Metsän kiertoajan vaikutus hiilensidontaan ja metsänkasvatuksen kannattavuuteen

Cost-effective mitigation of climate change is essential for both climate and environmental policy. Forest rotation age is one of the silvicultural measures by which the forest carbon stocks can be influenced with in accordance with the Kyoto Protocol, Article 3.4. The purpose of this study is to evaluate how forest rotation age affects carbon sequestration and the profitability of forestry. The relation between the forest rotation period optimizing forest owners’ discounted net returns over time and rotations which are 10, 20 and 30 years longer than the optimal rotation is examined. In addition, the cost of lengthening the rotation period is studied as well as whether carbon sequestration revenues can improve the profitability of forestry. The data used in the study consist of 16 stands located in Southern Finland. The main tree species in these stands were Norway spruce and Scots pine. Forest simulation tool MOTTI was used in the analysis. The results indicate that by lengthening the rotation period forest carbon stocks increase. However, as the rotation period is lengthened by more than 10 years, as a result of the diminishing growth curve, the rate of carbon sequestration slows down. The average discounted cost of carbon sequestration varied between 2.4 – 14.1 €/tCO2. Carbon sequestration rates in spruce stands were higher and the costs lower than those obtained from pine stands. The absence of carbon trading schemes is an obstacle for the commercialization of forest carbon sinks. In the future, research should concentrate on analysing what kind of operational models of carbon trading could be feasible in Finland.

Land leasing, land degradation and agricultural productivity in Finland

This study analysed whether the land tenure insecurity problem has led to a decline in long-term land improvements (liming and phosphorus fertilization) under the Common Agricultural Policy (CAP) and Nordic production conditions in European Union (EU) countries such as Finland. The results suggests that under traditional cash lease contracts, which are encouraged by the existing land leasing regulations and agricultural subsidy programs, the land tenure insecurity problem on leased land reduces land improvements that have a long pay-back period. In particular, soil pH was found to be significantly lower on land cultivated under a lease contract compared to land owned by the farmers themselves. The results also indicate that land improvements could not be reversed by land markets, because land owners would otherwise have carried out land improvements even if not farming by themselves. To reveal the causality between land tenure and land improvements, the dynamic optimisation problem was solved by a stochastic dynamic programming routine with known parameters for one-period returns and transition equations. The model parameters represented Finnish soil quality and production conditions. The decision rules were solved for alternative likelihood scenarios over the continuation of the fixed-term lease contract. The results suggest that as the probability of non-renewal of the lease contract increases, farmers quickly reduce investments in irreversible land improvements and, thereafter, yields gradually decline. The simulations highlighted the observed trends of a decline in land improvements on land parcels that are cultivated under lease contracts. Land tenure has resulted in the neglect of land improvement in Finland. This study aimed to analyze whether these challenges could be resolved by a tax policy that encourages land sales. Using Finnish data, real estate tax and a temporal relaxation on the taxation of capital gains showed some potential for the restructuring of land ownership. Potential sellers who could not be revealed by traditional logit models were identified with the latent class approach. Those landowners with an intention to sell even without a policy change were sensitive to temporal relaxation in the taxation of capital gains. In the long term, productivity and especially productivity growth are necessary conditions for the survival of farms and the food industry in Finland. Technical progress was found to drive the increase in productivity. The scale had only a moderate effect and for the whole study period (1976–2006) the effect was close to zero. Total factor productivity (TFP) increased, depending on the model, by 0.6–1.7% per year. The results demonstrated that the increase in productivity was hindered by the policy changes introduced in 1995. It is also evidenced that the increase in land leasing is connected to these policy changes. Land institutions and land tenure questions are essential in agricultural and rural policies on all levels, from local to international. Land ownership and land titles are commonly tied to fundamental political, economic and social questions. A fair resolution calls for innovative and new solutions both on national and international levels. However, this seems to be a problem when considering the application of EU regulations to member states inheriting divergent landownership structures and farming cultures. The contribution of this study is in describing the consequences of fitting EU agricultural policy to Finnish agricultural land tenure conditions and heritage.

