The major determinant of the performance of financial markets is the nature of the information available, both in terms of the overall quality of the information held by investors, and the distribution of information amongst investors. The nature of this issue makes it difficult to model realistically. This thesis marks an attempt to gain insights to the behaviour of securitiesm arkets by investigating the consequences of relaxing, in a realistic way, some of the restrictions on information in existing models. The core of the thesis consists of formal models of the stock market. The first of these is a development of the information aggregation literature, and in particular the model of Hellwig (1980). It looks at the ability of prices to aggregate information that is dispersed among agents who specialise in acquiring information about particular components of the factors that determine the future stock value. We find that narrowing the extent of specialisation beyond a certain point will inevitably lead to a reduction in the informativeness of the market price. The second model is also a development of the information aggregation literature, and looks at the implications of investors obtaining private information about the extent of liquidity trading. We find that such a framework gives rise to the possibility of multiple equilibria and price 'crashes'. The third model is an extension of the second in which the acquisition of information is made endogenousa, nd shows that the main results of that model are retained. It also shows up the dominance of the cost of information about value, rather than about liquidity trading, in determining the overall informativeness of the price. After investigating the possible consequences of, and providing evidence for, the existence of positive feedback trading we investigate the behaviour of a market in which investors exhibiting such behaviour are combined with investors who trade on the basis of value in a form as in De Long, Shleifer, Summers & Waldmann (1989, 1990a). We then apply results from Hart (1977) to determine the conditions under which manipulation can be possible. A number of model characteristics are shown to be possible depending on the specific form of the feedback trading. We finish by adding shocks to the system, as in De Long et. al., and look at the effect of both competitive and monopolistic speculation. We find that competitive speculation may be more destabilising than monopolistic speculation, and that positive feedback trading is more destabilising when it acts after a delay.

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The aim of this study is to investigate whether the public release of interim financial reports in the United Kingdom conveys information that affects share prices. The major objective for reporting the financial affairs of business enterprises is assumed to be the provision of information to help investors make investment decisions. Interim reports fulfil an important role as a source of frequent information regarding the events in the business enterprise which could give investors some indication about the risks and uncertainties attached to a particular firm's cash flows. Accounting data, therefore, is assumed to be part of the broad market information set that is utilised in establishing prices. The study is carried out in the context of a semi-strong form market efficiency since the announcement of interim earnings puts the information in the announcement in the public domain. An efficient securities market impounds price relevant information into prices instantaneously and without bias. Changes in security prices therefore reflect the flow of information to the market information set utilised in establishing prices. The information in interim earnings can therefore be established if security prices change on the public release of the earnings data barring any other price sensitive information at the same time period. The major finding in the study is that interim accounting reports have information contents which affect price activity on the day of release. It is argued that accounting policy makers have incentive to provide economic benefits by recommending the preparation of quarterly reports by firms.

This thesis sociologically analyses the development of consumer credit within the United States and the forms through which it has been governed and regulated. It is demonstrated that, as the consumption of goods and services came to play an increasingly important role in the mediation of social life during the first half of the 20th century, consumer credit grew in scale and form, funded by mainstream finance capital. As articulated by economists, such credit was justified as ‘productive’, an essential element in the facilitation of mass consumption now seen as a fundamental corollary of mass production. The state, through legislation and new initiatives, sought to protect, direct and manage the market for credit in the interests of nurturing a wider social wellbeing. It is suggested that by the 1920s the instalment plan, underpinned by the ‘conditional sale’ contract form, represented a new, paradigmatic form of credit. With it, lenders channelled credit to consumers through carefully calibrated, bureau-legal processes which served to discipline and regulate credit use and repayments to prevent default losses. From the 1960s, with the cultural critique of mass society and the rise of new modalities of consumption concerned with lifestyle and self-identity, the widened size and scope of credit is demonstrated. Tracing the institutional development of the credit card, it is contended that this created a new paradigm of credit as a personalised, mobile resource to be drawn upon by individuals in the increasingly autonomous, market-derived living of their lives. Permeated by the political rationality of neo-liberalism, it is elaborated how the state’s regulation of credit has shifted on the basis of its perceived responsibility to promote this individualised, ‘enterprising’ mode of life.

