Essays In Financial Econometrics And Quantitative Industrial Organization
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Essays In Financial Econometrics And Quantitative Industrial Organization
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Author : Soheil Rashid Nadimi
language : en
Publisher:
Release Date : 2015
Essays In Financial Econometrics And Quantitative Industrial Organization written by Soheil Rashid Nadimi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This dissertation consists of one essay in financial econometrics and two essays in quantitative industrial organization. The first essay studies the relationship between stock return volatility and current and prior shocks to oil price volatility. We study the behavior of aggregate stock markets as well as individual industry sectors. Our results show that lagged stock return volatility is the main determinant of current stock return volatility in aggregate markets, with oil price volatility providing no additional information that can be used to forecast stock return volatility. For individual industry sectors, we find a robust and stable prediction relationship only for the chemicals industry. Additional estimation exercises confirm the robustness of these results. The second essay uses a Bertrand-Nash price-competition framework to models a vertically integrated provider (VIP) that is a monopoly supplier of an essential input for downstream production. An input price that is "too high" can lead to inefficient foreclosure and one that is "too low" creates incentives for nonprice discrimination. The range of non-exclusionary input prices is circumscribed by the input prices generated on the basis of upper-bound and lower-bound displacement ratios. The admissible range of the ratio of downstream to upstream "price-cost" margins for the VIP is increasing in the degree of product differentiation and reduces to a single ratio in the limit as the products become perfectly homogeneous. The third essay explores the relationship between upstream input prices and downstream market exclusion under a Stackelberg quantity-competition framework. Market exclusion is a concern when input prices are "too high" and "too low" because it can result in inefficient foreclosure and sabotage, respectively. Consistent with the results obtained in the second essay, the safe harbor range of downstream to upstream "price-cost" margin ratios is decreasing in the degree of product homogeneity and approaches a single ratio in the limit as the products become perfectly homogeneous. This single margin ratio preserves equality between the VIP's wholesale and retail "price-cost" margins. A key finding for competition policy is that the bounds of non-exclusionary input prices are markedly wider under Bertrand-Nash competition than they are under Stackelberg competition. Hence, it is critical that the antitrust and regulatory authorities understand the nature of the industry competition so that rules governing permissible conduct are properly calibrated to yield efficient outcomes.
Essays On Industrial Organization And Financial Economics
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Author : Xiaoye (Phoebe) Tian
language : en
Publisher:
Release Date : 2021
Essays On Industrial Organization And Financial Economics written by Xiaoye (Phoebe) Tian and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
This dissertation explores how imperfections in financial markets affect decisions made by market participants and subsequent market outcomes. The three chapters in this dissertation focus on three different financial markets: corporate lending market for small firms in China, refinance market for residential mortgage in US and retail investment product market in China. The first chapter studies inefficiencies arising from the lack of long-term contracting between borrower (firm) and lender (bank). I draw on a proprietary data from a Chinese bank, which only offers one-year term loans for small firms. How, and to what extent can default risk be reduced if they were able to enter long-term contract? I develop a dynamic model of business lending to analyze borrower's default incentives in an environment with imperfect information and learning. Estimation of the structural model implies that over seventy percent of observed defaults are strategic borrower defaults. In the counterfactual model, banks are able to offer long-term contingent contract which involves a schedule of future lending terms that can vary with time and firm's financial status. I find that optimal long-term contract has two main benefits: First, by frontloading prices, it alleviates agency frictions and disincentivizes willful defaults. Second, by cross-subsidization, it provides insurance for firms against negative shocks. As a result, with long-term contracting 17% fewer firms default, and total firm outputs expand by 2.6%. The second chapter (joint with Chen Zheng) studies the unintended consequences arising from program design, and how it augments the market power of incumbent lenders, in the context of a federal program called Home Affordable Refinance Program. We build a dynamic discrete choice model of refinance decision where the payoff is generated from a search and negotiation process. We estimate the model using data on program participation and pricing decision. The estimation exploits a significant change to the program design that gives exogenous variation in the competitive advantage of incumbent lenders under the program. In a counterfactual where the advantage granted by program design is shut down, we find that it leads to an average welfare improvement of 4,977. The insight from this study could apply to other policies whose implementation depends on intermediaries with incumbency advantage with respect to targeted agents. In the third chapter, I develop an empirical structural model of the wealth management sector in China in order to analyze the welfare impact of the proposed regulation aimed at ending the prevalence of the implicit guarantee in this industry. The implicit guarantee means the bank implicitly promises the returns on wealth management products to investors, and investors choose from differentiated wealth management products based on characteristics including guaranteed returns. In the counterfactual post-regulation scenario, the bank does not guarantee returns, and it only serves as an intermediary charging a constant fee, shifting the underlying risk of investment to investors. The change of consumer welfare hinges on two forces-the adjustment of the bank's markups and investor's disutility of risk. Empirical findings suggest that the markup decreases moderately, but not enough to completely compensate for investor's aversion of risk, so consumer surplus drops slightly as a result of the regulation.
