Theses and Dissertations - Department of Economics, Finance & Legal Studies

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A Study of the Behavior of Random Variates From Selected Populations
(1963) Gober, Richard Wayne; University of Alabama Tuscaloosa
Today there is an increasing emphasis on the use of the ideas of probability theory in the simulation of a variety of models suitable for the description and interpretation of complex problems. These problems involve phenomena as remote and different as the number of arrivals or the average waiting time in a queuing process, the yield of cotton from a number of different plots of land and the standard of quality of the items manufactured by a certain process. There is a property that is possessed in common by such phenomena that enables probability theory to have different applications. The property is such that each of these phenomena that enables probability theory to have different applications. The property is such that each of these phenomena may be considered as a random phenomenon in the following way...
Three essays in corporate finance
(University of Alabama Libraries, 2009) Jeon, Jin Q; Ligon, James A.; University of Alabama Tuscaloosa
This dissertation contains three essays in corporate finance. The first essay investigates the size and relative impact of termination fees utilized in merger agreements using a sample of 1,702 M&A deals involving U.S targets between 2001 and 2007. We find that the size of termination fees is widely distributed ranging from less than 1% to larger than 6%. The empirical results show that low or moderate fees do not eliminate post-bid competition, while large fees do. Also, a large fee significantly reduces the probability that deals with a high premium are consummated. In addition, the announcement returns are significantly lower for deals including termination fees larger than 5%. Overall, the paper provides new evidence that low- or moderate-size termination fees serve as efficient contractual devices, while large fees reflect target managers' self-interest and are less beneficial to shareholders wealth. Essay two focuses on a mechanism through which foreign investors affect corporate policy in emerging economies. We hypothesize that foreign investors who provide effective monitoring may affect corporate policy through pushing for a greater proportion of outsiders or by nominating their own representatives on the board of directors. Using the unique features of foreign ownership in Korea, we find that firms with an increase in foreign ownership are more likely to increase the fraction of outsiders and foreign directors on the board in the subsequent year. Increased board independence in response to a pressure from foreign investors results in a significant change in payout and investment policy, and an increase in firm performance. In the third essay, we study the effect of the co-managers in the syndicate on expected flotation costs using 1,775 completed and 164 withdrawn seasoned equity offerings (SEOs) from 1997 through 2005. The results show that highly reputable underwriters and commercial banks, when they serve as co-managers, significantly reduce expected flotation costs, while the effect of the number of co-managers is largely insignificant. Our results are consistent with a notion that highly reputable underwriters and commercial banks serving as co-managers enhance a certification role, reduce information asymmetries and, as a result, lower SEO flotation costs.
Immigration, income inequality and stochastic dominance
(University of Alabama Libraries, 2009) Yaya, Mehmet Erdem; Hoover, Gary Allen; University of Alabama Tuscaloosa
Income inequality and immigration are two important issues with welfare and policy implications which have long been debated across the political spectrum. This dissertation ventures to shed light on some of the important questions related to income inequality and immigration, such as: What is the current level of inequality among immigrant cohorts; what are the determinants of income inequality of immigrants in the United States; how does the income inequality of immigrants change over time; and what is the impact of immigration on the income distribution of the United States? A cross-sectional regression analysis indicates that the variation in income inequality among immigrant cohorts can be explained by a wide range of variables such as median income, education, age, gender, deprivation, geographical dummies, and visa status. Moreover, the analysis demonstrates that immigrant cohorts exhibit substantial progression in their income inequality over time. The results suggest that the initial level of inequality of recent immigrants in comparison to the U.S. is the most important factor explaining the variation in inequality dynamics. More precisely, immigrant cohorts that have inequality that is remarkably different than the host country's inequality exhibit a faster improvement in equality and they follow a more rapid convergence path to the host country's inequality. Finally, the counterfactual effects of immigrants are investigated by decomposing the surveyed sample of more than three million respondents into natives and immigrants. Income inequality of the population is then calculated in the presence and in the absence of each immigrant cohort. The difference between these figures is presented as the distributional effects of immigrants on U.S. income inequality. The results are striking. Even after controlling for the size of the immigrant cohorts, several other factors are found to be significant for the counterfactual effects of immigrants. The immigrant cohorts that have very low and very high income compared to the U.S. average income have disequalizing effects. The findings of this dissertation provide essential information to policymakers. Based on these findings, immigrants can better be evaluated and immigration policy can be redesigned.
