This thesis contains empirical studies of portfolio choice and asset prices. The first two chapters deal with incorporating labor supply into models traditionally only focusing on consumption. Can the risk premium on stocks be better understood when taking labor supply into account? This is the topic of the first chapter. Do possibilities of varying labor supply, and thus hedging stock market risk, help explain the stock ownership patterns of households? This question is what the second chapter tries to answer. If labor income moves with the stock market, an attempt should be made to hedge this with a lower share of stocks in the portfolio and, but do households act according to this rule? This is what the third chapter investigates. Chapter one, Labor Supply Flexibility and Portfolio Choice: Evidence from the PSID, examines the relationship between labor supply flexibility and portfolio choice. Theoretical articles have shown that, ceteris paribus, the optimal portfolio share of risky assets (stocks) increases with labor supply flexibility, due to increased possibilities of hedging financial risk by adjusting the labor supply. Using PSID household data, this hypothesis is tested using a direct measure of labor supply flexibility from survey questions. The results indicate that the total portfolio share is increased by labor supply flexibility. When separated, most of this effect seems to come from the increased probability of stock ownership due to flexible labor, rather than an increased portfolio share among stockholders. Chapter two, Can Leisure Explain the Equity Premium Puzzle? An Empirical Investigation, investigates the asset pricing properties of non-separable utility functions with consumption and leisure. The parameter restrictions needed to match the historical equity premium are explored using US data on consumption, hours and returns. Empirically, it is shown that to match the equity premium with a low level of risk aversion, consumption and leisure need to be strong complements, i.e. have a very low substitution elasticity. Chapter three, Income Risk and Stockholdings: Evidence from Swedish Microdata, examines the relationship between income risk and portfolio choice. It empirically investigates whether the stock market risk (the covariation with the stock market) in labor income is reflected by an offsetting lower share of stocks in financial portfolios, an effect that has been shown to exist in theoretical articles. Swedish microdata from HINK on households’ income and wealth are used for this purpose. In repeated cross-sections, households are divided into "portfolio cohorts" corresponding to percentiles of the share of stocks in financial assets. Income risk, i.e. the regression beta of (log) income growth on aggregate stock returns, is compared for the different groups. As predicted by theory, the results provide some support for a negative relationship between income risk and the share of stocks. / Diss. Stockholm : Handelshögsk., 2004

The purpose of this empirical research is to evaluate the relationship between credit constraints and household risky assets in China. The life-cycle hypothesis theory and household portfolio choice theory is the basis of the research. Using a probit model, we find out that credit constraints do not have a clear impact on the probability of households to hold risky assets. Furthermore, the coefficients between age and risky assets are non-linear. Households in urban regions have a high positive coefficient with risky assets. As for now, the literature is missing theories on the relationship between credit constraints and household financial risky assets in China. Thus, this study will enrich the literature of household financial assets allocation by using a questionnaire survey from CHFS (China Household Finance Survey).

In this thesis, we study the estimation of the nonlinear conditionalrisk-neutral density function (RND) in discrete time. Specifically, weevaluate the extent to which the estimated nonlinear conditional RNDvaluable insights to answer relevant economic questions regarding to optionpricing, the measurement of invertors' preferences and portfolio choice.We make use of large dataset of options contracts written on the S&P 500index from 1996 to 2011, to estimate the parameters of the conditional RNDfunctions by minimizing the squared option pricing errors delivered by thenonlinear models studied in the thesis.In the first essay, we show that a semi-nonparametric option pricing modelwith GARCH variance outperforms several benchmarks models in-sample andout-of-sample. In the second essay, we show that a simple two-state regimeswitching model in volatility is not able to fully account for the pricingkernel and the risk aversion puzzle; however, it provides a reasonablecharacterisation of the time-series properties of the estimated riskaversion.In the third essay, we evaluate linear stochastic discount factormodels using an out-of-sample financial metric. We find that multifactormodels outperform the CAPM when this metric is used, and that modelsproducing the best fit in-sample are also those exhibiting the bestperformance out-of-sample.

