A study of stock market fluctuations and their relation to business conditions

Most research on stock prices is based on the present value model or the more general consumption-based model. When applied to real economic data, both of them are found unable to account for both the stock price level and its volatility. Three essays here attempt to both build a more realistic model, and to check whether there is still room for bubbles in explaining fluctuations in stock prices. In the second chapter, several innovations are simultaneously incorporated into the traditional present value model in order to produce more accurate model-based fundamental prices. These innovations comprise replacing with broad dividends the more narrow traditional dividends that are more commonly used, a nonlinear artificial neural network (ANN) forecasting procedure for these broad dividends instead of the more common linear forecasting models for narrow traditional dividends, and a stochastic discount rate in place of the constant discount rate. Empirical results show that the model described above predicts fundamental prices better, compared with alternative models using linear forecasting process, narrow dividends, or a constant discount factor. Nonetheless, actual prices are still largely detached from fundamental prices. The bubblelike deviations are found to coincide with business cycles. The third chapter examines possible cointegration of stock prices with fundamentals and non-fundamentals. The output gap is introduced to form the nonfundamental part of stock prices. I use a trivariate Vector Autoregression (TVAR) model and a single equation model to run cointegration tests between these three variables. Neither of the cointegration tests shows strong evidence of explosive behavior in the DJIA and S&P 500 data. Then, I applied a sup augmented Dickey-Fuller test to check for the existence of periodically collapsing bubbles in stock prices. Such bubbles are found in S&P data during the late 1990s. Employing econometric tests from the third chapter, I continue in the fourth chapter to examine whether bubbles exist in stock prices of conventional economic sectors on the New York Stock Exchange. The ‘old economy’ as a whole is not found to have bubbles. But, periodically collapsing bubbles are found in Material and Telecommunication Services sectors, and the Real Estate industry group.

Three essays on the microstructure of exchange traded funds

Exchange traded funds (ETFs) have increased significantly in popularity since they were first introduced in 1993. However, there is still much that is unknown about ETFs in the extant literature. This dissertation attempts to fill gaps in the ETF literature by using three related essays. In these three essays, we compare ETFs to closed ended mutual funds (CEFs) by decomposing the bid-ask spread into its three components; we look at the intraday shape of ETFs and compare it to the intraday shape of equities as well as examine the co-integration factor between ETFs on the London Stock Exchange and the New York Stock Exchange; we also examine the differences between leveraged ETFs and unleveraged ETFs by analyzing the impact of liquidity and volatility. These three essays are presented in Chapters 1, 2, and 3, respectively. ^ Chapter one uses the Huang and Stoll (1997) model to decompose the bid-ask spread in CEFs and ETFs for two distinct periods—a normal and a volatile period. We show a higher adverse selection component for CEFs than for ETFs without regard to volatility. However, both ETFs and CEFs increased in magnitude of the adverse selection component in the period of high volatility. Chapter two uses a mix of the Werner and Kleidon (1993) and the Hupperets and Menkveld (2002) methods to get the intraday shape of ETFs and analyze co-integration between London and New York trading. We find two different shapes for New York and London ETFs. There also appears to be evidence of co-integration in the overlapping two-hour trading period but not over the entire trading day for the two locations. The third chapter discusses the new class of ETFs called leveraged ETFs. We examine the liquidity and depth differences between unleveraged and leveraged ETFs at the aggregate level and when the leveraged ETFs are classified by the leveraged multiples of -3, -2, -1, 2, and 3, both for a normal and a volatile period. We find distinct differences between leveraged and unleveraged ETFs at the aggregate level, with leveraged ETFs having larger spreads than unleveraged ETFs. Furthermore, while both leveraged and unleveraged ETFs have larger spreads in high volatility, for the leveraged ETFs the change in magnitude is significantly larger than for the unleveraged ETFs. Among the multiples, the -2 leveraged ETF is the most pronounced in its liquidity characteristics, more so in volatile times. ^

A Study of Stock Market Fluctuations and their Relations to Business Conditions

Most research on stock prices is based on the present value model or the more general consumption-based model. When applied to real economic data, both of them are found unable to account for both the stock price level and its volatility. Three essays here attempt to both build a more realistic model, and to check whether there is still room for bubbles in explaining fluctuations in stock prices. In the second chapter, several innovations are simultaneously incorporated into the traditional present value model in order to produce more accurate model-based fundamental prices. These innovations comprise replacing with broad dividends the more narrow traditional dividends that are more commonly used, a nonlinear artificial neural network (ANN) forecasting procedure for these broad dividends instead of the more common linear forecasting models for narrow traditional dividends, and a stochastic discount rate in place of the constant discount rate. Empirical results show that the model described above predicts fundamental prices better, compared with alternative models using linear forecasting process, narrow dividends, or a constant discount factor. Nonetheless, actual prices are still largely detached from fundamental prices. The bubble-like deviations are found to coincide with business cycles. The third chapter examines possible cointegration of stock prices with fundamentals and non-fundamentals. The output gap is introduced to form the non-fundamental part of stock prices. I use a trivariate Vector Autoregression (TVAR) model and a single equation model to run cointegration tests between these three variables. Neither of the cointegration tests shows strong evidence of explosive behavior in the DJIA and S&P 500 data. Then, I applied a sup augmented Dickey-Fuller test to check for the existence of periodically collapsing bubbles in stock prices. Such bubbles are found in S&P data during the late 1990s. Employing econometric tests from the third chapter, I continue in the fourth chapter to examine whether bubbles exist in stock prices of conventional economic sectors on the New York Stock Exchange. The ‘old economy’ as a whole is not found to have bubbles. But, periodically collapsing bubbles are found in Material and Telecommunication Services sectors, and the Real Estate industry group.

