The dynamic mutual relationship between the Regional Greenhouse Gas Initiative (RGGI) carbon permit price and energy prices in the U.S. is examined. Results show that the RGGI and electricity markets are not closely linked, although the carbon permit price is usually closely interrelated with energy prices. The loose relationship between the RGGI and electricity markets can be explained by the recent low carbon credit demand which stems from the low greenhouse gas (GHG) emissions existent in the particular area covered by the RGGI. The low GHG emissions result from fuel switching due to recent low natural gas prices. Unlike the European Union Emissions Trading Scheme, natural gas is the key driver of the RGGI system.

In project appraisal of infrastructure projects, cost benefit analysis has an important role. One of the central concerns is to adjust the distortions in markets to provide a better guide to a more effective allocation of scarce resources. The objectives of this thesis are : to establish the lack of a comprehensive estimation of the shadow wage rate (SWR) in most project appraisals in the Australian context; to develop a model for the estimation of the SWR for groups of occupations; to estimate the SWRs for the major groups of occupations in Australia; to forecast the number of employees required for Sydney's second airport project and to apply the estimated SWRs to the project, followed by estimation of the total social cost of the project. The latter estimation is done using a novel approach which, unlike many previous studies of transport infrastructure projects, estimates the SWR entirely from published statistical sources. Overall, the results are significant not only in the context of Sydney's second airport, but for other airports, the transportation sector, and in general for Australian project appraisal. The study proposes the need to change the traditional approach to the treatment of labour costs in project appraisal in Australia and provides a framework which can be useful to other researchers and analysts who wish to examine the pricing of labour in Australian project appraisal. / Doctor of Philosophy (PhD)

This thesis examines the empirical performance of four Affine Jump Diffusion models in pricing and hedging S&P 500 Index options: the Black Scholes (BS) model, Heston???s Stochastic Volatility (SV) model, a Stochastic Volatility Price Jump (SVJ) model and a Stochastic Volatility Price-Volatility Jump (SVJJ) model. The SVJJ model structure allows for simultaneous jumps in price and volatility processes, with correlated jump size distributions. To the best of our knowledge this is the first empirical study to test the hedging performance of the SVJJ model. As part of our research we derive the SVJJ model minimum variance hedge ratio. We find the SVJ model displays the best price prediction. The SV model lacks the structural complexity to eliminate Black Scholes pricing biases, whereas our results indicate the SVJJ model suffers from overfitting. Despite significant evidence from in and out-of-sample pricing that the SV and SVJ models were better specified than the BS model, this did not result in an improvement in dynamic hedging performance. Overall the BS delta hedge and SV minimum variance hedge produced the lowest errors, although their performance across moneyness-maturity categories differed greatly. The SVJ model???s results were surprisingly poor given its superior performance in out-of-sample pricing. We attribute the inadequate performance of the jump models to the lower hedging ratios these models provided, which may be a result of the negative expected jump sizes.

This thesis investigates implications of interdependence between stock market prices in the context of several financial applications including: portfolio selection, tests of market efficiency and measuring the extent of integration among national stock markets. In Chapter 2, I note that volatility spillovers (transmissions of risk) have been found in numerous empirical studies but that no one, to my knowledge, has evaluated their effects in the general portfolio framework. I dynamically forecast two multivariate GARCH models, one that accounts for volatility spillovers and one that does not, and construct optimal mean-variance portfolios using these two alternative models. I show that accounting for volatility spillovers lowers portfolio risk with statistical significance and that risk-averse investors would prefer realised returns from portfolios based on the volatility spillover model. In Chapter 3, I develop a structural MGARCH model that parsimoniously specifies the conditional covariance matrix and provides an identification framework. Using the model to investigate interdependencies between size-sorted portfolios from the Australian Stock Exchange, I gain new insights into the issue of asymmetric dependence. My findings not only confirm the observation that small stocks partially adjust to market-wide news embedded in the returns to large firms but also present evidence that suggests that small firms in Australia fail to even partially adjust (with statistical significance) to large firms??? shocks contemporaneously. All adjustments in small capitalisation stocks occur with a lag. Chapter 4 uses intra-daily data and develops a new method for measuring the extent of stock market integration that takes into account non-instantaneous adjustments to overnight news. This approach establishes the amounts of time that the New York, Tokyo and London stock markets take to fully adjust to overnight news and then uses this This thesis investigates implications of interdependence between stock market prices in the context of several financial applications including: portfolio selection, tests of market efficiency and measuring the extent of integration among national stock markets. In Chapter 2, I note that volatility spillovers (transmissions of risk) have been found in numerous empirical studies but that no one, to my knowledge, has evaluated their effects in the general portfolio framework. I dynamically forecast two multivariate GARCH models, one that accounts for volatility spillovers and one that does not, and construct optimal mean-variance portfolios using these two alternative models. I show that accounting for volatility spillovers lowers portfolio risk with statistical significance and that risk-averse investors would prefer realised returns from portfolios based on the volatility spillover model. In Chapter 3, I develop a structural MGARCH model that parsimoniously specifies the conditional covariance matrix and provides an identification framework. Using the model to investigate interdependencies between size-sorted portfolios from the Australian Stock Exchange, I gain new insights into the issue of asymmetric dependence. My findings not only confirm the observation that small stocks partially adjust to market-wide news embedded in the returns to large firms but also present evidence that suggests that small firms in Australia fail to even partially adjust (with statistical significance) to large firms??? shocks contemporaneously. All adjustments in small capitalisation stocks occur with a lag. Chapter 4 uses intra-daily data and develops a new method for measuring the extent of stock market integration that takes into account non-instantaneous adjustments to overnight news. This approach establishes the amounts of time that the New York, Tokyo and London stock markets take to fully adjust to overnight news and then uses this

