I study the topics of market efficiency and anomalies to market efficiency by focusing on finance professors in their joint roles as both researchers and market participants. I ask three main research questions: (1) how efficient do finance professors believe US stock markets are and does their opinion of market efficiency influence their investing behavior, (2) what really matters to finance professors when they buy and sell stocks, and (3) why do finance professors publish market anomalies? Related to the first question, I discover that finance professors agree that US stock markets are weak form efficient but not strong form efficient. However, there is much disagreement about the semi-strong form efficiency of US stock markets. Their investing behavior, though, suggests that finance professors accept markets as semi-strong form efficient; twice as many finance professors passively invest than actively invest. Surprisingly, their opinion about market efficiency has very little to do with their investing behavior. Instead, their investing behavior seems primarily driven by their confidence in their own abilities to beat the market, regardless of how efficient they perceive US stock markets to be. Related to the second question, I present three main findings. First, traditional valuation techniques and asset-pricing models commonly used in research and taught in the classroom are universally unimportant to finance professors when they buy and sell stocks. Second, the most important information to finance professors when considering stock purchases and sales are firm characteristics (PE ratio and market capitalization) and momentum related information (the stock's return over the past six to 12 months and 52-week high and low). Third, finance professors have less real-world investing experience than one might expect – the median professor has bought an individual stock between 10 and 19 times, and 14.5% have never done so. Related to the third question, I find that finance professors are, in fact, acting rationally when they publish market anomalies. The theory I develop suggests it is rational for researchers to publish market anomalies if they have relatively few previous publications or have lesser reputations. Accordingly, the theory implies that the likelihood of publishing an anomaly and the profitability of published anomalies should be inversely related to the authors' previous publications and reputation. These implications are empirically corroborated providing evidence for the theory and supporting the notion that researchers are behaving rationally when they publish. Sadly, this also suggests that it is very likely that profitable anomalies have been discovered but not published so that the discoverer can exploit the anomaly, which provides indirect evidence of market inefficiency. / A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Summer Semester, 2007. / Date of Defense: May 22, 2007. / Investing, Market Anomalies, Market Efficiency, Investor Behavior, Overconfidence, P/E Ratio / Includes bibliographical references. / David Peterson, Professor Directing Dissertation; Michael Brady, Outside Committee Member; Gary Benesh, Committee Member; James Doran, Committee Member.

This dissertation examines if information extracted from the options markets is priced in the cross-section of equity returns and whether or not this information is a systematic risk factor. Several versions of the Intertemporal Capital Asset Pricing Model predict that changes in aggregate volatility are priced into the cross-section of stock returns. Literature confirms that changes in expected future market volatility are priced into the cross-section of stock returns. Several of these studies use the VIX Index as proxy for future market volatility, and suggest that it is a risk factor. However, prior studies do not test whether asymmetric volatility affects if firm sensitivity to changes in VIX is related to risk, or is just a characteristic uniformly affecting all firms. The first chapter of my dissertation examines the asymmetric relation of stock returns and changes in VIX. The study finds that sensitivity to VIX innovations affects returns when volatility is rising, but not when it is falling. When VIX rises this sensitivity is a priced risk factor, but when it falls there is a positive impact on all stocks irrespective of VIX loadings. The second essay of my dissertation uses the second, third, and fourth moments of the risk-neutral density extracted from options on the S&P 500 as the proxy for changes in the expected future market return distribution rather than just the VIX index. The VIX index, while easily obtained, contains limited information due to its construction. The risk-neutral moments map one-to-one to the real-world volatility smile from market options, and contain all the information in the cross-section of market option moneyness and provide a richer proxy for changes in expected future market return distribution. The analyses find that positive change in risk-neutral skewness is a risk-factor and that change in risk-neutral kurtosis is not. The evidence for change in risk-neutral volatility being a risk factor, however, is ambiguous. / A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Degree Awarded: Spring Semester, 2010. / Date of Defense: March 29, 2010. / Implied Kurtosis, Implied Skewness, Implied Volatility, Asset Pricing, Risk Neutral Distribution, VIX Index, Assymetric Volatility / Includes bibliographical references. / David R. Peterson, Professor Directing Dissertation; Thomas Zuehlke, University Representative; James S. Doran, Committee Member; Bong-Soo Lee, Committee Member.

Source: Dissertation Abstracts International, Volume: 30-12, Section: A, page: 5146. / Thesis (D.B.A.)--The Florida State University, 1969.

Source: Dissertation Abstracts International, Volume: 32-01, Section: A, page: 0064. / Thesis (Ph.D.)--The Florida State University, 1970.

Source: Dissertation Abstracts International, Volume: 32-09, Section: A, page: 4808. / Thesis (D.B.A.)--The Florida State University, 1970.

Source: Dissertation Abstracts International, Volume: 30-10, Section: A, page: 4119. / Thesis (Ph.D.)--The Florida State University, 1969.

