Three essays in financial economics: asset pricing, optimal portfolio selection and financial integration

Executive Summary The unifying theme of this thesis is the pursuit of a satisfactory ways to quantify the riskureward trade-off in financial economics. First in the context of a general asset pricing model, then across models and finally across country borders. The guiding principle in that pursuit was to seek innovative solutions by combining ideas from different fields in economics and broad scientific research. For example, in the first part of this thesis we sought a fruitful application of strong existence results in utility theory to topics in asset pricing. In the second part we implement an idea from the field of fuzzy set theory to the optimal portfolio selection problem, while the third part of this thesis is to the best of our knowledge, the first empirical application of some general results in asset pricing in incomplete markets to the important topic of measurement of financial integration. While the first two parts of this thesis effectively combine well-known ways to quantify the risk-reward trade-offs the third one can be viewed as an empirical verification of the usefulness of the so-called "good deal bounds" theory in designing risk-sensitive pricing bounds. Chapter 1 develops a discrete-time asset pricing model, based on a novel ordinally equivalent representation of recursive utility. To the best of our knowledge, we are the first to use a member of a novel class of recursive utility generators to construct a representative agent model to address some long-lasting issues in asset pricing. Applying strong representation results allows us to show that the model features countercyclical risk premia, for both consumption and financial risk, together with low and procyclical risk free rate. As the recursive utility used nests as a special case the well-known time-state separable utility, all results nest the corresponding ones from the standard model and thus shed light on its well-known shortcomings. The empirical investigation to support these theoretical results, however, showed that as long as one resorts to econometric methods based on approximating conditional moments with unconditional ones, it is not possible to distinguish the model we propose from the standard one. Chapter 2 is a join work with Sergei Sontchik. There we provide theoretical and empirical motivation for aggregation of performance measures. The main idea is that as it makes sense to apply several performance measures ex-post, it also makes sense to base optimal portfolio selection on ex-ante maximization of as many possible performance measures as desired. We thus offer a concrete algorithm for optimal portfolio selection via ex-ante optimization over different horizons of several risk-return trade-offs simultaneously. An empirical application of that algorithm, using seven popular performance measures, suggests that realized returns feature better distributional characteristics relative to those of realized returns from portfolio strategies optimal with respect to single performance measures. When comparing the distributions of realized returns we used two partial risk-reward orderings first and second order stochastic dominance. We first used the Kolmogorov Smirnov test to determine if the two distributions are indeed different, which combined with a visual inspection allowed us to demonstrate that the way we propose to aggregate performance measures leads to portfolio realized returns that first order stochastically dominate the ones that result from optimization only with respect to, for example, Treynor ratio and Jensen's alpha. We checked for second order stochastic dominance via point wise comparison of the so-called absolute Lorenz curve, or the sequence of expected shortfalls for a range of quantiles. As soon as the plot of the absolute Lorenz curve for the aggregated performance measures was above the one corresponding to each individual measure, we were tempted to conclude that the algorithm we propose leads to portfolio returns distribution that second order stochastically dominates virtually all performance measures considered. Chapter 3 proposes a measure of financial integration, based on recent advances in asset pricing in incomplete markets. Given a base market (a set of traded assets) and an index of another market, we propose to measure financial integration through time by the size of the spread between the pricing bounds of the market index, relative to the base market. The bigger the spread around country index A, viewed from market B, the less integrated markets A and B are. We investigate the presence of structural breaks in the size of the spread for EMU member country indices before and after the introduction of the Euro. We find evidence that both the level and the volatility of our financial integration measure increased after the introduction of the Euro. That counterintuitive result suggests the presence of an inherent weakness in the attempt to measure financial integration independently of economic fundamentals. Nevertheless, the results about the bounds on the risk free rate appear plausible from the view point of existing economic theory about the impact of integration on interest rates.

Impact of electronic monitoring of drug adherence on blood pressure control in primary care: a cluster 12-month randomised controlled study.

