Bachelor-Arbeit Univ. St. Gallen, 2007.

Bachelor-Arbeit Univ. St. Gallen, 2008.

Master-Arbeit Univ. St. Gallen, 2008.

Thesis (M.Sc.)(Applied Sciences)--University of Pretoria, 2005. / Title from opening screen (viewed 22 March, 2006). Includes summary. Includes bibliographical references.

Zugl.: Giessen, Universiẗat, Diss., 2004.

No Abstract Provided

In this paper, we study the asset pricing implication of imprecise knowledge about rare events. Modeling rare events as jumps in the aggregate endowment, we explicitly solve the equilibrium asset prices in a pure-exchange economy with a representative agent who is averse not only to risk but also to model uncertainty with respect to rare events. Our results show that there are three components in the equity premium: the diffusive-risk premium, the jump-risk premium, and the "rare event premium." While the first two premia are generated by risk aversion, the last one is driven exclusively by uncertainty aversion. To dis-entangle the "rare event premium" from the standard risk-based premia, we examine the equilibrium prices of options with varying degree of moneyness. We consider models with different levels of uncertainty aversion -- including the one with zero uncertainty aversion, and calibrate all models to the same level of equity premium. Although observationally equivalent with respect to the equity market, these models provide distinctly different predictions on the option market. Without incorporating uncertainty aversion, the standard model cannot explain the extent of the premia implicit in options, particularly the prevalent "smirk" patterns documented in the index options market. In contrast, the models incorporating uncertainty aversion can generate significant premia for at-the-money option prices, as well as pronounced "smirk" patterns for options with different degrees of moneyness.

This thesis examines the economic consequences of the adoption of international pension accounting standard IAS19 Revised (IAS19R) on pension asset allocation decisions by applying a difference-in-differences with propensity score matching method. The publication of IAS19R in 2011 marked a fundamental change to pension reporting in financial statements. In particular, it had a significant impact on (1) how sponsor firms recognise net pension assets/liabilities on the balance sheet, (2) the calculation and recognition of pension expenses, (3) the presentation of re-measurement (actuarial gains and losses), treatment of which had been heavily debated by academics and practitioners, and (4) disclosure requirements for pension schemes, which had been criticised as “excessive” under IAS19. This research examines the “real effect” of IAS19R adoption on management investment decisions. Using a difference-in-differences with propensity score matching method, the results suggest that, on average, UK sponsor firms affected by IAS19R have reduced their risk taking in pension investments post-IAS19R, both over time and compared with a control sample of unaffected US firms (matched by propensity score matching). The results of sensitivity analysis also suggest that UK sponsor firms tried to avoid the expensive liquidity costs of asset re-allocation by switching their pension plan asset allocations gradually during the period around the publication and adoption of IAS19R. Furthermore, the outcomes of sensitivity tests suggest a positive relationship between equity investment levels, and firms’ leverage and cash flow risk, consistent with the “risk-shifting” hypothesis documented in the previous literature. The thesis also applies a manual textual analysis on the comment letters sent by industrial firms to the IASB to provide their opinions on the IAS19R Exposure Draft. The analysis describes and tabulates the arguments raised by these firms on three main amendment areas of IAS19: recognition, presentation and disclosure. Based on this description, this part aims to motivate the empirical research mentioned previously and shed light on the other potential consequences of IAS19R adoption. These consequences include: the management of funding might be driven by accounting rules rather than management rules; the increasing volatility of balance sheet; de-risking in the pension plan portfolio following the adoption of IAS19R; the diminishing of financial statement “true and fair view” and its usefulness due to the abolition of expected rate of return and excessive requirements on pension disclosure. Furthermore, the study also suggests that the lobbying behaviour of these firms on the standard setting process is consistent with the predictions of Positive Accounting Theory.

Whilst common intuition and the rapid growth of weather derivative practices effectively support the notion that equity returns are sensitive to weather randomness, empirical support is fragile. This thesis is the first study that investigates weather exposure and weather risk-return trade-off consistent with the arbitrage pricing theory (APT). It explores weather risk and its premium in the U.S. market during January 1980 to December 2009, based on three of the most weather-influenced industries. The research starts with the construction of ten seasonally-adjusted weather measures as the proxies of unexpected temperature, gauged in Fahrenheit degree and percentage terms. The weather exposures of individual firms are estimated based on each of the ten measures and the market return. Although average weather exposure coefficients are small, the number of firms with significant estimates is more than attributable to chance and results are more profound in utilities. The weather coefficients are mainly stable over the sample period, indicating that the introduction of weather derivatives does not significantly impact a firm’s weather exposure. Further investigation into summer and winter time reveals that most of the significant weather betas are found in winter. However, only a minority of firms have statistically different weather betas between the two seasons. Results are robust with respect to the ten measures. The finding that unpredictable weather broadly affects groups of stocks has a direct implication in asset prices, as weather risk may be one of the priced factors. In this study, the weather risk premium is estimated using the standard two-pass Fama and MacBeth (1973) methodology, enhanced with Shanken’s adjustments for the errors in variables problem. The tests are based on firm-level and portfolio-level regressions, assessed by different model specifications and repeated for the ten weather measures. In the unconditional setting, there is little support that the market price of weather risk is not zero. Although the estimates are insignificant, the magnitudes of weather premiums are relatively high compared with those of other macroeconomic factors in previous literature. Most of the estimated weather pricings are negative; thus, stocks exposed to weather should be hedged against an unanticipated increase in temperature. The main pricing results are robust to alternative sample sets, portfolio formations, base assets and weather measures. Nonetheless, the significance of weather premium is slightly affected by model specifications. In few cases, the pricings of weather risk are significant when the positive values of weather betas are used in cross-sectional regressions.

We study systemic risk in a network model of the interbank market where the asset returns of the banks in the network are correlated. In this way we can study the interaction of two important channels for systemic risk (correlation of asset returns and contagion due direct financial linkages). We carry out a simulation study that determins the probability of a systemic crisis in the banking network as a function of both the asset correlation, and the connectivity and structure of the financial network. An important observation is the fact that the relation between asset correlation and the probalility of a systemic crisis is hump-sharped; in particular, lowering the correlation between the assets returns of different banks does not always imply a lower probability of a systemic crisis.