This dissertation analyzes information, market structure, and firm pricing strate-gies. I begin the dissertation with an analysis of the market structure of the mortgage in-dustry. I find that the configuration of the mortgage market at its present state is vastly different than its historical structure. The reduction in the cost of transmitting informa-tion has increased the collaborative environment and facilitated the dis-integration of the supply chain. Generally, the mortgage industry has been successful at reducing principal-agent problems and minimizing asymmetric information concerns that arise in segmented markets. In the first essay I provide a theoretical explanation of the effect of the internet on market outcomes. Search models assume that the reduction in search frictions would lead to competitive markets. However, I argue that gatekeepers operating in online markets may create an anticompetitive effect, in addition to reducing the consumers’ search cost. Therefore, the conduct of the gatekeeper can cause prices in online markets to be higher than in retail markets and provide online firms with larger profits. In the second essay “I empirically examine the role of the internet and Internet Comparison Search sites in reducing consumer search costs and their effects on the prices consumers pay for mortgages. Additionally, I expand the study to test for the effects of the internet on firm profits. Using a unique data set, I examine a mortgage firm’s pricing strategies and profits in online and retail markets, and find evidence of market power in online markets that do not exist in retail markets. The presumed benefits to the consumer from the reduction of search cost are offset by the anticompetitive environment in online markets. In the final essay, I examine a mortgage firm’s portfolio choice. I investigate the loan characteristics that affect the firm’s decision to retain mortgages as part of its own portfolio. I find that the decision to retain loans as a lender is driven by unobservable qualities. The firm does sort loans by quality, but it also prices non-brokered loans lower based on unobservable qualities. The sorting behavior suggests that asymmetric information exists between the lender and the secondary market.

Diss. Stockholm : Handelshögsk., 2004.

This dissertation analyzes the obstacles against further cooperation in international economic relations. The first essay explains the gradual nature of trade liberalization. I show that existence of asymmetric information between governments provides a sufficient reason for gradualism to exist. Governments prefer starting small to reduce the cost of partner’s betrayal when there is sufficient degree of information asymmetry regarding the partner’s type. Learning about partner’s incentive structure enhances expectations, encouraging governments to increase their current level of cooperation. Specifically, the uninformed government’s subjective belief for the trading partner being good is improved as the partner acts cooperatively. This updated belief, in turn, lowers the subjective probability of future betrayal, enabling further progress in cooperation. The second essay analyzes the relationship between two countries facing two policy dilemmas in an environment with two way goods and capital flows. When issues are independent and countries are symmetric, signing separate agreements for tariffs (Free Trade Agreements-FTA) and for taxes (Tax Treaties-TT) provides the identical level of enforcement as signing a linked agreement. However, linkage can still improve the joint welfare by transferring the slack enforcement power in a case of asymmetric issues or countries. I report non-results in two cases where the policy issues are interconnected due to technological spillover effect of FDI. Moreover, I show that linking the agreements actually reduces enforcement when agreements are linked under a limited punishment rule and policy variables are strategic substitutes. The third essay investigates the welfare/enforcement consequences of linking trade and environmental agreements. In the standard literature, linking the agreements generate non-trivial results only when there is structural relation between the issues. I focus on institutional design of the linkage and show that even if environmental aspects of international trade are negligible linking the agreements might still have some interesting welfare implications under current GATT Rules. Specifically, when traded goods are substitutes in consumption, linking the environmental agreement with trade agreement under the Withdrawal of Equivalent Concession Rule (Article XXVIII) will reduce the enforcement. However, enforcement in environmental issue increases when the same rule is implemented in the absence of linkage.

The market of IPOs experienced its strongest year in over 20 years where 422 IPOs were conducted in Europe. Due to the complex nature of the IPO process, the phenomenon of underpricing can occur. Underpricing can be explained as the positive percentage change of the offer price and the first trading day closing price. This phenomenon is associated with asymmetric information, when one party has more information than the other. Based on previous studies, the existence of ESG tends to reduce asymmetric information and possibly underpricing. ESG is an important factor that companies are taking into consideration when reviewing their business strategy. Besides that, the public sees ESG as a frontier for changing how we fight global problems. This study used ESG scores of companies in Europe that conducted an IPO between 2011-2021 to explain the relationship between ESG scores and underpricing. To thoroughly explain underpricing, this research included industry affiliation and the year the IPO was issued. This is a quantitative study that used a multiple linear regression model, which helps to see the effect between the dependent and independent variables. The findings showed that the ESG score did not affect the level of underpricing in the observed sample. Thus, the market does not take into consideration the ESG score as an important variable when pricing an IPO.