Factors affecting farmland prices in Finland

The purpose of the study was to analyse factors affecting the differences in land prices between regions. The key issue was to find out the policy effects on farmland prices. In addition to comprehensive literature review, a theoretical analysis as well as modern panel and spatial econometric techniques were utilized. The study clearly pointed out the importance of taking into account the possible spatial dependence. The data were exceptionally large, comprising more than 6 000 observations. Thus, it allowed a thorough econometric estimation including the possibility to take into account the spatial nature of the data. This study supports the view that there are many other factors that affect farmland prices besides pure agricultural returns. It was also found that the support clearly affects land prices. However, rather than assuming the discount rates for support and market returns to be similar, the rough analysis refers to the discount rate for support being a little lower. If this were true it would indicate that farmers rely more on support income than market returns. The results support the view presented in literature that land values are more responsive to government payments when these payments are perceived to be permanent. An important result of this study is that the structural differences between regions and the structural change in agriculture seemed to have a considerable role in affecting land prices. Firstly, the present structure affects the competition in the land market: the more dense farms are in the region the more there are potential buyers, and the land price increases. Secondly, the change in farm structure (especially in animal husbandry) connected to the policy changes that increase area-based support affects land prices. The effect comes from two sources. Growing farms need more land for the manure, and the proportion of retiring farmers may be lower. The introduction of the manure density variable proved to be an efficient way to aggregate the otherwise very difficult task of taking into account the environmental pressure caused by structural change in animal husbandry. Finally, infrastructure also has a very important role in determining the price level of agricultural land. If other industries are prospering in the surrounding area, agricultural viability also seems to improve. The non-farm opportunities offered to farm families make continuing and developing farming more tempting.

Intensity, productivity and efficiency in agriculture in Finland and implications for N and P fertiliser management

The purpose of this study was to evaluate intensity, productivity and efficiency in agriculture in Finland and show implications for N and P fertiliser management. Environmental concerns relating to agricultural production have been and still are focused on arguments about policies that affect agriculture. These policies constrain production while demand for agricultural products such as food, fibre and energy continuously increase. Therefore the importance of increasing productivity is a great challenge to agriculture. Over the last decades producers have experienced several large changes in the production environment such as the policy reform when Finland joined the EU 1995. Other and market changes occurred with the further EU enlargement with neighbouring countries in 2005 and with the decoupling of supports over the 2006-2007 period. Decreasing prices a decreased number of farmers and decreased profitability in agricultural production have resulted from these changes and constraints and of technological development. It is known that the accession to the EU 1995 would herald changes in agriculture. Especially of interest was how the sudden changes in prices of commodities on especially those of cereals, decreased by 60%, would influence agricultural production. The knowledge of properties of the production function increased in importance as a consequence of price changes. A research on the economic instruments to regulate productions was carried out and combined with earlier studies in paper V. In paper I the objective was to compare two different technologies, the conventional farming and the organic farming, determine differences in productivity and technical efficiency. In addition input specific or environmental efficiencies were analysed. The heterogeneity of agricultural soils and its implications were analysed in article II. In study III the determinants of technical inefficiency were analysed. The aspects and possible effects of the instability in policies due to a partial decoupling of production factors and products were studied in paper IV. Consequently connection between technical efficiency based on the turnover and the sales return was analysed in this study. Simple economic instruments such as fertiliser taxes have a direct effect on fertiliser consumption and indirectly increase the value of organic fertilisers. However, fertiliser taxes, do not fully address the N and P management problems adequately and are therefore not suitable for nutrient management improvements in general. Productivity of organic farms is lower on average than conventional farms and the difference increases when looking at selling returns only. The organic sector needs more research and development on productivity. Livestock density in organic farming increases productivity, however, there is an upper limit to livestock densities on organic farms and therefore nutrient on organic farms are also limited. Soil factors affects phosphorous and nitrogen efficiency. Soils like sand and silt have lower input specific overall efficiency for nutrients N and P. Special attention is needed for the management on these soils. Clay soils and soils with moderate clay content have higher efficiency. Soil heterogeneity is cause for an unavoidable inefficiency in agriculture.

