No description available.

Theoretical models predict that ambiguity is an asset pricing factor in addition to risk, however few of them have been tested in the real market. This thesis tests one of the hypotheses that, investors’ propensity to invest in stocks is reduced when ambiguity in the marketplace increases. The hypothesis is tested by using equity fund flows and households’ equity holding as measurements of the market participation, and using dispersion in analysts’ forecasts about aggregate returns as measurement of ambiguity. The results confirm this hypothesis, since the increases in ambiguity are significantly and negatively related to equity fund flows, as well as the likelihood that the average household invests in equities. Moreover, the results also find that the fund flows in non-dividend paying stocks are more sensitive to the changes in ambiguity, and investors transfer capital from the equity market into more liquid asset classes during high-ambiguity periods. In addition, this thesis also tests whether there is heterogeneity in individuals’ ambiguity aversion, and examines the psychological roots of ambiguity aversion. FNE theory explains ambiguity aversion as the result of fearing negative evaluation from others. It predicts that married households are more ambiguity averse; while households with higher income and education, or households that are more mature, are less ambiguity averse. On the other hand, self-evaluation theory explains ambiguity aversion as the result of minimizing anticipated regret. It predicts that households that are more optimistic, or have less income, are less ambiguity averse; while households that have negative market experience, or have higher income, are more ambiguity averse. The results show that married households, or households with high income / negative market experience, are more ambiguity averse; and households that are more optimistic / more mature, are less ambiguity averse. Therefore, both theories have successful predictions, suggesting that the ambiguity aversion is the combined result of the two motivations.

Thesis (MBA)--Stellenbosch University, 1991. / The contents of this study project is an annotated bibliography of research and articles on the Johannesburg Stock Market over the period 1974-1990. It is for this reason that only articles published in : 1. The South African Journal of Business Management, and 2. The Investment Analysts Journal over this 16 year period have featured in this study project.

This thesis is composed of three chapters, which can be read independently. The first chapter investigates how oil price volatility affects the investment decisions for a panel of Japanese firms. The model is estimated using a system generalized method of moments technique for panel data. The results are presented to show that there is a U-shaped relationship between oil price volatility and Japanese firm investment. The results from subsamples of these data indicate that this U-shaped relationship is more significant for oil-intensive firms and small firms. The second chapter aims to examine the underlying causes of changes in real oil price and their transmission mechanisms in the Japanese stock market. I decompose real oil price changes into three components; namely, oil supply shock, aggregate demand shock and oil-specific demand shock, and then estimate the dynamic effects of each component on stock returns using a structural vector autoregressive (SVAR) model. I find that the responses of aggregate Japanese real stock returns differ substantially with different underlying causes of oil price changes. In the long run, oil shocks account for 43% of the variation in the Japanese real stock returns. The response of Japanese real stock returns to oil price shocks can be attributed in its entirety to the cash flow variations. The third chapter tests the robustness of SVAR and investigates the impact of oil price shocks on the different U.S. stock indices. I find that the responses of real stock returns of alternate stock indices differ substantially depending on the underlying causes of the oil price increase. However, the magnitude and length of the effect depends on the firm size. The response of U.S. stock returns to oil price shocks can be attributed to the variations of expected discount rates and expected cash flows.

Cette thèse étudie les effets des chocs de la politique monétaire sur l'économie chinoise de 1997 à 2005, en se fondant sur un modèle vectoriel autorégressif (MVA) avec les données mensuelles. Nous constatons que la production et les prix de la Chine diminuent de manière significative suite à un choc de politique de contraction, ce qui suggère la présence d'un canal de taux d'intérêt. Nos résultats sont renforcés par un MVA à facteur augmentée (MVAFA), qui extrait des informations d'un grand nombre de séries économiques. Nous constatons également que les industries lourdes et les entreprises privées répondent beaucoup plus fortement aux chocs de la politique monétaire que les industries légères et les entreprises d'État. Nous explorons ensuite les variations provinciales des réponses aux chocs de la politique monétaire. En général, nous constatons que la production et les prix sont plus sensibles à ces chocs dans les provinces côtières que dans les provinces de l’intérieur. Les analyses transversales de ces variations provinciales suggèrent que les provinces avec un taux de croissance plus élevé et un niveau plus élevé des activités de construction sont plus susceptibles de réagir fortement à des chocs de la politique monétaire. Enfin, nous examinons les effets des chocs de politique monétaire sur le marché boursier chinois et ses indices sectoriels. Nous concluons que la politique monétaire a peu d'effet sur le marché boursier global, mais certains que secteurs réagissent plus fortement aux chocs de la politique monétaire que les autres. / This thesis studies the effects of monetary policy shocks on the Chinese economy from 1997 to 2005 based on a VAR framework with monthly data. We find that China’s output and prices decrease significantly following a contractionary policy shock, suggesting the presence of an interest rate channel. Our results are reinforced by a Factor Augmented VAR (FAVAR), which extracts information from a large number of economic series. We also find that heavy industries and privately-owned enterprises respond much more profoundly to monetary policy shocks than light industries and state-owned enterprises, respectively. We then explore the provincial variations of the responses to monetary policy shocks. In general, we find that output and prices are more sensitive to such shocks in coastal provinces than in inland provinces. Cross sectional analyses of these provincial variations suggest that provinces with a higher growth rate and a higher level of construction activities are more likely to respond strongly to monetary policy shocks. Finally, we investigate the effects of monetary policy shocks on China’s stock market and its sectoral indices. We conclude that monetary policy has little effect on the overall stock market, but certain sectors do respond more strongly to monetary policy shocks than others.

