Topics in Spatial Econometrics - With Applications to House Prices

Topics in Spatial Econometrics — With Applications to House Prices Spatial effects in data occur when geographical closeness of observations influences the relation between the observations. When two points on a map are close to each other, the observed values on a variable at those points tend to be similar. The further away the two points are from each other, the less similar the observed values tend to be. Recent technical developments, geographical information systems (GIS) and global positioning systems (GPS) have brought about a renewed interest in spatial matters. For instance, it is possible to observe the exact location of an observation and combine it with other characteristics. Spatial econometrics integrates spatial aspects into econometric models and analysis. The thesis concentrates mainly on methodological issues, but the findings are illustrated by empirical studies on house price data. The thesis consists of an introductory chapter and four essays. The introductory chapter presents an overview of topics and problems in spatial econometrics. It discusses spatial effects, spatial weights matrices, especially k-nearest neighbours weights matrices, and various spatial econometric models, as well as estimation methods and inference. Further, the problem of omitted variables, a few computational and empirical aspects, the bootstrap procedure and the spatial J-test are presented. In addition, a discussion on hedonic house price models is included. In the first essay a comparison is made between spatial econometrics and time series analysis. By restricting the attention to unilateral spatial autoregressive processes, it is shown that a unilateral spatial autoregression, which enjoys similar properties as an autoregression with time series, can be defined. By an empirical study on house price data the second essay shows that it is possible to form coordinate-based, spatially autoregressive variables, which are at least to some extent able to replace the spatial structure in a spatial econometric model. In the third essay a strategy for specifying a k-nearest neighbours weights matrix by applying the spatial J-test is suggested, studied and demonstrated. In the final fourth essay the properties of the asymptotic spatial J-test are further examined. A simulation study shows that the spatial J-test can be used for distinguishing between general spatial models with different k-nearest neighbours weights matrices. A bootstrap spatial J-test is suggested to correct the size of the asymptotic test in small samples.

Hedging Options with Different Time Units in the Pricing Models

This study examined the effects of the Greeks of the options and the trading results of delta hedging strategies, with three different time units or option-pricing models. These time units were calendar time, trading time and continuous time using discrete approximation (CTDA) time. The CTDA time model is a pricing model, that among others accounts for intraday and weekend, patterns in volatility. For the CTDA time model some additional theta measures, which were believed to be usable in trading, were developed. The study appears to verify that there were differences in the Greeks with different time units. It also revealed that these differences influence the delta hedging of options or portfolios. Although it is difficult to say anything about which is the most usable of the different time models, as this much depends on the traders view of the passing of time, different market conditions and different portfolios, the CTDA time model can be viewed as an attractive alternative.

An Empirical Comparison of Linear and Nonlinear Volatility Models for Nordic Stock Returns

This paper examines how volatility in financial markets can preferable be modeled. The examination investigates how good the models for the volatility, both linear and nonlinear, are in absorbing skewness and kurtosis. The examination is done on the Nordic stock markets, including Finland, Sweden, Norway and Denmark. Different linear and nonlinear models are applied, and the results indicates that a linear model can almost always be used for modeling the series under investigation, even though nonlinear models performs slightly better in some cases. These results indicate that the markets under study are exposed to asymmetric patterns only to a certain degree. Negative shocks generally have a more prominent effect on the markets, but these effects are not really strong. However, in terms of absorbing skewness and kurtosis, nonlinear models outperform linear ones.

Evaluating Option Pricing Models

This study evaluates three different time units in option pricing: trading time, calendar time and continuous time using discrete approximations (CTDA). The CTDA-time model partitions the trading day into 30-minute intervals, where each interval is given a weight corresponding to the historical volatility in the respective interval. Furthermore, the non-trading volatility, both overnight and weekend volatility, is included in the first interval of the trading day in the CTDA model. The three models are tested on market prices. The results indicate that the trading-time model gives the best fit to market prices in line with the results of previous studies, but contrary to expectations under non-arbitrage option pricing. Under non-arbitrage pricing, the option premium should reflect the cost of hedging the expected volatility during the option’s remaining life. The study concludes that the historical patterns in volatility are not fully accounted for by the market, rather the market prices options closer to trading time.

Development of mass balance models for lakes

Yhteenveto: Järvien ainetasemallien kehittäminen.

Snow cover models in operational watershed forecasting

Yhteenveto: Lumimallit vesistöjen ennustemalleissa

World parliament – fact or fiction? On the feasibility of world parliamentary models

Cosmopolitan ideals have been on the philosophical agenda for several millennia but the end of the Cold War started a new discussion on state sovereignty, global democracy, the role of international law and global institutions. The Westphalian state system in practice since the 17th century is transforming and the democracy deficit needs new solutions. An impetus has been the fact that in the present world, an international body representing global citizens does not exist. In this Master’s thesis, the possibility of establishing a world parliament is examined. In a case analysis, 17 models on world parliament from two journals, a volume of essays and two other publications are discussed. Based on general observations, the models are divided into four thematic groups. The models are analyzed with an emphasis on feasible and probable elements. Further, a new scenario with a time frame of thirty years is proposed based on the methodology of normative futures studies, taking special interest in causal relationships and actions leading to change. The scenario presents three gradual steps that each need to be realized before a sustainable world parliament is established. The theoretical framework is based on social constructivism, and changes in international and multi-level governance are examined with the concepts of globalization, democracy and sovereignty. A feasible, desirable and credible world parliament is constituted gradually by implying electoral, democratic and legal measures for members initially from exclusively democratic states, parliamentarians, non-governmental organizations and other groups. The parliament should be located outside the United Nations context, since a new body avoids the problem of inefficiency currently prevailing in the UN. The main objectives of the world parliament are to safeguard peace and international law and to offer legal advice in cases when international law has been violated. A feasible world parliament is advisory in the beginning but it is granted legislative powers in the future. The number of members in the world parliament could also be extended following the example of the EU enlargement process.

