficits ont conduit la dette canadienne a un niveau alarmant. Existe-t-il un lien comportemental entre l'accroissement des deficits budgetaires et cette precarite qui caracterise les taux d'interet? De notre survol theorique, nous avons degage les constats suivants: les deficits pourraient s'accompagner de pressions inflationnistes; ils pourraient egalement amplifier les craintes futures d'une monetisation de la dette, voire meme accroi tre la fraction non anticipee de la croissance monetaire; et ils pourraient aller jusqu'a effrayer les investisseurs devalorisant ainsi le dollar. Cette vision traditionnelle soutient que l'endettement canadien aurait contribue a l'instauration de telles perturbations sur les taux d'interet. Toutefois, la notion d'equivalence ricardienne, reinstituee par Barro, postule plutot une neutralite de la dette. Ce theoreme s'appuie de preuves empiriques. Notre objectif se borne a l'observation empirique de ce postulat contradictoire. Notre modelisation macro-econometrique s'apparente a celle employee par Evans en 1987; il s'agit d'une equation reduite des taux d'interet reels ex posts qui insere un modele "term structure" et un processus stochastique (VAR$\sb{(4)}$). Notons, toutefois, l'ajout de deux variables explicatives, soit les attentes inflationnistes et les taux d'interet americains. (Abstract shortened by UMI.)

La presente etude examine la relation entre le taux de croissance et la repartition dans un contexte contemporain caracterise par la contractualisation des salaires nominaux. Faisant abstraction du progres technique, cette relation se reduit au lien qui pourrait exister entre le salaire reel et le taux de croissance. Pour ce faire, l'analyse s'est penchee sur cette relation dans le cadre d'un modele postkeynesien statique, ou le partage salaires-profits est subordonne au partage consommation-accumulation; le mouvement des prix (et donc du salaire reel) ou la variation du produit en assure en permanence la compatibilite. Cette analyse statique fait appel a deux developpements complementaires a savoir une theorie des prix et une theorie de l'investissement. C'est ce qui a fait l'objet de la deuxieme etape de cette analyse qui nous a permis de degager deux relations entre les prix et l'investissement, a la suite d'une divergence entre les auteurs postkeynesiens quant au role primordial assigne a l'entreprise. (Abstract shortened by UMI.)

L'objectif de cette recherche est d'évaluer l'importance des phénomènes monétaires dans la détermination du niveau de la dépense d'investissement des agents économiques. Pour ce faire, l'analyse s'organise autour des phénomènes liés au financement. Les Comptes des flux financiers forment l'instrument à partir duquel on examinera à la fois les circuits empruntent par les agents pour assurer le financement de la dépense et l'usage qui est fait des ressources disponibles. L'utilisation de cette composante du système de comptabilité nationale permet de suivre la circulation des flux dans le processus de financement en vue de l'acquisition d'actifs financiers aussi bien que non financiers. Pour ce faire, elle partitionne l'ensemble des agents économiques en treize secteurs et définit, pour chacun de ceux-ci, la composition de son portefeuille de titres financiers. De plus, elle lie les activités financières et la formation de l'épargne et de l'investissement sur une base sectorielle. (Abstract shortened by UMI.)

This dissertation studies the nature of the elasticity of the supply of funds through the analysis of concepts as presented by post Keynesian horizontalists and post Keynesian non-horizontalists. These two competing views are outlined, and pertinent issues are isolated. Empirical analysis is performed using data for the Canadian economy in order to assess the validity of both positions. In order to distinguish empirically between horizontalists and non-horizontalists, the variability of the commercial bank markup is tested, as well as any evidence of the presence of financial fragility. A markup that varies with changes in gross domestic product would indicate that the determination of the interest rate was not purely a supply-side phenomenon, and would violate the horizontalist position. Any evidence of the presence of financial fragility resulting from increased firm indebtedness would also indicate that constraints on monetary creation exist, as consistent with non-horizontalist views. The econometric tests attempted in this dissertation address both these issues using Canadian data for the 1980 to 1995 period. The results of the empirical tests conducted do not provide any evidence to support an upward sloping money supply function. (Abstract shortened by UMI.)

