Essays in asset price bubbles

This thesis studies the field of asset price bubbles. It is comprised of three independent chapters. Each of these chapters either directly or indirectly analyse the existence or implications of asset price bubbles. The type of bubbles assumed in each of these chapters is consistent with rational expectations. Thus, the kind of price bubbles investigated here are known as rational bubbles in the literature. The following describes the three chapters. Chapter 1: This chapter attempts to explain the recent US housing price bubble by developing a heterogeneous agent endowment economy asset pricing model with risky housing, endogenous collateral and defaults. Investment in housing is subject to an idiosyncratic risk and some mortgages are defaulted in equilibrium. We analytically derive the leverage or the endogenous loan to value ratio. This variable comes from a limited participation constraint in a one period mortgage contract with monitoring costs. Our results show that low values of housing investment risk produces a credit easing effect encouraging excess leverage and generates credit driven rational price bubbles in the housing good. Conversely, high values of housing investment risk produces a credit crunch characterized by tight borrowing constraints, low leverage and low house prices. Furthermore, the leverage ratio was found to be procyclical and the rate of defaults countercyclical consistent with empirical evidence. Chapter 2: It is widely believed that financial assets have considerable persistence and are susceptible to bubbles. However, identification of this persistence and potential bubbles is not straightforward. This chapter tests for price bubbles in the United States housing market accounting for long memory and structural breaks. The intuition is that the presence of long memory negates price bubbles while the presence of breaks could artificially induce bubble behaviour. Hence, we use procedures namely semi-parametric Whittle and parametric ARFIMA procedures that are consistent for a variety of residual biases to estimate the value of the long memory parameter, d, of the log rent-price ratio. We find that the semi-parametric estimation procedures robust to non-normality and heteroskedasticity errors found far more bubble regions than parametric ones. A structural break was identified in the mean and trend of all the series which when accounted for removed bubble behaviour in a number of regions. Importantly, the United States housing market showed evidence for rational bubbles at both the aggregate and regional levels. In the third and final chapter, we attempt to answer the following question: To what extend should individuals participate in the stock market and hold risky assets over their lifecycle? We answer this question by employing a lifecycle consumption-portfolio choice model with housing, labour income and time varying predictable returns where the agents are constrained in the level of their borrowing. We first analytically characterize and then numerically solve for the optimal asset allocation on the risky asset comparing the return predictability case with that of IID returns. We successfully resolve the puzzles and find equity holding and participation rates close to the data. We also find that return predictability substantially alter both the level of risky portfolio allocation and the rate of stock market participation. High factor (dividend-price ratio) realization and high persistence of factor process indicative of stock market bubbles raise the amount of wealth invested in risky assets and the level of stock market participation, respectively. Conversely, rare disasters were found to bring down these rates, the change being severe for investors in the later years of the life-cycle. Furthermore, investors following time varying returns (return predictability) hedged background risks significantly better than the IID ones.

Life history & environmental effects on telomere dynamics in Atlantic salmon

While much of the study of molecular biology inevitably focuses on the parts of the genome that contain active genes, there are also non-coding regions that nonetheless play an essential role in maintaining genome integrity. One such region are telomeres, which cap the ends of all eukaryotic chromosomes and play an important role in chromosome protection. Telomere loss occurs at each cell division as a result of the ‘end replication problem’ and a relatively short telomere length is indicative of poor biological state. Thus far, the majority of studies on the dynamics and role of telomeres have been biased towards certain taxa. Research to date has mostly focussed on humans, other mammals and birds. There has been far less research on the telomere dynamics of ectotherms. It is important that we do so, especially since ectothermic vertebrates do not seem to down-regulate telomerase expression in the same way as endotherms, suggesting that their telomere dynamics may be less predictable in the later life stages. The main objective of this thesis was therefore to investigate how life history and environmental effects may influence telomere dynamics in Atlantic salmon Salmo salar. I carried out carefully designed experiments, both in the laboratory and in the wild, using a longitudinal approach where possible, in order to address a number of specific questions that are connected to this central theme. In chapter 2, I demonstrate that there can be significant links between parental life history and offspring telomere dynamics. Maternal life history traits, in particular egg size, were most strongly related to offspring telomere length at the embryonic stages. Paternal life history traits, such as early life growth rate, had a greater association with offspring telomere dynamics in the later stages of development. In chapter 3, using a wild Atlantic salmon population, I found that most individuals experienced a reduction in telomere length during the migratory phase of their life cycle; however the relative rate of telomere loss was dependent on sex, with males experiencing a relatively greater loss. Unexpectedly, I also found that juvenile salmon that had the shortest telomeres at the time of outward migration, had the greatest probability of surviving through to the return migration. In chapter 4, again using a wild system involving experimental manipulations of juvenile Atlantic salmon in Scottish streams, I found that telomere length in juvenile fish was influenced by parental traits and by direct environmental effects. Faster-growing fish had shorter telomeres and there was a greater cost (in terms of reduced telomere length) if the growth occurred in a harsher environment. I also found a positive association between offspring telomere length and the growth history of their fathers (but not mothers), represented by the number of years that fathers had spent at sea. Chapter 5 explored the hypotheses that oxidative DNA damage, catalase (CAT) antioxidant activity and cell proliferation rate are underlying mechanisms linking incubation temperature and telomere dynamics in salmon embryos. No evidence was found for any such effects, but telomere lengths in salmon embryos were found to be significantly affected by the temperature of the water in which they were living. There is also evidence that telomere length significantly increases during embryonic development. In summary, this thesis has shown that a complex mix of environmental and parental effects appear to influence telomere dynamics in Atlantic salmon, with parental effects especially evident during early life stages. It also demonstrated that telomeres lengthen through the embryo stages of development before reducing once the fry begin feeding, indicating that the patterns of telomere loss commonly found in endotherms may differ in ectotherms. Reasons for this variation in telomere dynamics are presented in the final Discussion chapter of the thesis.