Essays On Money Asset Prices And Liquidity Premia

Download Essays On Money Asset Prices And Liquidity Premia full books in PDF, epub, and Kindle. Read online Essays On Money Asset Prices And Liquidity Premia ebook anywhere anytime directly on your device. Fast Download speed and no annoying ads. We cannot guarantee that every ebooks is available!

Essays on Money, Asset Prices and Liquidity Premia

Author : Seungduck Lee
Publisher :
ISBN 13 : 9780355150650
Total Pages : pages
Book Rating : 4.1/5 (56 download)

DOWNLOAD NOW!

Book Synopsis Essays on Money, Asset Prices and Liquidity Premia by : Seungduck Lee

Download or read book Essays on Money, Asset Prices and Liquidity Premia written by Seungduck Lee and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes the determinants of asset prices and the effect of monetary policy on not only asset prices, but also on other macroeconomic outcomes such as asset market trade volume and welfare in an environment with search frictions. The analysis in such an environment helps to examine an important component of determining asset prices: liquidity, which is assets' ability to facilitate transactions. Hence, the dissertation particularly examines the effect of monetary policy on asset prices that the traditional asset pricing models without search frictions may be missing, and also explain some phenomena which are often considered abnormal in macroeconomics and international macroeconomics such as negative nominal yields and the Uncovered Interest Parity puzzle. The dissertation consists of three stand-alone papers and I provide their abstracts as follows. The first chapter is "Money, Asset Prices and the Liquidity Premium". This paper examines the effect of monetary policy on the market value of the liquidity services that financial assets provide, known as the liquidity premium. Money supply and nominal interest rates have positive effects on the liquidity premium, but asset supply has a negative effect. This implies that liquid financial assets aresubstantive substitutes for money, and that the opportunity cost of holding money plays a key role in explaining variation in the liquidity premium and thus in asset prices. The higher cost of holding money due to higher money growth rates leads to a higher liquidity premium. My empirical analysis with U.S. Treasury data over the period from 1946 and 2008 confirms the theoretical predictions. The theory also suggests that the liquidity properties of assets can cause negative nominal yields when the cost of holding money is low and liquid assets are scarce. I present empirical findings in the U.S. and Switzerland to support this prediction. The second chapter is a joint paper with Kuk Mo Jung, titled "A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle". In this paper, a new monetary theory is set out to resolve the "Uncovered Interest Parity (UIP)" Puzzle. It explores the possibility that liquidity properties of money and nominal bonds can account for the puzzle. A key concept in our model is that nominal bondscarry liquidity premia due to their medium of exchange role as either collateral or a means of payment. In this framework, no-arbitrage ensures a positive comovement of real return on money and nominal bonds. Thus, when inflation in one country becomes relatively lower, i.e., real return on this currency is relatively higher, its nominal bonds should also yield higher real return. We show that their nominal returns can also become higher under the economic environment where collateral pledgeability and/or liquidity of nominal bonds and/or collateralized credit based transactions are relatively bigger. Since a currency with lower inflation is expected to appreciate, the high interest currency does indeed appreciate in this case, i.e., the UIP puzzle is no longer an anomaly in our model. Our liquidity based theory can in fact help understanding many empirical observations that risk based explanations find difficult to reconcile with. The third chapter is joint work with Athanasios Geromichalos, Jiwon Lee, and Keita Oikawa, titled "Over-the-Counter Trade and the Value of Assets as Collateral" and was published in Economic Theory in 2016. We study asset pricing within a general equilibrium model where unsecured credit is ruled out, and a real asset helps agents carry out mutually benecial transactions by serving as collateral. A unique feature of our model is that the agent who provides the loan might have a low valuation for the collateral asset. Nevertheless, the lender rationally chooses to accept the collateral because she can access a secondary asset market where she can sell the asset. Following a recent strand of the finance literature, based on the influential work of Duffie, Garleanu, and Pedersen (2005), we model this secondary asset market as an over-the-counter market characterized by search and bargaining frictions. We study how the asset's property to serve as collateral affects its equilibrium price, and how the asset price and the economy's welfare are affected by the degree of liquidity in the secondary asset market.

Essays on Money, Inflation and Asset Prices

Author : Timothy Gordon Jones
Publisher :
ISBN 13 :
Total Pages : 188 pages
Book Rating : 4.:/5 (271 download)

DOWNLOAD NOW!

