Download or read book Essays in Higher Moment Asset Pricing and Liquidity Risk written by Qunzi Zhang and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Thèse. HEC. 2014

Download or read book Two Essays on Empirical Asset Pricing written by Yangqiulu Luo and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays on empirical asset pricing. The first essay examines if the idiosyncratic risk is priced. Theories such as Merton (1987) predict that idiosyncratic risk should be priced when investors do not diversify their portfolio. However, the previous literature has presented a mixed set of results of the pricing of idiosyncratic risk. We find strong evidence that idiosyncratic risk is priced differently across bull and bear markets. For the sample period from June 1946 to the end of 2010, a factor portfolio long on stocks with high idiosyncratic volatility and short on stocks with low idiosyncratic volatility yields an equal-weighted monthly return of 1.59% for bull markets but -1.29% for bear markets. These evidences support the hypothesis that investors are rewarded for betting on individual stocks during bull markets and holding more diversified portfolios during bear markets. The second essay examines the role of the limits to arbitrage in the negative effect of liquidity on subsequent stock returns. I hypothesize that if the negative effect persists because of the limits to arbitrage, the effect should be more pronounced when there are more severe limits to arbitrage. My empirical evidence supports the hypothesis. In addition, I find that the effect of the limits to arbitrage on the liquidity anomaly is not correlated to the liquidity risk.

Download or read book Three Essays in Asset Pricing written by Alan Picard and published by . This book was released on 2015 with total page 165 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract This dissertation consists of three essays. My first paper re-examines the link between idiosyncratic risk and expected returns for a large sample of firms in both developed and emerging markets. Recent studies using Fama-French three factor models have shown a negative relationship between idiosyncratic volatility and expected returns for developed markets. This relationship has not been studied to date for emerging markets. This study relates the current-month’s idiosyncratic volatility to the subsequent month’s returns for a sample of both developed and emerging markets expanding benchmark factors by including both a momentum and a systematic liquidity risk component. My second essay contributes to the important literature on the topic of the small capitalization stocks historical outperformance over large capitalization stocks by investigating the hypothesis that the small firm premium is related to macroeconomic and financial variables and that relationship is driven by the economic cycle in the United States and Canada. More specifically, this study employs recent advances in nonlinear time series models to explore the relationship between the small firm premium, and financial and macroeconomic variables in the Canadian and U.S. economies. My third paper re-examines the findings of a recent research paper that suggested that market wide liquidity may act as a leading indicator to the economic cycle. Using several liquidity measures and various macroeconomic variables to proxy for the economic conditions, the paper presents evidence that stock market liquidity could forecast business cycles: A major decrease in the overall level of market liquidity could indicate weak economic growth in the subsequent months. However, the drawback in the analysis is that the relationship is investigated in a linear approach even though it has been proven that most macroeconomic variables follow non-linear dynamics. Employing similar liquidity measures and macroeconomic proxies, and two popular econometrics models that account for non-linear behavior, this study hence re-investigates the relationship between stock market liquidity and business cycles.

