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Title: INFORMATION OF MARKET EFFICIENCY, VOLATILITY, VOLUME, AND TREND FROM LIMIT ORDER BOOK
Creator: LI, SHOUHAO
Date: 2019
Description: This study mainly focuses on a series of topics within high frequency data of aprivate limit order book from NASDAQ. The interest of our...
Show moreThis study mainly focuses on a series of topics within high frequency data of aprivate limit order book from NASDAQ. The interest of our research first comes from thefamous classical theory “Efficient Market Hypothesis (EMH)”. Given the existence of aseparate market in which high frequency traders compete together under today’senvironment, we show that this market is quite adaptive rather than efficient since thestatistical quantity measuring market efficiency will have fluctuating values in differenttime point, confirmed in our study. Then we explore the linkage between high frequency cancelling activity and marketshort-term volatility (quote volatility). The findings for this topic until now are rather notconclusive yet. In our design, we first use Grange Causality test. It turns out realizedvolatility and cancelling activity granger cause each other, and cancelling activitycontributes tremendously to volatility forecasting. Then we fit our data in a generic ofARCH models to establish the predictability of realized volatility by cancellinginformation. Finally, we take advantage of the cancelling activity to predict real timetrading. We use the VIXY which is an ETF of VIX and focuses on short term performance.We find that the ask side of high frequency trading activities has far more significant impactfor both the level of VIXY and return of VIXY, while the bid side seems to be trivial. At last, we analyze the role of traded volume and trend in technical analysis. Theusefulness of technical analysis has been confirmed in the beginning part of this study byrejecting EMH, then a continuing topic for we to discuss is possible variables which couldcontribute to technical analysis. As known to finance literature, volume is frequently takento validify the trend of stock or discover the reversal of the trend. But now there is oppositeopinion maintaining that the role of volume has become trivial. Our findings complementprevious researches and confirm both the usefulness and the fading of such usefulness oftraded volume.
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Title: ON THE FLOW AND PERFORMANCE OF MUTUAL FUNDS
Creator: Zhang, Jingqi
Date: 2019
Description: ABSTRACTThis dissertation consists of three essays on mutual funds. I first discuss the flow of active ETFs. And then I focus on the...
Show moreABSTRACTThis dissertation consists of three essays on mutual funds. I first discuss the flow of active ETFs. And then I focus on the performance of mutual funds. Finally, I evaluate the timing ability of mutual fund investors.Using a data set from 2000 to 2016, this thesis first studies the behavior of active ETF investors from the perspective of fund flows. The results show that the investors chase past returns as they do for mutual funds. Furthermore, I find that the return-chasing behavior can be influence by other considerations, such as fee changes. However, the evidence of performance persistence is weak for active ETFs. Therefore, I propose that the return-chasing behavior is not smart, and the flows of active ETFs instead behave more like “dumb money”, which are demonstrated by the data.I continue to study the performance of the mutual funds. To avoid the bias caused by pricing models themselves, I introduce a model-independent method to assess the mutual fund performance relative to the portfolios constructed by ordinary investors, assuming they are following a naive strategy. Using a data set from October 1984 to September 2017, I find that the majority of mutual funds have higher buy-and-hold returns than the T-bill returns as well as the market returns in the long run. And employing the model-independent measure of performance, I find that the mutual fund industry creates value for individual investors for that mutual funds on average exceed the performance of the majority of the portfolios constructed by the investors selecting stocks randomly.To measure the timing ability of mutual fund investors, I use the difference between the internal rate of return realized by investors and the buy-and-hold return of the funds. Different from the existing literature, I modify the cash flows used to generate the internal rate of return, in which way I can capture the realized return of investors more accurately. I find that investors show timing skills in short horizon. And on average, investors of mutual funds have worse timing skills than those of ETFs. And compared with active fund investors, passive fund investors have better timing skills. I also find that investors who simply chase past winners would show worse timing skills.