Book Synopsis Essays on Money, Inflation and Asset Prices by : Timothy Gordon Jones

Download or read book Essays on Money, Inflation and Asset Prices written by Timothy Gordon Jones and published by . This book was released on 2008 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores different aspects of the interaction between money and asset prices. The first chapter investigates how a firm's financing affects its decision to update prices: does linking interest rates to inflation alter the firm's optimal price updating strategy? Building on the state dependent pricing models of Willis (2000) and the price indexing literature of Azariadis and Cooper (1985) and Freeman and Tabellini (1998), this model investigates the financing and price updating decisions of a representative firm facing state-dependent pricing and a cash-in-advance constraint. The model shows the circumstances under which a firm's financing decision affects its price updating decision, and how the likelihood of changing prices affects the amount borrowed. It also illustrates how the use of nominal (as opposed to inflation-linked) interest rates leads to a lower frequency of price updating and higher profits overall for a firm facing menu costs and sticky prices. The second chapter extends the bank run literature to present a theoretical mechanism that explains how money supply can affect asset prices and asset price volatility. In a two period asset allocation model, agents faced with uncertainty cannot perfectly allocate assets ex-ante. After income shocks are revealed, they will be willing to pay a premium over the future fundamental value for an asset in order to consume in the current period. The size of this premium is directly affected by the supply of money relative to the asset. This paper explores the relationship between economy-wide monetary liquidity on the mean and variance of equity returns and in relation to market liquidity. At an index level, I test the impact of money-based liquidity measures against existing measures of market liquidity. I proceed to do a stock level analysis of liquidity following Pastor and Stambaugh (2003). The results indicated that measures of aggregate money supply are able to match several of the observed relationships in stock return data much better than market liquidity. At an individual stock level, monetary liquidity is a priced factor for individual stocks. Taken together, these papers support the idea that changes in the money supply have consequences for the real economy.

Essays in Macro and Monetary Economics

Author :
Publisher :
ISBN 13 :
Total Pages : 72 pages
Book Rating : 4.:/5 (953 download)

DOWNLOAD NOW!

Book Synopsis Essays in Macro and Monetary Economics by :

Download or read book Essays in Macro and Monetary Economics written by and published by . This book was released on 2016 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two self-contained essays in macro and monetary economics, organized in the form of two chapters. In the first chapter, I develop a model with limited commitment and endogenous monitoring to study the optimal number and size of banks. Banking arises endogenously because of economies of scale. The planner designates a fraction of ex-ante homogenous agents to be bankers and concentrates monitoring efforts on them. Having fewer bankers reduces total monitoring costs, but this means more deposits per banker. Having more deposits, however, increases the bankers’ incentives to divert deposits for their own profit. The result is that the planner needs to give bankers some reward to dissuade such opportunistic behavior. The optimal number of banks is negatively related to the fixed and marginal monitoring costs, impatience, and the temptation to default, but positively related to the return on real investments. To implement efficient allocations, there is a tension between equilibrium with free entry and having positive bank profit for incentive reasons. When the tax on banks is not too high, there exist non-degenerate stationary equilibriums. The equilibrium allocation is optimal only if the government limits entry of banks. One natural way is to charge a tax on bankers and give a transfer to non-bankers; another way is to simply impose a quota by limiting the number of bank charters. In the second chapter, using an overlapping generations model, I propose a resolution of the high household saving puzzle in China by analyzing the impact of the one-child policy and the resulting flattening of age-earning profiles on household saving behavior. Following Ben-Porath’s (1967) human capital accumulation technology, with the implementation of the one-child policy, the initial human capital of each young worker who enters into the job market increases, which results in a decrease of the worker’s on-the-job-training, and thus a flattening of age-earning profiles. The flattened age-earning profiles encourage younger cohorts to save more for consumption smoothing, and, therefore, provides an explanation for the high saving rates among the young. Both the data and the model demonstrate that the mechanism is valid.

LAPM

Author : Bengt Holmström
Publisher :
ISBN 13 :
Total Pages : 84 pages
Book Rating : 4.3/5 (243 download)

DOWNLOAD NOW!

