Modeling Nonlinearities and Asymmetries in Asset Pricing

Financial time series tend to behave in a manner that is not directly drawn from a normal distribution. Asymmetries and nonlinearities are usually seen and these characteristics need to be taken into account. To make forecasts and predictions of future return and risk is rather complicated. The existing models for predicting risk are of help to a certain degree, but the complexity in financial time series data makes it difficult. The introduction of nonlinearities and asymmetries for the purpose of better models and forecasts regarding both mean and variance is supported by the essays in this dissertation. Linear and nonlinear models are consequently introduced in this dissertation. The advantages of nonlinear models are that they can take into account asymmetries. Asymmetric patterns usually mean that large negative returns appear more often than positive returns of the same magnitude. This goes hand in hand with the fact that negative returns are associated with higher risk than in the case where positive returns of the same magnitude are observed. The reason why these models are of high importance lies in the ability to make the best possible estimations and predictions of future returns and for predicting risk.

Executive Stock Options: Exercise Policy and Market Reaction

In this paper I investigate the exercise policy, and the market reaction to that, of the executive stock option holders in Finland. The empirical tests are conducted with aggregated firm level data from 34 firms and 41 stock option programs. I find some evidence of an inverse relation between the exercise intensity of the options holders and the future abnormal return of the company share price. This finding is supported by the view that information about future company prospect seems to be the only theoretical attribute that could delay the exercise of the options. Moreover, a high concentration of exercises in the beginning of the exercise window is predicted and the market is expected to react to deviations from this. The empirical findings however show that the market does not react homogenously to the information revealed by the late exercises.

Evaluating the Predictability of the Volatility Smile Using Return Distributions

In this paper, we examine the predictability of observed volatility smiles in three major European index options markets, utilising the historical return distributions of the respective underlying assets. The analysis involves an application of the Black (1976) pricing model adjusted in accordance with the Jarrow-Rudd methodology as proposed in 1982. Thereby we adjust the expected future returns for the third and fourth central moments as these represent deviations from normality in the distributions of observed returns. Thus, they are considered one possible explanation to the existence of the smile. The obtained results indicate that the inclusion of the higher moments in the pricing model to some extent reduces the volatility smile, compared with the unadjusted Black-76 model. However, as the smile is partly a function of supply, demand, and liquidity, and as such intricate to model, this modification does not appear sufficient to fully capture the characteristics of the smile.

Analysts' Accuracy of Estimation and the Relative Trading Volume

This study contributes to the neglect effect literature by looking at the relative trading volume in terms of value. The results for the Swedish market show a significant positive relationship between the accuracy of estimation and the relative trading volume. Market capitalisation and analyst coverage have in prior studies been used as proxies for neglect. These measures however, do not take into account the effort analysts put in when estimating corporate pre-tax profits. I also find evidence that the industry of the firm influence the accuracy of estimation. In addition, supporting earlier findings, loss making firms are associated with larger forecasting errors. Further, I find that the average forecast error increased in the year 2000 – in Sweden.

Alternative News Sources as 'Collaboratory' Journalism. A case study of Helsingin Sanomat and its relation with the Youth Voice Editorial Board

