LECOURT Christelle

This thesis addresses three critical issues in exchange rate modeling: policy, seasonality, and determination. First, it proposes to model exchange rate management policies by uncovering the de facto renminbi basket since China's shift from a fixed to an intermediate regime in June 2010. With a non-linear model that identifies long- and short-term objectives, we demonstrate a slight deviation of the renminbi from its parity with the U.S. dollar to a basket peg. Second, this thesis studies the monthly seasonality of the foreign exchange market. Focusing on the US dollar-Deutsche mark followed by the dollar-euro in a non-linear framework, we document the persistent effects of January and December on the foreign exchange market from 1971 to 2017. The German-US equity return differential and corresponding two-way equity flows reveal similar effects over two-thirds of the sample, suggesting that seasonal outperformance of one country's stock market relative to another may induce carry trades via simultaneous capital flight to the higher-yielding stock market and appreciation of its currency. Finally, this thesis proposes a new variable for the determination of exchange rates, including the relative uncertainty in the stock markets of two countries. Focusing on the yen-dollar exchange rate returns from 2009 to 2019 in a non-linear framework, we find that an increase in the relative uncertainty of a stock market will lead capital to flow to the safer stock market and appreciate its currency.

This thesis aims to provide a better understanding of the role of interest rates as a monetary policy instrument available to central banks to influence the economy. The first chapter of this thesis proposes an analysis of the transmission channel of the risk premium of the bonds of the European Central Bank's sovereign debt purchase program, focusing on aggregate macroeconomic variables. The second chapter examines the low-growth, low-inflation environment in Japan since the 1990s, via the yield curve spread. This chapter extends the concept of natural (short) interest rate to that of intermediate and long maturities, and indicates that the different monetary policy regimes of the Japanese central bank have not had a homogeneous impact on the yield curve spread and on the Japanese economy. Finally, the third chapter shows that the US Phillips curve - the structural relationship between inflation and a measure of real economic activity - is not dead, contrary to common thinking. This chapter shows that the slope of the Phillips curve is not flat, once it is filtered for supply shocks, not just cost shocks. The chapter also finds evidence that the apparent flattening of the curve can be attributed to the fact that the Federal Reserve is now targeting inflation more aggressively than in the past.

The rapid growth of sovereign wealth funds (SWFs) over the past two decades has been accompanied by a new interest in socially responsible investments (SRIs) by these funds. This thesis, which is structured around three essays, proposes to examine the implications of this strategy on the performance of their portfolios. The first study examines the efficiency of SFs in terms of financial and social responsibility performance. To estimate the latter, we constructed and computed the first score assessing the social responsibility of SFs. We employ a non-parametric methodology using several combinations of inputs-outputs. We show on the one hand that many SFs are efficient, and on the other hand that the involvement of SFs in SRI is increasing and non-negligible. In a second study, we analyze the impact of the implementation of an SRI strategy, negative screening, on the financial performance of SFs. Our results indicate that a negative screening strategy does not harm the returns of SFs, and decreases their overall risk. Finally, in the last study, we examine the influence of negative screening on the value of companies excluded from the SFs' portfolio by considering the case of the Norwegian fund, the largest SF in terms of size, and renowned for its social responsibility. Through event studies, we show that excluded firms suffer a loss in value. This is especially the case for companies excluded for non-compliance with ESG values, whose valuation decreases significantly in the long run. This implies that the Norwegian fund, through the disclosure of new information, sends a signal about the ESG performance of excluded companies and thus contributes to the efficiency of financial markets. Our three studies thus suggest that the implementation of SRI would not only have no negative impact on the performance of SFs, but could also improve the social responsibility of the companies in their portfolios. The conceptual and empirical results of this thesis contribute to the growing literature on the social responsibility of SFs, and are of interest to public and private market actors.

In this paper we examine the investment strategy of sovereign wealth funds (SWFs) of the Gulf Cooperation Council (GCC) countries. GCC SWFs are considered as relatively opaque investors and strongly politicized, raising some concerns for perceived political and security risks. We investigate what are the drivers of majority cross- border equity acquisitions made by these institutional investors over the period 2006-2015. Using both Logit and ordered Logit models, we test if the usual determinants of SWFs investments still stand when we look at influential (> 10%) or majority (> 50%) acquisitions made by GCC SWFs. We find that GCC SWFs do not consider financial characteristics of the targeted firms when they acquire large cross-border stakes but rather the characteristics of the country (countries in the European union and/or countries with a high level of shareholders protection), suggesting that their motives may go beyond pure profit maximization. We also find that transparent funds are more likely to take influential or majority stakes and that they do so predominantly in non-strategic sectors. Overall, our results indicate that even if GCC SWFs do not seek only for financial returns, acquiring majority stakes is not a lever for GCC governments to get strategic interests in the target countries.

