This research introduces hedging and basis risk models based on intertemporal asset pricing between futures and spot currency exchange markets. Recently developed time-series models are employed and empirically tested for five currencies: the British pound, Canadian dollar, Deutschemark, Japanese yen and Swiss franc. The models of international intertemporal asset pricing, which have heretofore been largely based on the rational expectations hypothesis, are modified to allow for risk aversion. Recent research has demonstrated that the presence of risk premia can separate the expected future spot prices from certain speculative prices, such as futures and forward exchange rates, at the maturity date. My results show that there is strong indication of varying risk premia, as reflected in heteroskedastic error terms through time, in both hedging and basis risk models. The nature of heteroskedasticity is well captured by Autoregressive Conditional Heteroskedasticity (ARCH) and generalized ARCH (GARCH) models, which may explain the excess volatility of financial markets. Some markets indicate that the correct specification of models are ARMA with ARCH. I also extend the analysis from univariate to multivariate models, where the problem of heteroskedasticity is reflected in a system of equations. A multivariate ARCH model allows the conditional variance-covariance matrix to vary over time. The results support the hypotheses of varying risk premia for both hedging and basis risk models. The results of specification tests indicate that the models based on financial theory can be improved by introducing additional variables such as lagged endogenous and exogenous variables. This study shows how important it is to incorporate the varying variances and covariance matrices into financial models and it also shows that currently established financial models may need to be modified in order to capture the behavior for foreign exchange future markets.

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Thesis (Ph.D.)--Boston University / My dissertation consists of three papers on international finance, international economics, and labor economics. The first paper develops a stochastic general equilibrium model to understand the effects of default risk on output, consumption, investment, and current account deficits in emerging markets. The second paper studies how market structure affects exchange-rate pass-through. This analysis is empirical as well as theoretical, using a partial equilibrium model. The third paper develops a model to study relative wages across different educational levels in developed countries. The model in my first paper features endogenous default risk. Its calibration results explain a number of important stylized facts about emerging economies, including the negative correlation between investment and net exports, the procyclicality of investment, and the potential for current account reversals. The second paper compares exchange-rate pass-through under perfect competition and oligopoly, showing that the two different market structures have opposite effects on this currency pricing behavior. The paper's empirical test, whether implemented on the basis of a partial equilibrium framework or on the model's general equilibrium framework, finds support for perfect competition. The third paper uses differences within and across industries m education wage premiums to study factors affecting those premiums. The paper begins by showing that within-industry as opposed to cross-industry educational wage premiums explain most of developed country differences in wages by education. It then develops a theoretical model and an empirical testing strategy, using U.S. and Japanese data, to examine whether the use of IT capital and the decision to outsource affect the education-wage premium. The answer is mixed depending on the country in question.

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Thesis (MBus) -- Auckland University of Technology, 2005. / Also held in print (viii, 128 leaves, 30 cm.) in Wellesley Theses Collection. (T 332.042 CHE)

Thesis (M.B.A.)--University of Hong Kong, 1994. / Includes bibliographical references.

Thesis (Ph. D.)--University of Hawaii at Manoa, 2005. / Includes bibliographical references (leaves 223-243).

Thesis (Ph. D.)--University of California, Berkeley. / Includes bibliographical references (leaves 958-992).

This study consists of three essays of causal relations between international financial markets. The first essay investigates the impact stock exchange mergers on indices co-movement and international portfolio management. The long run cointegration and causal relations between a group Nordic and Baltic stock Exchanges (Norway, Denmark, Sweden, Finland, Estonia, Latvia and Lithuania) that composed the OMX and NASDAQ stock exchange are tested. Employing GARCH model to test the heteroskedastic cointegration between these indexes during 2003 to 2012, I find that the integration of Nordic and Baltic stock markets increased due to the merger. Based on the linear and nonlinear causality test, the results show that the NASDAQ index has a stronger predictive power on OMX indexes after the merger. The second essay explores the causal relations oil markets and financial markets. Using daily data of WTI crude oil prices and Shanghai Stock Exchange index for a period from January 1, 2001, to November 2, 2015, I propose a two-step nonlinear quantile causality test approach to investigate the bidirectional relationship between oil price return and China's stock price return. This study provide some evidence of the existence of relation between international oil markets and financial markets of emerging countries, and suggest that insignificant results in previous studies is due to the unsuitable regression models. Last essay links international financial network with international trade network. Based on the bilateral data from year 2001 to 2011, I construct international trade and financial networks, defined as a weighted graph where nodes are countries and edges are trade and capital flow linkages, respectively. To get a deeper insight of the network characteristics, we adopt turning parameter to combine the node degree and strength within the weighted network. And moreover, we construct a new indicator, partner quality centrality, to identify the quality of neighbors. Within the panel co-integration framework, we provide the existence of positive long run equilibrium between the trade and financial networks as constructed. In addition, we employ a panel causality test to investigate the short run dynamics, indicating that the international capital flow network has predictive power on the trade network from the short run perspective, but not the vice versa.

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