UC Santa Cruz

In this paper, I develop researches on three different financial assets: 1) institutional herding in China's security market, and its relation with stock prices; 2) news effects on WTI crude oil futures prices; and 3) the interplay between the monetary policy and fiscal policy on changing the supply of long-term treasury bonds and its further impact on long-term interest rate and other macroeconomic indicators.

The first chapter provides an examination of institutional herding in China's securities market, it addresses the following four research questions: (1) Does China's stock market exhibit herding behavior among institutional investors? (2) Does institutional investors' trade follow their own, or others' previous trade? (3) Are herding behaviors different among different types of institutional investors? and (4) What are possible explanations for institutional herding in China? Empirical results show that most types of institutional investors exhibit herding. Foreign institutional investors show some evidence on following domestic players lag trades when making sell decisions. Funds exhibit opposite herding behavior, i.e., they decrease in buy(sell) this quarter following an increase in their buy last quarter. Combining realization of stock returns, they prefer to sell securities to realize profits given previous higher returns and fail to buy more shares of securities which will have higher future returns.

In order to uncover the news impact on the price of WTI crude oil futures, the second chapter applies supervised and unsupervised machine learning algorithms to conduct news sentiment and topic analysis. With the assumption that the crude oil futures market is efficient enough to respond quickly to new information, this chapter obtains high-frequency price and news from the Bloomberg terminal. Using results from logistic regression and K-means clustering, this chapter defines the positive score and topic for each news article as inputs for the final logistic regression. The regression results show that the "World Crude Oil" news is more positively correlated with price increase than other topics. Moreover, the "WTI Crude Oil" news has the highest correlation with the price increase as the positive score increases.

Third chapter investigates the policy interplay between Federal Reserve LSAP program and long-term bonds supply policy by the Treasury department. Under zero lower bound, central bank reduces longer-term interest rates to stimulate aggregate demand by purchasing longer-term Treasury debt securities through asset purchase programs. Meanwhile, debt supply decision, which is made by the Treasury department, is found to increase the longer-term Treasury debt securities outstanding to the private sector during the same period of time. This supply behavior could deteriorate the effectiveness of LSAP. To study how the two main policies interact, this chapter develops a Dynamic Stochastic General Equilibrium Model (DSGE) by incorporating both the central bank's quantitative easing policy and the Treasury department's long-term bond supply policy.