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Title:Three Essays in Empirical Asset Pricing
Author(s):Jacobs, Thomas A.
Director of Research:Pennacchi, George G.
Doctoral Committee Chair(s):Pennacchi, George G.
Doctoral Committee Member(s):Kahn, Charles M.; Pearson, Neil D.; Johnson, Timothy C.
Department / Program:Finance
Discipline:Finance
Degree Granting Institution:University of Illinois at Urbana-Champaign
Degree:Ph.D.
Genre:Dissertation
Subject(s):Too Big To Fail
Crisis
Moral Hazard
Spillover
Systemic Risk
Systemically Important Firm
Bank Run
Subprime
Wholesale Funding
Securitization
Government Support
Government Agents
Federal Reserve
Federal Reserve Intervention
Discount Window
Open Market Operations
OMO
Term Auction Facility
TAF
Primary Dealer Credit Facility
PDCF
Term Securities Lending Facility
TSLF
Guarantee
Deterministic Guarantee
Stochastic Guarantee
Deposit Insurance
FDIC
Treasury Lending Line
Government Sponsored Enterprises
GSE
Fannie Mae
Freddie Mac
Conservatorship
Government Agents
Continental Illinois National Bank and Trust
Continental Illinois
Bear Stearns Failure
Bear Stearns Rescue
Purchase of Bear Stearns
Lehman Bankruptcy
American International Group
AIG
Derivative Exposure
Purchase of Merrill Lynch
Merrill Lynch
IKB Industrie Deutschebank
IKB
Northern Rock
Bank Run
Purchase of Countrywide
Countrywide
Bank of America
Citigroup
JP Morgan Chase
Big Three Banks
Big Four Banks
Failure of IndyMac Bank
IndyMac
Wachovia
Wells Fargo
Failure of Washington Mutual
Washington Mutual
WAMU
Monoline Insurers
Monoline Insurer Downgrade
MBIA
AMBAC
Event Study
Merton Model
Model of Debt Return
Model of Equity Return
Cumulative Abnormal Return
Credit Default Swap
CDS
Measuring CDS Returns
CDX Index
Monte Carlo Simulation
Troubled Asset Relief Program
TARP
Morgan Stanley
Goldman Sachs
Arbitrage
Limits to Arbitrage
U.S. Treasury Markets
Inflation Markets
Inflation Derivatives
Inflation Indexed Swaps
Treasury Inflation Protected Securities
TIPS
Break Even Inflation
BEI
Inflation Indexed Swap Basis
IIS Basis
Liquidity
On-the-run
Off-the-run
BLS
CPI
Consumer Price Index
Bureau of Labor Statistics
Blue Chip Economic Indicators
Survey of Professional Forecasters
SPF
Bid Ask Spread
Event Study Methodology
Debt Based Event Study
CDS Based Event Study
Market Model
Adjusted Spread
Monte Carlo Experiments
Moody's BAA Seasoned Bond Index
LIBOR Swap Rate
Size and Power Tests
Investment Grade Firms
Non-Investment Grade Firms
Performance Measure
Abstract:The financial crisis of 2007-2008 led to extraordinary government intervention in firms and markets. The scope and depth of government action rivaled that of the Great Depression. Many traded markets experienced dramatic declines in liquidity leading to the existence of conditions normally assumed to be promptly removed via the actions of profit seeking arbitrageurs. These extreme events motivate the three essays in this work. The first essay seeks and fails to find evidence of investor behavior consistent with the broad 'Too Big To Fail' policies enacted during the crisis by government agents. Only in limited circumstances, where government guarantees such as deposit insurance or U.S. Treasury lending lines already existed, did investors impart a premium to the debt security prices of firms under stress. The second essay introduces the Inflation Indexed Swap Basis (IIS Basis) in examining the large differences between cash and derivative markets based upon future U.S. inflation as measured by the Consumer Price Index (CPI). It reports the consistent positive value of this measure as well as the very large positive values it reached in the fourth quarter of 2008 after Lehman Brothers went bankrupt. It concludes that the IIS Basis continues to exist due to limitations in market liquidity and hedging alternatives. The third essay explores the methodology of performing debt based event studies utilizing credit default swaps (CDS). It provides practical implementation advice to researchers to address limited source data and/or small target firm sample size.
Issue Date:2010-08-20
URI:http://hdl.handle.net/2142/16903
Rights Information:Copyright 2010 Thomas A. Jacobs
Date Available in IDEALS:2010-08-20
Date Deposited:2010-08


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