The aim of the paper is to shed light on the question of why a country decides to set up a Sovereign Wealth Fund (SWF). Despite the recent financial crisis, 43 SWFs have been created between 2005 and 2014. In particular, we test if the emergence of these new recent funds can be explained by the following economic, political and institutional factors : i) the excess foreign exchange reserves due to natural resources rents or persistent current account surpluses . ii) the volatility of commodity prices . iii) a way to mitigate the "Dutch Disease" effect and iv) the governance of the country. We test these hypotheses on a sample of 37 countries that created a SWF over the period 2000-2014 and compare them to a large panel of countries that did not set up a SWF. In order to allow the temporal dimension as well as the unobserved heterogeneity between SWFs, a Logit panel model with random effects is estimated. The results show that countries for which the creation of a SWF is more appropriate are those with foreign exchange excess reserves, which are dependent on a commodity and on its volatility and which suffer from an appreciation of the real exchange rate. We also find that non-democratic countries with a high level of corruption are more likely to create a SWF. Our results may be of interest for policymakers debating whether or not it can be optimal for the country to establish a SWF. "Modern Sovereign Wealth Funds are not new. The first, the Kuwait Investment Office, was set up in 1953 just as Edmund Hillary and Tenzing Norgay were setting out to climb Mount Everest. The number of funds has been increasing since then like the traffic on the slopes of Everest" (John Gieve, former deputy Governor of Bank of England in a speech in London, 2008).

This thesis studies the behavior of investors in open-end mutual funds and its implications for liquidity risk. The objective of this research is to help fund managers avoid the "fund run" scenario where they suddenly lose their clients. The first step of this study is to collect a new database that records investors' "micro-transactions". This allows us to analyze their behavior at the individual level and to conduct three research papers on this topic. In the first paper, we develop a self-exciting counting model that captures stylized facts of the fund flow series. From this, we show a fund liability risk that is different from the asset risk already documented in the previous literature. We also identify a contagion of liquidity shocks across different clients in the same fund. In the next chapter, we study the investment horizons of individual clients. These horizons are strongly related to investor characteristics and economic conditions. We also show that fund managers face a premature exit risk related to the shortening of their clients' investment horizons. We then observe heterogeneity among investors: long-term investors behave differently than short-term investors. Finally, in the last chapter, we focus on rebalancing activities. We find that many investors hold a portfolio containing several funds and rebalance it to keep the same asset allocation.

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After September 2008, due to the freezing of the interbank market, a lack of liquidity, a loss of confidence and the difficulties of financial institutions, the transmission of monetary policy within the euro zone was severely impaired. The European Central Bank (ECB) has therefore had to resort to unconventional monetary policies. Considering, within the Eurozone, the constraints imposed on the central bank and the fragmentation of the financial markets, the objective of this empirical thesis is to evaluate the transmission channels of the ECB's conventional and non-conventional monetary policies. Since banks' lending behavior is related to their funding costs, the first essay focuses on the transmission channel of bank lending. It studies the evolution of syndicated lending activities of European financial institutions and their response to ECB policies. Central bank communication is of particular importance in a monetary union. The second and third essays focus on the signaling channel. The second essay examines communication during monthly press conferences and its effects on the predictability of monetary policy decisions and on financial market returns and volatility. The last essay focuses on the use of forward guidance, an unconventional communication informing markets of the future level of short-term interest rates. It studies the effectiveness of this announcement and its ability to influence the interest rate forecasts made by market participants.

