How Do Different Types of Investors React to New Financial Statement Information?

The study contributes to our understanding of the forces that drive the stock market by investigating how different types of investors react to new financial statement information. Using the extremely comprehensive official register of share holdings in Finland, we find that the majority of investors are more probable to sell (buy) stocks in a company after a positive (negative) earnings surprise, and show a bias towards buying after the disclosure of new financial statement information. Large investors, on the other hand, show behavior opposite to that of the majority of investors in the market. Further, foreign investors show behavior similar to that of domestic investors. We suggest investor overconfidence and asymmetric information as possible explanations for the documented behavior.

Exploiting ground-based measurements of the Global Positioning System for numerical weather prediction

Data assimilation provides an initial atmospheric state, called the analysis, for Numerical Weather Prediction (NWP). This analysis consists of pressure, temperature, wind, and humidity on a three-dimensional NWP model grid. Data assimilation blends meteorological observations with the NWP model in a statistically optimal way. The objective of this thesis is to describe methodological development carried out in order to allow data assimilation of ground-based measurements of the Global Positioning System (GPS) into the High Resolution Limited Area Model (HIRLAM) NWP system. Geodetic processing produces observations of tropospheric delay. These observations can be processed either for vertical columns at each GPS receiver station, or for the individual propagation paths of the microwave signals. These alternative processing methods result in Zenith Total Delay (ZTD) and Slant Delay (SD) observations, respectively. ZTD and SD observations are of use in the analysis of atmospheric humidity. A method is introduced for estimation of the horizontal error covariance of ZTD observations. The method makes use of observation minus model background (OmB) sequences of ZTD and conventional observations. It is demonstrated that the ZTD observation error covariance is relatively large in station separations shorter than 200 km, but non-zero covariances also appear at considerably larger station separations. The relatively low density of radiosonde observing stations limits the ability of the proposed estimation method to resolve the shortest length-scales of error covariance. SD observations are shown to contain a statistically significant signal on the asymmetry of the atmospheric humidity field. However, the asymmetric component of SD is found to be nearly always smaller than the standard deviation of the SD observation error. SD observation modelling is described in detail, and other issues relating to SD data assimilation are also discussed. These include the determination of error statistics, the tuning of observation quality control and allowing the taking into account of local observation error correlation. The experiments made show that the data assimilation system is able to retrieve the asymmetric information content of hypothetical SD observations at a single receiver station. Moreover, the impact of real SD observations on humidity analysis is comparable to that of other observing systems.

The Impact of the EMU on International Portfolio Investments

This paper analyses the impact of the launch of the European Monetary Union (EMU) on the allocation of international portfolio investments. The initiation of the EMU provides an opportunity for comparison of competing theoretical explanations for investment behavior. Models stressing the diversification motive would predict that the increased dependence between countries participating in the EMU should reduce the attractiveness of portfolio holdings in other EMU countries. Models based on asymmetric information would instead emphasize the increased intensity in the flow of information resulting from an increase in cross border transactions between the EMU countries. The consequent decline in information asymmetry should increase, rather than reduce portfolio holdings in other EMU countries. Our results based on the allocation of Finnish foreign portfolio investment support the information-based explanation against predictions based on the diversification motive.

Strategic Information Acquisition: Applications to Herding and Auctions

The information that the economic agents have and regard relevant to their decision making is often assumed to be exogenous in economics. It is assumed that the agents either poses or can observe the payoff relevant information without having to exert any effort to acquire it. In this thesis we relax the assumption of ex-ante fixed information structure and study what happens to the equilibrium behavior when the agents must also decide what information to acquire and when to acquire it. This thesis addresses this question in the two essays on herding and two essays on auction theory. In the first two essays, that are joint work with Klaus Kultti, we study herding models where it is costly to acquire information on the actions that the preceding agents have taken. In our model the agents have to decide both the action that they take and additionally the information that they want to acquire by observing their predecessors. We characterize the equilibrium behavior when the decision to observe preceding agents' actions is endogenous and show how the equilibrium outcome may differ from the standard model, where all preceding agents actions are assumed to be observable. In the latter part of this thesis we study two dynamic auctions: the English and the Dutch auction. We consider a situation where bidder(s) are uninformed about their valuations for the object that is put up for sale and they may acquire this information for a small cost at any point during the auction. We study the case of independent private valuations. In the third essay of the thesis we characterize the equilibrium behavior in an English auction when there are informed and uninformed bidders. We show that the informed bidder may jump bid and signal to the uninformed that he has a high valuation, thus deterring the uninformed from acquiring information and staying in the auction. The uninformed optimally acquires information once the price has passed a particular threshold and the informed has not signalled that his valuation is high. In addition, we provide an example of an information structure where the informed bidder initially waits and then makes multiple jumps. In the fourth essay of this thesis we study the Dutch auction. We consider two cases where all bidders are all initially uninformed. In the first case the information acquisition cost is the same across all bidders and in the second also the cost of information acquisition is independently distributed and private information to the bidders. We characterize a mixed strategy equilibrium in the first and a pure strategy equilibrium in the second case. In addition we provide a conjecture of an equilibrium in an asymmetric situation where there is one informed and one uninformed bidder. We compare the revenues that the first price auction and the Dutch auction generate and we find that under some circumstances the Dutch auction outperforms the first price sealed bid auction. The usual first price sealed bid auction and the Dutch auction are strategically equivalent. However, this equivalence breaks down in case information is acquired during the auction.