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Thesis advisor: Pablo Guerron-Quintana / The dissertation consists of three independent chapters that study nonlinear effects in international finance and macroeconomics. The implications of presence of nonlinear effects are examined both in the context of a puzzle in international financial markets, a constrained policy within a closed economy, and are also ap- proached as a general problem in macro and macroeconometric modeling. I quantify the role of nonlinear effects in these contexts, and make a case for the application of nonlinear modeling techniques.The first chapter of the dissertation titled “Sovereign Default Risk and Currency Returns” is solo-authored. Many currencies exhibit non-zero average returns with respect to US dollar, in an apparent violation of textbook uncovered and covered interest parities. I first show that in the cross-section of countries foreign currency returns are positively related to the sovereign default risk, and then reconcile this finding with the standard theory via the “peso problem”. Market players collect premium for bearing the risk of sharp devaluation in case of default. Since defaults are rare in the data, default premium manifests itself in higher currency returns. To formalize the link between default risk and currency returns, I discipline quantitatively a model “with default” based on Arellano (2008) for a set of developing countries. I then use the implications of this model to construct an econometric model for cross-section of currency returns that I estimate using extended Fama and MacBeth (1973) method. I find strong evidence supporting the “peso problem” explanation: credit default swaps’ spreads serving as proxy for the risk of default explain around 25% of the cross-country variation of average currency returns. I also estimate that the market participants expect a 50% depreciation of national currency upon default. The second chapter is titled “Nonlinear Dynamic Factor Model in Application to Financial and Macroeconomic data”, and is joint work with Pablo Guerron- Quintana and Molin Zhong. Through the lens of a nonlinear dynamic factor model, we study the role of exogenous shocks and internal propagation forces in driving the fluctuations of macroeconomic and financial data. The proposed model 1) allows for nonlinear dynamics in the state and measurement equations; 2) can generate asymmetric, state-dependent, and size-dependent responses of observables to shocks; 3) and can produce time-varying volatility and asymmetric tail risks in predictive distributions. We find evidence in favor of the nonlinear factor model over its linear counterpart in applications that include interest rates with zero lower bounds, credit default swap spreads for European countries, and nonfinancial cor- porate credit default swap spreads in the U.S. We extract a shadow interest rate comparable to those in the literature. The results hint to an important role for a nonlinear internal propagation element to exogenous shocks during periods of tur- bulence such as the European debt crisis and the Great Recession. This nonlinear term allows the model to forecast better during the early stages of the Covid-19 crisis. The third chapter is titled “Local Government spending and business cycle” and is based on a solo-authored paper. Local government revenues and spending in the United States are procyclical due to constitutional constraints of states and municipalities. As a result, the local government policies can act as amplifiers of the business cycle. This paper introduces fiscal policy conducted by local governments to an otherwise standard New Keynesian closed economy model to assess quantitatively the contribution of spending policies into the business cycle. The procyclical nature of local government spending generates an amplification mechanism that accounts for around 15% of fluctuations in output and hours worked. / Thesis (PhD) — Boston College, 2022. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Since there is segmentation and homogeneity among the real estate securities market that almost parallels that of the traditional financial capital markets, investing globally now adds new venues and outlets that were once very scarce or nonexistent to private investors less than a few decades ago. This paper will examine the various outlets that are now available to both domestic and international investors, the relationship that exists among those securities, and the present and future implications of such opportunities. The results imply that there are both strong and weak relationships across various countries in regards to their correlations, as some countries have positive and negative correlations with other various nations giving way to diversification possibilities. This information is useful to investors that wish to look beyond the borders of their nation for greater returns and diversification.

Yes / This paper examines stock market reaction to cross-border acquisition announcements that involve Eastern European emerging-market targets. Using a unique and a manually collected dataset, we identify 125 cross-border acquisitions in which developed-market firms from France, Germany, Netherlands, and the United Kingdom acquire ownership stakes in emerging as well as developed-markets in Europe during the period January 2000 through December 2011. In line with previous findings on foreign cross-border merger and acquisitions (M&As) in emerging- markets, evidence suggests that when the target firm is located in either the Czech- Republic, Hungary, Poland, or Russia, cumulative abnormal return (CAR) to the acquiring developed-market firm shows a statistically significant increase of 1.26% over a three day event window, following the announcement. Thereby, the relative size of the acquirer to the target appears to be the only significant factor that contributes to positive acquirer returns. The result is robust to the inclusion of controls for country, industry, as well as acquirer, target, and firm specific characteristics. Moreover, cross-border M&As involving an emerging-market target result in higher value creation for the acquiring shareholders than cross-border transactions into developed-markets.

Yes / We find a negative relation between firm-level political risk and future delta-hedged equity option returns. A quasi-natural experiment based on Brexit corroborates this finding since after the referendum there is a decrease in the option returns of the positive-Brexit exposure firms. The predictability is driven by the jump risk component of political uncertainty, is more pronounced in periods of high intermediary constraints and is stronger among high-demand pressure options but weaker among politically active firms. Finally, consistent with a risk-based explanation, investors of options on politically risky firms get compensated with high returns when major unexpected political shocks take place.

