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.

The teaching of reading English in a foreign language in Libyan universities: methods and models

This study focuses on the learning and teaching of Reading in English as a Foreign Language (REFL), in Libya. The study draws on an action research process in which I sought to look critically at students and teachers of English as a Foreign Language (EFL) in Libya as they learned and taught REFL in four Libyan research sites. The Libyan EFL educational system is influenced by two main factors: the method of teaching the Holy-Quran and the long-time ban on teaching EFL by the former Libyan regime under Muammar Gaddafi. Both of these factors have affected the learning and teaching of REFL and I outline these contextual factors in the first chapter of the thesis. This investigation, and the exploration of the challenges that Libyan university students encounter in their REFL, is supported by attention to reading models. These models helped to provide an analytical framework and starting point for understanding the many processes involved in reading for meaning and in reading to satisfy teacher instructions. The theoretical framework I adopted was based, mainly and initially, on top-down, bottom-up, interactive and compensatory interactive models. I drew on these models with a view to understanding whether and how the processes of reading described in the models could be applied to the reading of EFL students and whether these models could help me to better understand what was going on in REFL. The diagnosis stage of the study provided initial data collected from four Libyan research sites with research tools including video-recorded classroom observations, semi-structured interviews with teachers before and after lesson observation, and think-aloud protocols (TAPs) with 24 students (six from each university) in which I examined their REFL reading behaviours and strategies. This stage indicated that the majority of students shared behaviours such as reading aloud, reading each word in the text, articulating the phonemes and syllables of words, or skipping words if they could not pronounce them. Overall this first stage indicated that alternative methods of teaching REFL were needed in order to encourage ‘reading for meaning’ that might be based on strategies related to eventual interactive reading models adapted for REFL. The second phase of this research project was an Intervention Phase involving two team-teaching sessions in one of the four stage one universities. In each session, I worked with the teacher of one group to introduce an alternative method of REFL. This method was based on teaching different reading strategies to encourage the students to work towards an eventual interactive way of reading for meaning. A focus group discussion and TAPs followed the lessons with six students in order to discuss the 'new' method. Next were two video-recorded classroom observations which were followed by an audio-recorded discussion with the teacher about these methods. Finally, I conducted a Skype interview with the class teacher at the end of the semester to discuss any changes he had made in his teaching or had observed in his students' reading with respect to reading behaviour strategies, and reactions and performance of the students as he continued to use the 'new' method. The results of the intervention stage indicate that the teacher, perhaps not surprisingly, can play an important role in adding to students’ knowledge and confidence and in improving their REFL strategies. For example, after the intervention stage, students began to think about the title, and to use their own background knowledge to comprehend the text. The students employed, also, linguistic strategies such as decoding and, above all, the students abandoned the behaviour of reading for pronunciation in favour of reading for meaning. Despite the apparent efficacy of the alternative method, there are, inevitably, limitations related to the small-scale nature of the study and the time I had available to conduct the research. There are challenges, too, related to the students’ first language, the idiosyncrasies of the English language, the teacher training and continuing professional development of teachers, and the continuing political instability of Libya. The students’ lack of vocabulary and their difficulties with grammatical functions such as phrasal and prepositional verbs, forms which do not exist in Arabic, mean that REFL will always be challenging. Given such constraints, the ‘new’ methods I trialled and propose for adoption can only go so far in addressing students’ difficulties in REFL. Overall, the study indicates that the Libyan educational system is underdeveloped and under resourced with respect to REFL. My data indicates that the teacher participants have received little to no professional developmental that could help them improve their teaching in REFL and skills in teaching EFL. These circumstances, along with the perennial problem of large but varying class sizes; student, teacher and assessment expectations; and limited and often poor quality resources, affect the way EFL students learn to read in English. Against this background, the thesis concludes by offering tentative conclusions; reflections on the study, including a discussion of its limitations, and possible recommendations designed to improve REFL learning and teaching in Libyan universities.