Mathematical Aspects of Financial Markets with Frictions

Frictions are factors that hinder trading of securities in financial markets. Typical frictions include limited market depth, transaction costs, lack of infinite divisibility of securities, and taxes. Conventional models used in mathematical finance often gloss over these issues, which affect almost all financial markets, by arguing that the impact of frictions is negligible and, consequently, the frictionless models are valid approximations. This dissertation consists of three research papers, which are related to the study of the validity of such approximations in two distinct modeling problems. Models of price dynamics that are based on diffusion processes, i.e., continuous strong Markov processes, are widely used in the frictionless scenario. The first paper establishes that diffusion models can indeed be understood as approximations of price dynamics in markets with frictions. This is achieved by introducing an agent-based model of a financial market where finitely many agents trade a financial security, the price of which evolves according to price impacts generated by trades. It is shown that, if the number of agents is large, then under certain assumptions the price process of security, which is a pure-jump process, can be approximated by a one-dimensional diffusion process. In a slightly extended model, in which agents may exhibit herd behavior, the approximating diffusion model turns out to be a stochastic volatility model. Finally, it is shown that when agents' tendency to herd is strong, logarithmic returns in the approximating stochastic volatility model are heavy-tailed. The remaining papers are related to no-arbitrage criteria and superhedging in continuous-time option pricing models under small-transaction-cost asymptotics. Guasoni, Rásonyi, and Schachermayer have recently shown that, in such a setting, any financial security admits no arbitrage opportunities and there exist no feasible superhedging strategies for European call and put options written on it, as long as its price process is continuous and has the so-called conditional full support (CFS) property. Motivated by this result, CFS is established for certain stochastic integrals and a subclass of Brownian semistationary processes in the two papers. As a consequence, a wide range of possibly non-Markovian local and stochastic volatility models have the CFS property.

Modeling Asymmetries in Financial Data with Multiplicative Error Models

This thesis addresses modeling of financial time series, especially stock market returns and daily price ranges. Modeling data of this kind can be approached with so-called multiplicative error models (MEM). These models nest several well known time series models such as GARCH, ACD and CARR models. They are able to capture many well established features of financial time series including volatility clustering and leptokurtosis. In contrast to these phenomena, different kinds of asymmetries have received relatively little attention in the existing literature. In this thesis asymmetries arise from various sources. They are observed in both conditional and unconditional distributions, for variables with non-negative values and for variables that have values on the real line. In the multivariate context asymmetries can be observed in the marginal distributions as well as in the relationships of the variables modeled. New methods for all these cases are proposed. Chapter 2 considers GARCH models and modeling of returns of two stock market indices. The chapter introduces the so-called generalized hyperbolic (GH) GARCH model to account for asymmetries in both conditional and unconditional distribution. In particular, two special cases of the GARCH-GH model which describe the data most accurately are proposed. They are found to improve the fit of the model when compared to symmetric GARCH models. The advantages of accounting for asymmetries are also observed through Value-at-Risk applications. Both theoretical and empirical contributions are provided in Chapter 3 of the thesis. In this chapter the so-called mixture conditional autoregressive range (MCARR) model is introduced, examined and applied to daily price ranges of the Hang Seng Index. The conditions for the strict and weak stationarity of the model as well as an expression for the autocorrelation function are obtained by writing the MCARR model as a first order autoregressive process with random coefficients. The chapter also introduces inverse gamma (IG) distribution to CARR models. The advantages of CARR-IG and MCARR-IG specifications over conventional CARR models are found in the empirical application both in- and out-of-sample. Chapter 4 discusses the simultaneous modeling of absolute returns and daily price ranges. In this part of the thesis a vector multiplicative error model (VMEM) with asymmetric Gumbel copula is found to provide substantial benefits over the existing VMEM models based on elliptical copulas. The proposed specification is able to capture the highly asymmetric dependence of the modeled variables thereby improving the performance of the model considerably. The economic significance of the results obtained is established when the information content of the volatility forecasts derived is examined.

