Three essays in risky behaviors

A PhD Dissertation, presented as part of the requirements for the Degree of Doctor of Philosophy from the NOVA - School of Business and Economics

Board independence and innovation

Legislation introduced in the U.S. in 2002/2003 significantly changed board composition of public firms by imposing a 50% independent directors’ ratio. Research on the effect of independent directors is not consensual, implying that this exogenous shock is a unique opportunity to study their importance. This study answers the question of whether or not independent directors can effectively mitigate agency conflicts between shareholders and the management, having a positive impact on the choice of successful R&D projects. We find that an increase of board independence has a positive impact on patent counts. Hence, the results support that independent directors truly spur innovation and risk taking.

Search-for-yield in Portuguese fixed-income mutual funds and monetary policy

This paper studies the effects of monetary policy on mutual fund risk taking using a sample of Portuguese fixed-income mutual funds in the 2000-2012 period. Firstly I estimate time-varying measures of risk exposure (betas) for the individual funds, for the benchmark portfolio, as well as for a representative equally-weighted portfolio, through 24-month rolling regressions of a two-factor model with two systematic risk factors: interest rate risk (TERM) and default risk (DEF). Next, in the second phase, using the estimated betas, I try to understand what portion of the risk exposure is in excess of the benchmark (active risk) and how it relates to monetary policy proxies (one-month rate, Taylor residual, real rate and first principal component of a cross-section of government yields and rates). Using this methodology, I provide empirical evidence that Portuguese fixed-income mutual funds respond to accommodative monetary policy by significantly increasing exposure, in excess of their benchmarks, to default risk rate and slightly to interest risk rate as well. I also find that the increase in funds’ risk exposure to gain a boost in return (search-for-yield) is more pronounced following the 2007-2009 global financial crisis, indicating that the current historic low interest rates may incentivize excessive risk taking. My results suggest that monetary policy affects the risk appetite of non-bank financial intermediaries.

The flow-performance relationship around the world

We use a new dataset to study how mutual fund flows depend on past performance across 28 countries. We show that there are marked differences in the flow-performance relationship across countries, suggesting that US findings concerning its shape do not apply universally. We find that mutual fund investors sell losers more and buy winners less in more developed countries. This is because investors in more developed countries are more sophisticated and face lower costs of participating in the mutual fund industry. Higher country-level convexity is positively associated with higher levels of risk taking by fund managers.

Geospatial database generation from digital newspapers: use case for risk and disaster domains.

Dissertation submitted in partial fulfilment of the requirements for the Degree of Master of Science in Geospatial Technologies.

Development of an integrative approach for the characterization of ecological risk on marine transition ecosystems: the Sado Estuary as a case study

Estuaries and other transitional waters are complex ecosystems critically important as nursery and shelter areas for organisms. Also, humans depend on estuaries for multiple socio-economical activities such as urbanism, tourism, heavy industry, (taking advantage of shipping), fisheries and aquaculture, the development of which led to strong historical pressures, with emphasis on pollution. The degradation of estuarine environmental quality implies ecologic, economic and social prejudice, hence the importance of evaluating environmental quality through the identification of stressors and impacts. The Sado Estuary (SW Portugal) holds the characteristics of industrialized estuaries, which results in multiple adverse impacts. Still, it has recently been considered moderately contaminated. In fact, many studies were conducted in the past few years, albeit scattered due to the absence of true biomonitoring programmes. As such, there is a need to integrate the information, in order to obtain a holistic perspective of the area able to assist management and decision-making. As such, a geographical information system (GIS) was created based on sediment contamination and biomarker data collected from a decade-long time-series of publications. Four impacted and a reference areas were identified, characterized by distinct sediment contamination patterns related to different hot spots and diffuse sources of toxicants. The potential risk of sediment-bound toxicants was determined by contrasting the levels of pollutants with available sediment quality guidelines, followed by their integration through the Sediment Quality guideline Quotient (SQG-Q). The SQG-Q estimates per toxicant or class was then subjected to georreferencing and statistical analyses between the five distinct areas and seasons. Biomarker responses were integrated through the Biomarkers Consistency Indice and georreferenced as well through GIS. Overall, in spite of the multiple biological traits surveyed, the biomarker data (from several organisms) are accordant with sediment contamination. The most impacted areas were the shipyard area and adjacent industrial belt, followed by urban and agricultural grounds. It is evident that the estuary, although globally moderately impacted, is very heterogeneous and affected by a cocktail of contaminants, especially metals and polycyclic aromatic hydrocarbon. Although elements (like copper, zinc and even arsenic) may originate from the geology of the hydrographic basin of the Sado River, the majority of the remaining contaminants results from human activities. The present work revealed that the estuary should be divided into distinct biogeographic units, in order to implement effective measures to safeguard environmental quality.