This thesis contributes to the literature of asset comovement and crisis contagion in several aspects. First, it extends the study of contagion using an asset pricing framework to the two recent crises: the Global Financial crisis and the European debt crisis, and to a wider set of markets, including both developed and developing markets in order to compare and contrast the effects of different crises on different markets. Second, the thesis studies in detail the time-varying patterns of integration during crisis episodes. An interesting finding is that markets tend to become segmented during the latter half of a severe crisis. In other words, if a crisis is strong enough it can hamper the integration process. Such behaviours are observed in both developed and developing markets. Third, the thesis investigates the comovement and contagion of style portfolios in response to increasing interest in style investing. More specifically, it examines if portfolios sorted based on different firm characteristics exhibit different integration and contagion behaviours during different crises and finds distinct differences in the impact on integration and level of contagion from each crisis. The estimated results indicate complex integration patterns which have strong impacts on diversification. Similar to country portfolios, style portfolios also become segmented during the crises. Although contagion signals are detected, there is no clear evidence regarding which portfolios are more prone to contagion. Finally the thesis studies the behaviours of both time-varying global and regional integration patterns of each industry sector overtime and during each financial crisis and examines cross-region contagion for all the industries in the world. Empirical results provide evidence that contagion can occur in the same industry across region. Hence the result supports diversification across different industries across different regions rather than holding stocks of the same industry across regions.

This study examines the changes in return comovement around the listing and delisting of stock option contracts. We show that newly option listed stocks experience an increase in comovement with a portfolio of option listed stocks and a decrease in comovement with the portfolio of non-optioned stocks. Similarly, stocks that undergo option delisting exhibit a decrease in comovement with option listed stocks and an increase in comovement with non-optioned stocks. We verify the reliability of our findings in several ways. A matched sample analysis suggests that our results are not driven by factors other than option listing and we find similar results using a calendar-time approach. Further analysis reveals that commonalities in option trading may induce the comovement in the option listed stocks. Overall, our evidence is consistent with the predictions of the category or habitat view of comovement.

Thesis advisor: Susanto Basu / Thesis advisor: Fabio Ghironi / Empirical studies highlight that countries that trade intermediate goods exhibit more synchronized business cycles. This positive correlation raises the question of causality. Traditional theoretical mechanisms propose the direction where higher bilateral trade in intermediate goods causes increased business cycle correlations. However, the data shows that trade is positively correlated with comovements in GDP as well as total factor productivity (TFP) and the current work in the literature explains only the first relation. I build a small open economy model that makes two contributions -- first, it predicts both positive correlations as seen in the data. Second, it explains potential causality in the reverse direction, i.e. countries might choose trade partners based on the properties of their business cycles. Specifically, the model predicts that when the elasticity of substitution between domestic capital and intermediate imports is low, i.e. the country is constrained by domestic technology, there is greater benefit from trading with a positively correlated source and self-insuring through capital accumulation. I provide empirical evidence of this condition in the data by estimating the elasticity of substitution between capital and intermediates by industry using a panel of countries. We use annual time series data and filtering methods to document the key statistics of the India business cycle. Output, consumption and investment are more volatile than in developed economies. Like in developed countries, consumption is less volatile and investment is more volatile than output in the Indian data. Unlike in the former, investment is not highly correlated with output. We test whether a standard real business cycle model with technology and fiscal shocks, with parameters calibrated for the Indian economy can replicate the features of the business cycle. / Thesis (PhD) — Boston College, 2011. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

I introduce a novel approach for the empirical analysis of asset price comovement that relates the inter-firm textual similarity of news reports to their equity return correlation. I find that this measure of news similarity is just as important for predicting future cross-firm comovement as contemporaneous return correlation. This predictability remains after controlling for industry correlation, size, book-to-market, momentum, and price-decile correlation, index membership, and headquarters location, as well as institutional holding and analyst coverage. These results contribute to the growing literature examining the role of the media in financial markets, and provide empirical support for an alternative description of return comovement that does not depend on friction-based explanations such as "category," "habitat," or "information diffusion."

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Society depends on unbiased, efficient and replicable measurement tools to tell us more truthfully what is happening when our senses would otherwise fool us. A new approach is made to consistently detect the start and end of historic recessions as defined by the US Federal Reserve. To do this, three measures, correlation (Spearman and Pearson), Baur comovement and Kolmogorov complexity, are used to quantify market behaviour to detect recessions. To compare the effectiveness of each measure the normalized correct Area Under Curve (AUC) fraction is introduced. It is found that for all three measures, the performance is mostly dependent on the type of data and that financial market data does not perform as good as fundamental economical data to detect recessions. Furthermore, comovement is found to be the most efficient individual measure and also most efficient of all measures when compared against several measures merged together. / Samhället är beronde förväntningsriktiga, effektiva och replikerbara mätverktyg för att mer sanningsenligt informera vad som händer när våra sinnen lurar oss. Ett nytt tillvägagångssätt utvecklas för att konsekvent uppmäta början och slut av historiska lågkonjunkturer så som definierats av US Federal Reserve. För att göra detta används tre mätmetoder, korrelation (Spearman och Pearson), Baur comovement och Kolmogorovkomplexitet, för att kvantifiera marknadsbeteendet i avsikt att upptäcka lågkonjunkturer. För att jämföra effektiviteten hos varje metod introduceras normalized correct Area Under Curve (AUC) fraktionen. Det konstateras att effektiviteten hos alla tre metoder är främst beroende av vilken typ av data som används och att finansiell data inte fungerar lika bra som real ekonomiska data för att upptäcka lågkonjunkturer. Vidare visas att comovement är den mest effektiva individualla mätmetoden och även den mest effektiva metoden jämfört med sammanslagna metoder