In this thesis we study the tail behavior of a random variable and sum of dependent random variables using the extreme value theory. We examine the tail behavior of a single random variable by mixture distribution models, and the asymptotic properties of the value-at-risk measure of dependent regularly varying random variables. In order to obtain a flexible fit not only on the tail but also on the body of the underlying distribution, mixture distributions are introduced with finite or infinite number of thresholds, where the consistency of the heavy-tailedness is preserved by the conditional layer mixture. Hazard rate functions of the conditional layer mixture distributions are studied and the mixture of the hazard rate functions can be used in modeling the mixture distributions equivalently. Impact of heavy-tailedness and dependence on the value-at-risk measure is examined for the sum of regularly varying random variables under quite general dependence structure and we conclude that the extreme value index completely determines the tail behavior of the compound sum of regularly varying random variables with respect to the value-at-risk measure. In addition, a hierarchical structure composed of maximal Markov sequences is introduced to simplify a given pool of risks under arbitrary dependence and we propose a computational method of the aggregate distribution of each maximal Markov sequence.

This thesis examines if momentum returns are compensation for risk. Using a sample period from 1926 through 2006 for all stocks listed in the NYSE, AMEX and NASDAQ we provide a comprehensive analysis of momentum returns both at the portfolio and at the individual stock level, by using firm level and macro level risk factors and by employing contemporaneous and lagged values of risk factors. The study employs an alternative momentum strategy, measures the relative contribution of risks factor that generates momentum returns and establishes a link between momentum returns, uncertainty and credit ratings. We report raw momentum returns of 0.8 percent per month (9.6 percent per annum) when returns are measured using the conventional methodology at the portfolio level. Momentum returns are predominantly high and earn more than 1 percent per month during the post-1950s compared to its counterpart in the pre-1950s. The study reports that when measured at the portfolio level momentum returns cannot be explained by risk factors. We document momentum returns of up to 0.01 percent per month (0.12 percent per annum) after Fama-French three factors, Carhart four factors and macroeconomic risk factors are priced for. The results are robust when the lagged values of these risk factors are employed. We further document momentum returns of 0.16 percent per month (1.92 percent per annum) when transaction cost is taken into account. When measured at the individual stock level momentum returns cannot be explained by Fama-French three factors and contemporaneous values of macroeconomic risk factors. Unexplained returns are observed up to 0.45 percent per month (5.4 percent per annum) when Fama-French three factors are used. Unexplained returns up to 0.15 percent per month (1.8 percent per annum) are observed when contemporaneous values of macroeconomic risk factors are used. However, when the lagged values of macroeconomic risk factors are used, momentum returns disappear. We decompose momentum returns to measure the relative contribution of the risk factors and the unexplained portion of momentum returns. At the portfolio level, decomposition shows that less than 10 percent of the contribution is from Fama-French three factors and less than 20 percent of the contribution is from macroeconomic risk factors. Unexplained portion contributes the remaining 90 percent and 80 percent, respectively. At the individual stock level, decomposition shows that contribution of both Fama-French three factors and macroeconomic risk factors increases up to 47 percent and 59 percent, respectively; unexplained portion contributes the remaining 63 percent and 41 percent, respectively. When lagged values are used the contribution of risk factors increases up to 68 percent. Finally, we consider uncertainty at the firm level and the macro-economic risk level by measuring momentum returns of credit rated stocks. We observe momentum returns of 1.22 percent per month (14.64 percent per annum) in credit rated stocks. Among the credit rated stocks momentum returns are mainly earned by speculative grade stocks and during contractions. Momentum returns of about 2 percent per month (23 percent per annum) are observed in speculative grade stock and they are more pronounced of up to 4.99 percent per month (59.88 percent per annum) during contractions. However, momentum returns of speculative grade stocks disappear when controlled for macroeconomic risk factors. We show that momentum is quite persistent when measured at the portfolio level by using the conventional approach and at the individual stock level when using an alternative approach. Momentum returns cannot be explained by Fama-French three factors and contemporaneous values of macroeconomic risk factors. However, only at the individual stock level, lagged values of macroeconomic risk can explain momentum returns. When we decompose momentum returns into explained and unexplained components, we provide support to the above findings that the contribution of macroeconomic risk factors is the highest when measured at the individual stock level. Momentum are reactions of the investors’ to high uncertainty, when uncertainty is measured at the firm level or at the macro level by measuring returns of credit rated stocks. Momentum returns are investors’ reaction due to increased business risk of stocks or due to increased macroeconomic risk during downturns. It can be concluded that at the portfolio level momentum returns remain when risk factors are price for and at the individual stock level momentum returns diminishes though they do not disappear entirely when risk factors are controlled for. When momentum returns are decomposed at the portfolio level unexplained risk factors contributes the most and at the individual stock level contribution of risk factors increases among which the contribution of macroeconomic risk factors increases the most. Momentum returns could be a compensation for uncertainty at the firm level as it concentrates mostly on Speculative Grade rated stocks with more pronounced effect during contraction. Momentum returns disappear when macroeconomic risk factors are priced.

