Three Essays in Empirical Asset Pricing

The financial crisis of 2007-2008 led to extraordinary government intervention in firms and markets. The scope and depth of government action rivaled that of the Great Depression. Many traded markets experienced dramatic declines in liquidity leading to the existence of conditions normally assumed to be promptly removed via the actions of profit seeking arbitrageurs. These extreme events motivate the three essays in this work. The first essay seeks and fails to find evidence of investor behavior consistent with the broad 'Too Big To Fail' policies enacted during the crisis by government agents. Only in limited circumstances, where government guarantees such as deposit insurance or U.S. Treasury lending lines already existed, did investors impart a premium to the debt security prices of firms under stress. The second essay introduces the Inflation Indexed Swap Basis (IIS Basis) in examining the large differences between cash and derivative markets based upon future U.S. inflation as measured by the Consumer Price Index (CPI). It reports the consistent positive value of this measure as well as the very large positive values it reached in the fourth quarter of 2008 after Lehman Brothers went bankrupt. It concludes that the IIS Basis continues to exist due to limitations in market liquidity and hedging alternatives. The third essay explores the methodology of performing debt based event studies utilizing credit default swaps (CDS). It provides practical implementation advice to researchers to address limited source data and/or small target firm sample size.

Jarrow-Yildirim model for inflation: theory and applications

This thesis deals with inflation theory, focussing on the model of Jarrow & Yildirim, which is nowadays used when pricing inflation derivatives. After recalling main results about short and forward interest rate models, the dynamics of the main components of the market are derived. Then the most important inflation-indexed derivatives are explained (zero coupon swap, year-on-year, cap and floor), and their pricing proceeding is shown step by step. Calibration is explained and performed with a common method and an heuristic and non standard one. The model is enriched with credit risk, too, which allows to take into account the possibility of bankrupt of the counterparty of a contract. In this context, the general method of pricing is derived, with the introduction of defaultable zero-coupon bonds, and the Monte Carlo method is treated in detailed and used to price a concrete example of contract. Appendixes: A: martingale measures, Girsanov's theorem and the change of numeraire. B: some aspects of the theory of Stochastic Differential Equations; in particular, the solution for linear EDSs, and the Feynman-Kac Theorem, which shows the connection between EDSs and Partial Differential Equations. C: some useful results about normal distribution.

Comparing equilibrium real interest rates : different approaches to measure Brazilian rates

Despite the difficulties involved in the precise determination of equilibrium real interest rates, it seems clear that nominal interest rates has been higher in Brazil than in similar emerging economies. This paper aims to shed light on the possible reasons for this feature of the Brazilian economy. We extend Miranda and Muinhos (2003) one-country study to a sample of 20 countries, using many methods to compare measures of the real interest: (i) extracting equilibrium interest rates from IS curves; (ii) extracting steady state interest rates from marginal product of capital; (iii) capturing relevant variables and the fixed effects having real interest rates as dependent variable in a panel for emerging countries; and (iv) extracting inflation expectation from the spread between fixed rate and inflation-indexed treasure notes.

