This thesis comprises three empirical studies regarding information content of credit default swap (CDS). The first study provides further evidence of credit risk discovery between CDS and stock of the U.S. non-financial firms. Stock generally leads CDS in discovering credit risk information, with the exception of the stressful financial crisis period of 2008–2010. The CDS of investment-grade firms generally possesses higher informational efficiency than that of speculative-grade firms. High funding cost and central clearing counterparty hinder CDS from rapidly incorporating credit risk news. The second study investigates dynamics and determinates of credit risk transmission across the global systemically important financial institutions (G-SIFIs). The aggregate credit risk transmission across G-SIFIs dramatically increases from mid-2006 to mid-2008 and then fluctuates around 90% until 2014. Global systemically important banks (G-SIBs) and the U.S.–based G-SIFIs are major credit risk providers. More interbank loans, more non-banking income, higher extra loss absorbency requirement, and lower Tier 1 leverage ratio are positively related to a G-SIB’s role in credit risk transmission. Global systemically important insurers (G-SIIs) which have more non-traditional non-insurance activities, larger sizes, and more global sales tend to be credit risk senders. The final study examines the impact of sovereign credit rating and bailout events on sovereign CDS and equity index, especially their contemporaneous correlation, in the U.S., the U.K., and the Eurozone countries. The two assets are less negatively correlated at the arrivals of domestic rating events or surprises. Good and bad rating events present asymmetric effects on the asset correlation in Portugal, Netherlands, Ireland, Finland, and the U.S., while their symmetric effects are found in Spain, Italy, and Cyprus. Two assets become more negatively correlated on the announcement days of major bailouts. Bailout events have a stronger impact than domestic rating events. Greek rating news exerts spillover effect and generally has positive impact on the asset correlation in other economies.

This thesis focuses on the propagation of scale-specific (i.e., horizon-dependent) macroeconomic shocks into asset prices. In particular, chapter 1 provides an introduction to the theory and methods necessary for understanding scale-dependencies in financial economics. First, I present the multiresolution-based decompositions for weakly stationary time series of Ortu et al. (2013) and discuss its connection with other techniques in the literature. Next, I analyse the power and size properties of multi-scale variance ratio tests that distinguish a white noise process from a process whose scale-dependent components are serially correlated. Finally, I present an extension of the framework of Bandi et al. (2016) for scale-specific predictability. In chapter 2, I show that a single factor that captures assets' exposure to business-cycle variation in macroeconomic uncertainty can explain the level and cross-sectional differences of asset returns. In addition, I find that - in contrast with previous studies in the literature - macro uncertainty is not a valid risk factor under the ICAPM. Chapter 3 provides an empirical assessment of Epstein-Zin preferences in the frequency domain. I demonstrate that the strict conditions implied by the spectral decomposition of recursive preferences are not empirically satisfied. That is, macroeconomic shocks with frequencies lower than the business-cycle are not robustly priced in asset prices.

In this dissertation, I study the effects of option-type measures of investors’ beliefs on expected asset returns. The key contribution of the thesis lies in exploiting options trading information to summarize a wide range of traders’ directional beliefs via the measures of investor sentiment and differences in investors’ expectations and showing their superior forecasting power for future asset payoffs. Chapter 1 constructs the proxy for investor sentiment in the options market, using the volume-weighted average moneyness level, and explores its market-wide predictability. Consistent with the existing literature, I find that option-implied sentiment is a strong in- and out-of-sample predictor of stock market returns, both at short and long investment horizons. Chapter 2 proposes a firm-level measure for differences in expectations among options traders, obtained from the dispersion of equity options trading volume across various moneyness levels, and examines its cross-sectional profitability. In line with the theoretical predictions of Miller (1977), I demonstrate that stocks with high differences in expectations consistently earn lower returns than otherwise similar stocks. Moreover, this underperformance pattern is more pronounced for firms that incur higher short-sale costs and relatively high arbitrage risk and is robustly distinct from that shown by previously revealed cross-sectional return predictors. Finally, in Chapter 3, I extend the prior analysis and investigate the mechanism and timing of the Miller (1977) hypothesis, using the option-implied measure of belief dispersion. In particular, I document that stocks with high differences in expectations exhibit a clearly pronounced overvaluation in the earnings pre-announcement period and a more severe subsequent price correction upon the release of new information. Additionally, I show that the differences in expectations among options traders tend to better capture the Miller (1977) predictions, relative to analysts’ forecasts dispersion, for stocks with listed options.

