Conditional Moments in Asset Pricing

A better understanding of stock price changes is important in guiding many economic activities. Since prices often do not change without good reasons, searching for related explanatory variables has involved many enthusiasts. This book seeks answers from prices per se by relating price changes to their conditional moments. This is based on the belief that prices are the products of a complex psychological and economic process and their conditional moments derive ultimately from these psychological and economic shocks. Utilizing information about conditional moments hence makes it an attractive alternative to using other selective financial variables in explaining price changes. The first paper examines the relation between the conditional mean and the conditional variance using information about moments in three types of conditional distributions; it finds that the significance of the estimated mean and variance ratio can be affected by the assumed distributions and the time variations in skewness. The second paper decomposes the conditional industry volatility into a concurrent market component and an industry specific component; it finds that market volatility is on average responsible for a rather small share of total industry volatility — 6 to 9 percent in UK and 2 to 3 percent in Germany. The third paper looks at the heteroskedasticity in stock returns through an ARCH process supplemented with a set of conditioning information variables; it finds that the heteroskedasticity in stock returns allows for several forms of heteroskedasticity that include deterministic changes in variances due to seasonal factors, random adjustments in variances due to market and macro factors, and ARCH processes with past information. The fourth paper examines the role of higher moments — especially skewness and kurtosis — in determining the expected returns; it finds that total skewness and total kurtosis are more relevant non-beta risk measures and that they are costly to be diversified due either to the possible eliminations of their desirable parts or to the unsustainability of diversification strategies based on them.

An Expenditure-Based Estimation of Self-Employment Income Underreporting in Finland

This paper estimates the extent of income underreporting by the self-employed in Finland using the expenditure based approach developed by Pissarides & Weber (1989). Household spending data are for the years 1994 to 1996. The results suggest that self-employment income in Finland is underreported by some 27% on average. Since income for the self-employed is about 8 % of all incomes in Finland, the size of this part of the black economy in Finland is estimated to be about 2,3% of GDP.

Grönlannin mannerjäätikön tulevaisuus: merenpinnan nousu maailmanlaajuisesti ja Itämerellä

Sea level rise is among the most worrying consequences of climate change, and the biggest uncertainty of sea level predictions lies in the future behaviour of the ice sheets of Greenland and Antarctica. In this work, a literature review is made concerning the future of the Greenland ice sheet and the effect of its melting on Baltic Sea level. The relation between sea level and ice sheets is also considered more generally from a theoretical and historical point of view. Lately, surprisingly rapid changes in the amount of ice discharging into the sea have been observed along the coastal areas of the ice sheets, and the mass deficit of Greenland and West Antarctic ice sheets which are considered vulnerable to warming has been increasing from the 1990s. The changes are probably related to atmospheric or oceanic temperature variations which affect the flow speed of ice either via meltwater penetrating to the bottom of the ice sheet or via changes in the flow resistance generated by the floating parts of an ice stream. These phenomena are assumed to increase the mass deficit of the ice sheets in the warming climate; however, there is no comprehensive theory to explain and model them. Thus, it is not yet possible to make reliable predictions of the ice sheet contribution to sea level rise. On the grounds of the historical evidence it appears that sea level can rise rather rapidly, 1 2 metres per century, even during warm climate periods. Sea level rise projections of similar magnitude have been made with so-called semiempirical methods that are based on modelling the link between sea level and global mean temperature. Such a rapid rise would require considerable acceleration of the ice sheet flow. Stronger rise appears rather unlikely, among other things because the mountainous coastline restricts ice discharge from Greenland. The upper limit of sea level rise from Greenland alone has been estimated at half a metre by the end of this century. Due to changes in the Earth s gravity field, the sea level rise caused by melting ice is not spatially uniform. Near the melting ice sheet the sea level rise is considerably smaller than the global average, whereas farther away it is slightly greater than the average. Because of this phenomenon, the effect of the Greenland ice sheet on Baltic Sea level will probably be rather small during this century, 15 cm at most. Melting of the Antarctic ice sheet is clearly more dangerous for the Baltic Sea, but also very uncertain. It is likely that the sea level predictions will become more accurate in the near future as the ice sheet models develop.

