Essays in higher moment asset pricing and liquidity risk

This thesis focuses on theoretical asset pricing models and their empirical applications. I aim to investigate the following noteworthy problems: i) if the relationship between asset prices and investors' propensities to gamble and to fear disaster is time varying, ii) if the conflicting evidence for the firm and market level skewness can be explained by downside risk, Hi) if costly learning drives liquidity risk. Moreover, empirical tests support the above assumptions and provide novel findings in asset pricing, investment decisions, and firms' funding liquidity. The first chapter considers a partial equilibrium model where investors have heterogeneous propensities to gamble and fear disaster. Skewness preference represents the desire to gamble, while kurtosis aversion represents fear of extreme returns. Using US data from 1988 to 2012, my model demonstrates that in bad times, risk aversion is higher, more people fear disaster, and fewer people gamble, in contrast to good times. This leads to a new empirical finding: gambling preference has a greater impact on asset prices during market downturns than during booms. The second chapter consists of two essays. The first essay introduces a foramula based on conditional CAPM for decomposing the market skewness. We find that the major market upward and downward movements can be well preadicted by the asymmetric comovement of betas, which is characterized by an indicator called "Systematic Downside Risk" (SDR). We find that SDR can efafectively forecast future stock market movements and we obtain out-of-sample R-squares (compared with a strategy using historical mean) of more than 2.27% with monthly data. The second essay reconciles a well-known empirical fact: aggregating positively skewed firm returns leads to negatively skewed market return. We reconcile this fact through firms' greater response to negative maraket news than positive market news. We also propose several market return predictors, such as downside idiosyncratic skewness. The third chapter studies the funding liquidity risk based on a general equialibrium model which features two agents: one entrepreneur and one external investor. Only the investor needs to acquire information to estimate the unobservable fundamentals driving the economic outputs. The novelty is that information acquisition is more costly in bad times than in good times, i.e. counter-cyclical information cost, as supported by previous empirical evidence. Later we show that liquidity risks are principally driven by costly learning. Résumé Cette thèse présente des modèles théoriques dévaluation des actifs et leurs applications empiriques. Mon objectif est d'étudier les problèmes suivants: la relation entre l'évaluation des actifs et les tendances des investisseurs à parier et à crainadre le désastre varie selon le temps ; les indications contraires pour l'entreprise et l'asymétrie des niveaux de marché peuvent être expliquées par les risques de perte en cas de baisse; l'apprentissage coûteux augmente le risque de liquidité. En outre, des tests empiriques confirment les suppositions ci-dessus et fournissent de nouvelles découvertes en ce qui concerne l'évaluation des actifs, les décisions relatives aux investissements et la liquidité de financement des entreprises. Le premier chapitre examine un modèle d'équilibre où les investisseurs ont des tendances hétérogènes à parier et à craindre le désastre. La préférence asymétrique représente le désir de parier, alors que le kurtosis d'aversion représente la crainte du désastre. En utilisant les données des Etats-Unis de 1988 à 2012, mon modèle démontre que dans les mauvaises périodes, l'aversion du risque est plus grande, plus de gens craignent le désastre et moins de gens parient, conatrairement aux bonnes périodes. Ceci mène à une nouvelle découverte empirique: la préférence relative au pari a un plus grand impact sur les évaluations des actifs durant les ralentissements de marché que durant les booms économiques. Exploitant uniquement cette relation générera un revenu excédentaire annuel de 7,74% qui n'est pas expliqué par les modèles factoriels populaires. Le second chapitre comprend deux essais. Le premier essai introduit une foramule base sur le CAPM conditionnel pour décomposer l'asymétrie du marché. Nous avons découvert que les mouvements de hausses et de baisses majeures du marché peuvent être prédits par les mouvements communs des bêtas. Un inadicateur appelé Systematic Downside Risk, SDR (risque de ralentissement systématique) est créé pour caractériser cette asymétrie dans les mouvements communs des bêtas. Nous avons découvert que le risque de ralentissement systématique peut prévoir les prochains mouvements des marchés boursiers de manière efficace, et nous obtenons des carrés R hors échantillon (comparés avec une stratégie utilisant des moyens historiques) de plus de 2,272% avec des données mensuelles. Un investisseur qui évalue le marché en utilisant le risque de ralentissement systématique aurait obtenu une forte hausse du ratio de 0,206. Le second essai fait cadrer un fait empirique bien connu dans l'asymétrie des niveaux de march et d'entreprise, le total des revenus des entreprises positiveament asymétriques conduit à un revenu de marché négativement asymétrique. Nous décomposons l'asymétrie des revenus du marché au niveau de l'entreprise et faisons cadrer ce fait par une plus grande réaction des entreprises aux nouvelles négatives du marché qu'aux nouvelles positives du marché. Cette décomposition révélé plusieurs variables de revenus de marché efficaces tels que l'asymétrie caractéristique pondérée par la volatilité ainsi que l'asymétrie caractéristique de ralentissement. Le troisième chapitre fournit une nouvelle base théorique pour les problèmes de liquidité qui varient selon le temps au sein d'un environnement de marché incomplet. Nous proposons un modèle d'équilibre général avec deux agents: un entrepreneur et un investisseur externe. Seul l'investisseur a besoin de connaitre le véritable état de l'entreprise, par conséquent, les informations de paiement coutent de l'argent. La nouveauté est que l'acquisition de l'information coute plus cher durant les mauvaises périodes que durant les bonnes périodes, comme cela a été confirmé par de précédentes expériences. Lorsque la récession comamence, l'apprentissage coûteux fait augmenter les primes de liquidité causant un problème d'évaporation de liquidité, comme cela a été aussi confirmé par de précédentes expériences.