The thesis revisits the innovations that have reshaped financial markets since the 1970s in order to access their contemporary efficacy in shaping the space-time of the market as well as those of politics and social relations. The future emerges today within a derivative paradigm – the implementation of data-intensive, algorithmic processes based on scientific modelling and mathematical equations that allow the dynamic recalibration of contingent claims at present. Financial markets are exposed to volatility, which corresponds to uncertainty. Risk, defined as “measurable uncertainty” (Knight, 10921), is the powerful tool that keeps the complex circulation of leveraged capital operating (primarily by applying probability calculus to random or historic data). The promise of history succumbs to a quantitative archive of data whose “sense” is to produce claims on probable futures at present. The thesis argues that the derivative paradigm by the power given to financial markets has effectively been re-orienting not only market relations but social relations as well. As this derivative condition includes every underlying and derivative (all expectations traded) in their complex and volatile interrelation, the market regime – both embodying and exceeding the neoliberal framework– expands the derivative paradigm into society and the contingent becoming of subjectivities. While the thesis proposes a critique of the derivative condition, the practice part explores the “aesthetics of resolution.” This postdisciplinary project works through the semantic field of the term – from visualization technologies to knowledge-production to decision-making – in order to propose an expanded and radical form of artistic engagement. The question for both the theoretical and the practice part is whether derivatives are a technology and ultimately not confined to capitalism. Can they serve the needs and desires within complex societies? Can they help us decide which risks we should avoid and which risks we can embrace for the common good?

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This thesis consists of three essays on inferring information from option contracts and other financial derivatives in the U.S. market as well as in the international markets. The first essay examines corporate bankruptcy probabilities inferred from option prices and credit default swaps (CDS) spreads around the 2008 financial crisis in the U.S. market. Option pricing framework is used where the risk-neutral density of the underlying asset is assumed to be a mixture of two lognormals augmented with a probability of default, to calibrate to the market option prices. The CDS model assumes a constant default probability which is solved from the non-linear equation that equates the present value of expected premium payments with the present value of expected payoffs. The essay documents that both sources provide ex-ante bankruptcy probabilities, but there is no significant evidence suggesting one predicts the other. The second essay constructs volatility indices for 15 markets around the world and examines implied volatility spillover between these markets. Volatility indices are constructed using option prices based on the new VIX methodology with modification to address its limitations. Spillover effects are then examined using vector autoregressive analysis, impulse response functions and forecast error variance decomposition. Empirical results show that the U.S. is unambiguously the dominant source of uncertainty in the world. Correlation between markets largely depends on geographical proximity. The findings support the notion of informationally efficient international stock markets, in that information transmitted from one market to another is processed within one or two days. The third essay further investigates spillover effects in variance risk premiums, which has been interpreted as the difference between the realised variance under the physical measure and the risk-neutral measure. Realized variance under the physical measure is constructed for each market using the HAR-RV model, which is able to capture long-memory characteristic of volatility. Risk-neutral expectation of future variance is approximated by a portfolio of option contracts, as calculated in the second essay. Steps are taken to address serial correlation and dependence, and variance risk premium spillovers are examined using vector autoregressive analysis, impulse response functions, and Granger Causality tests. The findings are consistent with those found in implied volatility spillovers. The U.S. market is the distributor of uncertainty in the global market. Information transmitted from one market to another is quickly digested, but it may take longer in crisis period due to greater uncertainty.

