University of Macau / Faculty of Science and Technology / Department of Mathematics

Thesis (Ph.D.)(Applied Mathematics)--University of Pretoria, 2000. / Includes summary. Includes bibliographical references.

Thesis (Ph. D.)--Ohio State University, 1987. / Includes bibliographical references (leaves 117-119). Available online via OhioLINK's ETD Center.

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by Kwan Chi Tak. / Thesis (M.B.A.)--Chinese University of Hong Kong, 1999. / Includes bibliographical references (leaves 44-45). / ABSTRACT --- p.ii / TABLE OF CONTENTS --- p.iii / LIST OF FIGURES --- p.vi / LIST OF TABLES --- p.vii / ACKNOWLEDGEMENT --- p.viii / CHAPTER / Chapter I. --- OBJECTIVES AND METHODOLOGY --- p.1 / Objectives --- p.1 / Methodology --- p.1 / Data Source --- p.1 / Analysis on the Efficiency of Secondary Bond Market --- p.1 / Data Collected --- p.2 / Period of Investigation --- p.2 / Bonds Selected --- p.3 / Interviews --- p.3 / Chapter II. --- DEVELOPMENT OF BOND MARKET IN CHINA --- p.4 / Amount of Issue --- p.4 / Types of Bonds Available in China --- p.5 / Government Bonds --- p.6 / Policy Financial Bonds --- p.7 / Enterprise Bonds --- p.7 / Conclusion --- p.7 / Chapter III. --- DEVELOPMENT OF GOVERNMENT BOND MARKET --- p.9 / Background --- p.9 / Issuance Methods --- p.9 / Types --- p.11 / Cost of Issuance and Redemption --- p.12 / The Establishment of Secondary Market --- p.13 / Conclusion --- p.14 / Chapter IV. --- GOVERNMENT DEFICIT FINANCING --- p.16 / The Economy of China --- p.17 / Government revenues and Expenditures --- p.17 / Deficits --- p.19 / Government Bond Issuance --- p.21 / repayment Ability --- p.22 / Conclusion --- p.23 / Chapter V. --- BENCHMARK RATES --- p.23 / Primary Market --- p.23 / Interest Rates --- p.23 / Government Bond Coupons --- p.24 / Anomaly --- p.24 / Pricing of other securities --- p.25 / secondary market --- p.25 / Efficiency of Secondary Bond Market --- p.27 / Conclusion --- p.29 / Chapter VI. --- OPEN MARKET OPERATIONS --- p.30 / Background --- p.30 / Open Market Operations --- p.30 / The Effectiveness --- p.31 / Conclusion --- p.33 / Chapter VII. --- OTHER FACTORS --- p.34 / Education --- p.34 / Institutional Investors --- p.34 / Transaction Costs --- p.35 / Distribution --- p.35 / Transaction Fees --- p.35 / Conclusion --- p.36 / Chapter VIII. --- CONCLUSIONS AND RECOMMENDATIONS --- p.37 / Conclusions --- p.37 / Positive Factors --- p.37 / Negative Factors --- p.38 / Recommendations --- p.39 / Chapter IX. --- APPENDIX I --- p.41 / Chapter X. --- APPENDIX --- p.43 / Chapter XI. --- BIBLIOGRAPHY --- p.44