O objetivo deste trabalho foi estudar o comportamento da volatilidade do preço da soja negociada em contratos futuros na BM&FBOVESPA (série SFI). O estudo foi realizado por meio da comparação entre duas abordagens: na primeira, foi utilizada a série de retornos absolutos da série em questão para representar a volatilidade da mesma, que se mostrou persistente ao longo do tempo, comprovando o fato de que a série possui o comportamento de memória longa. Por ter apresentado tal comportamento, fez-se necessária a utilização de modelos ARFIMA (\"Autorregressivos Fracionários Integrados de Médias Móveis\") estes, que são capazes de capturar de maneira efetiva tal comportamento. Ainda dentro desta abordagem, os modelos foram estimados de duas maneiras distintas: a primeira, em que todos os parâmetros foram estimados simultaneamente e a segunda, em que primeiramente foi estimado o parâmetro de memória longa, diferenciada a série e, posteriormente, foram ajustados os modelos ARIMA nos dados diferenciados. Por fim, a segunda abordagem utilizada no trabalho é a mais comum em pesquisas acadêmicas: foi realizada a estimação dos modelos GARCH (\"Autorregressivos Generalizados de Heteroscedasticidade Condicional\") diretamente na série de retornos. Neste estudo, concluímos que a primeira abordagem se mostrou mais eficiente, dados os critérios de comparação utilizados. / The purpose of this article was to study the volatility of the soybean price traded in futures contracts on the BM&FBOVESPA (SFI series). The study was conduct by comparison between two approaches: first, was use the series of absolute returns of the respective series, to represent its volatility, which was persistent over time, proving the fact that the series has a long memory behavior. Because of such behavior, it was necessary to use ARFIMA models (\"Autoregressive Fractional Integrated Moving Average\"), which are able to capture effectively such behavior. Still using this approach, the models were estimate in two different ways: first, which all parameters were estimate simultaneously, and the second one, that was first estimated the long memory parameter, differentiated the series and, later, adjusted the ARIMA models in differentiated data. Finally, the second approach used in this work is the most common in academic research: the estimation of GARCH models (\"Generalized Autoregressive Conditional Heretoscskedasticity\") directly in the returns series of the studied series. In this study, we conclude that the first approach was more effective, given the comparison criteria used.

This thesis attempts to analyze a part of the big and complex process of how intellectual property ownership and technological innovation influence the performance of firms and their revenues. Here I analyze a firm's stock market performance as a function of the quantity and quality of intellectual property (patents) owned by the firm in context of the three US high-technology sectors, Pharmaceuticals, Semiconductors and Wireless. In these sectors, value of a firm is predominantly driven by the technologies which a firm owns. I use citation based indicators and number of claims to measure the quality of patents. This research presents empirical evidence for the hypothesis that in high-tech sectors, companies which generate better quality intellectual property perform better than average in the stock market. I also posit that firms which are producing better quality technologies (good R&D) invest more in R&D regardless of their market performance. Furthermore, though smaller firms get relatively less returns on quality and quantity of innovation, they tend to invest a bigger fraction of their total assets in R&D when they are generating high quality patents. Larger firms enjoy the super-additivity effects in terms of market performance as the same intellectual property gives better returns to them. In addition, returns to R&D are relatively higher in the pharmaceutical industry than semiconductor or wireless industries.

Bakgrund: Majoriteten av e-handelsföretagen verksamma inom klädbranschen når inte lönsamhet vilket till viss del beror på den höga returandelen som i dagsläget ligger mellan 20-50 procent. Returandelen har ökat under de senaste åren och tros öka även i framtiden. Genom att minska sina returer med ett fåtal procent skulle e-handelsföretag kunna spara flera miljoner, dock kan kundlojaliteten gå förlorad om inte företaget möter kundens förväntningar gällande returhanteringen. Syfte: Syftet är att identifiera olika kunders returbeteenden för att förstå hur företagens returhantering kan anpassas till olika kundgrupper. Metod: I studien har författarna använt sig av en kvalitativ undersökningsmetod med ett hermeneutiskt förhållningssätt och tillämpat en explorativ samt deduktiv ansats. Resultat: Studien har identifierat två olika typer av kundgrupper med olika köp- och returbeteenden, således bör företagen segmentera kunderna utifrån dessa faktorer för att skapa en väl utförd returhantering. Företagen kan förbättra sin lönsamhet genom att kundanpassa sin returhantering eftersom en kundanpassad returhantering medför en ökad kundtillfredsställelse, ett ökat mervärde och en förbättrad kundlojalitet, vilket resulterar i en ökad lönsamhet hos företagen. / Background: The majority of the e-commerce companies in the retail industry are not profitable which is partly due to the high percentage of returned goods, which in the current situation is between 20-50 percent. In recent years the proportion of returned goods has increased and is also believed to increase in the future. By lowering the returns of goods with a few percent the e-commerce companies could save several millions, however customer loyalty can be lost unless the companies meets the customers’ expectations regarding the returns process. Purpose: The purpose is to identify the difference in customers’ returning behaviors in order to understand how companies' returns management can be adapted to different customer segmentations. Research method: The authors of the thesis have used a qualitative research method with a hermeneutic approach and applied both an explorative and a deductive approach. Results: The study has identified two different types of customer groups with different purchase and returns behaviors, thus companies should segment the customers based on these factors and the customers should be treated differently by the companies when it comes to returns management. The companies can improve their profitability by customizing their returns management because it generates greater customer satisfaction, increased added value and improved customer loyalty which results in increased profitability for the companies.

This thesis examines the impact of company announcements on the daily stock returns of lowly capitalised companies. A total of 105 companies comprise the sample and 1464 events are examined over the period 21110/97 to 03/0412000. The methodology employed is primarily, empirical in nature. Event studies are conducted to gauge the impact of company announcements on stock returns using the single index market model (SIMM) as the chosen equilibrium market model for modelling abnormal returns. The study professes three mam contributions to knowledge. The empirical evidence suggests that financial announcement have a more timely impact on stock returns than non-financial announcements. Secondly, there appears to be significant over-reaction and mean-reversion exhibited by lowly capitalised firms. Thirdly, the speed of adjustment of stock prices to new information is increased in cases where shareholder concentration is high while over-reactions appear inversely proportionate to shareholder concentration. This may be a consequence of smaller firms experiencing leakage of boardroom level information prior to public announcement days.