Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 1976 / Bibliography: leaves 115-121. / by Frederic S. Mishkin. / Ph. D. / Ph. D. Massachusetts Institute of Technology, Department of Economics

This paper focuses on policies and regulations on open economies to achieve financial stability and social welfare. In the first chapter, I develop a dynamic model to study optimal liquidity regulations for multiple assets with differing levels of liquidity. I show that optimal macroprudential policies are affected by both asset liquidity and the multi-asset structure. Lower asset liquidity amplifies drops in asset prices and tightens the collateral constraint during financial crises, thus raising macroprudential taxes to discourage holding. With multiple assets, the marginal benefit of investing in one asset is affected by the future cross-price elasticities of all assets. Quantitatively, optimal macroprudential policies increases welfare by introducing a portfolio with more liquid assets and less borrowing. However, the Basel III reform deteriorates welfare, as agents overaccumulate liquid assets. In the next chapter, I focuses on the welfare analysis of currency depreciation through endogenous R&D where the economy faces a trade-off between the gain from export and disinvestment of technology. I show that real depreciation decreases welfare when productivity is endogenous, as the long-term bust due to sluggish productivity dominates the short-term boom in consumption and output. In the final chapter, I study the optimal monetary policy in this framework. The optimal policy is a targeting rule of inflation, output gap, and the terms of trade, considering the trade-off between the international purchasing power and the cost of importing R&D. The variation of the optimal monetary policy is larger than the standard Taylor rule and the optimal monetary policy under exogenous productivity.

Law and Macro-Finance is a theoretical framework explaining the relationship between law and the macro-financial variables of liquidity and leverage. The framework's central theoretical claim is that strong creditor rights exacerbate the procyclicality of liquidity and leverage. Strong creditor rights have that effect because they create different incentives in different parts of the economic cycle. Strong creditor rights encourage creditors to lend in a credit boom, thereby increasing leverage and making the economy vulnerable to shocks through various leveraged-related channels. However, in a credit bust, the enforcement of strong creditors' rights can trigger an economic downturn or make it more difficult for the economy to recover from the shocks. The normative part of the Law and Macro-Finance framework revolves around regulating liquidity primarily through a countercyclical design of the strength of creditors' rights in bankruptcy and collateral law to ensure adequate levels of leverage in different parts of the economic cycle. The key elements of bankruptcy and collateral law that could be used for that purpose are the rules establishing the strength of money market investors' rights, including bankruptcy safe harbors, true sales doctrine, and rules around collateral rehypothecation.

Thesis (Ph. D.)--University of California, San Diego, 2002. / Vita. Includes bibliographical references.