Essays in equilibrium asset pricing

This thesis consists of four essays in equilibrium asset pricing. The main topic is investors' heterogeneity: I investigates the equilibrium implications for the financial markets when investors have different attitudes toward risk. The first chapter studies why expected risk and remuneration on the aggregate market are negatively related, even if intuition and standard theory suggest a positive relation. I show that the negative trade-off can obtain in equilibrium if investors' beliefs about economic fundamentals are procyclically biased and the market Sharpe ratio is countercyclical. I verify that such conditions hold in the real markets and I find empirical support for the risk-return dynamics predicted by the model. The second chapter consists of two essays. The first essay studies how het¬erogeneity in risk preferences interacts with other sources of heterogeneity and how this affects asset prices in equilibrium. Using perceived macroeconomic un¬certainty as source of heterogeneity, the model helps to explain some patterns of financial returns, even if heterogeneity is small as suggested by survey data. The second essay determines conditions such that equilibrium prices have analytical solutions when investors have heterogeneous risk attitudes and macroeconomic fundamentals feature latent uncertainty. This approach provides additional in-sights to the previous literature where models require numerical solutions. The third chapter studies why equity claims (i.e. assets paying a single future dividend) feature premia and risk decreasing with the horizon, even if standard models imply the opposite shape. I show that labor relations helps to explain the puzzle. When workers have bargaining power to exploit partial income insurance within the firm, wages are smoother and dividends are riskier than in a standard economy. Distributional risk among workers and shareholders provides a rationale to the equity short-term risk, which leads to downward sloping term structures of premia and risk for equity claim. Résumé Cette thèse se compose de quatre essais dans l'évaluation des actifs d'équilibre. Le sujet principal est l'hétérogénéité des investisseurs: J'étudie les implications d'équilibre pour les marchés financiers où les investisseurs ont des attitudes différentes face au risque. Le première chapitre étudie pourquoi attendus risque et la rémunération sur le marché global sont liées négativement, même si l'intuition et la théorie standard suggèrent une relation positive. Je montre que le compromis négatif peut obtenir en équilibre si les croyances des investisseurs sur les fondamentaux économiques sont procyclique biaisées et le ratio de Sharpe du marché est anticyclique. Je vérifier que ces conditions sont réalisées dans les marchés réels et je trouve un appui empirique à la dynamique risque-rendement prédites par le modèle. Le deuxième chapitre se compose de deux essais. Le première essai étudie com¬ment hétérogénéité dans les préférences de risque inter agit avec d'autres sources d'hétérogénéité et comment cela affecte les prix des actifs en équilibre. Utili¬sation de l'incertitude macroéconomique perù comme source d'hétérogénéité, le modèle permet d'expliquer certaines tendances de rendements financiers, même si l'hétérogénéité est faible comme suggéré par les données d'enquête. Le deuxième essai détermine des conditions telles que les prix d'équilibre disposer de solutions analytiques lorsque les investisseurs ont des attitudes des risques hétérogènes et les fondamentaux macroéconomiques disposent d'incertitude latente. Cette approche fournit un éclairage supplémentaire à la littérature antérieure où les modèles nécessitent des solutions numériques. Le troisième chapitre étudie pourquoi les equity-claims (actifs que paient un seul dividende futur) ont les primes et le risque décroissante avec l'horizon, mme si les modèles standards impliquent la forme opposée. Je montre que les relations de travail contribue à expliquer l'énigme. Lorsque les travailleurs ont le pouvoir de négociation d'exploiter assurance revenu partiel dans l'entreprise, les salaires sont plus lisses et les dividendes sont plus risqués que dans une économie standard. Risque de répartition entre les travailleurs et les actionnaires fournit une justification à le risque à court terme, ce qui conduit à des term-structures en pente descendante des primes et des risques pour les equity-claims.