Essays On Financial Economics And Industrial Organization
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Author : Marcus Eduardo Mathias Studart
language : en
Publisher:
Release Date : 2015
Essays On Financial Economics And Industrial Organization written by Marcus Eduardo Mathias Studart and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This essay consist of three chapters. In chapter 1, I analyze the equilibrium behavior of asset prices and margins (i.e collateral required to trade shares using debt), when Market Makers smooth out price fluctuations by trading on a margin. I address the questions of 1) whether financial margins can increase in reaction to supply shocks without misinformation about the shocks' nature, 2) when non-fundamental shocks reduce asset prices and increase margins, and 3) how margins and prices react to persistent supply shocks, as opposed to temporary ones. In the model, price fluctuations are induced by supply shocks, and margins are set to match the price depreciation induced by a future negative tail shock. Temporary shocks (i.e. shocks that fade very soon) are shown to have no effects on prices or margins, when either they are small or Market Makers hold large collateral amounts. If the shock is sufficiently large, some shares will be held by (currently active) risk averse investors, and price falls due to larger risk premium. If, before the shock, Market Makers were holding asset shares, prices fall even more, because Market Makers wealth is marked down, and expected future prices falls, since it becomes more likely that future shocks will depress prices. Persistent shocks (i.e. shocks that do not fade quickly) reduce current prices, because, in the best scenario, they shift down the future price distribution, and reduce Market Makers' asset valuation. I give conditions for margins to increase with a persistent shock. Falling prices and higher margins are not necessarily the result of a margin spiral (i.e. when margins increase and constrain Market Makers, who are forced to sell, causing prices to fall and margins increase more). Margins can increase because future price variance increases at the same time as Market Makers' asset valuation reduces, and Market Makers may not be financially constrained at all. In chapter 2, I study repurchase agreements, short-term collateralized loans known as repos, that are commonly used to fund different sorts of assets. Using a dataset of Money Market Mutual Funds (MMF), I find that repos backed by liquid collateral, such as US Treasuries securities, have on average shorter maturities, lower haircut rates and lower interest rates than less liquid collateral, while the average maturities of repos held by MMF are positively correlated with fund size and overall portfolio maturity. Motivated by these evidences, I develop an equilibrium model to price simultaneously assets and repos. I show that assortative matching between assets and lenders offering different maturities exists in equilibrium. Lenders who offer longer maturities are better suited to finance less liquidity securities, since investors' expected transaction costs are lower, as collateral (to repay debt) is sold long after their debt is considered unworthy. Liquid securities prices increase with repos, in order to make the financing of illiquid securities more attractive to long maturity lenders. Interest rates and haircuts are functions of both the transaction costs and maturities distributions, and are shown to be increasing in illiquidity. Haircuts exceed the securities' transaction costs, in order to cover how much securities depreciate when sold, and to force borrowers to repay the interest on their debt. Moreover, illiquid securities have higher haircuts, because not only they have larger transaction costs but also because the repos used to finance them pay more interest. I emulate a financial crisis through an increase in the probability of a debt run. As repos are terminated earlier, all asset prices decrease. Illiquid securities prices, however, fall notably more and haircuts and interest rates of repos to fund them increase. In chapter 3, which is co-authored with Siwei Kwok, we study the interaction of information and competition in incentivizing quality provision. We estimate a discrete quality game with Los Angeles County restaurant hygiene inspection data set, via the two step method of Bajari et al (2006). Our results suggest that firm competition incentivizes quality provision, but the effect is non-monotonic. If a market is saturated with a sufficiently large number of firms, an additional firm might actually reduces the likelihood that all others will provide quality. Information, however, enhances the effects of competition and reduces the threshold which additional firms reduce quality provided.
Quantitative Economics And Development
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Author : L. R. Klein
language : en
Publisher: Academic Press
Release Date : 2014-05-12
Quantitative Economics And Development written by L. R. Klein and has been published by Academic Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-05-12 with Business & Economics categories.
Economic Theory, Econometrics, and Mathematical Economics: Quantitative Economics and Development: Essays in Memory of Ta-Chung Liu focuses on the advancements in the methodologies and processes in the field of quantitative economics. The selection first offers information on society, politics, and economic development, global stability of stochastic economic processes, and the design of mechanisms for the efficient allocation of public goods. Discussions focus on the design of individually incentive compatible mechanisms in an abstract setting, design problem under coalition formation, stability results for the economic models, invariant measures for diffusions, and disjoint principal-components method. The text then takes a look at critical observations on the labor theory of value and Sraffa's Standard Commodity and a generalization of Hotelling's solution. The manuscript examines an exploratory policy-oriented econometric model of a metropolitan area and the effect of simple specification error on the coefficients of "unaffected" variables, including distinctive features of the model and individual sectoral models. Temporal aggregation and econometric models; uniqueness of the representation of commodity-augmenting technical change; and technological change and growth performance in Taiwan agriculture are also discussed. The selection is a valuable source of data for economists and readers interested in quantitative economics.
