Elements of Volatility at High Frequency

Volatility is central in options pricing and risk management. It reflects the uncertainty of investors and the inherent instability of the economy. Time series methods are among the most widely applied scientific methods to analyze and predict volatility. Very frequently sampled data contain much valuable information about the different elements of volatility and may ultimately reveal the reasons for time varying volatility. The use of such ultra-high-frequency data is common to all three essays of the dissertation. The dissertation belongs to the field of financial econometrics. The first essay uses wavelet methods to study the time-varying behavior of scaling laws and long-memory in the five-minute volatility series of Nokia on the Helsinki Stock Exchange around the burst of the IT-bubble. The essay is motivated by earlier findings which suggest that different scaling laws may apply to intraday time-scales and to larger time-scales, implying that the so-called annualized volatility depends on the data sampling frequency. The empirical results confirm the appearance of time varying long-memory and different scaling laws that, for a significant part, can be attributed to investor irrationality and to an intraday volatility periodicity called the New York effect. The findings have potentially important consequences for options pricing and risk management that commonly assume constant memory and scaling. The second essay investigates modelling the duration between trades in stock markets. Durations convoy information about investor intentions and provide an alternative view at volatility. Generalizations of standard autoregressive conditional duration (ACD) models are developed to meet needs observed in previous applications of the standard models. According to the empirical results based on data of actively traded stocks on the New York Stock Exchange and the Helsinki Stock Exchange the proposed generalization clearly outperforms the standard models and also performs well in comparison to another recently proposed alternative to the standard models. The distribution used to derive the generalization may also prove valuable in other areas of risk management. The third essay studies empirically the effect of decimalization on volatility and market microstructure noise. Decimalization refers to the change from fractional pricing to decimal pricing and it was carried out on the New York Stock Exchange in January, 2001. The methods used here are more accurate than in the earlier studies and put more weight on market microstructure. The main result is that decimalization decreased observed volatility by reducing noise variance especially for the highly active stocks. The results help risk management and market mechanism designing.

Essays on Russia's Economic Transition

This study comprises an introductory section and three essays analysing Russia's economic transition from the early 1990s up to the present. The papers present a combination of both theoretical and empirical analysis on some of the key issues Russia has faced during its somewhat troublesome transformation from state-controlled command economy to market-based economy. The first essay analyses fiscal competition for mobile capital between identical regions in a transition country. A standard tax competition framework is extended to account for two features of a transition economy: the presence of two sectors, old and new, which differ in productivity; and a non-benevolent regional decision-maker. It is shown that in very early phase of transition, when the old sector clearly dominates, consumers in a transition economy may be better off in a competitive equilibrium. Decision-makers, on the other hand, will prefer to coordinate their fiscal policies. The second essay uses annual data for 1992-2003 to examine income dispersion and convergence across 76 Russian regions. Wide disparities in income levels have indeed emerged during the transition period. Dispersion has increased most among the initially better-off regions, whereas for the initially poorer regions no clear trend of divergence or convergence could be established. Further, some - albeit not highly robust - evidence was found of both unconditional and conditional convergence, especially among the initially richer regions. Finally, it is observed that there is much less evidence of convergence after the economic crisis of 1998. The third essay analyses industrial firms' engagement in provision of infrastructure services, such as heating, electricity and road maintenance. Using a unique dataset of 404 large and medium-sized industrial enterprises in 40 regions of Russia, the essay examines public infrastructure provision by Russian industrial enterprises. It is found that to a large degree engagement in infrastructure provision, as proxied by district heating production, is a Soviet legacy. Secondly, firms providing district heating to users outside their plant area are more likely to have close and multidimensional relations with the local public sector.

Puukaupan säännöt : Yksityismetsänomistajien ja metsäteollisuuden puukauppa Itä-Suomessa 1919 - 1939

