Business

Publication Search Results

Now showing 1 - 10 of 21
  • (2022) Dienemann, Fabian
    Thesis
    This dissertation consists of three essays on asset pricing and market microstructure topics within the U.S. corporate bond market. The first essay investigates asymmetry in price pressure between customer buy and sell orders and demonstrates that it is a valuable measure of downside liquidity for corporate bonds. While evidence of a characteristic premium for illiquidity in the cross-section of corporate bonds is mixed, aggregate liquidity asymmetry has high explanatory power for the time series of market returns. Its statistical and economic significance justify it as a credible asset pricing factor. Average market-wide liquidity asymmetry comoves with interest rate and credit spread changes, investor sentiment, funding liquidity, dealer inventory, exchange-traded fund flows, and post-crisis regulatory change. The second essay documents the properties of market-wide corporate bond liquidity and demonstrates that liquidity risk is an important determinant of returns. In market downturns, transaction costs rise for sellers and fall for buyers. The negative relation between buyer and seller liquidity motivates a new across-measure liquidity factor that incorporates an asymmetric liquidity component. Shocks to market-wide liquidity explain a large portion of bond return variation in the time series. Primarily driven by the asymmetric component, the liquidity factor attracts a cross-sectional risk premium that is robust to controls for credit, equity, and interest rate factors, as well as the illiquidity level. The third essay provides new evidence of retail investors’ ability to predict returns based on transactions in U.S. corporate bonds with equity-like risk. Retail order flow is persistent and contrarian, and it predicts future returns in the cross-section. The profits of an equal-weighted, long-short strategy that buys (sells) bonds that experience high (low) net retail buying are economically meaningful. The alpha based on decile portfolios is significant at the 10% level when controlling for common equity and bond risk factors. However, due to high transaction costs and because retail purchase volume is concentrated in underperforming bonds, retail traders lose money in aggregate.

  • (2023) Rojasavachai, Ravipa
    Thesis
    This thesis consists of three stand-alone studies in the field of energy finance market and household finance. The first study investigates the demographics and socio-economics factors influencing individuals’ decision to choose working from home before and after the coronavirus outbreak. I find that all factors impact the working from home choice before the coronavirus outbreak. However, the number of children becomes an uninfluenced factor, and female employees are more likely to work from home after the outbreak. Thus, I further report that female employees who work from home are less likely to have been promoted and received lower wages before the coronavirus outbreak. However, after the outbreak, they have a higher probability of job promotion and higher wage premium of working from home. This points to higher bargaining power with employers for females after the outbreak due to the changing in cultural norms and advanced working from home technologies. In the second study, I aim to analyse the impact of financial literacy on energy poverty in Australia and to explore important mechanisms of influence. The result shows that financial literate individual is less likely to face energy poverty. I also address the potential endogeneity by employing the mathematically skills as instrument variable. Additionally, I examine the channels that contribute to the relationship between financial literacy and energy poverty by focusing on the role of wealth and consumption. The result shows that wealth is the important channel through which financial literacy influences energy poverty while consumption could not classify as important channel. The third study investigates the macroeconomic effects of extreme weather in Australia by employing the index, Australian Actuaries Climate Index (AACI), to measure the extreme weather conditions. I find that the extreme weather shocks have a negatively impact on gross domestic product (GDP) and consumer price index (CPI). To provide better understanding of CPI, I analyse the CPI component and find that energy and food price are increased after extreme weather shock because higher energy demand for cooling and heating and lower agriculture output, respectively. In addition, the extreme weather shocks have the negative effect on interest rate while the positive impact on unemployment rate and energy consumption.