Modeling Efficient Classification as a Process of Confidence Assessment and Delegation

In visual object detection and recognition, classifiers have two interesting characteristics: accuracy and speed. Accuracy depends on the complexity of the image features and classifier decision surfaces. Speed depends on the hardware and the computational effort required to use the features and decision surfaces. When attempts to increase accuracy lead to increases in complexity and effort, it is necessary to ask how much are we willing to pay for increased accuracy. For example, if increased computational effort implies quickly diminishing returns in accuracy, then those designing inexpensive surveillance applications cannot aim for maximum accuracy at any cost. It becomes necessary to find trade-offs between accuracy and effort. We study efficient classification of images depicting real-world objects and scenes. Classification is efficient when a classifier can be controlled so that the desired trade-off between accuracy and effort (speed) is achieved and unnecessary computations are avoided on a per input basis. A framework is proposed for understanding and modeling efficient classification of images. Classification is modeled as a tree-like process. In designing the framework, it is important to recognize what is essential and to avoid structures that are narrow in applicability. Earlier frameworks are lacking in this regard. The overall contribution is two-fold. First, the framework is presented, subjected to experiments, and shown to be satisfactory. Second, certain unconventional approaches are experimented with. This allows the separation of the essential from the conventional. To determine if the framework is satisfactory, three categories of questions are identified: trade-off optimization, classifier tree organization, and rules for delegation and confidence modeling. Questions and problems related to each category are addressed and empirical results are presented. For example, related to trade-off optimization, we address the problem of computational bottlenecks that limit the range of trade-offs. We also ask if accuracy versus effort trade-offs can be controlled after training. For another example, regarding classifier tree organization, we first consider the task of organizing a tree in a problem-specific manner. We then ask if problem-specific organization is necessary.

Glutamatergic Modulation of Cue-Induced Drug-Seeking Behavior in the Rat

The characteristics of drug addiction include compulsive drug use despite negative consequences and re-occurring relapses, returns to drug use after a period of abstinence. Therefore, relapse prevention is one of the major challenges for the treatment of drug addiction. There are three main factors capable of inducing craving for drugs and triggering relapse long after cessation of drug use and dissipation of physical withdrawal signs: stress, re-exposure to the drug, and environmental stimuli (cues) that have been previously associated with drug use. The neurotransmitters dopamine and glutamate have been implicated in the modulation of drug-seeking behavior. The aim of this project was to examine the role of glutamatergic neurotransmission in relapse triggered by conditioned drug-associated stimuli. The focus was on clarifying whether relapse to drug seeking can be attenuated by blockade of glutamate receptors. In addition, as the nucleus accumbens has been proposed to participate in the modulation of drug-seeking behavior, the effects of glutamate receptor blockade in this brain structure on cue-induced relapse were investigated. The studies employed animals models in which rats were trained to press a lever in a test cage to obtain alcohol or intravenous cocaine. Drug availability was paired with distinct olfactory, auditory, or visual stimuli. This phase was followed by extinction training, during which lever presses did not result in the presentation of the drug or the drug-associated stimuli. Extinction training led to a gradual decrease in the number of lever presses during test sessions. Relapse was triggered by presenting the rats with the drug-associated stimuli in the absence of alcohol or cocaine. The drug-associated stimuli were alone capable of inducing resumption of lever pressing and maintaining this behavior during repeated testing. The number of lever presses during a session represented the intensity of drug-seeking and relapse behavior. The results suggest that glutamatergic neurotransmission is involved in the modulation of drug-seeking behavior. Both alcohol and cocaine relapse were attenuated by systemic pretreatment with glutamate receptor antagonists. However, differences were found in the ability of ionotropic AMPA/kainate and NMDA receptor antagonists to regulate drug-seeking behavior. The AMPA/kainate antagonists CNQX and NBQX, and L-701,324, an antagonist with affinity for the glycine site of the NMDA receptor, attenuated cue-induced drug seeking, whereas the competitive NMDA antagonist CGP39551 and the NMDA channel blocker MK-801 were without effect. MPEP, an antagonist at metabotropic mGlu5 glutamate receptors, also decreased drug seeking, but its administration was found to lead to conditioned suppression of behavior during subsequent treatment sessions, suggesting that MPEP may have undesirable side effects. The mGluR2/3 agonist LY379268 and the mGluR8 agonist (S)-3,4-DCPG decreased both cue-induced relapse to alcohol drinking and alcohol consumption. Control experiments showed however that administration of the agonists was accompanied by motor suppression limiting their usefulness. Administration of the AMPA/kainate antagonist CNQX, the NMDA antagonist D-AP5, and the mGluR5 antagonist MPEP into the nucleus accumbens resulted also in a decrease in drug-seeking behavior, suggesting that the nucleus accumbens is at least one of the anatomical sites regulating drug seeking and mediating the effects of glutamate receptor antagonists on this behavior.