Book Synopsis LAPM by : Bengt Holmström

Download or read book LAPM written by Bengt Holmström and published by . This book was released on 1998 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consum substitution. This paper develops an alternative approach to asset pricing based on industrial and financial corporations' desire to hoard liquidity to fulfill future cash needs. Our corporate finance a determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for li The paper first sets up a general model of corporate demand for liquid assets, and obtains an explicit formula for the associated liquidity permia. It then derives some implications of corporate liquidity demand for the equity premium puzzle, for the yield curve, and for the state-contingent volatility of asset prices. Finally, the paper looks at some macroeconomic implications of the theory. It shows that government may be able to boost aggregate liquidity and enhance economic efficiency by promoting job and asset price stability. On the liability side, long-term deposits and equity investments, which depend on the consumers' endogenously determined liquidity needs, contribute to creating a feedback effect between employment prospects and equity-like investments. On the asset side, orderly sales of real estate by liquidity-squeezed institutions may generate a Pareto improvement.

Essays on Monetary Economics

Author : Chien-Chiang Wang
Publisher :
ISBN 13 :
Total Pages : 144 pages
Book Rating : 4.:/5 (993 download)

DOWNLOAD NOW!

Book Synopsis Essays on Monetary Economics by : Chien-Chiang Wang

Download or read book Essays on Monetary Economics written by Chien-Chiang Wang and published by . This book was released on 2017 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter, I propose a liquidity theory of yield curves to analyze the impact of quantitative easing, especially its influence on the yield curve and the inflation rate at the zero lower bound. In the model, a term premium originates from the endogenous difference in liquidity between securities of varying maturities, and the difference is generated by financial market frictions. Financial market frictions cause liquidation risk and reinvestment risk for holding assets, and households with different characteristics make different assessments of the two risks. Accordingly, different households require different term premia and endogenously participate in markets for different maturities. When the short-term interest rate reaches the zero lower bound, long-term interest rates may not reach the reservation interest rates for long-term bond buyers. Thus, central banks' purchases of long-maturity securities can effectively decrease long-term interest rates and the term premium. Moreover, central banks' long-term security purchases decrease inflation at the zero lower bound. These two effects together result in a distinct policy implication: quantitative easing shifts down the real yield curve at the long-maturity end but shifts it up at the short-maturity end if the households are sufficiently diverse in the term premia they require.In the second chapter, I develop a dynamic general equilibrium model to investigate the interaction between asset market liquidity and repo haircuts. In the economy, investors finance their asset purchases through secured borrowing, and the asset is pledged as collateral. Investors' debt roll over before their assets mature. The maturity of assets is random, and default occurs when the borrowing limit is reached. The search and matching friction in the financial market results in delays in collateral liquidation, and therefore causes a gap between the asset price and the borrowing capacity, which is the haircut. The model reveals an endogenous feedback loop between asset market liquidity and repo haircuts. On the one hand, asset market liquidity determines the easiness of asset liquidation, which in turn determines the haircuts. On the other hand, haircuts influence entrepreneurs' borrowing limits and leverage, which affect the probability of default and therefore influence the asset market liquidity. When an unanticipated shock on market liquidity occurs, the increase in haircuts decreases households' borrowing limit and triggers simultaneous defaults. The liquidation of asset further decreases the liquidity of the asset market, and the impact is exacerbated by the endogenous feedback loop.The third and final chapter studies the macroeconomic consequences of central banks' risky asset purchases. By purchasing risky assets, central banks remove them from the financial market and inject money, which is a less risky and more liquid asset. Whereas, the removed risky assets stay in central banks' balance sheets and increase the instability of their budgets, and thus, create inflation risk. The key friction in the model is the market segmentation between the money transaction sector and financial transaction sector. The households in money transaction sector can only use cash as a medium of exchange, but households in the financial transaction sector can use all forms of assets and asset backed securities to facilitate transaction. The central banks' purchases of risky assets overcome the market segmentation and can improve social welfare through risk sharing between financial sector transactions and money transactions. However, because the risk in money transactions cannot be efficiently allocated between risk-averse and risk-neutral traders by financial intermediaries, central banks should make the holding of cash less risky, and it is not optimal for central banks to purchase all risky assets and completely insure the risk in the financial transactions with money transactions.

Three Essays on Empirical Asset Pricing

Author : Wenqing Wang
Publisher :
ISBN 13 :
Total Pages : 342 pages
Book Rating : 4.:/5 ( download)

DOWNLOAD NOW!