The Brazilian real estate securitization market: determinants of pricing

Analisamos os determinantes de precificação de Certificados de Recebíveis Imobiliários (CRIs) com relação ao ativo objeto e níveis de garantias, controlando por variáveis de tamanho, prazo e rating. Verifica-se um prêmio médio adicional em CRIs de 1,0 p.p. quando comparados com debêntures de prazos semelhantes e de mesmo rating. A justificativa desse prêmio é analisada em duas frentes: (a) apesar de CRI seguir relativa padronização, encontramos que o papel pode representar diferentes níveis de risco e ativos-objeto; e (b) essa falta de padronização leva a níveis de precificação diferenciados por suas características específicas de riscos. Os diferentes níveis de risco são percebidos pelas diversas garantias utilizadas sendo que 41% das emissões possuem garantias pessoais de originadores (aval ou fiança). Conclui-se que existe, em geral, uma diferença de retornos positiva (o spread médio na emissão dos CRIs indexados à inflação foi de 321 bps superior à curva de juros de mercado), sendo mais preponderante a depender do segmento (prêmio para os segmentos residencial e loteamentos) e mitigado pelo nível de garantias oferecido. É possível verificar um prêmio médio de 1,4 p.p. para os segmentos residencial e de loteamentos. Algumas características das emissões foram analisadas como controle (tamanho, prazo e, por fim, das notas e origem da agência avaliadora de rating). Os CRIs de maior volume e maior prazo apresentam spreads menores. Quanto ao rating, os CRIs apresentam efeitos diversos a depender do segmento. Para CRIs residenciais, o efeito é positivo (redução de spread) caso a emissão seja avaliada por alguma agência de rating, enquanto que para os CRIs comerciais, o efeito é negativo. O efeito pode ser positivo para os CRIs comerciais (redução de spread) em caso de avaliação por agência de rating internacional ou possuir notas de rating superiores à nota ‘A’.

An indexed bibliography of papers on tagging of tunas and billfishes

Two working parties, the Working Party on Tuna Tagging in the Pacific and Indian Oceans and the Working Party on Tuna Tagging in the Atlantic and Adjacent Seas, were formed by the Food and Agriculture Organization (FAD) of the United Nations in 1966 (Anonymous, 1966c). The conveners of these working parties were Dr. James Joseph of the Inter-American Tropical Tuna Commission (IATTC) and Mr. FrankJ. Mather, III, of the Woods Hole Oceanographic Institution (WHOI). In 1969 it was recommended that the working parties direct their attention toward billfishes, as well as tunas (Anonymous, 1969h: 5). One report (Joseph and working party, 1969) was published by the Pacific and Indian Oceans group and two (Mather and working party, 1969 and 1972) were published by the Atlantic Ocean and adjacent seas group. Each of the three working party reports included a bibliography of tuna and billfish tagging. The compiler of this bibliography, beginning in 1970, prepared numerous memoranda to the members of the working party, most of which included lists of papers on tuna and billfish tagging which had come to his attention, either directly or through members of the working party. The bibliographies in the three working party reports and the lists of references in the memoranda form the basis for the present bibliography.

