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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.
- Graduation date
- Spring 2013
- Type of Item
- Doctor of Philosophy
- 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.