Master of Commerce (Finance) in the Finance Division, School of Economic and Business Sciences at the University of the Witwatersrand, Johannesburg, 6 September 2017 / The aim of this study is to investigate the relationship between market liquidity changes on the Johannesburg Stock Exchange (JSE), and the market’s degree of efficiency. Market efficiency is characterised in terms of two philosophies: Fama’s (1970) Efficient Markets Hypothesis, and Shiller’s (1981; 2003) informational efficiency designation. Efficiency was tested using measures of return predictability, a random walk benchmark, and price volatility; liquidity was measured using market turnover. The tests were conducted on JSE Top 40 shares across three regimes, spanning January 2012 – June 2016. The regimes are demarcated by two structural breaks in the JSE’s microstructure: the 2012 trading platform upgrade, and the 2014 colocation centre launch. The results show that past order imbalances are a significant predictor of daily returns, although the significance of this predictability has dissipated over time. Return predictability is not influenced by liquidity. In fact, there is evidence that illiquidity weakens return predictability. Prices were closer to random walk benchmarks during the third regime. In consideration of informational efficiency, during the latter two regimes price volatility is greater during trading versus non-trading hours. This is coupled with an emergence of nonlinear return dependence, which is indicative of greater mispricing. Thus, over the three regimes, market efficiency improved in the sense of the EMH, but informational efficiency deteriorated. The study contributes to the field by: introducing an inverse measure of market efficiency; providing insight into the measure’s time variation and relation to liquidity; and demonstrating that market efficiency tests should incorporate its dual meanings, enabling richer understanding of their intersection. / GR2018

by Ho King-hang. / Thesis (M.B.A.)--Chinese University of Hong Kong, 1994. / Includes bibliographical references (leaves 51-53). / ABSTRACT --- p.ii / TABLE OF CONTENT --- p.iii / LIST OF TABLES --- p.v / LIST OF FIGURES --- p.vi / PREFACE --- p.vii / CHAPTER / Chapter I --- INTRODUCTION --- p.1 / Chapter II --- LITERATURE REVIEW --- p.4 / Macroeconomic Variables as State Variables --- p.4 / Stock Returns and Real Activity --- p.5 / Efficient Capital Markets and Real Activity --- p.5 / Innovations in Real Variables --- p.7 / Impact of Real Activity across Different States of Economy --- p.9 / Stock Returns and Money --- p.10 / The Quantity Theory of Money --- p.10 / Wealth Effect and Substitution Effect --- p.12 / "Money Supply Process: Linkage between Stock Returns, Real Activity, and Money" --- p.14 / Stock Returns and Discount Rates --- p.15 / Chapter III --- DATA AND METHODOLOGY --- p.17 / The Data --- p.17 / Statistical Properties of the Data --- p.18 / Research Methodology --- p.20 / Vector Autoregression (VAR) Analysis --- p.20 / Multiple Regression Analysis --- p.24 / Chapter IV --- EMPIRICAL RESULTS --- p.27 / Crosscorrelations --- p.27 / Stock Returns and Real Activity --- p.27 / "Stock Returns, Real Activity, and Money" --- p.28 / "Real Activity, Money, and Discount Rates" --- p.30 / Unit Root Tests --- p.31 / Specification of the VAR Model --- p.35 / Stock Returns and Real Activity --- p.35 / "Stock Returns, Real Activity, and Money" --- p.35 / "Real Activity, Money, and Discount Rates" --- p.39 / Multiple Regression Analysis --- p.43 / Chapter V --- CONCLUDING REMARKS --- p.48 / BIBLIOGRAPHY --- p.51