The economic implications of the prospective Free Trade Agreement between the United States and Egypt
(University of Alabama Libraries, 2010) El-Karaksy, Hoda; Pecorino, Paul; University of Alabama Tuscaloosa
Abstract Egypt is a fairly large country with a struggling economy, like many others in the region. An improved economic performance in both Egypt and other countries in North Africa and the Middle East has the potential to raise the living standards of millions of people; this in turn could improve the region's political climate. Understanding how factors such as trade policy can affect Egypt is important for policy decisions in the US and Egypt. This issue is thus investigated in three essays that quantify the impact of a prospective bilateral Free Trade Agreement (FTA) between Egypt and the United States (US). In the first essay, I provide an econometric estimate of the effects of accessing the US market as well as the effects of Egyptian institutional quality on trade. I apply the gravity model to Egypt's trade flows for 2004 and find that the FTA could increase aggregate exports to the US between 140 and 157%. In the second essay, I examine the effects of participation in the FTA on the inward Foreign Direct Investment (FDI) to Egypt from the US and the rest of the world. I estimate gravity models of bilateral investment for 2005 and find evidence that this prospective FTA would be associated with a reduction of inward FDI to Egypt between 28% and 34% of the 2005 level. In the third essay, I investigate the current debate over US aid to Egypt, to identify whether participation in an FTA would be a complement or a substitute to US foreign aid. The analysis is based on a country-pair foreign aid difference regression model for 1980 and the years 2004 and 2007. The empirical evidence supports the complementary relationship between US foreign aid and this prospective FTA: The FTA would lead to increased foreign aid from the US to Egypt.
Three essays on momentum
(University of Alabama Libraries, 2010) Wang, Jun; Brooks, Robert Edwin; University of Alabama Tuscaloosa
Essay 1, Growth/Value, Market-Cap, and Momentum, examines the profitability of style momentum strategies on portfolios based on firm growth/value characteristics and market capitalization. We use monthly total returns of nine S&P style indices to avoid concerns about firm size, liquidity, credit risk, short-sale constraints, and transaction costs. We find that historically buying a past best performing style index and short-selling a past worst performing style index generates economically and statistically significant profit of 0.8% per month over the period June 1995 to March 2009. This profitability remains economically plausible after adjusting for systematic risk, short-sale costs, and transaction costs. Investors may actually implement style momentum strategies on exchange traded funds linked to the S&P style indices. Essay 2, Sector Momentum, examines monthly returns of nine Select Sector SPDRs and finds historically buying past outperforming sectors and selling past underperforming sectors produces economically and statistically significant profits. Investors may be able to not only benefit from SPDRs' low fees, tax efficiency, and trading flexibility, but also exploit SPDRs as asset allocation tools to earn excess returns on sector momentum. For robustness checks, I test sector momentum investing strategies on CRSP listed individual stocks between January 1963 and December 2008 using Global Industry Classifications Standard (GICS) and also find statistically significant payoffs. Essay 3, Momentum Strategies on Global ETFs, examines the price momentum on 15 well-diversified iShares MSCI Country Index ETFs from April 1996 to December 2006. I find statistically and economically significant profits for some momentum strategies: long past winners and short past losers. The results are robust to trading costs and excessive risks.
