Date of Award
Doctor of Philosophy (PhD)
Dr. Diego Escobari
Dr. Andre V. Mollick
Dr. Yu Liu
Essay I examine regime-switching in the response of U.S. stock price to oil price shocks. We find statistically significant, time-varying, and dynamic state dependent response that resembles to high and low response regimes. Furthermore, we examine whether the timing of the regime shifts are consistent with three (direction, magnitude, and business cycle) manifestations of asymmetry by modeling the transition probabilities governing the switching process as functions of state variables. We observe strong and statistically significant support that stock price responds more aggressively to oil specific shocks during recessions than during expansions, while findings suggest weaker evidence of asymmetry pertaining to the magnitude or direction of the oil price shocks.
Essay II, on the other hand, investigates financial contagion during periods of bubble in developed economies from January 1, 1999 to December 29, 2017. First, we test for explosive behavior and bubbles in six stock index series using the recursive flexible window right-tailed ADF-based procedure. Second, we obtain dynamic conditional correlation by using a DCC multivariate GARCH model to analyze daily stock return data in six developed economies. Third, we pool the time-series data on periods of bubbles obtained from GSADF model and time-varying conditional correlations obtained from DCC-GARCH model. Finally, we use various dynamic panel specifications that takes into account the endogenous nature of the bubble. We find statistically significant decrease in the dynamic correlations during periods of bubble, which suggests that, the financial contagion between pair of countries diminishes when any of the two countries in the pair is going through periods of bubble.
Sharma, Shahil, "Essays on Financial Markets and Investments" (2018). Theses and Dissertations. 375.