Lau Yuk Hoi. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2000. / Includes bibliographical references (leaves 109-110). / Abstracts in English and Chinese. / Abstract --- p.i / Acknowledgement --- p.iii / Table of Contents --- p.iv / List of Notations --- p.vi / List of Propositions --- p.vii / List of Figures --- p.viii / List of Appendices --- p.x / Chapter Chapter 1. --- Introduction - The Reaction Approach --- p.1 / Chapter Chapter 2. --- Assumption for OLG Model --- p.7 / Chapter 2.1 --- Assumption A --- p.7 / Chapter Chapter 3. --- Equilibrium Conditions Without Fundamental Risk --- p.9 / Chapter 3.1 --- Price as a Weighted Average --- p.9 / Chapter 3.2 --- Determination of A and B --- p.11 / Chapter 3.2.1 --- Assumption B --- p.12 / Chapter 3.2.2 --- RE Line and NE Line --- p.13 / Chapter 3.2.3 --- Equilibrium values of A and B --- p.14 / Chapter 3.3 --- Rational Expectation on Price Variance (RV Line) --- p.16 / Chapter 3.4 --- Noisy Expectation on Price Variance (NV Line) --- p.18 / Chapter 3.4.1 --- DeLong's Model --- p.19 / Chapter 3.4.2 --- Bhushan's Model --- p.21 / Chapter 3.5 --- Change in Relative Perceived Variance --- p.23 / Chapter 3.5.1 --- General Problem of OLG Model in Noisy Trading --- p.23 / Chapter 3.5.2 --- Changes in Noise Traders' Beliefs --- p.24 / Chapter 3.5.3 --- "Relative Perceived Price Variance of n, θ" --- p.25 / Chapter 3.5.3.1 --- "Effect of Increasing θ on Price Variance, dC/dθ" --- p.26 / Chapter 3.5.3.2 --- "Effect of Increasing θ on Expected Price Level, dp/dθ" --- p.27 / Chapter Chapter 4. --- Equilibrium Conditions With Fundamental Risk --- p.31 / Chapter 4.1 --- Price as a Weighted Average --- p.32 / Chapter 4.2 --- Determination of A and B --- p.34 / Chapter 4.2.1 --- Assumption C --- p.34 / Chapter 4.2.2 --- RE Line and NE Line --- p.35 / Chapter 4.2.3 --- Equilibrium values of A and B --- p.36 / Chapter 4.3 --- Rational Expectation on return Variance (RV Line) --- p.37 / Chapter 4.4 --- Noisy Expectation on Return Variance (NV Line) --- p.40 / Chapter 4.4.1 --- De Long's Model --- p.41 / Chapter 4.4.2 --- Bhushan's Model --- p.42 / Chapter 4.5 --- Change in Relative Perceived Return Variance --- p.45 / Chapter 4.5.1 --- Specification of Noisy Expectation --- p.46 / Chapter 4.5.2 --- Relative Perceived Return Variance of n，Θ --- p.46 / Chapter 4.5.2.1 --- "Effect of Increasing Θ on Price Variance, dC/dΘ" --- p.47 / Chapter 4.5.2.2 --- "Effect of Increasing Θ on Expected Price Level, dp/dΘ" --- p.48 / Chapter 4.6 --- Relative Perceived Price Risk versus Relative Perceived Dividend Risk --- p.52 / Chapter Chapter 5. --- Conclusion and Discussion --- p.55 / Figures --- p.58 / Appendices --- p.86 / References --- p.109

This dissertation examines three topics in law and finance. In Chapter 1, I show that consumers are more likely to keep a repayment promise they make themselves. When a scheduling conflict prevents a borrower from attending a mortgage closing, a Power of Attorney (POA) empowers a third party to sign the documents promising that the borrower will repay the loan. POAs arise after loan terms are locked in, making POA and non-POA loans virtually indistinguishable. Comparing within-borrower and within-property, I link POAs to greater delinquency and foreclosure. Loan performance data show that POAs are uncorrelated with cash flow shocks but reflect reduced promise-keeping conditional on financial distress. Consistent with prior work on salience and personal responsibility, promise-keeping is higher for loans serviced by the originating lender. Financial intermediation may play an important role in consumer lending. In Chapter 2, using a unique episode in which the SEC distributed securities disclosures to some investors before the public, we study the impounding of private information into stock prices. Because the delay between the private and public release of the information was random, our setting offers a rare natural experiment for studying how markets process private information. As theory predicts, speculators seem to smooth out the price impact of their trading, and more information is impounded into prices during the expected rather than the actual delay before the information becomes public. Finally, we document investor overreaction when already-stale filings are publicly released. Finally, in Chapter 3, we use quantitative data to show a systematic relationship between the appointment of a hedge fund nominated director to a certain corporation and an increase in informed trading in that corporation’s stock (with the relationship being most pronounced when the fund’s slate of directors includes a hedge fund employee). From a governance perspective, activist hedge funds represent a new and potent force in corporate governance. This is the first attempt to investigate whether the activist hedge fund also imposes new agency costs through widened bid/ask spreads and informed trading. We assembled a data set of 475 settlement agreements, between target companies and activist funds relating to the appointment of fund nominated directors, from 2000 and 2015, in order to focus on what happens once such a fund-nominated director goes on the board.