Models of Dispersal and Diversification

Ecology and evolutionary biology is the study of life on this planet. One of the many methods applied to answering the great diversity of questions regarding the lives and characteristics of individual organisms, is the utilization of mathematical models. Such models are used in a wide variety of ways. Some help us to reason, functioning as aids to, or substitutes for, our own fallible logic, thus making argumentation and thinking clearer. Models which help our reasoning can lead to conceptual clarification; by expressing ideas in algebraic terms, the relationship between different concepts become clearer. Other mathematical models are used to better understand yet more complicated models, or to develop mathematical tools for their analysis. Though helping us to reason and being used as tools in the craftmanship of science, many models do not tell us much about the real biological phenomena we are, at least initially, interested in. The main reason for this is that any mathematical model is a simplification of the real world, reducing the complexity and variety of interactions and idiosynchracies of individual organisms. What such models can tell us, however, both is and has been very valuable throughout the history of ecology and evolution. Minimally, a model simplifying the complex world can tell us that in principle, the patterns produced in a model could also be produced in the real world. We can never know how different a simplified mathematical representation is from the real world, but the similarity models do strive for, gives us confidence that their results could apply. This thesis deals with a variety of different models, used for different purposes. One model deals with how one can measure and analyse invasions; the expanding phase of invasive species. Earlier analyses claims to have shown that such invasions can be a regulated phenomena, that higher invasion speeds at a given point in time will lead to a reduction in speed. Two simple mathematical models show that analysis on this particular measure of invasion speed need not be evidence of regulation. In the context of dispersal evolution, two models acting as proof-of-principle are presented. Parent-offspring conflict emerges when there are different evolutionary optima for adaptive behavior for parents and offspring. We show that the evolution of dispersal distances can entail such a conflict, and that under parental control of dispersal (as, for example, in higher plants) wider dispersal kernels are optimal. We also show that dispersal homeostasis can be optimal; in a setting where dispersal decisions (to leave or stay in a natal patch) are made, strategies that divide their seeds or eggs into fractions that disperse or not, as opposed to randomized for each seed, can prevail. We also present a model of the evolution of bet-hedging strategies; evolutionary adaptations that occur despite their fitness, on average, being lower than a competing strategy. Such strategies can win in the long run because they have a reduced variance in fitness coupled with a reduction in mean fitness, and fitness is of a multiplicative nature across generations, and therefore sensitive to variability. This model is used for conceptual clarification; by developing a population genetical model with uncertain fitness and expressing genotypic variance in fitness as a product between individual level variance and correlations between individuals of a genotype. We arrive at expressions that intuitively reflect two of the main categorizations of bet-hedging strategies; conservative vs diversifying and within- vs between-generation bet hedging. In addition, this model shows that these divisions in fact are false dichotomies.

Applications of Treatment Effects Models and Semiparametric Estimation

This thesis is composed of an introductory chapter and four applications each of them constituting an own chapter. The common element underlying each of the chapters is the econometric methodology. The applications rely mostly on the leading econometric techniques related to estimation of causal effects. The first chapter introduces the econometric techniques that are employed in the remaining chapters. Chapter 2 studies the effects of shocking news on student performance. It exploits the fact that the school shooting in Kauhajoki in 2008 coincided with the matriculation examination period of that fall. It shows that the performance of men declined due to the news of the school shooting. For women the similar pattern remains unobserved. Chapter 3 studies the effects of minimum wage on employment by employing the original Card and Krueger (1994; CK) and Neumark and Wascher (2000; NW) data together with the changes-in-changes (CIC) estimator. As the main result it shows that the employment effect of an increase in the minimum wage is positive for small fast-food restaurants and negative for big fast-food restaurants. Therefore, it shows that the controversial positive employment effect reported by CK is overturned for big fast-food restaurants and that the NW data are shown, in contrast to their original results, to provide support for the positive employment effect. Chapter 4 employs the state-specific U.S. data (collected by Cohen and Einav [2003; CE]) on traffic fatalities to re-evaluate the effects of seat belt laws on the traffic fatalities by using the CIC estimator. It confirms the CE results that on the average an implementation of a mandatory seat belt law results in an increase in the seat belt usage rate and a decrease in the total fatality rate. In contrast to CE, it also finds evidence on compensating-behavior theory, which is observed especially in the states by the border of the U.S. Chapter 5 studies the life cycle consumption in Finland, with the special interest laid on the baby boomers and the older households. It shows that the baby boomers smooth their consumption over the life cycle more than other generations. It also shows that the old households smoothed their life cycle consumption more as a result of the recession in the 1990s, compared to young households.