Informational efficiency of the European Union emission allowance market

This thesis studies the informational efficiency of the European Union emission allowance (EUA) market. In an efficient market, the market price is unpredictable and profits above average are impossible in the long run. The main research problem is does the EUA price follow a random walk. The method is an econometric analysis of the price series, which includes an autocorrelation coefficient test and a variance ratio test. The results reveal that the price series is autocorrelated and therefore a nonrandom walk. In order to find out the extent of predictability, the price series is modelled with an autoregressive model. The conclusion is that the EUA price is autocorrelated only to a small degree and that the predictability cannot be used to make extra profits. The EUA market is therefore considered informationally efficient, although the price series does not fulfill the requirements of a random walk. A market review supports the conclusion, but it is clear that the maturing of the market is still in process.

Yhteisön ja yhteiskunnan ehdoilla : Seurakuntien ja kuntien yhteistyö vuorovaikutuksen näkökulmasta

In this research, the cooperation between Finnish municipalities and Evangelical Lutheran parishes is studied from the standpoint of institutional interaction. The most essential theoretical background for the study is the differentiation thesis of the secularization theory. Cooperation from the viewpoints of both organizations is examined using the functional approach. Furthermore, the market theory and other theories are applied in order to place the studied phenomenon in the wider context of the theories of the sociology of religion. Sacralization in modern society and its relationship with the differentiation thesis of the secularization theory are in the theoretical foci. In addition, along with a descriptive examination of cooperation, the normative sides of the phenomenon are discussed. The survey was conducted among all municipalities and parishes in continental Finland. The questionnaires were sent to all municipal managers of youth work and afternoon activities and to all managers of child, youth and social work in the parishes. The response rate for the municipalities was 73.9 % and for the parishes 69.5 %. In addition, two qualitative data were utilized. The aim of the study is to scrutinize what kind of limitations of differentiation can be caused by the interaction between the secular and the religious. In order to solve the problem, an empirical study of sacralization in the modern context is required. For this purpose, the survey was carried out to determine the effects of the religious on the secular and the impact of the secular on the religious. In the articles of the study the following relationships are discussed: the positions of municipalities and parishes in relation to the state and civil society; cooperation in relation to differentiation; sacralization in relation to the differentiation thesis and cooperation in relation to pluralism. The results of the study highlighted the significance of the cooperation, which was contrary to the secularization theory connected to religious sacralization. The acceptance of the appearance of religion in cooperation and parishes support for municipal function was high in municipalities. Religious cooperation was more active than secular cooperation within all fields. This was also true between fields: religiously orientated child work was more active than the societally orientated social work of the church. Religious cooperation in modern fields of activity underlined sacralization. However, the acceptance of sacralization was weaker in cities than rural areas. Positive relationships between the welfare function of municipalities and the religious function of parishes emphasized the incompleteness of differentiation and the importance of sacralization. The relationship of the function of municipalities with parishes was neither negative nor neutral. Thus, in the most active fields, that is, child work and the traditional social work of the church, the orientation of parishes in cooperation supported the functions of both organizations. In more passive fields, that is, youth work and the societal social work of the church, parishes were orientated towards supporting the municipal function. The orientation of municipalities to religion underlined the perception that religious function is necessary for cooperation. However, the official character of cooperation supported accommodation to the requirements of societal pluralism. According to the results, sacralization can be effective also at the institutional level. The religious effect of voluntary cooperation means that religious sacralization can also readjust to modern society. At the same time, the results of the study stressed the importance of institutional autonomy. Thus, the public sector has a central role in successful cooperation. The conditions of cooperation are weakened if there is no official support of cooperation or adjustment to the individual rights of modern society. The results called into question the one-directional assumptions in the secularization paradigm and the modernization theory in the background. In these assumptions, religion that represents the traditional is seen to give way to the modern, especially at the institutional level. Lack of an interactional view was identified as a central weakness of the secularization paradigm. In the theoretical approach created in the study, an interactional view between religious and secular institutions was made possible by limiting the core of the differentiation thesis to autonomy. The counter forces of differentiation are despecialization and sacralization. These changes in the secularization theory bring about new interactivity on the institutional level. In addition to the interactional approach, that is, the secularization and sacralization theory created as a synthesis of the study, interaction between the religious and the secular is discussed from the standpoint of multiple modernities. The spiritual welfare role of religion is seen as a potential supporter of secular institutions. Religion is set theoretically amongst other ideologies and agents, which can create communal bonds in modern society. Key words: cooperation, municipalities, parishes, sacralization, secularization, modernization, multiple modernities, differentiation, interaction, democracy, secularism, pluralism, civil society

