Essays in asset pricing theory
File(s)
Author(s)
Ceneda, Nicolo
Type
Thesis
Abstract
The first two essays study unconventional monetary policy, focusing respectively on monetary policy disagreement and market failure. The third essay studies portfolio sorting and the econometric distortions that arise when portfolios are formed using observable or estimated sorting variables.
Chapter 1 develops a preferred-habitat model of the yield curve that links conventional and unconventional monetary policy tools to disagreement within the monetary policy committee. It studies the transmission of policy-rate changes, forward guidance, and quantitative easing along the curve, and uses FOMC dot-plot data to discipline disagreement about future monetary policy. The main contribution is to show that greater monetary policy disagreement weakens forward guidance but strengthens quantitative easing, especially at longer maturities, implying that when disagreement is high the central bank should lean more toward quantitative easing, particularly when aiming to influence the long end of the curve.
Chapter 2 develops a production-economy model and shows that a financial crisis that depletes intermediary capital can destroy competitive equilibrium. Quantitative easing becomes a necessary condition for market clearing, and the central bank acts as a risk-bearer of last resort. However, quantitative easing can become permanent or persist for centuries in a QE Trap, with fiscal recapitalisation as the only practical escape. In the unconstrained economy, a shortage of risk-bearing capacity instead inflates asset prices above fundamental values, so this class of economies cannot deliver both correct asset prices and market clearing in every state.
Chapter 3 studies how portfolio-sorting tests are affected by the gap between sample order statistics and true quantiles, and, when the sorting variable is estimated (such as beta), by measurement error. This error can be decomposed into contamination errors and information loss errors. It then proposes an adaptive trimming rule under which tests for equality of returns between portfolios have correct asymptotic size and unit power.
Chapter 1 develops a preferred-habitat model of the yield curve that links conventional and unconventional monetary policy tools to disagreement within the monetary policy committee. It studies the transmission of policy-rate changes, forward guidance, and quantitative easing along the curve, and uses FOMC dot-plot data to discipline disagreement about future monetary policy. The main contribution is to show that greater monetary policy disagreement weakens forward guidance but strengthens quantitative easing, especially at longer maturities, implying that when disagreement is high the central bank should lean more toward quantitative easing, particularly when aiming to influence the long end of the curve.
Chapter 2 develops a production-economy model and shows that a financial crisis that depletes intermediary capital can destroy competitive equilibrium. Quantitative easing becomes a necessary condition for market clearing, and the central bank acts as a risk-bearer of last resort. However, quantitative easing can become permanent or persist for centuries in a QE Trap, with fiscal recapitalisation as the only practical escape. In the unconstrained economy, a shortage of risk-bearing capacity instead inflates asset prices above fundamental values, so this class of economies cannot deliver both correct asset prices and market clearing in every state.
Chapter 3 studies how portfolio-sorting tests are affected by the gap between sample order statistics and true quantiles, and, when the sorting variable is estimated (such as beta), by measurement error. This error can be decomposed into contamination errors and information loss errors. It then proposes an adaptive trimming rule under which tests for equality of returns between portfolios have correct asymptotic size and unit power.
Version
Open Access
Date Issued
2026-05-01
Date Awarded
2026-06-01
Copyright Statement
Attribution-NonCommercial 4.0 International Licence (CC BY-NC)
License URL
Advisor
Bhamra, Harjoat
Allen, Franklin
Li, Ziang
Publisher Department
Business School
Publisher Institution
Imperial College London
Qualification Level
Doctoral
Qualification Name
Doctor of Philosophy (PhD)