  • (2021) Balogh, Attila
    Thesis
    This dissertation consists of three essays on shareholder activism and corporate governance. The first essay develops and validates a method to identify shareholder activism campaigns using a data-driven approach based on investor characteristics. The proposed identification can replace or complement the current method used in finance research that identifies shareholder activism campaigns based on a subjective evaluation of regulatory filings. It overcomes the ambiguity associated with the current approach and allows for a more accurate and consistent examination of activism that is also replicable. I show that professional investment manager status, investment portfolio size, and track record of proxy solicitations are important determinants of board turnover, which is the most common channel for influencing control by activist investors. The second essay provides evidence that activist investors improve the operation of the director labor market and profit from its imperfections through their superior ability to match directors to firms based on the director's specific expertise. I show that long-term returns are higher when a director is appointed to the target, especially when their prior experience makes them a good fit. Understanding that complex turnaround campaigns are only launched when a matched director is available provides insights into the collective action problem of disengaged investors, which is inherent in the regular director nomination process. I also highlight that takeovers are a similar reallocation of human capital because the firm is matched to new managers and directors. This is an overlooked point in activism research that frames takeovers as an efficient reallocation of financial capital only. The third essay examines insider trading activity by blockholders and compares their performance to executives and directors. Blockholders are expected to be important monitors, yet the findings reveal that they are less informed because their trades earn significantly lower abnormal returns compared to other insiders that purchase their company's stock. Using insider trading data extracted directly from regulatory disclosure allows for a classification of investor types and the examination of heterogeneity in trading patterns for different blockholder groups. I show that active blockholder trades are significantly more informative compared to other financial blockholders, indicating that they are considered active monitors by the market.

  • (2021) Guan, Xian
    Thesis
    This thesis consists of three studies on market efficiencies from the perspective of investor sentiment, anomalies and institutional trading activity. The first study explores the effect of Christmas sentiment in the US on pricing of stocks that produce Christmas gifts, termed Christmas stocks. Christmas sentiment increases to the highest before Christmas and subsides after 25 December. High Christmas sentiment induces overpricing for Christmas stocks, and when sentiment subsides the correction of overpricing takes place and Christmas stocks realize significantly negative abnormal returns. This study shows that investor sentiment related to one particular event will induce overpricing for the stocks that are directly related to such events. The second study examines distress anomaly, defined as stocks with high default probability tending to have lower future returns, among stocks with different dividend payout policies. This study finds that distress anomaly is particularly pronounced among non-dividend-paying stocks because these stocks are associated with a high level of information uncertainty. When there is more information asymmetry for one stock, it is harder for investors to interpret stock value from public information. Therefore, distress anomaly is exacerbated among stocks with high information uncertainty, for example non-dividend-paying stocks. This study also finds weak evidence of distress anomaly among dividend-paying stocks. The distress anomaly among dividend payers is not due to the information uncertainty hypothesis. The overpricing of distressed stocks among dividend payers is due to dividend-loving investors’ attention to dividend payments and inattention to capital gains. The third study examines institutional trading activity for mispriced stocks when stocks are taking on anomaly-defined characteristics and finds that hedge funds prevail over non-hedge funds in trading mispriced stocks. Non-hedge funds trade contrary to anomaly prescription by buying more stocks that are overvalued rather than undervalued before portfolio formation and their trading activities exacerbate anomaly mispricing. In contrast to non-hedge funds, hedge funds exhibit no such trading patterns. Furthermore, by examining the actual trading performances, this study shows that non-hedge funds lose significantly from trading overpriced stocks, while hedge funds profit from trading undervalued stocks.

  • (2021) Enemuwe, Nduka Robert Dada
    Thesis
    The WM/R FX benchmark fix rate is regarded as the most important benchmark rate in the foreign exchange (FX) market. Due to the recent FX price fixing scandal, the Financial Stability Board (FSB) on February 15, 2015, recommend widening the benchmark fix window and the addition of new data feeds to the fixing process. The market design change is regarded as a highly effective measure required to enhance the quality and integrity of the fixing process. The dissertation is motivated by the recent FX market design change and my recent work experience on the WM/R benchmark fixing surveillance project, which is administered by Thomson Reuters. The contribution of the dissertation is three-fold. The first chapter examines the effectiveness of the market design change on benchmark efficiency and market quality using an event study and a difference-in-difference methodology. I find that benchmark efficiency and market quality decreased significantly after the market design change and the benchmark fix price no longer represent the FX prices during the fix window. The second chapter decompose the overall effect of the market design change into two sub-components using state space modelling. I find that the effect due to widening of the fix window contributes between 32% and 99% to benchmark efficiency and market quality, and the effect due to the addition of new data feeds contributes between 0% and 39.8% to benchmark efficiency and market quality. The third chapter develops alternative fixing mechanisms for the WM/R benchmark fix using call auction frameworks. Madhavan (1992) predicts that the call auction is better than the continuous trading mechanism in the presence of high information asymmetry and excessive price volatility. Using agent-based simulation, I compare the performance of the new call auction fixing mechanisms relative to the existing WM/R fixing mechanism. I find that the new call auction fixing mechanisms with call-time randomization and price collars produces greater allocative efficiency, price efficiency and lower price volatility. The analysis has major implications for regulators and benchmark administrators seeking to improve the efficiency and quality of the WM/R benchmark fixing methodology.