Finnish Short-Term Stock Returns

Functioning capital markets are a crucial part of a competitive economy since they provide the mechanisms to allocate resources. In order to be well functioning a capital market has to be efficient. Market efficiency is defined as a market where prices at any time fully reflect all available information. Basically, this means that abnormal returns cannot be predicted since they are dependent on future, presently unknown, information. The debate of market efficiency has been going on for several decades. Most academics today would probably agree that financial markets are reasonably efficient since virtually nobody has been able to achieve continuous abnormal positive returns. However, it is clear that a set of return anomalies exists, although they are apparently to small to enable substantial economic profit. Moreover, these anomalies can often be attributed to market design. The motivation for this work is to expand the knowledge of short-term trading patterns and to offer some explanations for these patterns. In the first essay the return pattern during the day is examined. On average stock prices move during two time periods of the day, namely, immediately after the opening and around the formal close of the market. Since stock prices, on average, move upwards these abnormal returns are generally positive and cause the distinct U-shape of intraday returns. In the second essay the results in the first essay are examined further. The return pattern around the former close is shown to partly be the result of manipulative action by market participants. In the third essay the focus is shifted towards trading patterns of the underlying stocks on days when index options and index futures on the stocks expire. Generally no expiration day effect was found. However, some indication of an expiration day effect was found when a large amount of open in- or at-the-money contracts existed. Also, the effects were likelier to be found for shares with high index-weight but fairly low trading volume. Last, in the forth essay the attention is turned to the behaviour of different tax clienteles around the dividend ex-day. Two groups of investors showed abnormal trading behaviour. Domestic non-financial investors, especially domestic companies, showed a dividend capturing behaviour, i.e. buying cum-dividend and selling ex-dividend shares. The opposite behaviour was found for foreign investors and domestic financial institutions. The effect was more notable for high yield, high volume stocks.

From One Segment to a Segment of One - The Evolution of Market Segmentation Theory

The purpose of this study was to deepen the understanding of market segmentation theory by studying the evolution of the concept and by identifying the antecedents and consequences of the theory. The research method was influenced by content analysis and meta-analysis. The evolution of market segmentation theory was studied as a reflection of evolution of marketing theory. According to this study, the theory of market segmentation has its roots in microeconomics and it has been influenced by different disciplines, such as motivation research and buyer behaviour theory. Furthermore, this study suggests that the evolution of market segmentation theory can be divided into four major eras: the era of foundations, development and blossoming, stillness and stagnation, and the era of re-emergence. Market segmentation theory emerged in the mid-1950’s and flourished during the period between mid-1950’s and the late 1970’s. During the 1980’s the theory lost its interest in the scientific community and no significant contributions were made. Now, towards the dawn of the new millennium, new approaches have emerged and market segmentation has gained new attention.

Contributions to the Theory of Finite-State Based Grammars

This dissertation is a theoretical study of finite-state based grammars used in natural language processing. The study is concerned with certain varieties of finite-state intersection grammars (FSIG) whose parsers define regular relations between surface strings and annotated surface strings. The study focuses on the following three aspects of FSIGs: (i) Computational complexity of grammars under limiting parameters In the study, the computational complexity in practical natural language processing is approached through performance-motivated parameters on structural complexity. Each parameter splits some grammars in the Chomsky hierarchy into an infinite set of subset approximations. When the approximations are regular, they seem to fall into the logarithmic-time hierarchyand the dot-depth hierarchy of star-free regular languages. This theoretical result is important and possibly relevant to grammar induction. (ii) Linguistically applicable structural representations Related to the linguistically applicable representations of syntactic entities, the study contains new bracketing schemes that cope with dependency links, left- and right branching, crossing dependencies and spurious ambiguity. New grammar representations that resemble the Chomsky-Schützenberger representation of context-free languages are presented in the study, and they include, in particular, representations for mildly context-sensitive non-projective dependency grammars whose performance-motivated approximations are linear time parseable. (iii) Compilation and simplification of linguistic constraints Efficient compilation methods for certain regular operations such as generalized restriction are presented. These include an elegant algorithm that has already been adopted as the approach in a proprietary finite-state tool. In addition to the compilation methods, an approach to on-the-fly simplifications of finite-state representations for parse forests is sketched. These findings are tightly coupled with each other under the theme of locality. I argue that the findings help us to develop better, linguistically oriented formalisms for finite-state parsing and to develop more efficient parsers for natural language processing. Avainsanat: syntactic parsing, finite-state automata, dependency grammar, first-order logic, linguistic performance, star-free regular approximations, mildly context-sensitive grammars