In this thesis, we provide convergent numerical solutions to non-linear forward-BSDEs (Backward Stochastic Differential Equations). Applications in mathematical finance, financial economics and financial econometrics are discussed. Numerical examples show the effectiveness of our methods.

Cette thèse de doctorat comprend trois articles indépendants sur la finance des ménages et l’évaluation des actifs. Les deux premiers articles sont étroitement liés, utilisent des données similaires et étudient le rôle du risque de revenu du travail dans le choix du portefeuille. Le troisième article étudie un modèle de volatilité basé sur le model de Markov-switching multifractal. Le premier article est intitulé "Countercyclical Income Risk and Portfolio Choices" (avec Sylvain Catherine et Paolo Sodini). En utilisant les données du panel administratif suédois sur les salaires et les choix de portefeuille des particuliers, nous montrons que le risque de du revenu contracyclique réduit la volonté des ménages d'investir sur le marché financier. Le deuxième article est intitulé "Seeking Skewness". À l'aide de données administratives détaillées des ménages suédois sur les portefeuille et le revenu du travail, cet article examine le comportement des investisseurs de la demande d'asymétrie dans leur choix de portefeuille. Le troisième article est "Multifractal Volatility with Shot-noise Component" (avec Laurent Calvet). Baser sur le modèle Markov Switching Multifractal (MSM) de Calvet et Fisher (2004), nous développons dans cet article un modèle de volatilité multifractale à temps discret pour capturer des sauts et des décroissances dans le processus de volatilité. / This doctoral thesis consists of three independent papers in household finance and empirical asset pricing. The first two papers are closedly related, use similar data, and investigate the role of labor income risk in portfolio choice. The third paper studies volatility model based on Markov switching multifractal. The first paper is “Countercyclical Income Risk and Portfolio Choices” (with Sylvain Catherine and Paolo Sodini). Using Swedish administrative panel data on individual's wages and portfolio holdings, we show that countercyclical labor income downside risk reduces households' willingness to invest in financial market. The second paper is “Seeking Skewness”. Using detailed disaggregated Swedish household administrative data on portfolio holdings and labor income, this paper investigates retail investors’ behavior of seeking skewness in their portfolio choice. The third paper is “Multifractal Volatility with Shot-noise Component” (with Laurent Calvet). Based on the Markov Switching Multifractal (MSM) model of Calvet and Fisher (2004), we develop in this paper a discrete-time multifractal volatility model to capture the jump and decay pattern in the volatility process along with other stylized facts.

No description available.

[pt] Introduzimos escolha de portfólio em um modelo com agentes heterogêneos para avaliar como isso afeta a desigualdade de riqueza. Para tanto, alteramos o modelo de Krusell e Smith (1998), incorporando uma tecnologia de produção com retornos decrescentes de escala, de forma que a firma representativa emite títulos de dívida para levantar capital para produção e depois distribui os lucros (ou prejuízos) para os acionistas. Também fazemos uso de preferências Epstein-Zin para aumentar o equity premium do modelo, aumentando a aversão ao risco dos agentes. O modelo é capaz de replicar fatos estilizados: (i) agentes mais pobres praticamente não participam do mercado de ações; (ii) os agentes investem proporções maiores de suas poupanças em ações, conforme ficam mais ricos; (iii) o retorno esperado da poupança dos agentes aumenta com a riqueza. A desigualdade de riqueza aumenta com a incorporação de escolha de portfólio dos agentes. No entanto, o impacto na desigualdade é pequeno devido ao baixo nível de equity premium gerado pelo modelo. Esse resultado se mantém mesmo quando estabelecemos valores muito altos para a aversão ao risco, e está relacionado à falta de volatilidade de consumo gerada por essa classe de modelos. Finalmente, documentamos que levar em conta decisões endógenas de portfólio potencializa os efeitos de outras fontes de desigualdade. / [en] We introduce households portfolio decisions in a heterogeneous agents model to evaluate how this affects wealth inequality. To do so, we alter the Krusell and Smith (1998) model, incorporating a decreasing returns to scale technology, so that the representative firm issues risk-free bonds to raise capital for production and distributes profits (or losses) to equity holders.We also make use of Epstein-Zin preferences to augment the model s equity premium, by increasing households risk aversion. The model is able to replicate stylized facts: (i) poorest households seldom participate in the equity markets; (ii) households allocate higher proportions of their savings to equity investments as they get wealthier; (iii) households expected return on savings increases with wealth. Inequality of wealth does increase in the model with portfolio decisions. Nevertheless, the effect on wealth inequality is small due to the low level of equity premium generated by the model. The result in unchanged even when we set very high values for risk aversion, and it is related to the lack of consumption growth volatility delivered by this class of model. Finally, we document that taking into account endogenous portfolio decisions enhances the effects of other sources of inequality.

