Essays on the Modeling and Prediction of Volatility and Higher Moments of Stock Returns (summary section only)

One of the most fundamental and widely accepted ideas in finance is that investors are compensated through higher returns for taking on non-diversifiable risk. Hence the quantification, modeling and prediction of risk have been, and still are one of the most prolific research areas in financial economics. It was recognized early on that there are predictable patterns in the variance of speculative prices. Later research has shown that there may also be systematic variation in the skewness and kurtosis of financial returns. Lacking in the literature so far, is an out-of-sample forecast evaluation of the potential benefits of these new more complicated models with time-varying higher moments. Such an evaluation is the topic of this dissertation. Essay 1 investigates the forecast performance of the GARCH (1,1) model when estimated with 9 different error distributions on Standard and Poor’s 500 Index Future returns. By utilizing the theory of realized variance to construct an appropriate ex post measure of variance from intra-day data it is shown that allowing for a leptokurtic error distribution leads to significant improvements in variance forecasts compared to using the normal distribution. This result holds for daily, weekly as well as monthly forecast horizons. It is also found that allowing for skewness and time variation in the higher moments of the distribution does not further improve forecasts. In Essay 2, by using 20 years of daily Standard and Poor 500 index returns, it is found that density forecasts are much improved by allowing for constant excess kurtosis but not improved by allowing for skewness. By allowing the kurtosis and skewness to be time varying the density forecasts are not further improved but on the contrary made slightly worse. In Essay 3 a new model incorporating conditional variance, skewness and kurtosis based on the Normal Inverse Gaussian (NIG) distribution is proposed. The new model and two previously used NIG models are evaluated by their Value at Risk (VaR) forecasts on a long series of daily Standard and Poor’s 500 returns. The results show that only the new model produces satisfactory VaR forecasts for both 1% and 5% VaR Taken together the results of the thesis show that kurtosis appears not to exhibit predictable time variation, whereas there is found some predictability in the skewness. However, the dynamic properties of the skewness are not completely captured by any of the models.

Conditional Moments in Asset Pricing

A better understanding of stock price changes is important in guiding many economic activities. Since prices often do not change without good reasons, searching for related explanatory variables has involved many enthusiasts. This book seeks answers from prices per se by relating price changes to their conditional moments. This is based on the belief that prices are the products of a complex psychological and economic process and their conditional moments derive ultimately from these psychological and economic shocks. Utilizing information about conditional moments hence makes it an attractive alternative to using other selective financial variables in explaining price changes. The first paper examines the relation between the conditional mean and the conditional variance using information about moments in three types of conditional distributions; it finds that the significance of the estimated mean and variance ratio can be affected by the assumed distributions and the time variations in skewness. The second paper decomposes the conditional industry volatility into a concurrent market component and an industry specific component; it finds that market volatility is on average responsible for a rather small share of total industry volatility — 6 to 9 percent in UK and 2 to 3 percent in Germany. The third paper looks at the heteroskedasticity in stock returns through an ARCH process supplemented with a set of conditioning information variables; it finds that the heteroskedasticity in stock returns allows for several forms of heteroskedasticity that include deterministic changes in variances due to seasonal factors, random adjustments in variances due to market and macro factors, and ARCH processes with past information. The fourth paper examines the role of higher moments — especially skewness and kurtosis — in determining the expected returns; it finds that total skewness and total kurtosis are more relevant non-beta risk measures and that they are costly to be diversified due either to the possible eliminations of their desirable parts or to the unsustainability of diversification strategies based on them.

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.