Essays on financial crises

This dissertation analyzes recent financial crises in developed and developing countries. The research emphasizes the effects of institutional factors on the international banking and currency crises and their output losses. ^ Chapter two examines the roles of regulation, supervision, and countries' institutional environment in determining the probability of banking crises for a panel of fifteen developed countries from 1975 to 1998. The results from a multivariate logit model indicated that countries with greater government involvement, less capital standard requirements, and lower lending limits on a single borrower are associated with a higher probability of banking crises. ^ Chapter three studies whether output loss in banking crisis differs in market-based or bank-based financial systems. Using existing banking crisis data for sixty-nine countries during 1970–1999, we investigate whether the underlying financial system affects the output loss. The results show that output losses are more serious in market-based economies than those in bank-based economies. Longer crisis duration tends to increase the output losses in banking crises. Finally, countries with deposit insurance and strict law enforcement have less output losses. ^ Chapter four uses macroeconomic and institutional measures to explain the extent of exchange rate depreciation and the decline in stock prices for emerging countries affected by the Mexican currency crisis of 1994–95. The results show that countries with more government budget deficits, and worse reserve adequacies tend to experience large exchange rate depreciation. The institutional measures do not explain much the extent of both the exchange rate depreciation and the decline in stock prices. ^

Regulation of Rab5 GTPase activity during Pseudomonas aeruginosa-macrophage interaction

Pseudomonas aeruginosa is a Gram-negative opportunistic pathogen. Several antibiotic resistant strains of P. aeruginosa are commonly found as secondary infection in immune-compromised patients leaving significant mortality and healthcare cost. Pseudomonas aeruginosa successfully avoids the process of phagocytosis, the first line of host defense, by secreting several toxic effectors. Effectors produced from P. aeruginosa Type III secretion system are critical molecules required to disrupt mammalian cell signaling and holds particular interest to the scientists studying host-pathogen interaction. Exoenzyme S (ExoS) is a bi-functional Type III effector that ADP-ribosylates several intracellular Ras (Rat sarcoma) and Rab (Response to abscisic acid) small GTPases in targeted host cells. The Rab5 protein acts as a rate limiting protein during phagocytosis by switching from a GDP- bound inactive form to a GTP-bound active form. Activation and inactivation of Rab5 protein is regulated by several Rab5-GAPs (GTPase Activating Proteins) and Rab5-GEFs (Rab5-Guanine nucleotide Exchange Factors). Some pathogenic bacteria have shown affinity for Rab proteins during infection and make their way inside the cell. This dissertation demonstrated that Rab5 plays a critical role during early steps of P. aeruginosa invasion in J774-Eclone macrophages. It was found that live, but not heat inactivated, P. aeruginosa inhibited phagocytosis that occurred in conjunction with down-regulation of Rab5 activity. Inactivation of Rab5 was dependent on ExoS ADP-ribosyltransferase activity, and more than one arginine sites in Rab5 are possible targets for ADP-ribosylation modification. However, the expression of Rin1, but not other Rab5GEFs (Rabex-5 and Rap6) reversed this down-regulation of Rab5 in vivo. Further studies revealed that the C-terminus of Rin1 carrying Rin1:Vps9 and Rin1:RA domains are required for optimal Rab5 activation in conjunction with active Ras. These observations demonstrate a novel mechanism of Rab5 targeting to phagosome via Rin1 during the phagocytosis of P. aeruginosa. The second part of this dissertation investigated antimicrobial activities of Dehydroleucodine (DhL), a secondary metabolite from Artemisia douglasiana, against P. aeruginosa growth and virulence. Populations of several P. aeruginosa strains were completely susceptible to DhL at a concentration between 0.48~0.96 mg/ml and treatment at a threshold concentration (0.12 mg/ml) inhibited growth and many virulent activities without damaging the integrity of the cell suggesting anti-Pseudomonas activity of DhL.

Putting the Green in Bureaucracy: Practices of Quantification and Valuation in Environmental Regulation

While researchers have devoted considerable attention to exploring the ways that intentional environmental reregulation creates new avenues for capital accumulation (e.g. Smith, 2007; Castree, 2008), it remains somewhat unclear how the less grandiose day-to-day work of environmental regulators may also help create new sources of ecological value. Through an ethnographic study of environmental regulators tasked with enforcing key environmental laws, I shed light on the subtle ways that rule interpretation and scientific practice structure the frames, models, and methodologies regulators use to enact “best professional judgments” about ecological systems, and ultimately to assign particular values to nature. I also show the ways that non-human nature pushes back against such assessments, which in combination with the interpretive work of environmental regulation, opens spaces of conflict in at least two arenas: one focused on modes of quantification, where actors contend between economistic, ecological, statutory, and moral frames for making value assessments; and one focused on presentations of value, where actors contend between value assessments that best represent their self-defined interests. The ‘value settlements’ environmental regulators reach in these contested spaces allow processes of commensuration to proceed, and ultimately make nature legible for capitalization and exchange. Accounting for the ways that these basic regulatory practice help create ecological value is essential for creating a fuller picture of the ways capital and natural capital relate.