Cooperation and conflict in conspecific brood parasitism : an alternative reproductive tactic

Interactions among individuals give rise to both cooperation and conflict. Individuals will behave selfishly or altruistically depending on which gives the higher payoff. The reproductive strategies of many animals are flexible and several alternative tactics may be present from which the most suitable one is applied. Generally, alternative reproductive tactics may be defined as a response to competition from individuals of the same sex. These alternative reproductive tactics are means by which individuals may fine-tune their fitness to the reigning circumstances and which are shaped by the environment individuals are occupying as well as by the behaviour of other individuals sharing the environment. By employing such alternative ways of achieving reproductive output, individuals may alleviate competition from others. Conspecific brood parasitism (CBP) is an alternative reproductive strategy found in several egg laying animal groups, and it is especially common among waterfowl. Within this alternative reproductive strategy, four reproductive options can be identified. These four options represent a continuum from low reproductive effort coupled with low fitness returns, to high reproductive effort and consequently high benefits. It may not be evident how individuals should allocate reproductive effort between eggs laid in their own nest vs. in nests of others, however. Limited fecundity will constrain the number of eggs donated by a parasite, but also the tendency for hosts to accept parasitic eggs may affect the allocation decision. Furthermore, kinship, individual quality and the costs of breeding may play a role in complicating the allocation decision. In this thesis, I view the seemingly paradoxical effects of kinship on conflict resolution in the context of alternative reproductive tactics, examining the resulting features of cooperation and conflict. Conspecific brood parasitism sets the stage for investigating these questions. By using both empirical and theoretical approaches, I examine the nature of CBP in a brood parasitic duck, the Barrow's goldeneye (Bucephala islandica). The theoretical chapter of this thesis gives rise to four main conclusions. Firstly, variation in individual quality plays a central role in shaping breeding strategies. Secondly, kinship plays a central role in the evolution of CBP. Thirdly, egg recognition ability may affect the prevalence of parasitism. If egg recognition is perfect, higher relatedness between host and parasite facilitates CBP. Finally, I show that the relative costs of egg laying and post-laying care play a so far underestimated role in determining the prevalence of parasitism. The costs of breeding may outweigh possible inclusive fitness benefits accrued from receiving eggs from relatives. Several of the patterns brought out by the theoretical work are then confirmed empirically in the following chapters. Findings include confirmation of the central role of relatedness in determining the extent of parasitism as well as inducing a counterintuitive host clutch reduction. Furthermore, I demonstrate a cost of CBP inflicted on hosts, as well as results suggesting that host age reflects individual quality, affecting the ability to overcome costs inflicted by CBP. In summary, I demonstrate both theoretically and empirically the presence of cooperation and conflict in the interactions between conspecific parasites and their hosts. The field of CBP research has traditionally been divided, but the first steps have now been taken toward the acceptance of the opposite side of the divide. Especially the theoretical findings of chapter 1 offer the possibility to view seemingly contrasting results of various studies within the same framework, and may direct future research toward more general features underlying differences in the patterns of CBP between populations or species.