Download or read book Essays on Liquidity Risk and Asses Pricing written by Ning Chen (Ph.D.) and published by . This book was released on 2005 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Liquidity Shocks and Their Implication for Asset Pricing and Valuation Models written by Nardos M. Beyene and published by . This book was released on 2019 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: The main objective of my three essays is to incorporate liquidity shocks and the linkages between the liquidity condition of financial markets into asset pricing and valuation models. The first essay focuses on the liquidity adjusted capital asset pricing model, while the second and the third essays examine the popular asset valuation model called the Fed model. The first essay investigates the pricing of the commonality risk in the U.S. stock market by using a more comprehensive market illiquidity measure that can reflect the liquidity condition of different asset markets. This measure is given by the yield difference between commercial paper and treasury bill. In addition, consistent with the definition of commonality risk, I form portfolios based on the sensitivity of each stock's illiquidity to the market-wide illiquidity. Using monthly data from January 1997 to December 2016 and the conditional version of the Liquidity-adjusted Capital Asset Pricing Model (LCAPM) estimated by the Dynamic Conditional Correlation approach, I find a significant commonality risk premium of 0.022% and 0.014% per year for 12-month and 24-month holding periods, respectively. This premium estimate is significantly higher than those found using the market illiquidity measure and estimation procedures from previous studies. These findings provide evidence that a security's easiness in terms of tradability at times of liquidity dry up is extremely important. It is also higher than the excess return associated with other forms of liquidity risk. In addition, the paper finds a variation in the estimated commonality risk premium over time, with values being higher during periods of market turmoil. Moreover, estimating the LCAPM with the yield difference between commercial paper and treasury bill as a measure of market illiquidity performs better in predicting returns for the low commonality risk portfolios. The second essay examines the inflation illusion hypothesis in explaining the high correlation between government bond yield and stock yield as implied by the Fed model. According to the inflation illusion hypothesis, there is mis-pricing in the stock market due to the failure of investors to adjust their cash flow expectation to inflation. This led to a co-movement in stock yield and government bond yield. I use the Gordon Growth model to determine the mis-pricing component in the stock market. In the next step, the correlation between bond yield and stock yield is estimated using the Asymmetric Generalized Dynamic Conditional Correlation (AG-DCC) model. Finally, I regress this correlation on mis-pricing and two other control variables, GDP and inflation. I use monthly data from January 1983 to December 2016. Consistent with the Fed model, the paper finds a significant positive correlation between the yield on government bonds and stock yield, with an average correlation of 0.942 - 0.997. However, in contrast to the inflation illusion hypothesis, mis-pricing in the stock market has an insignificant impact on this correlation. The third essay provides liquidity shocks contagion between the stock market and the corporate bond market as the driving force behind the high correlation between the yield on stocks and the yield on government bonds as implied by the Fed model. The idea is that when liquidity drops in the stock market, firms' credit risk rises because the deterioration in the liquidity of equities traded in the stock market increases the firms' default probability. Consequently, investors' preferences shift away from corporate bonds to government bonds. Higher demand for government bonds keeps their yield low, leading to a co-movement of government bond yield and stock yield. In order to test this liquidity-based explanation, the paper first examines the interdependence between liquidity in the stock and corporate bond markets using the Markov switching model, and a time series non-parametric technique called the Convergent Cross Mapping (CCM). In order to see the response of government bond yield and stock yield to liquidity shocks in the stock market, the study implements an Auto Regressive Distributed Lag (ARDL) model. Using monthly data from January 1997 to December 2016, the paper presents strong evidence of liquidity shocks transmission form the stock market to the corporate bond market. Furthermore, liquidity shocks in the stock market are found to have a significant impact on the stock yield. These findings support the illiquidity contagion explanation provided in this paper.

Download or read book Essays on Liquidity in Financial Markets written by Christoph Koser and published by . This book was released on 2020 with total page 141 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation contributes to a better understanding of liquidity in financial markets. Relying on the latest proxies for liquidity and TAQ benchmark data, this dissertation investigates liquidity in financial markets from different perspectives and gives answers to crucial challenges when assessing the importance of liquidity; its time-varying commonality across assets and stock markets; its impact on asset pricing in abnormal market states and finally its dynamics and determinants on a daily basis. This study has implications for investors and market makers as part of risk management and portfolio diversification and for policy makers in the context of designing optimal regulatory frameworks to predict and prevent common sources of liquidity tightness in global financial markets. In the second chapter, I study commonality in liquidity and its association to market volatility. Taking on a global perspective on this matter and examining nine major stock markets, I first construct a novel and dynamic measure of commonality in liquidity. I show that liquidity commonality is present in global stock markets and increases parallel to crisis periods. This finding points towards abrupt changes in liquidity fundamentals and clearly provide evidence for demand- and supply-driven sources of commonality in liquidity (i.e. correlated trading behavior on institutional level paired with restrictions on funding capital) on a global scale. Driven by the well acknowledged findings of a positive relationship between volatility and illiquidity, I investigate the time-varying tie between common variation in liquidity and volatility. Using a dynamic granger-causality test, I find that global market volatility always causes commonality in liquidity while commonality in liquidity causes volatility only in sub-periods, spanning over the financial crisis and its aftermath period. In the third chapter, I examine the effect of systemic liquidity risk as a priced risk factor in asset pricing. Hereby, I challenge the previous literature in their finding of a linear relationship between systemic liquidity risk and asset prices. I show that systemic liquidity risk is not always a priced factor in the explanation of asset prices. I find that systemic liquidity risk and asset prices are negatively associated in bad market states. This finding can be explained by downward trended liquidity spirals, in other words, an interaction between demand and supply-sided commonality in liquidity, which cause a depression in asset pricing during bad market states. I also show that liquidity risk has a positive link to asset pricing in good market states, which is mainly associated with search-for-yield considerations. Finally, I document that there is no significant relationship between systemic liquidity risk and asset pricing during normal market swings. This finding supports the initial claim that market participants do not worry too much about the state of market-wide liquidity during regular times. In the fourth chapter, I investigate daily liquidity and trading activity of energy stocks traded at U.S. stock exchanges, categorized into five energy sectors, that is, oil and gas, coal mining, renewables, electric- and multi-utilities. Using TAQ (trades and quotes) data, I examine various dimensions of liquidity and trading - effective spreads, price impact of trades, number of trades and volume - on sectoral level. I document cross-sectional differences in the level of liquidity and trading across energy stock segments. I find that liquidity and trading is trended and exhibit serial dependency up to higher lags, similarly across sectors. There is a weekly pattern for trading and liquidity, both decline on Fridays, on average. I also identify a number of factors that affect trading and liquidity commonly across sectors, that is, general market movements, short-term momentum runs and overall stock market volatility, which points again towards the direction of correlated trading, amplified by institutional investors. Moreover, I show that trading and liquidity are sensitive to a widening Term Spread. I find a heterogeneous effect of the oil price on liquidity and trading activity, dependent on the energy segment. Despite controlling for stock market volatility, I observe that illiquidity and trading increase with higher levels of oil price volatility. Finally, I show that trading activity, both, in number of trade executions and share volume, increases for renewable and multi-utility stocks when climate change receives global media attention. Fast markets and increased trading make liquidity to be one of the top considerations in the smooth functioning of financial markets, especially in the light of financial distress and sudden, downward trended liquidity spirals, where liquidity adjusts to different equilibria levels. For future discussion, there is further need to address liquidity in its different dimensions and in the context of financial market quality, information efficiency and sentiment. This dissertation is yet another step for a more comprehensive knowledge on liquidity." -- TDX.

