Essays in financial economics

Obizhaeva, Olga A. (2017) Essays in financial economics. PhD thesis, London School of Economics and Political Science.

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Abstract

This thesis consists of three essays in financial economics. The first chapter analyses the fundraising process in the hedge fund industry and the role financial intermediaries play in this process. Using the SEC form D filings, I document that broker-sold funds underperform directly-sold funds by 2% (1.6%) per year on a risk-adjusted basis before (after) fees. Also directly-sold funds, on average, have larger average investor’s size, larger minimum investment size, and charge higher performance fees comparing to broker-sold ones. Empirical results are consistent with a stylized model of fundraising. I estimate the model implied average broker’s compensation to be $1.5 million per year. The second chapter (co-authored with Albert S. Kyle and Anna A. Obizhaeva) introduces a new structural model of stock returns generating process. The model assumes that stock prices change in response to buy and sell bets arriving to the market place as predicted by market microstructure invariance. These bets are shredded by traders into sequences of transactions according to some bet-shredding algorithms. Arbitrageurs take advantage of any noticeable returns predictability, and market makers clear the market. This structural model is calibrated to match empirical time-series and cross-sectional patterns of higher moments of returns. We calibrate hard-to-observe parameters of bet-shredding using the method of simulated moments, analyse its properties, and show how much shredding has increased over time. The third chapter studies cross-sectional and time series variation in the size of repurchase programs. I find that this variation is explained by the variables motivated by market microstructure invariance theory. My results suggest that when determining the size of repurchase programs, managers may target percentage impact costs of these programs or target inventory levels sufficient to allocate their future bets about their companies.

Item Type:	Thesis (PhD)
Additional Information:	© 2017 Olga A. Obizhaeva
Library of Congress subject classification:	H Social Sciences > HB Economic Theory
Sets:	Departments > Finance
Supervisor:	Makarov, Igor and Lou, Dong
URI:	http://etheses.lse.ac.uk/id/eprint/3624

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