Thesis defences

PhD Oral Exam - Qiao Tu, Finance

Three Essays on Regulation and Governance in Financial Markets

Thursday, December 1, 2022 (all day)

This event is free


School of Graduate Studies


Daniela Ferrer



When studying for a doctoral degree (PhD), candidates submit a thesis that provides a critical review of the current state of knowledge of the thesis subject as well as the student’s own contributions to the subject. The distinguishing criterion of doctoral graduate research is a significant and original contribution to knowledge.

Once accepted, the candidate presents the thesis orally. This oral exam is open to the public.


This dissertation consists of three essays that address recent topics regarding regulation and governance in financial markets that concern for scholars, policymakers, and investors. The first paper looks at the relationship between default risk and corporate governance for financial firms in 28 countries outside of North America in the post-financial crisis period, where default risk is measured by both credit default swap (CDS) spreads and estimated by a Merton-type model. Reduced default risk helps the stock market rebound during the post-crisis period. Both internal governance variables, including institutional and insider ownership, board composition and CEO power, and external regulatory factors, are examined and they show significant effect on default risk. In addition, the impacts of various governance variables are continent-specific: they have a higher impact on default risk for Asian firms than for European firms. Regulatory factors are important moderators of the governance mechanisms for banks: higher Tier 1 capital ratios reduce both CDS and fundamental default risk; recipients of secret emergency loans from the US Federal Reserve System (the Fed) exhibit lower CDS spreads post-crisis but higher fundamental default probabilities.

In the second essay, we examine the cross-market correlation between options trading and both stock market return and stock price volatility. We document that contemporaneous call (put) option volume is positively (negatively) related to a stock's daily return. Both call and put option volumes amplify stock price volatility. Volatility transmission is stronger for larger firms with more heavily traded options. Neither call nor put option open interest has significant impacts on the underlying stock volatility, consistent with the 'day trader' hypothesis. A new market-level negative sentiment proxy conveys information that is directionally similar to that provided by put option volume. However, information transmission from the market-level negative sentiment variable to the stock market is subsumed by options trading effects for the most heavily traded contracts.

The last essay looks at the relationship between option trading activities and the returns and volatilities of its underlying asset, and the impact of regulated position limits on this relationship. We provide new evidence on the effects of position limits, based on option trading behavior in the period surrounding the suspension of trading limits for ETFs on the S&P 500 (SPY contracts) in the pilot program (amendment to CBOE Rule 4.11), whereby position limits were temporarily suspended. A trade-off between the informativeness of prices and return volatility in the absence of trading limits is observed.

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