The water industry in Melbourne is facing a range of challenges associated with a notoriously varying climate and population growth. As a response to this, new water entitlement arrangements were introduced in 2014, seeking to promote a more integrated water cycle management. Melbourne’s three water retail corporations and four regional urban water corporations were assigned so called Delivery Bulk Entitlements, giving each of them the right to an individually quantified volume of water and the responsibility to manage that water. As a part of this, it was also decided that the actors are allowed to trade water. According to economic theory, having a water market like this is likely to promote a more efficient water system – at least from an economic point of view. However, the overall aim of the water system management is not only to promote efficiency but also to provide affordable, secure water supplies and enable for a water system supporting liveability and sustainability while protecting the environment and public health. Recognising this and also the limited experiences from water trading in urban settings, the aim of the present study was to explore and review the risks (i.e. opportunities and threats) associated with the new water trading scheme in Melbourne. By performing interviews with industry representatives in combination with a literature review, features of water trading that could potentially affect the possibility to attain the objectives of the Melbourne water system management were identified. While confirming that the possibility to trade indeed offers an opportunity to improve allocative as well as productive and dynamic efficiency, it was also recognised that this brings about opportunities as well as threats in relation to liveability, environmental health, security and, potentially, affordability. For example, there could be ideological and/or religious opposition towards treating water as a commodity and considering the essentiality of the water services provided by the bulk entitlement holders, anything affecting their operations could be seen to affect the liveability and sustainability of Melbourne. However, there are currently little to no room for trading to directly affect the costumers’ costs for water since the prices are regulated and predetermined. By increasing efficiency, trading could potentially defer the next major water augmentation, which nevertheless would be positive in this regard. Furthermore, it offers a way to redistribute the available water after a disturbance, which is positive in relation to the water security. Currently, the lack of security frameworks guiding any trading activities is however problematic not only in relation to this but also since it basically keeps any trades from happening and thereby limits the scope for a market altogether. As regards the environment, trading brings with it an opportunity to solve a potential overallocation problem as well as a way for the environmental water holder to acquire additional water for the environment and to readjust its water holdings and get around delivery constraints. However, trading among other actors also potentially brings with it unwanted effects due to a change in quantity and/or quality of the water flows. Additionally, it may encourage entitlement holders to sell of water that would otherwise have been left unused. It should be emphasised that the present study did not seek to provide a complete risk assessment but to offer an initial mapping and understanding of opportunities and threats. From this, it also made some brief recommendations about how some of the identified barriers such as the low number of market participants and the current need for trades to get ministerial approval potentially could be overcome. All in all, although the scope for having a market in Melbourne could be questioned due to a number of factors (currently) keeping the low number of entitlement holders from trading, this study suggests that water trading could be both positive and negative in relation to the overall objectives of the water system government. Thus, the key is to develop a water market seeking to promote the identified opportunities while mitigating the threats, indeed giving the water corporations in Melbourne the possibility to use the new management tool for managing their respective demand and supply balances without compromising the level of service towards their customers. / Aktörerna som ansvarar för Melbournes vattenförsörjning står inför en rad utmaningar kopplade