Stock market prediction is of immense interest to trading companies and buyers due to high profit margins. The majority of successful buying or selling activities occur close to stock price turning trends. This makes the prediction of stock indices and analysis a crucial factor in the determination that whether the stocks will increase or decrease the next day. Additionally, precise prediction of the measure of increase or decrease of stock prices also plays an important role in buying/selling activities. This research presents two core aspects of stock-market prediction. Firstly, it presents a Networkbased Fuzzy Inference System (ANFIS) methodology to integrate the capabilities of neural networks with that of fuzzy logic. A specialised extension to this technique is known as the genetic programming (GP) and gene expression programming (GEP) to explore and investigate the outcome of the GEP criteria on the stock market price prediction. The research presented in this thesis aims at the modelling and prediction of short-tomedium term stock value fluctuations in the market via genetically tuned stock market parameters. The technique uses hierarchically defined GP and gene-expressionprogramming (GEP) techniques to tune algebraic functions representing the fittest equation for stock market activities. The technology achieves novelty by proposing a fractional adaptive mutation rate Elitism (GEP-FAMR) technique to initiate a balance between varied mutation rates between varied-fitness chromosomes thereby improving prediction accuracy and fitness improvement rate. The methodology is evaluated against five stock market companies with each having its own trading circumstances during the past 20+ years. The proposed GEP/GP methodologies were evaluated based on variable window/population sizes, selection methods, and Elitism, Rank and Roulette selection methods. The Elitism-based approach showed promising results with a low error-rate in the resultant pattern matching with an overall accuracy of 95.96% for short-term 5-day and 95.35% for medium-term 56-day trading periods. The contribution of this research to theory is that it presented a novel evolutionary methodology with modified selection operators for the prediction of stock exchange data via Gene expression programming. The methodology dynamically adapts the mutation rate of different fitness groups in each generation to ensure a diversification II balance between high and low fitness solutions. The GEP-FAMR approach was preferred to Neural and Fuzzy approaches because it can address well-reported problems of over-fitting, algorithmic black-boxing, and data-snooping issues via GP and GEP algorithms.

The purpose of this thesis is to investigate whether mutual fund governance has an effect on fund performance, fee structure, and stock selection and market timing of the Egyptian fund managers' pre-and-post 2007-2008 financial crises. The thesis includes three separate but inter-connected studies on the effect of the board structure and ownership in the mutual fund industry. The first two studies investigate the impact of board structure on mutual funds' performance and mutual fund fee structure in the Egyptian Stock Market, whereas the third one investigates the impact of board composition on the two skills of stock picking and market timing of the Egyptian fund managers' pre-and-post 2007-2008 financial crisis. Using a final sample of 82 mutual funds between 2004 and 2013, this thesis first determines the fund performance and fund fees, and tests whether corporate governance characteristics such as board composition and ownership affect the fund performance and fund fees. The thesis further investigates the effect of mutual fund board composition and ownership on stock picking and market timing abilities of the Egyptian mutual fund managers‟ pre and post financial crisis. This research applies a Structural Equation Modelling technique to solve the potential endogeneity problem between internal governance measures, fund performance, fee structure, and stock selection and market timing of the Egyptian fund managers. The results find no evidence on a significant relation neither between the corporate governance index of the Management Company and performance, nor between the governance index of the Management Company and fees. The thesis further finds no evidence on a significant relation neither between the corporate governance index of iv the fund Management Company and stock selection, nor between the corporate governance index of the fund management company and market timing of the Egyptian fund managers‟ pre and post the crisis. The results are relevant to the misconduct of corporate governance rules in Egypt, especially the weaknesses in board composition in mutual fund industry. Overall, the financial crisis demonstrates a need for enforcing the application of the regulations of the Egypt Code of Corporate Governance to increases the firm value.

