Essays on exchange rates
There are three papers in this thesis. First two are on exchange rates and the third one tries to explain why people buy low-price shares and its effect on the market. Chapter one uses Stein's NATREX model to explain the real exchange rate of Hong Kong. It mainly answers two questions. First, can we use macro variables, such as productivity, thrift, real world interest rate and terms of trade, to explain the real exchange rate of Hong Kong? Second, Why Hong Kong's high inflation rate does not hurt its export? We find that the macro variables does explain the real exchange rate of Hong Kong and that moving manufacture sectors to mainland of China is the reason Hong Kong maintains its export advantage. Chapter two uses order flow to explain the high-frequency exchange-rate variation. It uses micro structure model to explain the short-term exchange rate variation and also finds first-order negative autocorrelation in the exchange rate changes. Chapter three combines two micro models to explain the reason that people persistently buy low-price shares, though it is, on average, not a winning strategy. The first model includes third moment into the utility function. Thus, people with this kind of utility function will pay for something whose expected payoff is negative. The second is from Miller (1977). It argues that divergent opinions will drive the price of risky asset away from mean valuation of the market. When the supply of this kind of risky assets is limited, the price will be determined by the minority that holds the highest opinion of the asset. The more divergent of the opinions and the more limited the asset, the higher the resulting price will be.
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|Other Persons:||Carlson, John A. (contributor)|
|Type of publication:||Other|
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