Three Essays on Monetary and Financial Economics

• Author / Creator

  Xu, Xun

• This thesis contains three chapters on financial and macroeconomics.

  Chapter 1 is an empirical study on what is referred to in the finance
  literature as “pairs trading”. Pairs trading involves simultaneous trades in two
  equity securities that have been identified as being very highly correlated
  historically. The idea is to trade the pairs when their prices diverge from another
  and to unwind the trade when their prices (hopefully) converge. The contribution
  of chapter 1 is to rigorously examine alternative techniques for identifying stock
  pairs. I consider two main techniques: a “distance” approach and cointegration.
  Each of these techniques is evaluated when pairs are selected within the same
  industry (“restricted pairs”) and when pairs are selected from the broad universe
  of stocks (“unrestricted pairs”). The main findings are that unrestricted pairs are
  preferred to restricted pairs for the distance approach and that restricted pairs
  work better for the cointegration approach, especially for the services, financial
  and retail trade sectors. In addition, the cointegration approach yields a higher
  excess return than the distance approach. Nevertheless, more risk-averse investors
  might prefer the distance approach based on my analysis of information ratios for
  the two approaches.

  Chapter 2 is an empirical study of monetary policy in China. The main
  focus is identifying the effectiveness of alternative monetary instruments in
  affecting real economic activity. This chapter employs a structural vector
  autoregression (SVAR) methodology that is tailored to specific characteristics of
  the environment faced by Chinese policymakers—namely, exchange rate
  targeting, capital flow restrictions, and sterilization of the buildup of foreign
  exchange reserves. Briefly, we find that the money supply is an effective
  monetary instrument， while the interest rate is not.

  Chapter 3 contains a theoretical model of bank runs. The main
  contribution is to show that bank runs—more broadly interpreted as financial
  instability—can arise purely from the joint interaction of business cycle
  fluctuations and ordinary consumption smoothing by households. To highlight
  this, chapter 3 shows that, in addition to classic panic-based bank runs, bank runs
  can be caused by a decrease in aggregate labor income, i.e., a recession.

• Subjects / Keywords

  • Bank runs
  • Monetary policy
  • Pairs trading

• Graduation date

  Spring 2013

• Type of Item

  Thesis

• Degree

  Doctor of Philosophy

• DOI

  https://doi.org/10.7939/R37S80

• License

  This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for non-commercial purposes. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.