The Impact of Emissions Trading on the Price of Electricity in Nord Pool : Market Power and Price Determination in the Nordic Electricity Market

The objective of this thesis is to find out how dominant firms in a liberalised electricity market will react when they face an increase in the level of costs due to emissions trading, and how this will effect the price of electricity. The Nordic electricity market is chosen as the setting in which to examine the question, since recent studies on the subject suggest that interaction between electricity markets and emissions trading is very much dependent on conditions specific to each market area. There is reason to believe that imperfect competition prevails in the Nordic market, thus the issue is approached through the theory of oligopolistic competition. The generation capacity available at the market, marginal cost of electricity production and seasonal levels of demand form the data based on which the dominant firms are modelled using the Cournot model of competition. The calculations are made for two levels of demand, high and low, and with several values of demand elasticity. The producers are first modelled under no carbon costs and then by adding the cost of carbon dioxide at 20€/t to those technologies subject to carbon regulation. In all cases the situation under perfect competition is determined as a comparison point for the results of the Cournot game. The results imply that the potential for market power does exist on the Nordic market, but the possibility for exercising market power depends on the demand level. In season of high demand the dominant firms may raise the price significantly above competitive levels, and the situation is aggravated when the cost of carbon dioixide is accounted for. Under low demand leves there is no difference between perfect and imperfect competition. The results are highly dependent on the price elasticity of demand.

Efficient search for statistically significant dependency rules in binary data

Analyzing statistical dependencies is a fundamental problem in all empirical science. Dependencies help us understand causes and effects, create new scientific theories, and invent cures to problems. Nowadays, large amounts of data is available, but efficient computational tools for analyzing the data are missing. In this research, we develop efficient algorithms for a commonly occurring search problem - searching for the statistically most significant dependency rules in binary data. We consider dependency rules of the form X->A or X->not A, where X is a set of positive-valued attributes and A is a single attribute. Such rules describe which factors either increase or decrease the probability of the consequent A. A classical example are genetic and environmental factors, which can either cause or prevent a disease. The emphasis in this research is that the discovered dependencies should be genuine - i.e. they should also hold in future data. This is an important distinction from the traditional association rules, which - in spite of their name and a similar appearance to dependency rules - do not necessarily represent statistical dependencies at all or represent only spurious connections, which occur by chance. Therefore, the principal objective is to search for the rules with statistical significance measures. Another important objective is to search for only non-redundant rules, which express the real causes of dependence, without any occasional extra factors. The extra factors do not add any new information on the dependence, but can only blur it and make it less accurate in future data. The problem is computationally very demanding, because the number of all possible rules increases exponentially with the number of attributes. In addition, neither the statistical dependency nor the statistical significance are monotonic properties, which means that the traditional pruning techniques do not work. As a solution, we first derive the mathematical basis for pruning the search space with any well-behaving statistical significance measures. The mathematical theory is complemented by a new algorithmic invention, which enables an efficient search without any heuristic restrictions. The resulting algorithm can be used to search for both positive and negative dependencies with any commonly used statistical measures, like Fisher's exact test, the chi-squared measure, mutual information, and z scores. According to our experiments, the algorithm is well-scalable, especially with Fisher's exact test. It can easily handle even the densest data sets with 10000-20000 attributes. Still, the results are globally optimal, which is a remarkable improvement over the existing solutions. In practice, this means that the user does not have to worry whether the dependencies hold in future data or if the data still contains better, but undiscovered dependencies.