Book Synopsis Three Essays on Empirical Asset Pricing by : Wenqing Wang

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:

Essays on Volatility Risk Premia in Asset Pricing

Author :
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (68 download)

DOWNLOAD NOW!

Book Synopsis Essays on Volatility Risk Premia in Asset Pricing by :

Download or read book Essays on Volatility Risk Premia in Asset Pricing written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contains two essays. In the first essay, we investigate the impact of time varying volatility of consumption growth on the cross-section and time-series of equity returns. While many papers test consumption-based pricing models using the first moment of consumption growth, less is known about how the time-variation of consumption growth volatility affects asset prices. In a model with recursive preferences and unobservable conditional mean and volatility of consumption growth, the representative agent's estimates of conditional moments of consumption growth affect excess returns. Empirically, we find that estimated consumption volatility is a priced source of risk, and exposure to it predicts future returns in the cross-section. Consumption volatility is also a strong predictor of aggregate quarterly excess returns in the time-series. The estimated negative price of risk together with the evidence on equity premium predictability suggest that the elasticity of intertemporal substitution of the representative agent is greater than unity, a finding that contributes to a long standing debate in the literature. In the second essay, I present a simple model to show that if agents face binding portfolio constraints, stocks with high volatility in states of low market returns demand a premium beyond the one implied by systematic risks. Assets whose volatility positively covaries with market volatility also have high expected returns. Both effects of this idiosyncratic volatility risk premium are strongest for assets that face more binding trading restrictions. Unlike the prior empirical literature that obtains mixed results when focusing on the level of idiosyncratic volatility, I investigate the dynamic behavior of idiosyncratic volatility and find strong support for my predictions. Comovement of innovations of idiosyncratic volatility with market returns negatively predicts returns for trading restricted stocks relative to unrestricted stocks, and comovement.

Three Essays in Asset Pricing

Author : Alan Picard
Publisher :
ISBN 13 :
Total Pages : 165 pages
Book Rating : 4.:/5 (111 download)

DOWNLOAD NOW!

Book Synopsis Three Essays in Asset Pricing by : Alan Picard

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.

Essays on Banking and Asset-pricing

Author : Tetiana Davydiuk
Publisher :
ISBN 13 :
Total Pages : 296 pages
Book Rating : 4.:/5 (131 download)

DOWNLOAD NOW!

Book Synopsis Essays on Banking and Asset-pricing by : Tetiana Davydiuk

Download or read book Essays on Banking and Asset-pricing written by Tetiana Davydiuk and published by . This book was released on 2018 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two chapters. In the first chapter, I study both theoretical and quantitative implications of the counter-cyclical capital buffers introduced with the Basel Accord III. The proposed adjustment effectively translates into capital charges that vary over time. To this end, I develop a tractable general equilibrium model and use it to solve for optimal state-dependent capital requirements. An optimal policy trades off reduced inefficient lending with reduced liquidity provision. Quantitatively, I find that the optimal Ramsey policy requires pro-cyclical capital ratios that mostly vary between 4% and 6% and depend on the output and bank credit growth, as well as the liquidity premium. Specifically, a one standard deviation increase in GDP (bank credit) translates into 0.6% (0.1%) increase in the capital charges, while a one standard deviation increase in liquidity premium leads to a 0.2% drop. The welfare gain of implementing this Ramsey policy is relatively large.In the second chapter, I, jointly with Scott Richard, Ivan Shaliastovich and Amir Yaron, investigate the channels of asset price variation when a representative agent owns the entire corporate sector. Utilizing novel market data on corporate bonds we measure the aggregate market value of U.S. corporate assets and their payouts to investors. Total asset payouts are very volatile, turn negative when corporations raise capital, and in contrast to procyclical cash payouts are acyclical. This challenges the notion of risk and return since the risk premium on corporate assets is comparable to the standard equity premium. To reconcile this evidence, we show that aggregate net issuances, which are acyclical and highly volatile, mask a strong exposure of total payouts' cash components to low-frequency growth risks. We develop an asset-pricing framework to quantitatively assess this economic channel.

Essays in International Asset Pricing

Author : Ying Wu
Publisher :
ISBN 13 :
Total Pages : 249 pages
Book Rating : 4.:/5 (913 download)

DOWNLOAD NOW!