Three essays on the Taylor curve
(University of Alabama Libraries, 2010) Olson, Eric David; Enders, Walter; University of Alabama Tuscaloosa
This dissertation contains three essays regarding the Taylor curve. Taylor (1979) posited a permanent tradeoff between the volatility of output gap and the volatility of inflation. The first essay explores the empirical relationship between the volatility of inflation and the output gap. The last two essays implement optimal control techniques to construct Taylor curves for the United States and countries in the European Union. In the first essay, The Taylor curve necessitates that the correlation between the volatilities of inflation and the output gap be non-positive for optimal monetary policy. In essay one, the correlation between the second moments of inflation and the output gap are investigated using time-varying correlations, variance impulse response functions, and a time-varying parameter model. We find that macroeconomic performance is substantially better during time periods in which the correlation is negative as the Taylor curve suggests. In the second essay, we use data from 1875 examine the efficiency of U.S. monetary policy by measuring the orthogonal distance between the observed volatilities of the output gap and inflation from the Taylor curve. In addition, we identify time periods in which the variability of the U.S. economy changed by observing shifts in this efficiency frontier. We find that since 1940 the Taylor curve has trended towards the origin. Moreover, the cost of stabilizing inflation in terms of output gap volatility has steadily decreased through time. The Taylor curve also necessitates that the correlation between the volatilities of inflation and the output gap be non-positive for optimal monetary policy. In essay three, the efficiency a historical analysis of the European Monetary System and the monetary policy of European Central Bank (ECB) is conducted. Using data from European Union countries I measure the orthogonal distance between the observed volatilities of the output gap and inflation from their optimal levels. In addition, I identify time periods in which the variability of the E.U. economies changed by observing shifts in this efficiency frontier. I find in most EU countries, the Taylor curve has shifted towards the origin. In addition, stage II of the Maastricht Treaty was more instrumental in macroeconomic stabilization for EU countries than the beginning of ECB monetary policy. Policy by the ECB appears to be more conducive for France than any other countries in our sample.
Three essays in corporate finance
(University of Alabama Libraries, 2010) Nasser, Tareque; Agrawal, Anup; University of Alabama Tuscaloosa
This dissertation contains three distinct essays in the broad area of corporate finance. The first two essays examine the role of an independent director who is also a blockholder (IDB), a potent governance mechanism, on executive compensation, and corporate financial and investment policies, respectively. The last essay examines insider trading in takeover targets. The first essay examines three issues. First, we investigate the determinants of an IDB's presence in a firm. Second, we examine the relations between IDB presence and (1) the level and structure of CEO compensation, and (2) CEO turnover-performance sensitivity. Third, we analyze if IDB presence is related to firm valuation. Our findings suggest that the presence of an independent blockholder on the board promotes better incentives and monitoring of the CEO, and consequently leads to higher firm valuation. In the second essay, we examine how the presence of an IDB affects: (1) four key financial and investment policy choices of a firm: the levels of cash holdings, dividends, investments and financial leverage, and (2) firm risk. We also examine how the market values IDB presence and changes in various policy choices associated with IDB presence in a firm. We find that firms with IDBs have significantly lower levels of cash holdings, dividend yields, repurchases, and total payout, but higher levels of capital expenditures. We also find that firms with IDBs have lower risk. Overall, IDB presence appears to reduce agency problems between managers and shareholders. The third essay brings large-sample evidence on whether the level and pattern of profitable insider trading before takeover announcements is abnormal for a broad cross-section of targets of takeovers during modern times. We find an interesting and subtle pattern in the average pre-takeover trading behavior of target insiders. While insiders reduce both their purchases and sales below normal levels, their sales reduce more than purchases, leading to an increase in net purchases. This pattern of `passive' insider trading is confined to the six-month period before takeover announcement, holds for each insider group, for all measures of net purchases examined, and in certain sub-samples with less uncertainty about takeover completion.
Three essays in investments: financial risk tolerance and leveraged and inverse exchange traded funds
(University of Alabama Libraries, 2010) Holzhauer, Hunter Matthew; McLeod, Robert W.; University of Alabama Tuscaloosa
Since the recession of 2008, many financial advisors and investors have begun to take a closer look at the holdings within their respective portfolios. These holdings are a two-fold reflection of risk and return. First, they are a signal as to the amount of risk a client or investor has chosen to tolerate. Second, they are an indication as to the type of financial instruments or products the client or investor has chosen to seek their return objectives. This study addresses this balance between risk and return with papers addressing both sides of this scale. The first paper concentrates on developing a more valid and reliable financial risk tolerance (FRT) questionnaire. Specifically, we use factor analysis and find five factors for measuring FRT. Our results have obvious uses for financial planning, particularly portfolio allocation. The second and third paper address the effects of expected market volatility on a not well understood group of relatively new financial instruments called leveraged and inverse exchange traded funds (ETFs). The second paper specifically looks at the daily returns of these specific ETFs and finds that expected market volatility and the daily change in expected market volatility have significant effects on daily returns. The third paper examines long-term holding strategies for these specific ETFs and finds that expected market volatility has a significant effect on long-term returns. These results suggest that volatility indexes may be used to devise trading rules for these specific ETFs. In the end, the results of these three papers accomplished the goal of this research as a whole, which was to better equip advisors and investors with the tools and information needed to balance the risk and return within their respective portfolios.