The syndicated loan is become more and more important for firm's financing. We study three important aspects of loan syndication: the lead arranger's reputation effect on syndicated loan pricing, the switching behavior for repeat syndicate loans and the effect of country-specific bank-firm ownership structure on syndicated loan pricing and bank-firm relationship of repeat loans. The first chapter analyzes the reputation effect of the lead arranger on syndicated loan pricing, based on a sample of loan facilities to non-financial U.S. firms over the 1994-2006 period. Theory suggests that the reputation/spread relationship should generally be positive because more reputable lenders usually employ more costly loan screening and monitoring techniques and therefore must be compensated with a higher spread. After controlling for endogeneity in lender-borrower matching, the empirical results show that the reputable arrangers charge a "reputation premium" for monitoring and due diligence, and the commitment against extracting the information rent from borrowers. The results also show that the less-reputable arrangers offer a "reputation discount", since the market competition from both the loan market and bond market makes it more difficult for less reputable arrangers to sustain the reputation mechanism. In addition, the reputation effect on pricing becomes less significant when the borrower enters a repeat loan relationship with a prior or existing lender. Finally, the study finds that the arranger's reputation can reduce the lead share retained by the lead arranger in its loan portfolio, which serves as evidence that reputation also mitigates the information asymmetry between the lead arranger and participant banks. The second chapter analyzes the switching behavior for two types of repeat loans: migrating loans that remain within the same bank reputation class and loans migrating to a different reputation class. The theoretical literature argues that banks (lenders) and firms (borrowers) benefit from entering into a relationship-lending arrangement. In the syndicated loan market, however, it is very common for repeat loans to switch from one bank to another. We present a model that establishes conditions for implementing empirical investigations relating to relationship lending and the characteristics of the separating equilibrium in the loan market. Using explanatory variables describing firms, loans, and loan syndicates, we find that lending within the high quality bank sector reveals evidence that is consistent with relationship lending. That is, some firms forego longer maturity loans and less oversight to remain with their original lender. A similar finding does not hold for repeat lending in the lower quality bank sector. Regarding loans that migrate in either direction between the high and low quality banking sectors, firm risk is the most important determinant. Relatively riskier firms move down to lower quality lenders while relatively safer firms move up to higher quality lenders. The third chapter investigates the determinants of loan pricing and repeat loan relationship for a sample of 6,180 non-U.S.. firm-loan observations for the period 1998-2007. This paper focuses on the relation between a country-specific governance indicator and country-specific bank-firm ownership structures on loan pricing and the management of a lending relationship between the syndicate bank and firm. We evaluate the relationship between country-specific bank ownership structure and the main characteristics of loan, which are mainly measured by loan pricing and loan switching decision. The paper examines three interrelated questions: 1.How is loan pricing affected by country-specific bank-firm ownership structure? 2. Does country-specific bank-firm ownership structure influence the decision to switch lenders in the repeat loan market? 3. Is country-specific bank-firm ownership structure more important for a borrower to migrate to a higher reputation lender than to a lower reputation lender? We use loan-characteristic, bank-characteristic, and firm-characteristic variables as well as country-specific corruption and country-specific bank-firm ownership structure variables to explore the effect on loan pricing and loan-switching decisions. Using logistic regression analysis, we find that loan switching is less likely for firms when the bank controls the firm, especially in the case of a bank-controlled firm borrows from a low reputation syndicated loan lender. However, when the firm controls a local bank, there is no impact on the firm's switching decision in the syndicated loan market. The bank-controlling firm is as likely to switch as a firm that does not control a bank even though the firm is more opaque to the financial market. Our results suggest that in the international syndicated loan market, the bank-firm relationship is partly shaped by country-specific characteristics and information asymmetry of firms to the financial market. These chapters explores the bank and firm behavior in the syndicated loan market and make the contribution to the literature by offering further knowledge and deeper understanding about the bank-firm relationship and behavior in the loan syndication structure.

