Doctor of Philosophy (PhD)
First Advisor's Name
First Advisor's Committee Title
Second Advisor's Name
Mustafa O. Caglayan
Second Advisor's Committee Title
Third Advisor's Name
Third Advisor's Committee Title
Fourth Advisor's Name
Edward R. Lawrence
Fourth Advisor's Committee Title
Fifth Advisor's Name
Fifth Advisor's Committee Title
Empirical Asset Pricing, Value Investing, Quality Investing, Individualism, Volatility Risk
Date of Defense
This dissertation consists of three essays that focus on the topics related to Asset Pricing. The first essay proposes a regression-based approach to identify the quality-cheapness (QC) investing strategy with quality as a priority and the cheapness-quality (CQ) investing strategy with cheapness as a priority. Empirical results show that QCstrategy outperforms traditional quality investing strategy, and CQ strategy outperforms value investing strategy based on the market-to-book ratio. QC strategy and CQ strategy perform almost equally well in terms of return spreads, but they have diﬀerent risk exposures, suggesting diﬀerent sources of return spreads and potential synergy. Further analysis shows that the future investment growth opportunity, time-varying risk, uncertainty, and sentiment all play a partial role in explaining the return spreads in QC strategy and CQ strategy.
The second essay examines how cultural traits and institutional quality affects quality and value investing return premiums in an international environment. We use Hofstede's individualism index and International Country Risk Guide's political risk index to measure the extent of a country's overconfidence level and environmental stability. Our empirical analysis suggests that countries with higher individualism scores generally have a higher quality premium and lower value premium than countries with lower individualism scores. Besides, countries with higher political risk would have higher value premiums, while the difference in quality premium is insignificant between high and low political risk countries. However, the effect of institutional quality is weakened when we take both individualism and political risk into consideration.
The third essay studies the relationship between quality premium and volatility risk. Our empirical analysis suggests that firms' qualities are positively related to the volatility risk, and the quality premium has different performance across different levels of volatility risk. The effect of volatility risk would be different on high-quality and low-quality firms. The results highlight the importance of volatility risk in explaining the source of quality premium.
Lu, Xiaomeng, "Three Essays on Asset Pricing" (2022). FIU Electronic Theses and Dissertations. 5057.
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