EMPIRICAL INVESTIGATIONS INTO SYSTEMIC RISK, ECONOMIC GROWTH AND INTERDEPENDENCE OF FACTORS IN FAMA-FRENCH FIVE FACTOR ASSET PRICING MODEL

Ivanets, Oleg

EMPIRICAL INVESTIGATIONS INTO SYSTEMIC RISK, ECONOMIC GROWTH AND INTERDEPENDENCE OF FACTORS IN FAMA-FRENCH FIVE FACTOR ASSET PRICING MODEL

Files

Ivanets_hawii_0085A_10102.pdf (3.27 MB)

Date

2018-12

Authors

Ivanets, Oleg

Advisor

Love, Inessa
Gangnes, Byron

Department

Economics

Abstract

This dissertation consists of three chapters all of which are empirical investigations of various aspects of the financial markets aimed on developing practical recommendations for investors, regulators and other market participants to improve risk and return characteristics of their portfolios. In Chapter 1 analysis of the interdependence of the factors in the Fama-French five-factor asset pricing model is presented. The model posts various challenges for its application as it is qualitatively different from the two currently used models: Fama-French three-factor model and CAPM. One of these challenges is interdependence of the factors. I applied panel vector autoregression methodology to address this issue. The analysis revealed number of important results that offer valuable insights for the investors who are using Fama-French five-factor asset pricing model for their portfolio formation. Chapter 2 is dedicated to the analysis of the systemic risk based on Minsky’s financial instability hypothesis (Minsky, 1992). Among a great variety of ideas regarding financial system stability, the “Financial instability hypothesis” gained significant popularity after the Global Financial Crisis because it was able to explain the nature of the crisis way before it. Although Minsky’s work provides a detailed conceptual description of the reasons for instability of the financial system, it does not offer an applied system of measures that would signal about the potential crisis. This Chapter aims to close this gap by providing such a measure – Systemic Risk Index (SRI). In Chapter 3 is an empirical investigation of a popular topic of macroeconomic impact of the financial markets. The Global Financial Crisis (2008) triggered a new wave of research on the topic (Jacobs and Mazzucato, 2016; Foroohar, 2016; Stiglitz, 2012; Stiglitz, 2016; Turner, 2015a; Turner, 2015b) suggesting that the structural changes that took place in the financial system in the late 1980s and early 1990s have fundamentally changed the impact the financial system has on the overall economy. The aim of this Chapter is to empirically test if the relationship between financial system capital and economic growth changed in the US in the last three decades.

Keywords

Economics, Finance, Economic growth, Fama-French, Financial markets, Financial stability, Systemic risk

URI

http://hdl.handle.net/10125/62332

Extent

128 pages

Rights

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Collections

Ph.D. - Economics

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