In Chapter 1, I document a negative (positive) relationship between changes in large (small) blockholders' ownership and abnormal returns. The evidence in this paper suggests that an increase in the relatively large blockholders' ownership raises the consumption of private benefits while an increase in the relatively small blockholders' ownership constrains large blockholders from expropriating minority shareholders. Moreover, I find an inversely U-shaped relationship between changes in the largest blockholders' ownership and firm value. As large blockholders' ownership and control increase, the negative effect of firm value driven by expropriating minority shareholders starts to exceed the incentive benefits of monitoring by the largest blockholder. I also show that the negative relationship between changes in institutional investors' control and abnormal returns declines as analysts' following increases.In Chapter 2, I study the role of trading as a governance mechanism. I hypothesize that governance through trading plays a significant monitoring role in practice and that engaging in "voice" and "exit" can be substitutes. I show that abnormal turnover following earnings announcements is significantly higher for firms with large institutional blockholders than for those with small individualshareholders. For firms with majority institutional ownership, I demonstrate that abnormal trading is higher for firms with multiple blockholders than for those with a single large blockholder and that abnormal trading increases with the number of institutional investors and declines with the percent of stocks owned by thelargest institutional investor. Moreover, this excess trading is driven by mutual fund investors, which are non-interventionist and thus are more likely to engage in "exit" than "voice". I also show that for firms with large institutional blockholders, abnormal trading following public announcements increases with liquidity.

The central puzzles in financial economics commonly includeviolations of the expectations hypotheses, predictability of excess returns, and the levels and volatilities of nominal bond yields, in addition to well-known equity premium and the risk-free rate puzzles.Equally surprising is the recent evidence on large moves in asset prices, and the over-pricing of the out-of-the-money index put options relative to standard models. In this work, I argue that the long-run risks type model can successfully explain these features of financial markets. I present robust empirical evidence which supports the main economic channels in the model. Finally, I develop econometric methods to estimate and test the model, and find that it delivers plausible preference and model parameters and provides a good fit to the asset-price and macroeconomic data.In the first chapter, which is co-authored with Ravi Bansal, we present a long-run risks based equilibrium model that can quantitatively explain the violations of expectations hypotheses and predictability of returns in bond and currency markets. The key ingredients of the model include a low-frequency predictable component in consumption, time-varying consumption volatility and investor's preferences for early resolution of uncertainty. In this model, varying consumption volatility in the presence of the predictable consumption component leads to appropriate variation in bond yields and the risk premia to provide an explanation for the puzzling violations of the expectations hypothesis. Using domestic and foreign consumption and asset markets data we provide direct empirical support for the economic channels highlighted in the paper.In the second chapter, co-authored with Ravi Bansal, we develop a general equilibrium model in which income and dividends are smooth, but asset prices are subject to large moves (jumps). A prominent feature of the model is that the optimal decision of investors to learn the unobserved state triggers large asset-price jumps. We show that the learning choice is critically determined by preference parameters and the conditional volatility of income process. An important prediction of the model is that income volatility predicts future jumps, while the variation in the level of income does not. We find that indeed in the data large moves in returns are predicted by consumption volatility, but not by the changes in the consumption level. In numerical calibrations, we show that the model can quantitatively capture these novel features of the data.In the third chapter, I present a long-run risks type model where consumption shocks are Gaussian, and the agent learns about unobserved expected growth from the cross-section of signals. The uncertainty about expected growth (confidence measure), as in the data, is time-varying and subject to jump-like risks. I show that the confidence jump risk channel can quantitatively account for the option price puzzles and large moves in asset prices, without hard-wiring jumps into consumption. Based on two estimation approaches, the model provides a good fit to the option price, confidence measure, returns and consumption data, at the plausible preference and model parameter values.