The link between stock market activities and economic growth is a contentious topic in macro finance. A branch of the theoretical literature identifies stock markets as the main determinant of growth, while another branch links stock markets with the level or growth of per capita income of a nation. The second strand of literature, which mainly evolves from the Lucas (1978) asset pricing framework, models only the consumption side of the economy and establishes causality flowing from output or its growth to stock prices. Cochrane (1991) models only the production side but not the consumption side of the economy, which leads to a bi-directional flow of causality between stock prices and output growth. In reality, however, stock prices might not directly affect growth and vice versa and both can be simultaneously influenced by different exogenous factors. Brock (1982) looks into this issue by merging the partial equilibrium frameworks of the consumption and production based asset pricing approaches into a general equilibrium set-up. However, there exists a distinct research gap in terms of exploring how stock market activities and growth are simultaneously influenced by various aggregate macroeconomic shocks. In my thesis, I address this research gap by investigating the simultaneous short run behaviour of stock market and growth due to different aggregate technology shocks within a Dynamic Stochastic General Equilibrium framework. In the theoretical frameworks that I use, growth occurs due to accumulation of a reproducible input which is physical capital and hence I essentially deal with endogenous growth models. In Chapter 1 of my thesis, I first establish some stylized facts about the contemporaneous and lead-lag relationship between market capitalization ratio and growth. To investigate this, I look into annual data of 25 years on market capitalization as a ratio of GDP (as an indicator of stock market development) and growth of per capita GDP (as an indicator of economic growth) for 35 countries and 5 country groups. Majority of the countries and country groups depict positive and significant correlation coefficient between market capitalization ratio and growth, thereby establishing that both market capitalization ratio and growth move in the same direction in the short run. In order to test whether there exists a lead-lag relationship between market capitalization ratio and growth, I perform a Granger Causality exercise, a Variance Decomposition analysis and a panel VAR analysis. The results of the Granger Causality test suggest that for most countries and country groups, causality flows from stock market capitalization to growth and not the other way round. The Variance Decomposition analysis suggest that for majority of the countries and country groups, the percentage of fluctuations in per capita growth, as explained by a one time shock to market capitalization ratio is much greater than the fluctuations in market capitalization ratio which can be explained by a one-time shock to per capita growth, in periods following the realization of the shock. Finally, the panel VAR analysis indicates that for all countries and country groups, per capita growth is significantly influenced by past values of market capitalization ratio, although the reverse is not true. Thus the key stylized facts are (i) a contemporaneous positive and significant relationship between market capitalization ratio and growth and (ii) a lead-lag relationship between the two in the sense that the effect of a one-time shock to market capitalization gets translated to per capita growth to influence the latter's behaviour in future time periods. In Chapter 2, I develop a Lucas asset pricing framework with production and investment, which can support only the lead-lag relationship but not the contemporaneous relationship between market capitalization ratio and growth. However, if a friction in the form of a borrowing constraint is introduced in this framework, it is able to reproduce both the contemporaneous and the lead-lag aspects of the market capitalization-growth relationship. In Chapter 3, I first develop a model with imperfectly competitive market structure but fully flexible prices. This framework supports the contemporaneous positive relationship between market capitalization ratio and growth. But the correlation reproduced by this model is not quantitatively close to the observed correlations for most observed for most developed and developing countries. However, in the existing imperfect market structure, if nominal frictions in the form of price rigidity and imperfect inflation indexation are introduced, then the model is able to support the positive significant correlation between market capitalization ratio and growth for a wide range of values of the nominal rigidity parameters. But, in this model with nominal rigidities, which is essentially a New-Keyesian model with capital accumulation and endogenous growth, although a positive and significant market capitalization-growth correlation is re- produced for plausible nominal rigidity parameter values, this correlation starts falling gradually with increase in nominal rigidity and becomes negative for a very high degree of price rigidity. On the whole, it is established that the addition of frictions within different economic environments help in supporting the contemporaneous relationship between market capitalization ratio and growth.

After the political changes in 1989 the economy in Eastern and Central Europe turned from a centrally planned system to market-based one. The transformation program required substantial institutional reforms, one of the results being a new security law which in 1991 established the Warsaw Stock Exchange (WSE). In this thesis I analyse rates of returns on the WSE and try to examine the existence of the optimal portfolio on an emerging stock market with quantity constraints. On the WSE, according to regulation, there exists a one-period returns limit, so prevailing models used for finding the level of assets risk seem to be inappropriate. The risk reduction effect of lower or upper limits institutionally imposed on stock exchange price movements are analyzed. As the result of the maximisation of traders' utility function subject to expected quantity constraints, a new empirical model similar to the capital asset pricing model (CAPM) is developed, where the observed returns are corrected for the appearance of quantity constraints for the securities which constitute the market portfolio. An empirical analysis of returns from twenty-one securities traded on the Warsaw Stock Exchange has been carried out. The model with uncorrected returns has been estimated by the two-limit Tobit model and compared with the results for the corrected returns, as obtained by the unconstrained maximum likelihood method. The proposed model is tested using a second-pass cross-section regression and stronger tests based on the derivation of the security market line (SML). Results show that the imposition of trade barriers tends to increase rather than decrease the portfolio risk and it is therefore suggested that such barriers should be abolished.