Endogeneity and dynamics in the impact of free trade agreements on trade and foreign direct investment
(University of Alabama Libraries, 2010) Lira, Cristina; Lee, Junsoo; Reed, Robert R.; University of Alabama Tuscaloosa
In the study of the impact of Free Trade Agreements on Foreign Direct Investments and on trade flows, there are some econometric issues that have not been fully addressed. This research aims to provide a discussion of these econometric issues and to present, using the most advanced econometric tools, new empirical results useful for understanding the relationship among regional integration, FDI and trade of goods. The research results in three self-contained, closely related papers. The first paper analyzes the relationship between FTA and FDI, focusing on the estimation bias that arises when the researcher does not consider the endogeneity of FTA, the fact that the relationship between FTA and FDI is dynamic, and the potential correlation between the current level of FDI and future participation in trade agreements as an additional source of endogeneity. This source of endogeneity did not receive attention in the international trade literature. Using the dynamic panel estimation method, the results show that, when the sources of bias are controlled for, trade agreements do not promote FDI in the way supported by previous empirical analysis and some theoretical arguments. The second paper focuses on the relationship between FTA and trade flows. Also in this case, not controlling for the econometric issues presented above produces a biased estimation of the impact of trade agreements. The paper addresses endogeneity, combining matching and difference-in-differences estimation. In addition, it applies two modifications of this methodology to evaluate the delayed impact of FTA and to control for the correlation between the current level of trade and future participation in trade agreements. The results show that the impact of trade agreements depends on the anticipated policy environment and that the benefits of trade agreements extend over time. The third paper analyzes the impact of FTA on FDI using a different methodology in order to strongly support a result in contrast to standard findings. Using matching combined with dynamic panel models, the results confirm that FTA does not promote FDI. This paper also illustrates the necessity of a dynamic specification, because the non-reversibility of the investments affects the impact of other variables.
Three essays on the effects of risk and regulation on the price of term life insurance
(University of Alabama Libraries, 2010) Cooper, Patrick Ryan; Ligon, James A.; Elder, Harold W.; University of Alabama Tuscaloosa
While life insurers are generally free to set prices on term life insurance contracts, they face three constraints in doing so. Two of these constraints, insurance premium taxes and insurance guaranty funds, are imposed by state governments, while the third, the insolvency risk premium of insurance contracts issued by a specific insurer, is imposed directly by the market. The first two essays estimate the effects of the two government-imposed constraints on the price of term life insurance. In essay one, we look at how guaranty funds affect the price of term life insurance. Guaranty funds, which exist in every state, reduce the cost of insurer insolvency to policyholders by paying out death benefits up to a specified amount, usually $300,000, on policies written by insurers that have become insolvent. We show theoretically, using an expected value model, and empirically, using data from the California term life insurance market, that the price per thousand dollars of coverage is significantly lower for policies with a face value above the amount guaranteed by the state guaranty fund. In essay two, we estimate the effects of state insurance premium taxes on the price of term life insurance. In estimating the effects of state-specific premium taxes on the price of term life insurance, we linearly bifurcate each state's premium tax into a domestic premium tax, which is paid by all life insurance companies, regardless of domicile, and a retaliatory tax, which is paid only by an insurer whose state of domicile has a premium tax greater than that of the state in which the policy is written. We find that a one percent increase in both the domestic premium tax and the retaliatory tax increase the price of term life insurance by less than one percent. Finally, in the third essay, we estimate the effect of an insurer's insolvency risk, as measured by A.M. Best Financial Strength Ratings, on the price of a term life insurance contract issued by that insurer. Insurance contracts sold by an insurer with a relatively lower rating should sell at a discount to policies written by firms with a higher rating. We find strong evidence that insurers with a relatively higher A.M. Best rating actually charge lower prices.