Thesis (MComm)--Stellenbosch University, 2014. / ENGLISH ABSTRACT: Individual and institutional investors alike are continuously searching for investment styles and strategies that can yield enhanced risk-adjusted portfolio returns. In this regard, a number of investment styles have emerged in empirical analysis as explanatory factors of portfolio return. These include size (the rationale that small stocks outperform large stocks), value (high book-to-market ratio stocks outperform low book-to-market ratio stocks) and momentum (stocks currently outperforming will continue to do so). During the mid-eighties it has been proposed that liquidity (investing in low liquidity stocks relative to high liquidity stocks) is a missing investment style that can further enhance the risk-adjusted performance in the United States equity market. In the South African equity market this so-called liquidity effect, however, has remained largely unexplored. The focus of this study was therefore to determine whether the liquidity effect is prevalent in the South African equity market and whether by employing a liquidity strategy an investor could enhance risk-adjusted returns. This study was conducted over a period of 17 years, from 1996 to 2012. As a primary objective, this study analysed liquidity as a risk factor affecting portfolio returns, first as a residual purged from the influence of the market premium, size and book-to-market (value/growth) factors, and then in the presence of these explanatory factors affecting stock returns. Next, as a secondary objective, this study explored whether incorporating a liquidity style into passive portfolio strategies yielded enhanced risk-adjusted performance relative to other pure-liquidity and liquidity-neutral passive ‘style index’ strategies. The results from this study indicated that liquidity is not a statistically significant risk factor affecting broad market returns in the South African equity market. Instead the effect of liquidity is significant in small and low liquidity portfolios only. However, the study indicated that including liquidity as a risk factor improved the Fama-French three-factor model in capturing shared variation in stock returns. Lastly, incorporating a liquidity style into passive portfolio strategies yielded weak evidence of enhanced risk-adjusted performance relative to other pure-liquidity and liquidity-neutral passive ‘style index’ strategies. This research ultimately provided a better understanding of the return generating process of the South African equity market. It analysed previously omitted variables and gave an indication of how these factors influence returns. Furthermore, in analysing the risk- adjusted performance of liquidity-biased portfolio strategies, light was shed upon how a liquidity bias could influence portfolio returns. / AFRIKAANSE OPSOMMING: Individuele en institusionele beleggers is voortdurend op soek na beleggingstyle en strategieë wat verhoogde risiko-aangepaste portefeulje-opbrengste kan lewer. In hierdie verband is ’n aantal beleggingstyle deur empiriese analise geïdentifiseer as verklarende faktore van portefeulje-opbrengs. Hierdie style sluit in: grootte (die rasionaal dat klein aandele beter presteer as groot aandele), waarde (hoë boek-tot-mark verhouding aandele presteer beter as lae boek-tot-mark verhouding aandele) en momentum (aandele wat tans oorpresteer sal daarmee voortduur). Gedurende die midtagtigs is dit aangevoer dat likiditeit (die belegging in lae likiditeit aandele relatief tot hoë likiditeit aandele) ’n ontbrekende beleggingstyl is wat die risiko- aangepaste prestasie in die Verenigde State van Amerika (VSA) aandelemark verder kan verhoog. In die Suid-Afrikaanse aandelemark bly hierdie sogenaamde likiditeit-effek egter grootliks onverken. Die fokus van hierdie studie was dus om te bepaal of die likiditeit-effek teenwoordig is in die Suid-Afrikaanse aandelemark en of dit vir ’n belegger moontlik is om risiko-aangepaste opbrengste te verbeter deur ’n likiditeit-strategie te volg. Die studie is uitgevoer oor ’n tydperk van 17 jaar, vanaf 1996 tot 2012. As ’n primêre doelwit het hierdie studie likiditeit ontleed as ’n risiko faktor van portefeulje-opbrengste, eers as ’n residu-effek vry van die invloed van die markpremie, grootte en boek-tot-mark (waarde/groei) faktore, en daarna in die teenwoordigheid van hierdie verklarende faktore van aandeel opbrengste. As ’n sekondêre doelwit, het hierdie studie ondersoek of die insluiting van ’n likiditeit-styl in passiewe portefeulje-strategieë verbeterde risiko- aangepaste prestasie kan lewer relatief tot ander suiwer-likiditeit en likiditeit-neutrale passiewe ‘styl indeks’ strategieë. Die resultate van hierdie studie het aangedui dat likiditeit nie ’n statisties beduidende risiko faktor is wat die breë markopbrengs in die Suid-Afrikaanse aandelemark beïnvloed nie. In plaas daarvan is die effek van likiditeit beperk tot slegs klein en lae likiditeit portefeuljes. Die studie het wel aangedui dat die insluiting van likiditeit as ’n risiko faktor die Fama- French drie-faktor model verbeter in sy vermoë om die gedeelde variasie in aandeel opbrengste te verduidelik. Laastens lewer passiewe portefeulje strategieë, geïnkorporeer met ’n likiditeit-styl, swak bewyse van verbeterde risiko-aangepaste opbrengs relatief tot ander suiwer-likiditeit en likiditeit-neutrale passiewe ‘styl indeks’ strategieë. Hierdie navorsing verskaf ’n beter begrip van die opbrengs-genererende proses van die Suid-Afrikaanse aandelemark. Dit ontleed voorheen weggelate veranderlikes en gee ’n aanduiding van hoe hierdie faktore opbrengste beïnvloed. Daarbenewens word lig gewerp op die invloed van ’n likiditeit vooroordeel op portefeulje-opbrengste deur die risiko- aangepaste opbrengs van likiditeit-bevooroordeelde strategieë te analiseer.

