3 Topics Which Could Be Used for Dissertation in Finance

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It is always a mammoth task when researching a topic for your dissertation. Research becomes even more demanding when the subject of your research is Finance. It is not an easy subject to delve into, and its aspects are wide, large and mutable; more so, because, unlike other subjects such as History or Anthropology, development in this field is still in a continuum. 

Even when they find novel topics to build their research paper on, they cannot develop a proper comprehension of the topic. 

Therefore, when I suggest a topic to any student or write assignment papers myself, I make it a point to keep it simple. Otherwise, not only it becomes difficult to understand, but also impedes the students from forming their own, unique take on it. 

This process somewhat subdues the intimidation that comes with writing a paper for a dissertation. I have tried to curate a few topics which might benefit you in your quest for preparing a research paper. 

1. Arbitrage

A trader is always looking for opportunities to make a profit. It requires them to pry for occasions like a tiger prying for prey from a horde of deer or bull. The marketplace is ever-changing and becoming more complicated with each passing day. Opportunities are springing up at every juncture and are awaiting exploitation, and a good trader knows when to seize them. It requires careful estimations, a broad spectrum of market knowledge, and proper timing to exploit one profitably. 

Arbitrage also has its birth in this wagon of tricks and takes into account all the prerequisites that are essential for a profitable trade.

What is Arbitrage?

Simply put, arbitrage is taking advantage of price differences of securities, gold, or foreign exchange in different markets. It involves simultaneous buying and selling of those to profit from the whole process. This process requires prompt action as the price differences are mostly transient. Such opportunities often occur due to the constant exchange rate fluctuations in the global market. The time needed to adjust with the varying exchange rates across markets is the window for arbitrage trading. 

Suppose, in Tokyo Stock Exchange (TSE) the price of a security is 1062.95 Japanese Yen (JPY), and in New York Stock Exchange (NYSE) the cost of the same security is 11 USD. Now, the price of the security in Tokyo (1062.95) is equivalent to 10 USD, whereas NYSE has listed it at 11 USD. This situation creates an ideal scope for arbitrage trading. 

Traders can buy the security from TSE and simultaneously sell it to NYSE, thus making a dollar’s surplus on each security traded. However, this situation cannot incur profit every time because there are always other factors at play.

 Firstly, one needs to be guaranteed about the stock markets they are trading in since these markets often show wrong indexes. 

Secondly, a trader needs to consider the transaction cost into account to correctly estimate his/her surplus. It might be so that the transaction cost exceeds the original cost or is in par with it, stubbing the chance of any profit. 

Types of arbitrage trading

  • Spot-exchange market trading: 

Trading occurs across different nations. It is unusual to realise a profit from inter-market arbitrage trading within the same country because the prices of different securities rarely disagree. The example used earlier was one of Spot-exchange market trading. It can also happen amongst more than two nations. It often requires the immediate selling of securities to make a profit, as the window given to bridging the gap of prices is limited and short. 

  • Risk arbitrage: 

Due to the increase in corporate mergers, another kind of arbitrage trading came in vogue. When a company or corporate raider decides to merge with another company or purchase it, it generally has to acquire the target company’s securities at 30% – 40% above par. This act is probable to push the securities’ prices up in the open market once the merger or purchase is officiated. After it has happened, the purchasing company can sell the securities in the market at huge profits due to the hiked price. However, as the name suggests, the risk in this process is persistent, unlike spot-exchange market trading.

2. Socially responsible investing (SRI)

The name is telling enough of what this section might consist. This investment practice is one of a kind which has grown popular in recent years, and inevitably so. As Amazon burns due to intense and inconsiderate capitalist pursuits, the foray of finance requires investors who believe in pursuing their interests in an eco-friendly fashion. 

Therefore, this kind of investments is also called ‘green’ investing, socially conscious investing, ethical investing, or sustainable investing. Recently another moniker has been added to this array, which is ‘impact’ investing, bearing the signature of how investments lead to having a social impact. 

This form of investment believes in ethically contributing to the market which will not be associated with anything condemned because of its ill effects on society: gender or racial discrimination, military activities, human rights violations, causing ecological hazards, compromising consumer benefits, etc. Any investments made in any of the sectors above will bar it from being considered a Socially Responsible Investing (SRI). Some also consider other products to affect society adversely and can choose to not invest in those products such as alcohol, tobacco, etc. 

It started back in 1758 when the Religious Society of Friends (Quakers) decided to do away with slave trading in the Philadelphia Yearly Meeting. Statistics suggest that nearly 10% of all investments in the USA are directed towards SRI in 2012. 

Investment screening process

One of the most popular forms of SRI is the investment screening process. Primarily, two kinds of the investment screening process are used by investors to include a company in their investment portfolio:

  • Negative screening: 

In the 1960s and 1970s, Nelson Mandela urged others to use the negative screen to sell holdings which brandished Apartheid. It is a famous event which significantly contributed to stubbing the movement. In recent times negative screens are used to filter out those companies which are not in line with specific ethical, social, and eco-friendly parameters.

