Essays on the Modeling and Prediction of Volatility and Higher Moments of Stock Returns (summary section only)

One of the most fundamental and widely accepted ideas in finance is that investors are compensated through higher returns for taking on non-diversifiable risk. Hence the quantification, modeling and prediction of risk have been, and still are one of the most prolific research areas in financial economics. It was recognized early on that there are predictable patterns in the variance of speculative prices. Later research has shown that there may also be systematic variation in the skewness and kurtosis of financial returns. Lacking in the literature so far, is an out-of-sample forecast evaluation of the potential benefits of these new more complicated models with time-varying higher moments. Such an evaluation is the topic of this dissertation. Essay 1 investigates the forecast performance of the GARCH (1,1) model when estimated with 9 different error distributions on Standard and Poor’s 500 Index Future returns. By utilizing the theory of realized variance to construct an appropriate ex post measure of variance from intra-day data it is shown that allowing for a leptokurtic error distribution leads to significant improvements in variance forecasts compared to using the normal distribution. This result holds for daily, weekly as well as monthly forecast horizons. It is also found that allowing for skewness and time variation in the higher moments of the distribution does not further improve forecasts. In Essay 2, by using 20 years of daily Standard and Poor 500 index returns, it is found that density forecasts are much improved by allowing for constant excess kurtosis but not improved by allowing for skewness. By allowing the kurtosis and skewness to be time varying the density forecasts are not further improved but on the contrary made slightly worse. In Essay 3 a new model incorporating conditional variance, skewness and kurtosis based on the Normal Inverse Gaussian (NIG) distribution is proposed. The new model and two previously used NIG models are evaluated by their Value at Risk (VaR) forecasts on a long series of daily Standard and Poor’s 500 returns. The results show that only the new model produces satisfactory VaR forecasts for both 1% and 5% VaR Taken together the results of the thesis show that kurtosis appears not to exhibit predictable time variation, whereas there is found some predictability in the skewness. However, the dynamic properties of the skewness are not completely captured by any of the models.

Anger is associated with subclinical atherosclerosis in low SES but not in higher SES men and women

We investigated the associations of anger and cynicism with carotid artery intima-media thickness (IMT) and whether these associations were moderated by childhood or adulthood socioeconomic status (SES). The participants were 647 men and 893 women derived from the population-based Cardiovascular Risk in Young Finns Study. Childhood SES was measured in 1980 when the participants were aged 3-18. In 2001, adulthood SES, anger, cynicism, and IMT were measured. There were no associations between anger or cynicism and IMT in the entire population, but anger was associated with thicker IMT in participants who had experienced low SES in childhood. This association persisted after adjustment for a host of cardiovascular risk factors. It is concluded that the ill health-effects of psychological factors such as anger may be more pronounced in individuals who have been exposed to adverse socioeconomic circumstances early in life.