Essays on Labor Market Frictions, Technological Change and Macroeconomic Fluctuations

The dissertation consists of an introductory chapter and three essays that apply search-matching theory to study the interaction of labor market frictions, technological change and macroeconomic fluctuations. The first essay studies the impact of capital-embodied growth on equilibrium unemployment by extending a vintage capital/search model to incorporate vintage human capital. In addition to the capital obsolescence (or creative destruction) effect that tends to raise unemployment, vintage human capital introduces a skill obsolescence effect of faster growth that has the opposite sign. Faster skill obsolescence reduces the value of unemployment, hence wages and leads to more job creation and less job destruction, unambiguously reducing unemployment. The second essay studies the effect of skill biased technological change on skill mismatch and the allocation of workers and firms in the labor market. By allowing workers to invest in education, we extend a matching model with two-sided heterogeneity to incorporate an endogenous distribution of high and low skill workers. We consider various possibilities for the cost of acquiring skills and show that while unemployment increases in most scenarios, the effect on the distribution of vacancy and worker types varies according to the structure of skill costs. When the model is extended to incorporate endogenous labor market participation, we show that the unemployment rate becomes less informative of the state of the labor market as the participation margin absorbs employment effects. The third essay studies the effects of labor taxes on equilibrium labor market outcomes and macroeconomic dynamics in a New Keynesian model with matching frictions. Three policy instruments are considered: a marginal tax and a tax subsidy to produce tax progression schemes, and a replacement ratio to account for variability in outside options. In equilibrium, the marginal tax rate and replacement ratio dampen economic activity whereas tax subsidies boost the economy. The marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs shocks. We show that increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks. When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses.

Empirical Studies on Labor Market Matching (summary section only)

This thesis analyzes how matching takes place at the Finnish labor market from three different angles. The Finnish labor market has undergone severe structural changes following the economic crisis in the early 1990s. The labor market has had problems adjusting from these changes and hence a high and persistent unemployment has followed. In this thesis I analyze if matching problems, and in particular if changes in matching, can explain some of this persistence. The thesis consists of three essays. In the first essay Finnish Evidence of Changes in the Labor Market Matching Process the matching process at the Finnish labor market is analyzed. The key finding is that the matching process has changed thoroughly between the booming 1980s and the post-crisis period. The importance of the number of unemployed, and in particular long-term unemployed, for the matching process has vanished. More unemployed do not increase matching as theory predicts but rather the opposite. In the second essay, The Aggregate Matching Function and Directed Search -Finnish Evidence, stock-flow matching as a potential micro foundation of the aggregate matching function is studied. In the essay I show that newly unemployed match mainly with the stock of vacancies while longer term unemployed match with the inflow of vacancies. When aggregating I still find evidence of the traditional aggregate matching function. This could explain the huge support the aggregate matching function has received despite its odd randomness assumption. The third essay, How do Registered Job Seekers really match? -Finnish occupational level Evidence, studies matching for nine occupational groups and finds that very different matching problems exist for different occupations. In this essay also misspecification stemming from non-corresponding variables is dealt with through the introduction of a completely new set of variables. The new outflow measure used is vacancies filled with registered job seekers and it is matched by the supply side measure registered job seekers.

