Essays in Financial Economics
This dissertation studies various topics in international finance and macrofinance. In Chapter 1, I examine the costs associated with reversals in international capital flows. I exploit plausibly exogenous variation in firms' exposure to rollover risk to identify a causal liquidity channel a...
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| Format: | Thesis |
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Massachusetts Institute of Technology
2022
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| Online Access: | https://hdl.handle.net/1721.1/139256 https://orcid.org/0000-0001-5189-6167 |
| Summary: | This dissertation studies various topics in international finance and macrofinance.
In Chapter 1, I examine the costs associated with reversals in international capital flows. I exploit plausibly exogenous variation in firms' exposure to rollover risk to identify a causal liquidity channel at play during sudden stop episodes. Using a panel of firms across 39 countries, I show that firms with higher exposure (as measured by the share of long-term debt maturing over the next year) reduce investment ten percentage points more than non-exposed firms following sudden stops in capital flows. The impact is persistent: exposed firms experience lower investment, lower employment and lower assets than non-exposed firms even three years after the initial shock.
In Chapter 2, in joint work with Fernando Duarte and Marta Szymanowska, we propose a long-run risk model with real effects of inflation that matches a broad set of empirical moments, while simultaneously keeping risk aversion and the elasticity of intertemporal substitution low. The moments we match capture the joint dynamics of stock returns, bond returns, bond yields, and macroeconomic fundamentals. We also match moments that have remained elusive in the literature ---including those from predictability regressions of stock returns, consumption, and dividends on the price-dividend ratio. The key element that we introduce in the model is that inflation non-neutralities are time-varying in a manner consistent with the data, with inflationary shocks predicting higher or lower real consumption growth depending on the current state of the economy.
In Chapter 3, I study the effects of US Macroeconomic surprises on the pricing of sovereign risk of sixty-six countries in the period 2002-2017 using daily CDS data. I also explore how a country spread's sensitivity to these shocks depends on a wide range of country characteristics. I discuss potential transmission mechanisms of sovereign distress to the real economy by studying the cross-sectional response of security prices (corporate CDS spreads and stock returns) to global shocks. I find that positive macroeconomic surprises in the US systematically reduce sovereign spreads consistent with the view that global investors price sovereign risk. However, I find that both the size and the sign of the effect depend on the business cycle in the US. |
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