This thesis began with an introduction and literature review in Chapter 1. In Chapter 2, I propose a new intertemporal asset-pricing model based on heterogeneous beliefs to bring together the concurrent theories that could generate value and momentum effects. In this model, I assume that such behaviour occurs simply due to an agnostic view of forecasting returns considering the dominant strategy in the market. Given the endogenous price determination in the model, individuals were expected to adjust their own strategies to match the dominant strategy to obtain higher profits (from more accurate fore- casts). The idea was to bridge the literature on intertemporal asset allocation with the one on heterogeneous beliefs. In Chapters 3 and 4, I consider the empirical problem of implementing Markowitz (1952) mean-variance optimisation on a portfolio of stocks. In particular, I focus on the out-of-sample performance of the minimum-variance portfolio obtained from the use of asset group information and regularisation methods to obtain more stable estimates of the parameters in the model. Specifically, in Chapter 3, I introduce the use of regularisation methods to the portfolio selection problem and a literature review on the subject. In Chapter 4, I propose two alternative approaches for the use of the group structure information and to obtain more stable and regularised minimum-variance portfolios. I show that these procedures produce significantly better results in the portfolios compared with the unconstrained minimum-variance portfolios estimated from the whole data set in terms of portfolio variance and the Sharpe ratio.

Abstract/ Modern Types of Derivatives and its Reflection in the Positive Law The purpose of my thesis is to provide an introduction to modern types of derivatives and analyze its regulation in the positive law of the Czech Republic. The reason for my research is an absence of literature on modern types of derivatives in the Czech language, as well as the fact that the legal nature of derivatives remains still unclear. The thesis is composed of four chapters. Chapter One provides an introduction into derivatives in general. It deals with the notion of derivatives and classifies them as an innovative instrument of the capital market. It also tries to analyze various definitions of derivatives, and although it concludes that there is no ideal, all-encompassing definition of derivatives, existing definitions usually give fairly good idea about what the derivatives are. Chapter One further deals with the regulation of derivatives in the Czech law (importantly, its tries to rebut an opinion that derivatives fall under the regulation of hazardous activities), it focuses on economic function of derivatives (namely hedging and speculation), it explains and justifies the division of derivatives into "classic" and "modern" or "exotic" derivatives, and finally it describes the main types of classic derivatives and its...

In this doctoral dissertation, I study markets in which the private information held by various agents may be reflected in prices, and as a result may be leaked to other market participants. Specifically, I study how the market microstructure interacts with the price discovery process, the market efficiency, agents' market power, and social welfare. This dissertation consists of two chapters. The first chapter studies the implications of leakage of information through prices for the efficient operation of markets with heterogeneous agents. Focusing on uniform-price double auctions, I first characterize how the presence of heterogeneity (e.g., in terms of agents’ trading costs, information precision, or risk attitudes) can shape the information content of prices and hence the market’s informational efficiency. I find that price informativeness decreases with the extent of heterogeneity in the market. I then establish that such reductions in price informativeness can in turn manifest themselves as an informational externality: in the presence of heterogeneity, agents do not internalize the impact of their trading decisions on the information revealed to others via prices. This chapter also shows that the welfare implications of this heterogeneity-induced informational externality depends on the intricate details of the market. The results thus indicate that accounting for the possibility of information leakage should be an important consideration in designing markets with asymmetric information. I conclude by exploring the welfare implications of market segmentation in the presence of heterogeneous agents and information leakage. The second chapter studies how information asymmetry shapes price impact in the presence of strategic interactions, i.e., agents' actions being strategic substitutes or strategic complements. Focusing on demand-function competition with strategic interactions, I first establish the existence and characterize the equilibrium. The characterization indicates that strategic interactions have a direct impact on the weights agents put on their private information: as strategic interaction increases, agents put less weight on their private information. I also characterize the relation between price impact, strategic interaction, and information asymmetry. While price impact decreases as the level of information asymmetry decreases, the relation between price impact and strategic interaction is more subtle, and it depends on whether agents submit upward- or downward-sloping demand schedules. When agents submit downward-sloping demand curves, price impact decreases as the extent of strategic substitutability increases, and increases as the extent of strategic complementarity increases. Furthermore, strong interaction may mitigate or exacerbate the effect of information asymmetry on agents' price impact, depending on the slope of the inverse supply curve. The results in this chapter thus emphasize the importance of accounting for strategic interactions between market participants, when assessing their price impact in markets with asymmetric information.