In this dissertation, I examine three questions of relevance to macroeconomists. Chapter 1 investigates how the interconnected production and trade credit networks of firms lead to the propagation of financial shocks. Chapter 2 documents that conditional moments of the price change distribution are extremely informative and yield new insights on the dynamics of price changes in the economy. Chapter 3 offers a detailed investigation of the foreign exchange risk premium through the inflation-indexed bond market structure. In Chapter 1, I study the transmission of firm-level shocks in the economy. Firms are connected through the production network. At the same time, the production linkages coincide with financial linkages because of delays to input payments. Idiosyncratic shocks can spillover in the network through production and financial linkages among firms and generate aggregate economic fluctuations. Chapter 1 investigates how these interconnected production and financial linkages lead to the propagation of financial shocks both upstream and downstream. First, I show that financial shocks can propagate upstream if there are financial linkages of firms and financial frictions in trade. Second, I find, based on the input-output matrix and the bond yield data in the U.S., upstream propagation of financial shocks is stronger than downstream propagation. Third, I elaborate a DSGE model that can capture this pattern of shocks and generate quantitative predictions. Fourth, I demonstrate that credit policies would have a stronger impact if liquidity were transferred to downstream sectors after aggregate liquidity shocks. The second chapter documents the price setting behaviour of firms. The effectiveness of monetary policy depends both on the presence and the forms of nominal rigidities in price setting. Understanding the dynamics of price changes (when and how price changes) is necessary to determine the true degree of monetary non-neutrality. Chapter 2 shows that conditional moments, which have been seldom used, are extremely informative and yield new insights on the selection effect of price changes. It documents the predictions of a broad class of existing price setting models on how various statistics of the price change distribution change with the rate of aggregate inflation. Notably, menu cost models uniformly feature the price change distribution becoming less dispersed and less skewed as inflation rises, while in the Calvo model both relations are positive. Using a novel data set, the micro data underlying the U.S. CPI from the late 1970's onwards, Chapter 2 evaluates these predictions using the large variation in inflation over this period. Price change dispersion does indeed fall with inflation, but skewness does not, meaning that none of the existing models can fit these patterns. It then presents a model that does, in addition to matching the price change moments that existing models do. The model features random menu costs. With a menu cost distribution that gives a significant probability to free price changes, and a high probability to very high menu costs, the model predicts a flat inflation-skewness relation. This menu cost distribution moves the model close to a Calvo model, and the model therefore exhibits a much higher degree of monetary non-neutrality than the Golosov and Lucas (2007) model, and higher even than in the subsequent menu cost models such as Midrigan (2011). Finally, the last chapter investigates an important input in firms' and households' investment decisions process - risk premium of the foreign exchange market. Risk premium in the foreign exchange market has been a prominent research topic in international macroeconomics for decades. For example, it plays an important role in explaining the well-known interest parity puzzle and in investigating the foreign exchange market structure. Chapter 3 offers a detailed investigation of the foreign exchange risk premium using a novel structural relationship in the inflation-index bond market, firstly introduced by Clarida (2012). Unlike the conventional VAR approach, this approach estimates risk premium through the non-arbitrage relationship between investing inflation-indexed bonds from two countries and works on the market information set. There are two main findings. First, the estimated risk premium is able to forecast subsequent exchange rate changes. Second, contrary to the original finding of Meese and Rogoff (1983) that, even given the ex post realizations of fundamentals, exchange rate changes are difficult to explain, there are in fact periods in which exchange rate movements are driven largely by the fluctuation in the fair value.

The Efficient Market Hypothesis (EMH) has had significant impact on the theory and practice of investments. However technical trading rules have continued to be used by practioners and have been the focus of many academic studies which have focused on equity, foreign exchange and futures markets. The scarcity of research into technical trading models for fixed income markets is astonishing considering the significant size and consequent investor importance of fixed income markets relative to other financial markets and the extensive application of technical trading models by market participants. This is one of the few studies that develops a technical trading model applicable to fixed income markets. Black (1986) defined Efficient Markets as a market where deviations from fundamental values were short lived and small in magnitude. Fundamental asset values are hard to calculate, but we are able to identify fundamental values for a set of Government Bonds on the principle that yield relativities between such bonds are quite stable except for 'deliberate' changes in trading behaviour. We find that the deviations from fundamental value are short lived and small in magnitude. We exploit deviations from fundamental value by Butterfly Trading strategies; Normal Butterfly trades earning returns from movements in yield curve slope and curvature and Arbitrage Butterfly trades earning returns from yield curve curvature only. After considering transaction costs, we achieve annualised returns of 120bps from our Normal Butterfly trades and 72 bps from our Arbitrage Butterfly trades. Consistent with the risk-return relationship for financial instruments, we find that the returns and the volatility of returns for Normal Butterfly trades are higher than the returns and volatility of returns for Arbitrage Butterfly trades. Normal Butterfly trades are exposed to yield curve slope changes whereas Arbitrage Butterfly trades are not, resulting in higher risk and higher returns for Normal Butterfly trades. This finding is consistent with the results obtained by Fabozzi, Martellini and Priaulet (2005).

Submitted in accordance with the requirement for the degree of Doctor of Philosophy In Business Administration At the University of the Witwatersrand Johannesburg / Generating sufficient domestic revenues to finance economic growth has been a critical hurdle for many African countries and, for decades, foreign capital has complemented domestically generated resources to finance growth. However, global financial crises over the past few decades tend to curtail, if not dry up the flow of capital to African governments. The unreliability of foreign capital with its attendant strings and sudden stops in the event of economic and political crisis has spurred the need for alternative sources of financing development. Despite the realisation that bond markets provide a viable source of funds for the African continent, the literature on the importance of bond market development and its interaction with other sources of funding remains underexplored. Moreover, the sparse empirical literature about bond market development in Africa is vague and largely overlooked. At the same time, knowledge of African bond markets is vital for channelling funds not only to efficient agents in particular, but also for fostering transparency and the flow of information within the continent’s capital markets. This thesis endeavours to address the vacuum apparent in extant literature and proposes a theoretical framework through a thorough assessment of the determinants of bond market development in African emerging market economies. The thesis examines four critical pillars of bond market development: (a) the environment for the creation of bond markets; (b) the relative performance and characteristics of bond markets across and within developing and developed economies; (c) the modelling of bond markets and (c) the institutional factors that underpin the efficient functioning of bond markets. Using macroeconomic, social, institutional and historical data on local currency bond markets from 26 African economies and 49 listed firms, this thesis extends previous studies on bond market determinants through tighter robustness measures by accounting for downside risk in a generalized methods of moments (GMM) and a feasible generalized least squares estimator (FGLSE) framework. Further, differential analysis of government and corporate bond markets are carried out, given their different investment horizons and issuance. The results suggest that from a macroeconomic perspective, inflation, central government debt, GDP, external debt, GDP per capita and fiscal balance are important drivers of local currency bond market development in African economies. Moreover, political unrest, governance, religion, former colonial ties and culture are institutional factors that exert statistically significant effects on local currency bond market performance in Africa. From a demand viewpoint, the study finds that firm level factors that influence bond market performance are firm risk, size, profitability and age. The results from this study are of importance to capital market participants, investors, regulators and policy makers who seek to address the perennial constraints to development occasioned by lack of capital. A number of policy measures for boosting bond market performance such as stable macroeconomic environments, reform of capital market rules and cross listing are discussed in the final chapter. JEL CLASSIFICATION: International Economics; Financial Economics; Economic Development; Innovation; Technological Change; and Growth. KEYWORDS: Africa; Emerging economy; Bond market; Institutions; Local Currency Bond Market; Performance; Development. / GR2018