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Title: Momentum, Volatility, and Risk-based Allocation
Creator: Qian, Junkai
Date: 2019
Description: This study introduces a coherent framework that links together various momentum measures, market beta, and idiosyncratic risk (IRISK)....
Show moreThis study introduces a coherent framework that links together various momentum measures, market beta, and idiosyncratic risk (IRISK). Momentum is measured as lagged 12-month price momentum (MOM) and volatility adjusted momentum (MOMV). The interaction effect of the three factors is tested. It is found that for 70.64% of the time, a high beta high IRISK stock is more likely to be a top 30% MOM stock than a mid 40% MOM stock. Top MOM exhibits significant bias, 30.81% on average, on high beta high IRISK stocks. Such bias tends to be weaker late in an economy recession. In contrast, top MOMV is less sensitive to high beta and high IRISK. Further, for both MOM and MOMV, it is shown that equally weighted momentum portfolios are driven by high beta high IRISK stocks, especially during a momentum crash. To enhance momentum strategies, risk-based weighting schemes, minimum variance (minVar) and risk parity (ERC), are implemented. In the long run, ERC shows a slight improvement compared to equally weighting, while minVar is able to significantly reduce total risk and tail loss at a cost of sacrifice in performance. A dynamic risk weighting scheme based on changes in market dispersion is proposed to balance the benefit and cost of miVar. Such approach is shown to significantly reduce tail loss and improve Sharpe ratio.
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Title: TWO ESSAYS ON CORPORATE FINANCE AND CAPITAL MARKET
Creator: Zhao, Tianyu
Date: 2019
Description: Two of the most important credit suppliers on the capital market of the United States are commercial banks and online peer-to-peer (P2P)...
Show moreTwo of the most important credit suppliers on the capital market of the United States are commercial banks and online peer-to-peer (P2P) lending platforms. Relaxing restrictions on interstate banking and intrastate branching in banking industry bring more competitions and better efficiency in the banking industry, which provides a much lower cost for firms to raise external funds. We find bank deregulations decrease investment-cash flow sensitivity of firms, which explains the declining trend of investment-cash flow sensitivity since the late 1970s. With the development of internet and transaction technology, online P2P lending platforms become more and more important in the capital market. However, the borrowers on P2P platforms are private individuals with limited official information. We document that when borrower’s official information is limited, social capital, a factor contains region based soft information, plays an important role in effecting online P2P lending activities.
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Title: SHARPEN FACTOR INVESTING WITH A CLOSER LOOK AT PROFITABILITY
Creator: Li, Shengsi
Date: 2019
Description: Stock market anomalies have been long researched by academia and used by practitioners. Factor-based allocation has been shown to provide...
Show moreStock market anomalies have been long researched by academia and used by practitioners. Factor-based allocation has been shown to provide better diversification and risk-adjusted returns than the more traditional portfolio approaches. Numerous studies have shown traditional factors such as value, size, and profitability are effective in a cross-sectional fashion, meaning they are effective to all sections. It is found that the factor-return link is not robust across different sectors. Based on this observation, some stylized factor-based investing strategies are refined to improve the return performance measured by risk-adjusted metrics. Further analysis of the firm age moderation effect on the prediction power of profitability over stock return is explored. It is shown that firm age could have a significant moderation effect on the academically proven profitability factor.
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Title: Optimal Execution Strategy with Time-varying Intraday Patterns of Liquidity Parameters
Creator: Ge, Xinyi
Date: 2019
Description: ABSTRACTThis paper suggests an optimal execution strategy to minimize expectedcost of a large size order within a fixed time period. Based on ...
