Alumni Dissertations and Theses

 
 

Alumni Dissertations and Theses

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  • Three essays on the foreign exchange markets

    Author:
    Nengzhi Jiang
    Year of Dissertation:
    2010
    Program:
    Economics
    Advisor:
    Tao Wang
    Abstract:

    The first essay study the explanation power of the macroeconomic news for the foreign exchange fluctuation. We use Kalman filter and maximum likelihood method to extract several dynamic factors from 27 noisy and sparsely observed macroeconomic news deviations. We further input the news factors as independent variables in our VECManalysis. The fitted results show that the news factors' contribution is limited. The out of sample prediction yields the same conclusion. The uncovered interest rate parity hypothesis has frequently been rejected. This hypothesis, however, has seldom been tested at the very short end of the forecasting horizon where forward rates are measured in days. The second paper reinvestigate the UIRP puzzle in diversified horizons. Using overnight, two-dayand three-day forward rates, we find that the forward premia in these short forward horizons are stationary than the forward premia in longer horizons. This contrasts with recent findings that the forward premia, in longer forward horizons, are fractionally nonstationary. Estimation results indicate that forward premia are essentially unbiased estimates of the future spot returns. Once the interest rate differential is the dominant source of information in the foreign exchange market, the forward premium forecasts the spot returns relatively well. The last essay we have a empirical study of the VECM prediction power. we use the rolling regression method to generate series of parameters and dynamically predict the next period's foreign exchange rates. We compare the forecast errors from the rolling regression VECM and that of the random walk model. We also set up a trading strategy which longs or shorts the foreign currency based on the forecasts. Our trading simulation shows that this informed trading makes positive return in medium horizon, while the simple buy and hold strategy's return is insignificant.

  • Essays on Financial Market Volatility: Applications of Time-Varying Dynamics

    Author:
    Emily Johnston
    Year of Dissertation:
    2014
    Program:
    Economics
    Advisor:
    Randall Filer
    Abstract:

    This dissertation examines time-variation in asset volatility surrounding periods of financial market distress. In the first chapter we give a brief introduction of the overall theme of the project, and we outline the models used. The next chapters individually focus on the application of time-varying volatility to important themes in the literature. These include: the behavior of investor risk preferences across periods of stability and distress; inconsistencies in options pricing with regard to the behavior of the underlying asset; and the characterization of time-varying volatility dynamics in equity returns. The second chapter of this dissertation examines the impact of changing asset volatility on the estimation of investor risk preferences. We ask whether prior findings of time-varying behavior for risk preferences may be due in part to a failure to account for changes in volatility. This is an important issue, because there is evidence in the existing literature that suggests a contributing role of risk preferences during periods of crisis and contagion. We use a regime-switching GARCH model for pricing kernel estimation to show that much of the variation in estimated investor risk preferences can be explained by changing volatility instead. In the third chapter we examine stochastic volatility as an additional uncertainty factor regarding the future state of the market. We explore whether this inclusion affects prior findings of options pricing inconsistencies in the literature. Options mispricing is an important topic in debates concerning the role of investor sentiment in market behavior and asset pricing. Results from our investigation indicate that including this additional uncertainty factor does not fully explain away the inconsistencies. Our findings thus appear to support the existing evidence of options mispricing with respect to the behavior of the underlying asset. In the fourth and final chapter of this dissertation, we examine asset volatility dynamics over a long historical time frame from 1871-2013. We demonstrate best fit for the number of distinct volatility regimes and characterize these separate dynamics. There is growing evidence that some economic relationships themselves may change between periods of high and low volatility - understanding changing volatility dynamics is crucial for understanding these economic relationships as well. We also show in this chapter how the estimated high-volatility state matches up with well-documented historical financial market events.

  • Global Capital Flows, Time -Varying Fundamentals and Transitional Exchange Rate Dynamics

    Author:
    Suleyman Kal
    Year of Dissertation:
    2013
    Program:
    Economics
    Advisor:
    Tom Thurston
    Abstract:

    In this paper, I investigated the effects of cross border capital flows induced by the rate of risk adjusted excess returns (Sharpe ratio) on the transitional dynamics of the nominal exchange rate's deviation from its fundamental value. For this purpose, a two state time varying transition probability Markov (TVTPM) regime switching process is added to the sticky price exchange rate model with shares (SPERS). I estimated this model using quarterly data on the four most active floating rate currencies for the years 1973 to 2009: the Australian Dollar (AUD), the Canadian Dollar (CAD), the Japanese Yen (JPY) and the British Pound (UKP). The results provide evidence that the Sharpe ratios of debt and equity investments influence the evolution of transitional dynamics of the currencies' deviation from their fundamental values. In addition, I found that the relationship between economic fundamentals and the nominal exchange rates vary depending on the overvaluation or undervaluation of the currencies.

