Browsing by Subject "Liquidity (Economics)"
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Item Exploration of role of market in perishable goods(2007) Lin, Dan, 1975-; Whinston, Andrew B.Firms face a big challenge in matching the supply of perishable goods with uncertain demand in real time. In practice, the traditional supply chain models are proved not efficiently enough to lower firms' risk exposure. The purpose of the dissertation is to provide the theoretical framework of roles of several stylized markets in firms' risk management. In particular, we explore the influence of the spot business-to-business exchange market, forward contract market and credit-default swap market respectively. The dissertation is divided into the following three chapters. In chapter 1, we show that when the exchange market lacks perfect liquidity, a firm's capital structure has a greater influence on its output-level decisions, then the market is perfectly liquid. The impact may be even greater than that without an exchange market. This is primarily because the introduction of the exchange market causes firms to act strategically in absence of perfect liquidity. In chapter 2, we study the essential relationship between producers' forward contracts and their supply strategies in business-to-business exchange market. Specifically, we focus on the application of the electricity power exchange market in the US. Our model reveals that the strategic incentive makes producers to join in forward contract market voluntarily and increases social welfare. We show in chapter 1 that even when firms' risks are independent of each other, there is a chance that the realization of market uncertainty turns out to be the same. As a result, there is no exchange market as a platform to help firms hedge their risks. Therefore, we need other instruments in firms' risk management portfolio. In chapter 3, we propose a financial market, credit-default swap market, in which firm s can temporarily transfer default risks to outside investors. However, the "lemon" problem may cause social cost.Item The role of liquidity in financial markets(1996-05) Wadhwa, Pavan, 1966-; Ronn, Ehud I.In the finance context, the term "liquidity" is usually associated either with "liquidity preference" or the "ease with which an asset can be bought or sold at minimum cost." This dissertation seeks to address three issues pertaining to these areas. First, we argue that the reason why investors have a liquidity preference in the fixed-income market is not to preserve liquidity but to minimize interest rate risk. Investors will not invest in long-maturity fixed-income securities unless they are compensated for the risk they take by investing in such securities. This leads to positive expected excess returns on long-maturity securities vis-a-vis short-maturity ones. Second, we examine long-maturity fixed-income securities to determine whether there exists a term premium which is monotonically increasing in the term to maturity of the security. Third, we consider liquidity in the context of the "bid-ask spread" and argue that the liquidity of a firm's equity securities will be a direct function of the financial condition of the firm, that is firms in poorer financial condition will have lower security liquidity. Our findings suggest that 1) there is indeed a positive relationship between risk and expected return in the fixed-income market, 2) there does exist a term premium in the fixed-income market which increases approximately monotonically with the term to maturity of the fixed-income instrument, and 3) the liquidity of a firm's equity is indeed a function of its financial condition.Item The valuation of soft assets and soft liabilities of financial managers of educational institutions.(Texas Tech University, 1975-12) Kagle, Arthur RennNot availableItem Three essays on financial macroeconomics(2004) Saunders, Drew Donald; Corbae, DeanI study financial arrangements that arise in economies with limited enforcement. Contractual promises are required to be rational for the obligated party at the time of fulfillment. Common also to each environment is perfect information. I study each economy in general equilibrium with competitive markets. In the first chapter, I study the provision of liquidity by one cohort of private agents to another building on the three-period model of Holmstrom and Tirole (Journal of Political Economy, 1998). Entrepreneurs issue financial liabilities to finance liquid investment. As a precaution against a random cost shock, entrepreneurs optimally buy, hold, and then sell a security that they cannot issue themselves. In contrast to Holmstrom and Tirole, I do not allow government liabilities to serve this purpose. Instead, I require that entrepreneurs liquidity needs be satisfied endogenously by circulation of third-party liabilities. The appropriate liabilities sell at a price premium relative to securities that do not serve the liquidity need. Liquidity uncertainty can distort production allocations among producers with different risk characteristics, and I show how issuers of circulating liabilities may be interpreted as banks. The second chapter presents an infinite time-horizon exchange economy wherein default cannot be punished by complete banishment from markets. An asset exists in the economy that cannot be confiscated, and that agents can never be prevented from trading. The payoff to an agent in default is a function of present and future prices and the agents ownership share of the non-collateral asset. Greater ownership implies a higher payoff upon default; but a higher default payoff reduces trading opportunities in equilibrium. Equilibration may generate volatile time-series for endogenous variables. I document the quantitative implications by computing equilibria of a plausibly calibrated economy. In the last chapter, I study the ability of a simple limited enforcement economy to explain arbitrary panel consumption data. Subject to satisfaction of mild inequality restrictions, if the consumption allocation implies that each agents wealth is finite, there is a feasible punishment institution that induces the data in equilibrium. The result shows that limited enforcement economies hold significant potential to explain anomalous features and implications of such data.Item Two essays on stock liquidity(2008-08) Liu, Shuming, doctor of finance; Titman, SheridanThis dissertation consists of two empirical essays on investor behavior and liquidity variation. The results demonstrate the important role of investors in affecting liquidity. The first essay examines how the fluctuation in the aggregate stock market liquidity is related to investor sentiment. I find that the stock market is more liquid when investor sentiment is higher. This evidence is consistent with the theoretical prediction that higher investor sentiment increases stock market liquidity. The second essay investigates whether the cross-sectional differences in liquidity are affected by institutional ownership. I document that stocks with larger increases in the number of institutional investors are more liquid than other stocks. This result is consistent with the prediction that information competition among institutional investors increases stock liquidity.