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Title: Essays in international finance
Author: Krohn, Ingomar
ISNI:       0000 0004 8497 9809
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2018
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This thesis consists of three chapters, in which I examine recent developments in the area of international finance. In Chapter 2, I introduce a new class of hybrid exchange rate models that combine macroeconomic variables with information from a foreign exchange interdealer trading platform. Building upon the work by Chinn and Moore (2011), I examine the power of hybrid models to explain and forecast exchange rate dynamics. I provide compelling evidence that hybrid models produce more accurate in-sample predictions than a conventional macroeconomic Taylor rule and well-established market microstructure models. Chapter 3 provides an analysis of recent developments in the commodity trading advisor (CTA) industry, a growing alternative investment class, in which fund managers primarily take long and short positions in derivative markets. Based on the largest and cleanest cross-sectional CTA dataset employed in the literature to date, I assess the highly debated performance of CTAs (Bhardwaj et al. (2014), Gregoriou et al. (2010)) and discuss different characteristics of their return dynamics. Furthermore, I provide empirical evidence for a robust link between manager skill, manager compensation, and future fund performance. The results are consistent with a rational market where investors compete to invest with successful CTA managers who set their fee structure to signal their skills to investors. In Chapter 4, I examine liquidity dynamics of FX spot and swap instruments. While trading volume of FX derivatives has been growing in the post-financial crisis period (BIS (2016)), knowledge about these instruments' liquidity dynamics is still limited. In this essay, I show that market and funding liquidity are inherently linked. In particular, I find that changes of dealers' quoting activity in the FX spot market has a significant impact on liquidity conditions in FX derivative markets. Further, FX dealers' quoting activity exhibits distinct seasonal up- and down-swings around quarter-end months. In these periods, small-volume and less-informed dealers appear to substitute large dealers as market makers. This change in the composition of the dealer ecosystem leads to a decline in market liquidity and to an increase in funding costs of FX derivative instruments. In line with Brunnermeier and Pedersen (2009), the increased funding costs seem to induce liquidity spirals at the end of the year, whereby a worsening of funding conditions is associated with lower levels of market liquidity in currency spot and swap markets.
Supervisor: Not available Sponsor: Economic and Social Research Council
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HB Economic Theory