This paper investigates the role of U.S. infrastructure investments in a multi-asset portfolio, by using monthly return data for eight different asset classes from the period December 2002 to March 2013. Applying mean variance, as well as mean-downside risk, optimization models, I show that U.S. infrastructure plays an important role in delivering better risk/return trade-offs than more traditional portfolios. Infrastructure proves to be most beneficial to moderate-risk portfolios where the standard deviation ranges from 2% to 6% and the maximum allocation to infrastructure is 65.49%. Additionally, I show that infrastructure is more attractive to investors who are averse to variance, rather than downside risk.

This study uses barbell strategies on the S&P 500 and the NASDAQ 100 to explore if funds invested primarily in fixed income assets with a portion of the investment placed in in-the-money call options can participate in upside potential, while also reducing risk. This study examines call options on the underlying indexes as well as their leveraged, 2x and 3x, counterparts. The barbell strategy studied, 88% in fixed income bonds and 12% in call options, does not have a higher return than the underlying index, and adds additional risk. However, a weighted portfolio with combinations of a risk-free asset and leveraged ETF does provide a higher return on investment, with a decreased risk as compared to the underlying index.

In my Senior Thesis, I explore the growth of socially responsible investing (SRI) practices in U.S. equity markets and abnormal sin stocks returns. I analyze the historical performance of socially responsible ETFs and portfolios of current sin stocks—alcohol, tobacco, gaming, and aerospace & defense stocks. I propose that as socially responsible investing practices continue to grow in U.S. equity markets, more industries will eventually be deemed sinful—such as sugary beverages, fast food/sugary food, biotech & pharmaceuticals, and tech/social media. I examine two sinful industries—alcohol and tobacco—by comparing the performance of these sinful portfolios before and after their industries were widely perceived as sinful. I explored these topics for a few key reasons. First, socially responsible investing practices in U.S. equity markets have exploded in popularity over the last decade. Every year, we see increasing amounts of money screened for environmental, social and governance (ESG) factors. Despite its increase in popularity, many people have claimed that socially responsible investing isn’t financially responsible investing—it underperforms as compared to common benchmarks such as the S&P 500. On the other hand, existing literature has supported the claim that investing in sin stocks generates abnormal returns for investors. I hypothesize that these two areas of portfolio management are connected—as socially responsible investing practices continue to grow, more industries will eventually be widely perceived as sinful. If the sin stock anomaly does exist and portfolios of sin stocks do generate abnormal returns, individuals and institutions can benefit from an immediate and long term investment strategy by investing in these “future” sinful industries now. Using three distinct capital asset pricing models—the Fama-French 3 Factor Model, the Fama-French 3 Factor Model plus Momentum, and the Fama-French 5 Factor Model—I come to four main conclusions. First, investing in socially responsible ETFs does not generate positive abnormal returns; in some instances, it generates statistically significant negative abnormal returns. Second, across the Fama-French 3 Factor Model, the Fama-French 3 Factor Model plus Momentum, and the Fama-French 5 Factor Model, portfolios of sin stocks from 1977-2018 generate statistically significant positive abnormal returns. Third, during the same time horizon, portfolios of future sin stocks exhibit similar levels of abnormal returns, especially portfolios of biotech & pharmaceutical stocks and portfolios of tech/social media stocks. Finally, portfolios of alcohol and tobacco stocks generated statistically significant abnormal returns after being widely perceived as sinful as compared to before they were widely perceived as sinful. My research has implications for practicing portfolio managers. First, socially responsible investing isn’t financially responsible investing. Second, portfolio managers should consider how the growth of socially responsible investing practices will impact perceptions of what is sinful. Anticipating which industries will become sinful can yield a profitable investment strategy. Third, I promote a profitable investment strategy in the short- and long-term time horizon. The results are clear: go long on sin and short on SRI.

I have examined the common stock investments made by members of the U.S. Senate between 2006 and 2009. I find that the average stock portfolio in the Senate exhibits one and two year cumulative abnormal returns (CARs) of -0.15 % and 0.43%, respectively. This suggests that members of the Senate are not trading on insider knowledge as indicated by one previous researcher who calculated a one year CAR of 25%. However, my findings are in line with another previous researcher who found a one year CAR of about -2% and concluded that Congressmen are not trading on inside information. I also examine election-year trades made by senators who lose a reelection bid. This cashing out effect amounts to a CAR of 0.43% during the first year post loss, but after two years these trades exhibit a CAR of -0.03%. The cashing out group performs no better than the group as a whole, indicating that this group did not use their informational advantage to profit during the lame duck session.

The purpose of this paper is to develop a new and practical technique for improving the art of forecasting security price movements. The desire to forecast stock market fluctuations have led many analysts to employ different predicting tools.

Big data has become a rapidly growing field amongst firms in the financial sector and thus many companies and researchers have begun implementing machine learning methods to sift through large portions of data. From this data, investment management firms have attempted to automate investment strategies, some successful and some unsuccessful. This paper will investigate an investment strategy by using a deep neural network to see whether the stocks picked from the network will out or underperform the Russell 2000.