Contamination routes and control of Listeria monocytogenes in Food Production

Listeria monocytogenes is the causative agent of the severe foodborne infection listeriosis. The number of listeriosis cases in recent years has increased in many European countries, including Finland. Contamination of the pathogen needs to be minimized and growth to high numbers in foods prevented in order to reduce the incidence of human cases. The aim of this study was to evaluate contamination routes of L. monocytogenes in the food chain and to investigate methods for control of the pathogen in food processing. L. monocytogenes was commonly found in wild birds, the pig production chain and in pork production plants. It was found most frequently in birds feeding at landfill site, organic farms, tonsil samples, and sites associated with brining. L. monococytogenes in birds, farms, food processing plant or foods did not form distinct genetic groups, but populations overlapped. The majority of genotypes recovered from birds were also detected in foods, food processing environments and other animal species and birds may disseminate L. monocytogenes into food chain. Similar genotypes were found in different pigs on the same farm, as well as in pigs on farms and later in the slaughterhouse. L. monocytogenes contamination spreads at farm level and may be a contamination source into slaughterhouses and further into meat. Incoming raw pork in the processing plant was frequently contaminated with L. monocytogenes and genotypes in raw meat were also found in processing environment and in RTE products. Thus, raw material seems to be a considerable source of contamination into processing facilities. In the pork processing plant, the prevalence of L. monocytogenes increased in the brining area, showing that the brining was an important contamination site. Recovery of the inoculated L. monocytogenes strains showed that there were strain-specific differences in the ability to survive in lettuce and dry sausage. The ability of some L. monocytogenes strains to survive well in food production raises a challenge for industry, because these strains can be especially difficult to remove from the products and raises a need to use an appropriate hurdle concept to control most resistant strains. Control of L. monocytogenes can be implemented throughout the food chain. Farm-specific factors affected the prevalence of L. monocytogenes and good farm-level practices can therefore be utilized to reduce the prevalence of this pathogen on the farm and possibly further in the food chain. Well separated areas in a pork production plant had low prevalences of L. monocytogenes, thus showing that compartmentalization controls the pathogen in the processing line. The food processing plant, especially the brining area, should be subjected to disassembling, extensive cleaning and disinfection to eliminate persistent contamination by L. monocytogenes, and replacing brining with dry-salting should be considered. All of the evaluated washing solutions decreased the populations of L. monocytogenes on precut lettuce, but did not eliminate the pathogen. Thus, the safety of fresh-cut produce cannot rely on washing with disinfectants, and high-quality raw material and good manufacturing practices remain important. L. monocytogenes was detected in higher levels in sausages without the protective culture than in sausages with this protective strain, although numbers of L. monocytogenes by the end of the ripening decreased to the level of < 100 MPN/g in all sausages. Protective starter cultures provide an appealing hurdle in dry sausage processing and assist in the control of L. monocytogenes.

Overwintering ecology of northern field layer plants : snow and photosynthesis in Vaccinium vitis-idaea L.

Winter is a significant period for the seasonality of northern plants, but is often overlooked when studying the interactions of plants and their environment. This study focuses on the effects of overwintering conditions, including warm winter periods, snow, and snowmelt on boreal and sub-Arctic field layer plants. Wintertime photosynthesis and related physiological factors of evergreen dwarf shrubs, particularly of Vaccinium vitis-idaea, are emphasised. The work combines experiments both in the field and in growth chambers with measurements in natural field conditions. Evergreen dwarf shrubs are predominantly covered by snow in the winter. The protective snow cover provides favourable conditions for photosynthesis, especially during the spring before snowmelt. The results of this study indicate that photosynthesis occurs under the snow in V. vitis-idaea. The light response of photosynthesis determined in field conditions during the period of snow cover shows that positive net CO2 exchange is possible under the snow in the prevailing light and temperature. Photosynthetic capacity increases readily during warm periods in winter and the plants are thus able to replenish carbohydrate reserves lost through respiration. Exposure to low temperatures in combination with high light following early snowmelt can set back photosynthesis as sustained photoprotective measures are activated and photodamage begins to build up. Freezing may further decrease the photosynthetic capacity. The small-scale distribution of many field layer plants, including V. vitis-idaea and other dwarf shrubs, correlates with the snow distribution in a forest. The results of this study indicate that there are species-specific differences in the snow depth affinity of the field and ground layer species. Events and processes taking place in winter can have a profound effect on the overall performance of plants and on the interactions between plants and their environment. Understanding the processes involved in the overwintering of plants is increasingly important as the wintertime climate in the north is predicted to change in the future.

Production process of Scots pine.

