Energy markets have become increasingly sophisticated, requiring modelling techniques of analogous calibre. This thesis deals with models of changing regime for the petroleum complex. Modelling the conditional distribution of energy prices as a regime switching process is motivated by the market-specific characteristics of oil: different market conditions, such as backwardation and contango, involve different dynamics. The first empirical part examines the very short-end of the futures curve volatility. To address in a realistic way the potential diverse response of oil volatility to fundamentals across high and low volatility regimes, augmented regime volatility models are employed. Results indicate that volatility can be decomposed to a highly persistent conditional volatility process and a relatively short-lived non-stationary process. Apart from evaluating the size of price risk, risk managers must also design a framework for mitigating their exposures. This is the focus of the second empirical part which estimates dynamic hedge ratios. Linking the concept of disequilibrium with that of uncertainty across high and low volatility regimes, a state-dependent error correction model with timevarying second moments is introduced. Finally, the third empirical part, examines the information content of the dependence structure between correlated petroleum futures curves. Term structure is decomposed into level, slope and curvature shocks. Introducing a multiregime framework, these factors are utilised to study inter-commodity and inter-market spreads. Results suggest markedly different state-dependent speeds of mean reversion and volatility/correlation dynamics across regimes. Overall, the employed models provide superior forecasting performance and indicate that state-dependent dynamics may provide significant benefits to market participants. The findings of this thesis have important implications for energy market trading and risk management, as well as energy market operations, such as refining and budget planning, by providing valuable information on the oil price volatility dynamics and the ability to predict risk.

This thesis analyses the link between interest rate risk faced by financial intermediaries in the G-10 countries, their balance sheet composition and national bank regulation. The regulatory authorities both in the US and in Europe increasingly emphasise the issue of bank interest rate exposure. The importance of this topic is also reasserted by recent developments in the monetary environment. The thesis offers three major contributions to the area. First, it empirically investigates the interest rate risk exposure of financial intermediaries across a large international data sample over the 1997 to 2009 time period. The results verify the importance of interest rate exposure for the majority of analysed institutions, with statistical inferences being robust to the choice of interest rate proxy, time period, and the adopted econometric methodology. Second, this research examines the underlying determinants of bank interest rate risk. Both company and market specific information is considered in the analysis. The findings suggest that national regulatory and supervisory characteristics, and notably international diversity among these provisions, are as important as firm-level accounting variables in explaining the interest rate exposures of individual banks. Finally, this work empirically addresses the impact of securitization on bank interest rate risk. In particular, the research questions whether securitization is conducive to the optimal hedging of bank interest rate risk, or is merely a funding source enabling these companies to pursue more profitable but riskier projects. The reported results imply that banks resorting to asset securitization do not, on average, achieve an unambiguous reduction in their exposure to the term structure developments.

In this thesis, we investigate a pensioner’s gains from access to annuities. We observe a pensioner aged 65, having constant income from social security, having certain amount of pension wealth at age 65. The pensioner optimally decides each year how much of his available assets to consume, to invest into tradable assets, and how much to convert to annuities. Annuities are irreversible investments, once bought they provide income in the later years, but it is not possible to trade annuities any more. The pensioner makes optimal decisions such that the expected discounted utility from future consumption and bequest (if the pensioner has a bequest motive) is maximised. We develop and solve two models for the member of a defined contribution pension scheme in the post–retirement period. The first one is a two assets model with stochastic inflation. We refer to this model as the inflation risk model. The pensioner in the inflation risk model has access to risk less (cash) and risky (equity) investment and to nominal and/or real annuities. The solution of this type of problem using numerical mathematics is presented in detail. We investigate different constraints on annuitisation. The main results presented and analysed are the pensioner’s gains from access to certain class/classes of annuities, and also the pensioner’s optimal asset allocation and annuitisation strategies such that the maximised expected discounted utility from future consumption and bequest is attained. The second model for the pensioner in a defined contribution pension scheme is a three assets model with a stochastic interest rate. We refer to this model as the interest rate risk model. The pensioner in the interest rate risk model has access to risk less (one year bond), low risk (rolling bond with constant duration) and risky (equity) assets, and to annuities. Again, we precisely define the problem mathematically and solve it using numerical mathematics. We present and thoroughly analyse the pensioner’s optimal asset allocation and optimal annuitisation such that his expected discounted utility from consumption and bequest is maximised. Particularly, we investigate in detail the dependence of the results on the value of the interest rate during the year before retirement. After investigating the inflation risk model and interest rate risk model separately, we investigate deeper the new results obtained by introducing a stochastic interest rate. We compare the results obtained in the inflation risk model where the value of the interest rate is constant and the results in the interest rate risk model where the value of the interest rate changes. Particularly, in the interest rate risk model, we investigate deeper the dependence of the results on the value of the interest rate during the year before retirement and on the value of the interest rate during each year before annuitisation and asset allocation during the retirement period.

