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    The impact of residential property investors on house price escalation in Auckland, New Zealand : research report in fulfillment of the requirements for Doctor of Philosophy in Property, School of Economics and Finance, Massey University, New Zealand
    (Massey University, 2024-07-24) White, David Jon
    Affordability and home ownership in Auckland New Zealand has been in decline over the past decade. Since the Global Financial Crisis in 2008, house affordability has decreased at an unprecedented rate, largely attributed to house price escalation with some mitigation from wage growth and interest rate decreases. The decline in the affordability of owner-occupation compared to renting has been particularly pronounced in Auckland and this has led to a decline in home ownership and political interest in the role of investors that could contribute to price escalation. This perceived role of investors has resulted in policy changes aimed at discouraging speculation. This research investigates the pricing decisions of investors in the Auckland housing market and the link to house price escalation and affordability of housing. This research investigates whether this sustained escalation in prices can be explained by bounded rationality in pricing decisions by comparison to a normative model. The methodology adopted is a mix of qualitative and quantitative methods. Qualitative methods are used to gather the stated preference of investors in relation to their investment motivations and pricing decisions was obtained via structured interviews with investors and institutional influencers, with reference to behavioural economic concepts and frameworks. Quantitative methods are used to quantify at the aggregate market level the deviation from normative pricing, and to quantify for explanatory purposes those components of pricing decisions that contribute to overpricing, using the user-cost equilibrium model. It is concluded that investors are inclined to over-price houses compared to what is predicted by a normative model, largely due to an over-estimation of capital gain expectations and an under-estimation of systemic risks. This over-estimation of capital gain expectation is self-reinforcing and leads to sustained over-pricing which influences the market in aggregate and therefore house price escalation.
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    Labour market friction effect on corporate performance : evidence in the global market : a dissertation submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, School of Economics and Finance, Massey University
    (Massey University, 2023-08-31) Bai, Hengyu
    This thesis represents the first academic endeavour to investigate the impact of labour market friction on corporate performance in a global context. In traditional neoclassical economic theory and relevant research, human capital was considered merely an input to generate economic value. Unemployed workers were assumed to fill vacant job positions perfectly, similar to interchangeable machine parts. However, as understanding has evolved, economists now recognise the complexities of filling a job vacancy, which needs to take into account the skills, geographic locations, labour preferences, and various objective factors of the labour force. Consequently, a mismatch often occurs between unemployed workers and vacant jobs, resulting in simultaneous unemployment and job vacancies. This phenomenon is termed labour market friction. This thesis comprises three subprojects, each contributing a distinct essay. The first essay examines the effect of labour market friction on expected stock returns in the Chinese stock market. Utilising the portfolio sorting approach and the Fama-MacBeth regression model, the findings indicate that firms with higher labour friction risk are likely to experience higher stock returns in the subsequent month. This suggests that labour friction risk serves as a significant risk factor in asset pricing. Additionally, the study reveals that the positive effect of labour friction on expected stock returns is more pronounced in firms with either high productivity or poor employee welfare. Furthermore, firms in regions with high levels of development are more likely affected by the labour friction risk. The second essay expands the scope from the Chinese stock market to global stock markets, including North America, Asia-Pacific, and Europe. The results reveal regional variations in the impact of labour market friction on expected stock returns. Specifically, labour friction risk has a negative association with expected stock returns in North American markets, whereas it is positively correlated in Asia-Pacific markets. The significant labour market friction effects are pronounced in different industries due to the varieties of labour market structures, where the North American markets contain a large partial of high technology companies, while the Asia-Pacific markets are dominated by numerous industrial companies. There is no significant relationship between labour friction risk and expected stock returns in European markets. The study also finds that the effect of labour friction is particularly pronounced in markets that are non-immigrant or non-English-speaking, providing higher external labour supply and mobility in such markets, which reduces firms’ recruitment pressures. The third essay centres on Corporate Social Responsibility (CSR) behaviours under the influence of labour market friction in a global setting. The results suggest that firms facing higher labour friction risks are more inclined to engage in CSR activities, even when controlling for year, industry, and region effects in the regression model. This CSR engagement is notably more prominent in markets with a higher demand for labour, characterised by a higher number of new businesses and job vacancies. These findings remain consistent across markets that encourage business creation and expansion through strong investor protection and low labour taxation policies. Markets with higher levels of advanced education have a more significant labour market friction effect on CSR decision-making as they have numerous labour-intensive firms which require a large labour force. Additionally, when labour unions have the strong bargaining power to protect the welfare of employees, firms are less inclined to conduct CSR activities due to the less function in controlling the labour market friction risk. In summary, this thesis contributes to the existing literature by providing empirical evidence of the effects of labour market friction on corporate performance and behaviours across different global markets. It demonstrates that the impact of labour market friction varies due to differing labour market policies and structures and is significantly influenced by the dynamics of labour supply and demand. The insights derived from examining labour market friction across diverse markets have critical implications for both corporate managers and policymakers seeking to mitigate the associated risks.