This thesis aims to provide new behavioural finance insight into market anomalies through the use of a novel approach to measuring investor sentiment: the Facebook’s Gross National Happiness (GNH) index. The three empirical essays of this thesis investigate separately the relation between country-level investor mood – measured daily using the GNH index, and the following occurrences: the Monday Effect, return differentials in cross-listed shares; and herding. The empirical investigations are carried out with data (September 2007 to March 2012) for up to 20 international markets for which daily GNH data are available. In the first essay (Chapter 3), new empirical evidence is provided on the relation between mood and the Monday Effect. This chapter examines whether the well-documented evidence of Monday returns being significantly lower than other trading days of the week relates with mood. The results indicate that the Monday Effect become insignificant when mood is controlled for, and that such effect is more prominent within small capitalization indices and within collectivist and high uncertainty avoidance countries. These findings thus provide empirical support to a behavioural explanation for the Monday Effect, particularly the ‘Blue Monday’ hypothesis. The second essay (Chapter 4) investigates whether returns differentials in pairs of cross-listed shares is related to mood differential between the markets on which these securities are traded. The results, based on 281 pairs of synchronously traded cross-listed shares and controlling for arbitrage costs, support the hypothesized positive relation between return and mood differentials. Such relation is also found to be more prominent among small-cap firms, as these shares tend to attract small investors who are prone to sentiment-induced biases. The third essay (Chapter 5) adds to limited existing empirical evidence on the relation between investor mood and herding behaviour. This chapter investigates whether investors exhibit greater tendency to herd during days of extreme (upper or lower) moods, and whether such relation is affected by firm-size and culture. The results indicate the presence of herding during days with extreme mood, thus lending further empirical support to the notion that herding is mainly driven by psychological factors. Consistent with prior literature, the relation between herding and mood is found to be stronger within small capitalization indices and in countries with collectivist and high uncertainty avoidance culture. Overall, this thesis contributes to further understanding of the effect of investors’ psychological biases on the market.