Non-industrial private forest landowners’ choices of timber management strategies and potential allowable cut.

In the study, the potential allowable cut in the district of Pohjois-Savo - based on the non-industrial private forest landowners' (NIPF) choices of timber management strategies - was clarified. Alternative timber management strategies were generated, and the choices and factors affecting the choices of timber management strategies by NIPF landowners were studied. The choices of timber management strategies were solved by maximizing the utility functions of the NIPF landowners. The parameters of the utility functions were estimated using the Analytic Hierarchy Process (AHP). The level of the potential allowable cut was compared to the cutting budgets based on the 7th and 8th National Forest Inventories (NFI7 and NFI8), to the combining of private forestry plans, and to the realized drain from non-industrial private forests. The potential allowable cut was calculated using the same MELA system as has been used in the calculation of the national cutting budget. The data consisted of the NIPF holdings (from the TASO planning system) that had been inventoried compartmentwise and had forestry plans made during the years 1984-1992. The NIPF landowners' choices of timber management strategies were clarified by a two-phase mail inquiry. The most preferred strategy obtained was "sustainability" (chosen by 62 % of landowners). The second in order of preference was "finance" (17 %) and the third was "saving" (11 %). "No cuttings", and "maximum cuttings" were the least preferred (9 % and 1 %, resp.). The factors promoting the choices of strategies with intensive cuttings were a) "farmer as forest owner" and "owning fields", b) "increase in the size of the forest holding", c) agriculture and forestry orientation in production, d) "decreasing short term stumpage earning expectations", e) "increasing intensity of future cuttings", and f) "choice of forest taxation system based on site productivity". The potential allowable cut defined in the study was 20 % higher than the average of the realized drain during the years 1988-1993, which in turn, was at the same level as the cutting budget based on the combining of forestry plans in eastern Finland. Respectively, the potential allowable cut defined in the study was 12 % lower than the NFI8-based greatest sustained allowable cut for the 1990s. Using the method presented in this study, timber management strategies can be clarified for non-industrial private forest landowners in different parts of Finland. Based on the choices of timber managemet strategies, regular cutting budgets can be calculated more realistically than before.

Factors affecting partitioning of private forest holdings in Finland.

Questions of the small size of non-industrial private forest (NIPF) holdings in Finland are considered and factors affecting their partitioning are analyzed. This work arises out of Finnish forest policy statements in which the small average size of holdings has been seen to have a negative influence on the economics of forestry. A survey of the literature indicates that the size of holdings is an important factor determining the costs of logging and silvicultural operations, while its influence on the timber supply is slight. The empirical data are based on a sample of 314 holdings collected by interviewing forest owners in the years 1980-86. In 1990-91 the same holdings were resurveyed by means of a postal inquiry and partly by interviewing forest owners. The principal objective in compiling the data is to assist in quantifying ownership factors that influence partitioning among different kinds of NIPF holdings. Thus the mechanism of partitioning were described and a maximum likelihood logistic regression model was constructed using seven independent holding and ownership variables. One out of four holdings had undergone partitioning in conjunction with a change in ownership, one fifth among family owned holdings and nearly a half among jointly owned holdings. The results of the logistic regression model indicate, for instance, that the odds on partitioning is about three times greater for jointly owned holdings than for family owned ones. Also, the probabilities of partitioning were estimated and the impact of independent dichotomous variables on the probability of partitioning ranged between 0.02 and 0.10. The low value of the Hosmer-Lemeshow test statistic indicates a good fit of the model and the rate of correct classification was estimated to be 88 per cent with a cutoff point of 0.5. The average size of holdings undergoing ownership changes decreased from 29.9 ha to 28.7 ha over the approximate interval 1983-90. In addition, the transition probability matrix showed that the trends towards smaller size categories mostly involved in the small size categories, less than 20 ha. The results of the study can be used in considering the effects of the small size of holdings for forestry and if the purpose is to influence partitioning through forest or rural policy.

Management of bushland vegetation using rainwater harvesting in eastern Kenya.

