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theses

The first essay examines the momentum phenomenon in the sovereign CDS market. We find that from 2001 to 2015, the portfolio of sovereign CDS past three-month winners outperforms the portfolio of past three-month losers by 0.53% per month after adjusting for risk factors. The excess returns of the long-short portfolio increase with the holding period for up to 20 months, and there is no sign of mean reversion. This evidence is consistent with investors’ initial underreaction to public information, as in Barberis, Shleifer, and Vishny (1998). The second essay studies the macro-informational role of the sovereign CDS market and the way in which macro information flows between sovereign CDS market and stock and bond markets. We find that the sovereign CDS market can predict future stock index returns, government bond yields, and real economic activities. For example, a strategy that buys stock indices of countries in the top quintile (whose creditworthiness improved the most in the previous quarter according to sovereign CDSs) and sells indices from the bottom quintile generates an average return of 15% per year. Moreover, the information is flowing one way, from sovereign CDS market to stock and bond markets, but not the other way around. Our evidence suggests that stock and bond markets gradually “catch up” with the sovereign CDS market, especially during the days surrounding credit rating or outlook changes. The predictive power of sovereign CDS returns is almost entirely from their global, rather than country-specific, component. The third essay investigates the investment performance of US ethical equity mutual funds relative to the market and their traditional counterparts using a survivorship-bias-free database. We detect selectivity and market timing performance of fund managers using the models of Treynor and Mazuy (1966) and Bhattacharya and Pfleiderer (1983). Our empirical results indicate that ethical funds perform no worse than their traditional counterparts, although neither type of funds outperforms the market. We find some evidence of superior security selection and/or market timing skill among a small number of ethical and traditional funds. Matching traditional funds have slightly more abnormal performance than ethical funds.

ETD_8969

Ph.D.

Includes bibliographical references

by Yaqing Xiao

doi:10.7282/T3QV3QZM

ETD doctoral

The author owns the copyright to this work.