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Essays on finance and deep learning : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Finance, School of Economics and Finance, Massey University
(Massey University, 2025-07-25) Pan, Guoyao
This thesis aims to broaden the application of deep learning techniques in financial research and comprises three essays that make meaningful contributions to the related literature. Essay One integrates deep learning into the Hub Strategy, a novel chart pattern analysis method, to develop trading strategies. Utilizing deep learning models, which analyze chart patterns alongside data such as trading volume, price volatility, and sentiment indicators, the strategy forecasts stock price movements. Tests on U.S. S&P 500 index stocks indicate that Hub Strategy trading methods, when integrated with deep learning models, achieve an annualized average return of approximately 25%, significantly outperforming the benchmark buy-and-hold strategy's 9.6% return. Risk-adjusted metrics, including Sharpe ratios and Jensen’s alpha, consistently demonstrate the superiority of these trading strategies over both the buy-and-hold approach and standalone Hub Strategy trading rules. To address data snooping concerns, multiple tests validate profitability, and an asset pricing model with 153 risk factors and Lasso-OLS (Ordinary Least Squares) regressions confirms its ability to capture positive alphas. Essay Two utilizes deep learning techniques to explore the relationships between the abnormal return and its explanatory variables, including firm-specific characteristics and realized stock returns. Trained deep learning models effectively predict the estimated abnormal return directly. We evaluate the effectiveness of detecting abnormal returns by comparing our deep learning models against three benchmark methods. When applied to a random dataset, deep learning models demonstrate a significant improvement in identifying abnormal returns within the induced range of -3% to 3%. Moreover, their performance remains consistent across non-random datasets classified by firm size and market conditions. In addition, a regression of abnormal return prediction errors on firm-based factors, market conditions, and periods reveals that deep learning models are less sensitive to variables like firm size, market conditions, and periods than the benchmarks. Essay Three assesses the performance of deep learning predictors in forecasting momentum turning points using the confusion matrix and comparing them to the benchmark model proposed by Goulding, Harvey, and Mazzoleni (2023). Tested on U.S. stocks from January 1990 to December 2023, deep learning predictors demonstrate higher accuracy in identifying turning points than the benchmark. Furthermore, our deep learning-based trading rules yield higher mean log returns and Sharpe ratios, along with lower volatility, compared to the benchmark. Two models achieve average monthly returns of 0.0148 and 0.0177, surpassing the benchmark’s 0.0108. These gains are both economically and statistically significant, with consistent annual results. Regression analysis also shows that our models respond more effectively to changes in stock and market return volatility than the benchmark. Overall, these essays expand the application of deep learning in finance research, demonstrating high predictive accuracy, enhanced trading profitability, and effective detection of long-term abnormal returns, all of which hold significant practical value.
Three essays on corporate finance studies in China : a thesis presented in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand
(Massey University, 2023-11-13) Yue, Shuai
This thesis investigates three aspects of listed firms in the Chinese market. The first essay in the thesis examines the impact of state ownership on firm performance using hand collected ownership data of firms with state-private mixed ownership structures. We find a U-shaped relationship between state ownership and firm performance. At lower levels, state ownership has a negative association with firm performance, but beyond a certain threshold (e.g., 55% for ROA and 44% for Tobin's Q), state ownership becomes positively associated with firm performance. This finding indicates a trade-off between the negative effects of grabbing hand and the monitoring benefits of state owners. In addition, the introduction of strategic investors moderates the influence of state ownership on firm performance. The results show that the U-shaped impact of state ownership on firm performance diminishes after the introduction of strategic investors, implying that strategic investors may mitigate the underperformance observed around the threshold state ownership levels. The second essay focuses on the corporate information environment. It investigates the behaviour of firms with politically connected executives regarding information disclosure when subject to government inspection influences. China initiated the central environmental protection inspection in 2016. We find that while firms with politically connected executives generally exhibit lower stock price crash risk, these politically connected firms are more prone to crash risk when subject to inspection influences than firms without political connections. Further, we examine whether the inspection effect on crash risk varies based on the type of political connections developed by executives, namely achieved and ascribed political connections. Our results show that firms with executives having achieved political connections are related to higher crash risk when under government inspection influences, but no significant impact is observed for firms with executives having ascribed political connections. The final essay examines the influence of firms’ exposure to economic policy uncertainty (EPU) on environmental investment and investigates whether firm size plays a significant role in this relationship. We find that although small firms are generally associated with lower levels of environmental investment compared to large firms, there is a positive association between small firms’ EPU exposure and environmental investment, indicating that small firms are more inclined to invest in environmental initiatives when facing higher EPU exposure.