Essays In Econometrics And Industrial Organization
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Author : Nikolay Doudchenko
language : en
Publisher:
Release Date : 2018
Essays In Econometrics And Industrial Organization written by Nikolay Doudchenko and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
In my dissertation I study econometric methods of causal inference with a particular focus on the use of prediction methods developed by researchers in the fields of statistical learning, machine learning, and pattern recognition. I'm also interested in the application of these methods as well as the more traditional ones to answer relevant policy questions. Chapter 1 (joint with Guido Imbens) considers the synthetic control method developed by Abadie, Diamond, Gardeazabal, and Hainmueller in several influential papers. The method is designed for estimating the effect of a treatment, in the presence of a single treated unit and a number of control units, with pre-treatment outcomes observed for all units. The method constructs a set of weights such that selected covariates and pre-treatment outcomes of the treated unit are approximately matched by a weighted average of the control units (the synthetic control). The weights are restricted to be nonnegative and sum to one. These restrictions are important partly because they make it easier for the procedure to obtain unique weights even when the number of lagged outcomes is modest relative to the number of control units, a common setting in applications. In the chapter we propose a generalization of the synthetic control procedure that allows the weights to be negative, and their sum to differ from one, and that allows for a permanent additive difference between the treated unit and the controls, similar to the difference-in-difference procedures. The weights directly minimize the distance between the lagged outcomes for the treated and the control units, using elastic net regularization to deal with a potentially large number of possible control units. In Chapter 2 (joint with Ali Yurukoglu) we quantify how bargaining power derived from firm size affects the analysis of downstream mergers and the profitability of downstream entry in the multichannel television industry. We estimate an empirical model of the industry which features negotiations between the upstream content producers and the downstream distributors of varying size. We estimate that large distributors like Comcast are able to negotiate about 25% lower content fees than smaller downstream firms such as Cablevision. We evaluate the short-run welfare effects of several recently reviewed mergers taking into account the size effects in negotiations. We also assess the degree to which size based bargaining power creates contracts which are a barrier to entry for new distributors.
Essays In Financial Economics
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Author : Rita Biswas
language : en
Publisher: Emerald Group Publishing
Release Date : 2019-10-24
Essays In Financial Economics written by Rita Biswas and has been published by Emerald Group Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-10-24 with Business & Economics categories.
This volume, dedicated to John W. Kensinger, explores a variety of topics in financial economics, including firm growth, investment risks, and the profitability of the banking industry. With its global perspective, Essays in Financial Economics is a valuable addition to the bookshelf of any researcher in finance.
Essays In Industrial Econometrics
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Author : Lawrence Robert Klein
language : en
Publisher:
Release Date : 1969
Essays In Industrial Econometrics written by Lawrence Robert Klein and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1969 with Industries categories.
Essays In Industrial Organization And Finance
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Author : Thomas Rutford Covert
language : en
Publisher:
Release Date : 2014
Essays In Industrial Organization And Finance written by Thomas Rutford Covert and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation consists of two essays on the behavior of traders in opaque financial markets and one on the behavior of firms while they are learning to use a new technology.
Essays In Industrial Organization And Econometrics
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Author : Minhae Kim (Ph. D. in economics)
language : en
Publisher:
Release Date : 2022
Essays In Industrial Organization And Econometrics written by Minhae Kim (Ph. D. in economics) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with Branch banks categories.
