This dissertation contains three chapters in financial economics that theoretically and empirically examine how individuals' investment decisions explain aggregate behavior. The first chapter examines how reputational herding between fund managers depends on the fee structure, fund manager evaluation metric, market efficiency, and density of talented fund managers. Results show there are more equilibria involving herding between fund managers when net fund balance growth depends on reputation of talent rather than fund return. These inefficient equilibria are removed when the ratio of the performance fee rate to management fee rate is larger than calculated thresholds that depend on market efficiency and the density of talented fund managers. In the absence of performance fees, lower predictability of investment returns and a higher density of talented fund managers increase the desire for fund managers to deviate from efficient equilibria. The model also shows having fund managers compete against each other induces herding when net fund balance growth depends on fund returns, but removes herding equilibria when net fund balance growth depends on reputation of talent. The second chapter determines what herding networks exist between institutional investors and how herding depends on stock market volatility, degree of portfolio changes, and stock size. Using quarterly holding data from 2000-2010, I find stronger herding networks between similar types of institutions compared to institutions in the same metropolitan area. Furthermore, the herding network between similar types of institutions exists across metropolitan areas. Results show institutions herd more when making major portfolio changes than when making minor portfolio changes. The difference in herding between the two types of portfolio changes is greatest for small cap stocks which exhibit the highest levels of herding under both types of portfolio changes. The relationship between market volatility and herding by institutions is also examined and found not to have a strong correlation using quarterly holdings data. The third chapter answers the question, "Can reasonable wind energy plant cost reductions or efficiency improvements precipitate immediate investment in wind energy in the absence of renewable energy Production Tax Credits?" I analyze a single entity considering an irreversible investment under uncertainty in wind power energy. The investor's decision to invest is dependent on investment cost, energy production efficiency, government policy, current price of electricity, and beliefs on future electricity prices. The results show that even with substantial cost reductions and efficiency improvements, Production Tax Credits are still needed to encourage immediate investment. / text

This dissertation consists of two empirical essays on the interactions among three financial markets, namely, the stock market, the options market, and the equity lending market. In the first essay, we study the role of analysts and options traders in the information transmission between options and stock markets. We first show that the predictive power of option-implied volatilities (IVs) on stock returns is more than doubled around analyst-related events, indicating a significant proportion of the options predictability on stock returns comes from informed options traders’ information about upcoming analyst-related news. We examine three explanations for this finding: tipping, reverse tipping and common information. We find that analyst tipping to options traders is the most consistent explanation of these predictive patterns. In the second essay, we examine the relationship between put options and short sales. We are able to separate the speculative demand of informed traders from the hedging demand of options market makers in the lending market. We find that the put option bid-ask spread and put option trading volume both increase with the equity lending fee. However, we also find that put option trading volume decreases with the lending fee for banned stocks during the 2008 Short-Sale Ban period, i.e., when only options market makers can short. These findings suggest that when informed traders are allowed to short, their speculative demand dominates and drives the substitution that is observed between the two financial instruments. Nevertheless, the “complementarity” of these financial instruments might prevail when options market makers significantly reduce the supply of put options because of high hedging costs. / published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

published_or_final_version / Economics / Master / Master of Social Sciences

No description available.

The valuation of real options has been of interest for some time. Recently, the model has been revised to include more than one source of randomness, e.g. Paxson and Pinto (2005). In this dissertation, we present a model with more than one diffusion process to analyze strategic interaction in a duopolistic framework. We consider a complete market where the profit per unit and the number of units sold are assumed to evolve according to distinct, but possibly correlated, geometric Brownian motions, and aim to extend Paxson and Pinto’s research to a wider context by adjusting the model to include the effect of the covariance between the stochastic factors. In particular, we present results in both the pre-emptive and non pre-emptive equilibrium case pertaining to the follower’s and leader’s value function. We also investigate the consequences for the model in relation to traditional net present value theory, and include an analysis of the comparative static relationships that exist between the parameters. We then conclude with a chapter that extends our two-variable model to three sources of randomness - first by allowing the investment cost to be modelled as a random once-off payment, and then by considering it to be a stochastically variable ongoing cost. Keywords Real options, complete markets, more than one stochastic process, competitive games, duopoly. / Thesis (M.Sc.)-University of KwaZulu-Natal, Westville, 2009.

Diss. Stockholm : Handelshögskolan, 2005.

Diss. (sammanfattning) Uppsala : Univ., 2004. / Härtill 6 uppsatser.

Thesis (Ph.D.)--University of Texas at Arlington, 2007.

Dissertation (Ph.D.)--Auburn University, 2007. / Abstract. Vita. Includes bibliographic references (p.128-134).

Thesis (Ph. D.)--Lehigh University, 1999. / Includes vita. Includes bibliographical references (leaves 201-206).