Foreign investment in emerging legal medicinal cannabis markets: the Jamaica case study
(BioMed Central Ltd, 2021-04-01) Rychert M; Emanuel MA; Wilkins C
Introduction The establishment of a legal market for medicinal cannabis under the Dangerous Drugs Amendment Act 2015 has positioned Jamaica at the forefront of cannabis law reform in the developing world. Many local cannabis businesses have attracted investment from overseas, including from Canada, US and Europe. Aim To explore the opportunities and risks of foreign investment in an emerging domestic legal cannabis market in a developing country. Methods Thematic analysis of semi-structured face-to-face interviews with 22 key informants (KIs) from the Jamaican government, local cannabis industry, academia and civil society, and field observations of legal and illegal cannabis cultivators. Results KIs from the Jamaican public agencies and domestic cannabis entrepreneurs saw foreign investment as an essential source of capital to finance the start-up costs of legal cannabis businesses. Local cannabis entrepreneurs prioritised investors with the greatest financial resources, brand reputation and export networks. They also considered how allied an investor was with their business vision (e.g., organic cultivation, medical vs. recreational). The key benefits of partnering with a foreign investor included transfer of technical knowledge and financial capital, which enhanced production, quality assurance and seed-to-sale tracking. Some KIs expressed concern over investors’ focus on increasing production efficiency and scale at the expense of funding research and development (R&D) and clinical trials. KIs from the local industry, government agencies and civil society highlighted the risks of ‘predatory’ shareholder agreements and domestic political interference. Concerns were raised about the impact of foreign investment on the diversity of the domestic cannabis sector in Jamaica, including the commitment to transition traditional illegal small-scale cannabis cultivators to the legal sector. Conclusion While foreign investment has facilitated the commercialisation of the cannabis sector in Jamaica, regulatory measures are also needed to protect the domestic industry and support the transition of small-scale illegal cultivators to the legal regime. Foreign investments may alter the economic, social and political determinants of health in transitioning from illegal to legal cannabis market economy.
Framing the financially literate subject : an analysis of financial literacy discourse in New Zealand : a dissertation presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in English at Massey University, Palmerston North, Manawatū, New Zealand
(Massey University, 2022) Chapelle, Peri
The purpose of this study is to analyse the discursive framing of the financially literate subject and their needs within New Zealand. The first part of the study identifies and traces key themes within the framing of the financially literate subject, using documents derived from OECD publications and NZ governmental institutions. Working with the critical conjunction of rhetorical analysis and critical discourse analysis informed in part by the work of Foucault, the role of financial literacy in contemporary New Zealand society is addressed through analysis of a case study based on a public debate in New Zealand about the ethics of investment in munitions by providers of the government-supported pension plan, KiwiSaver. The first part of the thesis puts KiwiSaver in a broader policy context by examining documents from the OECD that were influential in setting the framework, rationale and approach for the New Zealand government’s initiatives to restructure pension plans and encourage a change in the population’s savings habits and citizens’ grasp of financial principles. As it happened, the introduction of KiwiSaver in 2007 coincided with the onset of the global financial crisis, which saw a shift in the framing of the validation of the financially literate subject from a saving imperative to a need to manage individual risks and protect the market. These capabilities of managing risk and protecting the market, depicted as inherent to financially literate populations, manifest through the expectation that all those who participate in the market would preserve it through informal regulation based on informed consumer choice. The second part of the thesis presents a case study of public reaction to the media exposé of a financial scandal that broke in August 2016 when it was discovered that KiwiSaver funds were being invested in companies manufacturing illegal munitions. Through analysis of selected newspaper articles and Twitter commentary, the thesis emphasises the complexity of the relationship between the expectations of financial literacy on the part of the government, OECD and financial sector, versus the realities of the financial marketplace. In tension with the emphasis on individual responsibility within official and institutional discourses of financial literacy, the exchanges via Twitter reveal the desire for, and partial practice of, a more civic-focused, collective way of interacting via the financial markets. The case study serves to illustrate the apparatuses of power operating in the field of financial literacy. Analysing the discursive production of the financially literate subject and the imperative rhetoric surrounding financial literacy will provide a fuller understanding of the construction and conceptualisation of the financially literate subject, the social power relations inherent in the drive towards improved financial literacy, and the strategic goals being pursued. Ultimately, the thesis will contribute to our understanding of financial literacy as an ideological framework.