The last decade has witnessed a dramatic growth in passive investing via exchange-traded funds (ETFs). To the extent that the demand for stocks via ETF flows is not related to firm-specific fundamental values, large ETF flows may push the price of the underlying stocks away from their fundamentals-based value. In this study I provide evidence consistent with this conjecture. In particular, I first document a positive association between ETF flows and the price-to-fundamentals relation of underlying stocks. Then, by using BlackRock’s expansion into the ETF business as an exogenous shock, I provide evidence that the association is likely to be causal rather than reflect some form of endogeneity (i.e., ETFs selecting certain stocks). Also, I find that high-flow firms subsequently underperform low-flow firms in operating and stock performance, consistent with the misvaluation being caused by non-fundamental demand shocks. Cross-sectional tests suggest that the ETF-related misvaluation is stronger for stocks with: a less competitive equity market (i.e., with prices more sensitive to demand shocks), lower ownership by active investors, and more costly arbitrage constraints. Finally, I find that high-flow firms exhibit behavior typically associated with perceived overvaluation (e.g., more secondary equity offerings).

Cheung Ho Sang. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2004. / Includes bibliographical references (leaves 185-187). / Abstracts in English and Chinese. / Curriculum Vitae --- p.ii / Acknowledgments --- p.iii / Abstract --- p.v / Table of Contents --- p.viii / Chapter Chapter 1. --- Introduction --- p.1 / Chapter Chapter 2. --- The behavior of income velocity of money --- p.3 / Chapter 2.1 --- Introduction --- p.3 / Chapter 2.2 --- Literature Review --- p.4 / Chapter 2.3 --- Data Description --- p.9 / Chapter 2.4 --- Methodology --- p.9 / Chapter 2.5 --- Empirical Result --- p.16 / Chapter 2.6 --- Conclusion --- p.26 / Chapter Chapter 3. --- The behavior of equity premium --- p.106 / Chapter 3.1 --- Introduction --- p.106 / Chapter 3.1 --- Literature Review --- p.106 / Chapter 3.2 --- Data Description --- p.112 / Chapter 3.3 --- Methodology --- p.112 / Chapter 3.4 --- Empirical Result --- p.120 / Chapter 3.5 --- Conclusion --- p.130 / Data Appendices --- p.182 / Bibliography --- p.185

Poon, Ka Ho. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2011. / Includes bibliographical references (leaves 62-63). / Abstracts in English and Chinese. / Abstract of the thesis entitled --- p.ii / 摘要 --- p.iii / Acknowledgements --- p.iv / Chapter Section 1. --- Introduction --- p.1 / Chapter Section 2. --- Review of Useful Concepts --- p.4 / Chapter 2.1 --- Terms and Methodologies - Pattern Recognition --- p.4 / Chapter 2.1.1 --- Rolling Windows --- p.4 / Chapter 2.1.2 --- Smoothing Function - Kernel Regression --- p.5 / Chapter 2.1.3 --- Filtering Function ´ؤ Search for Extrema --- p.6 / Chapter 2.1.4 --- Filtering Function - The Pattern Detection Algorithm --- p.7 / Chapter 2.1.5 --- Risk-adjustment Model --- p.10 / Chapter Section 3. --- Data and Methodology --- p.12 / Chapter 3.1 --- Data --- p.12 / Chapter 3.2 --- Methodology --- p.12 / Chapter Section 4. --- Results --- p.17 / Chapter Section 5. --- Further Extension --- p.21 / Chapter Section 6. --- Discussions and Conclusion --- p.22 / APPENDIX 1 --- p.23 / References --- p.62

Unique and proprietary data of the illiquid, one-year non cancelable for three month Bermudan swaps (1Y NC 3M swaps) and one-year non callable for three months Bermudan CDs (1Y NC 3M CDs), provides evidence of market efficiency. The 1Y NC 3M swap and 1Y NC 3M CD markets efficiently reflected unexpected economic information. The 1Y NC 3M swaption premiums also followed the European one-year into three-month (1Y into 3M) swaption volatilities. Swaption premiums were computed by pricing non-optional instruments using the quoted 1Y NC 3M swap rates and the par value swap rates and taking the difference between them. Swaption premiums ranged from a slight negative premium to a 0.21 percent premium. The average swaption premium during the study period was 0.02 percent to 0.04 percent. The initial swaption premiums were over 0.20 percent while the final swaption premiums were 0.02 percent to 0.04 percent. Premiums peaked and waned throughout the study period depending on market uncertainty as reflected in major national economic announcements, Federal Reserve testimonies and foreign currency devaluations. Negative swaption premiums were not necessarily irrational or quoting errors. Frequently, traders obligated to provide market quotes to customers do not have an interest and relay that lack of interest to the customer through a nonaggressive quote. The short-dated 1Y NC 3M swaption premiums closely followed 3M into 1Y swaption volatilities, indicating the 3M into 1Y swaption market closely follows the 1Y NC 3M swaption market and that similar market factors affect both markets or both markets efficiently share information. Movements in 1Y NC 3M swaption premiums and in 3M into 1Y swaption volatilities reflected a rational response by market participants to unexpected economic information. As market uncertainty decreased in the market place, risk measured both by swaption premiums and swaption volatilities decreased; vice verse when economic factors showed increases in economic uncertainty.

