Economics - Theses, Dissertations, and other Required Graduate Degree Essays

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Essays on Market Microstructure and Foreign Exchange Market

Date created: 
2015-08-04
Abstract: 

High frequency trading (HFT) has become a predominant feature of financial markets. Thisthesis studies different aspects of the HFT in the Electronic Broking Services (EBS) interbank foreign exchange (FX) market.The first paper of this Thesis (Chapter 1) studies changes in the spread, market depth anddegree of adverse selection due to the lower minimum tick size. The main conclusion is that thereduction in the spread was mostly absorbed by the HFTs, whereas the manual traders were pushedback from the top of the order book and experienced longer execution times. Manual marketmakers were willing to cross the spread and act as market takers changing the informationalcontent of the order flow. Market depth was reduced significantly following the introduction ofdecimal pip pricing. The second paper of this Thesis (Chapter 2) presents the effect of the tick size change onthe adverse selection problem in the EBS market. Econometric analysis of serial correlationproperties of jumps in exchange rates, and of the spread leads to the conclusion that adverseselection is reduced by tick size change. Similar cleavage occurs before and after tick size changein an empirical adverse selection proxy. This chapter sheds light on trading behavior of marketparticipants. The third paper of this thesis (Chapter 3) discusses the properties of triangular arbitrageopportunity in the EBS market. The results cast into question current understanding of triangulararbitrage in the literature, specifically in relation to algorithmic trading. The increasingpresence of algorithmic traders does not offer significant improvement in speed of price discoveryby quickly consuming the triangular arbitrage opportunities. Rather, algorithmic tradinginfluences the creation of triangular arbitrage by two countervailing effects.

Document type: 
Thesis
File(s): 
Senior supervisor: 
Ramazan Gencay
Robert Jones, Alain Chaboud
Department: 
Arts & Social Sciences: Department of Economics
Thesis type: 
(Thesis) Ph.D.

Papers in Economic Theory and the Biological Foundations of Economics

Date created: 
2015-11-06
Abstract: 

Chapter 1 gives the introduction to this thesis, describing the three essays that are contained herein. Chapter 2 is joint work with Erik Kimbrough and Arthur Robson. The article investigates the evolutionary foundation for our capacity to attribute preferences to others. It develops a theoretical model of this ability that the authors call “Theory of Preferences” (ToP), and then shows that ToP yields a sharp, unambiguous advantage over less sophisticated approaches to strategic interaction. The advantage to ToP arises because agents with this ability can extrapolate to novel circumstances information about opponents’ preferences that was learned previously. The chapter reports on experiments investigating ToP in a simpler version of the theoretical model. It finds highly significant learning of opponents’ preferences, providing strong evidence for the presence of ToP as in the model among subjects. Moreover, scores on standard measures of autism-spectrum behaviors are significant determinants of individual speeds of learning in experiments, so the notion of ToP is significantly correlated with theory of mind as in psychology. Chapter 3 studies the third party provision of information in a dynamic reputation model. Information is sold to consumers by a profit maximizing intermediary with monopoly access to information about a long run firm. The paper characterizes the optimal disclosure rule from the point of view of the intermediary, and shows that if consumers act as price takers in the market for information, then in every equilibrium the intermediary extracts from consumers the highest price possible for information. The resulting equilibrium is inefficient. Chapter 4 extends a matching and bargaining model of decentralized trade first developed by Gale and Sabourian (2005). The extension considers a market in which sellers bring to market several units rather than just one. The article then studies the effect on efficiency of an aversion to complexity among the agents. It shows that complexity aversion can preclude efficient exchange in contrast to the original model by Gale and Sabourian (2005). Allowing an agent to trade several times introduces an important strategic aspect that does not arise when each seller has only one unit for sale. In particular, a several-unit seller must consider, not only the price at which he currently trades, but also the effect of his exchange on future market conditions. A seller with several units thus attempts to manipulate the price in the future by engaging in inefficient trades currently.

Document type: 
Thesis
File(s): 
Senior supervisor: 
Arthur Robson
Department: 
Arts & Social Sciences: Department of Economics
Thesis type: 
(Thesis) Ph.D.