The recent crisis highlighted the failure of former early warning signals models. This research attributes this partly to dependent variable specification, independent variable specification, model empirical design, and looking at models in isolation (different empirical methodologies and macro and micro applications). This research uses a traffic analysis matrix to synthesize the output of the different models, which are applied on a macro and micro level, while similarly attempting to improve on all the aforementioned in the individual applications. This approach results in significant improvement in out-of-sample results and lead-time compared to earlier work and a number of key insights for regulation and policymaking. A dependent variable innovation compared to earlier literature in the component models of the traffic lights matrix lies in adopting an ex-ante near-crisis variable compared to an ex-post cost of crisis variable used before. This variable is applied in the macro and micro applications throughout. Near crises is a necessary and sufficient condition for prediction of full-fledged crises. Near crises always precede crises and then either develops into fully-fledged crises or they don’t. The first paper applies a macro signal extraction framework and looks at the 30 OECD countries over a 30-year period (1979 to 2007). A number of variables were found to be significant in predicting near crises, including banking assets growth, banking assets to GDP, liquidity and a proxy for corporate sector health. The second paper is a macro application comprising a dynamic logit model and a macro Z-score model. The third paper is a Z-score methodology applied on a micro level to 139 banks. The micro application is an important extension in two ways. Systems that have more institutions under stress are scaled on a composite traffic light matrix as worse. The second extension is with regards to credit ratings or rankings within a system, whereby the micro application would allow regulators to do so. Different models invariably have different output in some aspects and strengths and weaknesses. Signal extraction performed best in terms of Type I errors, the Logit model in terms of NTSR and the Z-score model in terms of Type II errors. The overlay of the micro model improves the traffic lights matrix substantially. These findings reinforce the need by regulators to use a suite of models and a holistic macroprudential approach in judging the build up of systemic vulnerabilities.

