You are here


Essays in financial stability: Mutual funds and futures clearinghouses

Xin Zhang, 1998
Faculty Advisor: Franklin Edwards
Print this abtract


This dissertation examines two issues on financial stability. The first essay investigates the impact of the growth of mutual funds industry on the stock and bond market stability. The assets of equity and bond mutual funds have recently grown rapidly. There is fear that a fall in stock and bond prices will cause widespread redemptions of mutual funds, reinforcing the fall in stock or bond prices, ending in a downward death spiral. This essay employs statistical procedures to test the causality between the mutual fund flows and the stock and bond market returns, and to test whether mutual fund flows affect market volatilities. Our findings suggest, first, that the recent run-up in stock prices cannot be attributed to the rapid growth of equity mutual funds, and, second, that we cannot rule out the possibility of a mutual-fund-induced downward price spiral in the down stock market.

The Second essay examines the margin policy and the safety of the futures clearinghouse. The clearinghouse is the guarantor of the futures market. In providing the performance guarantee to investors, the clearinghouse bears the risk that the investors might default. The margin requirement is a major tool for the clearinghouse to minimize its exposure to the default risk. In this paper, performance guarantee is priced and an explicit formula for setting margin requirements is proposed using option pricing theories. Our empirical work examines the factors that determine the margin levels. We also document the strong impact of the competition among futures exchanges on their margin setting behavior.

Doctoral Program News

Wong wins Deloitte Fellowship

We are proud to announce that Yu Ting (Forester) Wong is one of the recipients of the 2014 Deloitte Foundation Doctoral Fellowship in Accounting.

Read More About Yu Ting >

The PhD Program Congratulates John Yao

PhD student John Yao was a finalist in the 2013 M&SOM (Manufacturing & Service Operations Management) student paper competition.

Read More About John >

Apply Now
Sept 2014

Deadline: 01/05/14

MS Marketing
Deadline: 02/02/14

MS Financial Economics
Deadline: 02/02/14

MS Leadership
Rolling admission

Check Application Status

Once you've submitted your application, you can login and track your status by using the link below.

Check Status