The aim of this thesis is to study multi-asset barrier options, where the volatilities of the stocks are assumed to define a matrix-valued bounded stochastic process. The bounds on volatilities may represent, for instance, the extreme values of the volatilities of traded options. As the volatilities are not known exactly, the value of the option can not be determined. Nevertheless, it is possible to calculate extreme values. We show that these values correspond to the best and the worst case scenarios of the future volatilities for short positions and long positions in the portfolio of the options. Our main tool is the equivalence of the option pricing and a certain stochastic control problem and the resulting concept of superhedging. This concept has been well known for some time but never applied to barrier options. First, we prove the dynamic programming principle (DPP) for the control problem. Next, using rather standard arguments we derive the Hamilton-Jacobi-Bellman equation for the value function. We show that the value function is a unique viscosity solution of the Hamilton-Jacobi-Bellman equation. Then we define the super price and superhedging strategy for the barrier options and show equivalence with the control problem studied above. The superprice price can be found by solving the nonlinear Hamilton-Jacobi-Equation studied above. It is called sometimes the Black-Scholes-Barenblatt (BSB) equation. This is the Hamilton-Jacobi-Bellman equation of the exit control problem. The sup term in the BSB equation is determined dynamically: it is either the upper bound or the lower bound of the volatility matrix, according to the convexity or concavity of the value function with respect to the stock prices. By utilizing a probabilistic approach, we show that the value function of the exit control problem is continuous. Then, we also obtain bounds for the first derivative of the value function with respect to the space variable. This derivative has an important financial interpretation. Namely, it allows us to define the superhedging strategy. We include an example: pricing and hedging of a single-asset barrier option and its numerical solution using the finite difference method.

This thesis presents three related essays on the dynamic relationship between different types of investment flow and prices in the equity market. These studies attempt to provide greater insight into the evolution of prices by investigating not ???what moves prices??? but ???who moves prices??? by utilising a unique database from the Korean Stock Exchange. The first essay investigates the trading behaviour and performance of online equity investors in comparison to other investors on the Korean stock market. Whilst the usage of online resources for trading is becoming more and more prevalent in financial markets, the literature on the role of online investors and their impact on prices is limited. The main finding arising from this essay supports the claim that online investors are noise traders at an aggregate level. Whereas foreigners show distinct trading patterns as a group in terms of consensus on the direction of market movements, online investors do not show such distinct trading patterns. The essay concludes that online investors do not trade on clear information signals and introduce noise into the market. Direct performance and market timing ability measures further show that online investors are the worst performers and market timers whereas foreign investors consistently show outstanding performance and market timing ability. Domestic mutual funds in Korea have not been extensively researched. The second essay analyses mutual fund activity and relations between stock market returns and mutual fund flows in Korea. Although regulatory authorities have been cautious about introducing competing funds, contractual-type mutual funds have not been cannibalized by the US-style corporate mutual funds that started trading in 1998. Negative feedback trading activity is observed between stock market returns and mutual fund flows, measured as net trading volumes using stock purchases and sales volume. It is predominantly returns that drive flows, although stock purchases contain information about returns, partially supporting the price pressure hypothesis. After controlling for declining markets, the results suggest Korean equity fund managers tend to swing indiscriminately between increasing purchases and increasing sales in times of rising market volatility, possibly viewing volatility as an opportunity to profit and defying the mean-variance framework that predicts investors should retract from the market as volatility increases. Mutual funds respond indifferently to wide dispersions in investor beliefs. The third essay focuses on the conflicting issue of home bias by looking at the impact on domestic prices of foreign trades relative to locals using high frequency data from the Korean Stock Exchange (KSE). This essay extends the work of Choe, Kho and Stulz (2004) (CKS) in three ways. First, it analyses the post-Asian financial crisis period, whereas CKS (2004) analyse the crisis (1996-98) period. Second, this essay adopts a modified version of the CKS method to better capture the aggregate behaviour of each investor-type by utilising the participation ratio in comparison to the CKS method. Third, this essay does not limit investigation to intra-day analysis but extends to daily analysis up to 50 days to observe the effect of intensive trading activity in a longer horizon than the CKS study. In contrast to the CKS findings, this paper finds that foreigners have a short-lived private information advantage over locals and trades by foreigners have a larger impact on prices using intra-day data. However, assuming investors buy-hold for up to 50 days, the local individuals provide a greater impact and more profitable returns than foreigners. Superior performance is documented for buys rather than sells.