Essays on Market Microstructure: Price Discovery and Informed Trading

Market microstructure is “the study of the trading mechanisms used for financial securities” (Hasbrouck (2007)). It seeks to understand the sources of value and reasons for trade, in a setting with different types of traders, and different private and public information sets. The actual mechanisms of trade are a continually changing object of study. These include continuous markets, auctions, limit order books, dealer markets, or combinations of these operating as a hybrid market. Microstructure also has to allow for the possibility of multiple prices. At any given time an investor may be faced with a multitude of different prices, depending on whether he or she is buying or selling, the quantity he or she wishes to trade, and the required speed for the trade. The price may also depend on the relationship that the trader has with potential counterparties. In this research, I touch upon all of the above issues. I do this by studying three specific areas, all of which have both practical and policy implications. First, I study the role of information in trading and pricing securities in markets with a heterogeneous population of traders, some of whom are informed and some not, and who trade for different private or public reasons. Second, I study the price discovery of stocks in a setting where they are simultaneously traded in more than one market. Third, I make a contribution to the ongoing discussion about market design, i.e. the question of which trading systems and ways of organizing trading are most efficient. A common characteristic throughout my thesis is the use of high frequency datasets, i.e. tick data. These datasets include all trades and quotes in a given security, rather than just the daily closing prices, as in traditional asset pricing literature. This thesis consists of four separate essays. In the first essay I study price discovery for European companies cross-listed in the United States. I also study explanatory variables for differences in price discovery. In my second essay I contribute to earlier research on two issues of broad interest in market microstructure: market transparency and informed trading. I examine the effects of a change to an anonymous market at the OMX Helsinki Stock Exchange. I broaden my focus slightly in the third essay, to include releases of macroeconomic data in the United States. I analyze the effect of these releases on European cross-listed stocks. The fourth and last essay examines the uses of standard methodologies of price discovery analysis in a novel way. Specifically, I study price discovery within one market, between local and foreign traders.

Angel Investing in Finland: An Analysis Based on Agency Theory and the Incomplete Contracting Theory

Wealthy individuals - business angels who invest a share of their net worth in entrepreneurial ventures - form an essential part of an informal venture capital market that can secure funding for entrepreneurial ventures. In Finland, business angels represent an untapped pool of capital that can contribute to fostering entrepreneurial development. In addition, business angels can bridge knowledge gaps in new business ventures by means of making their human capital available. This study has two objectives. The first is to gain an understanding of the characteristics and investment behaviour of Finnish business angels. The strongest focus here is on the due diligence procedures and their involvement post investment. The second objective is to assess whether agency theory and the incomplete contacting theory are useful theoretical lenses in the arena of business angels. To achieve the second objective, this study investigates i) how risk is mitigated in the investment process, ii) how uncertainty influences the comprehensiveness of due diligence as well as iii) how control is allocated post investment. Research hypotheses are derived from assumptions underlying agency theory and the incomplete contacting theory. The data for this study comprise interviews with 53 business angels. In terms of sample size this is the largest on Finnish business angels. The research hypotheses in this study are tested using regression analysis. This study suggests that the Finnish informal venture capital market appears to be comprised of a limited number of business angels whose style of investing much resembles their formal counterparts’. Much focus is placed on managing risks prior to making the investment by strong selectiveness and by a relatively comprehensive due diligence. The involvement is rarely on a day-to-day basis and many business angels seem to see board membership as a more suitable alternative than involvement in the operations of an entrepreneurial venture. The uncertainty involved does not seem to drive an increase in due diligence. On the contrary, it would appear that due diligence is more rigorous in safer later stage investments and when the business angels have considerable previous experience as investors. Finnish business angels’ involvement post investment is best explained by their degree of ownership in the entrepreneurial venture. It seems that when investors feel they are sufficiently rewarded, in terms of an adequate equity stake, they are willing to involve themselves actively in their investments. The lack of support for a relationship between increased uncertainty and the comprehensiveness of due diligence may partly be explained by an increasing trend towards portfolio diversification. This is triggered by a taxation system that favours investments through investment companies rather than direct investments. Many business angels appear to have substituted a specialization strategy that builds on reducing uncertainty for a diversification strategy that builds on reducing firm specific (idiosyncratic) risk by holding shares in ventures whose returns are not expected to exhibit a strong positive correlation.

A Relationship Mediated Theory of Internal Marketing (summary section only)

This report presents a new theory of internal marketing. The thesis has developed as a case study in retrospective action research. This began with the personal involvement of the author in an action research project for customer service improvement at a large Australian retail bank. In other words, much of the theory generating ‘research’ took place after the original project ‘action’ had wound down. The key theoretical proposition is that internal marketing is a relationship development strategy for the purpose of knowledge renewal. In the banking case, exchanges of value between employee participants emerged as the basis for relationship development, with synergistic benefits for customers, employees and the bank. Relationship development turned out to be the mediating variable between the learning activity of employee participants at the project level and success in knowledge renewal at the organisational level. Relationship development was also a pivotal factor in the motivation and customer consciousness of employees. The conclusion reached is that the strength of relationship-mediated internal marketing is in combining a market focused commitment and employee freedom in project work to achieve knowledge renewal. The forgotten truth is that organisational knowledge can be renewed through dialogue and learning, through being trustworthy, and by gaining the trust of employees in return.