Exciting Moments - Reval Hotels ja mainonnan merkitykset

Pro gradu työni käsittelee virolaisia mainoksia ja niiden kohderyhmiä. Tutkimusaihe on erityisen mielenkiintoinen, sillä virolaisesta mainonnasta on tehty kansainvälisellä tasolla varsin vähän tutkimuksia. Halusin pro gradu -työssäni selvittää, mitä analysoimillani mainoksilla halutaan viestiä, kenelle ne suunnataan sekä millaisin kielellisin ja kuvallisin keinoin niitä tuotetaan. Käytin tutkimuksen materiaalina kuutta Reval Hotels ketjun mainosta, jotka ovat ilmestyneet viron- ja/tai englanninkielisinä viimeisen kahden vuoden aikana lehdissä, esitteissä tai hotellissa pöytä- tai seinämainoksina. Tutkimukseni teoreettinen viitekehys perustui kolmeen erilaiseen näkökulmaan: mainostekstien tutkimukseen, semiotiikkaan sekä Pierre Bourdieun teoriaan symbolisesta pääomasta ja sosiaalisten luokkien eroista. Sosiologisen näkökulman käyttö oli perusteltua erityisesti sen uutuusarvon vuoksi, sillä Bourdieun teoriaa ei ole aikaisemmin hyödynnetty virolaisten mainosten tutkimuksessa. Mainosten kuvien ja tekstien analyysi osoitti, että mainokset olivat rakenteellisesti oikeaoppisesti laadittuja. Mainoksista löytyi lukuisia symbolisen pääoman elementtejä, kuten englannin kieli, raha, aika, tehokkuus ja eurooppalaisuus. Mainokset olivat samalla varsin konservatiivisia ja yllätyksettömiä. Materiaalin joukosta erottui kuitenkin yksi mainos, jolla rikottiin perinteisen mainostamisen kaavaa ja josta avautui paljon erilaisia merkityksiä. Johtopäätöksenä voitiin muun muassa todeta, että Reval Hotels voi markkinointistrategiaansa kehittämällä hankkia itselleen uusia tuottavia kohderyhmiä. Pro gradu työtäni voi myöhemmin laajentaa esimerkiksi vertailevaksi jatkotutkimukseksi, jossa tarkastellaan useampien Virossa toimivien hotellien mainontaa.

Exploring the experiences and conceptions of good teaching in higher education : Development of a questionnaire for assessing students' approaches to learning and experiences of the teaching-learning environment

The aim of this dissertation was to adapt a questionnaire for assessing students’ approaches to learning and their experiences of the teaching-learning environment. The aim was to explore the validity of the modified Experiences of Teaching and Learning Questionnaire (ETLQ) by examining how the instruments measure the underlying dimensions of student experiences and their learning. The focus was on the relation between students’ experiences of their teaching-learning environment and their approaches to learning. Moreover, the relation between students’ experiences and students’ and teachers’ conceptions of good teaching was examined. In Study I the focus was on the use of the ETLQ in two different contexts: Finnish and British. The study aimed to explore the similarities and differences between the factor structures that emerged from both data sets. The results showed that the factor structures concerning students’ experiences of their teaching-learning environment and their approaches to learning were highly similar in the two contexts. Study I also examined how students’ experiences of the teaching-learning environment are related to their approaches to learning in the two contexts. The results showed that students’ positive experiences of their teaching-learning environment were positively related to their deep approach to learning and negatively to the surface approach to learning in both the Finnish and British data sets. This result was replicated in Study II, which examined the relation between approaches to learning and experiences of the teaching-learning environment on a group level. Furthermore, Study II aimed to explore students’ approaches to learning and their experiences of the teaching-learning environment in different disciplines. The results showed that the deep approach to learning was more common in the soft sciences than in the hard sciences. In Study III, students’ conceptions of good teaching were explored by using qualitative methods, more precisely, by open-ended questions. The aim was to examine students’ conceptions, disciplinary differences and their relation to students’ approaches to learning. The focus was on three disciplines, which differed in terms of students’ experiences of their teaching-learning environment. The results showed that students’ conceptions of good teaching were in line with the theory of good teaching and there were disciplinary differences in their conceptions. Study IV examined university teachers’ conceptions of good teaching, which corresponded to the learning-focused approach to teaching. Furthermore, another aim in this doctoral dissertation was to compare the students’ and teachers’ conceptions of good teaching, the results of which showed that these conceptions appear to have similarities. The four studies indicated that the ETLQ appears to be a sufficiently robust measurement instrument in different contexts. Moreover, its strength is its ability to be at the same time a valid research instrument and a practical tool for enhancing the quality of students’ learning. In addition, the four studies emphasise that in order to enhance teaching and learning in higher education, various perspectives have to be taken into account. This study sheds light on the interaction between students’ approaches to learning, their conceptions of good teaching, their experiences of the teaching-learning environment, and finally, the disciplinary culture.

