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.

Airway Inflammation and Bronchial Hyperresponsiveness in Elite Cross-Country Skiers and in Patients with Newly Diagnosed Asthma: A Bronchial Biopsy Study

The objective of these studies was to evaluate possible airway inflammation and remodeling at the bronchial level in cross-country skiers without a prior diagnosis of asthma, and relate the findings to patients with mild chronic asthma and patients with newly diagnosed asthma. We also studied the association of airway inflammatory changes and bronchial hyperresponsivess (BHR), and treatment effects in cross-country skiers and in patients with newly diagnosed asthma. Bronchial biopsies were obtained from the subjects by flexible bronchoscopy, and the inflammatory cells (eosinophils, mast cells, T-lymphocytes, macrophages, and neutrophils) were identified by immunohistochemistry. Tenascin (Tn) immunoreactivity in the bronchial basement membrane (BM) was identified by immunofluorescence staining. Lung function was measured with spirometry, and BHR was assessed by methacholine (skiers) or histamine (asthmatics) challenges. Skiers with BHR and asthma-like symptoms were recruited to a drug-intervention study. Skiers were given treatment (22 weeks) with placebo or budesonide (400 µg bid). Patients with newly diagnosed asthma were given treatment for 16 weeks with placebo, salmeterol (SLM) (50 µg bid), fluticasone propionate (FP) (250 µg bid), or disodium cromoglicate (DSCG) (5 mg qid). Bronchial biopsies were obtained at baseline and at the end of the treatment period. In the skiers a distinct airway inflammation was evident. In their bronchial biopsy specimens, T-lymphocyte, macrophage, and eosinophil counts were, respectively greater by 43-fold (P<0.001), 26-fold (P<0.001, and 2-fold (P<0.001) in skiers, and by 70-fold (p>0.001), 63-fold (P<0.001), and 8-fold (P<0.001) in asthmatic subjects than in controls. In skiers, neutrophil counts were more than 2-fold greater than in asthmatic subjects (P<0.05). Tn expression was higher in skiers than in controls and lower in skiers than in mild asthmatics. No significant changes were seen between skiers with or without BHR in the inflammatory cell counts or Tn expression. Treatment with inhaled budesonide did not attenuate asthma-like symptoms, the inflammatory cell infiltration, or BM Tn expression in the skiers. In newly diagnosed asthmatic patients, SLM, FP, and DSCG reduced asthma symptoms, and need for rescue medication (P<0.04). BHR was reduced by doubling doses 2.78, 5.22, and 1.35 respectively (all P<0.05). SLM and placebo had no effect on cell counts or Tn expression. FP and DSCG reduced eosinophil counts in the bronchial biopsy specimens (P<0.02 and <0.048, respectively). No significant change in tenascin expression appeared in any treatment group. Regarding to atopy, no significant differences existed in the inflammatory cell counts in the bronchial mucosa of subjects with newly diagnosed asthma or in elite cross country skiers. Tn expression in the BM was significantly higher in atopic asthma than in those with nonatopic asthma. Airway inflammation occurred in elite cross-country skiers with and without respiratory symptoms or BHR. Their inflammatory cell pattern differed from that in asthma. Infiltration with eosinophils, macrophages, and mast cells was milder, but lymphocyte counts did not differ from counts in asthmatic airways. Neutrophilic infiltration was more extensive in skiers than in asthmatics. Remodeling took place in the skiers’ airways, as reflected by increased expression of BM tenascin These inflammatory changes and Tn expression may be caused by prolonged exposure of the lower airways to inadequately humidified cold air. In skiers inflammatory changes and remodeling were not reversed with anti-inflammatory treatment. In contrast, in patients with newly diagnosed asthma, anti-inflammatory treatment did attenuate eosinophilic inflammation in the bronchial mucosa. In skiers, anti-inflammatory treatment did not attenuate BHR as it did in asthmatic patients. The BHR in skiers was attenuated spontaneously during placebo treatment, with no difference from budesonide treatment. Lower training intensity during the treatment period may explain this spontaneous decrease in BHR. The origin of BHR probably differs in skiers and in asthmatics. No significant association between BHR and inflammatory cell counts or between BHR and Tn expression was evident in cross-country skiers or asthmatic subjects. Airway remodeling differed between atopic and nonatopic asthma. As opposed to nonatopic asthma, Tn expression was higher in atopic asthma and is related to inflammatory cell densities.