This dissertation examines four specific aspects of capital structure and dividend policy. The first issue concerns the determinants of capital structure dynamics. The primary objective is to examine whether stock returns are important factors in firm???s capital structure choice, and if so, whether this effect is persistent. In so doing, we use a data set which (1) avoids the complexity of tax rates faced by previous studies, (2) we introduce new variables that are unique to Oman, and (3) we distinguish empirically between bank debt and non-bank debt. We find stock returns are a first order determinant of capital structure. Firms do show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find new evidence that firms do take countermeasures to offset changes in their leverage that stem from equity value variations, but do so at a low speed. The next topic studied concerns the ex-dividend day behaviour. We investigate this issue using a unique data set where there are no taxes on dividends and capital gains and stock prices are decimalized. In this economy, any price decline that is smaller than the dividends can not be attributed to taxes and price discreteness. We find that the stock price drops by less than the amount of dividends and there is a significant positive ex-day return. We are able to account for our results using market microstructure models. The third issue investigated is the stock price reaction to dividend announcements. Tax-based signaling models argue that dividends would not have information and be informative if it is not for the higher taxes on dividends relative to capital gains that they apply to shareholders. The absence of personal taxes in Oman presents a valuable opportunity to test this prediction. Our results show that the announcements of dividend increases (decreases) are associated with a stock price increase (decrease) which contradicts the tax-based signaling models. The final chapter analyzes the determinants and stability of dividend policy of financial and non-financial firms. Investigating this issue is important for at least two reasons. First, Omani firms distribute almost 100% of their profits in dividends which led the Capital Market Authority (CMA) to issue a circular (number 12/2003) arguing that firms should retain some of their earnings for ???rainy days???. This allows us understand the characteristics of firms that pay dividends. Second, firms are highly levered mainly through bank loans which render the role of dividends in reducing the agency costs less important. Unlike most previous studies, we include both dividend paying and non-dividend paying firms to avoid a selection bias. We find that there are some common factors that determine dividend policy of both financial and non-financial firms and there are some factors that affect only non-financial firms. We also find that the factors that influence the probability to pay dividends are the same factors that drive the amount of dividends paid for both financial and non-financial firms. We document that non-financial firms adopt a policy of smoothing dividends while financial firms do not have a stable dividend policy.

This dissertation examines four specific aspects of capital structure and dividend policy. The first issue concerns the determinants of capital structure dynamics. The primary objective is to examine whether stock returns are important factors in firm???s capital structure choice, and if so, whether this effect is persistent. In so doing, we use a data set which (1) avoids the complexity of tax rates faced by previous studies, (2) we introduce new variables that are unique to Oman, and (3) we distinguish empirically between bank debt and non-bank debt. We find stock returns are a first order determinant of capital structure. Firms do show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find new evidence that firms do take countermeasures to offset changes in their leverage that stem from equity value variations, but do so at a low speed. The next topic studied concerns the ex-dividend day behaviour. We investigate this issue using a unique data set where there are no taxes on dividends and capital gains and stock prices are decimalized. In this economy, any price decline that is smaller than the dividends can not be attributed to taxes and price discreteness. We find that the stock price drops by less than the amount of dividends and there is a significant positive ex-day return. We are able to account for our results using market microstructure models. The third issue investigated is the stock price reaction to dividend announcements. Tax-based signaling models argue that dividends would not have information and be informative if it is not for the higher taxes on dividends relative to capital gains that they apply to shareholders. The absence of personal taxes in Oman presents a valuable opportunity to test this prediction. Our results show that the announcements of dividend increases (decreases) are associated with a stock price increase (decrease) which contradicts the tax-based signaling models. The final chapter analyzes the determinants and stability of dividend policy of financial and non-financial firms. Investigating this issue is important for at least two reasons. First, Omani firms distribute almost 100% of their profits in dividends which led the Capital Market Authority (CMA) to issue a circular (number 12/2003) arguing that firms should retain some of their earnings for ???rainy days???. This allows us understand the characteristics of firms that pay dividends. Second, firms are highly levered mainly through bank loans which render the role of dividends in reducing the agency costs less important. Unlike most previous studies, we include both dividend paying and non-dividend paying firms to avoid a selection bias. We find that there are some common factors that determine dividend policy of both financial and non-financial firms and there are some factors that affect only non-financial firms. We also find that the factors that influence the probability to pay dividends are the same factors that drive the amount of dividends paid for both financial and non-financial firms. We document that non-financial firms adopt a policy of smoothing dividends while financial firms do not have a stable dividend policy.