Download or read book Essays in Empirical Asset Pricing written by Xing Hu and published by . This book was released on 2011 with total page 330 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on Effects of Information and Liquidity in Asset Pricing written by Thomas W. Barkley and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: Information and liquidity interact when asset prices are to be determined. I study these effects in the price discovery process of the S & P 500 index traded in the cash, futures and options markets, and document that transaction costs and market trading activity proxies are important determinants. I also study the liquidity risk premiums associated with stocks traded on different exchanges, and document that there are multiple aspects to liquidity showing considerable variation over time. Empirical results suggest that some common liquidity measures can be consolidated into two latent liquidity variables: one arising from asymmetric information among traders and another from order processing or direct transaction costs associated with trading the asset. Taken together, my research suggests that traders pay close attention to information asymmetries and fixed costs of trading when evaluating asset prices; this subsequently influences an informed investor's decision regarding the market in which they should transact.

Download or read book Market Liquidity written by Yakov Amihud and published by Cambridge University Press. This book was released on 2012-11-12 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents the theory and evidence on the effect of market liquidity and liquidity risk on asset prices and on overall securities market performance. Illiquidity means incurring a high transaction cost, which includes a large price impact when trading and facing a long time to unload a large position. Liquidity risk is higher if a security becomes more illiquid when it needs to be traded in the future, which will raise trading cost. The book shows that higher illiquidity and greater liquidity risk reduce securities prices and raise the expected return that investors require as compensation. Aggregate market liquidity is linked to funding liquidity, which affects the provision of liquidity services. When these become constrained, there is a liquidity crisis which leads to downward price and liquidity spiral. Overall, the volume demonstrates the important role of liquidity in asset pricing.

Download or read book Three Essays on Empirical Asset Pricing written by Wenqing Wang and published by . This book was released on 2004 with total page 342 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Asset Pricing written by Qingqing Chen and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Stock Market Liquidity and Earnings Seasons written by Andrei I. Nikiforov and published by . This book was released on 2009 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: In these essays, I identify the effects of earnings seasons (i.e., the clustering of earnings releases), on stock market liquidity and asset pricing. In the first essay, I document strong seasonal regularities associated with aggregate earnings announcements. Applying the large body of literature linking earnings announcements to liquidity effects, I argue that these earnings seasons create market-wide liquidity shocks and I show that both liquidity betas and liquidity risk change during earnings seasons In the second essay, I test the impact of earnings seasons on commonality in liquidity as measured by both spreads and depths. I find that commonality significantly decreases during the four weeks of each calendar quarter when most companies release their earnings. These findings contribute to the literature by identifying and examining the clustering effect of firm-specific information on commonality in liquidity. In the third essay, I extend the study of the liquidity effects of earnings seasons to a sample of 20 countries. I find that the international data corroborate both hypotheses. I also find that the aggregate quality of accounting information, and the duration and frequency of interim reporting periods are important determinants of the liquidity effects (both liquidity betas and commonality in liquidity) during earnings seasons.

