This thesis investigates the profitability of the Momentum and Contrarian strategies in international equity markets. In particular, I introduce for the first time the use of countries' indices performance to momentum and contrarian portfolio selection. I show that investors can switch back and forth from one country to the other in designing worldwide strategies. The global momentum strategy is consistently profitable between 1969 and 2014. The most successful momentum strategy selects stocks based on their previous performances over 9 months and then holds the portfolio for the next 3 months. This strategy yields 3% per month (42.57% per year). Interestingly, countries' indices' portfolios formed based on prior 48 months; prior losers outperform prior winners by 0.83% per month (10.40% per year) during the subsequent 60 months. The reversal effect is substantially stronger for emerging countries where it yields 1.37% per month (17.70% per year). It remains profitable in the period post-globalization. In addition, I examine for the first time the role of world risks factors in explaining the global momentum and contrarian profits and find that the global momentum strategies obtain significant abnormal returns after adjusting consecutively for world Fama and French risks (0.9% per month or 11.35% per year), and world market states risks (1.31% per month or 16.76% year). Of particular interest, I find a strong relation between world macroeconomic risks factors, notably world industrial production and the momentum return. Second, I find no substantial relation between world risks factors and the contrarian profit. These results suggest that excess return can be earned in the long run by using global investment strategies based on historical prices, challenging the weak form of the Efficient Market Hypothesis. In Chapter 1, I explain the momentum and the contrarian strategies, motivate the importance of what I propose as global momentum and contrarian strategies, and present the results obtained. In chapter 2, I review the Efficient Market Hypothesis' literatures in conformity with the Standard Finance theory. Additionally, I review the Behavioural Finance literatures with a focus on the psychology of investor decision, and the stock market under-reaction and overreaction approach of explaining the momentum and contrarian profitability. In chapter 3, I explain in details the main methodologies used to examine the global momentum and contrarian strategies profitability, and motivate the dataset used. In Chapter 4, I examine the new global momentum strategy profitability internationally. In Chapter 5, I examine the new contrarian strategy profitability internationally. In Chapter 6 I examine the role of global risks factors in explaining the momentum and contrarian profits. Finally, in Chapter 7 I conclude and highlights the limitations of the thesis.

The dissertation consists of two essays. The first essay investigates how oil market factors impact on liquidity commonality in global equity markets. I identify two transmitting channels of the effect on liquidity commonality, namely oil price return and volatility. Using a sample of firms drawn from 50 countries spanning from Jan 1995 to Dec 2015, I find that both effects in oil explain the liquidity commonality in countries with higher integration to oil market. In addition, I show that oil volatility effect is more pronounced in net oil exporters compared to net oil importers after controlling for oil sensitivity. My findings suggest that oil volatility effect on liquidity commonality is more substantial for high oil sensitive countries than oil price return effect except five OPEC members, where liquidity commonality is highly influenced by oil the return along with volatility. These results are robust to controlling for possible sources of liquidity commonality as found in the literature. In the second essay, I study the impact of stock liquidity on firms’ future investments. Since stock liquidity decreases the cost of equity, I expect firms’ future investments to increase with stock liquidity. Secondly, I argue that this relation is more pronounced in more financially constrained firms because of their limited access to external capital. Using a sample of more than 9800 firms, from 21 emerging markets and spanning from 2000 to 2015, I find supportive and robust evidence of a positive association between stock liquidity and firms’ future investments. Furthermore, my findings strongly suggest that the liquidity impact on corporate investments is highly influenced by the firms’ financial constraint levels, using four different definitions of financial constraints. My findings are robust due to controlling for other determinants of future investment suggested in the previous literature, and due to controlling for the country and time effects. In addition, the results seem to be consistent with the use of alternative measures of corporate investments and stock liquidity and with alternative model specifications and estimation methodologies.

This thesis consists of three essays that explore the dynamics of interconnected markets and examine the relationships between markets, investor behavior, and fundamental characteristics of the firm and the economy. In the first essay, we investigate the role of trade credit links in generating cross-border return predictability between international firms. Using data from 43 countries from 1993 to 2009, we find that firms with high trade credit in producer countries have stock returns that are strongly predictable based on the returns of their associated customer countries. This behavior is especially prevalent among firms with high levels of foreign sales. To better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links. The model offers further predictions about this phenomenon, including stronger predictability during periods of high credit constraints and low uninformed trading volume. We find supportive empirical evidence for these predictions. The second essay investigates the dynamics of commodity futures volatility. I derive the variance decomposition for the futures basis to show how unexpected excess returns result from new information about expected future interest rates, convenience yields, and risk premia. Using data on major commodity futures markets and global bilateral commodity trade, I analyze the extent to which commodity volatility is related to fundamental uncertainty arising from increased emerging market demand and macroeconomic uncertainty, and control for the potential impact of financial frictions introduced by changing market structure and index trading. I find that a higher concentration in the emerging market importers of a commodity is associated with higher futures volatility. Commodity futures volatility is significantly predictable using variables capturing macroeconomic uncertainty. The third essay investigates the differential explanatory power of consumer (importing countries) and producer (exporting countries) risk in explaining the volatility of commodity spot premia and term premia using trade-weighted indices of GDP volatility. Using data for major commodity futures markets, bilateral commodity trade, exchange rates, and GDP for countries trading these commodities, I test hypotheses on the heterogeneous impact of consumer and producer shocks, potentially driven by differences in hedging preferences and investment planning horizons. Producer risk is significant for both short-dated and long-dated maturities, while consumer risk has greater explanatory power for the volatility of the term spread.