Microcatchment water harvesting (MCWH) improved the survival and growth of planted trees on heavy soils in eastern Kenya five to six years after planting. In the best method, the cross-tied furrow microcatchments, the mean annual increments (MAI; based on the average biomass of living trees multiplied by tree density and survival) of the total and usable biomass in Prosopis juliflora were 2787 and 1610 kg ha-1 a-1 respectively, when the initial tree density was 500 to 1667 trees per hectare. Based on survival, the indigenous Acacia horrida, A. mellifera and A. zanzibarica were the most suitable species for planting using MCWH. When both survival and yield were considered, a local seed source of the introduced P. juliflora was superior to all other species. The MAI in MCWH was at best distinctly higher than that in the natural vegetation (163­307 and 66­111 kg ha-1 a-1 for total and usable biomass respectively); this cannot satisfy the fuelwood demand of concentrated populations, such as towns or irrigation schemes. The density of seeds of woody species in the topsoil was 40.1 seeds m-2 in the Acacia-Commiphora bushland and 12.6 seeds m-2 in the zone between the bushland and the Tana riverine forest. Rehabilitation of woody vegetation using the soil seed bank alone proved difficult due to the lack of seeds of desirable species. The regeneration and dynamics of woody vegetation were also studied both in cleared and undisturbed bushland. A sub-type of Acacia-Commiphora bushland was identified as Acacia reficiens bushland, in which the dominant Commiphora species is C. campestris. Most of the woody species did not have even-aged populations but cohort structures that were skewed towards young individuals. The woody vegetation and the status of soil nutrients were estimated to recover in 15­20 years on Vertic Natrargid soils after total removal of above-ground vegetation.

Kansalaisuus työyhteisön arjessa : Maahanmuuttajien kertomuksia työelämästä

Citizenship in the everyday of a work community. Immigrants narratives of working life. Through globalisation and the mobility of workforce, citizenship has gained new forms, and the mere legal definition of citizenship no longer gives a comprehensive view of the citizenship of an individual. Also the social, cultural and financial dimensions of it are related to the concept of citizenship. In Finland, full citizenship is promoted, according to the Integration Act and social security system, by the requirement that immigrants should mainly get their livelihood through work. In my study I approach citizenship on four levels: the global, national, work community and private levels. In the study, the global has constituted the largest possible context, which refers to the local affects of global processes. The local and the global come together in the research in that globalisation is realised on the local level, i.e. in small communities such as work communities. The objective of the study is to examine how the citizenship of immigrants who live and work in Finland is constructed in the everyday life of a work community. The most central concept of the study is cultural script, which is based on prevailing forms of knowing, and which are constructed in different ways in different times and cultures. Conflicts of scripts in the working life and difficulties in understanding and applying them are in the centre of the study. In the study, the working life experiences of immigrants are approached through narrative research. The research material consists of the working life narratives of nine immigrants who live and work in Finland permanently. Each interviewee has been interviewed 2 4 times so the research material consists of 26 interviews. The material has been analysed from the points of view of perception, feeling and action. Deborah Tannen s and William Labov s as well as Matti Hyvärinen s method of expectancy analysis to locate cultural scripts has been utilised to organise the research material. In addition, David Herman s concepts of participatory roles and event types formed in narratives have been used in the analysis of the material. The basis in the analysis is that the world, events and experiences do not define the available processes; they are always culturally and individually anchored choices of the speaker and narrator. The most important results of the study are related to the gap between globalisation and everyday life. The discussion about the future need for workforce due to the changing population structure as well as about the benefits for national economy brought by internationalisation has continued in Finland for years. However, the working life narratives of the immigrants interviewed for the study show that an average citizen and member of a work community does not immediately encounter the macro level benefits in, for example, the mobility of workforce. In most of the working life narratives there was a point in speaking and saying, in which the immigrant worker either dares to speak or falls silent. Sometimes the courage to speak was related to language skills but more to the courage to be seen and to be part of a Finnish work community. Other workers that either speak their colleague with an immigrant background into a part of their work community or marginalise the colleague with their silence have an important role in a Finnish work community. In several working life narratives, the script of the Finnish working life and work community, the way to work, was opened to the immigrant and the so-called script exchange did not take place. The study shows that working life experiences and inclusion and exclusion built on the working life have an important role in the construction of active citizenship. The detailed analysis of the working life experience narratives gives new, relevant research data about citizenship as inclusion.