This thesis looks at the role of non-state actors in the regulation of risks. Regulation, conceptualised in this thesis as revolving around the anticipation and management of risks in economic life, is no longer considered to be a purely state-based activity, but is increasingly viewed as an activity that can involve a variety of actors including nonstate actors such as civic organisations and commercial firms. The limits on the ability of states to regulate risks on their own are becoming more and more visible in today’s integrated and interdependent markets. Our thinking about the capacity of the state to control is especially challenged by transnational risks, such as exemplified by the global financial crisis of 2007-08. Transnational risks easily spread across national borders. However, our knowledge about how non-state actors may be and can be involved in the regulation of risks, at both national and transnational levels, is predominantly theoretical and needs to be examined more critically and above all empirically. In this thesis a case study is presented of the credit rating industry. The credit rating industry has recurrently been identified as an important industry with regard to helping manage credit risk in the global debt capital markets. Using data collected through a documentary survey and 31 semi-structured interviews with current and former staff of rating agencies, this thesis explores the extent to which the credit rating industry is involved in three main components of a risk regulation regime: standard-setting, information-gathering, and behaviour-modification. The thesis will show that there are strong indicators that the credit rating industry is exercising regulation even though rating agencies expressly deny being a regulatory actor. It will discuss the ways in which rating agencies set standards of credit risk, gather and analyse vast amounts of information to assess how issuers of debt measure up to these standards, and aim to influence the behaviour of actors in debt capital markets through their rating processes and the credit ratings that they publish.

The dissertation consists of four chapters. The first two chapters are devoted to exploring information acquisition and disclosure in contests. The third chapter is devoted to exploring how risk attitude affects bidding behaviour in all-pay auctions. the last chapter is denoted to exploring behavioural biases in advice-giving. In Chapter 1, I study player's incentive to spy on opponents' private information in contests. I show that each player's equilibrium effort is non-decreasing (non-increasing) in the posterior probability that the opponent has the same (a different) valuation. Accounting for the cost of spying, players are strictly better off than not spying on each other at all. In Chapter 2, I focus on how a contest organiser should disclose information in order to achieve certain objectives. In particular, I compare private signals with public signals. I show that there is no general ranking of the two signals in terms of the performance of maximizing players' expected payoff, but public signals outperforms private signals in maximizing expected effort. In Chapter 3 (co-authors with David Ong and Ella Segev), we extend previous theoretical work on n-players complete information all-pay auction to incorporate heterogeneous risk and loss averse utility functions. We provide sufficient and necessary conditions for the existence of equlibria with a given set of active players with any strictly increasing utility functions and characterize the players' equilibrium mixed strategies. Finally, in Chapter 4 (co-authored with Tobias Gesche), we show experimental evidence that a one-ff incentive to bias advice has a persistent effect on advisers' own actions and their future recommendations.

This dissertation presents two essays in international monetary economics; the unifying theme is the international dimension of monetary policy. I investigate two issues related to the openness of the economy: (i) the implications of external positions for the conduct of macroeconomic stabilisation policy; (ii) the consequences of monetary unification for social welfare under incomplete international markets. The former subject occupies chapter one; the latter occupies chapter two. In the first chapter, "Monetary policy and wealth effects with external positions", I develop a two-country DSGE model to study how financial integration affects the international transmission of shocks and the conduct of monetary policy. If the households of each country receive dividends from foreign firms, macroeconomic disturbances are followed by international wealth effects that transfer consumption across countries. The direction of these effects varies across different types of shocks, as these imply different comovements of macroeconomic variables. As a consequence, the choice of the monetary policy mix is shown to rest on the relative importance of different sources of uncertainty. In the second chapter, "Monetary policy and welfare in a currency union", I explore the welfare cost of abandoning an independent monetary policy to join a currency union, and I investigate what trade gains can outweigh this loss. The consequences of subjecting distinct economies to a single monetary authority are investigated in the context of an open-economy DSGE model with country-specific macroeconomic shocks and incomplete international markets. The dependence of the cost of adopting a single currency on the international synchronisation of business cycles is examined first. Next, the welfare implications of international price misalignments and monetary barriers to trade with separate currencies are considered. Finally, the model is estimated with data from Italy, France, Germany and Spain using standard Bayesian tools. Moderate trade frictions are found to be sufficient for a monetary union to guarantee the same welfare as a regime with national currencies. Under a calibration of these frictions in line with the literature, monetary unification is found to offer positive net welfare gains to all these economies.