  • (2022) Park, Jonghyeon
    Thesis
    This thesis consists of three chapters discussing different aspects of financial markets. In the first chapter, we study why banks actively engage in philanthropic activities. Using data on bank donations to non-profit organizations, we examine the strategic nature of banks’ charitable giving. Our findings show that bank donation decisions are driven by competition in local deposit markets and such donations subsequently lead to a higher local deposit market share. We confirm our results by using exogenous variation in competition based on the application of antitrust laws in banking market mergers and exogenous shocks to the local demand for donations using natural disasters. The increase in local deposit market share can be attributed to banks using their donations to attract non-profit organizations and ethical customers as a source of deposits. We further show that bank donations also lead to an increase in local mortgage origination and in the likelihood of new market entry through new branch openings. Overall, the evidence aligns with the interpretation that banks strategically participate in corporate philanthropy to enhance performance. The second chapter examines the impact of hedge fund activism on employee satisfaction and the emission activities of target firms. We show that employees of target firms are more satisfied with senior management and work-life balance after hedge fund intervention. The increase in satisfaction is related with reduction in frictions in the workplace. From the environmental perspective, we find that target firms’ plants emit less toxic chemicals following hedge fund activism campaigns, which is driven by endeavour to reduce regulatory sanction on violation of environmental laws. Our evidence leans towards the view that hedge fund activism improves the target firm value at least partly by enhancing non-financial performance. In the third chapter, we study how private foundations manage their investments. Using a novel dataset, we show that foundations with financial experts are less likely to delegate their investment to outside portfolio managers whereas an internal investment officer hire is associated with more frequent use of external investment advisers. However, directors with financial expertise do not substantially alter asset allocation compared with non-outsourcing foundations. In addition, our analysis reveals a local bias in the investment adviser choice by foundations. The local bias is weakened when a foundation has financial experts on their board. Our results suggest that financial expertise improves at least the operational process of investment.

  • (2022) Turner, Nicholas
    Thesis
    This Ph.D. dissertation studies corporate finance, with a focus on valuations in corporate transactions. The first chapter investigates whether venture capitalists strategically price financing rounds so as to improve interim returns ahead of fundraising events. We find that when a venture capitalist is investing within a firm already within their portfolio immediately prior to a fundraising event, the financing rounds have abnormally high step ups in valuation and that the returns from such rounds are predictably lower. This pattern is not explained by deal or investor characteristics, and is stronger when multiple VCs within the syndicate have aligned incentives or are tightly networked. Our results bring into question the veracity of portfolio valuations based upon investing round pricing, as fundraising pressure may lead venture capitalists to strategically price deals. Within the second chapter, we investigate the paradoxical nature of venture capital as an asset class characterised by significant volatility and the modal price change from one round to the next being 0% (a “flat round”). Further, the proportion of financing rounds with a return of 0% is discontinuous relative to those receiving marginal increases or decreases in price, suggesting such financing rounds have significantly different characteristics relative to other rounds. We find evidence that when compared to a matched sample of financing rounds, rounds with 0% returns have lower future returns, are smaller in size, and are smaller than previous rounds of the same firm. We find evidence that rounds with 0% returns are more likely when previous rounds contain anti-dilution provisions. Such results are consistent with strategic mispricing to avoid the costs incurred by a decrease in firm valuation. The third chapter examines the role of valuation information in Australian public merger and acquisition deals utilising the release of Independent Expert Reports. The information within this report has significant consequences for deal outcomes, with the lower end of the valuation range appearing to function as a reserve price from the perspective of the target firm. I find the responses of both target firms and acquiring firms are consistent with this interpretation. Such effects appear to be independent of the information environment of the target firm, and are consistent regardless of whether the report was voluntary or required. The ability to engage independent third parties to accurately assess valuations may be a potential policy change to mitigate the valuation issues that arise in Chapter 1 and Chapter 2.

