Pricing of Liquidity Risks in London Stock Exchange

This thesis aims to investigate pricing of liquidity risks in London Stock Exchange. Liquidity Adjusted Capital Asset Pricing Model i.e. LCAPM developed by Acharya and Pedersen (2005) is being applied to test the influence of various liquidity risks on stock returns in London Stock Exchange. The Liquidity Adjusted Capital Asset Pricing model provides a unified framework for the testing of liquidity risks. All the common stocks listed and delisted for the period of 2000 to 2014 are included in the data sample. The study has incorporated three different measures of liquidity – Percent Quoted Spread, Amihud (2002) and Turnover. The reason behind the application of three different liquidity measures is the multi-dimensional nature of liquidity. Firm fixed effects panel regression is applied for the estimation of LCAPM. However, the results are robust according to Fama-Macbeth regressions. The results of the study indicates that liquidity risks in the form of (i) level of liquidity, (ii) commonality in liquidity (iii) flight to liquidity, (iv) depressed wealth effect and market return as well as aggregate liquidity risk are priced at London Stock Exchange. However, the results are sensitive to the choice of liquidity measures.

Effects of bank supervision and regulation on bank risk

In the last few decades, banking has strongly internationalized and become more complex. Hence, bank supervision and regulation has taken global perspective, too. The most important international regulation are the Basel frameworks by the Basel committee on banking supervision. This study examines the effects of bank supervision and regulation, especially the Basel II, on bank risk and risk-taking. In order to separate and recognize the efficiency of these effects, the co-effects of many supervisory and regulatory tools together with other relevant factors must be taken into account. The focus of the study is on the effects of asymmetric information and banking procyclicality on the efficiency of the Basel II. This study tries to find an answer, if the Basel II, implemented in 2008, has decreased bank risk in banks of European Union member states. This study examines empirically, if the volatility on bank stock returns have changed after the implementation of the Basel II. Panel data consists of 62 bank stock returns, bank-specific variables, economic variables and variables concerning regulatory environment between 2003 and 2011. Fixed effects regression is used for panel data analysis. Results indicate that volatility on bank stock returns has increased after 2008 and the implementation of the Basel II. Result is statistically very significant and robustness has been verified in different model specifications. The result of this study contradicts with the goal of the Basel II about banking system stability. Banking procyclicality and wrong incentives for regulatory arbitrage under asymmetric information explained in theoretical part may explain this result. On the other hand, simultaneously with the implementation of the Basel II, the global financial crisis emerged and caused severe losses in banks and increased stock volatility. However, it is clear that supervision and regulation was unable to prevent the global financial crisis. After the financial crisis, supervision and regulation have been reformed globally. The main problems of the Basel II, examined in the theoretical part, have been recognized in order to prevent problems of procyclicality and wrong incentives in the future.

Corporate social performance and stock returns: UK evidence from disaggregate measures

This study examines the relation between corporate social performance and stock returns in the UK. We closely evaluate the interactions between social and financial performance with a set of disaggregated social performance indicators for environment, employment, and community activities instead of using an aggregate measure. While scores on a composite social performance indicator are negatively related to stock returns, we find the poor financial reward offered by such firms is attributable to their good social performance on the environment and, to a lesser extent, the community aspects. Considerable abnormal returns are available from holding a portfolio of the socially least desirable stocks. These relationships between social and financial performance can be rationalized by multi-factor models for explaining the cross-sectional variation in returns, but not by industry effects.

Does consumption-wealth ratio signal stock returns? VECM results for Germany

This paper studies the signalling effect of the consumption−wealth ratio (cay) on German stock returns via vector error correction models (VECMs). The effect of cay on U.S. stock returns has been recently confirmed by Lettau and Ludvigson with a two−stage method. In this paper, performance of the VECMs and the two−stage method are compared in both German and U.S. data. It is found that the VECMs are more suitable to study the effect of cay on stock returns than the two−stage method. Using the Conditional−Subset VECM, cay signals real stock returns and excess returns in both data sets significantly. The estimated coefficient on cay for stock returns turns out to be two times greater in U.S. data than in German data. When the two−stage method is used, cay has no significant effect on German stock returns. Besides, it is also found that cay signals German wealth growth and U.S. income growth significantly.