The Finnish forest industry bought more than half of the timber used in factories and sawmills in the 1930s from non-industrial private forests (NIPF). This research investigates the rules conformed to this timber trade. The main research questions are: what were the rules that influenced the timber trade; and by whom they were set up? Attention is also paid to the factors which advanced the forest owners’ negotiation possibilities. A variety of sources were used: legal and company statutes, timber trade contracts, archives of the forest companies and organisations. Moreover, the written reminiscences collected by the Finnish Literature Society in the early 1970s were used to analyse the views of individual sellers and buyers. An institutional economics approach was applied as the theoretical framework of this study. In the timber trade the seller (forest owner) and the buyer (the employee of the forest company) agreed to the rules of the timber trade. They agreed about the amount and the price of the timber on sale, but also rules concerning, e.g., timber marking and harvesting. The forest companies had a strong control over the written contracts. Neither the private forest owners nor the forest organisations had much influence over these contracts. However, they managed to influence the rules which could not be found in the contracts. These written and unwritten rules regulated, for instance, the timber marking and measurement. The forest organisations such as Central Forestry Board Tapio (Keskusmetsäseura Tapio) and associations of forest owners (metsänhoitoyhdistykset) helped private forest owners in gaining more control over the timber marking. In timber marking, the forest owner selected trees to be included in the timber trade and gained more information, which he could use in the negotiations. The other rule, which was changed despite forest companies’ resistance, was the timber measurement. The Central Union of Agricultural Producers (MTK) negotiated with the Central Association of Finnish Woodworking Industries (SPKL) about changing the rules of the measurement practices. Even though SPKL did not support any changes, the new timber measurement law was accepted in the year 1938. The new law also created a supervisory authority to solve possible disagreements. Despite this the forest companies were still in charge of the measurement process in most cases. The private forest owners attained changes in the rules of the timber trade mainly during the 1930s. Earlier the relative weakness of the private forest organisations had diminished their negotiation positions. This changed in the 1930s as the private forest owners and their organisations became more active. At the same time the forest industry experienced a shortage of timber, especially pulp wood, and this provided the private forest owners with more leverage. Full-text (in Finnish) available at http://helda.helsinki.fi/handle/10224/4081

Do Measurement Errors in GDP Announcements Cause Output Fluctuations?

This thesis studies empirically whether measurement errors in aggregate production statistics affect sentiment and future output. Initial announcements of aggregate production are subject to measurement error, because many of the data required to compile the statistics are produced with a lag. This measurement error can be gauged as the difference between the latest revised statistic and its initial announcement. Assuming aggregate production statistics help forecast future aggregate production, these measurement errors are expected to affect macroeconomic forecasts. Assuming agents’ macroeconomic forecasts affect their production choices, these measurement errors should affect future output through sentiment. This thesis is primarily empirical, so the theoretical basis, strategic complementarity, is discussed quite briefly. However, it is a model in which higher aggregate production increases each agent’s incentive to produce. In this circumstance a statistical announcement which suggests aggregate production is high would increase each agent’s incentive to produce, thus resulting in higher aggregate production. In this way the existence of strategic complementarity provides the theoretical basis for output fluctuations caused by measurement mistakes in aggregate production statistics. Previous empirical studies suggest that measurement errors in gross national product affect future aggregate production in the United States. Additionally it has been demonstrated that measurement errors in the Index of Leading Indicators affect forecasts by professional economists as well as future industrial production in the United States. This thesis aims to verify the applicability of these findings to other countries, as well as study the link between measurement errors in gross domestic product and sentiment. This thesis explores the relationship between measurement errors in gross domestic production and sentiment and future output. Professional forecasts and consumer sentiment in the United States and Finland, as well as producer sentiment in Finland, are used as the measures of sentiment. Using statistical techniques it is found that measurement errors in gross domestic product affect forecasts and producer sentiment. The effect on consumer sentiment is ambiguous. The relationship between measurement errors and future output is explored using data from Finland, United States, United Kingdom, New Zealand and Sweden. It is found that measurement errors have affected aggregate production or investment in Finland, United States, United Kingdom and Sweden. Specifically, it was found that overly optimistic statistics announcements are associated with higher output and vice versa.