Show moreABSTRACTThis paper suggests an optimal execution strategy to minimize expectedcost of a large size order within a fixed time period. Based on [42]’s price impactmodel, I include time varying bid-ask spread, a measure of market width as aparameter into the problem, and let not only width, but also depth (order booksize) and resiliency time dependent in a trading day. In addition, I utilize meanreversion regression models to estimate mean resiliency ratio as a parameter inthe execution strategy, with S&P 500 stock data in year 2012. U-shaped intradaypatterns of resiliency are presented when measured by bid-ask spreads, whileCotangent-shaped patterns are shown measured by market depths. Resiliencymovement is then predicted using machine learning techniques. In the end, Iconduct empirical experiments with all three time dependent liquidity parametersand obtain same conclusions with numeric examples. I find out higher expectednet cost savings comparing to costs from model with constant liquidity parameters.Market depth is the primary parameter to the strategy while width and resiliencyare not ignorable. When resiliency is low, cost saving is substantial.
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Title: MODELING THE INFORMATION CONTENT OF THE LIMIT ORDER BOOK BY BAGGING
Creator: Li, Wenyi
Date: 2018
Description: I propose a bagging tree framework to study the information content of the limit order book in U.S. equity market. By measuring the...
Show moreI propose a bagging tree framework to study the information content of the limit order book in U.S. equity market. By measuring the predictability and profitability of the order book data up to 5 levels, I find that the limit orders book is informative. In addition to market orders, limit orders behind the best bid and ask prices also contributes to short-term future price movements. Finally, I design simple strategies to show that this information content can be effectively and consistently translated to economic value. My results may provide important implications for both researchers and market practitioners.
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Title: The Impact of High-Frequency Trading on the U.S. Equity Market
Creator: Pan, Miaomiao
Date: 2018
Description: This dissertation studies the impact of high-frequency trading (HFT) on the U.S equity market. I investigate the trading behavior of high...
Show moreThis dissertation studies the impact of high-frequency trading (HFT) on the U.S equity market. I investigate the trading behavior of high-frequency traders (HFTs) using a massive dataset that contains the NASDAQ ITCH feed messages of all S&P 500 component stocks in year 2012. I identify clusters of extremely high cancellation activity (Blocher et al., 2016) in the order book and use high cancel clusters as a proxy for high-frequency cancellation activity. I examine the change in liquidity measures from one-half second before each cancel cluster starts until after the cancel cluster closes and find that with the presence of high cancel activity, liquidity measures recover to their pre-cluster level faster than in non-cancel clusters. Furthermore, an analysis of 1-minute time intervals finds various HFT proxies to be positively related to liquidity, especially for large-cap stocks and certain sectors. Using the Li criterion (Li et al. 2018), I differentiate trades placed by HFTs versus low-frequency traders (LFTs) and compares the two types of trades under the VAR/VMA framework (Hasbrouck 1991). Evidence shows that HFT trades contribute more to the price discovery process than LFT trades and HFTs impose adverse selection costs on LFTs. This study disambiguates unreliable liquidity and faster price discovery.
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Title: ASSET PRICING AND RETURN REVERSAL IN KOREAN AND JAPANESE STOCK MARKET
Creator: Kim, Pil Joon
Date: 2020
Description: The stock market in Asia achieved a rapid development in the 1980’s, mainly in Japan and Korea. In particular, stock market in Japan and Korea...
