Dissertation: Essays on Empirical Asset Pricing
The first essay tests whether changes in the US federal budget deficit affect stock market returns. The results suggest a positive impact from shocks in the real budget deficit to real stock market returns. Building on this result, the second essay proposes a new portfolio-based risk factor based on impulse responses from equity portfolios to changes in the US federal budget deficit. The proposed risk factor is directly linked to the macroeconomy. The results show that the new proposed risk factor is negatively correlated with the business cycle generating high payoffs when the economy is in unfavorable states.
The third essay aims to deepen the understanding of the momentum anomaly in global equity markets. The findings indicate that momentum-based trading strategies in a global equity market setting generated statistically significant negative returns during the most recent recessions, whereas the severe recession of December 2007–June 2009 is the major driver of the results.
The fourth and fifth essays shed new light on the idiosyncratic volatility puzzle. The fourth essay examines this anomaly in a global equity market setting. Empirical evidence suggests that idiosyncratic volatility is significantly positively priced in the cross-section of global equity markets. The fifth essay examines this relationship in a scenario where the level of idiosyncratic volatility is ex ante controlled for liquidity, size and information asymmetry. This essay establishes a robust link between realized idiosyncratic volatility and momentum crashes.
Finally, the last essay studies the link between momentum-based trading strategies implemented in global equity markets and country-specific credit ratings. Even though momentum profits tend to be associated with country-specific credit ratings, the regression analysis reveals that a world credit risk factor cannot fully explain the momentum profits.
The public examination of M.Sc. Klaus Grobys’ doctoral dissertation "Essays on Empirical Asset Pricing" is on Wednesday 17 December at 12 o’clock in auditorium Kurtén (Tervahovi). Professor Mika Vaihekoski from the University of Turku will act as an opponent and professor Sami Vähämaa as a custos.