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Author : SongTao Wang
Publisher :
ISBN 13 :
Total Pages : 145 pages
Book Rating : 4.:/5 (825 download)
Download or read book Three Essays on Asset Liquidity and Its Applications written by SongTao Wang and published by . This book was released on 2010 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Nardos M. Beyene
Publisher :
ISBN 13 :
Total Pages : 72 pages
Book Rating : 4.:/5 (113 download)
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.
Author : Gökhan Cebiroglu
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (893 download)
Download or read book Three Essays on Hidden Liquidity in Financial Markets written by Gökhan Cebiroglu and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Augusto Perilla
Publisher :
ISBN 13 :
Total Pages : 146 pages
Book Rating : 4.:/5 (428 download)
Download or read book Three Essays on Liquidity Risk written by Augusto Perilla and published by . This book was released on 2008 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Corporate Liquidity, Financial Distress and Equity Returns written by and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Pankaj K. Jain
Publisher :
ISBN 13 :
Total Pages : 324 pages
Book Rating : 4.:/5 (58 download)
Download or read book Three Essays on Financial Market Design, Liquidity and Long Term Equity Returns written by Pankaj K. Jain and published by . This book was released on 2002 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Seungduck Lee
Publisher :
ISBN 13 : 9780355150650
Total Pages : pages
Book Rating : 4.1/5 (56 download)
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.
Author : Marieh Marieh Azizirad
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (139 download)
Download or read book Three Essays on the Importance of the Liquidity Premium in Monetary Economics written by Marieh Marieh Azizirad and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: To answer the question of whether an interest rate hike causes inflation to increase or decrease, I estimate a liquidity-augmented empirical model of interest rates, inflation, and growth on postwar US data, using three methods: a time-varying structural vector autoregression, a system of latent variables, and a structural vector autoregression with doubtful identifying assumptions. I find that an interest rate hike has a short-run non-positive effect on inflation, regardless of its duration. This result contrasts with the Neo-Fisherian prediction of a positive short-run response of inflation to a permanent shift in interest rates. At the same time, inflation and the nominal interest rate move in the same direction in the long-run, although not one-for-one. I also find that the short- and long-run interactions of macroeconomic variables including inflation and the interest and growth rates have changed across eras from the 1950s to 2016. Finally, the results reinforce the importance of the liquidity premium on near-money assets in macroeconomic analyses.
Author : Lisi Shi
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (942 download)
Download or read book Three Essays in Asset Bubbles, Banking and Macroeconomics written by Lisi Shi and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Liang Guo
Publisher :
ISBN 13 :
Total Pages : 222 pages
Book Rating : 4.:/5 (864 download)
Download or read book Three Essays on Liquidity in the Fixed-income Markets written by Liang Guo and published by . This book was released on 2013 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation looks at the liquidity issues in the fixed-income markets during the recent subprime crisis. It contains three chapters. The recent crisis has resulted in many observed deviations in relative asset price. The first two chapters study how liquidity crisis affects the relative asset pricing in the fixed-income market. Chapter 1 looks at two relative assets, Credit default swap (CDS) and its corresponding reference corporate bond, and I observe huge negative deviations in the arbitrage based parity relationship between CDS price and corresponding corporate bond yield spreads for the period 6/2008 to 9/2009. And Chapter 2 examines credit spreads between corporate bond yields and treasury bond yields. I found some instance of negative credit spreads during the financial crisis. However, all those observations in these two chapters are not consistent with the arbitrage-based pricing theory and, therefore, have drawn the attention of policy makers and market participants alike. In those two chapters I propose that arbitrage trading is also risky and constraint. In particular, I focus on the types of liquidity-funding and asset specific liquidity and their role in determining relative asset prices. I provide the empirical evidence that the observation of arbitrage mispricing between two relative assets in the credit risk market can be explained by the funding liquidity constraints and asset specific liquidity constraints during the recent financial crisis period. Collectively my analysis contributes to a recent debate regarding the impact of liquidity on relative asset prices. Chapter 3 investigates the impact of parameter uncertainty on corporate bond liquidity before and after the onset of the recent crisis. Using monthly corporate bond data for the period 2005 to 2010, firm level parameters implied by a structural model of corporate debt are used to construct proxies for parameter uncertainty. I find that uncertainty about firm parameters decreases trading volume but increases bid-ask spreads and pricing bouncing in the cross-section and across time. Parameter uncertainty increases during the crisis period, and negatively impacts market liquidity. But there is weak evidence that parameter uncertainty may help forecast liquidity in the corporate bond market. Collectively the empirical results provide a rationale for time-varying liquidity dynamics in the corporate bond market.