Individual Decision-Making and Inflation Persistence

The traditional task of a central bank is to preserve price stability and, in doing so, not to impair the real economy more than necessary. To meet this challenge, it is of great relevance whether inflation is only driven by inflation expectations and the current output gap or whether it is, in addition, influenced by past inflation. In the former case, as described by the New Keynesian Phillips curve, the central bank can immediately and simultaneously achieve price stability and equilibrium output, the so-called ‘divine coincidence’ (Blanchard and Galí 2007). In the latter case, the achievement of price stability is costly in terms of output and will be pursued over several periods. Similarly, it is important to distinguish this latter case, which describes ‘intrinsic’ inflation persistence, from that of ‘extrinsic’ inflation persistence, where the sluggishness of inflation is not a ‘structural’ feature of the economy but merely ‘inherited’ from the sluggishness of the other driving forces, inflation expectations and output. ‘Extrinsic’ inflation persistence is usually considered to be the less challenging case, as policy-makers are supposed to fight against the persistence in the driving forces, especially to reduce the stickiness of inflation expectations by a credible monetary policy, in order to reestablish the ‘divine coincidence’. The scope of this dissertation is to contribute to the vast literature and ongoing discussion on inflation persistence: Chapter 1 describes the policy consequences of inflation persistence and summarizes the empirical and theoretical literature. Chapter 2 compares two models of staggered price setting, one with a fixed two-period duration and the other with a stochastic duration of prices. I show that in an economy with a timeless optimizing central bank the model with the two-period alternating price-setting (for most parameter values) leads to more persistent inflation than the model with stochastic price duration. This result amends earlier work by Kiley (2002) who found that the model with stochastic price duration generates more persistent inflation in response to an exogenous monetary shock. Chapter 3 extends the two-period alternating price-setting model to the case of 3- and 4-period price durations. This results in a more complex Phillips curve with a negative impact of past inflation on current inflation. As simulations show, this multi-period Phillips curve generates a too low degree of autocorrelation and too early turnings points of inflation and is outperformed by a simple Hybrid Phillips curve. Chapter 4 starts from the critique of Driscoll and Holden (2003) on the relative real-wage model of Fuhrer and Moore (1995). While taking the critique seriously that Fuhrer and Moore’s model will collapse to a much simpler one without intrinsic inflation persistence if one takes their arguments literally, I extend the model by a term for inequality aversion. This model extension is not only in line with experimental evidence but results in a Hybrid Phillips curve with inflation persistence that is observably equivalent to that presented by Fuhrer and Moore (1995). In chapter 5, I present a model that especially allows to study the relationship between fairness attitudes and time preference (impatience). In the model, two individuals take decisions in two subsequent periods. In period 1, both individuals are endowed with resources and are able to donate a share of their resources to the other individual. In period 2, the two individuals might join in a common production after having bargained on the split of its output. The size of the production output depends on the relative share of resources at the end of period 1 as the human capital of the individuals, which is built by means of their resources, cannot fully be substituted one against each other. Therefore, it might be rational for a well-endowed individual in period 1 to act in a seemingly ‘fair’ manner and to donate own resources to its poorer counterpart. This decision also depends on the individuals’ impatience which is induced by the small but positive probability that production is not possible in period 2. As a general result, the individuals in the model economy are more likely to behave in a ‘fair’ manner, i.e., to donate resources to the other individual, the lower their own impatience and the higher the productivity of the other individual. As the (seemingly) ‘fair’ behavior is modelled as an endogenous outcome and as it is related to the aspect of time preference, the presented framework might help to further integrate behavioral economics and macroeconomics.

Voter turnout, inflation, and the politics of macroeconomic policy: an empirical essay

This thesis tests some hypotheses regarding the impact of voter turnout on inflation on the assumption that macroeconomic policies depend on voters’ and politicians’ preferences. The work’s empirical basis includes data from 111 nations from the developing world, covering the period from 1978 to 2000. Its main finding indicates that increases in voter turnout co-vary with higher inflation rates, all else held constant.

Estudo sobre o efeito de variáveis macro econômico e do spread de credit default swap no risco de evento de crédito soberano

Este trabalho explora a realização de default soberano em função da estrutura de spreads de CDS (Credit Default Swap). Pode-se dizer que os spreads revelam a probabilidade de default de um país. Aplicamos a metodologia proposta neste trabalho para Argentina, Coreia, Equador, Indonésia, México, Peru, Turquia, Ucrânia, Venezuela e Rússia. Nós mostramos que um modelo de um único fator seguindo um processo lognormal captura a probabilidade de default. Também mostramos que as variáveis macro econômicas inflação, desemprego e crescimento não explicam a variável dependente do estudo (probabilidade de default). Cada país reage de maneira diferente a crise econômica que a leva a não honrar seus compromissos com as dívidas contraídas.

Welfare cost of inflation considering adoption decisions and interest-bearing deposits

Attanasio et al. (JPE, 2002) have used microeconomic data on households to provide new estimates of the welfare costs of infiation using Bailey's unidimensional welfare measure as a basis for their calculations. Such a measure does not properly take into consideration lhe fact that the majority of households in their sample (58.7 percent) holds not only bank deposits and currency, but also a second type of interest-bearing assct. This work devises alternative formulas which account for the existence of bank deposits and a sccond interest-bearing asset in the economy, as well as for adoption decisions regarding alternative financiai technologies.