Although the Internet is the dominant broadband network, it still has a fundamental shortcoming in traffic management that does not properly support efficient use of resources together with differentiated quality of service for mixed traffic types. Even though a number of mechanisms have been proposed under key approaches of resource adaptation, resource reservation, and resource pricing, this problem remains unsolved to date because of its complexity and the way it relates to so many considerations of engineering and economics, and the diverse range of services desired by users. Hence it is considered difficult to devise a perfect mechanism that can universally solve this problem. In this respect, this dissertation contributes to insights into potential combinations and trade-offs of key approaches above in some efficient manner for managing traffic and scarce resources in the Internet. The first part of this work considers the combination of relaxed resource reservation and resource pricing schemes for handling the unfair bandwidth distribution problem in soft-bandwidth guarantee services of the Differentiated Services (DiffServ) Internet. We show that this unfairness problem can be handled using a network-user cooperative approach that addresses both individual user satisfaction and global optimization. We propose to add a mechanism based on price-based feedback signaling to DiffServ-capable routers providing Assured Forwarding (AF) Service so that they can offer per-flow signaling. This still allows them to work at an aggregate traffic level, hence the scalability feature of the DiffServ network can be retained. Our proposed mechanism allows the network to offer reliable service assurances via a distributed optimization algorithm, without introducing special protocols or requiring routers to have access of individual user requirements. Moreover, it can provide incentives for users to cooperate so that optimum performance can be accomplished. This approach has broad applicability and is relevant to all types of assured service classes. The second part of this work considers the combination of a specific resource pricing scheme based on a distributed optimization algorithm and multimedia adaptation schemes. Such a capability has not been available because most utility functions of multimedia applications do not meet the concavity constraints required by optimization algorithm. We proposed to overcome this limitation by redefining user utility functions into equivalent discrete forms and using combinatorial (discrete) optimization so that interfacing the resource-pricing scheme can be done in a normal way. However, to obtain feasible solutions in a scalable manner, an agent is included into the scheme for solving the combinatorial (discrete) optimization on behalf of a small group of users. In return, all users belonging to this group can benefit from social welfare maximization of their utilities over a network resource constraint. The last part of this work considers the combination of relaxed resource reservation and resource pricing schemes to enable a proper charging scheme for adaptive applications in the DiffServ Internet. We provide an optimization formulation of the problems of revenue and social welfare maximization, applied at a service provider (SP) who gives access to the DiffServ Internet. In this scheme, resources are provisioned per QoS-oriented class in a long time scale (service level agreement (SLA) duration), then priced based on user demand in the short time scale. We also show that the proposed charging scheme can provide feedback and incentives for users to use the network resource optimally via the standard packet marking, hence eliminating the need for specific pricing protocol. All of the proposals in this work can be used together, solving these key problems as a coordinated whole, and all use readily available network mechanisms.