till ett mycket omväxlande klimat och en kraftig befolkningstillväxt. I ett försök att främja ett holistiskt och mer integrerat förhållningssätt där alla möjligheter tas i beaktande infördes under 2014 ett nytt sätt att organisera rättigheterna till vatten. De sju statligt ägda företag i Melbourne som distribuerar vatten till privatkunder och företag tilldelades så kallade ”Bulk Delivery Entitlements” som ger var och en av dem rätt till en individuellt kvantifierad mängd vatten och även ansvar för dess förvaltning. Som ett led i detta möjliggjordes även för aktörerna att handla med vattnet, något som enligt ekonomisk teori torde främja effektivitet – i alla fall utifrån ett ekonomiskt perspektiv. Det övergripande målet för vattenförsörjningen gäller dock inte bara effektivitetsnivån utan tar även hänsyn till pris och säkerhet och söker främja beboelighet (”liveability”) och hållbarhet samtidigt som miljön och folkhälsan skyddas. Utifrån detta och med tanke på de begränsade erfarenheterna av vattenhandel i urban miljö var syftet med denna studie att undersöka och granska de risker (i form av möjligheter och hot) som kan associeras med att ha en vattenmarknad i Melbourne. Genom att genomföra intervjuer med företrädare för industrin och kombinera detta med en litteraturstudie identifierades aspekter kopplade till vattenhandel som kan komma att påverka potentialen att nå målen för hur Melbournes vattensystem ska förvaltas. Studien bekräftar att en vattenmarknad troligen verkligen erbjuder möjlighet till ökad allokativ, produktiv och dynamisk effektivitet, men identifierade också en rad möjligheter och hot i förhållande till (social) hållbarhet, miljö, säkerhet och kostnadsbild. Till exempel kan det finnas ideologiskt och/eller religiöst grundat motstånd mot att se vatten som en handelsvara. Dessutom, med tanke på hur fundamentala de tjänster som tillhandahålls av de inblandade företagen är, kan det argumenteras för att vad som än påverkar dessa företags verksamhet är relevant i förhållande till social hållbarhet. Det finns för närvarande dock inget direkt utrymme för vattenhandeln att påverka kundernas kostnader för vatten eftersom priserna är på förhand reglerade. Genom att öka effektiviteten kan en vattenmarknad dock vara delaktig i att skjuta upp nästa stora utbyggnad av vattenförsörjningen, vilket skulle vara positivt ur detta avseende. Därtill erbjuder en vattenmarknad ett sätt att omfördela det tillgängliga vattnet efter en störning, vilket är positivt med tanke på försörjningssäkerheten. För närvarande är dock bristen på säkerhetsföreskrifter i förhållande till handelsaktiviteter problematiskt inte bara i förhållande till säkerhetsnivån utan även med tanke på att det avhåller vattenföretagen från att genomföra någon handel alls och därmed begränsar möjligheten att omsätta både möjligheter och hot. När det gäller miljöhänsyn erbjuder vattenhandel en möjlighet att lösa en eventuell situation där för mycket vatten avleds från naturen till försörjningsnätet. Dessutom kan den aktör som ansvarar för det vatten som avsatts för miljöändamål förvärva ytterligare vatten, justera sitt vatteninnehav och komma runt fysiska leveransbegräsningar. Handel mellan andra aktörer medför dock hot om en förändring i kvantitet och/eller kvalitet hos vattenflöden, något som kan komma att ha negativ miljöpåverkan. Dessutom kan en vattenmarknad medföra att vatten som tidigare lämnats orört nu istället säljs för konsumtionsändamål. Det bör understrykas att denna studie inte gör något anspråk på att erbjuda en fullständig riskutvärdering utan snarare en första kartläggning av och förståelse för möjligheter och hot.  Utifrån detta formulerades även förslag på hur några av de identifierade barriärerna, bland annat det låga antalet marknadsdeltagare och det nuvarande kravet på att handelsavtal godkänns av en minister, skulle kunna övervinnas. Sammantaget föreslår denna studie att vattenhandel kan vara både positivt och negativt i förhållande till de övergripande målen för förvaltningen av vattensystemet, även om utrymmet för en marknad i Melbourne kan ifrågasättas med tanke på en rad faktorer som för närvarande medför att det låga antalet potentiella marknadsdeltagare faktiskt avstår från att handla. Nyckeln till att utveckla Melbournes vattenmarknad ligger i att främja möjligheterna och begränsa inverkan från hoten så att vattenföretagen i Melbourne verkligen kan utnyttja möjligheten att använda detta nya verktyg för att hantera sina respektive vattenbalanser, utan att äventyra servicenivån gentemot kunderna.