Essays on Microcredit in Rural Bangladesh

This thesis is a collection of three essays on Bangladeshi microcredit. One of the essays examines the effect of microcredit on the cost of crime. The other two analyze the functioning mechanism of microcredit programs, i.e. credit allocation rules and credit recovery policy. In Essay 1, the demand for microcredit and its allocation rules is studied. Microcredit is claimed to be the most effective means of supplying credit to the poorest of the poor in rural Bangladesh. This fact has not yet been examined among households who demand microcredit. The results of this essay show that educated households are more likely to demand microcredit and its demand does not differ by sex. The results also show that microcredit programs follow different credit allocation rules for male and female applicants. Education is an essential characteristic for both sexes that credit programs consider in allocating credit. In Essay 2, the focus is to establish a link between microcredit and the incidence of rural crime in Bangladesh. The basic hypothesis is that microcredit programs jointly hold the group responsibility which provides an incentive for group members to protect each other from criminal gang in order to safeguard their own economic interests. The key finding of this essay is that the average cost of crime for non-borrowers is higher than that for borrowers. In particular, 10% increase in the credit reduces the costs of crime by 4.2%. The third essay analyzes the reasons of high repayment rate amid Bangladeshi microcredit programs. The existing literature argues that credit applicants are able to screen out the high risk applicants in the group formulation stage using their superior local information. In addition, due to the joint liability mechanism of the programs, group members monitor each others economic activities to ensure the minimal misuse of credit. The arguments in the literature are based on the assumption that once the credit is provided, credit programs have no further role in ensuring that repayments are honored by the group. In contrast, using survey data this essay documents that credit programs use in addition organizational pressures such as humiliation and harassment the non-payer to recover the unpaid installments. The results also show that the group mechanisms do not have a significant effect in recovering default dues.

Stalinismin lyhyt kurssi : Suomalaiset Moskovan Lenin-koulussa 1926-1938

This study of the Finns at the International Lenin School (ILS) reflects history of the Soviet Union during Stalin's era, history of the Communist International (Comintern) as well as history of Finnish communism. The life span of the ILS (1926-1938) matches up with creating and establishing the power structures of Stalinism. Both the ILS and Finnish Communism in the USSR became casualties of the Great Terror (1937-1938). After the WW2, however, the Soviet education was appreciated inside the Communist Party of Finland (CPF). If Finland would have become People's Democracy, the former ILS students would have composed the inner circle of the new "democratic" government. The Finnish teachers of the ILS were leaders of the CPF that was headquartered in Moscow. At the ILS studied in total 141 Finnish communists. The purpose of the ILS was to educate the communist parties' leading stratum of functionaries. They were supposed to internalize current values, methods and discipline of the Bolsheviks. This study evaluates the effects of the total school experience on the Finns that often ended in another total institution in Finland: prison. The curricula of the ILS consisted of theory of Marxism-Leninism, party history, political economics and themes of campaigns of Stalinism. The ILS year included participation in Bolshevik party life and practical work. During summer excursions (praktikas) the students could acquaint themselves with building of socialism in the Soviet Republics. At the ILS, intention to ideological moulding was not hidden. The students were supposed to adopt the Stalinist identity of the professional revolutionaries of the era. The ILS was saturated with ideology and propaganda. This study analyzes especially uses of history as vehicle of ideological standardisation and as instrument of power. Stalin contributed personally to shortcomings of history writing of the communist party. Later he supervised writing of the inclusive handbook of communism, "History of the All-Union Communist Party. Short Course". Special attention will be paid to the effects of Stalin's intervention at the ILS and inside the CPF. The life of the Finns at the ILS and outside the school is described at grass roots. The dividing line between personal and political is analyzed by charting emotional, intimate and bodily experiences of the Finns of the ILS. The fates of the ILS Finns after the studying or teaching period in Moscow are explored in detail. The protagonist among the teachers is Yrjö Sirola that was called "father of the CPF cadres". The Finnish ILS teachers and the formed students that had remained in the USSR were most severely hit by the Great Terror. The Soviet education had most importance in Finland of post WW2 period. The training at the ILS, however, did not contribute to revolution in Finland. The main heading of the study, "A Short Course of Stalinism", crystallises interpretation of the ILS as seat of learning of ideological unity of Stalinism. On the other hand, the title includes a statement of incompleteness of the Stalinist education if the schooling at the ILS had remained in one year.

Applications of gene sequence polymorphisms in evolutionary genetic studies of Atlantic salmon (Salmo salar) and other teleost fish species

