Essays in Macro-Finance

Abstract

This dissertation focuses on three different topics in the intersection between financial economics and macroeconomics. In the first chapter, I embed the standard regime-change games prevalent in macroeconomics and financial economics with strategic substitutability. I extend existing regime-change games by allowing payoffs to vary monotonically with the size of attacking coalition. I characterize equilibrium outcomes under different information structures, thereby extending global games results outside the super-modular setting. In the second chapter, I revisit the relationship between interest rate differentials and differential returns on domestic and foreign bonds over time horizon, using board data samples. I find that countries with higher contemporaneous interest rates earn excess positive bond returns in the short run but reverse to earn excess negative return in the medium run. In the long run, interest differentials have no excess return predictability. I then propose a behavioral model, in which investors rely not only on fundamentals (interest differentials) but also extrapolate past exchange rates when forming future exchange forecasts. Using survey data, I show that the proposed extrapolative model is consistent with both excess return patterns and survey evidence. In the last chapter, I document the price and return term structures of equity using different sources of dividend data on various equity indices around the world. I propose the supply-based asset pricing model and argue that implied index dividends are sensitive to structural flows from equity structured products. Dividend risks, born by intermediaries from the issuance of exotic products, result in the variation of the dividend yield term structure both in the time-series and in the cross-sectional data.