Securitisation has been viewed as a key bank funding, risk management and performance improvement tool over the last two decades. However, the financial crisis of 2007-2009 has shown that engagement in securitisation might create significant financial problems for banks and consequently lead to widespread problems in the financial sector. This, therefore, has underlined the importance of understanding banks’ securitisation activities, the benefits and risks inherent, and the consequences for the financial system. This thesis comprises empirical research on the effects of securitisation on banks. The work is presented in three essays. The first essay investigates whether banks improve their performance through the use of the securitisation market by applying a propensity score matching approach. Specifically, we attempt to assess whether the access to the securitisation market led to lower cost of funding, less credit risk exposure, and higher profitability. Using US commercial bank data from 2001 to 2008, we first test these hypotheses using univariate analysis and find that securitising banks are, on average, more profitable institutions, with higher credit risk exposure, and higher cost of funding. However, the propensity score matching analysis does not provide evidence to suggest that securitisation had a significant impact upon bank performance. In other words, the analysis shows that securitisers would have had comparable cost of funding, credit risk, and profitability had they remained non-securitising. This evidence leads us to conclude that securitisation does not seem to outperform alternative funding, risk management, and profitability improvement techniques used by non-securitising banks that have ex-ante similar characteristics to those securitising. The second essay investigates the impact of securitisation on the credit-risk taking behaviour of banks. Using US bank holding company data from 2001 to 2007, we find that banks with a greater balance of outstanding securitised assets choose asset portfolios of lower credit risk. Examining securitisations by the type of underlying assets, we find that the negative relationship between outstanding securitisation and risk taking is primarily driven by securitisations of mortgages, home equity lines of credit, and other consumer loans. Securitisations of all other types of assets, on the other hand, seem to have no significant impact on bank credit-risk taking behaviour. We attribute these results to the recourse commonly provided in securitisation transactions, as it might alter the risk-taking appetite of the issuing banks across asset classes. Therefore, we conclude that the net impact of securitisation on the riskiness of issuing banks, and consequently on the soundness of the banking system, is ambiguous and will depend on the structure of transactions. In particular, it will depend on the relative magnitude of credit support provided by banks. The third essay examines the relationship between banks’ off-balance sheet securitisation structures and insolvency risk, with a particular focus on credit and liquidity support provided by these banks. Additionally, it examines the risk effect of credit-enhancing facilities and liquidity commitments provided by banks to securitisation structures of other institutions. Using US bank holding company data for the period from 2002 to 2007, we first find that credit enhancements provided by originating banks in their securitisation structures have a significant positive effect on insolvency risk of the banks. Second, examining credit enhancements by the form of underlying facility, we find that among credit-enhancing interest-only strips, subordinated securities, and standby letters of credit, the latter have the greatest positive association with bank insolvency risk. In contrast, liquidity provisions are found to have a significant risk-reducing effect. Finally, examining credit and liquidity support provided by banks to third-party securitisation structures, we find that credit enhancing third-party securitisations reduces insolvency risk of the banks, while liquidity provisions are found to be highly positively associated with their insolvency. Summarising the main findings, the first essay finds no evidence of significant causal effects of securitisation on performance of securitising banks. The second essay finds evidence to suggest that outstanding securitisation has a negative impact on the credit-risk taking behaviour of banks; while the third essay finds that the interests retained by banks in connection to securitised assets significantly increase their insolvency risk. This shows that the net risk transfer for originating banks through securitisation might be ambiguous; however banks do account for the retained exposure to the securitised assets reducing credit risk taking. Taken together, the evidence from the three studies suggests that banks predominantly use securitisation for financing purposes rather than as a risk management or performance improvement mechanism. This research contributes to a deeper understanding of the motives for and consequent implications of securitisation and provides valuable findings for the ongoing discussion of how to redesign the securitisation model and to reform the supervision and regulation of banks’ engagement in securitisation activities in response to the recent financial crisis.

The objective of this thesis is to investigate the role of home country legal institutions and the Sarbanes-Oxley Act (SOX) on the reporting quality, pricing and performance of foreign initial public offerings (IPOs) in US capital markets. The specific characteristics of foreign IPOs as have been recognized within the recently expanding literature on cross-listed firms make the focus of this research highly interesting and relevant given the growing number of firm that chose to make their initial public offering in foreign markets, typically the US markets. Using a unique dataset of foreign issuers in the US, this thesis addresses some of the unresolved issues of the impact of institutional differences on information asymmetry in foreign IPOs. To do this, I look at different agency problems over the life cycle of new issuers. Specifically, the first empirical study of this thesis explores the earnings quality in foreign IPOs in the US and the relation to home country institutions. The second empirical study of this thesis investigates the effects of the home country institutions on the level of underpricing of foreign IPOs in the US, and whether underpricing is significantly different after the enactment of SOX. The third empirical study investigates the effects of the home country institutions on the long-run stock performance of foreign IPOs in the US, and whether performance is significantly different post the enactment of SOX. The main findings of this thesis suggest that home country legal institutions matter to the reporting characteristics, to the costs of capital at the initial listing date and to the aftermarket stock performance of foreign IPOs in the US. Furthermore, there is mixed evidence regarding the effects of SOX on the reporting characteristics, to the cost of capital at the initial listing date and to the aftermarket stock performance. In contrast with some previous research on cross-listed firms, the results of this study suggest that although foreign IPOs may abandon their home capital markets by listing in the US, their reporting characteristics and costs of capital are nonetheless influenced by home country institutions.