New electrocardiographic criteria for discriminating between Brugada types 2 and 3 patterns and incomplete right bundle branch block.

OBJECTIVES: The aim of this study was to evaluate new electrocardiographic (ECG) criteria for discriminating between incomplete right bundle branch block (RBBB) and the Brugada types 2 and 3 ECG patterns. BACKGROUND: Brugada syndrome can manifest as either type 2 or type 3 pattern. The latter should be distinguished from incomplete RBBB, present in 3% of the population. METHODS: Thirty-eight patients with either type 2 or type 3 Brugada pattern that were referred for an antiarrhythmic drug challenge (AAD) were included. Before AAD, 2 angles were measured from ECG leads V(1) and/or V(2) showing incomplete RBBB: 1) α, the angle between a vertical line and the downslope of the r'-wave, and 2) β, the angle between the upslope of the S-wave and the downslope of the r'-wave. Baseline angle values, alone or combined with QRS duration, were compared between patients with negative and positive results on AAD. Receiver-operating characteristic curves were constructed to identify optimal discriminative cutoff values. RESULTS: The mean β angle was significantly smaller in the 14 patients with negative results on AAD compared to the 24 patients with positive results on AAD (36 ± 20° vs. 62 ± 20°, p < 0.01). Its optimal cutoff value was 58°, which yielded a positive predictive value of 73% and a negative predictive value of 87% for conversion to type 1 pattern on AAD; α was slightly less sensitive and specific compared with β. When the angles were combined with QRS duration, it tended to improve discrimination. CONCLUSIONS: In patients with suspected Brugada syndrome, simple ECG criteria can enable discrimination between incomplete RBBB and types 2 and 3 Brugada patterns.

Double-bundle transtibial posterior cruciate ligament reconstruction with a tendon-patellar bone-semitendinosus tendon autograft: clinical results with a minimum of 2 years' follow-up.

PURPOSE: The purpose of this study was to evaluate the clinical and subjective outcomes after arthroscopic-assisted double-bundle posterior cruciate ligament (PCL) reconstruction. METHODS: A series of 15 patients with grade III isolated chronic PCL tears underwent double-bundle PCL reconstruction. Of these patients, 8 (53%) had simultaneous fractures. The mean time from accident to surgery was 10.8 months (range, 8 to 15 months). The mean age at the time of surgery was 28.2 years (range, 17 to 43 years). All of the patients reported knee insecurity during activities of daily living or light sporting activities, with associated anterior knee pain in 5 patients. Preoperatively, posterolateral or posteromedial corner injuries were ruled out through accurate clinical examination. The knees were assessed before surgery and at a mean follow-up of 3.2 years (range, 2 to 5 years) with a physical examination, 4 different rating scales, and stress radiographs obtained with a Telos device (Telos, Marburg, Germany). RESULTS: Postoperative physical examination revealed a reduction of the posterior drawer and tibial step-off in all cases, although the posterior laxity was not completely normalized. Nevertheless, the patients were subjectively better after surgery. The subjective International Knee Documentation Committee score was significantly ameliorated. With regard to the objective International Knee Documentation Committee score, 6 knees (40%) were graded as abnormal because of posterior displacement of 6 mm or greater on follow-up stress radiographs with the Telos device. On the Lysholm knee scoring scale, the score was excellent in 13% of patients and good in 87%. The mean score on the Hospital for Special Surgery knee ligament rating scale was 85.8. The Tegner activity score showed an amelioration after surgery, but no patient resumed his or her preinjury level of activities. The postoperative stress radiographs revealed an improvement in posterior instability of 50% or more in all but 3 knees (20%). CONCLUSIONS: Our technique of double-bundle PCL reconstruction produced a significant reduction in knee symptoms and allowed the patients to return to moderate or strenuous activity, although the posterior tibial translation was not completely normalized and our results appear to be no better than the results of single-bundle PCL reconstruction. LEVEL OF EVIDENCE: Level IV, therapeutic case series.