This dissertation aims to study the behavior of intermediaries under market imperfections and the consequences of that for the financial market's functioning. To do so, I focus on two classes of market frictions: funding constraints and information asymmetry. Chapter 1 studies how the dealers' capital constraints affect the market liquidity in the presence of imperfect competition and how recent regulations have shifted the competitive landscape of interest rate swaps. On the subject of informational frictions, Chapters 2 and 3 study empirically and theoretically the pace at which prices incorporate private information under the limited learning capacity of the informed traders. Understanding the microstructure of the swap markets is of interest to both policymakers and academics, especially for it helps in the efficient implementation of post-crisis regulations, namely the Dodd-Frank Act. An understudied dimension of the swap market microstructure is the determinants of the cost of the market-making activity. Using a proprietary regulatory dataset collected by the Commodity Futures Trading Commission (CFTC) on both the interest rate swap transactions and the collateral requirements at the London Clearinghouse (LCH), in Chapter 1, I study the key balance sheet constraints that affect the ability of the bank-affiliated dealers to provide intermediation service to the end-users. Most of the interest rate swaps are now mandated to be centrally cleared. This has increased the dealer's need for collateral in the form of highly liquid assets (cash and cash equivalents) to back their swap exposures. Facing capital adequacy measures such as Supplementary Leverage Ratio (SLR), dealers find it even costlier to increase the size of their balance sheet to fund these margins. I show that a 1-percentage point increase in SLR leads to an increase of 1.09 percentage points in the bank's cost of capital per unit of margin requirement. Furthermore, I find the funding spread of the dealers (the difference between the cost of external funding and the risk-free rate) is also a relevant factor for determining the dealer's marginal cost of swap transaction; a cost that is evidently transferred to the end-users in the form of less favorable prices. Measuring the cost of intermediation for the dealer-to-client interest rate swap market is challenging because of the high concentration in the market-- the first seven dealers intermediate more than 50% of the total notional traded. Therefore, one must consider the nontrivial effect of markups in transaction prices to estimate the marginal cost of intermediation reliably. For this reason, I model a differentiated product demand for swaps in the spirit of empirical Industrial Organization (IO) literature and structurally estimate this model to account for the markups in the transaction prices using estimated price elasticities. The demand estimations show economically interpretable heterogeneity among the end-users in their taste for duration risk hedging. The structurally estimated equilibrium model of intermediation can serve as a basis for answering counterfactual policy questions, especially in the debate on the social costs and benefits of excluding initial margins in calculating supplementary leverage ratio. In Chapter 2, I turn the focus to the impact of informational frictions on market-making activity. More specifically, we study the informed trading under random stopping time. Empirical evidence is provided based on an episode of time when the Securities and Exchange Commission (SEC) unintentionally disclosed security filings to some investors before the public for several years. For technological reasons, the delay between the private and public disclosure was exogenously random. We exploit the variation in the time window of private information to show the intensity of trades and the speed at which market prices reach their efficiency, decrease with the expected arrival time of public announcement. In addition, we find the learning capacity of the insider determines the evolution of trading intensity over time. In Chapter 3, inspired by the stylized facts observed in the earlier chapter, I extend the Kyle (1985) model of strategic trading to a case with limited learning capacity of both the dealers and the informed traders (insiders). The insider does not perfectly observe the true value of the security, but he continues to hone his knowledge by using private information sources over time. Two classes of equilibria emerge from this model. In one class, the insider trades excessively patiently, and the market efficiency is reached only asymptotically. In the second type, the insider optimally chooses a deterministic time T, before which he trades patiently as in Kyle (1985) until the price reaches its full efficiency. After T, the insider keeps revealing every piece of new information immediately, and the market price stays efficient while the insider keeps making profits. Which equilibrium emerges depends on the insider's learning capacity, initial informational advantage, and the private source's informational content.