The accompanying collective research report is the result of the research project in 1986­90 between The Finnish Academy and the former Soviet Academy of Sciences. The project was organized around common field work in Finland and in the former Soviet Union and theoretical analyses of tree growth determining processes. Based on theoretical analyses, dynamic stand growth models were made and their parameters were determined utilizing the field results. Annual cycle affects the tree growth. Our theoretical approach was based on adaptation to local climate conditions from Lapland to South Russia. The initiation of growth was described as a simple low and high temperature accumulation driven model. Linking the theoretical model with long term temperature data allowed us to analyze what type of temperature response produced favorable outcome in different climates. Initiation of growth consumes the carbohydrate reserves in plants. We measured the dynamics of insoluble and soluble sugars in the very northern and Karelian conditions. Clear cyclical pattern was observed but the differences between locations were surprisingly small. Analysis of field measurements of CO2 exchange showed that irradiance is the dominating factor causing variation in photosynthetic rate in natural conditions during summer. The effect of other factors is so small that they can be omitted without any considerable loss of accuracy. A special experiment carried out in Hyytiälä showed that the needle living space, defined as the ratio between the shoot cylindric volume and needle surface area, correlates with the shoot photosynthesis. The penetration of irradiance into Scots pine canopy is a complicated phenomenon because of the movement of the sun on the sky and the complicated structure of branches and needles. A moderately simple but balanced forest radiation regime submodel was constructed. It consists of the tree crown and forest structure, the gap probability calculation and the consideration of spatial and temporal variation of radiation inside the forest. The common field excursions in different geographical regions resulted in a lot of experimental data of regularities of woody structures. The water transport seems to be a good common factor to analyse these properties of tree structure. There are evident regressions between cross-sectional areas measured at different locations along the water pathway from fine roots to needles. The observed regressions have clear geographical trends. For example, the same cross-sectional area can support three times higher needle mass in South Russia than in Lapland. Geographical trends can also be seen in shoot and needle structure. Analysis of data published by several Russian authors show, that one ton of needles transpire 42 ton of water a year. This annual amount of transpiration seems to be independent of geographical location, year and site conditions. The produced theoretical and experimental material is utilised in the development of stand growth model that describes the growth and development of Scots pine stands in Finland and the former Soviet Union. The core of the model is carbon and nutrient balances. This means that carbon obtained in photosynthesis is consumed for growth and maintenance and nutrients are taken according to the metabolic needs. The annual photosynthetic production by trees in the stand is determined as a function of irradiance and shading during the active period. The utilisation of the annual photosynthetic production to the growth of different components of trees is based on structural regularities. Since the fundamental metabolic processes are the same in all locations the same growth model structure can be applied in the large range of Scots pine. The annual photosynthetic production and structural regularities determining the allocation of resources have geographical features. The common field measurements enable the application of the model to the analysis of growth and development of stands growing on the five locations of experiments. The model enables the analysis of geographical differences in the growth of Scots pine. For example, the annual photosynthetic production of a 100-year-old stand at Voronez is 3.5 times higher than in Lapland. The share consumed to needle growth (30 %) and to growth of branches (5 %) seems to be the same in all locations. In contrast, the share of fine roots is decreasing when moving from north to south. It is 20 % in Lapland, 15 % in Hyytiälä Central Finland and Kentjärvi Karelia and 15 % in Voronez South Russia. The stem masses (115­113 ton/ha) are rather similar in Hyytiälä, Kentjärvi and Voronez, but rather low (50 ton/ha) in Lapland. In Voronez the height of the trees reach 29 m being in Hyytiälä and Kentjärvi 22 m and in Lapland only 14 m. The present approach enables utilization of structural and functional knowledge, gained in places of intensive research, in the analysis of growth and development of any stand. This opens new possibilities for growth research and also for applications in forestry practice.