A new electrocardiographic criteria for discriminating between Brugada types 2 and 3 patterns and incomplete right bundle branch block

Le syndrome de Brugada, une affection rythmique du sujet jeune potentiellement fatale, se manifeste sur l'ECG par un bloc de branche droit (BBD) complet, avec sus-décalage majeur du segment ST et inversion des ondes Τ de V1 à V3 appelé pattern de type 1. Cette présentation peut être intermittente. Les manifestations incomplètes du syndrome de Brugada sont appelées patterns de types 2 ou 3, et sont caractérisées par un BBD incomplet et un sus-décalage ST plus ou moins prononcé dans les dérivations V-, et V2 de l'ECG. Cette description, cependant, est aussi celle du BBD incomplet fréquemment rencontré chez les sujets jeunes, de moins de 40 ans, et présent dans 3% de la population. Bo nombre de ces sujets sont donc référés pour une recherche de syndrome de Brugada. Le but de cette thèse est donc d'évaluer de nouveaux critères permettant de discriminer les BBD incomplets, banals, des sujets porteurs d'un syndrome de Brugada de types 2 ou 3. Trente-huit patients avec un pattern de Brugada de types 2 et 3, référés pour un test médicamenteux utilisant un antiarythmique révélant un pattern de type 1 chez les sujets porteurs, ont été inclus dans l'étude. Avant le test médicamenteux, deux angles ont été mesurés sur les dérivations Vi et/ou V2 : a, l'angle entre une ligne verticale et la descente de l'onde r', et β, l'angle entre la montée de l'onde S et la descente de l'onde r'. Les mesure à l'état basai des deux angles, seules ou combinées avec la durée du QRS, on été comparées entre les patients avec une épreuve pharmacologique positive et ceux dont l'épreuve s'est révélée négative (i.e. servant de groupe contrôle car porteur d'un véritable BBD incomplet). Des courbes ROC ont été établies afin de déterminer les valeurs d'angles les plus discriminantes. La moyenne des angles β était significativement plus petite chez les 14 patients avec un test pharmacologique négatif comparé aux 24 patients avec un test positif. La valeur optimale pour l'angle β était de 58°, ce qui donnait une valeur prédictive positive de 73% et une valeur prédictive négative de 97% pour une conversion en pattern de type 1 lors du test pharmacologique. L'angle α était un peu moins sensible et spécifique que β. Quand les angles étaient combinés à la durée du QRS, on observait une discrète amélioration de la discrimination entre les deux populations. Notre travail permet donc, chez des patients suspects d'un syndrome de Brugada, de discriminer entre un BBD incomplet et les patterns de Brugada types 2 et 3 en utilisant un critère simple basé sur l'ECG de surface potentiellement applicable au lit du patient

Essays in general equilibrium asset pricing

ABSTRACT : Research in empirical asset pricing has pointed out several anomalies both in the cross section and time series of asset prices, as well as in investors' portfolio choice. This dissertation aims to discover the forces driving some of these "puzzling" asset pricing dynamics and portfolio decisions observed in the financial market. Through the dissertation I construct and study dynamic general equilibrium models of heterogeneous investors in the presence of frictions and evaluate quantitatively their implications for financial-market asset prices and portfolio choice. I also explore the potential roots of puzzles in international finance. Chapter 1 shows that, by introducing jointly endogenous no-default type of borrowing constraints and heterogeneous beliefs in a dynamic general-equilibrium economy, many empirical features of stock return volatility can be reproduced. While most of the research on stock return volatility is empirical, this paper provides a theoretical framework that is able to reproduce simultaneously the cross section and time series stylized facts concerning stock returns and their volatility. In contrast to the existing theoretical literature related to stock return volatility, I don't impose persistence or regimes in any of the exogenous state variables or in preferences. Volatility clustering, asymmetry in the stock return-volatility relationship, and pricing of multi-factor volatility components in the cross section all arise endogenously as a consequence of the feedback between the binding of no-default constraints and heterogeneous beliefs. Chapters 2 and 3 explore the implications of differences of opinion across investors in different countries for international asset pricing anomalies. Chapter 2 demonstrates that several international finance "puzzles" can be reproduced by a single risk factor which captures heterogeneous beliefs across international investors. These puzzles include: (i) home equity preference; (ii) the dependence of firm returns on local and foreign factors; (iii) the co-movement of returns and international capital flows; and (iv) abnormal returns around foreign firm cross-listing events in the local market. These are reproduced in a setup with symmetric information and in a perfectly integrated world with multiple countries and independent processes producing the same good. Chapter 3 shows that by extending this framework to multiple goods and correlated production processes; the "forward premium puzzle" arises naturally as a compensation for the heterogeneous expectations about the depreciation of the exchange rate held by international investors. Chapters 2 and 3 propose differences of opinion across international investors as the potential resolution of several international finance `puzzles'. In a globalized world where both capital and information flow freely across countries, this explanation seems more appealing than existing asymmetric information or segmented markets theories aiming to explain international finance puzzles.