This thesis gives a brief account on the segmented Chinese stock markets. The indexes of A shares, i.e. shares on the domestic market sold only to domestic investors and the H share index, i.e. foreign shares sold on a foreign stock market, Hong Kong, and sold only to foreigners are compared. With time, the Chinese government is opening up its stock market more and more and allowing more interaction between local and domestic stock markets, but one step at a time. Three major attempts to open up the markets are described and investigated on their effect on the integration of the H share market and the A share market. We checked for the introduction of CEPA, QDII and “through train”. The tests applied were ADF test, Engle-Granger cointegration test and Granger causality test. We found no cointegration for the entire sample and in none of the subsamples we used. The findings on the causality relations among the different stock markets don’t confirm any of the four causality relations defined before. We don’t see any unidirectional causality and it changes over time. We cannot confirm the global center hypothesis or the home bias hypothesis, but we can also not claim that the markets are completely segmented and show no correlation among prices. There is a correlation and there are causality links but they change every time the government changes its regulations. However, it is not clear what kind of regulations will make the causality change in which direction.

This thesis investigates the relationship between daily spot and futures prices for maturities of one, two, three and four months of West Texas Intermediate (WTI) crude oil. The data cover period January 1987-April 2015. Based on economic theory, the futures prices should be closely related to the spot price, which - in the case of crude oil market - this thesis analyses using wavelet-based approach. Main contributions of this thesis are findings in the field of time-frequency relationship of spot-futures prices of crude oil, where an alternative methodology - wavelet transformation - is used. The usage of this advanced method is also an additional contribution of this thesis because it allows us to rigorously study how co-movement (relationship) differs across frequencies/scales and time. In this thesis wavelet Coherence, wavelet bivariate correlation and relatively new method wavelet band spectral regression (WBLS) are used. This thesis brings 4 main findings. First, relationship between Futures and spot prices of crude oil is strong in all time-periods (frequencies/scales), which supports economic theory. Second and In contrary to the first finding, in the gasoline spot-futures market, we find that the relationship is strong mainly in higher scales (lower frequencies) while in lower scales (higher...

My dissertation consists of three essays in international capital markets. In Chapter I, we examine the herd trading behavior of institutional investors trading around the world. Using a new transaction-level trades database of 531 U.S. institutional investors trading across 37 countries for the period 2002-2009, we find robust evidence of intra- and inter-period herdings at the monthly frequency. We find no evidence that trades by institutions in our sample destabilize local stock markets. Further analysis shows that: (i) in the buy side, both intra- and inter-period herdings are more pronounced in countries with weaker information environments; and (ii) in the sell side, intra-period herding is more pronounced in countries with stronger information environments, whereas inter-period herding is not significantly related to information environments. In Chapter II, we document that the degree of co-movement between bilateral USD ex- change rates has increased substantially since the introduction of the euro in 1999 and investigate what drives the increased co-movement. For each of our 33 sampled bilateral USD exchange rates, we measure the degree of co-movement using the R-square from re- gressing weekly exchange rate changes on the weekly world exchange rate factor. Our results show that, for the majority of sample exchange rates, the R-square has increased substan- tially over the period 1999-2010. Specifically, the average R-square was 0.15 in 1999, but it increased to 0.47 by more than 200% in 2010. Further analysis reveals that the rising influence of the euro relative to USD over a third currency can explain most of the increase in the measured co-movement over time. In Chapter III, we examine the level and trend of U.S. domestic market integration. For each of our sample states, we construct the state (market) portfolio comprising public firms headquartered within the state and compute R-square, our measure of integration, from regressing state portfolio returns on national stock market factors. Using weekly returns, we estimate the regression for each year of our sample period 1963-2008. The key findings are: (i) For the majority of sample states, the R-square exhibits a statistically significant upward trend, implying that U.S. domestic stock markets were not fully integrated and have been integrating during the sample period; (ii) consistent with the previous result, the explanatory power of the state factor over individual stock returns has been decreasing for the majority of states; and (iii) the increasing integration of U.S. domestic stock markets is associated with the decreasing home state bias, suggesting that investors' pursuit of nation- wide investment opportunities may be a significant driver of domestic financial integration.

The objective of the study is to analyze the effects of two breakpoints on the relationships of Istanbul Stock Exchange with the European stock markets and on the relationships among these European stock markets to increase the economic integration. The breakpoints are the execution of the Customs Union Agreement of Turkey with the European Union in 1/1/1996 and the introduction of the Euro in 1/1/1999. While both breakpoints have effects on Turkey&rsquo / s economic relations, the European Union countries are expected to be influenced by only the introduction of the Euro. Stock market indices provided by DataStream is utilized. The statistical techniques used include the correlation and cointegration analysis. Results indicate that when examined on pair wise basis Turkish stock market has more liaisons with the European stock markets, in general, after the Customs Union / but less liaisons after the conversion to Euro. However, when examined as a group, the cointegration result finds the Euro as influential as the Customs Union. Alternatively, the European stock markets have decreasing integrations as a result of correlation analysis after the Euro, but it is an influential breakpoint according to cointegrating structures.