<p>The thesis consists of three self-contained essays on public policy in the macroeconomy.</p><p>“Government Policy in the Formal and Informal Sectors” quantitatively investigates the interaction between the firms' choice to operate in the formal or the informal sector and government policy on taxation and enforcement. Taxes, enforcement, and regulation are incorporated in a general equilibrium model of firms differing in their productivities. The model quantitatively accounts for the keys aspects in the data and allows me to back out country-specific enforcement levels. Some policy reforms are analyzed and the welfare gains can be fairly large.</p><p>“Determinants of Capital Intensive and R&D Intensive Foreign Direct Investment” studies the determinants of capital intensity and technology content of FDI. Using industry data on U.S. FDI abroad and data on many different host countries' institutional characteristics, we show that there is a differential response of FDI flows to investment climate according to the capital intensity of the industries receiving the investments. We find that better protection of property rights has a significant positive effect on R&D intensive capital flows. We find evidence that an increase in workers' bargaining power results in a reduction of both kinds of FDI. </p><p>“Ambiguity Aversion, the Equity Premium, and the Welfare Costs of Business Cycles” examines the relevance of consumers’ ambiguity aversion for asset prices and how consumption fluctuations influence consumer welfare. First, in a Mehra-Prescott-style endowment economy, we calibrate ambiguity aversion so that asset prices are consistent with data: a high return on equity and a low return on risk-free bonds. We then use this calibration to investigate how much consumers would be willing to pay to reduce endowment fluctuations to zero, thus delivering a Lucas-style welfare cost of fluctuations. These costs turn out to be very large: consumers are willing to pay over 10% of consumption in permanent terms.</p>

<p>This paper evaluates if international stock markets are exposed to fluctuation in the</p><p>exchange rate and whether this exposure is related to exports, imports and inflation. Eight</p><p>countries are studied: Australia, Belgium, Brazil, Hong Kong, Sweden, Switzerland, the</p><p>United Kingdom and the United States. The empirical investigation covers the period</p><p>from 1995 to 2004 and the estimation is conducted using the framework of Patro, D.K.,</p><p>Wald, J.K. and Wu, Y. (2002). The empirical findings show that all international stock</p><p>markets are exposed to exchange rate risk, except for Brazil. The amount of exchange rate</p><p>exposure is found to be sensitive to a country’s export, import and inflation. The results</p><p>imply that there are predictable relationship between changes in the return of the national</p><p>stock index return and fluctuation in the exchange rate. In addition, imports and exports</p><p>as well as inflation may be useful in predicting exchange rate risks.</p>

Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. We argue, however, that significant departures from the unconditional CAPM would require implausibly large time-variation in betas and expected returns. Thus, the conditional CAPM is unlikely to explain asset-pricing anomalies like book-to-market and momentum. We test this conjecture empirically by directly estimating conditional alphas and betas from short-window regressions (avoiding the need to specify conditioning information). The tests show, consistent with our analytical results, that the conditional CAPM performs nearly as poorly as the unconditional CAP

Capital Asset Pricing Model (CAPM) is the most widely used model in asset pricing. This model evaluates the asset return in relation to the market return and the sensitivity of the security to the market. However, the evidence supporting the CAPM is mixed. Alternatives to the CAPM in determining the expected rate of return on portfolios and stocks was introduced through the Arbitrage Pricing Theory and through the Intertemporal CAPM. The introduction of these more general models raised the following important question: how should the risk factors in a multifactor pricing model be specified? Since the multifactor model theory is not very explicit regarding the number or nature of the factors the selection of factors has, to a large extent, become an empirical issue. In the first and the second chapters, we conduct an exhaustive evaluation of multifactor asset pricing models based on observable factors. In the first chapter we find strong evidence that a multifactor pricing model should include the market excess return, the size- , and the value premium. In the second chapter we relax the assumption of normal distributed returns. Even if this new setup does not alter the selected factors, we found strong evidence of deviation from normality which makes our approach more appropriate. In contrast to the first two chapters, the third chapter takes the approach of using latent factors. Using data from the US market, 4 to 6 pervasive factor were generally found. Furthermore, the data speaks in favor of an approximate factor structure with time series dependence across assets. In the final chapter, we examine if a momentum strategy, is superior to a benchmark model once the effects of data-snooping have been accounted for. Data snooping occurs when a given set of data is used more than once for inference or model selection. The result shows that data-snooping bias can be very substantial. In this study, neglecting the problem would lead to very different conclusions. For the US data there is strong evidence of a momentum effect and we reject the hypothesis of weak market efficiency. For the Swedish data the results indicates that momentum strategies based on individual stocks generate positive and significant profits. Interestingly, a very weak or none at all, momentum effect can be found when stocks are sorted by size, book-to-market and industry. / Diss. Stockholm : Handelshögskolan, 2005. Johan Parmler hette tidigare Johan Ericsson.

