Date of Award

Spring 1-1-2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Management

First Advisor

Barberis, Nicholas

Abstract

This dissertation consists of three essays in economics. The first essay, joint with Julia Selgrad and Samuel Slocum, is titled `The Impact of Geopolitical Tensions on International Investment and Asset Prices'. This paper examines the effects of geopolitical tensions on investment decisions and asset prices by studying the holdings of international mutual funds as well as the returns of the assets they hold. We show that increases in tensions between geopolitical adversaries lead to significant divestment between the two countries involved. In addition, the prices of assets that are divested from fall. Through studying mutual fund disclosures, we find that the decision to divest in response to a rise in tensions is driven by concerns about the adversaries' fundamental prospects, suggesting that investors may become relatively more pessimistic about the fundamental prospects of adversaries when tensions are high. Applying our reduced-form estimates to aggregate cross-country investment data, we estimate that, in response to the geopolitical tension shock caused by the Russian invasion of Ukraine, mutual funds domiciled in Western countries divested assets worth 1\% of the Russian equity market at that time, coinciding with an additional 13\% decline in the Russian index in the first quarter of 2022. The second essay, joint with Kaushik Vasudevan, is titled `Speculating on Higher Order Beliefs'. Higher order beliefs -- beliefs about others' beliefs -- may be important for trading behavior and asset prices but have received little systematic empirical examination. Examining more than twenty years of evidence from the Robert Shiller Investor Confidence surveys, we find that investors' higher order beliefs provide substantial motivations for non-fundamental speculation, e.g., to buy into an overvalued stock market. To explore the equilibrium implications, we construct a model that matches the survey evidence, which highlights that investors' higher order beliefs amplify stock market overreaction and excess volatility. The third essay, joint with Samuel Slocum, is titled `Conflict and Crossing Points'. This paper studies the occurrence of conflict around changes in countries' material capabilities. We present empirical evidence that projected crossing points in national capabilities in the near future have historically raised the likelihood of conflict between the nations involved. Using this as motivating evidence, we build a theoretical model that shows that conflict around potential crossing points becomes more likely in two scenarios: (i) when the transition is projected to be sufficiently rapid, with conflict initiated by the dominant power, and (ii) when the expected crossing time moves far into the future, with conflict initiated by the ascending power.

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