Early Life Environments and Long Term Outcomes

Date created: 
2015-05-20
Abstract: 

A large literature has linked “in utero” environment to health and socio-economic outcomes in adulthood. We consider the effect of early life environments on health and skill formation outcomes. We first evaluate the impact of perinatal-neonatal level of technology at birth, which varies across delivery institutions, on the long-term neurodevelopmental outcomes of children with Cerebral Palsy. The level of technology at delivery determines the type of therapy newborns receive immediately after birth. The type of therapy is critical to prevent or treat adverse events around labor and delivery which determine later neurological and neurocognitive impairments such as CP. We evaluate the relationship between availability of neonatal technology, which is associated with levels of care at delivery hospitals, and CP nonambulatory status, using data from the Canadian Multi-Regional Cerebral Palsy Registry. In a follow-up paper we further explore the efficiency of neonatal transfers across Quebec neonatal system. We find robust evidence that there is no statistical significant relationship between level of neonatal care at birth and CP severity. This finding means that differences in levels of neonatal care and associated technology available at delivery are not associated at the margin with the risk of a non-ambulatory CP phenotype among children with CP. Overall we conclude that, in the Quebec regionalized neonatal care system, there is no gain to increasing the level of care assigned to mothers at risk of CP. We estimate the effect of mothers’ participation in the Supplementary Nutrition Assistance Program and the Special Supplemental Nutrition Program for Women, Infants, and Children on early cognitive and non-cognitive developmental outcomes as measured by the Bayley Scales of Infant Development. Our data are from a large, prospective, community-based panel study of mother-infant pairs. In this rich data set we can directly identify the change in neurodevelopmental outcomes associated with changes in food programs uptake. In a model where unobserved heterogeneity only affects the level of neurodevelopmental outcomes this can be interpreted as a causal effect. Our results suggest that brief prenatal investments may be more cost effective than traditional educational interventions in improving early childhood developmental outcome.

Document type: 
Thesis
File(s): 
Senior supervisor: 
Krishna Pendakur
Department: 
Arts & Social Sciences:
Thesis type: 
(Thesis) Ph.D.

Income Inequality in Brazil: Is Education Quality an Important Determinant?

Date created: 
2015-07-29
Abstract: 

This paper examines the contribution of education quality to income inequality in Brazil. More specifically, I look at the average income of municipalities in Brazil to observe how much the disparities in education quality across municipalities account for income inequality. Three commonly used methods to study income inequality are implemented: decomposition by population subgroups, a regression-based approach and the Oaxaca-Blinder decomposition. Using different measures for education quality, I find that the provision of a good measured education among public schools contributes little to the variation of average income across municipalities.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Fernando Aragon
Department: 
Arts & Social Sciences:
Thesis type: 
(Project) M.A.

Is that where you work or what you do? Understanding job polarization in Brazil

Date created: 
2015-04-29
Abstract: 

Although relatively well documented and accepted in the US and Europe, the notion of labour market polarization is not so clear in the developing world. In this study, I aim to answer two questions: (i) Are the patterns of employment and wage polarization seen in the industrialized countries also found in Brazil? And (ii) has the occupational structure--what you do--gained importance over the sectoral structure--where you work--in explaining the dynamics of the labour market. By applying standardized and reproducible aggregations of occupations by task content, I found strong evidence of employment polarization but not of wage polarization. Moreover, this study corroborates the idea that the occupational structure is a key driving force behind the determination of employment and wage dynamics, although further investigation is required to understand the relationship between job polarization and the wage distribution. This study also contributes to the literature by adjusting the classification of occupations (CBO) and activities (CNAE) to make the categories compatible before and after the 2002 changes. Thus, I preserved all the National Household Survey Sample’s (PNAD-IBGE) valid responses between 1981 and 2013.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
John Knowles
Department: 
Arts & Social Sciences:
Thesis type: 
(Project) M.A.

The Coevolution of Beliefs and Networks

Date created: 
2015-04-15
Abstract: 

In this research, we set out some of the behavioral foundations of social learning. Social psychologists have shown that people experience cognitive dissonance when two or more of their cognitions diverge, and that they actively manage the dissonance. With this in mind we develop a model of social learning in networks to understand the coevolution of beliefs and networks. We focus on beliefs concerning an objective phenomenon. Initial beliefs are based on noisy, private and unbiased information. Because private information is noisy, initial beliefs differ, creating dissonance. Social behavior is motivated by a desire to minimize this dissonance. In many circumstances this behavior adversely affects the efficiency of social learning, such that in equilibrium the mean aggregate belief is biased and there is significant variation of beliefs across the population. The parameterizations of our model that result in the most inefficient learning produce a fractionalized network structure in which there are a number of distinct groups: within any group all beliefs are identical; beliefs differ from group to group, sometimes greatly; there is no intergroup interaction. Since dissonance minimizing behavior is apparently a deeply rooted feature of humans, one that cannot be changed, we are led to ask: What policies could improve the situation? Our results suggest that policies that improve the availability of objective information and/or increase the size of networks enhance efficiency of social learning. On the other hand, anything that makes changing networks more attractive as a dissonance minimizing strategy has the opposite effect

Document type: 
Thesis
File(s): 
Senior supervisor: 
Jasmina Arifovic
Department: 
Arts & Social Sciences:
Thesis type: 
(Thesis) Ph.D.