Show moreThe stock market in Asia achieved a rapid development in the 1980’s, mainly in Japan and Korea. In particular, stock market in Japan and Korea is deeply related to the US stock market. However, in 1997, a major financial crisis hit Asia, and IMF decided to provide financial support to Korea. In addition, in 2011, a nuclear accident at the Fukushima Daiichi Nuclear Power Plant was the most severe nuclear accident since the 26 April 1986 Chernobyl disaster. Nevertheless, the Japanese and Korean markets experienced stable growths. Were Japanese and Korean stock markets truly stable and efficient? This study empirically studied market efficiency through stock market return reversal in the Japanese and Korean stock market and the characteristics of these two stock markets were compared and analyzed.Significant return reversal phenomenon was observed as a result of validating return reversal phenomenon against the stock markets in Korea and Japan. Furthermore, return reversal level differed based on the abnormal (excess) return calculation method used in the test model. Return reversal phenomenon can be found more clearly in loser portfolio than in winner portfolio in general. In particular, when the abnormal (excess) return was calculated using CAPM model, different result from existing research was observed. I also found that the Fama-French 3 factor model can compensate for the CAPM problem. I concluded that this phenomenon is observed in Korea and Japan stock market supporting DeBondt & Talher that CAPM misleads theoretical stock price return reversal and Brown and Warner (1980), who found that sophisticated CAPM do not perform better than simple model like market adjusted returns model. This is interpreted that the stock markets in Korea and Japan are not efficient and continue to have unstable factors. These findings provide full of suggestions to further research. CAPM is to explain market equilibrium price as a one-factor model, the Fama-French 3 factor model is a multi-factor model, and it can be said to more accurately describe the equilibrium price by adding size and gross value factor in describing the market equilibrium price. These results show that if Fama-French 3 factor model uses, it can solve the problem when using CAPM.The January effect is found significantly in both the Korean and Japanese markets. In the Korean stock market, the short-term seasonal reversal effect is more pronounced than in the long-term, and in the Japanese stock market, the long-term seasonal reversal effect is more pronounced than in the short-term.
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Title: High Frequency Trading and Its Impact on Market Quality in U.S. Futures Market
Creator: Wang, Chao
Date: 2020
Description: This research focuses on the effects of high frequency trading (HFT) on market liquidity in US futures market. This research utilizes a unique...
Show moreThis research focuses on the effects of high frequency trading (HFT) on market liquidity in US futures market. This research utilizes a unique data set consisting of all book events for multiple underlying assets and contracts during calendar year 2018, covering all trading days information of E-mini S&P 500, Gold, Eurodollar, Crude Oil, Corn and Soybean futures with their nearby and deferred contract data each day. This study extends findings from existing HFT equity research (e.g. Brocher et al., 2016; Frino et al., 2019, etc.) that HFT promotes market liquidity, into the commodity market. It also addresses HFT’s contributions to price discovery, and find it varies by types of commodities. Furthermore, the research identifies how an HFT phenomenon, the Cancel Cluster, impacts the futures market. Also, this research verifies and extends the models in Frino et al. (2019) to multiple commodities. Finally, a series of promising future analyses are suggested.
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Title: THREE ESSAYS ON CORPORATE FINANCE
Creator: Wang, Jianrong
Date: 2020
Description: This dissertation is comprised of three distinct but related essays in corporate finance. In the first essay, I examine how the CEOs paid with...
Show moreThis dissertation is comprised of three distinct but related essays in corporate finance. In the first essay, I examine how the CEOs paid with inside debt utilize corporate social responsibility activities to reduce firm risk taking. In the second and third essays, I explore the possible determinants of private placement. The first essay focuses on managerial incentive induced by debt-like compensation such as deferred compensation and defined benefit pensions. Building on cumulative prospect theory and instrumental stakeholder theory, I hypothesize that CEOs paid with debt in their own firms have risk-reduction incentives, and corporate social responsibility (CSR) activities mediate the relationship between debt-like compensation and firm risk taking. Furthermore, I argue that the mediated relationship between CEO debt-like compensation and firm risk taking is context dependent, and I propose that two contingencies, namely environmental dynamism and munificence, moderate the mediated process. My analyses, based on a large longitudinal dataset of nonfinancial US firms, lend strong support for these hypotheses. The second essay examines the impact of firm’s social capital on the cost of Rule 144A debt. I find that Rule 144A debt issuing firms headquartered in the high social capital county pay lower yield spread their peers. Furthermore, the finding suggests that the effect of social capital becomes weak when the issuers have more firm-specific public information and credit records. The relation between social capital and the cost of debt is contingent on industry environment. The results reveal that firms located in high social capital counties have low bankruptcy likelihood and low risk level after Rule 144A debt issuance. The third essay focuses on the role of prior technology alliances in the PIPE issuance. Relying on the data collected from Placement Tracker and SDC platinum, I empirically investigate the relationship between issuers’ technology alliance experiences and their PIPE offering contracts. I document that the greater alliance experiences at the time of the PIPE issuance, the smaller PIPE price discount and fewer contract terms that are favorable to investors. The results indicate that the technology alliance experience alleviates the information asymmetry between issuers and investors and improve issuers’ bargaining power. I further find that issuers with more alliance activities exhibit a more positive announcement effect and outperform in the long run. Moreover, the effect of technology alliance experience is stronger if the issuers partner with large firms, whereas the effect is weaker if the issuers are in high-tech industries.
