This thesis presents five empirical papers investigating the issue of arbitrage trading of the FTSE 100 stock index futures. The first paper explores the effects of nonsynchronous trading on the spot index and develops a new technique as well as improving current methodologies for removing them. Studies in U. S. have shown that if the problem of non-synchronous trading is severe, the reported spot index is not reliable affecting the correct pricing of futures contracts. The second paper investigates the elasticity of supply of arbitrage in the futures market and the ability of the spot and the futures markets to respond to new information. It shows that arbitrage trading is initiated when spot prices largely drift apart from the futures prices. In addition, the futures prices tend to uncover new information before the spot prices, although this relationship is not stable over time. The analysis incorporates all possible channels of information to the -markets, which previous research fails to consider. The third paper analyses the behaviour of the deviation of the actual futures price from its theoretical value. Although this deviation is seen to have decreased its size over the years, it is still significant and persistent. Furthermore, it cannot be explained by the tax-timing option on pricing the futures or the effects of nonsynchronous trading. The fourth paper examines the presence, size and frequency of the profitability of the observed arbitrage opportunities by applying different transactions costs bounds to account for different classes of traders. After applying trading simulations arbitrage profitability is found to be frequent and significant, despite the fact that its size has decreased over the years. Finally, the thesis concludes with the fifth empirical paper which investigates the impact of futures trading on the spot and futures market volatility. It finds that arbitrage increases spot and futures price volatility but a volatile market brings the two markets closer on the whole, the thesis shows that although profitable arbitrage opportunities are not present in the long-run, they are not quickly removed in the short-run, allowing the spot and futures prices to drift apart.

nÃo hà / A grande importÃncia que alguns estudos internacionais dÃo quanto aos efeitos da volatilidade do cÃmbio e da dinÃmica das polÃticas cambiais sobre as transaÃÃes comerciais vÃm crescendo nos Ãltimos anos. Todavia, nÃo hà um consenso na literatura precedente a respeito dos impactos da volatilidade cambial sobre o fluxo de exportaÃÃes e importaÃÃes. De Grauwe & Skudenly (2000), Ozturk (2006), Bahmani-Oskooee & Hegerty (2007) e Auboin & Ruta (2012) argumentam que uma maior variabilidade da taxa de cÃmbio à prejudicial ao comÃrcio entre paÃses. Para os autores, esse impacto negativo da volatilidade cambial sobre o volume financeiro de comÃrcio internacional decorre da teoria da escolha sob incerteza. O documento concentra-se principalmente em investigar os impactos da volatilidade da taxa de cÃmbio sobre os fluxos de exportaÃÃes de commodities do Brasil para Argentina, Alemanha, China e EUA durante 2000:T1 e 2013:T3. Para verificar a existÃncia de quebras estruturais na funÃÃo tendÃncia das variÃveis reais do modelo de fluxo de comÃrcio bilateral brasileiro, aplicou-se o teste sugerido por Perron & Yabu (2009). Os resultados desse teste indicaram que das vinte e cinco (25) sÃries analisadas, 64% apresentaram uma quebra no nÃvel e inclinaÃÃo na funÃÃo tendÃncia das mesmas. Com o objetivo de evitar resultados viesados em relaÃÃo à ordem de integraÃÃo das sÃries por causa da presenÃa de quebras estruturais, foram aplicados os testes de raiz unitÃria com quebras estruturais desenvolvidos por Lee & Strazicich (2003) e Lee & Strazicich (2004). Os resultados dos dois testes indicaram que das vinte e cinco (25) sÃries analisadas, 80% e 84%, sÃo estacionÃrias com uma e duas quebras, respectivamente. Isto Ã, podem ser caracterizadas como pertencentes à classe I(0). Para finalizar a anÃlise, aplicou-se o teste de quebra estrutural de Bai e Perron (1998) para analisar as mudanÃas na conduÃÃo da polÃtica cambial brasileira durante o perÃodo de 2000 a 2013. Os resultados indicaram a existÃncia de duas (2) quebras estruturais nos parÃmetros estimados da funÃÃo tendÃncia para as exportaÃÃes de commodities. / The great importance that some international studies give about the effects of exchange rate volatility and the dynamics of exchange rate policies on trade transactions have been growing in recent years. However, there is no consensus in the previous literature regarding the impact of exchange rate volatility on the flow of exports and imports. De Grauwe & Skudenly (2000), Ozturk (2006), Bahmani-Oskooee & Hegerty (2007) and Auboin & Ruta (2012) argue that greater variability of the exchange rate is detrimental to trade between countries. For the authors, this negative impact of exchange rate volatility on the financial volume of international trade stems from the theory of choice under uncertainty. The document focuses primarily on investigating the impact of the volatility of the exchange rate on the pattern of commodity exports from Brazil to Argentina, Germany, China and the United States during 2000: T1 and 2013: T3. To verify the existence of structural breaks in the trend function of real variables of the Brazilian bilateral trade flow model, was applied to the test suggested by Perron & Yabu (2009). The results of this test indicated that the twenty-five (25) series analyzed, 64% had a drop in the level and slope of the trend function thereof. In order to avoid biased results in relation to the order of integration of the series because of the presence of structural breaks, unit root tests were applied with structural breaks developed by Lee & Strazicich (2003) and Lee & Strazicich (2004). The results of both tests indicated that the twenty-five (25) series analyzed, 80% and 84%, are stationary with one or two breaks, respectively. That is, they can be characterized as belonging to class I (0). To complete the analysis, we applied the structural break test Bai and Perron (1998) to analyze the changes in the conduct of the Brazilian exchange rate policy during the period 2000 to 2013. The results indicated the existence of two (2) structural breaks the estimated parameters of the trend function for commodity exports.