  • (2021) Besley, Michael
    Thesis
    Both industry and academic research document the sustained outperformance of Australian small capitalisation (cap) managers with regard to market benchmarks and standard academic models. In contrast to both their large company peers and overseas fund manager returns, the high relative returns generated by these small company managers have continued despite increased competition from new managers. This paper confirms the persistence of these anomalous returns and explores the sources of alpha generation by Australian small cap managers. The commonly used Carhart factor model does not explain the persistence of this alpha. Carhart alpha averages 0.3% per month for the group, with 22 out of 46 funds having statistically significant alphas. By adding a combination of factors to the standard Carhart model approximately two thirds of this alpha can be explained. These factors include betting against beta, avoidance of stocks with lottery characteristics, a preference for stocks with strong profitability and strong balance sheets while avoiding ‘junk’ stocks. After controlling for all these factors, average alpha declines to 0.08% per month with only four funds still having statistically significant alpha. While most managers avoid high beta and lottery stocks, the better performing funds demonstrate higher loadings away from lottery and distressed stocks and towards profitability factors than their poorer performing peers.

  • (2021) Liu, Leo
    Thesis
    This thesis aims to provide new insights on the different mechanisms that facilitate innovation and their relative importance in driving growth. Innovation is an important engine for economic growth and considerable effort has been devoted in understanding how technical change drives aggregate growth. Most literature in the field has focused on counting patents or survey based work of particular industries, for short samples. In this thesis, we open new avenues for research in firm innovation creating firm level measures that are available for long time series and across all industries (manufacturing and service). We propose three different measures that allow for the identification and classification of firm products, process and product innovations, and clean technologies at the firm level for public and private firms. Furthermore, we propose methods of aggregating these measures at the industry and economy level. We use the newly proposed measures in applications ranging from firm value in corporate finance to aggregate economic impact in macroeconomics. The new proposed measures allow for differentiation across innovation mechanisms that are paramount for setting innovation policy \citep{klenow2019, Hall2011, Atkeson2019}.

  • (2021) Wang, Hang
    Thesis
    This thesis examines the role of public information on equity prices. In the first study, we add new evidence that news increases investor disagreement. First, we find that stock prices are convex in relation to news, confirming that prices on news days reflect the risk compensation of opinion divergence. Second, using unexplained trading volume as a proxy for investor disagreement, we find that investor disagreement is positively priced in the cross-section, confirming that news increases investor disagreement. Finally, we distinguish empirically between two competing channels regarding how trading volume gets incorporated into asset prices when trading volume is a proxy for disagreement. We find that news-day unexplained trading volume is associated with high liquidity and low average bias, which reduces the effect of optimistic views. In the second study, motivated by the existing evidence that investors misreaction to news generates skewness and creates mispricing, we draw novel evidence that investors inability to interpret news correctly contributes to the pricing of skewness. Specifically, we find that only the skewness extracted from observed corporate news-day returns is negatively priced. This effect is particularly pronounced for stocks with greater asymmetric responses to good and bad news, and investors lottery preferences do not explain these results. Collectively, our findings suggest that accounting for endogeneity in skewness rather than treating skewness as an exogenous characteristic (lottery feature) of the return distribution is critical for understanding the negative relationship between skewness and future returns. In the final study, we examine the effect of Mercury Retrograde on stock market returns. Focusing on market indexes in 48 countries, we find that the average market returns in Mercury Retrograde periods are about 3.22% annually lower than those in other periods. This effect comes from a belief channel: investors who hold an astrological belief that Mercury Retrograde can destroy their decision-making will stay away from the market. This belief results in a higher risk premium required by remaining investors in sharing more risk. We further confirm that this belief channel concerns belief in ancient Greek culture, highlighting the importance of ancient culture in equity prices. Collectively, our findings suggest that investors may deem some ancient cultures important and behave accordingly.