Population structure and evolution in the ant Plagiolepis pygmaea and its two social parasites Plagiolepis xene and Plagiolepis grassei

Social behaviour affects dispersal of animals and is an important modifier of genetic population structures. The female sex is often philopatric, which maintains coancestry within the breeding groups and promotes cooperative behaviours. This enables also inclusive fitness returns from altruism and explains why some individuals sacrifice personal reproduction for the good of others in social insects such as ants. However, reduced dispersal and population substructuring at the level of colonies may also entail inbreeding, loss of genetic diversity, and vulnerability. In addition, the most vulnerable ants are species that are evolved to parasitize colonies of other ants, and which compromise between abilities to disperse and the efficiency to parasitize the host. On the other hand, certain social organisations of ant colonies may facilitate a species to disperse outside its natural range and become a pest. Altogether, knowledge on genetic structuring of ant populations, as well as the evolution of their life histories can contribute to conservation biology and population management. The aim of this thesis was to investigate population structures and phylogenetic evolution of the ant Plagiolepis pygmaea and its two obligatory, workerless social parasites (inquilines) P. xene and P. grassei with genetic markers and DNA sequence data. The results support the general assumption that populations of inquiline parasites are highly fragmented and genetically vulnerable. Comparison of the two parasites suggests that differences in their relative abundance may follow from their interaction with the host, i.e. how well the species is adapted to reproduce in the host colonies. The results also indicate that the most recent free living ancestor to these two parasite species is their common host. This is considered to provide evidence for the controversial issue of sympatric speciation. Further, given that the level of adaptations to parasitic life history depends on the evolutionary time since the free-living ancestor, the results establish a link between species rarity and its evolutionary age. The populations of the host species P. pygmaea displayed significantly reduced dispersal both among the females (queens) and males, and high levels of inbreeding which may enhance worker altruism. In addition, the queens were found to mate with multiple males. Given the high relatedness between the queens and their mates, this occurs probably for non-genetic reasons, e.g. without benefits associated in genetically more diverse offspring. The results hence caution that the contribution of non-genetic factors to the prevailing mating patterns and genetic population structures should not be underestimated.

Studies on Binary Time Series Models with Applications to Empirical Macroeconomics and Finance

This thesis studies binary time series models and their applications in empirical macroeconomics and finance. In addition to previously suggested models, new dynamic extensions are proposed to the static probit model commonly used in the previous literature. In particular, we are interested in probit models with an autoregressive model structure. In Chapter 2, the main objective is to compare the predictive performance of the static and dynamic probit models in forecasting the U.S. and German business cycle recession periods. Financial variables, such as interest rates and stock market returns, are used as predictive variables. The empirical results suggest that the recession periods are predictable and dynamic probit models, especially models with the autoregressive structure, outperform the static model. Chapter 3 proposes a Lagrange Multiplier (LM) test for the usefulness of the autoregressive structure of the probit model. The finite sample properties of the LM test are considered with simulation experiments. Results indicate that the two alternative LM test statistics have reasonable size and power in large samples. In small samples, a parametric bootstrap method is suggested to obtain approximately correct size. In Chapter 4, the predictive power of dynamic probit models in predicting the direction of stock market returns are examined. The novel idea is to use recession forecast (see Chapter 2) as a predictor of the stock return sign. The evidence suggests that the signs of the U.S. excess stock returns over the risk-free return are predictable both in and out of sample. The new "error correction" probit model yields the best forecasts and it also outperforms other predictive models, such as ARMAX models, in terms of statistical and economic goodness-of-fit measures. Chapter 5 generalizes the analysis of univariate models considered in Chapters 2 4 to the case of a bivariate model. A new bivariate autoregressive probit model is applied to predict the current state of the U.S. business cycle and growth rate cycle periods. Evidence of predictability of both cycle indicators is obtained and the bivariate model is found to outperform the univariate models in terms of predictive power.