Download or read book Three Essays in Asset Pricing written by Travis Robert Alonzo Sapp and published by . This book was released on 2001 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Liquidity and Asset Pricing written by Mehdi Sadeghzadeh and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Corporate Governance and Asset Pricing written by Wei Lin and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three articles striding topics from corporate governance to asset pricing. It seeks to understand the costs and benefits of better corporate governance, and how assets such as real estate are priced. My ultimate focus is on corporate governance on both sides of the equations - as causes and effects, which culminates in my third article investigating the causality of legal revisions on investors through independent directors. My apparent detour in the second piece results from that my finance background has lectured me on the importance of how asset prices are determined. Through this detour, I have recognized that I should rather combine the topics of intrigue into my topics of pursuit. Hence my blending of my learnings from the first two articles into my final piece of this dissertation. Article 1, Corporate Transparency and Bond Liquidity, investigates how firm accounting transparency affects the liquidity of bonds issued by such firms. The dataset consists of firm- and bond- level data for US listed firms across multiple years. We find a positive relationship between firm transparency and bond liquidity, which becomes stronger in times of financial distress. Further, we find a negative relationship between firm transparency and liquidity risk. Economically speaking, bond liquidity is less (more) information-sensitive when the probability of default is lower (higher). Article 2, Pricing the Location of Commercial Properties, proposes a pricing framework for cash flow datasets, using US commercial properties as a case. We adapt the netpresent- value-approach of Korteweg and Nagel (2016) from a performance-evaluation context to a pricing context. As an example to test this proposed framework, We use the hedonic regression models of Clapp- Giaccotto (1998) to generate commercial real estate specific location risk factors. Our results show that a one-factor stock market model works rather well for commercial property pricing in comparison to multi-factor models including the factors of Fama and French (1996) and a physical-distancebased location risk factor. Article 3, Does Investor Protection Laws Benefit Investors? Evidence from a Natural Experiment on Cross-Listed Firms, studies the causal effects of investor protection laws on investors from a governance and financial perspective. I exploit a natural experimental setting where firms cross-listed on both China's mainland and Hong Kong are subject to the legal revisions. First, I find that more independent directors turn over amongst the cross-listed firms. Second, my results show that the directors appointed to succeed the resigned directors tend to be younger and include more female. The above combined, I argue that my findings suggest that firms have taken the opportunity to appoint directors more befitting to the new environment, hence increased board turnover might be conducive to the firm in the long run. Third, I find no evidence of significant changes in board independence in the short run. Combined with increased director turnovers, my findings reconcile the arguments advanced by the finance and the strategy literature on the effects of strengthened institutions in that strengthened shareholder-friendly corporate governance at the firm level and symbolic adoption of certain governance practices could take place jointly.

Download or read book Essays on Asset Pricing and Financial Institutions written by Patrick Christian Kiefer and published by . This book was released on 2018 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasts of risk prices at alternative time scales can be used to consolidate history dependence in asset return time series. The resulting Markovian structure identifies a martingale component in the latent transition dynamics. I apply the model to U.S. stock markets and find the concentration of return volatility on the martingale component - the spectral gap - is countercyclical, and predicts annual market returns out-of-sample (o.o.s.) with an R-squared of 10.8%. Value (HML) predictability is concave and front-heavy, peaking at a one-year 14.7% o.o.s. R-squared. In contrast, the momentum predictability term structure is convex, insignificant on the short end, but accelerates to 31.4% o.o.s. R-squared at the three-year horizon. I form timing portfolios to investigate the risk content of the aggregate forecasts. Incremental gains from timing value are compensation for bearing systematic shocks to time-varying expected returns. Exposure to the market timing portfolio is cross-sectionally priced, while gains from timing size (SMB) are not. The findings provide new restrictions for parametric asset pricing theories. Incomplete human capital markets induce unexpected rebalancing costs that are mitigated by a bank. Ex-ante, the bank exchanges risky endowments for demandable liabilities. An ex-post withdrawal corresponds to exercising a put option on the market, used to resolve an unexpected portfolio choice problem. Portfolio choice opens a risk aversion channel that distinguishes our predictions from Diamond and Dybvig (1983) and related models. In these models, deposits resolve consumption-timing tensions by accommodating the investor's intertemporal elasticity of substitution (IES). The inclusion of risk-based incentives allow us to characterize the endogenous link between the intermediary balance sheet and the preference-based pricing kernel. Moreover, ex-post rebalancing incentives relax enforcement problems for ex-ante optimal policies in incomplete markets. This provides a justification for the coexistence of intermediation and market institutions.

Download or read book Market Liquidity Risk written by Andria van der Merwe and published by Springer. This book was released on 2016-01-12 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt: Andria van der Merwe provides a thorough guide to the critical tools needed to navigate liquidity markets and value security pricing in the presence of market frictions and information asymmetries. This is essential reading for anyone with a current or future interest in liquidity models, market structures, and trading mechanisms.