Essays on Islamic equity investment : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Auckland, New Zealand
(Massey University, 2020) Chowdhury, Md Iftekhar Hasan
This thesis presents three self-contained studies on Islamic equity investment. Each of these studies contribute to advance understanding of the mechanics of investing in the rapidly growing Islamic equity market. The first study inspects the systematic risk exposure of a sample of equities domiciled in the United States that have transitioned to ethically screened, Shari’ah compliant, Islamic equities. The conjecture is that the anterior and posterior risk exposures will not be analogous. Our results indicate that Shari’ah compliance initially creates a shock in systematic risk, but transitional behaviors subsequently diverge. Particular screening ratios also behave similarly. In effect, the capital market reinforces the risk position and increases systematic risk. However, this is essentially a transition effect. Over the entire period, we find a downward trend in systematic risk. Shari’ah compliance makes the adopted equities less risky over the long-term with improved market information. Our findings hold even after controlling the screening ratios and conducting a number of robustness checks. The second study examines pair-wise, net, and total return and volatility spillovers across Islamic equity markets from widely dispersed locations. Using the generalized VAR-based spillovers index, we find increasing interactions in return and volatility spillovers while the extent of spillovers has been asymmetric across the countries. Interestingly, we find the presence of persistent clustering of spillovers. These clustered countries lead Islamic equity return and volatility spillovers in their respective regions. We do not find any supremacy of the cash and oil-rich GCC countries outside their region. Our results also highlight that in the crisis period, aggregate spillovers across the Islamic equity markets intensify. Additionally, we employ cross-section analyses to uncover the underlying macroeconomic variables influencing the magnitude of such spillovers. We find a convincing indication of geographic proximity along with economic linkages that explain the directions of return and volatility spillovers. The third study explores the investment style of actively managed Islamic equity funds domiciled in both Islamic and non-Islamic countries. We find that Islamic funds initially overwhelmingly skewed to value stocks in Islamic countries and growth stocks in non-Islamic countries. However, there is an increasing shift from these styles to a deep blend orientation. Similarly, we report a trend from initial mid-cap stocks to large-cap stocks in Islamic countries. In contrast, there is a consistent extreme large-cap tilt in non-Islamic countries. We conjecture such deportment as an extrapolative consideration. After inspecting the apparent shift in style over the years, we reveal strong evidence of style shift, with a higher rate in Islamic countries. Collectively, the propensity is larger in asset types than in asset sizes. Islamic funds are more likely to alter their portfolio exposure in the sight of negative performance. More mature funds in Islamic countries are more likely to shift often. Funds from non-Islamic countries are less likely to shift when the market is relatively volatile.
