Monetary Policy, Stock Price Misalignments and Macroeconomic Instability

Perhaps the most fundamental prediction of financial theory is that the expected returns on financial assets are determined by the amount of risk contained in their payoffs. Assets with a riskier payoff pattern should provide higher expected returns than assets that are otherwise similar but provide payoffs that contain less risk. Financial theory also predicts that not all types of risks should be compensated with higher expected returns. It is well-known that the asset-specific risk can be diversified away, whereas the systematic component of risk that affects all assets remains even in large portfolios. Thus, the asset-specific risk that the investor can easily get rid of by diversification should not lead to higher expected returns, and only the shared movement of individual asset returns – the sensitivity of these assets to a set of systematic risk factors – should matter for asset pricing. It is within this framework that this thesis is situated. The first essay proposes a new systematic risk factor, hypothesized to be correlated with changes in investor risk aversion, which manages to explain a large fraction of the return variation in the cross-section of stock returns. The second and third essays investigate the pricing of asset-specific risk, uncorrelated with commonly used risk factors, in the cross-section of stock returns. The three essays mentioned above use stock market data from the U.S. The fourth essay presents a new total return stock market index for the Finnish stock market beginning from the opening of the Helsinki Stock Exchange in 1912 and ending in 1969 when other total return indices become available. Because a total return stock market index for the period prior to 1970 has not been available before, academics and stock market participants have not known the historical return that stock market investors in Finland could have achieved on their investments. The new stock market index presented in essay 4 makes it possible, for the first time, to calculate the historical average return on the Finnish stock market and to conduct further studies that require long time-series of data.

Epidemiological data of seasonal variation in mood and behaviour

The aim of this study was to measure seasonal variation in mood and behaviour. The dual vulnerability and latitude effect hypothesis, the risk of increased appetite, weight and other seasonal symptoms to develop metabolic syndrome, and perception of low illumination in quality of life and mental well-being were assessed. These variations are prevalent in persons who live in high latitudes and need balancing of metabolic processes to adapt to environmental changes due to seasons. A randomized sample of 8028 adults aged 30 and over (55% women) participated in an epidemiological health examination study, The Health 2000, applying the probability proportional to population size method for a range of socio-demographic characteristics. They were present in a face-to-face interview at home and health status examination. The questionnaires included the modified versions of the Seasonal Pattern Assessment Questionnaire (SPAQ) and Beck Depression Inventory (BDI), the Health Related Quality of Life (HRQoL) instrument 15D, and the General Health Questionnaire (GHQ). The structured and computerized Munich Composite International Diagnostic Interview (M-CIDI) as part of the interview was used to assess diagnoses of mental disorders, and, the National Cholesterol Education Program Adult Treatment Panel III (NCEP-ATPIII) criteria were assessed using all the available information to detect metabolic syndrome. A key finding was that 85% of this nationwide representative sample had seasonal variation in mood and behaviour. Approximately 9% of the study population presented combined seasonal and depressive symptoms with a significant association between their scores, and 2.6% had symptoms that corresponded to Seasonal Affective Disorder (SAD) in severity. Seasonal variations in weight and appetite are two important components that increase the risk of metabolic syndrome. Other factors such as waist circumference and major depressive disorder contributed to the metabolic syndrome as well. Persons reported of having seasonal symptoms were associated with a poorer quality of life and compromised mental well-being, especially if indoors illumination at home and/or at work was experienced as being low. Seasonal and circadian misalignments are suggested to associate with metabolic disorders, and could be remarked if individuals perceive low illumination levels at home and/or at work that affect the health-related quality of life and mental well-being. Keywords: depression, health-related quality of life, illumination, latitude, mental well-being, metabolic syndrome, seasonal variation, winter.