Pressure-induced electrical and structural anomalies in Pb(1-x)Ca(x)TiO(3) thin films grown at various oxygen pressures by chemical solution route

Lead calcium titanate (Pb(1-x)Ca(x)TiO(3) or PCT) thin films have been thermally treated under different oxygen pressures, 10, 40 and 80 bar, by using the so-called chemical solution deposition method. The structural, morphological, dielectric and ferroelectric properties were characterized by x-ray diffraction, FT-infrared and Raman spectroscopy, atomic force microscopy and polarization-electric-field hysteresis loop measurements. By annealing at a controlled pressure of around 10 and 40 bar, well-crystallized PCT thin films were successfully prepared. For the sample submitted to 80 bar, the x-ray diffraction, Fourier transformed-infrared and Raman data indicated deviation from the tetragonal symmetry. The most interesting feature in the Raman spectra is the occurrence of intense vibrational modes at frequencies of around 747 and 820 cm(-1), whose presence depends strongly on the amount of the pyrochlore phase. In addition, the Raman spectrum indicates the presence of symmetry-breaking disorder, which would be expected for an amorphous (disorder) and mixed pyrochlore-perovskite phase. During the high-pressure annealing process, the crystallinity and the grain size of the annealed film decreased. This process effectively suppressed both the dielectric and ferroelectric behaviour. Ferroelectric hysteresis loop measurements performed on these PCT films exhibited a clear decrease in the remanent polarization with increasing oxygen pressure.

Nonparametric tail risk, macroeconomics and stock returns: predictability and risk premia

This paper proposes a new novel to calculate tail risks incorporating risk-neutral information without dependence on options data. Proceeding via a non parametric approach we derive a stochastic discount factor that correctly price a chosen panel of stocks returns. With the assumption that states probabilities are homogeneous we back out the risk neutral distribution and calculate five primitive tail risk measures, all extracted from this risk neutral probability. The final measure is than set as the first principal component of the preliminary measures. Using six Fama-French size and book to market portfolios to calculate our tail risk, we find that it has significant predictive power when forecasting market returns one month ahead, aggregate U.S. consumption and GDP one quarter ahead and also macroeconomic activity indexes. Conditional Fama-Macbeth two-pass cross-sectional regressions reveal that our factor present a positive risk premium when controlling for traditional factors.

Automatic model selection for forecasting brazilian stock returns

This study aims to contribute on the forecasting literature in stock return for emerging markets. We use Autometrics to select relevant predictors among macroeconomic, microeconomic and technical variables. We develop predictive models for the Brazilian market premium, measured as the excess return over Selic interest rate, Itaú SA, Itaú-Unibanco and Bradesco stock returns. We nd that for the market premium, an ADL with error correction is able to outperform the benchmarks in terms of economic performance. For individual stock returns, there is a trade o between statistical properties and out-of-sample performance of the model.

Consumption-wealth ratio and expected stock returns: evidence from panel data

This paper investigates the role of consumption-wealth ratio on predicting future stock returns through a panel approach. We follow the theoretical framework proposed by Lettau and Ludvigson (2001), in which a model derived from a nonlinear consumer’s budget constraint is used to settle the link between consumption-wealth ratio and stock returns. Using G7’s quarterly aggregate and financial data ranging from the first quarter of 1981 to the first quarter of 2014, we set an unbalanced panel that we use for both estimating the parameters of the cointegrating residual from the shared trend among consumption, asset wealth and labor income, cay, and performing in and out-of-sample forecasting regressions. Due to the panel structure, we propose different methodologies of estimating cay and making forecasts from the one applied by Lettau and Ludvigson (2001). The results indicate that cay is in fact a strong and robust predictor of future stock return at intermediate and long horizons, but presents a poor performance on predicting one or two-quarter-ahead stock returns.