The phenomenon of oligarchy in Russia and its impact on Russian transition

Nowadays any analysis of Russian economy is incomplete without taking into account the phenomenon of oligarchy. Russian oligarchs appeared after the fall of the Soviet Union and are represented by wealthy businessmen who control a huge part of natural resources enterprises and have a big political influence. Oligarchs’ shares in some natural resources industries reach even 70-80%. Their role in Russian economy is big without any doubts, however there has been very little economic analysis done. The aim of this work is to examine Russian oligarchy on micro and macro levels, its role in Russia’s transition and the possible positive and negative outcomes from this phenomenon. For this purpose the work presents two theoretical models. The first part of this thesis work examines the role of oligarchs on micro level, concentrating on the question whether the oligarchs can be more productive owners than other types of owners. To answer the question this part presents a model based on the article “Are oligarchs productive? Theory and evidence” by Y. Gorodnichenko and Y. Grygorenko. It is followed by empirical test based on the works of S. Guriev and A. Rachinsky. The model predicts oligarchs to invest more in the productivity of their enterprises and have higher returns on capital, therefore be more productive owners. According to the empirical test, oligarchs were found to outperform other types of owners, however it is not defined whether the productivity gains offset losses in tax revenue. The second part of the work concentrates on the role of oligarchy on macro level. More precisely, it examines the assumption that the depression after 1998 crises in Russia was caused by the oligarchs’ behavior. This part presents a theoretical model based on the article “A macroeconomic model of Russian transition: The role of oligarchic property rights” by S. Braguinsky and R. Myerson, where the special type of property rights is introduced. After the 1998 crises oligarchs started to invest all their resources abroad to protect themselves from political risks, which resulted in the long depression phase. The macroeconomic model shows, that better protection of property rights (smaller political risk) or/and higher outside investing could reduce the depression. Taking into account this result, the government policy can change the oligarchs’ behavior to be more beneficial for the Russian economy and make the transition faster.

Essays on Stock Market Reactions to New Information

A functioning stock market is an essential component of a competitive economy, since it provides a mechanism for allocating the economy’s capital stock. In an ideal situation, the stock market will steer capital in a manner that maximizes the total utility of the economy. As prices of traded stocks depend on and vary with information available to investors, it is apparent that information plays a crucial role in a functioning stock market. However, even though information indisputably matters, several issues regarding how stock markets process and react to new information still remain unanswered. The purpose of this thesis is to explore the link between new information and stock market reactions. The first essay utilizes new methodological tools in order to investigate the average reaction of investors to new financial statement information. The second essay explores the behavior of different types of investors when new financial statement information is disclosed to the market. The third essay looks into the interrelation between investor size, behavior and overconfidence. The fourth essay approaches the puzzle of negative skewness in stock returns from an altogether different angle than previous studies. The first essay presents evidence of the second derivatives of some financial statement signals containing more information than the first derivatives. Further, empirical evidence also indicates that some of the investigated signals proxy risk while others contain information priced with a delay. The second essay documents different categories of investors demonstrating systematical differences in their behavior when new financial statement information arrives to the market. In addition, a theoretical model building on differences in investor overconfidence is put forward in order to explain the observed behavior. The third essay shows that investor size describes investor behavior very well. This finding is predicted by the model proposed in the second essay, and hence strengthens the model. The behavioral differences between investors of different size furthermore have significant economic implications. Finally, the fourth essay finds strong evidence of management news disclosure practices causing negative skewness in stock returns.