This dissertation is a collection of three essays that use real-time data, which reflects information available to market participants at the time forecasts were made, to calculate output gaps and forecast exchange rates. The first study investigates the differences between real-time and ex-post output gap estimates using a newly-constructed international real-time data set over the period from 1973:Q1 to 2007:Q2. We extend the findings in Orphanides and van Norden (2002) for the United States that the use of ex-post information in calculating potential output, not the data revisions themselves, is the major cause of the difference between real-time and ex-post output gap estimates to nine additional OECD countries. The results are robust to the use various detrending methods. By using quasi real-time methods, reliable real-time output gap estimates can be constructed with revised data. / The second study evaluates out-of-sample exchange rate forecasting with Purchasing Power Parity (PPP) and Taylor rule fundamentals for 9 OECD countries vis-a-vis the U.S. dollar over the period from 1973:Q1 to 2009:Q1 at short and long horizons. In contrast with previous work, which reports "forecasts" using revised data, I construct a quarterly real-time dataset that incorporates only the information available to market participants when the forecasts are made. Using bootstrapped out-of-sample test statistics, the exchange rate model with Taylor rule fundamentals performs better at the one-quarter horizon and panel specifications are not able to improve its performance. The PPP model, however, forecasts better at the 16-quarter horizon and its performance increases with the panel framework. The results are in accord with previous research on long-run PPP and estimation of Taylor rule models. / The third paper evaluates out-of-sample exchange rate predictability with Taylor rule fundamentals for 10 OECD countries vis-a-vis the U.S. dollar at short horizons. In contrast with previous research on out-of-sample exchange rate forecasting with Taylor rules using panel data, this study finds evidence of exchange rate predictability. Using real-time quarterly data vintages for OECD countries from 2000:Q1 to 2010:Q2, the exchange rate model with Taylor rule fundamentals significantly outperforms the random walk benchmark at the one-quarter horizon within a panel specification.

This dissertation consists of two manuscripts. In the first manuscript, we investigate the extent to which a life insurer's characteristics and the characteristics of bonds it owns affect the probability of selling downgraded bonds. We find a negative relation between the probability of selling a downgraded bond and a life insurer's risk-based capital (RBC) ratio and a positive relation between the probability of selling a downgraded bond and the indicator of a financially-stressed insurer. We also find life insurers are less likely to sell downgraded bonds remaining in the same rating category as before the downgrade. Apparently, RBC regulation has desired impacts on investment risk taking behavior for life insurers. We also find evidence that mutual insurers and widely-held stock insurers are more likely to sell downgraded bonds than are closely-held stock insurers and the magnitude is stronger when insurers have low levels of capital. Finally, life insurers sold fewer downgraded bonds during the recent financial crisis. Both the relation between the probability of selling downgraded bonds and the capital level, and the relation between the probability of selling downgraded bonds and post-downgrade rating status, weakened during that period. / In the second manuscript, we investigate the extent to which a broad set of a life insurer's firm characteristics, including corporate governance, affects its investment risk taking. Unlike prior research, we use a market-value-based, disaggregated approach to calculate the respective portfolio value-at-risk for 28 mutual insurers and 135 stock insurers over the period from 2007 to 2009. We find that investment risk taking is related to firm size, underwriting risk, leverage, product composition, and board size. Larger insurers take higher investment risk; life insurers that have greater underwriting uncertainty take lower investment risk; insurers with higher leverage take lower investment risk; life insurers that issue more long-term insurance contracts match their obligations with more long-term investments that may have higher volatility in the short run; and insurers that have a larger board take lower investment risk. Finally, we find more than half of the life insurers in our sample reduced their portfolio risk through various techniques during the recent financial crisis.

This dissertation advances the theoretical and empirical understanding of unspanned macro risks in the term structure of interest rates. The first chapter shows that a significant portion of bond risk premia is unspanned by the first three principal components of the bond yield covariance matrix, which together explain over 99.5 percent of the cross-sectional variation in bond yields. Fluctuations in unspanned factors induce movements in expected excess bond returns and expected future short-term interest rates in opposite directions, and are linked to both business cycle and higher-frequency variation in the level of macroeconomic activity. The second chapter examines the plausibility of unspanned macro risks in the term structure of interest rates within a simple New-Keynesian macroeconomic model augmented to allow for time-varying risk prices. In a calibrated version of the model, shocks to the natural rate of output less autonomous spending (so-called 'demand shocks') drive a large percentage of time-variation in bond risk premia, yet the importance of these shocks in explaining contemporaneous yield variation is significantly more subdued. The model demonstrates that within a plausibly calibrated macro-finance model of the term structure there may exist a significant wedge between factors driving cross-sectional variation in the term structure and those driving yield dynamics. The third chapter analyzes the ability of two leading nonlinear consumption-based term structure models to match salient features of bond risk premia. Both an external habit formation model (Campbell and Cochrane 1999) and a long run risk model (Bansal and Yaron 2004) are able to replicate the central finding of Cochrane and Piazzesi (2005): a single return forecasting factor---a tent-shaped linear combination of forward rates---captures all information in the term structure relevant in predicting excess bond returns. Both models fail to replicate an important feature of bond risk premia observed in the data, however. Neither model is able to account for the existence of unspanned macroeconomic factors in the term structure. In both models, yields summarize virtually all information in state variables useful in forecasting excess bond returns.

Thesis (Ph. D.)--Ohio State University, 1982. / Includes vita. Includes bibliographical references (leaves 102-105). Available online via OhioLINK's ETD Center.