  • Positive screening: 

Using positive screens, the companies which have maintained parity with the moral, social, and eco-friendly criterions are shown. However, this process is time-consuming, which is why investors depend on SRI mutual funds. Other than these mutual funds, there are also certain companies who submit a social report which contains their aim towards sustainability, social justice and ethical conduct. 

Different classes of SRI

  • Socially Responsible Investing Funds: 

This is the traditional method of SRI. It avoids investing in companies which promote the use of alcohol, tobacco, gambling, weaponry, and oil. 

  • Environmental, social, and governance funds (ERG funds): 

While Socially Responsible Investing Funds focus on barring investments to companies which are associated with alcohol, etc. it doesn’t entirely ensure their detachment from ethical products or practices. This ERG funding is what draws the line between those factors. Therefore, ERG funding is focused mainly on companies which completely adhere to the ethical parameters. 

  • Impact funds: 

This can be considered a subset of ERG funding. Whereas it differs at the point that ERG funds might not perform well in the market to have any impact. Impact funds, on the other hand, are funds which do perform well, keeping in focus the entirety of ethics. Companies with this kind of funding employ aggressive strategies to make the products bid well in the market, which in turn helps in having a more significant impact over society. 

  • Faith-based funds: 

These funds are aimed at companies which root for mass-faiths such as Christianity, Buddhism, Islam, etc. 

3. Growth of China

Even 40 years ago, China was one of the weakest economies in the world. It so happened because of its closed economic policies which barred it from indulging in trade with other nations. Since it opened up to the global market back in 1979, China has seen remarkable growth in its economy. In 2018, it showed real annual GDP growth of 9.5%, which was described by the World Bank as “the fastest sustained expansion by a major economy in history”. 

The acceleration of China’s economic growth has been the product of the mixed economy policies, which evince limited capitalism along with a government-controlled economy. These policies have helped China become the worlds’ largest economy (on a purchasing parity basis) with a $23.12 trillion growth in 2017. 

China is now USA’s largest merchandise partner, the biggest importer and 3rd largest partner USA export market.

The Chinese government owns some of the country’s primary energy companies: PetroChina, Sinopec, and CN00C. Although these companies are less profitable than the private companies, the ownership has helped the government to direct them to high-priority projects. 

Causes

  • Foreign company policies: 

This is one of the primary reasons for China’s economic growth. Chinese policies dictate foreign companies, who wish to trade in the Chinese market, to open factories in China, employ Chinese workers and also share their technology. This last part is what has helped the nation realise global market dominance. The government acquires necessary technological know-how and then deploys them to make cheaper products themselves. 

  • Yuan to dollar value: 

China’s central bank, The People’s Bank of China, provides the opportunity to take advantage of China’s low cost of living. It does so by stringently controlling the Yuan to Dollar value. It is done to provide the American market with cheaper import goods. Thus, by controlling the exchange rate, it can take exploit this price disparity. 

Future growth

However, China’s real GDP growth has waned over time. In 2007, their growth was around 14.2%, and in 2016, the growth significantly reduced to a mere 6.6%. The International Monetary Fund (IMF) has forecasted its growth to fall to 5.5% by 2024. This growth reduction, however, is described by the Chinese government as the “new normal” and is aiming at reforming its economic policies. It wishes to focus more on the local market rather than in export trading and fixed investments.

Such reforms will help the nation avoid what is called the “middle-income trap”. It usually is done when a country is experiencing a waning economy after hitting a certain economic growth level because of its lack of innovation. 

Therefore the Chinese leaders have decided to initiate the “Make in China 2025” plan. With this plan in motion, it aims at achieving advances in technology, primarily in big data, aircraft engines, and clean cars. 

The Chinese autonomy has also decided to crack down on companies in September 2018, which were running on a lot of debt capital. This measure had to be taken because all the banks in the state are government-owned and around 30% of the economy is based on bank loans; which means that the banks funnel government funds to businesses which might not be profitable. 

However, the economy is still falling behind, which results in a more inferior standard of living. This situation might result in a furious populace who willingly submitted their personal power to enjoy more enormous personal wealth. 

A way in which the leaders can salvage the economy is by encouraging higher investments in the stock market. This way, the companies can sell their stocks instead of relying on debt capital to catalyse their growth. 

These are three of the many topics which you can use in your Varsity dissertation. The topics have a wide range of information on the internet, and two of them are relatively fresher topics to exploit. 

Author’s Bio:

MajaKazazic has done Masters in Finance from the University of Yale and has also been associated with teaching in helpmeinhomework.com for seven years. Through the website, he has interacted with students from across the world and helped them with their assignments and study materials. He is currently pursuing a PhD in Finance and has done over 300 assignments.