"Essays on intermediation in financial markets: Central bank interventi" by Zhaodan Huang
Essays on intermediation in financial markets: Central bank intervention in foreign exchange markets and mutual fund performance.
This dissertation explores two type of financial intermediation, namely the central banks and mutual funds, and their impacts on the financial markets in terms of foreign exchange rate movement and portfolio rankings, respectively. The first two essays provide both a theoretical model and some empirical evidence of central bank intervention in the foreign exchange market. Chapter 2 shows that the response of the market to the intervention depends on the information the market participants have. If the market has a high (low) precision of the central bank's intervention target, or a high (low) precision of the demand of liquidity traders, it is more likely to see that the exchange rate will have a perverse (normal) response. Chapter 3 explores a special event study with regression models and concludes that the FED interventions successfully change the level of the exchange rate and the change direction is in line with the central bank's intention. This finding has received additional support by looking at the impulse analysis of interventions as well as by examining the evolution of the daily returns around the event. The empirical evidences also suggest that the endogeneity problem causing many other empirical studies suspicious is not a big threat in this paper. Finally, Chapter 4 of the dissertation focuses on the portfolio ranking method. The paper suggests that for non-sophisticated investors, idiosyncratic risk is still a relevant factor when ranking the portfolio's performance. Thus, ranking based on multi-factor models (three-factor or four-factor) and Jensen's alpha may not be relevant. Instead, the paper suggests to use ranking based on overall risk adjusted measures such as SSD for those non-sophisticated investors.
Huang, Zhaodan, "Essays on intermediation in financial markets: Central bank intervention in foreign exchange markets and mutual fund performance." (2004). Graduate Theses, Dissertations, and Problem Reports. 9070.