  • RAILROADS AND ECONOMIES OF SCALE AND SCOPE IN U.S. MANUFACTURING INDUSTRIES: 1850-1880. CHANDLER REVISITED

    Author:
    Michael Kalson
    Year of Dissertation:
    2010
    Program:
    Economics
    Advisor:
    Michael Edelstein
    Abstract:

    This study concerns the measurement and quantification of the relationship between railroadization in the United States in the mid-19th century and the subsequent evolution of the modern, large-scale, corporate form of industrial business organization marked by significant economies of scale and scope, as described in various writings by Alfred Chandler. Focusing on American industry as it developed from 1850-1880 using data uniquely suited to empirical analysis of economies of scale and scope, its aim is to determine whether the growth of the American railroad network, as Chandler contended, expanded markets and augmented the American financial sector such that the result was a more concentrated, large-scale mode of industrial organization characterized by extensive and increasing economies of scale and scope in sync with the growth of its extensive railroad system. Apart from some positive results found in the scope analysis of Chapter 6 showing an ascending scope pattern from 1850-1880 in a few key industries, our findings indicate an overall gloomy prognosis for the empirical validity of the Chandler hypothesis. With the cross-country analyses of Chapters 2 and 3 showing no evidence of a greater expansion of the railroad systems of the United States and Germany at mid-century and resultant vastness thereof with respect to Britain circa the 1870's as contributing to a more concentrated industrial sector in those countries, and the mixed evidence in support of a rise in efficient scale in American industry from 1860-1880 as shown in Chapters 4 and 5, not to mention the omnipresent dips at 1870 seen in both the scale and scope estimates, our findings reflect poorly upon Chandler's idea of that date as the benchmark period in which to begin to expect to see the effects of transportation improvements upon scale and scope economies in American industry. Rather, they indicate a far greater impact of the Civil War aftermath shock than Chandler accounted for--perhaps one that persisted on until the 1880's--and suggest a much later date of the full impact of the railroads upon scale and scope of industry than Chandler bargained for--perhaps 1900 as indicated by Atack (1985).

  • Analysis of Adult Obesity Based on New Measures of Fatness

    Author:
    Minchul Kim
    Year of Dissertation:
    2012
    Program:
    Economics
    Advisor:
    Michael Grossman
    Abstract:

    During the past three decades, the United States and most of the rest of the developed world have experienced a rapid and sustained rise in the obesity rate. This trend has stimulated a considerable amount of research by economists and other social scientists dealing with its causes and with policies to combat it. To date, the focus has been on obesity defined by a body mass index (BMI, weight in kilograms divided by height in meters squared) greater than or equal to 30. This measure has been criticized because it fails to distinguish body fat from lean body mass. It is the former that is responsible for the detrimental health effects of obesity. Therefore, in my dissertation I introduce the percentage body fat (PBF, the ratio of body fat to total weight multiplied by 100) and an obesity indicator based on PBF as alternative measures of body composition. I generate equations by gender and race to predict these measures from height, weight, and age in the Third National Health and Nutrition Examination Survey and use the estimated coefficients to obtain PBF and obesity based on PBF in the Behavioral Risk Factor Surveillance System for the period from 1984 through 2009. I then examine the effects of socioeconomic characteristics and state-level measures pertaining the per capita number of restaurants, the prices of a meal in fast-food and full-service restaurants, the price of food consumed at home, the price of cigarettes, and clean indoor air laws on BMI, PBF, BMI-defined obesity, and PBF-defined obesity. My results suggest that most of the determinants at issue have similar qualitative and quantitative effects on the outcomes at issue. Finally, I assume that PBF-defined obesity correctly identifies obese and non-obese individuals, but BMI-defined obesity results in error. I use these assumptions to estimate the parameters of a binary choice model by nonlinear least squares. My results show that this procedure successfully corrects the downward bias in the marginal effects of a probit model for BMI-based obesity.