Exchange-rate variations and the rate of inflation in emerging economies

This paper develops a structural general equilibrium model to analyse the reactions of the nominal exchange rate and the domestic price level to three types of external shock in emerging economies that have limited access to world capital markets. Although the results depend crucially on the type of external shock, each of the two national balance-sheet parameters considered here —the risk premium and the ratio of external indebtedness— exacerbates the reactions of the two endogenous variables without altering the degree of exchange-rate pass-through (erpt). Moreover, flatter Phillips curves, as observed today in many economies, tend to increase erpt. On the basis of these results, the authorities of emerging economies seeking to stabilize markets and limit erpt are advised to minimize the two risk parameters by applying a flexible inflation-targeting regime.

Embryonic and larval development of haliotis tuberculata coccinea reeve: an indexed micro-photographic sequence

[EN] First description of the complete embryo and larval development of the Canarian abalone (Haliotis tuberculata coccinea Reeve.) was conducted along 39 stages from fertilization to the appearance of the third tubule on the cephalic tentacles and illustrated in a microphotographic sequence. Eggs obtained by induced spawning with hydrogen peroxide from the GIA captive broodstock were stocked at a density of 10 eggs/mL and kept at 23 0.5 BC for 62 h until the formation of the third tubule. Live eggs and larvae were continuously observed on a 24 h basis at a 3400 magnification under transmitted light. At each stages, specific morphological features, illustrated by microscopic photographs, were described, as well as the time required for their apparition. Fertilized eggs diameter was 205 8 mm (mean SD), whereas length and width of larvae ready to undergo metamorphosis were 216.6 5.3 mmand 172 8.8 mm, respectively. Knowledge on the larval morphological development acquired through this study will contribute to the improvement of larval rearing techniques for this abalone species.

The Basis of Support for Hugo Chávez: Measuring the Determinants of Presidential Job Approval in Venezuela

Since 1999, Venezuela has experienced a dramatic transformation of its political system with the coming to power of Hugo Chávez and his movement, known in Venezuela as Chavismo. Chávez has dismantled the previous political system and established neo-populist structures that rely on his personal appeal and the close collaboration of the armed forces. Chávez has relied heavily on significant support from the poor and those who felt economically and politically excluded by the “Punto Fijo system.” President Chávez has built an impressive record of electoral victories; winning every electoral contest except one since coming to power in 1999. He continues to receive relatively high levels of support among sectors of Venezuelan society. However, there is evidence of growing discontent with high crime rates, high levels of inflation, and significant corruption in the public administration. Using data from the AmericasBarometer surveys conducted in 2007, 2008 and 2010, this paper seeks to examine the basis of Chávez’s popular support. In general, the AmericasBarometer findings suggest that Venezuelans support for President Chávez is closely linked to the access to social programs and that as long as the government is able to fund these social programs or missions, particularly MERCAL and Barrio Adentro, it will possess an important tool to garner and sustain support for President Chávez. Our analysis, however, also indicates that evaluations of the national economic situation, more than crime or insecurity, are a key factor that could undermine support for the regime.

Genetic and Molecular Basis of Encapsulation and Capsule Diversity in Kingella kingae

Kingella kingae is a bacterial pathogen that is increasingly recognized as an etiology of septic arthritis, osteomyelitis, bacteremia, and endocarditis in young children. The pathogenesis of K. kingae disease starts with bacterial adherence to the respiratory epithelium of the posterior pharynx. Previous work has identified type IV pili and a trimeric autotransporter protein called Knh (Kingella NhhA homolog) as critical factors for adherence to human epithelial cells. Additional studies established that the presence of a polysaccharide capsule interferes with Knh-mediated adherence. Given the inhibitory role of capsule during adherence we sought to uncover the genes involved in capsule expression to understand how capsule is elaborated on the cell surface. Additionally, this work aimed to further characterize capsule diversity among K. kingae clinical isolates and to investigate the relationship between capsule type and site of isolation.