Book Synopsis Essays in International Asset Pricing by : Ying Wu

Download or read book Essays in International Asset Pricing written by Ying Wu and published by . This book was released on 2013 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical research focuses on the common risk factors in stock returns and trading activities. The first essay is titled "Asset Pricing with Extreme Liquidity Risk". Defining extreme liquidity as the tails of illiquidity for all stocks, I propose a direct measure of market-wide extreme liquidity risk and find that extreme liquidity risk is priced cross-sectionally in the U.S. equity market. From 1973 through 2011, stocks in the highest quintile of extreme liquidity risk loadings earned value-weighted average returns 6.6% per year higher than stocks in the lowest quintile. The extreme liquidity risk premium is robust to common risk factors related to size, value and momentum. The premium is different from that on aggregate liquidity risk documented in Pástor and Stambaugh (2003) as well as that based on tail risk of Kelly (2011). Extreme liquidity estimates can offer a warning sign of extreme liquidity events. Predictive regressions show that extreme liquidity measure reliably outperforms aggregate liquidity measures in predicting future market returns. Finally, I incorporate the extreme liquidity risk into Acharya and Pedersen's (2005) framework and find new supporting evidence for their liquidity-adjusted capital asset pricing model. The second essay is co-authored with Prof. Andrew Karolyi. We have developed a multi-factor returns-generating model for an international setting that captures how restrictions on investability or accessibility can matter. The model works reasonably well in a wide variety of settings. More specifically, using monthly returns for over 37,000 stocks from 46 developed and emerging market countries over a two-decade period, we propose and test a multi-factor model that includes factor portfolios based on firm characteristics and that builds separate factors comprised of globally-accessible stocks, which we call "global factors," and of locally-accessible stocks, which we call "local factors." Our new "hybrid" multi-factor model with both global and local factors not only captures strong common variation in global stock returns, but also achieves low pricing errors and rejection rates using conventional testing procedures for a variety of regional and global test asset portfolios formed on size, value, and momentum. In the third essay, I examine the implications of the Lo and Wang (2000, 2006) mutual fund separation model in the cross-sectional behavior of global trading activity. It demonstrates that return-based factors work poorly around the world. On average across countries, market-wide turnover captures 37% of all systematic turnover components in individual stock trading, and two additional Fama and French (1993) factor turnovers increase the explanatory power by 23%. Similarly Lo and Wang's (2000) turnovers only capture on average 64% of all systematic turnover components. Using this multi-factor asset pricing-trading framework, a horserace is further performed to explore other factors in return by examining the turnover behavior of different factor mimicking portfolios. All the return-based factors capture at most 67% of the common variation in trading, suggesting that stock pricing and trading volume may not be compatible around the world. In cross-country analysis, the explanatory power of the returnbased factor model varies substantially across countries and markets, with better performance for European developed markets and China. Surprisingly, in North America, Japan and most emerging markets there are larger amounts of commonality in trading, mostly higher than 47 %, for reasons other than return motive.

Liquidity and Asset Prices

Author : Yakov Amihud
Publisher : Now Publishers Inc
ISBN 13 : 1933019123
Total Pages : 109 pages
Book Rating : 4.9/5 (33 download)

DOWNLOAD NOW!

Book Synopsis Liquidity and Asset Prices by : Yakov Amihud

Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.

Essays on Asymmetric Information, Liquidity, and Unemployment

Author : Ayushi Bajaj
Publisher :
ISBN 13 : 9780355307283
Total Pages : 115 pages
Book Rating : 4.3/5 (72 download)

DOWNLOAD NOW!

Book Synopsis Essays on Asymmetric Information, Liquidity, and Unemployment by : Ayushi Bajaj