Incentives and behavior in the Gulf red snapper fishery
(University of Alabama Libraries, 2011) Walsh, William Acree; Elder, Harold W.; University of Alabama Tuscaloosa
This dissertation examines sixty years of fishing activity and more than twenty years of direct regulatory management in the Gulf red snapper fishery in order to assess the consequences of regulatory intervention in the fishery. The analysis traces the evolution of regulatory response to a commons problem, beginning with command and control regulations that successfully capped fishing output but unintentionally exacerbated overcapitalization concerns, segueing to the subsequent adjustments of the aforementioned policies applied to ameliorate the unintended consequences of regulation, and ending with a rights-based approach intended to align individuals' incentives with the fishery's. After outlining and discussing the various regulatory strategies used to manage the fishery, the analysis then replicates two previous econometric models of Gulf red snapper price in order to consider the determinants of price, including regulatory decisions. The work concludes with another pair of econometric models used to investigate the relationship between regulation and price volatility. The results provide feedback to regulators regarding the implications of fishery management policy.
Three essays in finance
(University of Alabama Libraries, 2011) Lu, Xing; Cook, Douglas O.; University of Alabama Tuscaloosa
Essay one, Do Internet Board Messages Predict Stock Returns? An Analysis with Explicit and Intensive Board Postings, tries to discover whether postings on message boards predict future stock performance. While many other studies find significant predictive effects from message volume, they do not find significant predictive effects from message content, which is the most important and meaningful part of online messages. We improve sample selection, using a posting medium that allows for explicit buy/sell signals, focusing on firms with a high intensity of postings, and reducing posting noise by developing a credibility index. After controlling for factors which affect next day returns and incorporating credibility, we find that a bullishness index predicts next day stock returns at a 1% significance level. Essay two, Attention: A Better Way to Measure SEO Marketing Impact, differentiates itself from previous SEO marketing studies by using the first direct attention measure: the user search frequency index from Google Insight for Search (GIS). We find that as an attention proxy, GIS index has significant power in capturing impact around the time of the offering. A one point increase in the pre-issue GIS index change corresponds to a future reduction in the offer price discount by about 3%. In addition, as the only direct measure in SEO research, the GIS index differentiates itself from previous indirect measures by capturing some attention effects that are not captured by previous studies. All effects corresponding to the GIS index change are statistically significant and economically important. Essay three, Online Search Frequency, Information Asymmetry, and Market Liquidity, investigates online search frequency of Google users to explore how traders' response to information asymmetry would predict future market liquidity. The findings show that GIS daily index, as an effective measure of the level of information asymmetry, predicts the future liquidity level. This predictive power is significant at a 1% level. More importantly, the GIS indicators remain strong and significant after including traditional information asymmetry variables in all regressions. Last but not least, we find that the GIS index can capture investors' attention change and provide indications on future stock return.
An economic analysis of abstinence-only sex education in Alabama
(University of Alabama Libraries, 2011) Collins, Sondra; Hoover, Gary Allen; University of Alabama Tuscaloosa
The purpose of this dissertation is to assess the demand for effectiveness of, and economic impact of Alabama's Title V funded abstinence-only sex education programs. The specific outcomes to be examined in this study are gonorrhea, Chlamydia, birth, and abortion rates among Alabama teens. The particular programs assessed in this study were created by Title V Section 510 of the Social Security Act and authorized under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The funding for Title V abstinence-only sex education programs became available from the federal government in 1998. The focus of this study is to determine what characteristics lead Alabama counties to adopt this particular type of sex education, the extent to which the decline in negative teen outcomes observed from 1998-2007 can be attributed to Title V funded abstinence-only sex education programs and the amount of public funds that were saved as a result of adopting these programs.