Consumption-Wealth Ratio and Expected Stock Returns: Evidence from Panel Data on G7 Countries

Using the theoretical framework of Lettau and Ludvigson (2001), we perform an empirical investigation on how widespread is the predictability of cay {a modi ed consumption-wealth ratio { once we consider a set of important countries from a global perspective. We chose to work with the set of G7 countries, which represent more than 64% of net global wealth and 46% of global GDP at market exchange rates. We evaluate the forecasting performance of cay using a panel-data approach, since applying cointegration and other time-series techniques is now standard practice in the panel-data literature. Hence, we generalize Lettau and Ludvigson's tests for a panel of important countries. We employ macroeconomic and nancial quarterly data for the group of G7 countries, forming an unbalanced panel. For most countries, data is available from the early 1990s until 2014Q1, but for the U.S. economy it is available from 1981Q1 through 2014Q1. Results of an exhaustive empirical investigation are overwhelmingly in favor of the predictive power of cay in forecasting future stock returns and excess returns.

Automatic model selection for forecasting Brazilian stock returns

This study aims to contribute on the forecasting literature in stock return for emerging markets. We use Autometrics to select relevant predictors among macroeconomic, microeconomic and technical variables. We develop predictive models for the Brazilian market premium, measured as the excess return over Selic interest rate, Itaú SA, Itaú-Unibanco and Bradesco stock returns. We find that for the market premium, an ADL with error correction is able to outperform the benchmarks in terms of economic performance. For individual stock returns, there is a trade o between statistical properties and out-of-sample performance of the model.

Pressure-induced electrical and structural anomalies in Pb1-xCaxTiO3 thin films grown at various oxygen pressures by chemical solution route

Lead calcium titanate (Pb1-xCaxTiO3 or PCT) thin films have been thermally treated under different oxygen pressures, 10, 40 and 80 bar, by using the so-called chemical solution deposition method. The structural, morphological, dielectric and ferroelectric properties were characterized by x-ray diffraction, FT-infrared and Raman spectroscopy, atomic force microscopy and polarization-electric-field hysteresis loop measurements. By annealing at a controlled pressure of around 10 and 40 bar, well-crystallized PCT thin films were successfully prepared. For the sample submitted to 80 bar, the x-ray diffraction, Fourier transformed-infrared and Raman data indicated deviation from the tetragonal symmetry. The most interesting feature in the Raman spectra is the occurrence of intense vibrational modes at frequencies of around 747 and 820 cm(-1), whose presence depends strongly on the amount of the pyrochlore phase. In addition, the Raman spectrum indicates the presence of symmetry-breaking disorder, which would be expected for an amorphous (disorder) and mixed pyrochlore-perovskite phase. During the high-pressure annealing process, the crystallinity and the grain size of the annealed film decreased. This process effectively suppressed both the dielectric and ferroelectric behaviour. Ferroelectric hysteresis loop measurements performed on these PCT films exhibited a clear decrease in the remanent polarization with increasing oxygen pressure.

Grain size distribution in surface sediments samples of the continental shelf and slope of southeast Greenland