Monetary policy rules and estimated reaction functions for the European Central Bank

This thesis studies the interest-rate policy of the ECB by estimating monetary policy rules using real-time data and central bank forecasts. The aim of the estimations is to try to characterize a decade of common monetary policy and to look at how different models perform at this task.The estimated rules include: contemporary Taylor rules, forward-looking Taylor rules, nonlinearrules and forecast-based rules. The nonlinear models allow for the possibility of zone-like preferences and an asymmetric response to key variables. The models therefore encompass the most popular sub-group of simple models used for policy analysis as well as the more unusual non-linear approach. In addition to the empirical work, this thesis also contains a more general discussion of monetary policy rules mostly from a New Keynesian perspective. This discussion includes an overview of some notable related studies, optimal policy, policy gradualism and several other related subjects. The regression estimations are performed with either least squares or the generalized method of moments depending on the requirements of the estimations. The estimations use data from both the Euro Area Real-Time Database and the central bank forecasts published in ECB Monthly Bulletins. These data sources represent some of the best data that is available for this kind of analysis. The main results of this thesis are that forward-looking behavior appears highly prevalent, but that standard forward-looking Taylor rules offer only ambivalent results with regard to inflation. Nonlinear models are shown to work, but on the other hand do not have a strong rationale over a simpler linear formulation. However, the forecasts appear to be highly useful in characterizing policy and may offer the most accurate depiction of a predominantly forward-looking central bank. In particular the inflation response appears much stronger while the output response becomes highly forward-looking as well.

Microfinance, Efficiency and Agricultural Production in Bangladesh

The objectives of this study were to make a detailed and systematic empirical analysis of microfinance borrowers and non-borrowers in Bangladesh and also examine how efficiency measures are influenced by the access to agricultural microfinance. In the empirical analysis, this study used both parametric and non-parametric frontier approaches to investigate differences in efficiency estimates between microfinance borrowers and non-borrowers. This thesis, based on five articles, applied data obtained from a survey of 360 farm households from north-central and north-western regions in Bangladesh. The methods used in this investigation involve stochastic frontier (SFA) and data envelopment analysis (DEA) in addition to sample selectivity and limited dependent variable models. In article I, technical efficiency (TE) estimation and identification of its determinants were performed by applying an extended Cobb-Douglas stochastic frontier production function. The results show that farm households had a mean TE of 83% with lower TE scores for the non-borrowers of agricultural microfinance. Addressing institutional policies regarding the consolidation of individual plots into farm units, ensuring access to microfinance, extension education for the farmers with longer farming experience are suggested to improve the TE of the farmers. In article II, the objective was to assess the effects of access to microfinance on household production and cost efficiency (CE) and to determine the efficiency differences between the microfinance participating and non-participating farms. In addition, a non-discretionary DEA model was applied to capture directly the influence of microfinance on farm households production and CE. The results suggested that under both pooled DEA models and non-discretionary DEA models, farmers with access to microfinance were significantly more efficient than their non-borrowing counterparts. Results also revealed that land fragmentation, family size, household wealth, on farm-training and off farm income share are the main determinants of inefficiency after effectively correcting for sample selection bias. In article III, the TE of traditional variety (TV) and high-yielding-variety (HYV) rice producers were estimated in addition to investigating the determinants of adoption rate of HYV rice. Furthermore, the role of TE as a potential determinant to explain the differences of adoption rate of HYV rice among the farmers was assessed. The results indicated that in spite of its much higher yield potential, HYV rice production was associated with lower TE and had a greater variability in yield. It was also found that TE had a significant positive influence on the adoption rates of HYV rice. In article IV, we estimated profit efficiency (PE) and profit-loss between microfinance borrowers and non-borrowers by a sample selection framework, which provided a general framework for testing and taking into account the sample selection in the stochastic (profit) frontier function analysis. After effectively correcting for selectivity bias, the mean PE of the microfinance borrowers and non-borrowers were estimated at 68% and 52% respectively. This suggested that a considerable share of profits were lost due to profit inefficiencies in rice production. The results also demonstrated that access to microfinance contributes significantly to increasing PE and reducing profit-loss per hectare land. In article V, the effects of credit constraints on TE, allocative efficiency (AE) and CE were assessed while adequately controlling for sample selection bias. The confidence intervals were determined by the bootstrap method for both samples. The results indicated that differences in average efficiency scores of credit constrained and unconstrained farms were not statistically significant although the average efficiencies tended to be higher in the group of unconstrained farms. After effectively correcting for selectivity bias, household experience, number of dependents, off-farm income, farm size, access to on farm training and yearly savings were found to be the main determinants of inefficiencies. In general, the results of the study revealed the existence substantial technical, allocative, economic inefficiencies and also considerable profit inefficiencies. The results of the study suggested the need to streamline agricultural microfinance by the microfinance institutions (MFIs), donor agencies and government at all tiers. Moreover, formulating policies that ensure greater access to agricultural microfinance to the smallholder farmers on a sustainable basis in the study areas to enhance productivity and efficiency has been recommended. Key Words: Technical, allocative, economic efficiency, DEA, Non-discretionary DEA, selection bias, bootstrapping, microfinance, Bangladesh.