Thesis (MBA)--Stellenbosch University, 2003 / ENGLISH ABSTRACT: According to the World Bank's leading economists Beck and Demlrquc-Kunt one of the major competitive advantages of countries competing for long-term economic growth is the existence of an efficient and liquid domestic stock market. A number of studies have already been performed to examine solitary aspects of stock liquidity, however, rather little work has been done to comprehensively investigate its fundamental set of determinants. Furthermore, none of these studies has ever attempted to specifically focus on African stock markets. Consequently, this study aims to determine the fundamental set of drivers of stock market liquidity in general terms and to investigate the specific conditions of African equity exchanges as part of the group of emerging stock markets. Data for three different samples is collected - comprising a maximum of 46 countries and 17 annual data points - and regression analysis is employed to analyse the relationship between stock market turnover as a proxy for liquidity and a set a potential predictors. Several pure cross-sectional as well as dynamic panel regression models are designed and the results reveal that the four predictors, comprising: number of listed companies, country credit rating, severe restrictions on foreign investors and geographical location on the African continent constitute the fundamental set of drivers of stock market liquidity. In the specific case of African stock markets, domestic banking sector development tends to be the strongest determinant of stock liquidity. This study provides a great deal of value to governments and exchange managers alike; however, it should be regarded as a starting point for subsequent papers analysing the fundamental determinants of stock liquidity. For future research efforts it is recommended to expand the set of potential predictors and specifically focus on the contemporaneous component of the relation between stock market liquidity and its determinants. / AFRIKAANSE OPSOMMING: Volgens die Wêreldbank se voorste ekonome, Beck en Dernirquc-Kunt, is een van die grootste mededingende voordele van lande wat meeding om langtermyn ekonomiese groei, die bestaan van 'n doeltreffende en likiede binnelandse aandelebeurs. 'n Aantal studies is reeds gedoen om die afsonderlike aspekte van effekte-likiditeit te ondersoek, maar redelik min werk is egter gedoen om die fundamentele bepalende faktore omvattend na te vors. Verder het geeneen van hierdie studies ooit probeer om spesifiek op Afrika-aandelebeurse te fokus nie. Gevolglik poog hierdie studie om die fundamentele stel drywers van aandelebeurslikiditeit in die algemeen te bepaal en om die spesifieke omstandighede van Afrika-aandelebeurse as deel van die groep ontwikkelende aandelebeurse te ondersoek. Data is versamel vir drie verskillende steekgroepe - bestaande uit 'n maksimum van 46 lande en 17 jaarlikse datapunte - en 'n regressie-analise is gebruik om die verhouding tussen aandelebeurs-omset as 'n aanduiding van likiditeit en 'n stel potensiële aanwysers te bepaal. Verskeie gewone kruisgewyse sowel as dinamiese paneelregressiemodelle is ontwerp en die resultate toon dat vier aanwysers, naamlik die aantal genoteerde maatskappye, die land se kredietgradering, ernstige beperkings op buitelandse beleggers en geografiese ligging op die Afrika-vasteland, die fundamentele stel drywers van aandelebeurs-likiditeit is. In die spesifieke geval van Afrika-aandelebeurse wil dit voorkom asof die ontwikkeling van 'n binnelandse banksektor die sterkste bepaler van effekte-likiditeit is. Hierdie studie is van waarde vir beide regerings en valutabestuurders. Dit moet egter as 'n beginpunt beskou word vir verdere studies wat die fundamentele bepalers van effekte-likiditeit analiseer. Vir verdere navorsingspogings word voorgestel dat die versameling moontlike aanwysers uitgebrei word en dat daar spesifiek gefokus word op die gelyktydige komponent van die verhouding tussen aandelebeurs-likiditeit en en sy bepalers.

published_or_final_version / abstract / Economics and Finance / Master / Master of Philosophy

by Kwong Tung Choi. / Bibliography : leaves 127-132 / Thesis (M.Phil.)--Chinese University of Hong Kong, 1982

