Dissertation

Essays in Asset Pricing

Neuhierl, Andreas

2015

Overview

In Chapter 1 (jointly with Andrew Thompson), we study the returns to a simple trend following strategy in commodity markets and the returns' potential drivers. The returns are positively correlated to a lack of available arbitrage capital providing direct evidence of limits of arbitrage in commodity futures markets. The strategy delivers low annualized excess returns in the period from 1990 to 2004 of -0.2% that show a significant increase from 2005 to 2013 to 4.2% and yield a Sharpe ratio of 1.1. This rise in returns coincides with increased participation in commodity markets by financial investors. Financial investors who use futures to maintain constant commodity market exposure must periodically rebalance the maturity risk of their portfolios so as to avoid physical settlement when futures contracts expire. This rebalancing creates predictable steepening and flattening of commodity term structures, which our trend following strategy can use to time commodity funds' demand for liquidity. In Chapter 2 we test the model of Diamond and Verrecchia, which predicts that prices adjust more slowly to new information if short selling is costly or banned. We study the speed of price adjustment following corporate press releases during the 2008 short sale ban. In this context we find that, consistent with the model, stocks which are affected by the ban have significantly slower price adjustment following the release of bad information. We find no significant difference in the speed of price discovery between the two groups in a period shortly before and after the short sale ban.

• Publisher: ProQuest Dissertations & Theses
• Subject: Economic theory / Finance
• ISBN: 9781321782424, 132178242X