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Three Essays on Global Stock Markets

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2018, Doctor of Philosophy, Ohio State University, Business Administration.
My dissertation consists of three sole-authored essays that study global stock returns. The first one “Global Anomalies” estimates the aggregated return predictability of 117 U.S. anomalies across 40 countries. These anomaly variables generate substantial return predictability when they are aggregated within the same category as defined in Hou, Xue, and Zhang (2015) using composite measures. Combining all six categories of anomaly variables into one single composite measure, a global hedge portfolio generates an average equal (value)-weighted monthly return of 2.15% (1.20%) with a t-statistic of 9.22 (4.66). These results highlight the importance of using composite measures to summarize the information contained in individual anomaly variables. The second essay “Risk or Mispricing? Cross-Country Evidence on Anomaly Returns” follows the same methodology from the first one to aggregate individual anomalies, and aims to explain 5 major anomalies (momentum, value-growth, investment, profitability, and trading frictions) by studying their return variation across countries. Using data from 40 countries over the past 35 years, I show that anomaly returns are highly correlated with measures of market efficiency, investor protection, limits-to-arbitrage, and investor irrationality. Evidence strongly supports a rational risk pricing theory for momentum and profitability effects, and a mispricing theory for the value-growth effect. The result is mixed for investment and trading frictions effects, suggesting that both forces may be at work. These findings extend the existing understanding on the economic sources behind each anomaly and are more robust in the presence of data mining issues in the literature. In the third chapter “The Impact of Price Limits on Stock Volatility and Price Delay: Evidence from China”, I focus on the Chinese stock market and study how market interventions affect price behaviors. To overcome challenge in identification, I first match firms by characteristics and use difference-in-difference methodology to establish causality. Exploring a Special Treatment policy in China, I show that 5-basis-point tightening in daily price limits (from ±10% to ±5%) significantly reduces annualized volatility by 6.5 basis points (t =5.00) yet increases price delay by 63% from the previous year (t =7.40). Trading activity and liquidity significantly decrease under new limits but return increases by an equal-weighted average of 27% (t = 3.22) in 12 months. Evidence suggests that in the long-run price limits are effective in reducing volatility and improving firm value yet causing delayed price discovery and lower liquidity.
Kewei Hou (Advisor)
Lu Zhang (Committee Member)
Justin Birru (Committee Member)
152 p.

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Citations

  • Dong, M. (2018). Three Essays on Global Stock Markets [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1532688956390049

    APA Style (7th edition)

  • Dong, Mengmeng. Three Essays on Global Stock Markets. 2018. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1532688956390049.

    MLA Style (8th edition)

  • Dong, Mengmeng. "Three Essays on Global Stock Markets." Doctoral dissertation, Ohio State University, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=osu1532688956390049

    Chicago Manual of Style (17th edition)