Three essays on trade and economic growth
(University of Alabama Libraries, 2011) Mullinax, Stefan Christopher; Pecorino, Paul; University of Alabama Tuscaloosa
A central proposition of international trade theory is that trade allows a country to achieve a higher level of income than would otherwise be possible. Initial studies have shown evidence in support of a positive relationship between the volume of trade and the level of national income. However, numerous problems have prevented the estimation of a consistent relationship between trade and income. These problems include endogeneity, cointegration between trade and income, and the lack of an accurate measure of trade openness. This study investigates the relationship between trade and income in three distinct ways. First, the endogenous nature of trade in a simple growth equation is controlled for by constructing a predicted level of trade from a gravity model. The results show that greater trade does exert a positive influence on economic growth; however, once the effects of geography are controlled for in the growth equation the effect of trade becomes insignificant. Second, trade is included in a neoclassical production function to assess the dynamic and causal relationships that exist among exports, imports, and national income. The variables are first tested for the presence of unit roots and the possibility of cointegration. Subsequently, appropriate Granger causality tests are used to determine the causal patterns among the variables of the model. The results of the Granger causality tests indicate that both exports and imports are important determinants of national income for several of the countries examined in the study. Finally, the actual trade shares and the predicted trade shares from a large sample of countries are used to construct a new trade restrictiveness statistic. A higher value of the statistic indicates that a country has adopted more restrictive trade policies. The trade restrictiveness measure is included in a growth equation to assess the effects that trade policy has on the average annual growth rate of per capita income. The results of the estimation indicate that countries that began the sample period with more restrictive trade policies tended to grow at a faster rate than countries with less restrictive trade policies; however, the relationship is statistically insignificant.
Essays in macroeconomics
(University of Alabama Libraries, 2011) Patterson, Bradford; Cover, James P.; Jindapon, Paan; University of Alabama Tuscaloosa
We investigate three topics in this dissertation. In Chapter 1 we investigate a matter related to Chapter 7 non-business bankruptcy in the United States. We find that state homestead exemptions tend to have a positive effect on state-level Chapter 7 non-commercial bankruptcy filing rates and tend generally to be statistically significant at the five-percent level or lower. Additionally, consistent with existing literature, we tend to find a positive and marginally statistically significant effect of past divorce rates on current filing rates. Moreover, our results suggest that unemployment has a positive effect on filing rates, while home prices have a negative effect. We use a balanced panel data set of U.S. states from the beginning of 2006 until the end of 2008. Homestead exemptions are chosen as a proxy for total asset exemptions. In Chapter 2 we investigate total U.S. household-sector debt and its relationship to several other variables using a vector error correction model and vector autoregression models. We find that per-capita household debt levels appear to be reduced by positive shocks to intermediate- and long-term interest rates. In addition, the permanent income hypothesis is corroborated in up to two areas. First, in some specifications consumption shocks, representing permanent income shocks, have a modest positive effect on debt levels. Second, shocks to home prices increase borrowing. Error variance decompositions suggest that current debt levels have a large portion of the predictive power for future debt levels. In Chapter 3 we investigate U.S. consumer revolving credit unsecured by real estate and its relationships to several other variables using vector autoregressions. We make several findings. For example, we find evidence that an increase in the average interest rate faced by credit card holders has no discernible downward effect on debt levels but that an increase in the federal funds rate does have a downward effect. Increases in the unemployment rate also seem to reduce credit use, probably due to supply constraints. Increases in permanent income, represented by consumption, and in asset prices have positive effects on credit use.