The goal of this dissertation was to model and test whether political parties once in power skew the federal budget in favor of their base. The theory includes the formation of a comprehensive theoretical model, which divided the budgetary instruments into two categories: monetary and political transfers. Using statistical tools, the dissertation examines the budgetary bias itself, the timing of its usage across the electoral cycle, and the substitutability of the instruments. The results found that political parties do bias budgetary funds towards their base. However, they tend to use tools, which are less visible to the opposition party and more evident to their base. The results confirmed that when parties use more of one type of transfer, they use less of the other. Finally, parties use alterations in total transfers to influence their base early in the election cycle, and move on to other means, such as platform alterations, as the next election draws closer.

Organizational Capital Budgeting Model (OCBM) is a general theory of capital budgeting that incorporates traditional capital budgeting theories and the consideration about firm's information/ organization structure. The traditional financial capital budgeting model is a special case of OCBM. Therefore, OCBM not only broadens the traditional model, but also explains the heterogeneous behaviors of firms using quasi/non-financial version of capital budgeting. I demonstrate the validity of OCBM with multiple research methods. The field studies about Asian conglomerates are carefully constructed. The conglomerates are important dataset to study organizational decision making because of their size, scope, controversial behaviors and global presence.

Outsourcing became an important corporate strategic issue and part of the business lexicon since the 1980s. Existing studies on outsourcing mostly focus on benefits of outsourcing such as cost saving and resource reallocation, and the results are generally ambiguous regarding outsourcing outcomes. We study three important aspects of outsourcing that were largely overlooked in the existing literature: the benefit of flexibility acquisition, the power play between the CEO and labor in outsourcing decisions, and the effects of flexibility and governance for global outsourcing. This dissertation consists of three essays and constitutes an empirical investigation that (a) what the effects of flexibility and governance are for US firms engaged in outsourcing, (b) how the power play between the CEO and labor affects the decision to outsource and its outcomes, and (c) how offshore outsourcing is decided and what the value of offshore outsourcing is. The first paper examines the influence of a firm's flexibility on its decision to outsource. It is commonly believed that flexibility is good, but there is little empirical evidence on whether flexibility affects corporate performance. The paper casts outsourcing in terms of real options and presents evidence regarding the value of flexibility for US firms engaged in outsourcing. From a real option perspective, a major source of gains from outsourcing is the flexibility it entails, compared to continued in-house production under high fixed cost and demand uncertainty. Empirical analyses include an examination of market reactions to outsourcing announcements and long-term post-outsourcing firm performance, as well as the relation between flexibility and outsourcing outcomes. The results show that market reactions are positive and significant, along with a potential synergy between outsourcing and insourcing firms. More importantly, after controlling for potential switching costs related to outsourcing, outsourcing gains are significantly associated with the presence of a firm's growth options. In addition, firm performance is related to corporate governance, underscoring the importance of effective corporate governance as a requisite to aid the realization of potential gains from outsourcing. The second paper asks the question of whether the power play between the CEO and labor affects a firm's outsourcing decisions and outcomes. Outsourcing can be viewed as a power play between the CEO and labor. Fundamentally, outsourcing may be potentially desirable because of cost saving and the value of flexibility. However, to make it happen, the CEO must negotiate with labor that may resist outsourcing because of its concern for jobs. Yet without outsourcing, the firm may lose out competitively and labor may lose even more. This paper empirically examines the extent to which outsourcing decisions and outcomes depend on CEO power and labor participation in major corporate decisions. Using the sample of US firms, we find that the likelihood of outsourcing is positively related to CEO power and negatively associated with labor power. More importantly, prior firm performance is likely to be a moderating factor in the resistance of labor against outsourcing. The long-term firm performance is found to be influenced by the power dynamics between the CEO and labor as well as the general efficacy of corporate governance. The third paper investigates the widely debated issue of offshore outsourcing. Given the diversity of cost structure, the gains from outsourcing can be potentially greater internationally than domestically. While uncertainties are greater internationally, these may be offset by the real option benefits of a multinational network. Empirical work for U.S. outsourcing firms indicates that the market valuation is greater and more significant for international outsourcing than domestic outsourcing. The gains are related to flexibility that can be obtained from multinational network. In addition, international differences in locational factors including differences in corporate governance influence the valuation gains from outsourcing as well as the division between outsourcers and insourcers.