This dissertation consists of three separate essays which address questions in the field of banking. The first two essays are motivated by the Great Recession, and study key aspects of the experience of commercial banks during this period. One is the impact of liquidity risk on credit supply, and the second is the effect of portfolio choices on the probability of bank failure. The third essay shifts the focus from commercial banks to M & A transactions, and studies the impact of a key provision in merger agreements on the initial offer premium and target firm value. In the first essay, titled "Liquidity Risk and the Credit Crunch of 2007-2009", I document the connection between liquidity risk and the credit crunch experienced during the financial crisis of 2007-2009. Using extensive micro-level data on mortgage loan applications, I construct a measure of the supply of credit that is free from demand-side bias. I then use this measure of credit supply to estimate the effect of cross-sectional differences in unused lines of credit and core-deposit funding on the supply of mortgage credit moving through the crisis. I find that lenders with higher liquidity risk contracted their supply of mortgage credit more. The channel of contraction was significantly stronger for larger lenders, which had the largest exposure to liquidity risk. The first phase of the contraction was due to liquidity risk arising from high exposure to lines of credit and was immediately followed by further tightening due to the collapse of the markets for wholesale funding. I estimate that the total contraction of mortgage lending due to liquidity stresses experienced by lenders during 2007-2009 was $41.5 billion - $61.9 billion, or 5.2%-7.8% of total mortgage originations during that period. In the second essay, titled "Commercial Bank Failures During The Great Recession: The Real (Estate) Story" I identify the channels through which shocks to the real estate sector contributed to the wave of commercial bank failures during the Great Recession. I focus on the banks' loan, marketable securities and credit line portfolios, and consider how choices which shifted the composition of each portfolio towards real estate products impacted the probability of bank failure. I find that augmenting a baseline model of failure with variables that capture the composition of these three portfolios improves the fit of the model by approximately 70% for small banks and 230% for large banks. I find no evidence that banks which held more of their loans in traditional closed-end mortgages suffered a higher probability of failure. Rather, it was investments in loans for multifamily properties and other non-household real estate loans, as well as off-balance sheet exposures to credit lines issued to non-household real estate borrowers, that are robustly identified as precursors of bank failure for both small and large banks. Exposure to open-end residential real estate loans contributed to the failure rates of small banks only. Exposure to private-label MBS is strongly associated with a higher probability of failure for large banks, but not for small ones. On the other hand, high holdings of agency MBS are associated with a higher probability of failure only for smaller banks, but this result is less robust. The third essay, titled "No Free Shop: Why Target Companies in MBOs and Private Equity Transactions Sometimes Choose Not to Buy 'Go Shop' Options" is joint work with Charles W. Calomiris and Donna M. Hitscherich. In this essay, we study the decisions by targets in private equity and MBO transactions whether to actively "shop" their initial acquisition agreements prior to the shareholders' approval of those contracts. Specifically, targets can insert a "go-shop" clause into their contracts, which permits them to use the agreement to solicit offers from other would-be acquirors during the "go-shop" window, during which the termination fee paid by the target is temporarily lowered. We consider the "go-shop" decision from the theoretical perspective of value maximization under asymmetric information, and also consider conflicts of interest on the parts of management, bankers, and attorneys that might affect the decision. Empirically, we find that the decision to retain the option to shop an offer is predicted by various firm attributes, including larger size, more fragmented ownership, and various characteristics of the firms' legal advisory team and procedures. These can be interpreted as reflecting a combination of informational characteristics, litigation risk, and attorney conflicts of interest. We employ legal advisor characteristics as instruments when analyzing the effects of go-shop decisions on target acquisition premia and value. We find, as predicted in our theoretical framework, that go-shops are not a free option; they result in lower initial acquisition premia, ceteris paribus. Our theoretical framework has an ambiguous prediction about the effects of go-shop choice on target firm valuation. Consistent with theory, we find no significant effect on abnormal returns from choosing a "go-shop" option.

Li, Xu. / Thesis submitted in: December 2008. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 41-43). / Abstracts in English and Chinese. / Abstract --- p.i / Acknowledgement --- p.ii / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Background Study --- p.6 / Chapter 3 --- Model Formulation --- p.8 / Chapter 3.1 --- Trading Cost Function --- p.9 / Chapter 3.2 --- Notations and Optimality Equation --- p.11 / Chapter 4 --- Optimal Policy --- p.14 / Chapter 4.1 --- Preliminary Assumption and Results --- p.14 / Chapter 4.1.1 --- "Generalized (s, 5, H) Policy" --- p.14 / Chapter 4.1.2 --- Polya Distribution and Quasi-K-convex --- p.15 / Chapter 4.1.3 --- Assumptions --- p.20 / Chapter 4.2 --- Single Period Problem --- p.23 / Chapter 4.3 --- Finite-Period Problem --- p.30 / Chapter 4.4 --- The Algorithm --- p.36 / Chapter 5 --- Conclusion --- p.39 / Bibliography --- p.41