In Chapter 1, I hypothesize that there is a differential response by agents to changes in sovereign credit or default risk in both quiet (low default risk) and turbulent markets (high default risk). These market conditions create two different states of the market (world) or regimes. Investors and policy makers respond differently in the two regimes but the response in the turbulent market condition is amplified as policy makers attempt to smoothen the fluctuations and uncertainty while investors rebalance their portfolios in an attempt to hedge against downside risk of wealth loss. In the two regimes, the short run and long run dynamic relationships between any two cointegrated assets may change. To capture this phenomenon, this study tests for nonlinearities that may characterize the regimes, how cointegration relationships, short term dynamic interaction and price discovery (speed of adjustment to new information between two assets) may change in alternative regimes. To this end, I employ threshold cointegration, threshold vector error correction model (TVECM) asymmetrical return spillover modeling for sovereign credit default swaps (CDS), bonds and equity markets of seventeen emerging markets from four geographical regions. I find that there is non-linear cointegration and momentum in long-run adjustment process in 43/51 spreads analyzed. All countries analyzed have at least 2/6 possible regime specific asymmetric price discovery process. The study also finds evidence in support of asset substitution hypothesis and news-based hypothesis of financial contagions in sovereign CDS, bond and equity markets. The findings have important implications for asset allocation and portfolio rebalancing decisions by investors, policy intervention in financial markets, risk management and regime specific short and/or long term dynamic interactions among assets held in a portfolio as well as nonlinear speed of adjustment to new information. In chapter 2, I hypothesize that financial intermediaries can be categorized into bank-based institutions (BBIs) and market-based institutions (MBIs). MBIs and BBIs are under different regulatory agencies. Traditionally, only BBIs, regulated by the Fed, are used as conduits of transmitting liquidity and monetary policy into real economy and financial markets yet MBIs also play important role in providing liquidity and stability in financial markets. I use two tools of monetary policy (Federal fund rate and monetary aggregate) under two monetary policy regimes to investigate the impact of monetary policy under each regime on the liquidity of MBIs and BBIs. I investigate whether MBIs be used as conduits of transmitting monetary policy and liquidity in the market and if they should, under what economic and financial conditions (Regimes) should they be used. Moreover, what monetary policy tool is more effective for MBIs relative to BBIs under different regimes? Using Threshold vector auto-regressions and regime specific impulse response functions, I find that liquidity of BBIs and MBIs respond differently to different monetary policy tools under different regimes. Moreover, monetary policies are uncertain and vary over time. The Fed cannot continue to ignore MBIs in formulating and implementing monetary policy. Moreover, monetary aggregate policy is more effective when used on MBIs during contractionary monetary policy intervention (economic downturn) while Federal fund rate is more effective when used on BBIs under expansionary monetary policy.

The first part of this dissertation examines the presence of the financial contagion across European stock markets with respect to the Greece sovereign debt crisis by estimating the time-varying conditional correlations of stock returns between Greece and other European countries over 2001 to 2012. We find that the correlations vary over time and reach the peaks in the late 2008 during theU.S.subprime crisis, and in the beginning of 2010 of the height of European debt crisis. Further, the correlations between stock index returns of Greece and Spain, France, Ireland, Netherlands are significantly increased by Greek sovereign credit rating downgrade announcements. The second part of this dissertation examines the correlations of gold, dollar and U.S. stock returns over 2001 to 2012 using ADCC-GARCH model. The conditional correlations of gold-dollar returns are negative during all sub-sample periods and significantly increase in magnitude during both subprime crisis and sovereign debt crisis. The conditional correlations of gold-stock returns are positive on average over time. However, gold-stock correlation falls below zero during subprime crisis and sovereign debt crisis. Gold-stock correlation is significantly negatively affected by positive CPI announcements. And gold-dollar correlation is significantly negatively affected by negative GDP announcements and positive unemployment announcements. The effects of macroeconomic announcements are stronger during economic recessions.

This paper examines the effect of the mandatory adoption of the International Financial Reporting Standards (IFRS) on transparency for investors by measuring the increase in earnings management during the post-adoption period of IFRS. One sign of earnings management is current year earnings being only slightly higher than the previous year’s earnings. An increase in earnings management means a decrease in accounting quality and a decrease of transparency for investors. By comparing firms that mandatorily adopted IFRS to similar benchmark firms in terms of strength of legal enforcement, book-to-market ratios, market values and net incomes, I am able to run empirical regressions examining variables of growth, equity issuance, leverage, debt issuance, turnover, size, cash flow, and time period in order to determine the effect of the adoption on IFRS on earnings growth. After looking at 516 firms from 20 countries for the years of 2002-2007, I conclude that IFRS is decreasing financial reporting quality and decreasing transparency for the investing public, and therefore is not accomplishing its goal of bringing efficiency, accountability, and transparency to global financial markets.

This paper explores private investments in public equity (PIPE) deals as a means of alternative firm financing. Poorly performing companies often look towards PIPEs to quickly raise capital when traditional means of financing are limited. This study provides an analysis on both the discount and premia that PIPEs are issued at, as well as the performance of firms after the deal announcement. Overall, this study finds that successful PIPEs from the investor’s perspective are issued at a discount of close to 17%, and unsuccessful PIPEs are issued at an average of a 15% premium. I find substantial cumulative abnormal returns of 9% over a three-day period due to positive information shocks. Overall, this thesis corroborates past research in the field.