Author : Chongyu Wang
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (119 download)
Download or read book Three Essays on the Geography of Finance written by Chongyu Wang and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on the geography of finance. In the first essay, we study the relation between geographic dispersion and firm value. In the context of asset-sells, information asymmetry hypothesis and managerial alignment hypothesis offer opposite predictions on the market reaction to asset-sell announcements. Real estate investment trusts (REIT) firms provide an ideal setting to investigate these two competing but not mutually exclusive effects. We construct a unique panel data of more than 800,000 property-year observations and apply a two-stage sequential decision-making method to mitigate selection bias at both firm level and property level. We find that REIT firms tend to dispose of distant properties and there is a negative relation between distance and cumulative abnormal returns (CARs, also known as cumulative prediction errors), consistent with managerial alignment hypothesis. Further, informational and social factors explain corporate decisions on asset sell-offs and the effect of social interactions only exists in less-populated areas. Together, these findings suggest a dominant role of managerial alignment effect. In the second essay, we analyze cross-state/MSA spillover effects of local capital scarcity. We propose a theoretical framework to capture the competition for scarce capital across state/MSA borders and calibrate its implications with spatial autoregressive (SAR) and spatial Durbin’s (SDM) models. Our application of spatial econometrics tools mitigates potential bias in estimation that arises due to the violation of Stable Unit Treatment Value Assumption (SUTVA), which leads to indirect treatment effect (competition effect) on geographic neighbors. Overall, our findings suggest that negative spatial spillovers may arise due to competition for scarce capital, and the competition effect is amplified during local and national economic downturns. In the third essay, we introduce geographic variables and implement a novel econometric method. We test the hypothesis that geographic (state-level) macroeconomic factors and funding liquidity affect market liquidity. We find cross-state spillover effects for market liquidity. These spatial spillover effects have two implications. First, higher REIT market liquidity in neighboring states leads to decreased REIT market liquidity in a particular state. Second, there is also a spatial multiplier effect (less than 1) that diminishes the magnitudes of the total effect of state macroeconomic effects on funding liquidity. These results indicate that neighboring states compete for scarce capital, leading to negative effects on the growth trajectories across state borders. Such negative effects are more extreme during market downturns.
Author : Yakov Amihud
Publisher : Now Publishers Inc
ISBN 13 : 1933019123
Total Pages : 109 pages
Book Rating : 4.9/5 (33 download)
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.
Author : Lionel Martellini
Publisher :
ISBN 13 :
Total Pages : 390 pages
Book Rating : 4.:/5 (34 download)
Download or read book Three Essays in Asset Pricing Theory written by Lionel Martellini and published by . This book was released on 2000 with total page 390 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Xiaolong Liu
Publisher : Rozenberg Publishers
ISBN 13 : 9036101999
Total Pages : 132 pages
Book Rating : 4.0/5 (361 download)
Download or read book Three essays on real estate finance written by Xiaolong Liu and published by Rozenberg Publishers. This book was released on 2010 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : David F. Andrade
Publisher :
ISBN 13 :
Total Pages : 236 pages
Book Rating : 4.:/5 (56 download)
Download or read book Three Essays on the Industrial Organization of Financial Markets written by David F. Andrade and published by . This book was released on 1997 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Söhnke M. Bartram
Publisher : CFA Institute Research Foundation
ISBN 13 : 195292703X
Total Pages : 95 pages
Book Rating : 4.9/5 (529 download)
Download or read book Artificial Intelligence in Asset Management written by Söhnke M. Bartram and published by CFA Institute Research Foundation. This book was released on 2020-08-28 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: Artificial intelligence (AI) has grown in presence in asset management and has revolutionized the sector in many ways. It has improved portfolio management, trading, and risk management practices by increasing efficiency, accuracy, and compliance. In particular, AI techniques help construct portfolios based on more accurate risk and return forecasts and more complex constraints. Trading algorithms use AI to devise novel trading signals and execute trades with lower transaction costs. AI also improves risk modeling and forecasting by generating insights from new data sources. Finally, robo-advisors owe a large part of their success to AI techniques. Yet the use of AI can also create new risks and challenges, such as those resulting from model opacity, complexity, and reliance on data integrity.
Author : James Tobin
Publisher : MIT Press
ISBN 13 : 9780262200646
Total Pages : 524 pages
Book Rating : 4.2/5 (6 download)
Download or read book Essays in Economics written by James Tobin and published by MIT Press. This book was released on 1987 with total page 524 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volume 2 of James Tobin's Essays in Economics brings together twenty papers published between 1940 and 1972. These cover macroeconomics, particularly the theory of the relationship between unemployment and inflation and the dilemma their connection poses for policy; consumption function, which is also related to macroeconomic theory and to the theory of individual behavior; consumer theory and statistical method applied to the problem of rationing; and the development and application of econometric methods suitable for the empirical analysis of consumer behavior.James Tobin received the Nobel Prize in 1981 and is Sterling Professor of Economics at Yale. Essays in Economics, Volume 1: Macroeconomics and Volume 3: Theory and Policy are both available from The MIT Press.