Three essays in financial economics: asset pricing, optimal portfolio selection and financial integration

Executive Summary The unifying theme of this thesis is the pursuit of a satisfactory ways to quantify the riskureward trade-off in financial economics. First in the context of a general asset pricing model, then across models and finally across country borders. The guiding principle in that pursuit was to seek innovative solutions by combining ideas from different fields in economics and broad scientific research. For example, in the first part of this thesis we sought a fruitful application of strong existence results in utility theory to topics in asset pricing. In the second part we implement an idea from the field of fuzzy set theory to the optimal portfolio selection problem, while the third part of this thesis is to the best of our knowledge, the first empirical application of some general results in asset pricing in incomplete markets to the important topic of measurement of financial integration. While the first two parts of this thesis effectively combine well-known ways to quantify the risk-reward trade-offs the third one can be viewed as an empirical verification of the usefulness of the so-called "good deal bounds" theory in designing risk-sensitive pricing bounds. Chapter 1 develops a discrete-time asset pricing model, based on a novel ordinally equivalent representation of recursive utility. To the best of our knowledge, we are the first to use a member of a novel class of recursive utility generators to construct a representative agent model to address some long-lasting issues in asset pricing. Applying strong representation results allows us to show that the model features countercyclical risk premia, for both consumption and financial risk, together with low and procyclical risk free rate. As the recursive utility used nests as a special case the well-known time-state separable utility, all results nest the corresponding ones from the standard model and thus shed light on its well-known shortcomings. The empirical investigation to support these theoretical results, however, showed that as long as one resorts to econometric methods based on approximating conditional moments with unconditional ones, it is not possible to distinguish the model we propose from the standard one. Chapter 2 is a join work with Sergei Sontchik. There we provide theoretical and empirical motivation for aggregation of performance measures. The main idea is that as it makes sense to apply several performance measures ex-post, it also makes sense to base optimal portfolio selection on ex-ante maximization of as many possible performance measures as desired. We thus offer a concrete algorithm for optimal portfolio selection via ex-ante optimization over different horizons of several risk-return trade-offs simultaneously. An empirical application of that algorithm, using seven popular performance measures, suggests that realized returns feature better distributional characteristics relative to those of realized returns from portfolio strategies optimal with respect to single performance measures. When comparing the distributions of realized returns we used two partial risk-reward orderings first and second order stochastic dominance. We first used the Kolmogorov Smirnov test to determine if the two distributions are indeed different, which combined with a visual inspection allowed us to demonstrate that the way we propose to aggregate performance measures leads to portfolio realized returns that first order stochastically dominate the ones that result from optimization only with respect to, for example, Treynor ratio and Jensen's alpha. We checked for second order stochastic dominance via point wise comparison of the so-called absolute Lorenz curve, or the sequence of expected shortfalls for a range of quantiles. As soon as the plot of the absolute Lorenz curve for the aggregated performance measures was above the one corresponding to each individual measure, we were tempted to conclude that the algorithm we propose leads to portfolio returns distribution that second order stochastically dominates virtually all performance measures considered. Chapter 3 proposes a measure of financial integration, based on recent advances in asset pricing in incomplete markets. Given a base market (a set of traded assets) and an index of another market, we propose to measure financial integration through time by the size of the spread between the pricing bounds of the market index, relative to the base market. The bigger the spread around country index A, viewed from market B, the less integrated markets A and B are. We investigate the presence of structural breaks in the size of the spread for EMU member country indices before and after the introduction of the Euro. We find evidence that both the level and the volatility of our financial integration measure increased after the introduction of the Euro. That counterintuitive result suggests the presence of an inherent weakness in the attempt to measure financial integration independently of economic fundamentals. Nevertheless, the results about the bounds on the risk free rate appear plausible from the view point of existing economic theory about the impact of integration on interest rates.