This dissertation comprises two essays. The first essay develops and tests a theoretical model that provides new insights when markets are partially segmented and the purchasing power parity (PPP) is violated which seems to be the case for the majority of national markets. The theoretical part derives closed form solutions for asset prices and portfolio holdings. Particularly, we show that deviations from PPP in mildly segmented markets induce a new form of systematic risk, termed segflation risk, and in equilibrium investors require compensation for this risk. A strong feature of the model is that it provides a theoretical framework for testing important issues; such as, pricing of foreign exchange risk and world market structure. The model also nests several existing international asset pricing models and thus provides a framework to distinguish empirically between competing models. The empirical part of the essay provides an empirical validation of the model for eight major emerging markets. The results give support to the model and point to the importance of the segflation risk which is statistically and economically significant. / The second essay uses our theoretical model to address the question of whether the IFC investable indices are priced globally or locally. Indeed S&P/IFC provides two emerging market indices: the IFC global index (IFCG) and its subset the IFC investable index (IFCI). Since the IFCI is fully investable, both the academic and practitioners implicitly assume that this subset of emerging markets is priced in the global context. This is a critical assumption for corporate finance decisions and portfolio management. Hence, this essay investigates the pricing behavior of the IFCI index returns using a conditional version of our model that allows for segmentation and PPP deviations. The results suggest that local factors are important in explaining returns of the IFC investable indices and that the return behavior of IFCI indices is similar to that of the IFCG.

Thesis (M.Comm.)-University of KwaZulu-Natal, Pietermaritzburg, 2009. / The Capital Asset Pricing Model (CAPM), despite criticism and debate regarding its validity, remains the most widely employed model to estimate the cost of equity for use in capital budgeting decisions, both in the U.S. and in South Africa. The risk-free rate specified in the model is generally estimated with the use of a government security, but there is some concern as to the appropriateness of this practice in the South African market. An alternative approach was derived by Black (1972), known as the minimum-variance zero-beta portfolio returns; but the suitability of this parameter in the South African market has not yet been examined. The objective of this study therefore is to determine the best method to estimate the risk-free rate for applications of the CAPM in South Africa. A set of theoretical requirements that an asset must closely satisfy to be considered a suitable proxy for the risk-free rate are derived, with the most commonly employed proxies being compared to these criteria to ascertain their appropriateness. The zero-beta portfolio returns are computed, in conjunction with the rate that investors have historically viewed as the minimum required return, denoted by the intercept of the CAPM. Hypothesis tests of the equality of the two estimates of the risk-free rate and the minimum required return are conducted, as well as a comparison of the forecasting accuracy of the model using the different risk-free rate values. The results of the analysis indicate that the South African proxies diverge substantially from the criteria, and are likely to overstate the true-risk-free rate. In complete contrast to this, the hypothesis tests reveal that the proxies understate the intercept estimate, whilst the zero-beta portfolio returns closely approximate this value. This finding that the zero-beta portfolio returns, which are larger than the proxy yields, are more suitable appears counter-intuitive given the goal to identify the minimum return from investing. This result can possibly be explained by the fact that the CAPM intercept represents the average of the riskless lending and borrowing rates, whilst the proxy only denotes the former. The borrowing rate is likely to be higher than the lending rate; thus giving reason for the average being greater. However, the possibility also remains that the results observed may be a consequence of the incorrect specification of the market portfolio, that the tests employed are inapt, or that the model itself is inappropriate. The forecasting analysis confirms the greater accuracy associated with employing the zero-beta portfolio returns as the risk-free rate compared to the use of a proxy, but the improvement is small. Thus the choice for the practitioner is whether the increase in accuracy is justified by the difficulty and time involved with estimating the zero-beta portfolio returns.

