Essays in Financial Economics

This dissertation contains three essays in the subject of financial economics. This first essay studies the issue of loss-aversion and household portfolio choice. Calibrated models of household portfolio choice generate two counterfactual predictions: that all households will participate in equity markets, and that households will allocate all of their wealth to equity. In this essay I test if loss-aversion can explain the differences between observed household behavior and the predictions of these models. Using survey data I obtain a direct measure of each surveyed household's loss aversion coefficient. I then test whether loss-aversion has explanatory power for the participation decision and for the allocation of wealth to risky assets. I find that higher loss-aversion leads to a lower participation probability and a lower allocation to risky assets. The second essay evaluates the performance of a number of performance benchmarking techniques on a sample of active pension fund money managers. The results suggest that the choice of benchmarking technique can drive inferences about manager skill. The third essay explores the cross-section of option returns. There is considerable evidence that options are not redundant securities. Despite this little is known about option returns. This paper empirically investigates the effect of information risk and liquidity on the cross-section of individual equity option returns. After delta-adjusting it is shown that liquidity and information risk are priced characteristics in the cross-section of option returns.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Finance

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Dimmock, Stephen G.

Contributors dc:contributor

• Louis K.C.Chan

• Economics, Finance

Language dc:language

eng

Identifier

(MiAaPQ)AAI3198971

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/87433