Three essays on more powerful cointegration tests
(University of Alabama Libraries, 2012) Lee, Hyejin; Lee, Junsoo; University of Alabama Tuscaloosa
The main focus of this dissertation is to find ways to improve the power in cointegration tests. This dissertation consists of three essays. In the first essay, a modified testing procedure for the Engle and Granger (1987; EG) cointegration test is suggested. Specifically, we suggest augmenting the usual EG testing regression with the first difference of the integrated regressors. The limiting distribution of this modified EG test under the null hypothesis will depend on the nuisance parameter, which reflects the signal-to-noise ratio. This essay shows that the nuisance parameter issue can be resolved when we follow the asymptotic distribution of the modified EG test, and use the relevant new sets of critical values corresponding to the estimated value of the nuisance parameter. It is found that the size and power properties of the modified EG test are fairly good. The modified EG test gains improved power rather than losing power as the signal-to-noise ratio increases. In the second essay, we examine whether non-linear unit root tests is robust with non-normal errors, which provides a motivation for the third essay. Especially, the second essay demonstrates how popular nonlinear unit root tests perform in the presence of non-normal errors. Non-normal errors normally do not pose a problem in usual linear unit root tests since the least squares estimator will still be the most efficient under certain ideal conditions regardless of normal or non-normal errors. The asymptotic properties of the popular linear Dickey-Fuller tests, for example, will be unaffected by non-normal errors. As such, the literature has not paid much attention to this issue. Nevertheless, whether similar results will carry over to nonlinear unit root tests with non-normal errors is a question that merits examination. To our surprise, the extant literature on nonlinear unit root tests has not examined this important question. We find that, in general, nonlinear unit root tests will suffer a loss of power in the presence of non-normal errors. In this regard, this essay brings out the neglected point that the obvious analogies of linear processes do not necessarily hold for nonlinear models. The third essay suggests new cointegration tests that are more powerful in the presence of non-normal errors. We use a two-step procedure based on the "residual augmented least squares" (RALS) method to make use of nonlinear moment conditions driven by non-normal errors. By utilizing this neglected information, we can make the existing tests more powerful. The suggested testing procedure is easy to implement. The underlying idea is similar to adding stationary covariates to improve the power of the test, but the suggested procedure does not require any new covariates outside the system. Instead, we can exploit the information on the non-normal error distribution that is already available but ignored in the usual cointegration tests. Our simulation results show significant power gains over existing cointegration tests.
Three essays in corporate finance
(University of Alabama Libraries, 2012) Zeng, Hongchao; Cook, Douglas O.; University of Alabama Tuscaloosa
This dissertation contains three essays in corporate finance. In the first essay, using the presence of business combination (BC) laws to proxy for the monitoring strength of the takeover market, we examine how an active takeover market affects the level and valuation of corporate cash holdings. After accounting for potential endogeneity of state incorporation, we find that firms incorporated in states without BC laws hold significantly more cash than those incorporated in states with BC laws. We also find that the value of cash holdings used by firms to defend themselves against unwanted takeovers in the presence of an active takeover market is not discounted by investors. Our findings suggest a substitution effect between legal antitakeover protection and firms' use of cash protection. However, there is no evidence that these cash holdings lead to value destruction. Firms may use corporate payouts to signal internal governance quality and avoid a market discount placed on cash holdings. In the second essay, using the Herfindahl-Hirschman Index (HHI), the industry price-cost margin, the number of firms within an industry, and the level of import penetration to gauge the intensity of product market competition, we find that the speed of capital structure adjustment for firms in competitive industries is significantly faster than for firms in non-competitive industries. Further analysis reveals that this effect is driven solely by the capital structure movements of over-levered firms. While over-levered firms in competitive industries face higher levels of investment needs relative to those in non-competitive industries, they are significantly less likely to use debt financing and to deliberately deviate from target. In the third essay, we find that cash has a negative impact on the future market share growth of the old firms, evidence that can better explain the unwillingness of such firms to hold precautionary cash as they face increasingly more volatile cash flows in an imperfect capital market. Furthermore, we show that the relational strength between cash and product market performance evolves in a way that reflects a changing composition of manufacturing firms which progressively tilts toward young firms.
