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.

Prevalence and associations of Trypanosoma spp. and Sodalis glossinidius with intrinsic factors of tsetse flies

Trypanosomiasis has been identified as a neglected tropical disease in both humans and animals in many regions of sub-Saharan Africa. Whilst assessments of the biology of trypanosomes, vectors, vertebrate hosts and the environment have provided useful information about life cycles, transmission, and pathogenesis of the parasites that could be used for treatment and control, less information is available about the effects of interactions among multiple intrinsic factors on trypanosome presence in tsetse flies from different sites. It is known that multiple species of tsetse flies can transmit trypanosomes but differences in their vector competence has normally been studied in relation to individual factors in isolation, such as: intrinsic factors of the flies (e.g. age, sex); habitat characteristics; presence of endosymbionts (e.g. Wigglesworthia glossinidia, Sodalis glossinidius); feeding pattern; host communities that the flies feed on; and which species of trypanosomes are transmitted. The purpose of this study was to take a more integrated approach to investigate trypanosome prevalence in tsetse flies. In chapter 2, techniques were optimised for using the Polymerase Chain Reaction (PCR) to identify species of trypanosomes (Trypanosoma vivax, T. congolense, T. brucei, T. simiae, and T. godfreyi) present in four species of tsetse flies (Glossina austeni, G. brevipalpis, G. longipennis and G. pallidipes) from two regions of eastern Kenya (the Shimba Hills and Nguruman). Based on universal primers targeting the internal transcribed spacer 1 region (ITS-1), T. vivax was the predominant pathogenic species detected in flies, both singly and in combination with other species of trypanosomes. Using Generalised Linear Models (GLMs) and likelihood ratio tests to choose the best-fitting models, presence of T. vivax was significantly associated with an interaction between subpopulation (a combination between collection sites and species of Glossina) and sex of the flies (X2 = 7.52, df = 21, P-value = 0.0061); prevalence in females overall was higher than in males but this was not consistent across subpopulations. Similarly, T. congolense was significantly associated only with subpopulation (X2 = 18.77, df = 1, P-value = 0.0046); prevalence was higher overall in the Shimba Hills than in Nguruman but this pattern varied by species of tsetse fly. When associations were analysed in individual species of tsetse flies, there were no consistent associations between trypanosome prevalence and any single factor (site, sex, age) and different combinations of interactions were found to be significant for each. The results thus demonstrated complex interactions between vectors and trypanosome prevalence related to both the distribution and intrinsic factors of tsetse flies. The potential influence of the presence of S. glossinidius on trypanosome presence in tsetse flies was studied in chapter 3. A high number of Sodalis positive flies was found in the Shimba Hills, while there were only two positive flies from Nguruman. Presence or absence of Sodalis was significantly associated with subpopulation while trypanosome presence showed a significant association with age (X2 = 4.65, df = 14, P-value = 0.0310) and an interaction between subpopulation and sex (X2 = 18.94, df = 10, P-value = 0.0043). However, the specific associations that were significant varied across species of trypanosomes, with T. congolense and T. brucei but not T. vivax showing significant interactions involving Sodalis. Although it has previously been concluded that presence of Sodalis increases susceptibility to trypanosomes, the results presented here suggest a more complicated relationship, which may be biased by differences in the distribution and intrinsic factors of tsetse flies, as well as which trypanosome species are considered. In chapter 4 trypanosome status was studied in relation to blood meal sources, feeding status and feeding patterns of G. pallidipes (which was the predominant fly species collected for this study) as determined by sequencing the mitochondrial cytochrome B gene using DNA extracted from abdomen samples. African buffalo and African elephants were the main sources of blood meals but antelopes, warthogs, humans, giraffes and hyenas were also identified. Feeding on multiple hosts was common in flies sampled from the Shimba Hills but most flies from Nguruman had fed on single host species. Based on Multiple Correspondence Analysis (MCA), host-feeding patterns showed a correlation with site of sample collection and Sodalis status, while trypanosome status was correlated with sex and age of the flies, suggesting that recent host-feeding patterns from blood meal analysis cannot predict trypanosome status. In conclusion, the complexity of interactions found suggests that strategies of tsetse fly control should be specific to particular epidemic areas. Future studies should include laboratory experiments that use local colonies of tsetse flies, local strains of trypanosomes and local S. glossinidius under controlled environmental conditions to tease out the factors that affect vector competence and the relative influence of external environmental factors on the dynamics of these interactions.