This thesis studies the impact of investor protection and bank regulation on the shareholder wealth around merger and acquisition announcements in the banking industry during the period 1995-2005. The analysis is based on 508 targets, 1,424 bidders and 388 combined firms covering over 30 countries. Using the event study methodology, the results show that targets, bidders and combined firms obtain 13.25%, -0.63% and 0.39% cumulative abnormal returns over a 3 day (-1,+1) event window, respectively. In addition, cross-sectional analysis reveals that target cumulative abnormal returns are positively related to investor protection measured as the antidirector rights and rule of law in a target country. The findings also indicate that targets gain more when bank regulation in a target country has more restriction on bank activity, official supervisors have more power to intervene the deals and supervisors have more power to correct the problem in mergers and acquisitions separately. Furthermore, the results show that bidders have lower gains when investor protection in a bidder country measured as rule of law is strong. The results also find that bidders gain less when bank regulation in a bidder country has more restriction on bank activity. However, the findings show that bidders gain more when supervisory authority in a bidder country is more independent. With respect to combined firms, the results find that combined firms obtain higher announcement returns when investor protection measured as the combination of the antidirector rights index in a target and bidder country is strong.

We develop and analyze a model of optimal portfolio choice with a finite time horizon T. The investor's objective is to maximize the expected utility of terminal wealth based on partial information generated by stock prices. Rebalancing the portfolio composed of a stock and a bank account incurs transaction costs. This thesis extends the literature by examining the joint impact of partial information and transaction costs on investors' decisions and expected utilities. After estimating the uncertain drift from historical prices, an investor updates the estimate over [0, T] based on partial information. This investor learns about the drift with the Kalman-Bucy filter, which provides a statistically optimal estimate. Three regions of the state space with two free boundaries characterize the optimal portfolio strategy. A numerical algorithm using dynamic programming and a Markov chain approximation solves the model. The existing algorithm with known parameters is time consuming and liable to cause underflow or overflow of the range of values represented. We propose four improvements to overcome the drawbacks. The algorithm with modifications can be applied to the model under partial information according to the separation principle. We define two measures to quantify the losses in utility caused by partial information and transaction costs. Four quantities are introduced to describe investors' trading behaviours. With simulations of stock prices and the drift, the comparative analysis of five market parameters reveals the properties of the model and tests the robustness of the algorithm. Compared with the investors who use erroneous estimates of the drift, the learning investor's portfolio holdings are close to the informed investor's portfolio holdings. The average cost per transaction to the learning investor is the lowest. This investor has these benefits because the filter reduces uncertainty. We discuss the implications for practitioners to highlight the practical contributions of this research.