Doctor of Philosophy / Economics / Steven P. Cassou / The increase in commodity prices that has taken place in the past decade or so has resulted in renewed interest in the debate about the macroeconomic consequences of such price increase. Previous studies tend to assume that all commodity price shocks are alike and advocate a “one size fit all” policy response by monetary authorities, either by means of contractionary monetary policy to alleviate inflationary pressures or doing nothing, since these shocks are believed to have insignificant economic impact. This dissertation analyses the impact of fluctuations in commodity prices on the South African economy. The first chapter studies the impact of shocks to prices of four commodities on monetary policy variables. Results show that shocks to different commodity prices have different effects on the monetary policy variables, hence rejecting the “one size fits all” policy response by monetary authorities, as some researchers have suggested. Chapter two investigates the sectorial effects of commodity price shocks. The Dutch Disease hypothesis suggests that a boom in the natural resource sector shrinks the manufacturing sector through crowding out and appreciation of the real exchange rate. South Africa is a major exporter of a large number of commodities. Using a structural VAR framework this chapter analyzes the impact of shocks to different commodity prices on the production and employment levels in the manufacturing and mining sectors in South Africa. The results show that the commodity price boom has had a positive impact on both sectors, hence the manufacturing sector did not experience signs of the Dutch disease. Chapter three examines the volatility transmission between commodity prices and nominal exchange rate in South Africa. This chapter uses conditional and realized volatility models to estimate volatility in exchange rate, gold, platinum, oil, palladium and silver prices and then employs Granger-causality, Impulse Response analysis, Variance Decomposition and Ordinary Least Squares to analyze the volatility transmission from the commodity prices to the nominal exchange rate. The results show that there is volatility transmission from commodity prices to the nominal exchange rate, hence knowing the volatility in commodity prices would improve investor’s ability to manage risk in South Africa.

The main aim of this thesis is in analyzing and empirically testing the various valuation models and hedging schemes of foreign exchange barrier options and their robustness with respect to changing of market conditions. The purpose of the main empirical section is to get a detailed understanding of the static and dynamic performance of the analyzed models for the barrier options payoff mainly in the extreme market conditions, where we performed a benchmarking of the various hedging schemes. As a by-product, we analyzed the accomplishment of some of the model assumptions in real world setting, and the model dependency of the barrier options.