This dissertation uses econometric methods to introduce an estimator and develop models to estimate the effect of the internet on bank branches. Chapter 1 introduces the nested pseudo likelihood estimator to estimate dynamic discrete choice models in continuous time. Chapter 2 uses this estimator to estimate the impact of the internet penetration on brick-and-mortar bank branches. In Chapter 3, I provide additional evidence on the effect of the internet in banking industry by examining the effect of Community Connect Broadband Grant Program, which helps rural areas to establish broadband service, on bank branches. In Chapter 1, we introduce a sequential estimator for continuous time dynamic discrete choice models (single-agent models and games) by adapting the nested pseudo likelihood (NPL) estimator of Aguirregabiria and Mira (2002; 2007), developed for discrete time models with discrete time data, to the continuous time case with data sampled either discretely (i.e., uniformly-spaced snapshot data) or continuously. We establish conditions for consistency and asymptotic normality of the estimator, a local convergence condition, and, for single agent models, a zero Jacobian property assuring local convergence. We carry out a series of Monte Carlo experiments using an entry-exit game with five heterogeneous firms to confirm the large-sample properties and demonstrate finite-sample bias reduction via iteration. In our simulations we show that the convergence issues documented for the NPL estimator in discrete time models are less likely to affect comparable continuous-time models. We also show that there can be large bias in economically-relevant parameters, such as the competitive effect and entry cost, from estimating a misspecified discrete time model when in fact the data generating process is a continuous time model. Chapter 2 examines the effect of the internet on market structure and consumer welfare in the US retail banking industry. The internet is expected to be a substitute for bank branches as consumers can use more online banking and this effect can lead to branch closures. On the other hand, the internet can be a complementary to branches because consumers can more easily make deposits or open a new bank account online when more high-speed internet is available which can expand markets, and in turn, increase the number of bank branches. Observing the changes in the number of rival bank branches after the change in the internet, banks can open or close more branches. I estimate a dynamic branch opening-closure game in continuous time to quantify these opposing effects. The results show that more internet connections can cause consumer welfare loss due to branch closures when the internet penetration is not sufficiently high. However, if internet connections are provided to more than 80% of households, consumers experience a welfare gain. The gains are especially large in small and low-income markets. Lastly, Chapter 3 explores the effect of Community Connect Grant Program on bank branches. The Community Connect Broadband Grant Program was created in 2002 to provide financial assistance for the provision of broadband service in rural areas. Although it was launched to strengthen the rural economy, it is possible that an increase in internet usage due to the program could have induced bank branch closures, which could have had unintended effects on the economy. This chapter discusses the mechanism by which the program affects bank branches and estimates the magnitude of its effects using an event study model and find that receiving benefits from this program decreases the number of bank branches.
Essays In Financial Economics
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Author : Geoffery Xin Zheng
language : en
Publisher:
Release Date : 2020
Essays In Financial Economics written by Geoffery Xin Zheng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
In the first chapter, I use a simple decomposition to distinguish between (a) inequality driven by wealth accumulation by old money, and (b) that driven by the entry of new money into the top of the wealth distribution. I make use of administrative real estate holdings data and hand-collected genealogies to create a novel panel dataset of wealth spanning 1982 through 2018. I find that (i) the contribution of new money is large, and (ii) this contribution increases with horizon. Over 80 percent of the increase in wealth inequality is attributable to new money households. Many theories of inequality explain the rapid increase in wealth inequality; relatively few can explain the relative importance of new money. I present a parsimonious model featuring market incompleteness and innovative young firms that is able to match both these moments while also generating additional asset pricing predictions. In the model, inequality increases not because the rich get richer, but because of the emergence of fast-growing young firms. In the second chapter (with Sebastian Gryglewicz and Barney Hartman-Glaser), I address a puzzling stylized fact of executive compensation: Firms with better investment opportunities tend to have lower levels of managerial incentives. Managerial incentives are measured as pay-performance-sensitivity, the change in the manager's compensation for a 1 percent increase in firm value. While it seems odd that increased opportunities do not coincide with stronger managerial incentives, I write down a theoretical model in which this pattern naturally emerges. The result hinges on two important ingredients: the manager exerts costly, unobservable effort to improve the firm; and the manager is more risk averse than the investor. In the model, the firm's manager can exert effort to improve firm value, but this effort is costly to the manager. Thus, there are direct costs of effort, which come from incentivizing the manager to work hard, as well as indirect costs of effort, which come from the manager's risk aversion. Our model contributes to the literature on executive compensation by rationalizing a puzzling stylized fact using a parsimonious contracting model. This article has been published in Management Science. In the third chapter (with Bruno Pellegrino), I ask the question: How much can a country grow its economy via better allocation of labor and capital? A robust prediction of neoclassical economics is that, in a market economy, labor and capital should flow to its best users. However, in the data, some firms seem to be using labor and physical capital very productively, while others squander these resources. The contribution of this chapter is to ask how much of this variation in productivity can be attributed to differences in managerial expectations. Using a novel dataset in which managers of over 8,000 European firms report on the constraints faced by their firms, I construct a dataset in which managerial expectations and accounting variables are jointly observed. I consider four different types of constraints: bureaucratic regulation, nepotism, limited access to financial capital, and labor market frictions in hiring workers. Building on prior theoretical work in Industrial Organization and Macro-economics, I develop a model that allows me to estimate the difference in productivity between constrained firms and their unconstrained counterparts using firm-level accounting and survey data. I find managers' expectations of financial constraints act like a 26 percent tax on physical capital in Spain, and that nepotism in Hungary and Spain acts like a 2 percent tax on firm profits. Taken together, these suggest that better allocation of resources could grow these economies by several percentage points. The amelioration of these frictions represent low hanging fruit for policy makers interested in promoting economic growth.