Teaching in Higher Education : From Content-focused to Learning-focused Approaches to Teaching

The aim of this dissertation was to explore teaching in higher education from the teachers’ perspective. Two of the four studies analysed the effect of pedagogical training on approaches to teaching and on self-efficacy beliefs of teachers on teaching. Of these two studies, Study I analysed the effect of pedagogical training by applying a cross-sectional setting. The results showed that short training made teachers less student-centred and decreased their self-efficacy beliefs, as reported by the teachers themselves. However, more constant training enhanced the adoption of a student-centred approach to teaching and increased the self-efficacy beliefs of teachers as well. The teacher-focused approach to teaching was more resistant to change. Study II, on the other hand, applied a longitudinal setting. The results implied that among teachers who had not acquired more pedagogical training after Study II there were no changes in the student-focused approach scale between the measurements. However, teachers who had participated in further pedagogical training scored significantly higher on the scale measuring the student-focused approach to teaching. There were positive changes in the self-efficacy beliefs of teachers among teachers who had not participated in further training as well as among those who had. However, the analysis revealed that those teachers had the least teaching experience. Again, the teacher-focused approach was more resistant to change. Study III analysed approaches to teaching qualitatively by using a large and multidisciplinary sample in order to capture the variation in descriptions of teaching. Two broad categories of description were found: the learning-focused and the content-focused approach to teaching. The results implied that the purpose of teaching separates the two categories. In addition, the study aimed to identify different aspects of teaching in the higher-education context. Ten aspects of teaching were identified. While Study III explored teaching on a general level, Study IV analysed teaching on an individual level. The aim was to explore consonance and dissonance in the kinds of combinations of approaches to teaching university teachers adopt. The results showed that some teachers were clearly and systematically either learning- or content-focused. On the other hand, profiles of some teachers consisted of combinations of learning- and content-focused approaches or conceptions making their profiles dissonant. Three types of dissonance were identified. The four studies indicated that pedagogical training organised for university teachers is needed in order to enhance the development of their teaching. The results implied that the shift from content-focused or dissonant profiles towards consonant learning-focused profiles is a slow process and that teachers’ conceptions of teaching have to be addressed first in order to promote learning-focused teaching.

Dependence Logic: Investigations into Higher-Order Semantics Defined on Teams

This thesis is a study of a rather new logic called dependence logic and its closure under classical negation, team logic. In this thesis, dependence logic is investigated from several aspects. Some rules are presented for quantifier swapping in dependence logic and team logic. Such rules are among the basic tools one must be familiar with in order to gain the required intuition for using the logic for practical purposes. The thesis compares Ehrenfeucht-Fraïssé (EF) games of first order logic and dependence logic and defines a third EF game that characterises a mixed case where first order formulas are measured in the formula rank of dependence logic. The thesis contains detailed proofs of several translations between dependence logic, team logic, second order logic and its existential fragment. Translations are useful for showing relationships between the expressive powers of logics. Also, by inspecting the form of the translated formulas, one can see how an aspect of one logic can be expressed in the other logic. The thesis makes preliminary investigations into proof theory of dependence logic. Attempts focus on finding a complete proof system for a modest yet nontrivial fragment of dependence logic. A key problem is identified and addressed in adapting a known proof system of classical propositional logic to become a proof system for the fragment, namely that the rule of contraction is needed but is unsound in its unrestricted form. A proof system is suggested for the fragment and its completeness conjectured. Finally, the thesis investigates the very foundation of dependence logic. An alternative semantics called 1-semantics is suggested for the syntax of dependence logic. There are several key differences between 1-semantics and other semantics of dependence logic. 1-semantics is derived from first order semantics by a natural type shift. Therefore 1-semantics reflects an established semantics in a coherent manner. Negation in 1-semantics is a semantic operation and satisfies the law of excluded middle. A translation is provided from unrestricted formulas of existential second order logic into 1-semantics. Also game theoretic semantics are considerd in the light of 1-semantics.

