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
  • Graduation date
    Spring 2013
  • Type of Item
  • Degree
    Doctor of Philosophy
  • DOI
  • 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.
  • Language
  • Institution
    University of Alberta
  • Degree level
  • Department
  • Supervisor / co-supervisor and their department(s)
  • Examining committee members and their departments
    • Xu, Yingfeng (Economics)
    • Beason, Dick (Business)
    • Maheu, John (Business)
    • Huang, Haifang (Economics)
    • Smith, Constance (Economics)