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    The economic impact of corporate offshore investments : a Chinese perspective : a dissertation presented in fulfilment of the requirements of Doctor of Philosophy in Finance, College of Business, School of Finance and Economics, Massey University, New Zealand
    (Massey University, 2023) Lu, Baizhou
    With the development of internationalization and globalization, outward foreign direct investment becomes a crucial factor for Chinese firms to engage with the world. This thesis investigates the economic impact of outward foreign direct investment by Chinese listed firms, consisting of two empirical essays on Chinese outward foreign direct investment. The first essay investigates the impact of greenfield outward foreign direct investment (OFDI) on firm performance in Chinese listed firms. This study finds a significant increase in Tobin’s Q of firms with greenfield OFDI. The study empirically shows that the positive impact of greenfield OFDI on Tobin’s Q is more pronounced in non-state-owned enterprises (non-SOEs). Empirical evidence also suggests that engaging in greenfield outward foreign direct investment is associated with lower effective tax rates, higher analyst coverage, and upgraded analyst recommendations. Overall, this study provides new insights into the impact of greenfield OFDI on firms’ market-based performance and how political interference shapes the impact. The second essay investigates the impact of common institutional ownership on Chinese firms’ outward foreign direct investment amounts and is the first study to document this impact. The study provides empirical evidence that institutional common owners experience significant positive firm outward foreign direct investment amounts. This positive impact is more pronounced in the presence of privately-owned institutional common owners. This study also suggests that the positive impact of common ownership on firms’ OFDI is in line with the coordination and monitoring effect of common owners. Overall, this study provides new insights regarding the impact of common owners on Chinese firms’ OFDI and sheds light on the drivers of firms’ outward foreign direct investments. In sum, the results indicate that while undertaking OFDI would facilitate firm performance for Chinese listed firms, common institutional owners promote the underlying Chinese firms’ OFDI at the same time allowing these firms to enjoy the benefit of investing worldwide.
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    Essays on product market competition : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand
    (Massey University, 2023) Zang, Suxiang
    Product market competition is a fundamental economic mechanism and a key topic in recent decades. In this thesis, we analyse competition measurement to improve the credibility of relevant analyses, and we study relation of firm market power with investor sentiment to fill the gap in current literature. Essay One and Essay Two investigate a typical measure of industry concentration, the Herfindahl-Hirschman index (HHI), which is widely used to gauge competition based on industrial organisation theories. To facilitate HHI application and improve its measuring accuracy, we review the existing HHI proxies and recommend two simple HHI measures. Our survey shows that the convenient but misleading Compustat HHI is most frequently employed by researchers, while Census HHI that contains the most complete market share information of US firms is less preferred mainly due to low publication frequency and narrow industry coverage. Other HHI proxies developed recently often require extra data with complicated computation and are only occasionally employed. Comparatively, the simple HHI measures we propose are strongly correlated with the comprehensive Census HHI and are available at high frequencies for wide industries. Further, compared with Compustat HHI, the simple HHI measures better approximate Census HHI in association with important firm characteristics, and lead to more similar results as Census HHI in empirical examinations. Essay Three explores the relation between market power and stock sensitivity to investor sentiment, on which previous studies basically keep silent. We show that firms with the weakest market power have the most susceptible returns to investor sentiment, and that return spreads between firms with high and low market power are significantly higher after optimistic sentiment than pessimistic sentiment. The return patterns across market power portfolios are more evident when sentiment is more extreme, and when sentiment later weakens than strengthens. Our baseline regressions usually show significantly positive relation between the high-minus-low market power portfolio returns and the preceding sentiment levels, which pulls through a set of robustness tests. Conclusively, our finding reveals a negative relation between market power and sentiment-driven misvaluation, consistent with the argument that market power insulates profits and reduces performance uncertainties.