Perspectives on knowledge creating inquiry in higher education

Higher education is faced with the challenge of strengthening students competencies for the constantly evolving technology-mediated practices of knowledge work. The knowledge creation approach to learning (Paavola et al., 2004; Hakkarainen et al., 2004) provides a theoretical tool to address learning and teaching organized around complex problems and the development of shared knowledge objects, such as reports, products, and new practices. As in professional work practices, it appears necessary to design sufficient open-endedness and complexity for students teamwork in order to generate unpredictable and both practically and epistemologically challenging situations. The studies of the thesis examine what kinds of practices are observed when student teams engage in knowledge creating inquiry processes, how the students themselves perceive the process, and how to facilitate inquiry with technology-mediation, tutoring, and pedagogical models. Overall, 20 student teams collaboration processes and productions were investigated in detail. This collaboration took place in teams or small groups of 3-6 students from multiple domain backgrounds. Two pedagogical models were employed to provide heuristic guidance for the inquiry processes: the progressive inquiry model and the distributed project model. Design-based research methodology was employed in combination with case study as the research design. Database materials from the courses virtual learning environment constituted the main body of data, with additional data from students self-reflections and student and teacher interviews. Study I examined the role of technology mediation and tutoring in directing students knowledge production in a progressive inquiry process. The research investigated how the scale of scaffolding related to the nature of knowledge produced and the deepening of the question explanation process. In Study II, the metaskills of knowledge-creating inquiry were explored as a challenge for higher education: metaskills refers to the individual, collective, and object-centered aspects of monitoring collaborative inquiry. Study III examined the design of two courses and how the elaboration of shared objects unfolded based on the two pedagogical models. Study IV examined how the arranged concept-development project for external customers promoted practices of distributed, partially virtual, project work, and how the students coped with the knowledge creation challenge. Overall, important indicators of knowledge creating inquiry were the following: new versions of knowledge objects and artifacts demonstrated a deepening inquiry process; and the various productions were co-created through iterations of negotiations, drafting, and versioning by the team members. Students faced challenges of establishing a collective commitment, devising practices to co-author and advance their reports, dealing with confusion, and managing culturally diverse teams. The progressive inquiry model, together with tutoring and technology, facilitated asking questions, generating explanations, and refocusing lines of inquiry. The involvement of the customers was observed to provide a strong motivation for the teams. On the evidence, providing team-specific guidance, exposing students to models of scientific argumentation and expert work practices, and furnishing templates for the intended products appear to be fruitful ways to enhance inquiry processes. At the institutional level, educators do well to explore ways of developing collaboration with external customers, public organizations or companies, and between educational units in order to enhance educational practices of knowledge creating inquiry.

Anger is associated with subclinical atherosclerosis in low SES but not in higher SES men and women

We investigated the associations of anger and cynicism with carotid artery intima-media thickness (IMT) and whether these associations were moderated by childhood or adulthood socioeconomic status (SES). The participants were 647 men and 893 women derived from the population-based Cardiovascular Risk in Young Finns Study. Childhood SES was measured in 1980 when the participants were aged 3-18. In 2001, adulthood SES, anger, cynicism, and IMT were measured. There were no associations between anger or cynicism and IMT in the entire population, but anger was associated with thicker IMT in participants who had experienced low SES in childhood. This association persisted after adjustment for a host of cardiovascular risk factors. It is concluded that the ill health-effects of psychological factors such as anger may be more pronounced in individuals who have been exposed to adverse socioeconomic circumstances early in life.