LanguageTerm (authority = ISO 639-3:2007); (type = text)
English
Abstract (type = abstract)
This dissertation includes four essays on empirical asset pricing as well as the application of state-space models in this area.
The first essay seeks to reconcile the debate about the price effect of risk-neutral skewness (RNS) on stocks. We document positive predictability from short-term skewness, consistent with informed trading, and negative predictability from long-term skewness, consistent with skewness preference. A term spread on RNS captures different information from long- and short-term contracts, resulting in stronger predictability. The quintile portfolio with the lowest spread outperforms that with highest spread by 14.64% annually. The information difference between short- and long-term options explains the pricing difference of their RNS, providing a potential resolution to the debate.
The second essay uses a novel sequential Monte Carlo method, the mixture Kalman filter (MKF), to detect periodically collapsing rational bubbles in stock prices. The stock-dividend-bubble system is expressed in a state-space model with Markov regime switching. We apply the MKF to estimate the model for simulated and actual stock data. Our methodology captures the bubble dynamics more successfully than the model without regime-switching, and identifies major bubble collapsing episodes in our sample period.
The third essay explains why the correlation between oil price and 10-year TIPS break-even inflation increased dramatically after the financial crisis. We develop a shadow-rate no-arbitrage term structure model to fit nominal yields, TIPS yields and inflation forecasts, and estimate it using the Extended Kalman Filter. Based on the model estimation, we provide empirical evidences showing that the puzzle is because when interest rates bind at the zero lower bound, investors doubt the effectiveness of monetary policy to control deflation. We justify this mechanism theoretically under a general equilibrium framework.
The last essay develops an arbitrage-free Nelson-Siegel term structure model with economic factors, estimates the model using the Kalman Filter and reveals the information content of treasury term premium through model decomposition. We find foreign carry trades and cross-border investments have been the key drivers of negative treasury term premium in recent years due to monetary divergence. This poses challenges to conventional term structure models using US-exclusive macro variables to explain treasury dynamics.
Subject (authority = RUETD)
Topic
Management
RelatedItem (type = host)
TitleInfo
Title
Rutgers University Electronic Theses and Dissertations
Identifier (type = RULIB)
ETD
RelatedItem (type = host)
TitleInfo
Title
Graduate School - Newark Electronic Theses and Dissertations
Identifier (type = local)
rucore10002600001
Identifier
ETD_10859
Identifier (type = doi)
doi:10.7282/t3-tgdy-hz97
PhysicalDescription
Form (authority = gmd)
InternetMediaType
application/pdf
InternetMediaType
text/xml
Extent
1 online resource (xvii, 243 pages)
Note (type = degree)
Ph.D.
Note (type = bibliography)
Includes bibliographical references
Location
PhysicalLocation (authority = marcorg); (displayLabel = Rutgers, The State University of New Jersey)
I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.