  • ESSAYS ON EFFECTS OF THE HOUSING MARKET COLLAPSE

    Author:
    Catherine Lau
    Year of Dissertation:
    2012
    Program:
    Economics
    Advisor:
    David Jaeger
    Abstract:

    Abstract ESSAYS ON EFFECTS OF THE HOUSING MARKET COLLAPSE by Catherine Lau Adviser: Professor David Jaeger The housing market collapse of 2008 had a number of economic effects. Chapter One addresses the history of the AAA financial guaranty insurance industry, which began in the 1980's, grew rapidly in the first few years of the 21st century, but ceased to exist following the housing market collapse. The factors that led to the industry's growth are explored, while the weaknesses that existed in its AAA fa├žade all along are pointed out. This essay concludes that, while the collapse of the housing market was the immediate cause of the financial guaranty industry's downfall, any economic shock would have harmed this highly leveraged industry. Declines in home values over the past five years have affected many homeowners, decreasing their asset values, and leaving some with negative equity. Besides financial harm, high indebtedness may adversely affect health. Chapter Two looks at the research done to date on the effects of consumer debt and mortgage debt/foreclosure on health. Chapters Three and Four use different data sets to empirically test the effect of high mortgage loan to home value on a number of health outcomes. Chapter Three employs the Health and Retirement Survey (HRS), a rich, nationally representative sample of the population over 50 years of age and finds significant correlation between high mortgage loan to value and negative health outcomes. Changes in home values are used as an instrument variable to further identify the effect of loan to value on health; results are not conclusive of causality. Chapter Four uses the NLSY79 to explore the effect of mortgage debt on a younger cohort that, in comparison to the HRS, is more likely to rely on wage income and have lower net worth. Results point to higher loan to value in conjunction with unemployment as having a significant negative impact on health for this cohort, but higher loan to value alone does not significantly affect overall health. These results point to the need for greater financial literacy for homeowners and potential homeowners, given the more frequent spells of unemployment and the volatility in home prices. Further research with data post 2008 is needed to further test causality.

  • THE EFFECT OF INCOME ON HEALTH AFTER HURRICANE KATRINA

    Author:
    JANG WOOK LEE
    Year of Dissertation:
    2014
    Program:
    Economics
    Advisor:
    MICHAEL GROSSMAN
    Abstract:

    There is a large literature that documents a positive correlation between income and a variety of measures of good health. This correlation may reflect causality in both directions and may also reflect omitted "third variables" that are positively related to income and health. In my dissertation, I employ an exogenous negative shock to income due to a natural disaster to estimate the true causal impact of income on health. The shock I will use is Hurricane Katrina, which severely damaged counties in Alabama, Mississippi, and Louisiana in August 2005. I use these treatment counties and a variety of alternative sets of control counties in a difference-in-differences (DD) research design. From the Behavioral Risk Factor Surveillance System I obtain measures of income and health for residents of these counties before and after the date on which the hurricane struck. I estimate DD regressions in which income or health is the dependent variable to obtain the impact of the hurricane on each outcome in the treated counties net of other factors. I then use the interaction between an indicator for residents of the treatment counties and an indicator for the period after the hurricane struck as an instrument for income in a two-stage least squares regression of health on income. In the main empirical chapter of my dissertation, I focus on self-rated health status. In next chapter I examine body mass index and indicators for the presence of asthma, high blood pressure, and diabetes as other health outcomes.

  • The Economic Causes and Consequences of Overweight and Obesity in the United States

    Author:
    David Lempert
    Year of Dissertation:
    2014
    Program:
    Economics
    Advisor:
    David Jaeger
    Abstract:

    Obesity is a serious public health issue, associated with increased risks of premature death, heart disease, diabetes, cancer, breathing problems, arthritis, reproductive complications, and other diseases. There are economic causes and consequences of overweight and obesity. Researchers have recently suggested that the inability of Body Mass Index to appropriately distinguish between body fat and non-body fat components may lead to inaccurate results when analyzing the economics of obesity. I use Percentage Body Fat, defined as Body Fat divided by the sum of Fat-Free Mass and Body Fat, as the primary measure of body composition. A growing body of literature explores the relationship between body composition and income in the United States. There are two views: (1) overweight and obesity lead to lower wages; and (2) low family income and low wages contribute to overweight and obesity. I study both relationships using a dataset comprised of the most recent years of data available in the National Longitudinal Survey of Youth 1979. I find relatively larger effects of body composition on wage levels in Not Worth the Weight: The Relationship between Body Composition and Wages, and relatively smaller effects of family income on body composition in Poor Choices: The Effects of Family Income on Body Composition. In Not Worth the Weight, I hypothesize that the negative impact of body composition increases at higher wage levels because the associated positions require additional education and perhaps a slimmer figure. The results show that for women, the effects of body composition on wage levels are larger than for men, and a higher wage level is associated with a higher wage penalty for being overweight. Poor Choices is unable to prove that low family income has a significantly large impact on body composition. In The Heavy Cost of Healthcare: The Ex Ante Moral Hazard Effect of Health Insurance Possession on Body Composition, I use the National Longitudinal Survey of Youth 1979, augmented with state-level food and tobacco prices, in an attempt to prove there is ex ante moral hazard associated with the possession of health insurance such that the insured are more likely to be overweight or obese. I hypothesize that the effect is larger when an individual is covered by government health insurance and smaller when the individual is covered by private insurance. The analysis shows that the ex ante moral hazard effect is larger when Medicaid covers the individual. When I control for individual fixed effects as well as endogeneity, however, results are insignificant. Thus it is inconclusive whether insurance has an impact on body composition. I conclude with suggestions for future research and effective policies to combat the public health epidemic of overweight and obesity.