Mutual funds and money managers have recently come under fire for their inability to beat market level returns since the Great Recession. With the recent trend towards passive money management through ETFs and other market-based securities, many investors have come to doubt whether above market returns are realizable in today’s economic climate. This paper examines whether business news has any predictable impact on stock price. Specifically, the paper explores the impact of analyst reports, mergers & acquisition news, legal affairs, insider buying and selling and changes to executive leadership on a stock’s excess returns. The results show that optimistic analyst ratings are correlated with positive excess returns before, during, and after the ratings are released. Furthermore, pessimistic analyst ratings are correlated with negative excess returns over the same time frame. These results provide support for a short term trading strategy that mirrors analyst opinions.

This work attempts to make a breakthrough in the empirical research of market inefficiency by introducing a new approach, the value frontier method, to estimate the magnitude of stock bubbles, which has been an interesting topic that has attracted a lot of research attention in the past. The theoretical framework stems from the basic argument of Blanchard & Watson’s (1982) rational expectation of asset value that should be equal to the fundamental value of the stock, and the argument of Scheinkman & Xiong (2003) and Hong, Scheinkman & Xiong (2006) that bubbles are formed by heterogeneous beliefs which can be refined as the optimism effect and the resale option effect. The applications of the value frontier methodology are demonstrated in this work at the market level and the firm level respectively. The estimated bubbles at the market level enable us to analyse bubble changes over time among 37 countries across the world, which helps further examine the relationship between economic factors (e.g. inflation) and bubbles. Firm-level bubbles are estimated in two developed markets, the US and the UK, as well as one emerging market, China. We found that the market-average bubble is less volatile than industry-level bubbles. This finding provides a compelling explanation to the failure of many existing studies in testing the existence of bubbles at the whole market level. In addition, the significant decreasing trend of Chinese bubbles and their co-moving tendency with the UK and the US markets offer us evidence in support of our argument that even in an immature market, investors can improve their investment perceptions towards rationality by learning not only from previous experience but also from other opened markets. Furthermore, following the arguments of “sustainable bubbles” from Binswanger (1999) and Scheinkman & Xiong (2003), we reinforce their claims at the end that a market with bubbles can also be labelled efficient; in particular, it has three forms of efficiency. First, a market without bubbles is completely efficient from the perspective of investors’ responsiveness to given information; secondly, a market with “sustainable bubbles” (bubbles that co-move with the economy), which results from rational responses to economic conditions, is in the strong form of information-responsive efficiency; thirdly, a market with “non-sustainable bubbles”, i.e. the bubble changes are not linked closely with economic foundations, is in the weak form of information-responsive efficiency.

This diploma thesis presents the simulation of the high frequency trading (HFT) strategies on electronic markets such as NASDAQ. The simulation is based on merging real historical order flow data and order flow of artificial trading agents representing new HFT strategies. This concept has not yet been widely discussed elsewhere. The problems discussed include: processing order flow market data, very precise time referencing, parametric reaction latency, various order types distinction etc. The design and the implementation of simulation process are presented, with respect to high computational requirements, modularizable strategies implementation and parallelization of whole simulation. In the final part of the work, we discuss the implementation and the results of a simulation of a simple HFT strategy.

We investigate the interdependence among three CEE stock markets and be- tween CEEs vis-à-vis euro area, using daily data from 2001-2011. Initially, we estimate bivariate ADCC models. Then, OLS regressions are employed to understand the evolution of correlations in time and during the recent financial crises. Finally, we examine the relationship between correlations and volatilities using the simple OLS model and the rolling stepwise regression methodology. Our results indicate that 3 out of 4 series exhibit asymmetries in conditional variances, while only 1 pair out of 6 exhibit asymmetries in correlations. We found that correlations are increased over time and during the recent financial crises for both pairs (CEEs-CEEs and CEEs-eurozone). However, the highest increase is observed for CEEs-eurozone. Mainly, we found a positive rela- tionship between correlations and volatilities, even though this relationship is niether constant in time nor strictly positive or negative during all the sample period, but rather time-varying with periods of being higher or lower than zero.

This thesis analyzes the interdependence of stock markets in the Czech Republic, Hungary, Germany and the U.S. between 1994 and 2010. Its aim is to prove or disprove the hypothesis that the correlation of stock markets is growing. Furthermore, it aims to determine whether the benefits of international diversification are important in the 21st century. The first part defines the basic terms related to this issue. The next section describes the historical development of stock markets and major stock indexes. The following is the longest chapter, which deals with the dependence of equity markets. The degree of dependence between markets is measured by correlation coefficients. In order to calculate the correlation coefficients 3 methods were used: 12-month, 24-month moving window and the exponential weighting. It was confirmed that correlation increases in periods of high market volatility and if the equity markets go up. Correlation decreases in periods of low market volatility and if the stock markets go down. There is a long-term increasing trend in the correlation development. The last chapter describes the recent study of P. Christoffersen, V. Errunza, K. Jacobs, and X. Jin, which also deals with this issue. Although the authors used more complex mathematical and statistical methods, their conclusions are similar. At the end of this chapter there is a study dealing with the benefits of international diversification in 2005 and 2009. Its conclusion is that the benefits of international diversification are disappearing.