Intraday Dynamics of International Equity Markets

The increased availability of high frequency data sets have led to important new insights in understanding of financial markets. The use of high frequency data is interesting and persuasive, since it can reveal new information that cannot be seen in lower data aggregation. This dissertation explores some of the many important issues connected with the use, analysis and application of high frequency data. These include the effects of intraday seasonal, the behaviour of time varying volatility, the information content of various market data, and the issue of inter market linkages utilizing high frequency 5 minute observations from major European and the U.S stock indices, namely DAX30 of Germany, CAC40 of France, SMI of Switzerland, FTSE100 of the UK and SP500 of the U.S. The first essay in the dissertation shows that there are remarkable similarities in the intraday behaviour of conditional volatility across European equity markets. Moreover, the U.S macroeconomic news announcements have significant cross border effect on both, European equity returns and volatilities. The second essay reports substantial intraday return and volatility linkages across European stock indices of the UK and Germany. This relationship appears virtually unchanged by the presence or absence of the U.S stock market. However, the return correlation among the U.K and German markets rises significantly following the U.S stock market opening, which could largely be described as a contemporaneous effect. The third essay sheds light on market microstructure issues in which traders and market makers learn from watching market data, and it is this learning process that leads to price adjustments. This study concludes that trading volume plays an important role in explaining international return and volatility transmissions. The examination concerning asymmetry reveals that the impact of the positive volume changes is larger on foreign stock market volatility than the negative changes. The fourth and the final essay documents number of regularities in the pattern of intraday return volatility, trading volume and bid-ask spreads. This study also reports a contemporaneous and positive relationship between the intraday return volatility, bid ask spread and unexpected trading volume. These results verify the role of trading volume and bid ask quotes as proxies for information arrival in producing contemporaneous and subsequent intraday return volatility. Moreover, asymmetric effect of trading volume on conditional volatility is also confirmed. Overall, this dissertation explores the role of information in explaining the intraday return and volatility dynamics in international stock markets. The process through which the information is incorporated in stock prices is central to all information-based models. The intraday data facilitates the investigation that how information gets incorporated into security prices as a result of the trading behavior of informed and uninformed traders. Thus high frequency data appears critical in enhancing our understanding of intraday behavior of various stock markets’ variables as it has important implications for market participants, regulators and academic researchers.

Essays on Stock Options, Incentives, and Managerial Action

Executive compensation and managerial behavior have received an increasing amount of attention in the financial economics literature since the mid 1970s. The purpose of this thesis is to extend our understanding of managerial compensation, especially how stock option compensation is linked to the actions undertaken by the management. Furthermore, managerial compensation is continuously and heatedly debated in the media and an emerging consensus from this discussion seems to be that there still exists gaps in our knowledge of optimal contracting. In Finland, the first executive stock options were introduced in the 1980s and throughout the last 15 years it has become increasingly popular for Finnish listed firms to use this type of managerial compensation. The empirical work in the thesis is conducted using data from Finland, in contrast to most previous studies that predominantly use U.S. data. Using Finnish data provides insight of how market conditions affect compensation and managerial action and provides an opportunity to explore what parts of the U.S. evidence can be generalized to other markets. The thesis consists of four essays. The first essay investigates the exercise policy of the executive stock option holders in Finland. In summary, Essay 1 contributes to our understanding of the exercise policies by examining both the determinants of the exercise decision and the markets reaction to the actual exercises. The second essay analyzes the factors driving stock option grants using data for Finnish publicly listed firms. Several agency theory based variables are found to have have explanatory power on the likelihood of a stock option grant. Essay 2 also contributes to our understanding of behavioral factors, such as prior stock return, as determinants of stock option compensation. The third essay investigates the tax and stock option motives for share repurchases and dividend distributions. We document strong support for the tax motive for share repurchases. Furthermore, we also analyze the dividend distribution decision in companies with stock options and find a significant difference between companies with and without dividend protected options. We thus document that the cutting of dividends found in previous U.S. studies can be avoided by dividend protection. In the fourth essay we approach the puzzle of negative skewness in stock returns from an altogether different angle than in previous studies. We suggest that negative skewness in stock returns is generated by management disclosure practices and find proof for this. More specifically, we find that negative skewness in daily returns is induced by returns for days when non-scheduled firm specific news is disclosed.