Essays on Asset Pricing

This dissertation studies asset pricing from three perspectives. The first chapter takes the view of a long-run buy-and-hold investor, and offers an an explanation to prominent cross-sectional return anomalies. A commonality shared by these anomalies is that their returns are negatively correlated with the market. I show that this negative covariance implicitly embeds the mispricing of the CAPM beta -- the first and one of the most robust asset pricing puzzles -- in these cross-sectional anomalies. Taking into account the exposure to the beta mispricing either attenuates or eliminates the economic and statistical significance of risk-adjusted returns to a large set of asset pricing puzzles. Given the presence of well-documented cross-sectional return anomalies, the second chapter examines whether and how institutional investors trade to profit, and thereby to mitigate these anomalies. Consistent with the literature, I find that institutions in aggregate do not trade to take advantage of most of these cross-sectional return predictabilities. However, I present evidence that institutions in fact correctly trade to capture the beta risk-premium when and only when it is present in the market. Findings support the view that institutions are the more rational set of investors that seem to capture and correct mispricing caused by opportunistic noise trading. The third chapter takes a closer look at one particular type of asset markets -- the over-the-counter (OTC) markets, and analyzes how trade disclosure impacts market participants' optimal game-strategic behaviors. My co-authors and I show that mandatory trade disclosure makes a market intermediary engage in costly signaling, which reduces transaction prices for investors and equivalently rent per transaction for the intermediary. Investors as a result benefit, and are more likely to trade. The intermediary, however, could benefit too if the increase in trading volume is sufficient to offset the reduction in rent per transaction.

Name thesis:degree_name

Doctor of Philosophy

Level thesis:degree_level

Doctoral

Discipline thesis:degree_discipline

Business

Grantor

Rice University

Year dc:date.issued

2018

Author dc:creator

• Liu, Ruomeng

Advisor dc:contributor.advisor

• Back, Kerry E.

Committee members dc:contributor.committeemember

• Xing, Yuhang
• Butler, Alexander W.
• Loch-Temzelides, Ted P.

• Asset pricing
• cross-sectional returns
• institutional trading
• OTC markets

Statement dc:rights

• Copyright is held by the author, unless otherwise indicated. Permission to reuse, publish, or reproduce the work beyond the bounds of fair use or other exemptions to copyright law must be obtained from the copyright holder.

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1911/105838

OAI identifier oai:identifier

oai:repository.rice.edu:1911/105838