Asset allocation and portfolio decisions are at the heart of money management and draw great attention from both academics and practitioners. In addition, the segmentation of fund investors (i.e., the clientele effect) in the money management industry is well known but poorly understood. The objective of this dissertation is to study the implications of regime switching behaviors in asset returns on asset allocation and to analyze the clientele effect as well as the impact of portfolio management contracts on fund investment. Chapter 2 presents an innovative regime switching multi-factor model accounting for the different regime switching behaviors in the systematic and idiosyncratic components of asset returns. A Gibbs sampling approach for estimation is proposed to deal with the computational challenges that arise from a large number of assets and multiple Markov chains. In the empirical analysis, the model is applied to study sector exchange-traded funds (ETFs). The idiosyncratic volatilities of different sector ETFs exhibit a strong degree of covariation and state-dependent patterns, which are different from the dynamics of their systematic component. In a dynamic asset allocation problem, the certainty equivalent return is computed and compared across various models for an investor with constant relative risk aversion. The out-of-sample asset allocation experiments show that the new regime switching model statistically significantly outperformed the linear multi-factor model and conventional regime switching models driven by a common Markov chain. The results suggest that it is not only important to account for regimes in portfolio decisions, but correct specification about the structure and number of regimes is of equal importance. Chapter 3 proposes a rational explanation for the existence of clientele effects under commonly used portfolio management contracts. It shows that although a fund manager always benefits from his market timing skill, which comes from his private information about future market returns, the value of the manager's private information to an investor can be negative when the investor is sufficiently more risk-averse than the manager. This suggests different clienteles for skilled and unskilled funds. Investors in skilled funds are uniformly more risk-tolerant than investors in unskilled funds. Moreover, a comparative statics analysis is conducted to investigate the effects of the manager's skill level, contract parameters, and market conditions on an investor's fund choice. The results suggest that the investors who are sufficiently more risk-averse than the manager should include fulcrum fees in the contract to benefit from the skilled manager's information advantage.

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Yes / We study liquidity on the London Stock Exchange. We find that the average bid-ask spread declines, but that the skewness of the spread increases. These results are robust to firm size, trading volume and price level. Our findings hold when the bid-ask spread is estimated utilising high frequency data. We find that the bid-ask spread prior to earnings announcements dates is significantly higher than that of post earnings announcements, suggesting that asymmetric information has driven the increase in liquidity skewness. We also find that the effect of earnings announcements is more pronounced in the 2007 global financial crisis, consistent with the notion that extreme market downturns amplify asymmetric information. Our overall evidence also implies that increased competition and transparent trading environments limit market makers' abilities to cross-subsidize bid-ask spreads between periods of high and low levels of asymmetric information. / National Natural Science Foundation of China (No. 71571197)

This dissertation is a collection of essays on financial market development and economic growth. In contrast to existing literature, which considers credit for investment along, we investigate the relationship between credit market development and economic growth in the framework where both investment and consumption are financed via credit markets. The environment developed on this dissertation creates a role for each kind of credit to play. First, credit market conditions of entrepreneurs and consumers are related and depend on each other. Second, the interactions between consumers and entrepreneurs are of importance for economic growth. The models are empirically relevant, as they can explain why the effect of credit market development on economic growth appears to differ between high-income and middle- and low-income countries. / Ph. D.

The livestock industry in the United States has experienced significant concentration and vertical integration in recent years. This change has resulted in greater observed levels of pollution attributed to concentrated animal feeding operations (CAFO) and society has attempted to use regulation to remedy these problems. Despite regulation at the federal and local level no documented improvement in water quality has been observed to date. This thesis is concerned with the response of profit-maximizing economic agents to the form of environmental regulation adopted at the federal level. A theoretical model of firm profit is proposed and analyzed using comparative statics to derive a variety of firm and policy relevant results. A qualitative discussion of monitoring and enforcement aspects of regulation and transaction costs in public policy implementation is provided. Results suggest that the form that regulation has taken fails to address the economic decision making process of the firm and thus fails to create incentives for more environmentally benign behavior.

In the extensive literature on price dispersions that exists to date, there is a gap in the analysis of how market structure affects prices as well as the degree of dispersion in prices. Specifically, the literature is deficient in analyzing how price levels and price dispersion are affected by the number of firms operating in a market. I use secondary data to look at the prices of prescription drugs at the retail level in nine hundred and seventy pharmacies across one hundred and sixty five markets in Maryland and compare price dispersion across these brick and mortar pharmacies as well as across a separate set of pharmacies that only operate online. I compare online versus offline price dispersion, as well as price dispersion in purely offline markets from the structure of the market’s context. Stahl’s (1989) theoretical model is used to formulate and test the hypotheses that an increase in the proportion of positive search cost consumers in a market will cause price levels to rise and price dispersion to initially increase and then decrease. Furthermore, in markets with the proportion of positive search cost consumers above a threshold level, an increase in the number of firms will also lead price levels to rise and price dispersion to initially increase and then decrease. Conversely, in markets with positive search cost consumers below the threshold level, an increase in the number of firms will lead to lower price levels, i.e. the competitive outcome. For the analysis, I look at prices at the pharmacy level and price dispersion at the market level and determine the proportion of high search cost consumers for a specific pharmacy or a specific market relative to the other pharmacies and markets in the dataset. I find that a significant part of the differences in prices for a homogeneous prescription drug can be attributed to asymmetric information and that price dispersion is higher in markets with a greater number of firms, and price levels are higher in low income neighborhoods.