As part of the EPA’s initiative to reduce the hypoxic zone in the Gulf of Mexico, a feasibility study for a potential water quality trading (WQT) program in the Kentucky River Watershed (KRW) was conducted. While theoretically, emission trading programs are among the most efficient means of reducing pollution, empirical evidence suggests low-trade volume as a primary concern for the long-term success of such programs. Some of the important reasons for the low volume of trade are due to lack of suitable market trading mechanism for point sources and lack of information on willingness to pay (WTP) for abatement credits. Our study aims to tackle these issues by gathering a profile of municipal sewage treatment plants as point source polluters in the KRW, while simultaneously analyzing their preferences for WQT market mechanisms and WTP using a survey based approach. The survey was conducted in 2012. Municipal sewage treatment plants’ ranked preferences are analyzed using an exploded logit model and WTP is analyzed using Ordinary Least Squares and Tobit models.

Using the sample of three largest stocks from seven main market sectors in the US, the thesis examines the effect of information content of earnings announce­ ments on market reaction across sectors. Our findings prove the asymmetry of market reaction to different earnings surprise categories with negative-surprise reaction being the most profound. The financial markets tend to be less ef­ ficient in response to negative earnings surprises. Leakage of information is not present suggesting that insider trading is well-mitigated on the US capital markets. Furthermore, we investigate the market reaction to earnings surprises in different sectors separately and find that Consumer Staples and IT sector tend to be the most sensitive, on the contrary Telecommunication and Energy sector tend to be the least sensitive. G14; G15; G30JEL Classification Keywords Earnings announcement; Market reaction; Mar­ ket efficiency; Cross-sector analysis; Corpo­ rate disclosure; Insider trading; Post-earnings- announcement drift A u th o r's e-m ail p a v e l.prucekSgm ail. com S u p erv iso r's e-m ail kocenda@f s v . c u n i. cz

The purpose of this thesis is: (i) to produce an in-depth data analysis and computer-based simulations of the market environment to investigate whether financial stability is affected by the presence of High-Frequency investors; (ii) to verify how High-Frequency Trading and financial stability interact with each other under non-linear conditions; (iii) whether non-illicit behaviours can still lead to potentially destabilising effects; (iv) to provide quantitative support to the theses, either from the audit trail data or resulting from simulations. Simulations are provided to test whether High-Frequency Trading: (a) has an impact on market volatility, (b) leads to market splitting into two tiers; (c) takes the lion's share of arbitrage opportunities. Audit trail data is analysed to verify some hypotheses on the dynamics of the Flash Crash. The simulation on the impact of High-Frequency Trading on market volatility confirms that when markets are under stress, High-Frequency Trading may cause volatility to significantly increase. However, as the number of ultra-fast participants increases, this phenomenon tends to disappear and volatility realigns to its standard values. The market tiering simulation suggests that High-Frequency traders have some tendency to deal with each other, and that causes Low-Frequency traders also to deal with other slow traders, albeit at a lesser extent. This is also a kind of market instability. High-Frequency Trading potentially allows a few fast traders to grab all the arbitrage-led profits, so falsifying the Efficient Market Hypothesis. This phenomenon may disappear as more High-Frequency traders enter the competition, leading to declining profits. Yet, the whole matter seems a dispute for abnormal gains only between few sub-second traders. All simulations have been carefully designed to provide robust results: the behaviours simulated have been drawn from existing literature and the simplifying assumptions have been kept to a minimum. This maximises the reliability of the results and minimizes the potential of bias. Finally, from the data analysis, the impact of High-Frequency Trading on the Flash Crash seems significant; other sudden crashes occurred since, and more can be expected over the next future. Overall, it can be concluded that High-Frequency Trading shows some controversial aspects impacting on financial stability. The results are at a certain extent confirmed by the audit trail data analysis, although only indirectly, since the details allowing the match between High-Frequency traders and their behaviour are confidential and not publicly available Nevertheless, the findings about HFT-induced volatility, market segmentation and sub-optimal market efficiency, albeit not definitive, suggest that careful monitoring by regulators and policy-makers might be required.