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    Income sufficiency in an aging population : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand
    (Massey University, 2022) Xu, Xiaobo
    Using Household Economic Survey (HES) data in New Zealand and Household, Income and Labour Dynamics in Australia (HILDA) data in 2018, retiree direct financial market participation proves to be an effective approach to improve retirees’ post-retirement financial wellbeing, shown in objective and subjective measurements. More specially, those retiree participants enjoy a higher annuitised net wealth and financial situation satisfaction in New Zealand, where universal superannuation is applied. Australian retiree participants have a higher replacement ratio and annuitised net wealth, along with a higher level of subjective financial situation satisfaction, and Australia uses the means-tested age pension system. Financial market participation strongly influences retiree income sufficiency in the objective and subjective measures in both universal and means-tested pension systems. Moreover, age, gender, partnership status, living area, eligibility for government pension, and employment status play certain roles in retiree post-retirement income sufficiency. Different methods, alternative calculations for income sufficiency, and alternative questions for subjective wellbeing results are all consistent with the main results. There is a clear policy implication for governments to encourage retiree financial market participation for better retirement life. The retiree’s income sufficiency gap is decomposed in Australia and New Zealand using the HILDA and HES datasets in 2018. The Oaxaca method decomposes different influences of demographic traits, individual financial positions, and unobserved factors on retirees’ income sufficiency in Australia and New Zealand with different pension systems. The results show that Australian retirees have a higher level of annuitised net wealth; New Zealand retirees have better life satisfaction. There is no significant difference in subjective financial situation satisfaction. Specifically, Australian retirees benefit more from individual financial positions, especially in homeownership, and New Zealand retirees enjoy better demographic traits, mainly self-rated health and unobserved variables. Relative income sufficiency comparison within each country and different distribution decomposition methods prove the same influence as the main result. The Australian government should improve retirees’ health status for better life satisfaction, while the New Zealand government should encourage homeownership for higher annuitised net wealth.
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    Cluster analysis and firm patterns of earnings persistence : a new approach : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Manawatū, New Zealand
    (Massey University, 2019) Tran, Son Duong
    The development of a method to appropriately address the problem of heterogeneous-group specific coefficients (HGSC) is of paramount importance for any studies where there are concerns of HGSC. Accordingly, the goal of this thesis is to investigate a solution to the prevalent problem of HGSC within the context of the finance discipline. Specifically, this thesis introduces a novel clustering procedure called regression oriented-weighted K- means clustering (ROWK). This new method employs the regression mean absolute residuals (MAR) to inform the cluster analysis identification of optimal feature weights. The performance of ROWK clustering is examined via both simulated and real data. Simulation results show significant improvements from the adoption of ROWK relative to K-means clustering and weighted K-means clustering through three channels. Specifically, through the examination of three case studies, this thesis finds that ROWK places more (less) weight on more (less) relevant features; reduces the influence of multicollinearity by reducing the weights of irrelevant features which are highly correlated with relevant features; and captures relevance not only by its contribution to cluster recognition but also by regression estimation. The thesis further examines the performance of ROWK clustering using real data for earnings persistence models. ROWK outperforms other standard techniques in the sense of correctly identifying the underlying clusters on earnings persistence models. The thesis also documents that analysts’ forecasts only partially incorporate the information from cluster patterns in the short run, while ignoring impacts of these patterns on long-term future earnings. As a result, conditioning on such information allows the identification of reliable and economically important patterns in analyst forecast errors.