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Title: On the Study of Successful Derivatives: A Holistic Approach to the Standardization of Financial Innovation
Creator: Schoinas, Konstantinos Georgios
Date: 2021
Description: This dissertation attempts a contribution toward a much-needed holistic understanding surrounding the trading dynamics of exchange-based...
Show moreThis dissertation attempts a contribution toward a much-needed holistic understanding surrounding the trading dynamics of exchange-based derivative products. The latter proxying such products’ commercial performance. Hence, upon identifying the lack of a measurement standard as the underlying reason for the attested and motivating knowledge deficit, we adopt a two-step approach for the development thereof: At first an integrated conceptual framework is established and, subsequently, a normalization standard is derived. In result, across-product trading dynamics are rendered directly comparable; arguably, for the first time ever. Furthermore, we also explore the existing postulation of balanced liquidity commitments between the groups of hedgers and speculators and posit the construct of a corresponding temporarily stable equilibrium. The latter serves as the first dimension on which the developed measurement standard may be applied. Accordingly, we conduct empirical research predicated on an extensive dataset with daily trading activity and, just as theorized, reject the hypothesis that the aforementioned speculator-hedger ratio is non-stationary. We then proceed in studying the trading dynamics of individual derivatives, implementing the developed standard by means of longitudinal analyses for second time. To a large extent our results do not contradict the body of related literature, which however has been essentially based on heuristic approaches to this time. Nevertheless, in its course, this study also highlights the need to shift the entire paradigm of studying individual derivatives trading success – from a single-faceted – to two separate effects: one anchored to the short term ‘steam gathering’ capacity of newly launched products and another associated with the notion of established products’ longevity. Altogether then, this study aspires to serve as a solid first step in systematically answering Webb’s (2018) call to confront the still unknown causes of derivatives’ success, or lack thereof.
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Title: Two essays on corporate finance and risk management
Creator: LI, YANFENG
Date: 2021
Description: This dissertation consists of two essays. The first essay examines the interaction effect of human capital investment in firms with dual-class...
Show moreThis dissertation consists of two essays. The first essay examines the interaction effect of human capital investment in firms with dual-class shares (DCS) structure. In this study, I find that although more input in human capital, measured by employee welfare index (EWI), can enhance the valuation of single-class (SCS) firms, human capital investment in DCS firms is not valued by the market, but even hurts firm value. This result is consistent with the prediction of agency theory. The management entrenchment effect in DCS firms causes valuation discount when managers can transfer private benefit through investing in humans. To get a robust result, I use propensity score matched data of SCS and DCS firms and get the same conclusion. Overall, my paper provides the evidence that human capital investment plays a different role in firm value under different circumstances, especially under different ownership structures.The second essay examines the relationship between director network centrality and firm credit risk. By using a comprehensive data including both rated firms and unrated firms, I discover that director network is positively associated with firm’s probability of default. This positive effect is more robust in firms without agency credit ratings. I further examine that when firm’s cash flow increases, firm’s default risk increases with director network. But when investment increases and firm’s debt finance increases, the default risk decreases with director network. These combined results imply that director network leads to more agency problems when firms have plenty of cash flow but benefit firms when the cash flow goes into investment or when directors utilize their network to get more debt finance for firms. Also, I find that director network helps loss firms other than profitable firms and decreases firm default risk during the financial crisis.