The new paradigm of connectedness and empowerment brought by the interactivity feature of the Web 2.0 has been challenging the traditional centralized performance of mainstream media. The corporation has been able to survive the strong winds by transforming itself into a global multimedia business network embedded in the network society. By establishing networks, e.g. networks of production and distribution, the global multimedia business network has been able to sight potential solutions by opening the doors to innovation in a decentralized and flexible manner. Under this emerging context of re-organization, traditional practices like sourcing need to be re- explained and that is precisely what this thesis attempts to tackle. Based on ICT and on the network society, the study seeks to explain within the Finnish context the particular case of Helsingin Sanomat (HS) and its relations with the youth news agency, Youth Voice Editorial Board (NÄT). In that sense, the study can be regarded as an explanatory embedded single case study, where HS is the principal unit of analysis and NÄT its embedded unit of analysis. The thesis was able to reach explanations through interrelated steps. First, it determined the role of ICT in HS’s sourcing practices. Then it mapped an overview of the HS’s sourcing relations and provided a context in which NÄT was located. And finally, it established conceptualized institutional relational data between HS and NÄT for their posterior measurement through social network analysis. The data set was collected via qualitative interviews addressed to online and offline editors of HS as well as interviews addressed to NÄT’s personnel. The study concluded that ICT’s interactivity and User Generated Content (UGC) are not sourcing tools as such but mechanism used by HS for getting ideas that could turn into potential news stories. However, when it comes to visual communication, some exemptions were found. The lack of official sources amidst the immediacy leads HS to rely on ICT’s interaction and UGC. More than meets the eye, ICT’s input into the sourcing practice may be more noticeable if the interaction and UGC is well organized and coordinated into proper and innovative networks of alternative content collaboration. Currently, HS performs this sourcing practice via two projects that differ, precisely, by the mode they are coordinated. The first project found, Omakaupunki, is coordinated internally by Sanoma Group’s owned media houses HS, Vartti and Metro. The second project found is coordinated externally. The external alternative sourcing network, as it was labeled, consists of three actors, namely HS, NÄT (professionals in charge) and the youth. This network is a balanced and complete triad in which the actors connect themselves in relations of feedback, recognition, creativity and filtering. However, as innovation is approached very reluctantly, this content collaboration is a laboratory of experiments; a ‘COLLABORATORY’.

Estimation of cutting volume with three inventory methods for harvest planning in Canadian boreal forests.

Two methods of pre-harvest inventory were designed and tested on three cutting sites containing a total of 197 500 m3 of wood. These sites were located on flat-ground boreal forests located in northwestern Quebec. Both methods studied involved scaling of trees harvested to clear the road path one year (or more) prior to harvest of adjacent cut-blocks. The first method (ROAD) considers the total road right-of-way volume divided by the total road area cleared. The resulting volume per hectare is then multiplied by the total cut-block area scheduled for harvest during the following year to obtain the total estimated cutting volume. The second method (STRATIFIED) also involves scaling of trees cleared from the road. However, in STRATIFIED, log scaling data are stratified by forest stand location. A volume per hectare is calculated for each stretch of road that crosses a single forest stand. This volume per hectare is then multiplied by the remaining area of the same forest stand scheduled for harvest one year later. The sum of all resulting estimated volumes per stand gives the total estimated cutting-volume for all cut-blocks adjacent to the studied road. A third method (MNR) was also used to estimate cut-volumes of the sites studied. This method represents the actual existing technique for estimating cutting volume in the province of Quebec. It involves summing the cut volume for all forest stands. The cut volume is estimated by multiplying the area of each stand by its estimated volume per hectare obtained from standard stock tables provided by the governement. The resulting total estimated volume per cut-block for all three methods was then compared with the actual measured cut-block volume (MEASURED). This analysis revealed a significant difference between MEASURED and MNR methods with the MNR volume estimate being 30 % higher than MEASURED. However, no significant difference from MEASURED was observed for volume estimates for the ROAD and STRATIFIED methods which respectively had estimated cutting volumes 19 % and 5 % lower than MEASURED. Thus the ROAD and STRATIFIED methods are good ways to estimate cut-block volumes after road right-of-way harvest for conditions similar to those examined in this study.

