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dc.contributor.authorDuarte, Diogoen_US
dc.date.accessioned2016-07-19T17:52:26Z
dc.date.available2016-07-19T17:52:26Z
dc.date.issued2016
dc.identifier.urihttps://hdl.handle.net/2144/17099
dc.description.abstractThe objective of this dissertation is to investigate the impact of important market participants such as Mutual Funds, Hedge Funds and the Federal Reserve Bank on the equilibrium equity premium, risk free rate and asset volatility and to analyze the effect of these institutions on risk shifting, portfolio allocation and financial stability. Specific features of institutional investors and central banks as well as their role in financial markets are reviewed and analyzed in Chapter 1. In Chapter 2, it is shown that the competitive pressure to beat a benchmark may induce institutional trading behavior that exposes retail investors to tail risk. In our model, institutional investors are different from a retail investor because they derive higher utility when they outperform the benchmark. This forces institutions to take on leverage to over-invest in the benchmark. Institutions execute fire sales when the benchmark asset experiences negative shocks. This behavior increases market volatility, raising the tail risk exposure of the retail investor. Nevertheless, ex-post, tail risk is only short lived, all investors survive in the long run under standard conditions, and the most patient investor dominates in the sense that she has the highest consumption wealth ratio. Ex-ante, however, benchmarking is welfare reducing for the retail investor, and beneficial only to the impatient institutional investor. Chapter 3 presents an analysis on how monetary authorities seeking to stabilize inflation, output and smooth interest rates distort the term structure of interest rates and prices of risk relative to an economy where central authorities adjust the money supply without taking into consideration the slope of the yield curve. Closed-form expressions for all equilibrium quantities are presented and the impact of quantitative easing on prices, risk premium and volatility of financial markets instruments, such as stocks and bonds, are evaluated. The changes in macroeconomic variables such as consumption, money demand and investment policies are also investigated. Under the adopted parametrization, quantitative easing is welfare improving. In addition, quantitative easing increases nominal bond and equity volatility, while reducing both real and nominal bond yields for all maturities.en_US
dc.language.isoen_US
dc.rightsAttribution-NonCommercial-NoDerivatives 4.0 Internationalen_US
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/
dc.subjectFinanceen_US
dc.subjectAsset pricingen_US
dc.subjectCentral banksen_US
dc.subjectInstitutional investorsen_US
dc.subjectMacro-financeen_US
dc.titleEssays on institutional investors, central banks and asset pricingen_US
dc.typeThesis/Dissertationen_US
dc.date.updated2016-06-22T16:35:17Z
etd.degree.nameDoctor of Philosophyen_US
etd.degree.leveldoctoralen_US
etd.degree.disciplineMathematical Financeen_US
etd.degree.grantorBoston Universityen_US


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Attribution-NonCommercial-NoDerivatives 4.0 International
Except where otherwise noted, this item's license is described as Attribution-NonCommercial-NoDerivatives 4.0 International