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Title: TIMING STRATEGY OF COMMODITY MANAGERS
Creator: Lara Prado, Camila Cristina
Date: 2021
Description: The purpose of this research is to study whether commodity managers have the ability to time factor exposures. I utilize the methodology...
Show moreThe purpose of this research is to study whether commodity managers have the ability to time factor exposures. I utilize the methodology developed by Treynor and Mazuy (1966), and Henriksson and Merton (1981), and apply the four-factor commodity model of Blocher et al (2018). Specifically, I measure market timing, momentum timing, the high term (realized term premia for the commodities with above‐median basis), and low term (realized term premia for the commodities with below‐median basis) skills. These factors are chosen because each one, separately, captures a risk premium embedded in commodity futures.My results indicate that commodity managers’ returns have some statistically significant market timing abilities. This means that many managers increase exposure to the nearest contract when the spot premium return is high and decrease exposure when the spot premium return is low. Momentum timing, high term timing, and low term timing are not observed. When looking at different strategies, technical managers demonstrate stronger market timing ability than fundamental managers.
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Title: Essays on Empirical Corporate Finance
Creator: Yang, Zihao
Date: 2020
Description: This thesis consists of two essays on empirical corporate finance. The first essay examines the influence of corporate tax on corporate social...
Show moreThis thesis consists of two essays on empirical corporate finance. The first essay examines the influence of corporate tax on corporate social responsibility (CSR) investment. This essay takes advantage of the dynamic changes on state corporate taxes from 2003 to 2016 and explores the causal effects of the tax changes on firms’ CSR outcomes. Applying a difference-in-difference approach, I find that tax effects on CSR are asymmetric. Tax cuts lead to significant improvement of CSR ratings, especially in the concern issues. Tax hikes, on the other hand, lead to deterioration of CSR strength, but have no effect on CSR concerns. I also find that CSR investment from financial constrained firms is more sensitive to tax changes. The second essay studies the financial effect of suppliers’ initial public offering (IPO) on their customer companies. By analyzing matched supplier companies and their large customers, I find that customer companies lose value in both short-run and long-run time periods after suppliers’ IPO events. These customer companies also have higher risk compared to those whose suppliers do not go public. Moreover, I explore the channels of suppliers’ IPO effect on their customers. The results show that suppliers diversify customers and reduce trade credit after IPO. Finally, I find that the supply chain relationships are more likely to terminate after suppliers going public.
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Title: THREE ESSAYS IN ENTREPRENEURIAL FINANCE AND COMMODITY MARKETS
Creator: Jia, Jian
Date: 2020
Description: This dissertation includes three essays with a series of empirical investigations in areas of entrepreneurial finance and commodity markets.In...
Show moreThis dissertation includes three essays with a series of empirical investigations in areas of entrepreneurial finance and commodity markets.In the first essay, I study the impact of General Data Protection Regulation (GDPR) on investment in new and emerging technology firms. My findings indicate negative post-GDPR effect after its 2018 rollout on EU ventures, relative to their US counterparts, but no such effects following its 2016 enactment.In the second essay, I examine how investors’ tendency to prefer investing in local ventures interacts with the effects of the GDPR on venture investment in EU. I demonstrate that GDPR’s enactment and rollout differentially affect investors as a function of their proximity to ventures. Specifically, I show that GDPR’s rollout in 2018 has a negative effect on EU venture investment and the effects are higher when ventures and lead investors are not in the same country or union. The relationship manifests in the number of deals per month and in the amount invested per deal, and is particularly pronounced for newer and data-related ventures.In the third essay, I formulate two claims about spot and futures return prediction in industrial metal futures market. These claims lead to testable hypotheses, and provide theory-based restrictions for the coefficients of spot and futures return regression. I investigate six industrial metals and find empirical support for my hypotheses. The in-sample and out-of-sample evidence shows that financial variables, proxies for global economic activities, and the basis predict futures and spot price returns consistently with my hypotheses. Furthermore, my out-of-sample trading experiments document economic significance of the restrictions.