During "Meteor" Cruise 6/1966 in the northwest Atlantic a systematic survey of the bottom topography of the southeast Greenland continental margin was undertaken. Eighty-seven profiles transverse to the shelf edge at distances of 3-4 nautical miles and two longitudinal profiles parallel to the coast were carried out with the ELAC Narrow Beam Echo-Sounder giving a reliable record of even steep slopes. On the basis of the echo soundings the topography and morphology of the continental shelf and slope are evaluated. A detailed bathymetric chart and a serial profile chart were designed as working material for the morphological research. These maps along with the original echograms are morphometrically evaluated. The analysis of the sea bottom features is the basis of a subsequent morphogenetical interpretation, verified and extended by means of interpretation of magnetic data and sediment analysis (grain size, roundness, lithology). The results of the research are expressed in a geomorphological map. The primary findings can be summarized as follows: 1) The southeast Greenland shelf by its bottom topography can be clearly designated as a glacially formed area. The glacial features of the shelf can be classified into two zones nearly parallel to the coast: glacial erosion forms on the inner shelf and glacial accumulation forms on the outer shelf. The inner shelf is characterized by the rugged and hummocky topography of ice scoured plains with clear west/east slope asymmetry. On the outer shelf three types of glacial accumulation forms can be recognized: ice margin deposits with clearly expressed terminal moraines, glacial till plains and glaciomarine outwash fans. Both zones of the shelf can be subdivided into two levels of relief. The ice scoured plains, with average depths of 240 meters (m), are dissected to a maximum depth of 1060 m (Gyldenloves Trough) by trough valleys, which are the prolongations of the Greenland fjords. The banks of the outer shelf, with an average depth of 180 m, surround glacial basins with a maximum depth of 670 meters. 2) The sediments of the continental shelf can be classified as glacial due to their grain size distribution and the degree of roundness of the gravel particles. The ice margin deposits on the outer shelf can be recognized by their high percentage of gravels. On the inner shelf a rock surface is suggested, intermittently covered by glacial deposits. In the shelf troughs fine-grained sediments occur mixed with gravels. 3) Topography and sediments show that the southeast Greenland shelf was covered by an ice sheet resting on the sea floor during the Pleistocene ice-age. The large end moraines along the shelf edge probably indicate the maximum extent of the Wurm shelf ice resting on the sea floor. The breakthroughs of the end moraines in front of the glacial basins suggest that the shelf ice has floated further seaward over the increasing depths. 4) Petrographically the shelf sediments consist of gneisses, granites and basalts. While gneisses and granites occire on the nearby coast, basalt is not known to exist here. Either this material has been drifted by icebergs from the basalt province to the north or exists on the southeast Greenland shelf itself. The last interpretation is supported bythe high portion of basalt contained in the sediment samples taken and the strong magnetic anomalies probably caused by basaltic intrusions. 5) A magnetic profile allows the recognition of two magnetically differing areas which approximately coincide with the glacial erosion and accumulation zones. The inner shelf shows a strong and variable magnetic field because the glacially eroded basement forms the sea floor. The outer shelf is characterized by a weak and homogenous magnetic field, as the magnetized basement lies at greater depthy, buried by a thick cover of glacial sediments. The strong magnetic anomalies of the inner shelf are probably caused by dike swarms, similar to those observed further to the north in the Kangerdlugssuaq Fjord region. This interpretation is supported by the high basalt content of the sediment samples and the rough topography of the ice scoured plains which correlates in general with the magnetic fluctuations. The dike structures of the basement have been differentially eroded by the shelf ice. 6) The continental slope, extending from the shelf break at 313 m to a depth of 1270 m with an average slope of 11°, is characterized by delta-shaped projections in front of the shelf basins, by marginal plateaus, ridges and hills, by canyons and slumping features. The projections could be identified as glaciomarine sediment fans. This conclusion is supported by the strong decrease of magnetic field intensity. The deep sea hills and ridges with their greater magnetic intensities have to be regarded as basement outcrops projecting through the glaciomarine sediment cover. The upper continental rise, sloping seaward at about 2°, is composed of wide sediment fans and slump material. A marginal depression on the continental rise running parallel to the shelf edge has been identified. In this depression bottom currents capable of erosion have been recorded. South of Cape Farvel the depression extends to the accumulation zone of the "Eirik" sedimentary ridge. 7) By means of a study of the recent marine processes, postglacial modification of the ice-formed relief can be postulated. The retention effect of the fjord troughs and the high velocity of the East Greenland stream prevents the glacial features from being buried by sediments. Bottom currents capable of active erosion have only been found in the marginal depression on the continental rise. In addition, at the time of the lowest glacio-eustatic sea level, the shelf bottom was not situated in the zone of wave erosion. Only on the continental slope and rise bottom currents, sediment slumps and turbidity currents have led to significant recent modifications. Considering these results, the geomorphological development of the southeast Greenland continental terrace can be suggested as follows: 1. initial formation of a "peneplain", 2. fluvial incision, 3. submergence, and finally 4. glacial modification.

Model experiment on optimal size of a fish stock with environmental uncertainties

We analyze the effect of environmental uncertainties on optimal fishery management in a bio-economic fishery model. Unlike most of the literature on resource economics, but in line with ecological models, we allow the different biological processes of survival and recruitment to be affected differently by environmental uncertainties. We show that the overall effect of uncertainty on the optimal size of a fish stock is ambiguous, depending on the prudence of the value function. For the case of a risk-neutral fishery manager, the overall effect depends on the relative magnitude of two opposing effects, the 'convex-cost effect' and the 'gambling effect'. We apply the analysis to the Baltic cod and the North Sea herring fisheries, concluding that for risk neutral agents the net effect of environmental uncertainties on the optimal size of these fish stocks is negative, albeit small in absolute value. Under risk aversion, the effect on optimal stock size is positive for sufficiently high coefficients of constant relative risk aversion.