Three essays in international financial markets




Williams, Michael R.

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I examine three issues in international financial markets in this dissertation. In the first Chapter, I examine the 2008 Securities and Exchange Commission's short selling ban on financial firms. I find that private information provision increased for these firms during the 2007 US financial crisis while information provision decreased due to the 2008 short selling ban. I conclude that the 2007 financial crisis enticed informed short sellers into the market which then increased information provision. Further, I find that the 2008 short selling ban restricted these informed short sellers from the market thus leading to a decrease in information provision in the short-restricted firms. Interestingly, the information restricting effects of the 2008 ban were not severe enough to erode the gains in information provision originally induced by the financial crisis. Thus, short sale bans' information effects are not completely restrictive but rather conditional on firm characteristics and contemporaneous market conditions.

In the second Chapter, I examine the relationship between four commodity-exporting countries' currency returns and a range of index-based commodity returns. I use daily futures data to investigate the fast dynamics between commodity prices and currency exchange rates while avoiding market imperfections in the commodity forward market (e.g. infrequent trading and illiquidity). I find that commodity/currency relationships exist contemporaneously but fail to exhibit lead-lag behavior in either direction. My results indicate that futures markets are efficient in processing information and that commodity and currency futures prices respond to information shocks simultaneously on a daily basis. Thus, the prospect of forecasting future commodity prices using current exchange rate information is doubtful.

In the third Chapter, I study whether commodity index futures speculation is responsible for individual commodity price destabilization. Specifically, using intraday data, I find unidirectional causality from commodity index linked commodity futures to non-index linked commodity futures for up to one hour which then disappears when using daily data. Also, the economic significance of index to non-index commodity transmission declines to zero within about an hour. Finally, I find that the magnitude of index-to-non index returns relationships are positively related to the amount of speculation, both long and short, in the GSCI commodity index futures contract. I conclude that speculative pressures exerted by commodity index investors can impact non-index commodities. These results are likely not due to speculative pressure itself, but rather the subsequent price destabilizing trades of uninformed, positive feedback traders.


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Commodity Futures, Currency Futures, Short Selling Bans, Speculation