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’.

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.

Membrane associated transporter protein gene (SLC45A2) and the genetic basis of normal human pigmentation variation

This work is concerned with the genetic basis of normal human pigmentation variation. Specifically, the role of polymorphisms within the solute carrier family 45 member 2 (SLC45A2 or membrane associated transporter protein; MATP) gene were investigated with respect to variation in hair, skin and eye colour ― both between and within populations. SLC45A2 is an important regulator of melanin production and mutations in the gene underly the most recently identified form of oculocutaneous albinism. There is evidence to suggest that non-synonymous polymorphisms in SLC45A2 are associated with normal pigmentation variation between populations. Therefore, the underlying hypothesis of this thesis is that polymorphisms in SLC45A2 will alter the function or regulation of the protein, thereby altering the important role it plays in melanogenesis and providing a mechanism for normal pigmentation variation. In order to investigate the role that SLC45A2 polymorphisms play in human pigmentation variation, a DNA database was established which collected pigmentation phenotypic information and blood samples of more than 700 individuals. This database was used as the foundation for two association studies outlined in this thesis, the first of which involved genotyping two previously-described non-synonymous polymorphisms, p.Glu272Lys and p.Phe374Leu, in four different population groups. For both polymorphisms, allele frequencies were significantly different between population groups and the 272Lys and 374Leu alleles were strongly associated with black hair, brown eyes and olive skin colour in Caucasians. This was the first report to show that SLC45A2 polymorphisms were associated with normal human intra-population pigmentation variation. The second association study involved genotyping several SLC45A2 promoter polymorphisms to determine if they also played a role in pigmentation variation. Firstly, the transcription start site (TSS), and hence putative proximal promoter region, was identified using 5' RNA ligase mediated rapid amplification of cDNA ends (RLM-RACE). Two alternate TSSs were identified and the putative promoter region was screened for novel polymorphisms using denaturing high performance liquid chromatography (dHPLC). A novel duplication (c.–1176_–1174dupAAT) was identified along with other previously described single nucleotide polymorphisms (c.–1721C>G and c.–1169G>A). Strong linkage disequilibrium ensured that all three polymorphisms were associated with skin colour such that the –1721G, +dup and –1169A alleles were associated with olive skin in Caucasians. No linkage disequilibrium was observed between the promoter and coding region polymorphisms, suggesting independent effects. The association analyses were complemented with functional data, showing that the –1721G, +dup and –1169A alleles significantly decreased SLC45A2 transcriptional activity. Based on in silico bioinformatic analysis that showed these alleles remove a microphthalmia-associated transcription factor (MITF) binding site, and that MITF is a known regulator of SLC45A2 (Baxter and Pavan, 2002; Du and Fisher, 2002), it was postulated that SLC45A2 promoter polymorphisms could contribute to the regulation of pigmentation by altering MITF binding affinity. Further characterisation of the SLC45A2 promoter was carried out using luciferase reporter assays to determine the transcriptional activity of different regions of the promoter. Five constructs were designed of increasing length and their promoter activity evaluated. Constitutive promoter activity was observed within the first ~200 bp and promoter activity increased as the construct size increased. The functional impact of the –1721G, +dup and –1169A alleles, which removed a MITF consensus binding site, were assessed using electrophoretic mobility shift assays (EMSA) and expression analysis of genotyped melanoblast and melanocyte cell lines. EMSA results confirmed that the promoter polymorphisms affected DNA-protein binding. Interestingly, however, the protein/s involved were not MITF, or at least MITF was not the protein directly binding to the DNA. In an effort to more thoroughly characterise the functional consequences of SLC45A2 promoter polymorphisms, the mRNA expression levels of SLC45A2 and MITF were determined in melanocyte/melanoblast cell lines. Based on SLC45A2’s role in processing and trafficking TYRP1 from the trans-Golgi network to stage 2 melanosmes, the mRNA expression of TYRP1 was also investigated. Expression results suggested a coordinated expression of pigmentation genes. This thesis has substantially contributed to the field of pigmentation by showing that SLC45A2 polymorphisms not only show allele frequency differences between population groups, but also contribute to normal pigmentation variation within a Caucasian population. In addition, promoter polymorphisms have been shown to have functional consequences for SLC45A2 transcription and the expression of other pigmentation genes. Combined, the data presented in this work supports the notion that SLC45A2 is an important contributor to normal pigmentation variation and should be the target of further research to elucidate its role in determining pigmentation phenotypes. Understanding SLC45A2’s function may lead to the development of therapeutic interventions for oculocutaneous albinism and other disorders of pigmentation. It may also help in our understanding of skin cancer susceptibility and evolutionary adaptation to different UV environments, and contribute to the forensic application of pigmentation phenotype prediction.