Smoking patterns and lung function : A longitudinal twin study

In many countries, the prevalence of smoking and smokers average cigarette consumption have decreased, with occasional smoking and daily light smoking (1-4 cigarettes per day, CPD) becoming more common. Despite these changes in smoking patterns, the prevalence of chronic obstructive pulmonary disease (COPD), a disorder characterized by a progressive decline in lung function, continues to rise globally. Smoking is the most important factor causing COPD, however, not all smokers develop the disease. Genetic factors partly explain the inter-individual differences in lung function and susceptibility of some smokers to COPD. No earlier research on the genetic and environmental determinants of lung function or on the phenomenon of light smoking exists in the Finnish population. Further, the association between low-rate smoking patterns and COPD remains partly unknown. This thesis aimed to study the prevalence and consistency of light smoking longitudinally in the Finnish population, to assess the characteristics of light smokers, and to examine the risks of chronic bronchitis and COPD associated with changing smoking patterns over time. A further aim was to estimate longitudinally the proportions of genetic and environmental factors that explain the inter-individual variances in lung function. Data from the Older Finnish Twin Cohort, including same-sex twin pairs born in Finland before 1958, were used. Smoking patterns and chronic bronchitis symptoms were consistently assessed in surveys conducted in 1975, 1981, and 1990. National registry data on reimbursement eligibilities and medication purchases were used to define COPD. Lung function data were obtained from a subsample of the cohort, 217 female twin pairs, who attended spirometry in 2000 and 2003 as part of the Finnish Twin Study on Ageing. The genetic and environmental influences on lung function were estimated by using genetic modeling. This thesis found that light smokers are more often female, well-educated, and exhibit a healthier lifestyle than heavy smokers. At individual level, light smoking is rarely a constant pattern. Light smoking, reducing from heavier smoking to light smoking, and relapsing to light smoking after quitting, are among patterns associated with an increased risk of chronic bronchitis and COPD. Constant light smoking is associated with an increased use of inhaled anticholinergics, a medication for CODP. In addition to smoking, other environmental factors influence lung function in the older age. During a three-year follow-up, new environmental effects influencing spirometry values were observed, whereas the genes affecting lung function remained mostly the same. In conclusion, no safe level of daily smoking exists with regard to pulmonary diseases. Even daily light smoking in middle-age is associated with increased respiratory morbidity later in life. Smoking reduction does not decrease the risk of COPD, and should not be recommended as an alternative to quitting smoking. In elderly people, attention should also be drawn to other factors that can prevent poor lung function.

