The intertemporal risk-return tradeoff is the cornerstone of modern empirical finance and has been the focus of much debate over the years. The reason for this is because extant literature cannot agree as to the very nature of this important relation. This is troublesome in terms of academic theory given that it challenges the notion that investors are risk-averse agents and is furthermore troublesome in practice given that market participants expect to be rewarded with higher expected returns in order to take on higher risks. The motivation for this thesis stems from the conflicting and inconclusive empirical evidence regarding the risk-return tradeoff. Through each of the chapters, it sheds new light on possible reasons as to why extant studies offer conflicting evidence and, given the enhancements and innovative approaches proposed here, it provides empirical evidence in support of a positive intertemporal risk-return tradeoff when examining several international stock markets. The research questions this thesis addresses are as follow. Firstly, is it possible that extant conflicting evidence is manifested in the use of historical realized returns to proxy for investors’ forward-looking expected returns? Secondly, can accounting for shifts in investment opportunities (i.e. intertemporal risk) better explain investors’ risk aversion and changes in the dynamic risk premium? Thirdly, is it possible that conflicting findings are the result of neglecting to account for the possibility that there exist heterogeneous investors in the stock market with divergent expectations? The empirical findings can be summarized as follows; firstly, there is a strong possibility that many existing studies cannot find a positive risk-return relation because they are relying on ex post historical realized returns as a proxy for investors’ forward-looking expected returns. Secondly, there is evidence in favor of the Merton (1973) notion that there exists intertemporal risk which impacts investors and that this type of risk should be considered. This has been also another reason why extant literature cannot agree on the nature of the intertemporal risk-return tradeoff. Finally, even after accounting for investor heterogeneity, the findings provide support for the Merton (1973) theoretical Intertemporal Capital Asset Pricing Model. Namely, in contrast to existing studies on the matter, there is evidence of fundamental traders over longer horizons and no evidence of feedback traders at such horizons. Although this sheds new light on some of the driving forces behind stock prices, the nature of investors’ degree of risk aversion seems to be best supported by the Merton (1973) theoretical Intertemporal Capital Asset Pricing Model.

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This thesis analyses dynamic interdependence, volatility transmission and market integration across eight selected Asian stock markets from 1992 to 2007. Various methodologies are applied to test such relationships. In particular, the focus is given to the impact of the 1997-98 Asian financial crisis on the dynamic linkages and propagation mechanisms among these selected Asian equity markets. The techniques of unit root testing, cointegration, vector error correction modelling (VECM) and forecast error variance decomposition (VDC) analysis are initially performed in both whole sample period and four sub-sample periods (namely pre-crisis, crisis, post-crisis and recovery periods). The results suggest that Asian stock markets are highly integrated and the crash has brought a greater interaction amongst markets. Japan, Hong Kong and Singapore appear to play the relative leading role over other markets. Furthermore, the characteristics of stock volatility are then examined using univariate TAR-GARCH model. The results show that volatility is time-varying and bad news will generate more volatility than good news. Additionally, the empirical findings show the existence of day of week effects in returns and volatility in emerging markets before but not after the crisis. This suggests improved post-crash market efficiency in Asian emerging markets.

A recent development in the field of microfinance has been the promotion of a specific model of savings groups intended to create a basic and sustainable system of financial intermediation by training members to operate using a lockable box, passbooks and rules regarding their operations. The model seeks institutional change through the implementation of this set of rules and procedures to achieve transparent and accountable operations. However, institutional change is not a straightforward process and how effective institutional change occurs has also become an increasing concern of the development literature. This thesis therefore examines how effective and sustainable the institutionalisation of these rules in Savings Groups has been in Kenya, using recent theories for analysing institutional change. The focus is on understanding and explaining the variation in how the institutionalisation of new rules in such groups actually takes place. The evidence reveals a high degree of variation in how the rules were practiced, in the sustainability of the groups and the institutionalisation of the rules. The analysis examines the role of social relations and political power among group members and between groups and trainers in the outcomes produced. The theories employed all identified important but different dimensions of the institutional change process, in particular the necessity of having certain types of rules (Ostrom, 1990); the role of those with political veto power (Mahoney and Thelen, 2010); and the importance of culture and its relationship to external intervention (Boettke et al. 2008). The thesis argues that the insights of these theories need to be more systematically brought together by paying greater attention to the role of social and power relations, social norms and culture as well as how external intervention influences dynamics of institutionalisation. It concludes that savings group interventions which offer a “cookie cutter” approach to institutionalising rules are unlikely to produce sustainable results across a range of socio-cultural and political contexts.

The thesis contributes to understanding of how the tension between social and financial performance in microfinance is assessed and managed. The dominant view at the global level favours prioritising financial performance and organizational self-reliance on the grounds that these are necessary if not sufficient for achieving sustained social impact over time. This has led to a focus in research on microfinance organizations (MFOs) that have sought transformation into registered financial institutions. In contrast, there has been less research into performance management of MFOs with strong NGO roots (referred to here as NGO-MFOs) who have prioritized social impact over growth and transformation. The thesis explores these issues for microfinance in India, starting with a systematic literature review of secondary evidence on its social impact. Two case studies of NGO-MFOs located in Tamil Nadu (ASSEFA and CRUSADE) then provide a more ethnographic perspective on social performance management and assessment. Case study data consists of participant observation, staff semi-structured interviews and organizational documents collected primarily during fieldwork conducted between 2012 and 2013. These case studies document how NGO-MFOs view the ‘best practices’ of mainstream microfinance models (including financial performance) pragmatically while conceptualizing social performance according to their core values and social movement roots. They also illustrate how the mainstream view of social performance assessment (reflected by the review of impact evaluations) fails to capture the informal, flexible, and process-oriented approaches to social performance management pursued by some NGO-MFOs.