We first set out to identify the carbohydrates present in the K. kingae capsule present in the prototype strain 269-492. Glycosyl composition and NMR analysis of surface extractable polysaccharides demonstrated two distinct polysaccharides, one consisting of GalNAc and Kdo with the structure →3)-β-GalpNAc-(1→5)-β-Kdop-(2→ and the other containing galactose alone with the structure →5)-β-Galf-(1→.

To discern the two polysaccharides we disrupted the ctrA gene required for surface localization of the K. kingae polysaccharide capsule and observed a loss of GalNAc and Kdo but no effect on the presence of Gal in bacterial surface extracts. In contrast, deletion of the pamABCDE locus involved in production of a reported galactan exopolysaccharide eliminated Gal but had no effect on the presence of GalNAc and Kdo in surface extracts. These results established that K. kingae strain KK01 produces a polysaccharide capsule with the structure →3)-β-GalpNAc-(1→5)-β-Kdop-(2→ and a separate exopolysaccharide with the structure →5)-β-Galf-(1→.

Having established that K. kingae produces a capsule comprised of GalNAc and Kdo, we next set out to identify the genetic determinants of capsule through a transposon mutagenesis screen. In addition to the previously identified ctrABCD operon, lipA, lipB, and a putative glycosyltransferase termed csaA (capsule synthesis region A gene A) were found to be essential for the production of surface-localized capsule. The ctr operon, lipA, lipB, and csaA were found to be present at unlinked locations throughout the genome, which is atypical for gram-negative organisms that elaborate a capsule dependent on an ABC-type transporter for surface localization. Through examining capsule localization in the ctrA, lipA, lipB, and csaA mutant strains, we determined that the ctrABCD, lipA/lipB, and csaA gene products respectively function in capsule export, assembly, and synthesis, respectively. The GalNAc transferase and Kdo transferase domains found in CsaA further support its role in catalyzing the synthesis of the GalNAc-Kdo capsule in the K. kingae prototype strain.

To investigate the capsule diversity that exists in K. kingae we screened a panel of strains isolated from patients with invasive disease or healthy carriers for the csaA capsule synthesis locus. We discovered that Kingella kingae expresses one of 4 capsule synthesis loci (csa, csb, csc, or csd) associated with a capsule consisting of Kdo and GalNAc (type a), Kdo and GlcNAc (type b), Kdo and ribose (type c), and GlcNAc and galactose (type d), respectively. Cloning of the csa, csb, csc, or csd locus into the empty flanking gene region in a non-encapsulated mutant (creation of an isogenic capsule swap) was sufficient to produce either the type a, type b, or type c capsule, respectively, further supporting the role of these loci in expression of a specific polysaccharide linkage. Capsule type a and capsule type b accounted for 96% of invasive strains. Conversely, capsule type c and capsule type d were found disproportionately among carrier isolates, suggesting that capsule type is important in promoting invasion and dissemination.

In conclusion, we discovered that Kingella kingae expresses a polysaccharide capsule and an exopolysaccharide on its surface that require distinct genetic loci for surface localization. Further investigation into genetic determinants of encapsulation revealed the loci ctrABCD, lipA/lipB, and a putative glycosyltransferase are required for capsule expression, with the gene products having roles in capsule export, assembly, and synthesis, respectively. The putative glycosyltransferase CsaA was determined to be a bifunctional enzyme with both GalNAc-transferase and Kdo-transferase activity. Furthermore, we discovered a total of 4 capsule types expressed in clinical isolates of K. kingae, each with a distinct capsule synthesis locus. The variation in the proportion of capsule types found between invasive strains and carriage strains suggest that capsule type is important in promoting invasion and dissemination. Taken together, this work expands our knowledge of the capsule types expressed among K. kingae carrier and invasive isolates and provides insights into the common genetic determinants of capsule expression. These contributions may lead to selecting clinically relevant capsule types to develop into a capsule based vaccine to prevent K. kingae colonization.