  • Essays in Health Economics

    Author:
    Leigh Leung
    Year of Dissertation:
    2012
    Program:
    Economics
    Advisor:
    David Jaeger
    Abstract:

    Health is dened as an individual's mental or physical condition and being healthy means to be free from illness or injury. Health is relevant to both the supply and demand sides of the national economy. On the demand side, consumers derive satisfaction from being healthy. Consumers purchase goods and services to improve their health but also engage in activities that impair health such as smoking or drinking too much. On the supply side, firms produce health care goods and services to meet the market demand for health care derived from consumers' demand for better health. In addition, health augments labor inputs since the healthier the population, the larger the labor force and the higher the marginal productivity of labor, as in fewer sick days. This dissertation is comprised of three essays related to the eect of social environments and economic incentives on health and health behaviors. The first essay examines whether whether immigrants converge towards natives' level of smoking prevalence with assimilation. Results show that assimilation is associated with a greater likelihood of being a smoker for immigrants from lower smoking countries relative to the U.S. and a lower likelihood of being smoker for immigrants from higher smoking countries. Differences in responsiveness to taxes or smoke free air laws cannot explain the convergence in smoking rates between immigrants from higher and lower smoking countries. The second essay examines the effect of mortgage debt on health. Homeownership in the U.S. is promoted through the use of nancing. These policies improve the liquidity of the housing market and make homeownership more aordable. But it also encourages greater consumption of mortgage debt. Using mortgage loan to value (LTV) as a proxy for financial stress, I show that homeowners with high LTVs are more likely to be in poor health. The third essay examines the eect of unemployment duration on health. I hypothesis that unemployment duration aects health through nancial stress. Results show that high mortgage loan to value is not signicantly correlated with most measures of poor health but when interacted with high home leverage is positively and signicantly correlated with poor health. However, I cannot rule out reverse causality given that those in poor health have a significant likelihood of having high LTV in the next period.

  • THREE ESSAYS ON THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT

    Author:
    Haitao Liang
    Year of Dissertation:
    2010
    Program:
    Economics
    Advisor:
    Merih Uctum
    Abstract:

    At first, a literature review of over 150 articles on the determination of Foreign Direct Investment (FDI) proposes the main determinants of FDI. A meta-analysis tests the reliability of the previous studies on FDI. Then, a cluster analysis on FDI data reveals the necessary to segment economies, especially by income level, in FDI analysis. A large number of studies emphasize FDI determinants but ignore the income distribution on the results, which biases the estimates. In Chapter 3, I correct for heterogeneity due to income distribution by using the Blundell-Bond System GMM (Generalized Method of Moments), which controls for endogeneity problem as well. I categorize the countries according to their level of development: high, middle and low income. I further break down the middle income category into upper and lower segments. I consider level effects and various interactive effects. I find that income levels play a significant role in FDI determination model. Controlling for income levels corrects the sign and the magnitude of a number of estimates. In particular, results show that low income countries attract more FDI, ceteris paribus. This result is in stark contrast with the traditional consensus that capital flows to rich countries (Lucas 1990). Moreover, modeling income levels shows that lagged FDI has consistently positive effect on FDI, which is a dynamic model structure. Consistent with the literature, market potential and education boost FDI and results are robust to income levels. FDI increases with risk levels because during financial or economic crises it replaces other investments. Tax rates overall exert downward pressure on FDI, but mostly when the middle and low income levels are controlled for. This article also supports the Tariff Jumping FDI argument in middle and low income economies, according to which, FDI is a potential substitute for international trade. My results reject the hypothesis of the wealth effect of exchange rate, and there is weak evidence that the depreciation of local currency discourages FDI in particular in poorer countries. Results are stable for different specifications of income dummies (one intercept dummy, two intercept dummies, and slope dummies, etc).