An Examination of How Entrepreneurs Can Improve Their Position in Relation to Investors

Previous research has been inconclusive regarding the impact of those who invest in entrepreneurs. Consider for a moment how potentially important they are to entrepreneurs. They for example decide who deserves funding, how much time they contribute to their portfolio firms, how they grant entrepreneurs access to their networks, and help entrepreneurs acquire additional funding. In sum, investors potentially have a great impact on the success of entrepreneurs. It is therefore important that we better understand the environment, relationships and context in which parties operate. This thesis contains five articles that explore investors’ and entrepreneurs’ relationships from various viewpoints, in theoretical frameworks, and use a variety of data and research methods. The first article is a literature review that summarises what we know of venture capital, business angel and corporate venture capital funding. The second article studies the entrepreneurs’ investor selection process, its consequences, and identifies key factors that influence the process. Earlier, the common approach has been to concentrate research on the investors’ selection policy, not the entrepreneurs’. The data and conclusions are based on multiple case studies. The article analyses how entrepreneurs can ensure that they get the best possible investor, when it is possible for an entrepreneur to select an investor, and what are the consequences of investor selection. The third article employs power constructs (dependency, power balance/imbalance, power sources) and analyses their applicability in the investor-entrepreneur relationship. Power constructs are extensively studied and utilised in the management and organisation literature. In entrepreneur investor relationships, power aspects are rarely analysed. However, having the ability to “get others to do things they would not otherwise do” is a very common factor in the investor-entrepreneur relationship. Therefore, employing and analysing the applicability of power constructs in this setting is well founded. The article is based on a single case study but suggests that power constructs could be applicable and consequently provide additional insights into the investor-entrepreneur relationship. The fourth article studies the role of advisors in the venture capital investment process and analyses implications for research and practice, particularly from the entrepreneurs’ perspective. The common entrepreneurial finance literature describes the entrepreneur-investor relationship as linear and bilateral. However, it was discovered that advisors may influence the relationship. In this article, the role of advisors, operating procedures and advisors’ impact on different parties is analysed. The fifth article concentrates on investors’ certification effect. The article measures and demonstrates that venture capital investment is likely to increase the credibility (in terms of media attention) of early stage firms, those that most often need additional credibility. Understanding investor certification can affect how entrepreneurs evaluate investment offers and how investors can make their offers appear more lucrative.

Interest in university studies : Its role and relation to other motivational variables

This dissertation empirically explored interest as a motivational force in university studies, including the role it currently plays and possible ways of enhancing this role as a student motivator. The general research questions were as follows: 1) What role does interest play in university studies? 2) What explains academic success if studying is not based on interest? 3) How do different learning environments support or impede interest-based studying? Four empirical studies addressed these questions. Study 1 (n=536) compared first-year students explanations of their disciplinary choices in three fields: veterinary medicine, humanities and law. Study 2 (n=28) focused on the role of individual interest in the humanities and veterinary medicine, fields which are very different from each other as regards their nature of studying. Study 3 (n=52) explored veterinary students motivation and study practices in relation to their study success. Study 4 (n=16) explored veterinary students interest experience in individual lectures on a daily basis. By comparing different fields and focusing on one study field in more detail, it was possible to obtain a many-sided picture of the role of interest in different learning environments. Questionnaires and quantitative methods have often been used to measure interest in academic learning. The present work is based mostly on qualitative data, and qualitative methods were applied to add to the previous research. Study 1 explored students open-ended answers, and these provided a basis for the interviews in Study 2. Study 3 explored veterinary students portfolios in a longitudinal setting. For Study 4, a diary including both qualitative and quantitative measures was designed to capture veterinary students interest experience. Qualitative content analysis was applied in all four studies, but quantitative analyses were also added. The thesis showed that university students often explain their disciplinary choices in terms of interest. Because interest is related to high-quality learning, the students seemed to have a good foundation for successful studies. However, the learning environments did not always support interest-based studying; Time-management and coping skills were found to be more important than interest in terms of study success. The results also indicated that interest is not the only motivational variable behind university studies. For example, future goals are needed in order to complete a degree. Even so, the results clearly indicated that it would be worth supporting interest-based studying both in professionally and generally oriented study fields. This support is important not only to promote high-quality learning but also meaningful studying, student well-being, and life-long learning.