The microfinance programme is largely deemed to be a mechanism aimed at reducing poverty particularly in developing countries. The prevalence of poverty is considered to have a negative effect on the health of an economy as well as the wellbeing of its people. Thus, this thesis investigates microfinance provision and its poverty reducing impact. In particular this study sought to investigate the relationships between microfinance provision and the wellbeing of the family including the agricultural activities of the borrowers. In this thesis, poverty is conceptualised from the perspective of “capability deficit”. Thus, the wellbeing of the family is considered to have been improved as a consequence of an increase in its capability. This thesis begins with a review of the state of knowledge within the domain of extant microfinance literature that focuses mainly on the effect of microfinance on poverty reduction. The empirical study of this thesis is based on 320 structured questionnaire responses from microfinance farmer borrowers. 10 semi-structured interviews were carried out with the microfinance loan officers and 40 semi-structured interviews were conducted with the service users. The study findings suggest that there is a significant relationship between microfinance provision and positive effect on the wellbeing of the microfinance clients and their families as well as their agricultural activities. The research finds that, microfinance clients’ perception of poverty focus significantly on maintaining a reliable source of income and the ability to meet essential family needs. The findings also show that, the selection of members into groups based on personal relation and trust as an embedded feature of group formation to hedge against moral hazard problems, suggests the likelihood of exclusion from benefiting from microfinance loans. The outcomes of this empirical study contribute significantly to the wider microfinance literature that shows microfinance leads to a positive effect on the holistic livelihood of poor service users (Hulme and Mosley, 1996; Armendariz de Aghion and Morduch, 2005; Adjei, et al., 2008). Moreover, the thesis provides significant methodological and theoretical contribution to the research in microfinance in both developed as well as developing economies.

This thesis examines the impact of sources of financing on the performance of M&As and the value of firm diversification. Chapter Three examines how sources of financing between corporate cash holdings and bank lines of credit affect the performance of M&As. The evidence shows that the M&As financed by bank lines of credit have higher stock return performance and operating performance than those financed by corporate cash holdings. Firms with higher institutional ownership are more likely to use bank lines of credit as a source of financing in M&As. Moreover, M&As that are financed entirely by bank lines of credit are associated with lower acquisition premiums than those financed by corporate cash holdings. The outperformance is only significant in firms with a lower level of corporate governance and firms with a lower level of bankruptcy risk. Further, the fraction of bank lines of credit used as the source of financing is positively related to the performance of M&As, and the costs associated with bank lines of credit are negatively related to the performance of M&As. The results are consistent with the hypothesis based on agency problems between shareholders and managers. Chapter Four examines how sources of financing between corporate cash holdings, other bank loans, debt issues, and equity issues affect the performance of M&As. The evidence shows that the M&As financed by other bank loans and debt issues are associated with higher announcement returns, higher operating performance, and lower premiums than those financed by corporate cash holdings. Moreover, poorly governed firms benefit from the use of debt financing, and the positive effect of debt financing on M&As is only pronounced among firms with a lower level of bankruptcy risk. The results are consistent with the hypothesis based on agency problems between shareholders and managers. Chapter Five examines how the sources of financing between bank lines of credit and corporate cash holdings in M&As affect the value of firm diversification. The evidence shows that firms financed by bank lines of credit in M&As have a smaller reduction in excess value, more efficient internal resources transfers, and a higher value added by allocation than those financed by corporate cash holdings. Firms with higher institutional ownership are more likely to use bank lines of credit in M&As. Moreover, firms financed by bank lines of credit have a higher value of firm diversification than those financed by corporate cash holdings if they have a lower level of corporate governance and a lower level of bankruptcy risk. The results are consistent with the hypothesis based on agency problems between shareholders and managers.

In this thesis, I present three empirical essays describing trading situations in which the presence of speculative behaviour to intentionally move prices is a plausible explanation. In the first essay, I investigate whether the trading on the sovereign credit default swaps market influences the behaviour of the sovereign bond market in four European countries: Portugal, Greece, Spain and Germany. My findings provide empirical evidence suggesting that information flows from the sovereign CDS market to the sovereign bond market in countries with a deterioration on the credit condition. I find evidence that the daily CDS trading activity plays a crucial role on the price discovery process. The next two essays are related and I investigate the use of limit order cancellations on the London Stock Exchange’s main electronic market. I document that around 95% of the limit orders are cancelled in less than one hour. I first look at the intensity of limit order cancellations and the effects on market liquidity. Among others, I find that a big proportion of limit orders are cancelled as they are approaching the top of the order book. On average, long-lived limit orders are associated with high market spreads and short-lived limit orders with low spreads. However, when long-lived limit orders are aggressively cancelled as they are approaching the top of the order book, they actually associated with low spreads, behaving like short-lived orders. In the last essay, I focus on the price impact and the informative content of limit order cancellations. I find that a temporary overreaction in quotes is observed immediately after the event of cancellation. I document that this overreaction is produced by HFTs’ activity that submit and quickly cancel limit orders. These findings suggest that HFTs’ cancellation activity is not informative but non-HRs’ limit order cancellations convey information.

This thesis develops a management tool which has implications for international banks in their assessment of the risk involved in lending to sovereign states. A bond pricing model is developed which enables one to measure the inferred probability of default of a risky bond in future periods by comparing the yield curves of the risky bond with those of a risk-free bond. This model is then applied to Dollar Eurobonds issued or guaranteed by sovereign states. The calculated probabilities of default are hence a direct measurement of Country Risk. The probabilities of default in the 5th year and the cummulative probabilities of default in the first 5 years for the sample are regressed against economic variables. A significant relationship was found between the cummulative probabilities of default and the Debt Service Ratios. GNP per capita, export growth and the proportion of imports in GNP.