This study provides empirical evidence of a positive relationship between operating leverage and systematic risk of the U.S. airline industry. This paper contributes to the literature related to operating leverage by developing a method to estimate the degree of operating leverage using publicly available information on aircraft capacity and operating expenses of the publicly listed airlines. The results suggest that, holding other financial characteristics constant, a rise in operating leverage of an airline is associated with an increase in systematic risk as perceived by the investors. In order to achieve desirable levels of operating leverage, the airlines are advised to contemplate decisions on capacity adjustments and operating expenses management in reactions to changes in economic conditions.

This thesis is a collection of three essays in empirical studies on derivatives. In the first chapter, I investigate whether credit default swap spreads are affected by how the total risk is decomposed into the systematic risk and the idiosyncratic risk for a given level of the total risk. The risk composition is measured by the systematic risk proportion, defined as the proportion of the systematic variance in the total variance. I find that a firm’s systematic risk proportion has a negative and significant effect on its CDS spreads. Moreover, this empirical finding is robust to various alternative specifications and estimations. Therefore, the composition of the total risk is an important determinant of CDS spreads. In the second chapter, I estimate the illiquidity premium in the CDS spreads based on Jarrow’s illiquidity-modified Merton model using the transformed-data maximum likelihood estimation method. I find that the average model implied CDS illiquidity premium is about 15 basis points, accounting for 12% of the average level of the CDS spread. I further investigate how this parameter is affected by CDS liquidity measures such as the percentage bid-ask spread and the number of daily CDS spreads available in one month. I find that both liquidity measures are significant determinants of the model implied CDS illiquidity premium. In terms of relative importance, the bid-ask spread is more important than the number of daily CDS spreads statistically and economically. In the third chapter, I investigate the impact of the systematic risk on the volatility spread, i.e, the difference between the risk-neutral volatility and the physical volatility. I find that the systematic risk proportion of an underlying asset has a positive and significant impact on its volatility spread. The risk-neutral volatility in this study is measured with the increasingly popular approach known as the model-free risk-neutral volatility. The surprising positive systematic risk effect was first documented in Duan and Wei (2009) using the Black-Scholes implied volatility. I show that this effect is actually more prominent using the clearly better model-free risk-neutral volatility measure.

This thesis is a collection of three essays in empirical studies on derivatives. In the first chapter, I investigate whether credit default swap spreads are affected by how the total risk is decomposed into the systematic risk and the idiosyncratic risk for a given level of the total risk. The risk composition is measured by the systematic risk proportion, defined as the proportion of the systematic variance in the total variance. I find that a firm’s systematic risk proportion has a negative and significant effect on its CDS spreads. Moreover, this empirical finding is robust to various alternative specifications and estimations. Therefore, the composition of the total risk is an important determinant of CDS spreads. In the second chapter, I estimate the illiquidity premium in the CDS spreads based on Jarrow’s illiquidity-modified Merton model using the transformed-data maximum likelihood estimation method. I find that the average model implied CDS illiquidity premium is about 15 basis points, accounting for 12% of the average level of the CDS spread. I further investigate how this parameter is affected by CDS liquidity measures such as the percentage bid-ask spread and the number of daily CDS spreads available in one month. I find that both liquidity measures are significant determinants of the model implied CDS illiquidity premium. In terms of relative importance, the bid-ask spread is more important than the number of daily CDS spreads statistically and economically. In the third chapter, I investigate the impact of the systematic risk on the volatility spread, i.e, the difference between the risk-neutral volatility and the physical volatility. I find that the systematic risk proportion of an underlying asset has a positive and significant impact on its volatility spread. The risk-neutral volatility in this study is measured with the increasingly popular approach known as the model-free risk-neutral volatility. The surprising positive systematic risk effect was first documented in Duan and Wei (2009) using the Black-Scholes implied volatility. I show that this effect is actually more prominent using the clearly better model-free risk-neutral volatility measure.

It was an age of pursuing customer satisfaction since 1980, and moreover chasing customers` value in 21century. But how can customer satisfaction improve firm`s value? This article combines marketing and finance together through analyzing interaction between customer, systematic risk and cost of capital. The empirical evidence presented in this article implies that customer satisfaction can surely lower systematic risk and there is nonlinear relationship between CSI and systematic risk. Comparing the results for the service and nonservice industry sectors, we observe that, customer satisfaction has a greater effect on systematic risk of service sectors. In addition to satisfaction, the analysis also include advertising expense as another explanatory variable and reveals that when putting satisfaction and advertising expense into model together, systematic risk will be the lowest. When using lisrel model, it shows that customer satisfaction can lower cost of capital through cost of debt and equity together then maximize shareholder`s value.

This thesis studies the relationships between systematic risk, financial indicators and the financial crisis from the perspective of international airlines. The thesis uses the CAPM beta of airline stock as the proxy for airline systematic risk and explores its relationships with six financial indicators and the financial crisis which broke out in the second half of 2008. The findings of 28 international airlines over the period of 1997 to 2002 and 2007 to 2012 indicate that (1) airline systematic risk is negatively related to profitability and positively related to size, and these relationships hold over time periods, (2) the negative relationship between airline systematic risk and operational efficiency exists while it changes the sign over recent time periods, (3) airline systematic risk positively responds to financial leverage while its significance is influenced by samples used, (4) the positive relationship between airline systematic risk and liquidity is only significant over the first period, (5) no findings suggest airline systematic risk is related to growth. Moreover, the relationship between airline systematic risk and the financial crisis is not straight-forward because of lacking clear-cut judgment of the financial crisis year for airlines. Moreover, this thesis also tries panel data methods and finds both the same and different results compared with the model without panel data methods.