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Title: Socially Responsible Investing and Style Investing
Creator: He, Di
Date: 2020
Description: This study focuses on two popular investment strategies. The first one is a combination of socially responsible investing and factor investing...
Show moreThis study focuses on two popular investment strategies. The first one is a combination of socially responsible investing and factor investing (SRIF), it is therefore a comparison between factor investing portfolios and their corresponding ESG screened factor investing portfolios, aiming at indicating whether there is an opportunity costs or benefits of being responsible in factor investing. Opportunity cost is regarded if the ESG screened factor investing portfolios have lower raw return, Sharpe ratio, and risk-adjusted return than their respective factor investing portfolios. In addition to simply comparison, I also build an empirical SRI strategy, achieving real outperformance of SRI. For the second strategy, investing in R&D intensity (high technology) stocks results in significant positive alpha over 40 years. However, the alphas decrease significantly after the “Tech Bubble”, because investors nowadays prefer those technology firms who can produce true profits. I provide empirical evidence to investor sentiment, proving both risk bearing and investor sentiment play important roles in the positive association between R&D-intensive and excess return.In the first SRIF strategy, five widely-accepted factors in academic: value, size, profit, investment, and momentum are used to construct original single factor investing portfolio as benchmarks, which can naturally solve the benchmark bias, factor bias in previous literature at some extent. In addition to fulfill empirical industry’s generalities and constraints, this study also covers multi-factor framework and constructs different long-short positions for investment processing. Following considerations of ESG measurement (ESG_net and ESG_Industry, the latter one for calibration of industry bias), sample period (whole period and sub period), portfolio weighting methods (equally weighted and capitalization weighted), and after excluding undiversified portfolio, there are total 192 comparisons between factor investing portfolios and ESG screened factor investing portfolios for each measures of performance. Results suggest that most investors (80% - 90%) have to bear non-statistically significant opportunity costs if they want to be socially responsible in factor investing. In addition, the opportunity costs in sub period (2004-2017) is remarkably less in scale than those in whole period (1992-2017), indicating an obvious “time effect” that investors will have less opportunity costs recently with more and more ESG information is disclosed. For empirical consideration of industry, I build a double sorting factor portfolio on profit and value, and its ESG screened portfolio outperform the single factor portfolio.For the second research, R&D expense is a key component of investment. There is long history literature claim that there is a positive relationship between R&D and stock returns. There are two main explanations of the positive association, which are mispricing and risk bearing. This study separates whole sample into two periods: before “Tech Bubble” and after “Tech Bubble”, indicating that the mispricing is weaker after “Tech Bubble” than that in before “Tech Bubble”, while risk bearing is persistent. In addition, this study finds that the excess returns are relatively high for those highly subjective and difficult to arbitrage technology securities, which are small stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks before the “Tech Bubble”, but almost vanish after the “Tech Bubble”. Therefore, investor sentiment does exist. While for those true earning technology securities, their excess returns are persistent, indicating compensation of risk bearing.
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Title: Two Essays on Corporate Finance
Creator: Wang, Bo
Date: 2021
Description: This dissertation is comprised of two essays on finance. In the first chapter, I investigate whether and to what extent unionization would...
