Three Essays On Asset Bubbles And Contagion Over Financial Networks
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Authors
Shen, Yue
Date
2015-08-10
Type
thesis
Language
eng
Keyword
asset bubble , contagion , networks , financial crisis
Alternative Title
Abstract
This thesis studies financial market stability by exploring asset bubbles and contagions over financial markets. First I construct a model where bubbles arise from a lack of common knowledge about the asset value among traders with private information, and I evaluate the effects of capital gain tax and transaction costs on bubbles. I find that capital gains tax has no effect on the size of the bubble when there is a perfect tax credit for capital losses, and the size of the bubble decreases in the tax when there is no tax credit. Therefore dealing with bubbles with capital gains tax not only requires imposing the tax, but also tightening the policies on tax credits. In a simplified bubble model, it can be shown that the model is equivalent to an auction, and bubbles arise for the same reason that bidding prices fail to reveal the true value in that auction. Several experiments on taxes and subsidies are devised to reduce or eliminate bubbles. Then I study the contagion of bankruptcy through downward price pressure among investors with overlapping portfolios. I calculate the probability of an extensive contagion and the expected bankruptcy rate during such a contagion. System-wide contagion happens only when the diversification of portfolios is in a certain range and, in the upper area of that range, the probability of a crisis may be small, but the spread of contagion can be extremely extensive.
Description
Thesis (Ph.D, Economics) -- Queen's University, 2015-08-07 01:21:38.505
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This publication is made available by the authority of the copyright owner solely for the purpose of private study and research and may not be copied or reproduced except as permitted by the copyright laws without written authority from the copyright owner.
ProQuest PhD and Master's Theses International Dissemination Agreement
Intellectual Property Guidelines at Queen's University
Copying and Preserving Your Thesis
Creative Commons - Attribution - CC BY
This publication is made available by the authority of the copyright owner solely for the purpose of private study and research and may not be copied or reproduced except as permitted by the copyright laws without written authority from the copyright owner.