Download or read book Essays on Asymmetric Information, Liquidity, and Unemployment written by Ayushi Bajaj and published by . This book was released on 2017 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: Decentralized markets where assets are useful as medium of exchange are also usually subject to private information. In the first chapter, I analyze how adverse selection affects liquidity and prices in such markets by studying the Shi (1995) and Trejos and Wright (1995) model with Lucas trees under adverse selection. While most studies focus on either pooling or separating equilibrium, I adapt the undefeated equilibrium refinement to make the selection based on fundamentals. Under pooling, the high-quality asset accepts a pooled price, and under separating is willing to signal quality through retention. A negative shock to the quality or quantity of lemons implies a switch in regime from no-information (pooling) to information revelation (separating) which leads to a discontinuous fall in aggregate welfare. In the second chapter I apply insights from the first chapter to help account for the debasement puzzle by interpreting Lucas trees as commodity money of different weights. Debasements constitute a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. To resolve this, I adopt Velde, Weber and Wright (1999) featuring a decentralised market with private information on indivisible coins. To disentangle indivisibility from imperfect recognizability, I use a proxy for divisibility by allowing lotteries on coins in trade. Indivisibility accounts for debasement if agents need a medium of exchange for low-value goods, for which heavy coins would not be traded. And, even a small degree of imperfect recognizability provides incentives for debasement due to adverse selection. Finally, in the third chapter I model household's portfolio choice with an endogenous supply of assets under uncertainty to analyze its effect on real interest rates and unemployment. Asset returns typically reflect a risk and liquidity premium, the size of which depends on the state of the economy. This in turn affects unemployment as firms respond to interest rates. In this chapter, I explicitly model demand and supply of liquid assets under uncertainty. Households adjust their portfolios depending on their liquidity needs, and supply of liquid assets is affected by firms' entry decision. An increase in aggregate uncertainty raises interest rates thereby fewer firms enter, and if accompanied by a fall in productivity, unemployment rises by even more. A self-financed private asset purchase program can increase liquidity but leaves unemployment unchanged.

Market Liquidity

Author : Yakov Amihud
Publisher : Cambridge University Press
ISBN 13 : 0521191769
Total Pages : 293 pages
Book Rating : 4.5/5 (211 download)

DOWNLOAD NOW!

Book Synopsis Market Liquidity by : Yakov Amihud

Download or read book Market Liquidity written by Yakov Amihud and published by Cambridge University Press. This book was released on 2013 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores the effect of liquidity on asset prices, liquidity variations over time and how liquidity risk affects prices.

Essays in Asset Pricing and Portfolio Choice

Author : Philipp Karl Illeditsch
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (69 download)

DOWNLOAD NOW!

Book Synopsis Essays in Asset Pricing and Portfolio Choice by : Philipp Karl Illeditsch

Download or read book Essays in Asset Pricing and Portfolio Choice written by Philipp Karl Illeditsch and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the Ơ̐1rst essay, I decompose inƠ̐2ation risk into (i) a part that is correlated with real returns on the market portfolio and factors that determine investor0́9s preferences and investment opportunities and (ii) a residual part. I show that only the Ơ̐1rst part earns a risk premium. All nominal Treasury bonds, including the nominal money-market account, are equally exposed to the residual part except inƠ̐2ation-protected Treasury bonds, which provide a means to hedge it. Every investor should put 100% of his wealth in the market portfolio and inƠ̐2ation-protected Treasury bonds and hold a zero-investment portfolio of nominal Treasury bonds and the nominal money market account. In the second essay, I solve the dynamic asset allocation problem of Ơ̐1nite lived, constant relative risk averse investors who face inƠ̐2ation risk and can invest in cash, nominal bonds, equity, and inƠ̐2ation-protected bonds when the investment opportunityset is determined by the expected inƠ̐2ation rate. I estimate the model with nominal bond, inƠ̐2ation, and stock market data and show that if expected inƠ̐2ation increases, then investors should substitute inƠ̐2ation-protected bonds for stocks and they should borrow cash to buy long-term nominal bonds. In the lastessay, I discuss how heterogeneity in preferences among investors withexternal non-addictive habit forming preferences aƠ̐0ects the equilibrium nominal term structure of interest rates in a pure continuous time exchange economy and complete securities markets. Aggregate real consumption growth and inƠ̐2ation are exogenously speciƠ̐1ed and contain stochastic components thataƠ̐0ect their means andvolatilities. There are two classes of investors who have external habit forming preferences and diƠ̐0erent localcurvatures oftheir utility functions. The eƠ̐0ects of time varying risk aversion and diƠ̐0erent inƠ̐2ation regimes on the nominal short rate and the nominal market price of risk are explored, and simple formulas for nominal bonds, real bonds, and inƠ̐2ation risk premia that can be numerically evaluated using Monte Carlo simulation techniques are provided.

Three Essays in Empirical Asset Pricing

Author : Thomas A. Jacobs
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (776 download)

DOWNLOAD NOW!