Perceived risk, risk tolerance and trust in debt decisions : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Finance at Massey University, Manawatu, New Zealand
(Massey University, 2020) Phung, Trang Thai Minh
The perceived risk of stock investment, risk tolerance and trust play important roles in the stock market and in use of debt for stock investment, yet the relationship between these has received little attention. This thesis examines these direct and indirect relationships using three independent essays using structural equation modelling as the main technique. Vietnam is used as an illustrative example, as the use of informal borrowing is common. This thesis surveyed 420 Vietnamese individual investors and found the following results. Essay One finds that the perceived risk is positively associated with borrowing sources and the use of informal debt. Leverage risk and opportunity risk also directly relate to borrowing sources. Borrowing sources is positively related to perceived risk and debt decisions. Perceived risk is a mediator between borrowing sources and informal debt, and borrowing sources act as a mediator between perceived risk and debt decisions. The results of Essay Two show that risk tolerance has a direct relationship to the use of financial leverage, while investment horizons are related to the use of informal debt. Risk tolerance positively relates to the use of informal debt and mediates between investment horizons and debt decisions among stockbrokers. In Essay Three, the results reveal that there is a significantly positive relationship between trust in the stock market, and trading frequency and the use of informal debt. Trust in stockbrokers and brokerage firms are directly related to the use of informal debt. Trading frequency is also positively associated with trust in the stock market and the use of financial leverage. Trust is a mediator between trading frequency and informal debt, and trading frequency acts as a mediator between trust and financial leverage. Findings from this thesis will help provide useful insights into investors’ behaviour and its impact on debt decisions for stock investment amongst individual investors, users and non-users of informal and formal borrowing, stockbrokers and non-stockbrokers, male and female investors in the Vietnam stock market and other stock markets.
A test of historical and shrinkage estimates of expected returns in international portfolio selection : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Finance at Massey
(Massey University, 1993) Green, Nigel R
A number of researchers have chosen internationally diversified portfolios using the Mean-Variance approach to portfolio selection. Typically, the estimates of expected returns, variances and covariances are taken from historical data. Recently this approach has come under criticism due to the poor performance of these portfolios out of the sample period. A suggested improvement is to use "shrinkage" estimators to improve the estimates, particularly for expected returns. This statistical adjustment leads to less emphasis being placed on increasing expected return and more on risk reduction. The researchers to test shrinkage estimates internationally have had conflicting results, possibly due to the methodology used. Jorion (1985) found support for shrinkage estimators outperforming historical estimates, with short sales unconstrained. A single period model with a five year sample was used. Grauer and Hakansson use a multi-period model, with short sales restricted. The sample period is eight years in this instance, and the opposite result is obtained. This study tests both types of mean estimate in a single period model, with short sales restricted. The difference in out of sample performance is insignificant with both four and eight year samples. Additionally, a naive strategy of weighting the portfolio equally between countries, thereby ignoring the historical data, outperforms the other methods. Thus, the use of four year sample periods appears to be of no use. With the eight year sample the performance of all methods is remarkably similar, with a portfolio chosen to minimise variance having the best performance, although only slightly. The use of historical data, whether or not shrinkage estimates are used, has proved to be of very little benefit in this study.
Portfolio selection by homogeneous programming : a New Zealand case study : a thesis presented in partial fulfilment of the requirements for the degree of Master of Arts in Economics
(Massey University, 1985) Young, Martin
For investment managers through to the individual the task of solving their particular portfolio problems remains a principal objective. It has been shown that an efficient portfolio can be specified in terms of its expected return and profit variance, (risk), that is the first two moments of the investor's subjective yield distribution. Selection of an efficient portfolio can always be achieved by quadratic or homogeneous programming. An integral part of the efficient portfolio selection process by homogeneous programming lies in the use of the truncated minimax criterion which gives a measure of risk preference, m. Varying m will give the complete set of efficient portfolios from all possible ones. This is detailed in chapter one where it is also shown that an optimal portfolio which allocates the budget with maximal caution can be selected from among the efficient ones under the additional criterion that the marginal value of the investment dollar is not exceeded by its marginal cost. Using a specified algorithm an optimal portfolio is selected from stocks qualifying as Trustee Investments under the Trustee Amendment Act 1974 listed on tho New Zealand Stock Exchange. Chapter two details the manner in which a five year data base of weekly observations, 1979 to 1983 inclusive, was developed for this operation and gives the preliminary results of expected return and profit variance for the stocks selected. A printout of the complete data file is included in the appendix. Chapter three of this thesis shows in detail the manner in which the algorithm is applied and gives a final result using weekly data over the four year period, 1980 - 1983 inclusive. The characteristics of this optimal portfolio are shown together with details of its performance over the twelve month period Jan - Dec 1984. Finally consideration is given to the robust nature of the portfolio selection system by looking both at a range of efficient portfolios selected from the four year data and also an optimal result from the full five year data.