An integral component of all corporations‘ financial operations is the determination of the cost of equity of the firm. This input is required in many financial decision making processes, and the correct estimation of this value is therefore a very important issue. The Capital Asset Pricing Model (CAPM) of Sharpe (1964) and Lintner (1965) has filled this gap since its inception, and has been extensively used by both corporations and individuals in their estimation of expected return. Whilst the standard form of this model is intuitive and simple in its implementation, an additional issue faced when utilising it in the current day is that of global financial integration. Whilst the CAPM is suitable for use in a market which is completely segmented from the rest of the world, this is often not the case as the barriers across countries have gradually declined, with the result that much of the world is now internationally integrated. This therefore led to two extensions of the CAPM to the international environment by both Solnik (1974) and Grauer, Litzenberger and Stehle (1976). Whilst both are referred to as International CAPM (ICAPM) models, the difference lies in that Solnik‘s (1974) model incorporates the presence of exchange rate risk, whilst the Grauer, Litzenberger and Stehle (1976) one does not. This study therefore provides an analysis of the suitability of these two models to the South African environment, along with a comparison of the relative performances of each model against that of the standard CAPM model. The three different methods of analysis used are: the unconditional approach, a conditional GARCH approach, as well as the cost of equity approach. The analyses are applied to the data which consists of all listed firms on the JSE from 1990 up to 2010, with multiple methods of evaluation employed, such as information criteria and forecasting, in order to provide a robust analysis of all three models. The results of the analysis vary across the different methods used, however since a significant amount of evidence was found of the International CAPM models, it can be concluded that an international asset pricing model should be used instead of a domestic one. In the choice between the single-factor ICAPM model and the multifactor ICAPMEX, even though use of the Grauer et al (1976) model would not be inappropriate, it was concluded that use of Solnik‘s (1974) ICAPMEX model would be the best suited to the South African financial environment, as the presence of exchange rate risk factors in an asset pricing model is found to be an important inclusion which may lead to better cost of equity estimates. / Theses (M.Com.)-University of KwaZulu-Natal, Pietermaritzburg, 2011.

Using seventeen years of data from 1991 to 2008, I derive a pricing model for farmland values. This valuation model is the first using agricultural commodity futures as a proxy for “ex ante” income projections for the crops grown or livestock grazed on United States farmland. While not all inclusive, the model is tested regionally including the Corn Belt, Delta States, Lake States, Mountain, Pacific Northwest, Pacific West and Southeast Regions. Additionally, I test whether interest rate futures contracts have a relationship with farmland values as interest rates have been proven to be a reliable predictor in past research. Farmland capitalization rates and anticipated inflation have hypothesized relationships, but are mainly used as control variables in the study. In general, agricultural commodity futures contracts are a poor predictor of changes in farmland market values. When examining relationships with quarterly percentage change regression models of the included variables, I find the Mountain region provides the most reliable pricing model where both live cattle and Minnesota wheat futures contracts has a positive statistically significant relationships with farmland market values. Also, wheat futures prices have a significant relationship with farmland values in the Corn Belt region. Interest rate futures contracts, farmland capitalization rates and anticipated inflation are not statistically significant in the majority of the regions. As a robustness check, I model the price levels of the variables using Johansen’s cointegration procedure. This time-series econometric methodology provides results in regards to long-run equilibrium relationships between the variables. The results are only slightly better. Corn, orange juice and sugar futures contracts have positive statistically significant relationships with farmland market values in multiple regions. Again, wheat has a statistically significant positive relationship with farmland values in the Corn Belt region. The Mountain region and interest rate futures contracts are not applicable for the cointegration tests as they are not integrated to the order of one.

Hitherto the diffusion of Electronic Data Interchange (EDI) has been limited due to high implementation and operational costs. On the other hand, the Extensible Markup Language (XML) has quickly become a generally accepted standard for integrating processing of formatted data - the literature is virtually unanimous that an integration of EDI into XML would make EDI more accessible and implementation faster and cheaper. The process of standardization of various EDI standard formats over XML is still underway and the question arises whether an early adoption of the technology would pay off. This thesis investigates the issue using real-options methodology. Starting from the well-known Black-Scholes model the parameters of the model are operationalized to decide about the best adoption timing: (i) project costs of implementation, (ii) value of savings of the project (substitutional, complementary, and strategic benefits), and (iii) project risk, expressed as the variance used in Black-Scholes. The latter considers both the external autonomy of the player in implementing new technology and internal properties in technology adoption. Discussing the technological properties of XML/EDI above parameters are operationalized step by step and integrated into a decision model to help each individual firm put the XML/EDI investment decision into real numbers. In order to better visualize the parameters of this decision framework, four company profiles, based on the theory of technology diffusion, will be introduced and mapped against the parameters of the Black-Scholes formula. (author's abstract)

Calif., Univ., Dep. of Management Science and Engineering, Diss.--Stanford, 2004. / Kopie, ersch. im Verl. UMI, Ann Arbor, Mich.

NY, Columbia Univ., Graduate School of Arts and Sciences, Diss.--New York, 2005. / Kopie, ersch. im Verl. UMI, Ann Arbor, Mich.

Thesis (M.A.)--Virginia Polytechnic Institute and State University, 1994. / Vita. Abstract. Includes bibliographical references (leaves 51-53). Also available via the Internet.

Thesis (Ph. D.)--University of Chicago Graduate School of Business, June 1999. / Includes bibliographical references. Also available on the Internet.

Thesis (Ph. D.)--West Virginia University, 2005. / Title from document title page. Document formatted into pages; contains ix, 162 p. : ill. (some col.). Includes abstract. Includes bibliographical references (p. 156-162).