The South African white maize market is considered to be significantly more volatile than any other agricultural product traded on the South African Futures Exchange (SAFEX). This accentuates the need to effectively manage price risk, by means of hedging, to ensure a more profitable and sustainable maize production sector (Geyser, 2013:39; Jordaan, Grové, Jooste, A. & Jooste, Z.G., 2007:320). However, hedging at lower price levels might result in significant variation margins or costly buy–outs in order to fulfil the contract obligations. This challenge is addressed in this study by making use of technical analysis, focusing on the development of a practical and applicable composite technical indicator with the purpose of improving the timing of price risk management decisions identified by individual technical indicators. This may ultimately assist a producer in achieving a higher average hedge level compared to popular individual technical indicators. The process of constructing a composite indicator was commenced by examining the prevailing tendency of the market. By making use of the Directional Movement Index (DMI), as identified in the literature study, the market was found to continually shift between trending prices (prices moving either upwards or downwards) and prices trading sideways. Consequently, implementing only a leading (statistically more suitable for trading markets) or lagging (statistically more suitable for trending markets) technical indicator may generate false sell signals, as demonstrated by the application of these technical indicators in the white maize market. This substantiated the motivation for compiling a composite indicator that takes both leading and lagging indicators into account to more accurately identify hedging opportunities. The composite indicator made use of the Relative Strength Index (RSI) and Stochastic oscillator as leading indicators, and the Exponential Moving Average (EMA) and Moving Average Convergence Divergence (MACD) as lagging indicators. The results validated the applicability of such a composite indicator, as the composite indicator outperformed the individual technical indicators in the white maize market. The composite indicator achieved the highest average hedge level, the lowest average sell signals generated over the entire period, as well as the highest average hedge level as a percentage of the maximum price over the entire period. Hence, the composite indicator recognised hedging opportunities more accurately compared to individual technical indicators, which ultimately led to higher achieved hedging levels. / MCom. (Risk management), North-West University, Potchefstroom Campus, 2014

The South African white maize market is considered to be significantly more volatile than any other agricultural product traded on the South African Futures Exchange (SAFEX). This accentuates the need to effectively manage price risk, by means of hedging, to ensure a more profitable and sustainable maize production sector (Geyser, 2013:39; Jordaan, Grové, Jooste, A. & Jooste, Z.G., 2007:320). However, hedging at lower price levels might result in significant variation margins or costly buy–outs in order to fulfil the contract obligations. This challenge is addressed in this study by making use of technical analysis, focusing on the development of a practical and applicable composite technical indicator with the purpose of improving the timing of price risk management decisions identified by individual technical indicators. This may ultimately assist a producer in achieving a higher average hedge level compared to popular individual technical indicators. The process of constructing a composite indicator was commenced by examining the prevailing tendency of the market. By making use of the Directional Movement Index (DMI), as identified in the literature study, the market was found to continually shift between trending prices (prices moving either upwards or downwards) and prices trading sideways. Consequently, implementing only a leading (statistically more suitable for trading markets) or lagging (statistically more suitable for trending markets) technical indicator may generate false sell signals, as demonstrated by the application of these technical indicators in the white maize market. This substantiated the motivation for compiling a composite indicator that takes both leading and lagging indicators into account to more accurately identify hedging opportunities. The composite indicator made use of the Relative Strength Index (RSI) and Stochastic oscillator as leading indicators, and the Exponential Moving Average (EMA) and Moving Average Convergence Divergence (MACD) as lagging indicators. The results validated the applicability of such a composite indicator, as the composite indicator outperformed the individual technical indicators in the white maize market. The composite indicator achieved the highest average hedge level, the lowest average sell signals generated over the entire period, as well as the highest average hedge level as a percentage of the maximum price over the entire period. Hence, the composite indicator recognised hedging opportunities more accurately compared to individual technical indicators, which ultimately led to higher achieved hedging levels. / MCom. (Risk management), North-West University, Potchefstroom Campus, 2014