Impact of agricultural market liberalization on food security in developing countries : a comparative study of Kenya and Zambia

This research investigates the impacts of agricultural market liberalization on food security in developing countries and it evaluates the supply perspective of food security. This research theme is applied on the agricultural sector in Kenya and in Zambia by studying the role policies played in the maize sub-sector. An evaluation of selected policies introduced at the beginning of the 1980s is made, as well as an assessment of whether those policies influenced maize output. A theoretical model of agricultural production is then formulated to reflect cereal production in a developing country setting. This study begins with a review of the general framework and the aims of the structural adjustment programs and proceeds to their application in the maize sector in Kenya and Zambia. A literature review of the supply and demand synthesis of food security is presented with examples from various developing countries. Contrary to previous studies on food security, this study assesses two countries with divergent economic orientations. Agricultural sector response to economic and institutional policies in different settings is also evaluated. Finally, a dynamic time series econometric model is applied to assess the effects of policy on maize output. The empirical findings suggest a weak policy influence on maize output, but the precipitation and acreage variables stand out as core determinants of maize output. The policy dimension of acreage and how markets influence it is not discussed at length in this study. Due to weak land rights and tenure structures in these countries, the direct impact of policy change on land markets cannot be precisely measured. Recurring government intervention during the structural policy implementation period impeded efficient functioning of input and output markets, particularly in Zambia. Input and output prices of maize and fertilizer responded more strongly in Kenya than in Zambia, where the state often ceded to public pressure by revoking pertinent policy measures. These policy interpretations are based on the response of policy variables which are more responsive in Kenya than in Zambia. According the obtained regression results, agricultural markets in general, and the maize sub-sector in particular, responded more positively to implemented policies in Kenya, than in Zambia, which supported a more socialist economic system. It is observed in these results that in order for policies to be effective, sector and regional dimensions need to be considered. The regional and sector dimensions were not taken into account in the formulation and implementation of structural adjustment policies in the 1980s. It can be noted that countries with vibrant economic structures and institutions fared better than those which had a firm, socially founded system.

Operationalizing Supply Chain vs. Supply Chain Competion

Competition is an immensely important area of study in economic theory, business and strategy. It is known to be vital in meeting consumers’ growing expectations, stimulating increase in the size of the market, pushing innovation, reducing cost and consequently generating better value for end users, among other things. Having said that, it is important to recognize that supply chains, as we know it, has changed the way companies deal with each other both in confrontational or conciliatory terms. As such, with the rise of global markets and outsourcing destinations, increased technological development in transportation, communication and telecommunications has meant that geographical barriers of distance with regards to competition are a thing of the past in an increasingly flat world. Even though the dominant articulation of competition within management and business literature rests mostly within economic competition theory, this thesis draws attention to the implicit shift in the recognition of other forms of competition in today’s business environment, especially those involving supply chain structures. Thus, there is popular agreement within a broad business arena that competition between companies is set to take place along their supply chains. Hence, management’s attention has been focused on how supply chains could become more aggressive making each firm in its supply chain more efficient. However, there is much disagreement on the mechanism through which such competition pitching supply chain against supply chain will take place. The purpose of this thesis therefore, is to develop and conceptualize the notion of supply chain vs. supply chain competition, within the discipline of supply chain management. The thesis proposes that competition between supply chains may be carried forward via the use of competition theories that emphasize interaction and dimensionality, hence, encountering friction from a number of sources in their search for critical resources and services. The thesis demonstrates how supply chain vs. supply chain competition may be carried out theoretically, using generated data for illustration, and practically using logistics centers as a way to provide a link between theory and corresponding practice of this evolving competition mode. The thesis concludes that supply chain vs. supply chain competition, no matter the conceptualization taken, is complex, novel and can be very easily distorted and abused. It therefore calls for the joint development of regulatory measures by practitioners and policymakers alike, to guide this developing mode of competition.