Wong Pak Kin. / Year shown on spine: 1997. / Thesis (M.Phil.)--Chinese University of Hong Kong, 1996. / Includes bibliograpical references. / Abstract --- p.i / Acknowledgment --- p.iii / Chapter Chapter I --- Introduction --- p.1 / Chapter Chapter II --- Literature Review --- p.6 / Chapter Chapter III --- Markets and Instruments / Chapter 3.1 --- International Money Markets --- p.15 / Chapter 3.1.1 --- Euro-deposit Market --- p.17 / Chapter 3.2 --- International Bond Markets --- p.20 / Chapter Chapter IV --- Preliminary Analysis of Data --- p.24 / Chapter 4.1 --- Data --- p.24 / Chapter 4.2 --- Descriptive Statistic Of Data Used In This Study --- p.29 / Chapter Chapter V --- Research Methodology / Chapter 5.1 --- Unit Root --- p.33 / Chapter 5.2 --- Cointegration and Error Correction Model --- p.37 / Chapter 5.2.1 --- Cointegration Using Engle and Granger Methodology --- p.39 / Chapter 5.2.2 --- Cointegration Using Johansen Methodology --- p.42 / Chapter Chapter VI --- Empirical Results / Chapter 6.1 --- Testing for Unit Root --- p.47 / Chapter 6.1.1 --- Short-term Interest Rates --- p.47 / Chapter 6.1.2 --- Long-term Interest Rates --- p.48 / Chapter 6.2 --- Testing for Cash-Futures Relationship --- p.54 / Chapter 6.3 --- Multivariate tests for Cointegration and VECM --- p.59 / Chapter 6.3.1 --- Cointegration in the International Money Markets --- p.63 / Chapter 6.3.2 --- Cointegration in the Interest Rate Futures Markets --- p.67 / Chapter 6.3.3 --- Cointegration in the International Bond Markets --- p.71 / Chapter 6.3.4 --- Cointegration in the Bond Futures Markets --- p.75 / Chapter Chapter VII --- Concluding Comment --- p.91 / Reference / Appendix

This dissertation consists of two papers. The first paper examines the propagation of firm-specific shocks as well as market-wide shocks between 1995-2003 using Treasury and corporate bond market data. It then tests the implications of previously proposed models of contagion. I find little support for the industry and counterparty structure hypothesis, suggesting that fundamentals do not generate contagion. Consistent with the information transmission, rebalancing, and liquidity-shock hypotheses, I find evidence of flight to quality during the event periods. However, in contrast to the prediction of the liquidity-shock channel, the corporate bond market, on average, seems to be more liquid during event periods (evidenced by higher trading volume, trading frequency, and mean bond age). Furthermore, there are no significant changes in the trading of assets with the low transaction costs, which is contrary to the rebalancing theory. These findings are more in favor of the correlated information channel as a means of inducing contagion.The second paper examines the effect of liquidity on corporate bond prices using the newly formed TRACE data set. In the spirit of Acharya and Pedersen's (2005) liquidity-adjusted capital asset pricing model (LCAPM), I examine the impact of multiple sources of risk on corporate bond prices. The results do not lend strong support for the existence of liquidity risk in the corporate bond market or for the LCAPM, especially when liquidity is captured using the trading frequency, trading volume, and turnover. Contrary to the predictions of the LCAPM, more illiquid portfolios do not have higher values for the three liquidity betas; betas that capture the commonality in liquidity with the market, the sensitivity in returns with the market-wide liquidity, and the liquidity sensitivity with the market returns. Furthermore, after running cross-sectional regressions I do not find strong evidence either for the validity of the model or that liquidity risk does matter for the corporate bond prices.