Viherrevonhäntä ja kananhirssi vieraslajeina Suomessa

Kasvit ovat kautta aikojen levinneet uusille elinpaikoille. Kasvin asettumista uuteen paikkaan voidaan tarkastella prosessina, jossa on erilaisia vaiheita ja eri vaiheissa eri tekijät ovat tärkeitä. Ilmasto ja erityisesti lämpötila vaikuttavat kasvien levinneisyyteen ja leviämiseen uusille paikoille ja siksi ilmaston lämpenemisen ennustetaan siirtävän kasvien levinneisyysalueita kohti pohjoista. On mahdollista, että Suomeenkin leviäisi etelämmästä muiden kasvien ohella haitallisia rikkakasvilajeja, kuten esimerkiksi viherrevonhäntä (Amaranthus retroflexus L.) ja kananhirssi (Echinochloa crus-galli L. Beauv.). Tämän tutkimuksen tarkoituksena oli selvittää, selviävätkö viherrevonhäntä ja kananhirssi Suomessa pelto-olosuhteissa ja pohtia niiden vakiintumisen ja leviämisen mahdollisuuksia. Toinen tarkoitus oli selvittää ilmaston lämpenemisen vaikutusta näiden rikkakasvien kasvuun. Tutkimus suoritettiin kenttä- sekä kasvihuonekokeena. Viherrevonhäntä kasvoi pellolla hyvin huolimatta myöhäisestä itämisestä, mutta kananhirssi iti ja kasvoi pellolla huonosti. Kasvihuoneessa molemmat kasvoivat hyvin. Kilpailu vähensi viherrevonhännän ja kananhirssin vegetatiivista kasvua vain kasvihuoneessa, mutta siementuottoon kilpailu vaikutti sekä kasvihuoneessa että pellolla. Kasvihuoneessa korkeampi lämpötila ei vaikuttanut viherrevonhännän tai kananhirssin vegetatiiviseen kasvuun, mutta viherrevonhännän siementuotto parani lämpimämmässä. Lämpötilalla ei ollut vaikutusta kananhirssin siementuotantoon. Tutkimuksen tuloksista voidaan päätellä, että viherrevonhäntä voi hyvinkin kasvaa Suomessa jo nykyisissä lämpötiloissa, mutta siementuotto ei välttämättä olisi varmaa. Viherrevonhäntä voisi näin ollen hyötyä tulevaisuuden pidemmästä kasvukaudesta. Kananhirssin osalta tulokset olivat ristiriitaiset ja ilmaston lämpenemisen vaikutuksia kananhirssiin on tämän tutkimuksen perusteella hankala arvioida.

Phytophthora in Finnish nurseries

Human-mediated movement of plants and plant products is now generally accepted to be the primary mode of introduction of plant pathogens. Species of the genus Phytophthora are commonly spread in this way and have caused severe epidemics in silviculture, horticulture as well as natural systems all over the world. The aims of the study were to gather information on the occurrence of Phytophthora spp. in Finnish nurseries, to produce information for risk assessments for these Phytophthora spp. by determining their host ranges and tolerance of cold temperatures, and to establish molecular means for their detection. Phytophthora cactorum was found to persist in natural waterbodies and results suggest that irrigation water might be a source of inoculum in nurseries. In addition to P. cactorum, isolates from ornamental nursery Rhododendron yielded three species new to Finland: P. ramorum, P. plurivora and P. pini. The only species with quarantine status, P. ramorum, was most adapted to growth in cold temperatures and able to persist in the nursery in spite of an annual sanitation protocol. Phytophthora plurivora and the closely related P. pini had more hosts among Nordic tree and plant species than P. ramorum and P. cactorum, and also had higher infectivity rates. All four species survived two weeks in -5 °C , and thus soil survival of these Phytophthoras in Finland is likely under current climatic conditions. The most common tree species in Finnish nurseries, Picea abies, was highly susceptible to P. plurivora and P. pini in pathogenicity trials. In a histological examination of P. plurivora in P. abies shoot tissues, fast necrotrophic growth was observed in nearly all tissues. The production of propagules in P. abies shoot tissue was only weakly indicated. In this study, a PCR DGGE technique was developed for simultaneous detection and identification of Phytophthora spp. It reliably detected Phytophthora in plant tissues and could discriminate most test species as well as indicate instances of multiple-species infections. It proved to be a useful detection and identification tool either applied alone or in concert with traditional isolation culture techniques. All of the introduced species of Phytophthora had properties that promote a high risk of establishment and spread in Finland. It is probable that more pathogens of this genus will be introduced and become established in Finland and other Nordic countries unless efficient phytosanitary control becomes standard practice in the international plant trade.