Book Synopsis Three Essays in Empirical Asset Pricing by : Thomas A. Jacobs

Download or read book Three Essays in Empirical Asset Pricing written by Thomas A. Jacobs and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis of 2007-2008 led to extraordinary government intervention in firms and markets. The scope and depth of government action rivaled that of the Great Depression. Many traded markets experienced dramatic declines in liquidity leading to the existence of conditions normally assumed to be promptly removed via the actions of profit seeking arbitrageurs. These extreme events motivate the three essays in this work. The first essay seeks and fails to find evidence of investor behavior consistent with the broad 'Too Big To Fail' policies enacted during the crisis by government agents. Only in limited circumstances, where government guarantees such as deposit insurance or U.S. Treasury lending lines already existed, did investors impart a premium to the debt security prices of firms under stress. The second essay introduces the Inflation Indexed Swap Basis (IIS Basis) in examining the large differences between cash and derivative markets based upon future U.S. inflation as measured by the Consumer Price Index (CPI). It reports the consistent positive value of this measure as well as the very large positive values it reached in the fourth quarter of 2008 after Lehman Brothers went bankrupt. It concludes that the IIS Basis continues to exist due to limitations in market liquidity and hedging alternatives. The third essay explores the methodology of performing debt based event studies utilizing credit default swaps (CDS). It provides practical implementation advice to researchers to address limited source data and/or small target firm sample size.

Essays in Monetary Policy and Household Finance

Author : Ciaran James Rogers
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (133 download)

DOWNLOAD NOW!

Book Synopsis Essays in Monetary Policy and Household Finance by : Ciaran James Rogers

Download or read book Essays in Monetary Policy and Household Finance written by Ciaran James Rogers and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays that examine the effects of different monetary policy tools on the the real economy and asset prices. In Chapter 1, I study the transmission of central bank asset purchases into the real economy of the Euro Area, while Chapter 2 instead focuses on the effect of more conventional interest rate policy on asset prices and risk premia. Chapter 3 demonstrates how the pass-through of more conventional policy rate changes depends on the monetary policy framework of the central bank. In the first chapter, I study the role of local banking systems in the propagation of ECB Quantitative Easing (QE) programs. I firstly document that local deposit markets are fragmented across country lines, but the assets held by banks backing the deposits are in more integrated markets. I then consider a multi-country New Keynesian model with heterogeneous banking sectors but common monetary policy. All banks can access collateral from the same union-wide asset market, using them to back liquid deposit liabilities that are issued locally. QE has real effects if it increases the quantity or quality of collateral available to the banking sector. I find that QE has a powerful effect across the currency union, raising output and inflation by 62bps and 60bps, respectively. The pass-through is very similar across countries, despite fragmented deposit markets, as all banks face the same reduction in the cost of collateral from the union-wide asset market. The overall impact increases significantly if the beginning of QE coincides with adjusting the policy rate rule to be a weaker counteracting force by making it less responsive to inflation. In the second chapter, co-authored with Matteo Leombroni, we study the role of the household portfolio rebalancing channel for the aggregate and redistributive effects of monetary policy. The transmission of monetary policy works not only through the usual income and substitution motives, but also through an endogenous portfolio rebalancing effect that generates changes in equilibrium asset prices and a consequent wealth effect on consumption. We introduce a heterogeneous household life-cycle model with multiple assets and combine it with an incomplete markets asset pricing framework. We model monetary policy shocks as a reduction in the expected return on safe assets. In equilibrium, the reduction in bonds investment prompts a portfolio rebalancing toward riskier assets, inducing an increase in asset prices and wealth. We find that, absent wealth effects, older cohorts reduce consumption as they face lower expected asset returns, while younger cohorts raise consumption as they can borrow more cheaply. This heterogeneity remains with wealth effects, but responses turn positive for all cohorts. Asset risk premia rise because the risk compensation effect (need for more returns to hold more risk) dominates the risk tolerance effect (positive wealth effect on risky asset holdings). Shutting down household heterogeneity flips the risk premia responses negative. In the third chapter, co-authored with Monika Piazzesi and Martin Schneider, we study a New Keynesian model with a banking system. The central bank targets the interest rate on short safe bonds that are held by banks to back inside money and hence earn convenience yield for their safety or liquidity. Central bank operating procedures matter. In a floor system, the reserve rate and the quantity of reserves are independent policy tools that affect banks' cost of safety. In a corridor system, increasing the interbank rate by making reserves scarce increases banks' cost of liquidity and generates strong pass-through to other rates of return, output and inflation. In either system, policy rules that do not respond aggressively to inflation -- such as an interest rate peg -- need not lead to self-fulfilling fluctuations. The stabilizing effect from an endogenous convenience yield is stronger when there are more nominal rigidities in bank balance sheets.