Residential property price premia (‘premia’) have long fascinated investors, particularly in times of euphoria, but their social, climatic and urban ramifications are much wider. A proper understanding of premia is hindered by the variety of exogenous influences determining them. They occur within idiosyncratic, complex, and continuously reconfiguring metropoli, conditioned by topography, history, regime, commerce, and culture. Given imperfectly competitive housing markets, conventional explanations for premia are either restricted to their financial dissection, trawl though metrics or cast around for hedonic coefficients. However, premia illuminate affordability and other problems in the broader planning and social debate. With the general significance of premia clarified, the research question of the project becomes: ‘What drives residential property price premium evolution in a metropolis?’ A complete answer involves dissecting the nature and establishing the location of putative premia and disentangling the influence and interactions of their various price drivers. To provide it, the project conducts a property and urban literature review. Based on theory’s insight that higher order contains lower order systems, it develops and investigates a general systems model of residential premia with two modes. The system is conditioned by ideology but forced by population and capital inflows. Within it, premia mutate, influenced by a nested hierarchy of more or less contaminated information. To investigate the model and its different modes, the project employs tests across system pointers, at the macro, meso (all urban) and micro spatial resolutions. First, the turbulence and permeability of residential property markets to exogenous influences is assessed. The project then looks at the urban mosaic in the growing Sunbelt migration city of Brisbane, Australia, over the boom period from 1998-2004. Locally, it conducts a case study and survey in one micro-location, seeking clues in transaction patterns (output), property system agents (components) and the information they use (feedback mechanisms). Finally, the project draws some relevant policy implications. Its key findings are that urban housing markets are open, complex and polarised. In an exuberant economic climate, migration and debt fuel metropolitan price escalation. Public urban initiatives reinforce central incumbent affluence or spark fresh bouts of speculation. Individual premia are heterogeneous but often feed off local construction projects or iconic refurbishment. Reflecting their demographics and motives, agent risk appetites are diverse although investors are usually less averse to renewal. System feedback involves a congruence of media and local activity signals. Neither local conviviality nor Bohemian influences are, by themselves, significant. Rather, buyer rationality is validated by post-purchase infrastructure completions. The thesis of this project is, hence, that in euphoric capital markets, migration and debt accelerates the endogenous mutation of property from homes within a community towards speculative paper assets. The implication is that the excessive proliferation of premia indicates economic imbalance and urban malaise which requires recognition and treatment. While premia are paid for perceived privilege or prospects, cognitive risk representations and expectations evolve. Sometimes judgment is contaminated by media fantasy but often validated by accommodating government policy and central revitalisation projects. Yet, within a wider social and ecological remit, rampant premia suggest flaws in urban strategy, governance and planning practice. In terms of windfall events or unearned rent, the cumulative effects of ill-considered projects and price distortions can be ugly and wasteful. They alienate and accentuate spatial privilege without generating sustainable jobs. The project has procedural and substantive policy implications. The dynamics of residential premia cannot be disentangled from capital market volatility, urban fragmentation and reconstitution. Enlightened property development requires visionary urban planning beyond electoral cycles. Rather than unregulated markets or disjointed incrementalism, the project points to the advantages of cohesive projects and inclusive hubs. It impels ecological and people-focused development to nurture capable, connected and considerate edge communities. Its first steps are theoretical recognition, policy clarification, government reform, market constraints, price and tax rationalisation and spatial transparency.