Lumettoman maan routaolojen mallintaminen ja ennustettavuus muuttuvassa ilmastossa

Raportissa on arvioitu ilmastonmuutoksen vaikutusta Suomen maaperän talviaikaiseen jäätymiseen lämpösummien perusteella. Laskelmat kuvaavat roudan paksuutta nimenomaisesti lumettomilla alueilla, esimerkiksi teillä, joilta satanut lumi aurataan pois. Luonnossa lämpöä eristävän lumipeitteen alla routaa on ohuemmin kuin tällaisilla lumettomilla alueilla. Toisaalta luonnollisessa ympäristössä paikalliset erot korostuvat johtuen mm. maalajeista ja kasvillisuudesta. Roudan paksuudet laskettiin ensin perusjakson 1971–2000 ilmasto-oloissa talviaikaisten säähavaintotietoihin pohjautuvien lämpötilojen perusteella. Sen jälkeen laskelmat toistettiin kolmelle tulevalle ajanjaksolle (2010–2039, 2040–2069 ja 2070–2099) kohottamalla lämpötiloja ilmastonmuutosmallien ennustamalla tavalla. Laskelman pohjana käytettiin 19 ilmastomallin A1B-skenaarioajojen keskimäärin simuloimaa lämpötilan muutosta. Tulosten herkkyyden arvioimiseksi joitakin laskelmia tehtiin myös tätä selvästi heikompaa ja voimakkaampaa lämpenemisarviota käyttäen. A1B-skenaarion mukaisen lämpötilan nousun toteutuessa nykyisiä mallituloksia vastaavasti routakerros ohenee sadan vuoden aikana Pohjois-Suomessa 30–40 %, suuressa osassa maan keski- ja eteläosissa 50–70 %. Jo lähivuosikymmeninä roudan ennustetaan ohentuvan 10–30 %, saaristossa enemmän. Mikäli lämpeneminen toteutuisi voimakkaimman tarkastellun vaihtoehdon mukaisesti, roudan syvyys pienenisi tätäkin enemmän. Roudan paksuuden vuosienvälistä vaihtelua ja sen muuttumista tulevaisuudessa pyrittiin myös arvioimaan. Leutoina talvina routa ohenee enemmän kuin normaaleina tai ankarina pakkastalvina. Päivittäistä sään vaihtelua simuloineen säägeneraattorin tuottamassa aineistoissa esiintyi kuitenkin liian vähän hyvin alhaisia ja hyvin korkeita lämpötiloja. Siksi näitten lämpötilatietojen pohjalta laskettu roudan paksuuskin ilmeisesti vaihtelee liian vähän vuodesta toiseen. Kelirikkotilanteita voi esiintyä myös kesken routakauden, jos useamman päivän suojasää ja samanaikainen runsas vesisade pääsevät sulattamaan maata. Tällaiset routakauden aikana sattuvat säätilat näyttävätkin yleistyvän lähivuosikymmeninä. Vuosisadan loppua kohti ne sen sijaan maan eteläosissa jälleen vähenevät, koska routakausi lyhenee oleellisesti. Tulevia vuosikymmeniä koskevien ilmastonmuutosennusteiden ohella routaa ja kelirikon esiintymistä on periaatteessa mahdollista ennustaa myös lähiaikojen sääennusteita hyödyntäen. Pitkät, viikkojen tai kuukausien mittaiset sääennusteet eivät tosin ole ainakaan vielä erityisen luotettavia, mutta myös lyhyemmistä ennusteista voisi olla hyötyä mm. tienpitoa suunniteltaessa.

Costs and Benefits of a Shared Digital Long-Term Preservation System

This paper describes the cost-benefit analysis of digital long-term preservation (LTP) that was carried out in the context of the Finnish National Digital Library Project (NDL) in 2010. The analysis was based on the assumption that as many as 200 archives, libraries, and museums will share an LTP system. The term ‘system’ shall be understood as encompassing not only information technology, but also human resources, organizational structures, policies and funding mechanisms. The cost analysis shows that an LTP system will incur, over the first 12 years, cumulative costs of €42 million, i.e. an average of €3.5 million per annum. Human resources and investments in information technology are the major cost factors. After the initial stages, the analysis predicts annual costs of circa €4 million. The analysis compared scenarios with and without a shared LTP system. The results indicate that a shared system will have remarkable benefits. At the development and implementation stages, a shared system shows an advantage of €30 million against the alternative scenario consisting of five independent LTP solutions. During the later stages, the advantage is estimated at €10 million per annum. The cumulative cost benefit over the first 12 years would amount to circa €100 million.