Essays on Financial Economics and Industrial Organization

Author : Marcus Eduardo Mathias Studart
Publisher :
ISBN 13 :
Total Pages : 126 pages
Book Rating : 4.:/5 (924 download)

DOWNLOAD NOW!

Book Synopsis Essays on Financial Economics and Industrial Organization by : Marcus Eduardo Mathias Studart

Download or read book Essays on Financial Economics and Industrial Organization written by Marcus Eduardo Mathias Studart and published by . This book was released on 2015 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt: This essay consist of three chapters. In chapter 1, I analyze the equilibrium behavior of asset prices and margins (i.e collateral required to trade shares using debt), when Market Makers smooth out price fluctuations by trading on a margin. I address the questions of 1) whether financial margins can increase in reaction to supply shocks without misinformation about the shocks' nature, 2) when non-fundamental shocks reduce asset prices and increase margins, and 3) how margins and prices react to persistent supply shocks, as opposed to temporary ones. In the model, price fluctuations are induced by supply shocks, and margins are set to match the price depreciation induced by a future negative tail shock. Temporary shocks (i.e. shocks that fade very soon) are shown to have no effects on prices or margins, when either they are small or Market Makers hold large collateral amounts. If the shock is sufficiently large, some shares will be held by (currently active) risk averse investors, and price falls due to larger risk premium. If, before the shock, Market Makers were holding asset shares, prices fall even more, because Market Makers wealth is marked down, and expected future prices falls, since it becomes more likely that future shocks will depress prices. Persistent shocks (i.e. shocks that do not fade quickly) reduce current prices, because, in the best scenario, they shift down the future price distribution, and reduce Market Makers' asset valuation. I give conditions for margins to increase with a persistent shock. Falling prices and higher margins are not necessarily the result of a margin spiral (i.e. when margins increase and constrain Market Makers, who are forced to sell, causing prices to fall and margins increase more). Margins can increase because future price variance increases at the same time as Market Makers' asset valuation reduces, and Market Makers may not be financially constrained at all. In chapter 2, I study repurchase agreements, short-term collateralized loans known as repos, that are commonly used to fund different sorts of assets. Using a dataset of Money Market Mutual Funds (MMF), I find that repos backed by liquid collateral, such as US Treasuries securities, have on average shorter maturities, lower haircut rates and lower interest rates than less liquid collateral, while the average maturities of repos held by MMF are positively correlated with fund size and overall portfolio maturity. Motivated by these evidences, I develop an equilibrium model to price simultaneously assets and repos. I show that assortative matching between assets and lenders offering different maturities exists in equilibrium. Lenders who offer longer maturities are better suited to finance less liquidity securities, since investors' expected transaction costs are lower, as collateral (to repay debt) is sold long after their debt is considered unworthy. Liquid securities prices increase with repos, in order to make the financing of illiquid securities more attractive to long maturity lenders. Interest rates and haircuts are functions of both the transaction costs and maturities distributions, and are shown to be increasing in illiquidity. Haircuts exceed the securities' transaction costs, in order to cover how much securities depreciate when sold, and to force borrowers to repay the interest on their debt. Moreover, illiquid securities have higher haircuts, because not only they have larger transaction costs but also because the repos used to finance them pay more interest. I emulate a financial crisis through an increase in the probability of a debt run. As repos are terminated earlier, all asset prices decrease. Illiquid securities prices, however, fall notably more and haircuts and interest rates of repos to fund them increase. In chapter 3, which is co-authored with Siwei Kwok, we study the interaction of information and competition in incentivizing quality provision. We estimate a discrete quality game with Los Angeles County restaurant hygiene inspection data set, via the two step method of Bajari et al (2006). Our results suggest that firm competition incentivizes quality provision, but the effect is non-monotonic. If a market is saturated with a sufficiently large number of firms, an additional firm might actually reduces the likelihood that all others will provide quality. Information, however, enhances the effects of competition and reduces the threshold which additional firms reduce quality provided.