Essays in real estate market issues
(University of Alabama Libraries, 2012) Richardson, Heather Renea; Zumpano, Leonard V.; University of Alabama Tuscaloosa
This dissertation consists of three separate essays in the area of real estate. The first essay examines the continuing evolution of the Internet and the resulting effects on the efficiency of buyer search. The second essay evaluates the menu of alternatives for sellers of commercial real estate who encounter detrimental conditions. Finally, the third essay examines how publicly listed banks perform as sellers of commercial real estate as compared to non-bank sellers. The first essay includes market conditions indicative of both a buyer's market and a seller's market. The results indicate that as Internet usage increased search duration increased, whether a buyer's or seller's market. This research finds that the Internet increased buyer search intensity only when market conditions are more favorable to buyers. The second essay considers short sales, REO sales, and auction sales. Properties sold by each method are found to be significantly discounted relative to properties that are sold under normal conditions. REOs have the greatest discounts, followed by short sales, while properties sold at auction experience the smallest discount. Property characteristics, geographic contagion, market timing, and statutory rights of redemption are each found to have an impact on the relative pricing of properties sold under detrimental conditions, depending on the procedure. The third essay examines how publicly listed banks perform when compared to non-bank sellers. The non-bank sellers include non-institutional sellers (individuals and developers), corporate sellers, REITs, and financial institutions (equity funds, insurance companies, investment managers, and pension funds). The results indicate that bank sellers do tend to sell properties at a discount. Abnormal returns around the transaction date are estimated using a generated benchmark Bank companion Index and are found to be positive and significant. Determinants of these cumulative abnormal returns, assets, return on assets, Tobin's Q, coverage ratio, debt reduction, preferred dividends, and invested capital are considered. The return on assets and debt reduction are found to positively affect abnormal returns, whereas invested capital is negatively related to invested capital.
Three essays on the regulatory response to the financial crisis
(University of Alabama Libraries, 2013) Yerkes, Rustin Thomas; Ligon, James A.; University of Alabama Tuscaloosa
The financial crisis of 2007-2011 resulted in unprecedented regulatory response. This dissertation analyzes three issues: the 2008 short sale ban; spillover effects of the ban to the Exchange Traded Fund (ETF) market; and Troubled Asset Relief Program (TARP) transactions. Results indicate: (1) Trading restrictions stabilized falling prices for most (75%), but not all securities. (2) Price stabilization due solely to TARP is ruled out. (3) Further evidence on the relationship between institutional ownership and short sale constraints. Firms with low institutional ownership, low short interest, small market cap, and NASDAQ firms were least affected by the ban. (4) Sharp declines (-40%) in short interest contributed to less informative prices. (5) Impediments to circumventing the short sale ban with ETFs occurred due to lower trading volume and short interest, wider bid-ask spreads, positive abnormal returns for financial sector ETFs, and negative abnormal returns for non-financial sector ETFs. (6) Financial sector ETFs traded as if they were subject to the same restrictions as individual securities. (7) ETFs and individual securities have a stronger complementary relationship than previously thought. (8) Negative returns upon TARP investment and positive returns upon TARP repayment are consistent with issuing/repurchasing equity. (9) Average cumulative return for TARP firms was 1.1% while non-TARP firms returned 69.2%. (10) Annualized return to the U.S. Treasury was approximately 1.89% over a 4 year period ending December 31st, 2012. (11) No evidence of favorable insider activity around TARP investment and some evidence of favorable activity around TARP repayment.
Three essays on monetary economics
(University of Alabama Libraries, 2013) Cai, Linyuan; Cover, James P.; University of Alabama Tuscaloosa
The study of monetary economics encompasses a broad range of directions, and this research aims to address several different areas of monetary economics through empirical and theoretical work. The first essay uses annual data from twenty-seven countries to determine whether unexpected inflation has an effect on unexpected output, as suggested by the Lucas Supply Function. Additional specifications are added to show that Lucas' base model is incomplete. Once money level equations were included, the results suggest money affects output through prices, as well as through other means. The second essay seeks to find stable predictors of the money demand function. The money demand function has been unstable since the 1970s, and this study focuses on the definition of money stock and adding measures of risk as solutions in stabilizing money demand. The results show that replacing the traditional measure of money stock (M2) with Money Zero Maturity, in addition to adding market risk and inflation risk to the specification for money demand, stabilizes the money demand function significantly. In this case, we have discovered a money demand function that is stable both in the short run and the long run, according to the LWZ criterion. The third essay attempts to verify Carl Menger's theory on the emergence of money through the observation of an online gaming economy. The results show that, while most of the observations were identical to Menger's theories, one interesting difference has emerged due to modern day technology and communication tools. Menger suggested that the creation of currency was due to trade being extremely unproductive under the "Double Coincidence of Wants," but our observations show that a barter system can coexist with a currency due to technology making search costs almost negligible.