This thesis examines the process of change in management accounting and control systems (MACSs) in a Thai financial services organisation. Specifically, it traces how a strategic perfOlmance measurement, the Balanced Scorecard (BSC), was introduced, constlllcted, modified and re-defined over a period of time and in different organisational units of the organisation. The major aim of the research is to achieve an understanding of how an innovative management control idea, the BSC, was made operable in a particular organisational context. This research is based on intensive field study which involved indepth interviews, direct observations and documentation analysis. Drawing on actornetwork theory (ANT), the research illustrates how the BSC idea was brought into the organisation. It describes the way in which various actors mobilised their interests and concerns to construct the BSC, shows how the BSC collided and was reconciled with other networks of performance measurement and management control, and illustrates the way in which the all-encompassing nature of the BSC affected the design and implementation process. The study provides insights into how a global management idea like the BSC is introduced into an organisation and influences organisational practices while, at the same time, being localised and shaped by local practices. It sheds light on the process of change in performance measurement practices in an organisational context, as well as cnhancing our understanding of the ways in which an integrated performance measurement system such as the BSC operates. In particular, the research illustratcs how two key BSC concepts that are controversial in the existing literature - the notion of�· 'balance' and cause-and-effect relationships - were mobilised within the organisation. It shows that although these concepts are broad and abstract, creating complexities in designing the BSC, they can have a positive impact, generating discussions and solutions among organisational members. In addition, the study shows that the BSC construction process involves ongoing translations by heterogeneous actors - both local and global, human and non-human - who/which attempt to build networks of associations to support their own agenda and beliefs. The case study shows that resistance to the new system does not necessarily lead to a failure of system implementation; rather, it can be a positive force, providing opportunities for relevant actors to modify and appropriate the system. Moreover, the research shows how local BSC meanings and identities emerged via its interplays with these actors, and how the ongoing translations led the BSC to become something that it was not initially. However, this does not mean that the BSC and its implementation failed. Rather, it suggests the ability of the BSC to be shaped in different ways to make it work in specific situations. Arguably, it is this open nature of the BSC: which allows different actors to interpret, modify and construct their own versions of it, that makes it powerful.

This thesis is a theoretical study of the role of credit market imperfections in business cycle dynamics. In particular, Chapters 2 to 4 focus on the credit channel of the monetary transmission mechanism, while Chapter 5 studies the role of shocks to credit markets in generating business cycle dynamics. The common framework used throughout the thesis is a New Keynesian (NK) framework characterised by imperfect competition and staggered pricesetting. The essence of the credit channel of monetary transmission is endogenous movements in the external finance premium, which, in turn, are caused by endogenous movements of agency costs generated in the presence of credit frictions. The credit channel works to complement the interest rate channel inherent to the standard NK model. Chapter 2 aims to shed light on the workings of the credit channel by presenting an analytical solution for the simpli…ed case where agency costs are modelled acyclical. I show that when acyclical agency costs are incorporated into an otherwise standard NK model, they amplify the real impact of money shocks but reduce the persistence of the real effects. This happens because credit frictions flatten both aggregate supply (AS) and aggregate demand (AD) relations of the model, where the former is essentially the New Keynesian Phillips curve while the latter is derived from the consumption Euler equation and money market equilibrium condition. Chapter 3 replaces the assumption of economy-wide input markets made in Chapter 2 with the one of segmented input markets. The reason for doing this is twofold. First, the latter assumption seems to capture the reality better. Second, the previous literature shows that the segmented market assumption is a crucial determinant for the degree of the persistence of the real effects of money shocks. I show that for given agency costs, both the real impact of money shocks and the persistence of the real effects are much greater in a model with the segmented input market assumption. This happens because the new assumption greatly flattens the AS curve. Chapter 4 directly studies the workings of the endogenous agency costs. Focusing on credit frictions in borrowing by firms (entrepreneurs), it compares the different business cycle dynamics generated by two alternative modelling strategies. The first assumes that entrepreneurs make a consumption/saving decision to maximise their intertemporal utility, but have a higher discount rate than households (original lenders). The second assumes that a constant fraction of entrepreneurs die each period and they consume all the accumulated wealth just before their death. These assumptions are widely used in the literature to keep agency costs operative. I show that the choice of the modelling strategies is key to the way the credit channel operates within the NK framework. Chapter 5 investigates the effect of shocks to credit markets on business cycle dynamics. Using the framework developed in Chapter 2, I show that shocks to credit markets affect agency costs and thus the external finance premium faced by entrepreneurs (borrowers). In turn, this causes a change in output. Then, turning to the framework developed in Chapter 4 with endogenous agency costs, I highlight that there is a feedback effect from macroeconomic conditions to the premium through endogenous developments in entrepreneurs' net worth. The change in the premium caused by the feedback effect leads to the further change in output.