Intraday Dynamics of International Equity Markets

The increased availability of high frequency data sets have led to important new insights in understanding of financial markets. The use of high frequency data is interesting and persuasive, since it can reveal new information that cannot be seen in lower data aggregation. This dissertation explores some of the many important issues connected with the use, analysis and application of high frequency data. These include the effects of intraday seasonal, the behaviour of time varying volatility, the information content of various market data, and the issue of inter market linkages utilizing high frequency 5 minute observations from major European and the U.S stock indices, namely DAX30 of Germany, CAC40 of France, SMI of Switzerland, FTSE100 of the UK and SP500 of the U.S. The first essay in the dissertation shows that there are remarkable similarities in the intraday behaviour of conditional volatility across European equity markets. Moreover, the U.S macroeconomic news announcements have significant cross border effect on both, European equity returns and volatilities. The second essay reports substantial intraday return and volatility linkages across European stock indices of the UK and Germany. This relationship appears virtually unchanged by the presence or absence of the U.S stock market. However, the return correlation among the U.K and German markets rises significantly following the U.S stock market opening, which could largely be described as a contemporaneous effect. The third essay sheds light on market microstructure issues in which traders and market makers learn from watching market data, and it is this learning process that leads to price adjustments. This study concludes that trading volume plays an important role in explaining international return and volatility transmissions. The examination concerning asymmetry reveals that the impact of the positive volume changes is larger on foreign stock market volatility than the negative changes. The fourth and the final essay documents number of regularities in the pattern of intraday return volatility, trading volume and bid-ask spreads. This study also reports a contemporaneous and positive relationship between the intraday return volatility, bid ask spread and unexpected trading volume. These results verify the role of trading volume and bid ask quotes as proxies for information arrival in producing contemporaneous and subsequent intraday return volatility. Moreover, asymmetric effect of trading volume on conditional volatility is also confirmed. Overall, this dissertation explores the role of information in explaining the intraday return and volatility dynamics in international stock markets. The process through which the information is incorporated in stock prices is central to all information-based models. The intraday data facilitates the investigation that how information gets incorporated into security prices as a result of the trading behavior of informed and uninformed traders. Thus high frequency data appears critical in enhancing our understanding of intraday behavior of various stock markets’ variables as it has important implications for market participants, regulators and academic researchers.

Short-term Price Behavior and the Effect of Foreign Investors in Finnish Equity Markets (summary section only)

As globalization and capital free movement has increased, so has interest in the effects of that global money flow, especially during financial crises. The concern has been that large global money flows will affect the pricing of small local markets by causing, in particular, overreaction. The purpose of this thesis is to contribute to the body of work concerning short-term under- and overreaction and the short-term effects of foreign investment flow in the small Finnish equity markets. This thesis also compares foreign execution return to domestic execution return. This study’s results indicate that short-term under- and overreaction occurs in domestic-buy portfolios (domestic net buying) rather than in foreign-buy portfolios. This under- and overreaction, however, is not economically meaningful after controlling for the bid-ask bounce effect. Based on this finding, one can conclude that foreign investors do not have a destabilizing effect in the short-term in the Finnish markets. Foreign activity affects short-term returns. When foreign investors are net buyers (sellers) there are positive (negative) market adjusted returns. Literature related to nationality and institutional effect leads us to expect these kind of results. These foreign flows are persistent at a 5 % to 21 % level and the persistence of foreign buy flow is higher than the foreign sell flow. Foreign daily trading execution is worse than domestic execution. Literature which quantifies foreign investors as liquidity demanders and literature related to front-running leads us to expect poorer foreign execution than domestic execution.

Rauhan atomi, sodan koodi : Suomalaisen atomivoimaratkaisun teknopolitiikka 1955-1970

This dissertation investigates the atomic power solution in Finland between 1955 - 1970. During these years a national arrangement for atomic energy technology evolved. The foundations of the Finnish atomic energy policy; the creation of basic legislation and the first governmental bodies, were laid between 1955 - 1965. In the late 1960's, the necessary technological and political decisions were made in order to purchase the first commercial nuclear reactor. A historical narration of this process is seen in the international context of "atoms for peace" policies and Cold War history in general. The geopolitical position of Finland made it necessary to become involved in the balanced participation in international scientific-technical exchange and assistive nuclear programs. The Paris Peace Treaty of 1947 categorically denied Finland acquisition of nuclear weapons. Accordingly, from the "Geneva year" of 1955, the emphasis was placed on peaceful purposes for atomic energy as well as on the education of national professionals in Finland. An initiative for the governmental atomic energy commission came from academia but the ultimate motive behind it was an anticipated structural change in the supply of national energy. Economically exploitable hydro power resources were expected to be built within ten years and atomic power was seen as a promising and complementing new energy technology. While importing fuels like coal was out of the question, because of scarce foreign currency, domestic uranium mineral deposits were considered as a potential source of nuclear fuel. Nevertheless, even then nuclear energy was regarded as just one of the possible future energy options. In the mid-1960 s a bandwagon effect of light water reactor orders was witnessed in the United States and soon elsewhere in the world. In Finland, two separate invitations for bids for nuclear reactors were initiated. This study explores at length both their preceding grounds and later phases. An explanation is given that the parallel, independent and nearly identical tenders reflected a post-war ideological rivalry between the state-owned utility Imatran Voima and private energy utilities. A private sector nuclear power association Voimayhdistys Ydin represented energy intensive paper and pulp industries and wanted to have free choice instead of being associated themselves with "the state monopoly" in energy pricing. As a background to this, a decisive change had started to happen within Finnish energy policy: private and municipal big thermal power plants became incorporated into the national hydro power production system. A characteristic phenomenon in the later history is the Soviet Union s effort to bid for the tender of Imatran Voima. A nuclear superpower was willing to take part in competition but not on a turnkey basis as Imatran Voima had presumed. As a result of many political turns and four years of negotiations the first Finnish commercial light water reactor was ordered from the East. Soon after this the private nuclear power group ordered its reactors from Sweden. This work interprets this as a reasonable geopolitical balance in choosing politically sensitive technology. Conceptually, social and political dimensions of new technology are emphasised. Negotiations on the Finnish atomic energy program are viewed as a cooperation and a struggle, where state-oriented and private-oriented regimes pose their own macro level views and goals (technopolitical imaginaries) and defend and advance their plans and practical modes of action (schemata). Here, not only technologists but even political actors are seen to contribute to technopolitical realisations.