Thesis advisor: James E. Anderson / This dissertation consists of two essays in international economics with a focus on the effects of exchange rate fluctuations on an economy through their impact on international capital flows and international trade. The first chapter examines the effect of exchange rate risk in foreign investors' payoff on the informativeness of security prices and home bias in portfolio holdings. I present a model with dispersed private information where foreign investors' payoff differs from domestic investors' payoff because of exchange rate changes. The equilibrium asset price aggregates private information and acts as a public signal about future payoffs. I show that higher private information acquired by foreign investors about their exchange rate adjusted payoff has two opposing effects on the information obtained by domestic investors from the equilibrium price. First, foreign investors' private information increases information about asset payoff in domestic currency, which increases information about domestic investors' payoff in the price. On the other hand, foreign investors' private information increases information about exchange rate changes, which lowers the relative information about domestic investors' payoff in the price. This second effect is higher if exchange rate volatility is high. I find support for the model's implication by using firm-level data (2000-2016) and showing that foreign institutional ownership\footnote{the fraction of common stocks outstanding that is foreign-owned} of firms from higher exchange rate volatility countries is associated with lower price informativeness. The second chapter improves on current treatment of exchange rate variation in quantitative trade models. Exchange rate changes with heterogeneous passthrough to buyers are embedded in the structural gravity model. Quantification on two digit annual bilateral trade data reveals real effects of exchange rate changes on producers that are substantial for some country-sector-time period observations. Real national income effects are small but not always negligible. Effective exchange Rates with Gravitas (ERGs) are introduced as theory-consistent indexes to guide potential policy remedies. / Thesis (PhD) — Boston College, 2022. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

