Three essays in financial markets

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

Macroeconomic impacts of politics and policy: Applications to financial and real markets

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

Three essays on economics of predictability of stock returns

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

Noise traders, rational traders, and the rest: A new approach to efficient financial markets

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

Enhancement of an implemented rating model and impact on existing risk management processes: A hands-on approach from financial supplier risk management within the automotive industry

The purpose of this paper is to conduct a methodical drawback analysis of a financial supplier risk management approach which is currently implemented in the automotive industry. Based on identified methodical flaws, the risk assessment model is further developed by introducing a malus system which incorporates hidden risks into the model and by revising the derivation of the most central risk measure in the current model. Both methodical changes lead to significant enhancements in terms of risk assessment accuracy, supplier identification and workload efficiency.

Fiscal policy under financial stress: A threshold VAR approach

The purpose of the project is to measure the impact of fiscal policy on the Portuguese GDP and how it may vary according to the state of the financial market. A Threshold VAR model is presented in which the two regimes are found using a financial stress index that divides the economy into a situation of financial stress and financial stability.

Mota-Engil new prospects of growth: Overcoming the financial crisis

The 2008 global financial crisis caused the collapse of business key sectors, declines in consumer wealth and a fall in economic activity resulting in a global recession. In some European countries, the 2008 crisis contributed to a sovereign-debt crisis which had a strong impact in Southern European countries. The construction sector was particularly affected, with budget cuts disturbing public investment and no financing available for private constructors. This report intends to explain how Mota-Engil, faced this situation of low growth, and which strategies were adopted by the management to overcome the difficult economic conjecture, mainly in its domestic market: Portugal. The report is organized as a case-study. The first part, the case narrative, is subdivided into 6 parts, and the second part is the teaching note. The teaching note is constituted by the four questions and their respective responses.

Donations of non-financial resources: The motivation and consequences of measuring and accounting for it

This thesis focus on the measurement and accounting of contributions received by nonprofit organizations, as they are a significant component of revenues nowadays. A survey was developed and forward to 38 different NPOs, with the goal of understanding their motivations and what advantages and disadvantages they believe would result if they start to measure and account for all kinds of contributions. They presented many advantages from this practice; however, some are not doing it due to the difficulties in valuing contributions with no market value which would require a higher workload, waste of resources and time to be taken from other important activities.

Consumer perception of CSR in Portugal: The aftermath of the financial crisis

Corporate social responsibility (CSR) literature has largely neglected consumers’ perceptions in the debate regarding the role of CSR in the aftermath of the financial crisis. In that context, this study aims to test the possibility that consumers’ perceptions of CSR level, firm reputation and brand trust, might depend on the type of industry sector of a firm, the level of fit of an initiative or both. By conducting a survey on Portuguese consumers and running a two-way analysis of variance, it suggests that solely the type of industry sector has an effect on consumer perception and that consumers are less tolerable of controversial industries.

The Portuguese contemporary art as an investment

In this paper we investigate what drives the prices of Portuguese contemporary art at auction and explore the potential of art as an asset. Based on a hedonic prices model we construct an Art Price Index as a proxy for the Portuguese contemporary art market over the period of 1994 to 2014. A performance analysis suggests that art underperforms the S&P500 but overperforms the Portuguese stock market and American Government bonds. However, It does it at the cost of higher risk. Results also show that art as low correlation with financial markets, evidencing some potential in risk mitigation when added to traditional equity portfolios.

Evidence of market anomalies in the Eurozone: A practical implementation

A Work Project, presented as part of the requirements for the Award of a Master’s Double Degree in Finance and Financial Economics from NOVA – School of Business and Economics and Maastricht University

Systemic risk for financial institutions in UK

Marginal Expected Shortfall (MES) is an approach used to measure the systemic risk financial institutions face. It estimates how significantly systemic events (poor market performance, out of 1.6 times Standard Deviation borders) are expected to affect market capitalization of a particular firm. The concept was developed in the late 2000s and is widely used for cross-country comparisons of financial firms. For the purposes of generalization of this technique it is often used with market data containing non-domestic currencies for some financial firms. That may lead to results having currency noise in them as it is shown for 77 UK financial firms in our analysis between 2001 and 2014.

Predicting market direction with hidden Markov models

This paper develops the model of Bicego, Grosso, and Otranto (2008) and applies Hidden Markov Models to predict market direction. The paper draws an analogy between financial markets and speech recognition, seeking inspiration from the latter to solve common issues in quantitative investing. Whereas previous works focus mostly on very complex modifications of the original hidden markov model algorithm, the current paper provides an innovative methodology by drawing inspiration from thoroughly tested, yet simple, speech recognition methodologies. By grouping returns into sequences, Hidden Markov Models can then predict market direction the same way they are used to identify phonemes in speech recognition. The model proves highly successful in identifying market direction but fails to consistently identify whether a trend is in place. All in all, the current paper seeks to bridge the gap between speech recognition and quantitative finance and, even though the model is not fully successful, several refinements are suggested and the room for improvement is significant.

The financial system in Mozambique: Opportunities, barriers and market potential

This research is empirical and exploratory intending to analyse the attractiveness of banking in Mozambique, considering its positive outlook. To identify the opportunities and barriers, the methods adopted were elite interviews with banking executives, complemented by secondary data. The opportunities for new entrants seem to include bankarization and the emergence of micro and smallmedium enterprises; other avenues seem to include investment banking, support of mega-projects (e.g. energy, infrastructures) through syndicates and cooperation with multilaterals, and the participation in developing capital markets. Conversely, the main barriers include shortage of talent, inadequate infrastructures, poverty, unsophisticated entrepreneurial culture (e.g. informal economy, inadequate financial reporting), burdensome bureaucracy (e.g. visas), foreign exchange regulation, as well as low liquidity and high funding costs for banks. The key conclusions suggest a window of opportunity for niche markets, and new products and services in retail and investment banking.

Banking crises: The impact of financial liberalization

This paper intends to study whether financial liberalization tends to increase the likelihood of systemic banking crises. I used a sample of 79 countries with data spanning from 1973 to 2005 to run a panel probit model. I found that, if anything, financial liberalization as measured across seven different dimensions tends to decrease the probability of occurrence of a systemic banking crisis. I went further and did several robustness tests – used a conditional probit model, tested for different durations of liberalization impact and reduced the sample by considering only the first crisis event for each country. Main results still verified, proving the results’ robustness.