This paper evaluates if international stock markets are exposed to fluctuation in the exchange rate and whether this exposure is related to exports, imports and inflation. Eight countries are studied: Australia, Belgium, Brazil, Hong Kong, Sweden, Switzerland, the United Kingdom and the United States. The empirical investigation covers the period from 1995 to 2004 and the estimation is conducted using the framework of Patro, D.K., Wald, J.K. and Wu, Y. (2002). The empirical findings show that all international stock markets are exposed to exchange rate risk, except for Brazil. The amount of exchange rate exposure is found to be sensitive to a country’s export, import and inflation. The results imply that there are predictable relationship between changes in the return of the national stock index return and fluctuation in the exchange rate. In addition, imports and exports as well as inflation may be useful in predicting exchange rate risks.

This thesis has the intention to investigate the risk situation for small investors in the domestic residential property market in Sweden, and discuss some alternatives for reducing that risk. Focus will be on risk reduction by diversification. Residential property is considered to be a rather safe investment for the long term investor. The return is determined by the change of value for the property (capital growth), and the direct return through net rental income. When investments in residential property are compared with other types of investments, they have high returns compared to their stan-dard deviation. Diversification gains are described in the frame of the Capital Assets Pricing Model (CAPM). The CAPM shows that portfolios based on residential property can reduce their risk and maintain the same level of returns through diversification. To get the best effect out of this diversification this should be done with assets that are least correlated with residential property. This thesis has tested with other residential property, other real estate and equities/bonds. Of which equities/bonds gave the best results. An optimal portfolio based on historical data from 1984 – 2003 suggests a portfolio with 40 -60 % residential property, 30 – 60 % bonds and 0 – 10 % equities. This is with a risk free rate between 3 – 11 %. The debt ratio for this portfolio is determined by the investor’s risk-aversity and utility function. The positive effects from diversification have to be compared to the increased scale effect from investing in more residential property when chosing new investment items. Investors can get a good diversification performance even with a few stakes. The main point in this thesis is that investors with residential property can get positive effects from diversification and the effects from diversification increase the more different the investments are.

Since 1994 when the Warsaw Stock Exchange has been acknowledged as a full member of World Federation of Exchanges and became one of the fastest developing security markets in the region, it has been hard to find any studies relating to the assets price performance on this exchange. That is why I decided to write this paper in which the Nobel price winning theory namely the Capital Asset Pricing Model has been tested. The Capital Asset Pricing Model (or CAPM) is an equilibrium model which relates asset’s risk measured by beta to its returns. It states that in a competitive market the expected rate of return on an asset varies in direct proportion to its beta. In this paper the performance of 100 stocks traded continuously on the main market in the years 2002-2006 has been tested. I have performed three independent tests of the CAPM based on different methods and techniques to better check the validity of the theory and then compared the results. As in the case of many other studies of the Capital Asset Pricing Model, this one didn’t find a complete support for the model but couldn’t reject some of its features either.

År 2005 införde Europeiska unionen en förordning som innebär att alla svenska börsnoterade företag måste nedskrivningspröva sin goodwill istället för att som tidigare göra årliga avskrivningar. Detta utförs med hjälp av en diskonteringsränta och påverkar utfallet om nedskrivning ska göras eller inte. Vår uppsats baseras på en studie av Carlin och Finch (2009) som jämförde australiensiska företags redovisade diskonteringsräntor med teoretiska sådana beräknade med hjälp av CAPM. De fann att en stor del av företagen använde en opportunistisk diskonteringsränta som gjorde att de undvek att skriva ned sin goodwill. Carlin och Finch val av modell fick dock kritik och därför använder vi både CAPM och trefaktormodellen när vi gör motsvarande undersökning på noterade svenska företag. Våra resultat visar inga tydliga tecken på att företagen i vår undersökning använder sig av en opportunistisk diskonteringsränta och det är endast marginella skillnader mellan våra båda modeller. Det går inte heller att se några tydliga tecken på att företag vars goodwillpost är viktig, det vill säga hög goodwillandel eller en hög goodwillintensitet, i större grad använder en opportunistisk diskonteringsränta vid nedskrivningsprövning av goodwill.

This article investigates the impacts of asymmetric information within a Lucas (1978) asset pricing economy. Asymmetry enters via the assumption that one group of agents is equipped with superior information about the dividend process. The agents maximize their lifetime utility of the underlying consumption process obtained from the agents' budget constraints, where the agents have the opportunity to invest in a risk asset to transfer income from the current to future periods. Since a closed form solution for the market price cannot be derived analytically, projection methods are applied, as described in Judd (1998), to approximate the expectation integrals in the agents' Euler equation. We derive the result that the informed trader only clearly improves his situation as compared to the non-trade situation if the uninformed trader only observes his own endowment but not the endowment of the informed trader. In the case where agents observe each others' endowment trade never results in a Pareto improvement. (auhtor's abstract) / Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

We present a dynamic asset pricing model based on a heterogenous class of traders. These traders are homogenous in the sense that they are fundamentalists who base their investment decisions on an exogenoulsy given fundamental value. They are heterogenous in the sense that each trader is working with a different frequency of the underlying price data. As a result we have a system of interacting investors who together influence the market price. We derive a system that characterizes out-of-equilibrium dynamics of prices in this market which is structurally equivalent to the Nosé-Hoover thermostat equation in non-equilibrium thermodynamics. We explore the time series properties of these prices and find that they exhibit fat tails of returns distributions, volatility clustering and power laws. (author's abstract) / Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"