This thesis comprises five empirical essays using Swedish data. Three of the essays examine open market share repurchases, one essay investigates changes in investors’ shareholdings surrounding equity rights offerings (ROs), and the last essay investigates owner-managers’ equity portfolio choices. The first essay examines stock performance around initiation announcements of open market share repurchase programs, the price impact of repurchase trading and the long-run stock performance following the initiation announcements. The study uses a unique data set of initiation announcements and actual share repurchases conducted by firms listed on the Stockholm Stock Exchange (SSE). The results show that initiation announcements of open market repurchase programs exhibit a 2 day abnormal return (AR) of 2% on average. The price impact on the actual repurchase days is positively correlated with the daily repurchase volume, and is both statistically and economically significant during the first 3 repurchase days in a repurchase program. The long-run abnormal stock performance is positively associated with the fraction of shares bought in the program and is on average 7% for the first year following the initiation announcement. The results indicate that repurchase trading provides price support and that the market participants detect and perceive the initiation announcement and the first repurchase days in a repurchase program as a signal of undervaluation. The second essay examines differences in the market performance of Swedish firms that initiate repurchase programs infrequently (1-2 programs), occasionally (3-4 programs) and frequently (5 or more programs) over the period 2000-2009. It is found that infrequent repurchase programs are greeted with a stronger positive reaction than occasional and frequent programs. However, over the long-term, infrequent repurchase programs show no AR while occasional and frequent repurchase programs show significant positive ARs. A positive relationship between AR and repurchase size is documented for all types of repurchase programs. The third essay examines the market liquidity impact of open market share repurchases in an electronic order-driven market. The study uses a detailed data set of daily repurchase transactions on the SSE together with intraday data on bid-ask spreads and order depths which enables an investigation of the liquidity effects on the actual repurchase days. It is found that repurchase trades inside the order-driven trading system contribute to market liquidity through narrower bid-ask spreads and deeper market depths. After controlling for trading volume, price and volatility, a significant decrease of the bid-ask spread on repurchase days relative to surrounding non-repurchase days is still found. However, repurchases executed as block trades outside the order-driven trading system have a detrimental effect on the bid-ask spread, consistent with a negative response to the presence of informed managerial trading. The fourth essay examines changes in equity ownership surrounding ROs by firms listed on the SSE. The results show that domestic individual investors on average reduce their shareholdings following rights issues, whereas domestic institutional investors and foreign investors increase their holdings. However, when ownership changes are adjusted with changes in ownership in matched non-issuing firms, it is documented that domestic institutions significantly increase their shareholdings in RO firms, whereas foreign investors decrease their holdings in these firms. A positive (negative) association between the 6 month benchmark adjusted return following the offering and the change in shareholdings by foreign investors (domestic institutional investors) is also documented. Finally, the fifth and last essay investigates how Swedish owner-managers (CEO or Chairman) invest in the Swedish stock market conditional on a major investment in their own firm. No evidence is found that owner-managers seek diversification benefits when they invest in other Swedish stocks. In general, they choose other stocks that show higher correlation among themselves than the average Swedish stocks. It is also found that owner-managers within high-tech industries invest significantly more of their total Swedish stock investments in IT stocks than owner-managers within other industries. / <p>QC 20130515</p>

Currency carry trade is an investment strategy that recently started gaining a lot of interest not only among investors and financial institutions but also academically. One of the underlying theoretical assumptions regarding the mechanisms of the foreign exchange market, the Uncovered Interest Parity has frequently been disproved in practice which has led to the conclusion that carry trade is profitable in practice. The function of a carry trade strategy is that a short position is taken in a low interest rate currency to finance a long position in another currency offering higher yields. This thesis is adding to the existing literature that is explaining the characteristics of currency carry trade but is adopting a different approach than most other recent researches that has focused on identifying especially risk factors. Gold as a financial asset has also received much attention largely due to its, contrarily to other asset classes, low dependence on macroeconomic factors. This makes gold desirable to diversify portfolios and decreasing overall risks. By investigating how the returns of currency carry trades and gold relates to each other an increased understanding in how carry trades can be beneficially included in managing portfolios are developed. Looking at a currency carry trade index, Deutsche Bank’s G10 Currency Future Harvest index, and the development of the gold price at the London bullion market for the 20 year period of 1993-2013 this research is exploring correlation, mean and volatility spillover effects. Spearman’s correlation, Vector Autoregression and a diagonal BEKK GARCH model are employed to test these effects. It also investigates if gold possesses hedge, diversifier and safe haven characteristics when combined with carry trades as it has been found to do with stock markets. This is determined by a regression analysis and supplemented by a portfolio simulation. This thesis found that there is a low positive correlation between the returns of gold and currency carry trades and that there is spillover effects as well between the two in both returns and volatility. This in addition to the regression analysis and portfolio analysis determined that there are diversification benefits by adding gold to a portfolio consisting of currency carry trade in the form of higher risk adjusted returns. However special caution has to be taken to the spillover effects as these complicate the relationship between the returns of the two variables and especially the volatility spillover effects slightly decreases the potential diversification benefit. The regression analysis concluded that gold work as a diversifier for carry trade but could not determine if it also exhibited hedge or safe haven characteristics. These findings pushes the existing understanding of carry trades forward and adds to focus of matching carry trades within a portfolio which could have implications to more efficiently match risks and returns by combining several asset classes in portfolio management.