Evolutionary genetics incorporates traditional population genetics and studies of the origins of genetic variation by mutation and recombination, and the molecular evolution of genomes. Among the primary forces that have potential to affect the genetic variation within and among populations, including those that may lead to adaptation and speciation, are genetic drift, gene flow, mutations and natural selection. The main challenges in knowing the genetic basis of evolutionary changes is to distinguish the adaptive selection forces that cause existent DNA sequence variants and also to identify the nucleotide differences responsible for the observed phenotypic variation. To understand the effects of various forces, interpretation of gene sequence variation has been the principal basis of many evolutionary genetic studies. The main aim of this thesis was to assess different forms of teleost gene sequence polymorphisms in evolutionary genetic studies of Atlantic salmon (Salmo salar) and other species. Firstly, the level of Darwinian adaptive evolution affected coding regions of the growth hormone (GH) gene during the teleost evolution was investigated based on the sequence data existing in public databases. Secondly, a target gene approach was used to identify within population variation in the growth hormone 1 (GH1) gene in salmon. Then, a new strategy for single nucleotide polymorphisms (SNPs) discovery in salmonid fishes was introduced, and, finally, the usefulness of a limited number of SNP markers as molecular tools in several applications of population genetics in Atlantic salmon was assessed. This thesis showed that the gene sequences in databases can be utilized to perform comparative studies of molecular evolution, and some putative evidence of the existence of Darwinian selection during the teleost GH evolution was presented. In addition, existent sequence data was exploited to investigate GH1 gene variation within Atlantic salmon populations throughout its range. Purifying selection is suggested to be the predominant evolutionary force controlling the genetic variation of this gene in salmon, and some support for gene flow between continents was also observed. The novel approach to SNP discovery in species with duplicated genome fragments introduced here proved to be an effective method, and this may have several applications in evolutionary genetics with different species - e.g. when developing gene-targeted markers to investigate quantitative genetic variation. The thesis also demonstrated that only a few SNPs performed highly similar signals in some of the population genetic analyses when compared with the microsatellite markers. This may have useful applications when estimating genetic diversity in genes having a potential role in ecological and conservation issues, or when using hard biological samples in genetic studies as SNPs can be applied with relatively highly degraded DNA.

Inhibition of CYP1A2-mediated drug metabolism in vitro and in humans : With special emphasis on rofecoxib and other NSAIDs

The cytochrome P450 1A2 (CYP1A2) is one of the major metabolizing enzymes. The muscle relaxant tizanidine is a selective substrate of CYP1A2, and the non-steroidal anti-inflammatory drug (NSAID) rofecoxib was thought to modestly in-hibit it. Cases suggesting an interaction between tizanidine and rofecoxib had been reported, but the mechanism was unknown. Also other NSAIDs are often used in combination with muscle relaxants. The aims of this study were to investigate the effect of rofecoxib, several other NSAIDs and female sex steroids on CYP1A2 ac-tivity in vitro and in vivo, and to evaluate the predictability of in vivo inhibition based on in vitro data. In vitro, the effect of several NSAIDs, female sex steroids and model inhibitors on CYP1A2 activity was studied in human liver microsomes, without and with preincubation. In placebo controlled, cross-over studies healthy volunteers ingested a single dose of tizanidine after a pretreament with the inhibitor (rofecoxib, tolfenamic acid or celecoxib) or placebo. Plasma (and urine) concentrations of tizanidine and its metabolites were measured, and the pharmacodynamic effects were recorded. A caffeine test was also performed. In vitro, fluvoxamine, tolfenamic acid, mefenamic acid and rofecoxib potently in-hibited CYP1A2. Ethinylestradiol, celecoxib, desogestrel and zolmitriptan were moderate, and etodolac, ciprofloxacin, etoricoxib and gestodene were weak inhibi-tors of CYP1A2. At 100 µM, other tested NSAIDs and steroids inhibited CYP1A2 less than 35%. Rofecoxib was found to be a mechanism-based inhibitor of CYP1A2. In vivo, rofecoxib greatly increased the plasma concentrations (over ten-fold) and the pharmacodynamic effects of tizanidine. Also the metabolism of caf-feine was impaired by rofecoxib. Despite the relatively strong in vitro CYP1A2 inhibitory effects, tolfenamic acid and celecoxib did not have a significant effect on tizanidine and caffeine concentrations in humans. Competitive inhibition model and the free plasma concentration of the inhibitor predicted well the effect of fluvoxam-ine and the lack of effect of tolfenamic acid and celecoxib on tizanidine concentra-tions in humans, and mechanism-based inhibition model explained the effects of rofecoxib. However, the effects of ciprofloxacin and oral contraceptives were un-derestimated from the in vitro data. Rofecoxib is a potent mechanism-based inhibitor of CYP1A2 in vitro and in vivo. This mechanism may be involved in the adverse cardiovascular effects of rofecoxib. Tolfenamic acid and celecoxib seem to be safe in combination with tizanidine, but mefenamic acid might have some effect on tizanidine concentrations in vivo. Con-sidering the mechanism of inhibition, and using the free plasma concentration of the inhibitor, many but not all CYP1A2 interactions can be predicted from in vitro data.