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    Essays on spillover effects of economic and geopolitical uncertainty : a thesis submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Auckland (Albany), New Zealand
    (Massey University, 2020) Hasan, Mudassar
    We are living in an age of uncertainty. While uncertainty can originate from multiple sources, the most prominent ones include economic policies and geopolitical conditions. Over the past two decades, geopolitical and economic policy uncertainties have risen dramatically around the globe, raising concerns among policymakers and financial market participants about the cross-country and cross-market transmission effects of these uncertainties. Consequently, a growing body of literature has emerged around the measurement of uncertainty, the cross-country transmission of uncertainty, and the spillover effects of a given uncertainty for financial markets. By offering several advantages over other measures of uncertainty, news-based uncertainty indicators have become increasingly popular since the seminal work by Baker, Bloom, and Davis (2016). As the transmission of geopolitical uncertainty across countries and that of economic policy uncertainty to financial markets carry important implications for risk-management and policy-making decisions, it is crucial to understand and explain the behavior of these transmission mechanisms. By relying on news-based indicators of geopolitical and economic policy uncertainty, this thesis contributes to the literature by exploring the potential determinants of uncertainty transmission to stock markets as well as across countries. The first essay estimates and explains the cross-country transmission of geopolitical uncertainty (GPU). Using the news-based GPU indices for a sample of emerging economies along with the United States, the spillover models are employed to measure the pairwise and system-wide transmission of GPU. A substantial amount of GPU transmission is found across the sample countries, with some countries and geographical clusters are being more prominent than others. A cross-sectional analysis, motivated by a gravity model framework, is further utilized to explain the pairwise transmission of GPU, which reveals that bilateral linkages and country-specific factors play an essential role in driving the transmission of GPU. The overall findings continue to hold even after considering the short- and long-term time horizons. The findings of this essay may help predict the trajectory of GPU from one country to another, which is an essential input for the assessment of cross-border investment appraisals as well as international stability initiatives. A bulk of the literature has examined the impact of US uncertainty on international stock markets without paying much attention to the correlation between the US and the other stock markets. Motivated by this void in the extant literature, the second essay examines the role of US uncertainty in driving the US stock market’s spillovers to global stock markets, after controlling for the stock market correlation. To this end, I consider a wide range of stock markets around the world, as well as three news-based uncertainties from the US, namely economic policy uncertainty (EPU), equity market uncertainty, and equity market volatility. I find that the US uncertainties significantly cause the spillovers from the US to global stock markets. This causality from US uncertainties depends upon certain country-characteristics. Specifically, the US uncertainties explain better the spillovers between US and target countries, when those countries have a higher degree of financial openness, trade linkage with the US, and vulnerable fiscal position. Improved levels of stock market development in the target countries, however, mitigate their stock markets’ vulnerability to the US uncertainty shocks. The essay offers potential insights and implications for investors and policymakers. Inspired by the concerns that small open economies may well be more vulnerable to foreign uncertainty than to local uncertainty, the third essay focuses on New Zealand, which is a small open economy. This essay introduces a weekly EPU index for New Zealand and, and examines the return and volatility spillovers from NZ EPU and US EPU on the aggregate (NZSE) and sectoral indices of New Zealand stock market. Overall, the findings suggest that NZ equity sectors and NZSE receive much stronger and more pronounced spillover effects from US EPU compared to the local counterpart. While the return spillovers from both EPUs are somewhat similar yet limited to just a few sectors, the volatility spillovers from US EPU on NZ sectors outstrip those from the NZ EPU. For volatility spillovers, the domestically oriented sectors are relatively more vulnerable to NZ EPU, while those having export/import concentration with the US are mainly susceptible to US EPU. The findings of this essay may be useful to investors seeking sectoral diversification opportunities across New Zealand and the US.