This paper investigates the long-term diversification opportunities that exists for global investors among the BRICS nations. It analyzes how risk-averse investors can allocate funds between the countries in order to maximize the expected return in relation to the overall risk. It utilizes an empirical cointegration approach in tandem with modern portfolio theory during the time period 1999-2019. The empirical results of cointegration that is found supports the suggestion that the BRICS markets have a stable risk-premium between each other and that they all share similar systematic risk factors. The results further support the construction of a portfolio solely compromising of stocks from four out of the five BRICS markets, since then they do not share any long-run co-movements with each other. Moreover, the markets of Brazil, India, China and South Africa are strong candidates for reducing portfolio risk without sacrificing the adjusted portfolio return. The results also indicate several causal relationships between the nations, with China as the main driving force. This suggest that shocks in the Chinese market will spread and effect the rest of the BRICS markets, either directly or through one of the other markets. This is important knowledge for global policy-makers since China could be affected by markets outside the co-operation and subsequently transfer it to the rest of the BRICS markets. Since the countries accounts approximately 25 % of the global GDP, policy-makers must act with great care before implementing economic policies against China, since the consequences can have a much larger and wider effect than they anticipate.

Theoretical studies posit that marketing strategies increases customers’ satisfaction and loyalty and decreases the systematic risk of the company’s stock. Many variables such as size, book-to-market and others, which have no special standing in asset-pricing theory, show reli-able power to explain the cross-section of expected stock’s returns. By adding customers’ sat-isfaction to one of them, this research involves discovering the relationship between custom-ers’ satisfaction and stock’s returns systematic risk, if any, by conducting a panel data analy-sis of seven banks in Sweden, Denmark and Norway through the period of year 2002 – 2011. The results verify a significant negative relationship between customers’ satisfaction and stock’s returns systematic risk.

A survey is conducted through an event study on the Stockholm Stock Exchange based on 119 historical stocks splits with a split factor of at least two, for the years between 1997 and 2012. This study has tested if there is an increase in return variance and systematic risk followed by a stock split. This is a quantitative study with the deductive approach and the positivistic epistemological standpoint. By matching 8925 squared daily returns for 75 days of pre- and post- split data, the sample of stock splits showed an increased return variance 0.515 of the matched squared daily returns, this number is significant at the 1% level in our binomial z-statistics. If the returns are compared on a 15 week interval instead of 75 days, the change in variance disappears; this confirms Dubofsky (1991) findings. When 52 weeks of pre- and post- split data is used, there is an increased variance in a proportion if 0.55 of the 6186 matched observations, this proportion is far greater than our daily sample and tells us that there is a long term effect on the return variance. The systematic risk measured as beta derived from the CAPM, did not show any increase in any of the three different time periods (75days, 16weeks and 52 weeks); the results confirms Wiggins (1992) findings; beta changes are just illusory.  The results suggest that there is an average increase in returns variance in the short and long term after a stock split, that confirms some existing studies by Ohlson and Penman (1985) and Dubofsky (1991). The increase in returns variance can be viewed as the management’s success of signaling the market, enhancing liquidity and reducing information asymmetry without any additional cost of capital. Our findings also contradict the theory of economic irrelevance of shares outstanding. This study is expanding Ohlson and Penman (1985) and Dubofsky (1991) studies, on a European stock market.

This study tests whether contagion effects existed during the ¡§subprime mortgage crisis¡¨ among the equity markets of the US, the EU, Asia and emerging markets. The time-varying correlation coefficients are estimated by the dynamic conditional correlation (DCC) of Engle (2002), using a multivariate GJR-GARCH with AR (1) model. The empirical findings show that the conditional correlation coefficients of stock returns between the U.S. and others countries were positive and that the contagion effect exists among stock markets. Financial markets displayed contagion effects, in that the global equity markets were confronted with elevated systematic risk at the same time. Therefore, this study further examines the role of systematic risk in the equity market of each country. I used the rolling formulae, the MV-DGP, and DCC-GARCH (1, 1) models to estimate the CAPM beta and downside betas. This study found higher systematic risk (downside systematic risk) in the stock markets of the United States, Germany, France and Brazil, which had beta values nearly above one, while the Chinese stock market had the lowest systemic risk and served as a hedge for investors and fund managers. Finally, the results demonstrate that DCC-HW beta can capture some downside linkages between the market portfolios and expected stock returns, while these linkages cannot likely be captured by the CAPM beta.

In this study, we examine how advertising and customer satisfaction affect a firm¡¦s systematic risk (£]-risk) under both the highly volatile and tranquil market. This study extends prior studies that primarily considered the effects of marketing initiatives on performance metrics, focusing on systematic risk under the highly volatile and tranquil market. We examine how advertising and customer satisfaction affect a firm¡¦s £]-risk under the two distinct markets. We develop a two-stage model procedure. First, each individual firm¡¦s £]-risk in the both markets is estimated by Fama-French-Carhart-Ang 5-factor model which includes implied volatility index (VIX) as an aggregate volatility factor, along with the estimators of maximum likelihood (MLE) under the Markov switching model. Second, to examine the impact of advertising and customer satisfaction on £]-risk, we estimate empirical models for the dataset of the two distinct markets by the generalized method of moments (GMM) and the quantile regression. The results significantly support our hypotheses that higher advertising and higher customer satisfaction lower a firm¡¦s £]-risk under the overall, highly volatile and tranquil markets from the standpoint of long run. Furthermore, we find an additional discovering that from the view of short term, adverting is negatively significant associated with £]-risk under the highly volatile market, while customer satisfaction is not. Customer satisfaction, however, is negatively significant associated with £]-risk under the tranquil market, while advertising is not.