In this thesis we study the utility maximization problem for assets whose prices are cointegrated, which arises from the investment practice of convergence trading and its special forms, pairs trading and spread trading. The major theme in the first two chapters of the thesis, is to investigate the assumption of market-neutrality of the optimal convergence trading strategies, which is a ubiquitous assumption taken by practitioners and academics alike. This assumption lacks a theoretical justification and, to the best of our knowledge, the only relevant study is Liu and Timmermann (2013) which implies that the optimal convergence strategies are, in general, not market-neutral. We start by considering a minimalistic pairs-trading scenario with two cointegrated stocks and solve the Merton investment problem with power and logarithmic utilities. We pay special attention to when/if the stochastic control problem is well-posed, which is overlooked in the study done by Liu and Timmermann (2013). In particular, we show that the problem is ill-posed if and only if the agent’s risk-aversion is less than a constant which is an explicit function of the market parameters. This condition, in turn, yields the necessary and sufficient condition for well-posedness of the Merton problem for all possible values of agent’s risk-aversion. The resulting well-posedness condition is surprisingly strict and, in particular, is equivalent to assuming the optimal investment strategy in the stocks to be market-neutral. Furthermore, it is shown that the well-posedness condition is equivalent to applying Novikov’s condition to the market-price of risk, which is a ubiquitous sufficient condition for imposing absence of arbitrage. To the best of our knowledge, these are the only theoretical results for supporting the assumption of market-neutrality of convergence trading strategies. We then generalise the results to the more realistic setting of multiple cointegrated assets, assuming risk factors that effects the asset returns, and general utility functions for investor’s preference. In the process of generalising the bivariate results, we also obtained some well-posedness conditions for matrix Riccati differential equations which are, to the best of our knowledge, new. In the last chapter, we set up and justify a Merton problem that is related to spread-trading with two futures assets and assuming proportional transaction costs. The model possesses three characteristics whose combination makes it different from the existing literature on proportional transaction costs: 1) finite time horizon, 2) Multiple risky assets 3) stochastic opportunity set. We introduce the HJB equation and provide rigorous arguments showing that the corresponding value function is the viscosity solution of the HJB equation. We end the chapter by devising a numerical scheme, based on the penalty method of Forsyth and Vetzal (2002), to approximate the viscosity solution of the HJB equation.

The thesis introduces a framework for analysing market monitoring and surveillance systems in order to provide a common foundation for researchers and practitioners to specify, design, implement, compare and evaluate such systems. The proposed framework serves as a reference map for researchers and practitioners to position their work in the context of market monitoring and surveillance, resulting in a useful instrument for the analysis, testing and management of such systems. More specifically, the thesis examines the new requirements for the operation of financial markets, the role of technologies, the recent consultations on the structure and governance of EU and US markets, as well as, future usage scenarios and emerging technologies. It examines the context in which market monitoring and market surveillance systems are currently been used. It reports on their processes, performance, and on the organisational and regulatory environments in which they exist. Furthermore, it develops a set of taxonomies which cover the majority of the concepts of market manipulation, market monitoring, market surveillance, entities, technologies and actors that are relevant for the work in this thesis. Building on the gaps and limitations of the current systems, it proposes a new framework following the Design Science methodology. The usefulness of the framework is evaluated through four critical case studies, which not only help to understand with practical exercises the way how markets monitoring and surveillance systems work, but also to investigate their weaknesses, potential evolution and ways to improve them. For each case study, the thesis develops a fully working prototype tested using a sample prosecution case and evaluated in terms of the appropriateness and suitability of the proposed framework. Finally, implications relating to policies, procedures and future market structures are discussed followed by suggestions for future research.