<p>Study I<i>Real Wage Determination in the Swedish Engineering Industry</i></p><p>This study uses the monopoly union model to examine the determination of real wages and in particular the effects of active labour market programmes (ALMPs) on real wages in the engineering industry. Quarterly data for the period 1970:1 to 1996:4 are used in a cointegration framework, utilising the Johansen's maximum likelihood procedure. On a basis of the Johansen (trace) test results, vector error correction (VEC) models are created in order to model the determination of real wages in the engineering industry. The estimation results support the presence of a long-run wage-raising effect to rises in the labour productivity, in the tax wedge, in the alternative real consumer wage and in real UI benefits. The estimation results also support the presence of a long-run wage-raising effect due to positive changes in the participation rates regarding ALMPs, relief jobs and labour market training. This could be interpreted as meaning that the possibility of being a participant in an ALMP increases the utility for workers of not being employed in the industry, which in turn could increase real wages in the industry in the long run. Finally, the estimation results show evidence of a long-run wage-reducing effect due to positive changes in the unemployment rate.</p><p>Study II<i>Intersectoral Wage Linkages in Sweden</i></p><p>The purpose of this study is to investigate whether the wage-setting in certain sectors of the Swedish economy affects the wage-setting in other sectors. The theoretical background is the Scandinavian model of inflation, which states that the wage-setting in the sectors exposed to international competition affects the wage-setting in the sheltered sectors of the economy. The Johansen maximum likelihood cointegration approach is applied to quarterly data on Swedish sector wages for the period 1980:1–2002:2. Different vector error correction (VEC) models are created, based on assumptions as to which sectors are exposed to international competition and which are not. The adaptability of wages between sectors is then tested by imposing restrictions on the estimated VEC models. Finally, Granger causality tests are performed in the different restricted/unrestricted VEC models to test for sector wage leadership. The empirical results indicate considerable adaptability in wages as between manufacturing, construction, the wholesale and retail trade, the central government sector and the municipalities and county councils sector. This is consistent with the assumptions of the Scandinavian model. Further, the empirical results indicate a low level of adaptability in wages as between the financial sector and manufacturing, and between the financial sector and the two public sectors. The Granger causality tests provide strong evidence for the presence of intersectoral wage causality, but no evidence of a wage-leading role in line with the assumptions of the Scandinavian model for any of the sectors. </p><p>Study III<i>Wage and Price Determination in the Private Sector in Sweden</i></p><p>The purpose of this study is to analyse wage and price determination in the private sector in Sweden during the period 1980–2003. The theoretical background is a variant of the “Imperfect competition model of inflation”, which assumes imperfect competition in the labour and product markets. According to the model wages and prices are determined as a result of a “battle of mark-ups” between trade unions and firms. The Johansen maximum likelihood cointegration approach is applied to quarterly Swedish data on consumer prices, import prices, private-sector nominal wages, private-sector labour productivity and the total unemployment rate for the period 1980:1–2003:3. The chosen cointegration rank of the estimated vector error correction (VEC) model is two. Thus, two cointegration relations are assumed: one for private-sector nominal wage determination and one for consumer price determination. </p><p>The estimation results indicate that an increase of consumer prices by one per cent lifts private-sector nominal wages by 0.8 per cent. Furthermore, an increase of private-sector nominal wages by one per cent increases consumer prices by one per cent. An increase of one percentage point in the total unemployment rate reduces private-sector nominal wages by about 4.5 per cent. The long-run effects of private-sector labour productivity and import prices on consumer prices are about –1.2 and 0.3 per cent, respectively. The Rehnberg agreement during 1991–92 and the monetary policy shift in 1993 affected the determination of private-sector nominal wages, private-sector labour productivity, import prices and the total unemployment rate. The “offensive” devaluation of the Swedish krona by 16 per cent in 1982:4, and the start of a floating Swedish krona and the substantial depreciation of the krona at this time affected the determination of import prices.</p>

<p>The aim of the thesis is twofold: to analyze the effects of the expectations on the Bothnia Line on the housing market and expectations on railway use. To fulfill these aims, three questions are considered:</p><p>1. To what extent is property prices influenced by the expected effects of the Bothnia Line?</p><p>2. Are there differences in expectations on regional development and future journeys between residents in different locations and with different individual characteristics?</p><p>3. How are trips to work affected by the expectations on the Bothnia Line and the performance of the train service according to residents in different locations?</p><p>Property prices are investigated quantitatively with data delivered from Lantmäteriet. The data contains every sold property from 1994 to 2001 in the municipalities of Umeå, Nordmaling, and Örnsköldsvik. Expectations on regional development and future traveling on the Bothnia Line were investigated with two questionnaires conducted in the autumn of 2002.</p><p>The empirical results from the study of property prices are clear. There are no signs of influence from the Bothnia Line on the property prices close to the railway stations or in the proximity of the railway.</p><p>The empirical results from the questionnaires reveal a mixed picture of the expectations. In the municipalities located furthest away from the railway, the expectations are low. On the contrary, a large proportion (>75 %) of the residents in municipalities along the railway line believe it can be useful for the population in general when searching for new employment opportunities. This is especially true for males living in Örnsköldsvik. A significantly smaller proportion (≈25 %) believes they will use the railway themselves.</p><p>One explanation to the geographic variations is that they are a result from an ongoing diffusion process. Residents in Örnsköldsvik were the first ones to have a visual image of the railway since the construction started there. As the construction continues, the expectations might increase in other locations as well. Another possibility is that people only react on word of mouth from someone that actually made a trip before they consider changing the mode of transport. If that is the case, the expectations will increase only after the opening of the railway line.</p><p>With the exception of residents in Nordmaling, expectations on future journeys with the Bothnia Line are low. The low expectations on journeys on the Bothnia Line might be explained by the lack of attraction between the places along the line. They are satisfied with their present situation and cannot find any rationale to consider other alternatives. It is a different story if they are forced to consider other alternatives. The result from a stated preference study shows that if they are offered employment at another place, the majority is willing to commute.</p>