Labour Supply Response to the Working Income Tax Benefit (WITB): A Difference-in-differences Approach

Author: 
Date created: 
2015-03-09
Abstract: 

The Working Income Tax Benefit (WITB) is a federal level refundable tax credit program in Canada. This paper is the first study that measures the actual labour supply response to this program. Using confidential microdata from the Labour Force Survey (LFS) and exploiting the quasi-experimental nature of the WITB, I construct a treatment group and a control group based on the eligibility for the program. Then I employ the difference-in-differences technique to estimate the average effect of the WITB on the employment and hours of work of the eligible individuals. I also incorporate an instrumental variable strategy with the difference-in-differences framework to encounter a potential endogeneity problem. I find that the WITB increased the probability of being employed by up to around two percentage points, and hours of work per week by up to around forty minutes.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Brian Krauth
Department: 
Arts & Social Sciences:
Thesis type: 
(Project) M.A.

Macro-Prudential Policy and Canadian Housing Market: Analysis of Five Major Provinces in Canada

Author: 
Date created: 
2014-12-11
Abstract: 

The high level of household indebtedness and stretched valuations in some segments of the Canadian housing market poses a potential risk to financial stability in the country. To protect and strengthen the Canadian housing market, the government has taken prudential measures during 2008 to 2012 to reduce the risks associated with the housing market. This paper conducts an empirical analysis regarding the effectiveness of Canadian macro-prudential policies based on the user cost model. This paper found that the four rounds of policy changes were effective in reining in housing price and reducing housing credit growth in the five provinces including Ontario, British Columbia, Alberta, Quebec and Manitoba to varying degrees based on their diverse provincial economic backgrounds.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Luba Petersen
Department: 
Arts & Social Sciences:
Thesis type: 
(Project) M.A.

Heterogeneous Relationships between Employment Insurance Receipt and Job Search

Author: 
Date created: 
2014-12-16
Abstract: 

I explore the heterogeneous relationships between Canada’s Employment Insurance (EI) program and job search intensity before, during and after the recent financial crisis among different subgroups of workers in Canada. I find a significant, positive relationship between job search intensity and EI benefits. The positive relationship between EI benefits and job search hours is largest for women, while the positive relationship between EI benefits and job search expenditures is largest for among workers from poor households. EI recipients experience longer unemployment durations than non-recipients, but the unemployment durations for EI recipients during the recession are shorter than before the recession. My findings have important implications for policy-makers wishing to target EI benefits among populations where such benefits will have the greatest impact.

Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Andrew McGee
Department: 
Arts & Social Sciences: Economics
Thesis type: 
(Project) M.A.

Essays on Inequality and Poverty

Date created: 
2014-09-04
Abstract: 

This thesis is composed of three essays on inequality and poverty in the United States and Canada.Despite their nominal wage disadvantage, immigrants in the United States tend to settle in the most expensive locations in the country. I show that incorporating spatial price variation into the price index dramatically worsens estimates of immigrant integration. In comparison with nominal measures, real measures show twice as much immigrant wage disparity, much slower assimilation over time, and a more pronounced decline in entry wages of more recent cohorts. To rationalize these location patterns, I use a spatial equilibrium model. The model allows us to distinguish between quality of life and productivity differences as competing explanations for the concentration of immigrants. Parameterizing the model and using housing cost and wage differentials each year, the productivity channel seems to be the more plausible explanation. It also appears to have become more important over time. Like the United States, several studies document the tendency for immigrants in Canada to live in areas with high costs of living: approximately 90% live in metropolitan areas. In the second chapter, I re-examine immigrant wage disparity and poverty estimates in Canada after adjusting immigrant incomes for their relatively high costs of living.In the third chapter, I outline an Oaxaca-Blinder detailed decomposition method based on the Shapley Value. It is path-independent and adds up intuitively to the aggregate decomposition components. It is also simple to implement in practice for various limited dependent variable regression models. I show how this decomposition method can be used in tandem with the recentered influence function regression framework (Firpo et al., 2009) . Together, this constitutes a flexible framework to decompose differences of a wide variety of poverty measures over time or between groups. The empirical application examines the decline in U.S. poverty during the 1990s, in particular the importance of technological change and offshoring. I find these are important determinants of poverty in a given year but cannot explain any of the change in the poverty rate over time. Changes in the return to family size explain the entire change in the poverty rate. I also find that the methods we use to examine poverty can easily change the conclusions we draw.

Document type: 
Thesis
File(s): 
Senior supervisor: 
Krishna Pendakur
Department: 
Arts & Social Sciences:
Thesis type: 
(Thesis) Ph.D.