An examination of value and growth based investment strategies in the Australian equities market : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Finance at Massey University
(Massey University, 2000) Urquhart, Robert
Numerous studies have found that value-based investment strategies yield higher returns than growth-based investment strategies. However, controversy surrounds the interpretation of why value-based yield the higher returns. There is not consensus among researchers as to whether value stocks are fundamentally riskier than growth stocks, or whether psychological biases of investors result in an irrational pricing of stocks, and higher returns to the value stock portfolios. To add to the evidence of this debate, this thesis examines value, and growth-based investment strategies in the Australian equities market from 1990 to 2000. Value portfolios are formed by selecting stocks that have a strong past financial performance, and are expected to have a relatively poor future financial performance as gauged by financial variables. Growth portfolios are formed by selecting stocks that have a poor past financial performance, and are expected to have a relatively strong future financial performance as measured by financial variables. The financial variables used to classify stocks into the growth and value stock portfolios are the earnings-to-price, cash flow-to-price, book-to-market, and growth in sales variables. Examining one and two-year buy-and-hold returns, value stock portfolios are on average, found to yield higher returns than growth stock portfolios. The superiority of the value portfolio returns are also found to be invariant to the monthly calendar initiation date of the investment strategies. As far as an interpretation of the discrepancy in value and growth stock portfolio returns goes, the Capital Asset pricing Model (CAPM) measure of risk, β, is found to be misspecified. It is however, not clear whether the superior value portfolio returns are a consequence of investor irrationality, or value stock investments being riskier than growth stock investments. It seems as if the industry classification may be responsible for growth and value portfolio returns, and this may have an impact on the interpretation of the relationships between financial variables and stock returns. To interpret the relationships between the financial variables and stock returns, a multivariate linear regression model is applied to stock returns. Multicollinearity between the earnings-to-price and cash flow-to-price ratios is found, and when controlled for, the book-to-market variable is the only variable that is linearly related to stock returns.
International investment : its principles and application to New Zealand companies investing in Thailand : a research report presented in partial fulfilment of the requirements for the degree of Masters of Business Administration at Massey University
(Massey University, 1985) Oakes, Lesley J
1.1 Overview of the problem The future of the New Zealand economy lies in expanding its markets and investments overseas. With an annual population growth rate of only 1.5% and a current market size of only 3.3 million people, the potential for domestic economic expansion is not encouraging. The decision to consider a foreign market often stems from the fact that the home market is too limited to attain a sales volume with a sufficiently attractive yield (OECD, International Investment, 1983). The Minister of Overseas Trade in the present government administration stated that the only way New Zealand will increase employment and revenue is through exports... that is where the recovery of the economy lies (National Business Review, 15 Apr 85) The signing of the Closer Economic Relations (CER) agreement with Australia in April 1982, dismantling many of the protective barriers precluding the free flow of trade between the two countries, was a step in the right direction in providing market opportunities for New Zealand companies. Many domestic industries are entering the mature stage of their life cycles, characterised by stagnant demand. This together with a general contraction of the market, necessitates that the future growth of these industries rests on the exploitation of offshore markets.

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