While SWFs are not new, their number and financial power have grown steadily since the early 2000s, raising many concerns, particularly in developed countries. Are SWFs driven by the same motivations as institutional investors? Does their financial power risk destabilizing markets? These questions have made SWFs a research topic in its own right, and this research paper is part of it. The first essay of this thesis contributes to identify the main factors that may lead a country to create a SWF. Furthermore, the investment strategies of SWFs raise many questions: do they pursue a financial return objective or do they have more strategic objectives? The second essay highlights the complexity of SWFs' decision-making process by testing whether they prefer to invest in countries they are familiar with and/or in countries they have invested in before. Following this analysis, the third essay focuses more specifically on the determinants of SWFs' majority shareholdings by focusing on a particularly active group of funds: the funds of the Gulf States. More precisely, this analysis aims to identify the factors that influence the decision to take control in a given company.

Financial asset prices occasionally exhibit large changes. To deal with their occurrence, observed return series are assumed to consist of a conditionally Gaussian ARMA-GARCH type model contaminated by an additive jump component. In this framework, a new test for additive jumps is proposed. The test is based on standardized returns, where the first two conditional moments of the non-contaminated observations are estimated in a robust way. Simulation results indicate that the test has very good finite sample properties, i.e. correct size and high proportion of correct jump detection. The test is applied to daily returns and detects less than 1% of jumps for three exchange rates and between 1% and 3% of jumps for about 50 large capitalization stock returns from the NYSE. Once jumps have been filtered out, all series are found to be conditionally Gaussian. It is also found that simple GARCH-type models estimated using filtered returns deliver more accurate out-of sample forecasts of the conditional variance than GARCH and Generalized Autoregressive Score (GAS) models estimated from raw data.

This thesis, articulated in three chapters, aims to study the structural interdependencies between different financial markets. In Chapter 1, we study the architecture of the interdependencies between the main European markets. By modeling these interdependencies through dynamic networks, we propose a new methodology to measure, as a function of time, the direct and indirect links connecting each pair of elements within a given system. This topological measure allows us to evaluate the hierarchy of a system and its level of organization, thus constituting a complexity proxy. Our index is based on Simon's definition of complexity which links the complexity of a system to its hierarchical level of organization. We validate the relevance of our index by empirically studying the link between complexity and uncertainty. In Chapter 2, we study the impact of globalization on the economy, as an increase in interdependencies in a dynamic panel of 94 countries, from 1970 to 2011. Our contribution is to estimate the endogenized threshold of globalization on a dynamic panel. Finally, we study the role of economic uncertainty on the sovereign debt market: Chapter 3 exposes the impact of economic uncertainty on the level of sovereign rates in the Eurozone. Thus, this thesis studies the role of complexity and uncertainty on the structure of financial interdependencies.

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In this paper, we examine the intra-day effects of verbal statements and comments on the FX market uncertainty using two measures: continuous volatility and discontinuous jumps. Focusing on the euro-dollar exchange rate, we provide empirical evidence of how these two sources of uncertainty matter in measuring the short-term reaction of exchange rates to communication events. Talks significantly trigger large jumps or extreme events for approximately an hour after the news release. Continuous volatility starts reacting prior to the news, intensifies around the release time and stays at high levels for several hours. Our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe, and higher than normal. Disentangling the US and Euro area statements, we also find that abnormal levels of volatility are mostly driven by the communication of the Euro area officials rather than US authorities.

The aim of this thesis is to model the complex dynamics governing the variations of four main daily exchange rates - the pound sterling, the yen, the French franc and the German mark vis-à-vis the dollar - as well as their volatility. The approach adopted consists in considering the statistical properties of exchange rate variations before proposing a statistical model representative of the very recent techniques for formalizing long memory processes. The proposed statistical model makes it possible to evaluate simultaneously the degree of persistence of shocks on the level and the volatility of exchange rate variations. This model is then extended to take into account the role of monetary authorities. Using the statistical model developed, we analyze the effect of the interventions of the main central banks (the Federal Reserve, the Bundesbank and the Bank of Japan) on the variations and volatility of the deutsche mark and the yen, and thus judge the effectiveness of these interventions in the very short term. In terms of economic contribution, the application of long-memory processes has led to relatively enlightening results: future volatility shocks persist at all forecast horizons, even if they converge towards the mean in the long term, thus making it possible to better predict exchange rate volatility. This result is robust to the sampling period as well as to the choice of the distribution, unlike the long memory detected in the exchange rate variations. In terms of economic contribution, the study shows that official central bank interventions are successful in moving the market (especially when reported in the press) but in the wrong direction, in the sense that official purchases of dollars increase the volatility of the exchange rate and generally lead to a depreciation of the dollar.