Show moreThis dissertation is comprised of two essays on finance. In the first chapter, I investigate whether and to what extent unionization would influence the compensation to the non-executive employees. In the second chapter, I explore how social capital would impact regional innovation performance by private firms.In the first chapter, I examine the effects of unionization on stock options granted to non-executive employees. Adopting a regression discontinuity design, I find that employees receive more stock options after the union election wins. The positive association is more pronounced when unions have more bargaining power and when free-riding problems are less severe. Further, I provide evidence that employees receive more stock options when CEOs are entrenched. Finally, I show that stock options provide risk-taking incentives to non-executive employees. This work provides a potential explanation to the union wage premium puzzle that unions utilize stock options to increase non-executive employees’ total compensation. In the second chapter, I investigate whether and to what extent social capital may affect regional innovation by private firms in the U.S. I document that regional social capital is positively associated with the quantity, quality, and novelty of county-level innovation by private firms. This effect is more prominent in regions with a lower supply of financial capital. My findings further suggest that social capital is complementary to investment in research and development. Using a Spatial Durbin Model, I report that regional social capital has significant spillover effects in boosting the innovation of neighboring counties.
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Title: Applications of Optimal Contract Theory in Brokerage
Creator: Alonso Alvarez, Guillermo
Date: 2023
Description: In this thesis we study optimal brokerage problems in different scenarios. The thesisis structured in two parts:...
Show moreIn this thesis we study optimal brokerage problems in different scenarios. The thesisis structured in two parts: In the first part of this thesis, corresponding to Chapter 2 and 3, we construct optimal brokerage contracts for multiple (heterogeneous) clients trading a single asset whose price follows the Almgren-Chriss model. The distinctive features of this work are as follows: (i) the reservation values of the clients are determined endogenously, and (ii) the broker is allowed to not offer a contract to some of the potential clients, thus choosing her portfolio of clients strategically. We find a computationally tractable characterization of the optimal portfolios of clients (up to a digital optimization problem, which can be solved efficiently if the number of potential clients is small) and conduct numerical experiments which illustrate how these portfolios, as well as the equilibrium profits of all market participants, depend on the price impact coefficients. In the second part of this thesis, corresponding to Chapter 4, we establish existence of a solution to the optimal contract problem in models where the state process is given by a multidimensional diffusion with linearly controlled drift. Then, under certain concavity assumptions, we show that the optimal contracts in the relaxed formulation also solve the associated strong optimal contract problem. The main advantages of this approach, relative to the existing methods, are due to the fact that it allows (i) to obtain the existence of an optimal contract (as a limit point of epsilon-optimal ones), and (ii) to include various additional constraints on the associated control problems (e.g., state constraints, difference in filtrations of the agent and of the principal, etc.). Finally, we apply our results to the problem of brokerage fees when the agent has access to a larger filtration.
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Title: High Frequency Trading and the Impact of Volume-Duration on Market Quality in the U.S. Futures Markets
Creator: Xu, Xiaoruo
Date: 2023
Description: This paper examines the impact of High Frequency Trading (HFT) on market quality in the U.S. futures market through the lens of Adjusted...
Show moreThis paper examines the impact of High Frequency Trading (HFT) on market quality in the U.S. futures market through the lens of Adjusted Volume-Durations (AVD). By using the unique nanosecond level TAQ CME datasets of commodities futures in 2018, which include Crude Oil, E-mini S&P 500, Eurodollar, Gold, Corn and Soybean, I create the AVDs of each dataset, then conduct the regression analysis on market quality variables with the independent variables including AVDs and other key variables, and the results show that as AVD decreases, the market quality deteriorates, thus HFT positively affects market quality in the U.S. futures market. In order to explore the main driver of AVD on market quality in the futures market, I use the Autoregressive Conditional Duration Model to decompose AVDs into expected AVDs (AEVD), which is the component of AVD that is influenced by past AVDs and unexpected AVDs (AUVD), which is the component of AVD that is not captured by past AVDs but by unanticipated events, and then conduct the regression analysis on market quality variables with the independent variables including AEVD, AUVD and other key variables. The result shows that AEVD has a higher impact on liquidity than AUVD, but the impact of AEVD and AUVD on volatility is mixed in the U.S. futures market. However, except for the conclusions get from the based multivariate regression results, I also explain why there are some outliers for the Eurodollar, soybean and gold, and why HFT has more explicit impact on agricultural futures market.
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