BACKGROUND: Poor long-term adherence is an important cause of uncontrolled hypertension. We examined whether monitoring drug adherence with an electronic system improves long-term blood pressure (BP) control in hypertensive patients followed by general practitioners (GPs). METHODS: A pragmatic cluster randomised controlled study was conducted over one year in community pharmacists/GPs' networks randomly assigned either to usual care (UC) where drugs were dispensed as usual, or to intervention (INT) group where drug adherence could be monitored with an electronic system (Medication Event Monitoring System). No therapy change was allowed during the first 2 months in both groups. Thereafter, GPs could modify therapy and use electronic monitors freely in the INT group. The primary outcome was a target office BP<140/90 mmHg. RESULTS: Sixty-eight treated uncontrolled hypertensive patients (UC: 34; INT: 34) were enrolled. Over the 12-month period, the likelihood of reaching the target BP was higher in the INT group compared to the UC group (p<0.05). At 4 months, 38% in the INT group reached the target BP vs. 12% in the UC group (p<0.05), and 21% vs. 9% at 12 months (p: ns). Multivariate analyses, taking account of baseline characteristics, therapy modification during follow-up, and clustering effects by network, indicate that being allocated to the INT group was associated with a greater odds of reaching the target BP at 4 months (p<0.01) and at 12 months (p=0.051). CONCLUSION: GPs monitoring drug adherence in collaboration with pharmacists achieved a better BP control in hypertensive patients, although the impact of monitoring decreased with time.

The PEDRO (Pocketable Electronic Devices in Radiation Oncology) project: how clinical practice is changing among young radiation oncologists.

Purpose. To evaluate the impact of mobile devices and apps on the daily clinical activity of young radiation oncologists. Methods. A web-based questionnaire was sent to 382 young (≤40 years) members of the Italian Association of Radiation Oncology (AIRO). The 14 items investigated the diffusion of mobile devices (smartphones and/or tablets), their impact on daily clinical activity, and possible differences perceived by the participants over time. Results. A total of 158 questionnaires were available for statistical evaluation (response rate 41%). Up to 75% of respondents declared they used an electronic device during their clinical activity. Conversely, 82% considered the impact of smartphones/tables on daily practice low to moderate. Daily device use increased significantly from 2009 to 2012, with high daily use rates rising from 5% to 39.9%. Fulfillment of professional needs was declared by less than 42% of respondents and compliance with app indications by 32%. Almost all physicians desired in 2012 a comprehensive website concerning a variety of apps covering radiation oncologists' needs. Conclusions. Mobile devices are widely used by young Italian radiation oncologists in their daily clinical practice, while the indications so obtained are not always followed. Nevertheless, it would be important to verify the consistency of information found within apps, in order to avoid potential errors that might be detrimental to patients.

Lack of extended venous thromboembolism prophylaxis in high-risk patients undergoing major orthopaedic or major cancer surgery. Electronic Assessment of VTE Prophylaxis in High-Risk Surgical Patients at Discharge from Swiss Hospitals (ESSENTIAL).

Extended pharmacological venous thromboembolism (VTE) prophylaxis beyond discharge is recommended for patients undergoing high-risk surgery. We prospectively investigated prophylaxis in 1,046 consecutive patients undergoing major orthopaedic (70%) or major cancer surgery (30%) in 14 Swiss hospitals. Appropriate in-hospital prophylaxis was used in 1,003 (96%) patients. At discharge, 638 (61%) patients received prescription for extended pharmacological prophylaxis: 564 (77%) after orthopaedic surgery, and 74 (23%) after cancer surgery (p < 0.001). Patients with knee replacement (94%), hip replacement (81%), major trauma (80%), and curative arthroscopy (73%) had the highest prescription rates for extended VTE prophylaxis; the lowest rates were found in patients undergoing major surgery for thoracic (7%), gastrointestinal (19%), and hepatobiliary (33%) cancer. The median duration of prescribed extended prophylaxis was longer in patients with orthopaedic surgery (32 days, interquartile range 14-40 days) than in patients with cancer surgery (23 days, interquartile range 11-30 days; p<0.001). Among the 278 patients with an extended prophylaxis order after hip replacement, knee replacement, or hip fracture surgery, 120 (43%) received a prescription for at least 35 days, and among the 74 patients with an extended prophylaxis order after major cancer surgery, 20 (27%) received a prescription for at least 28 days. In conclusion, approximately one quarter of the patients with major orthopaedic surgery and more than three quarters of the patients with major cancer surgery did not receive prescription for extended VTE prophylaxis. Future effort should focus on the improvement of extended VTE prophylaxis, particularly in patients undergoing major cancer surgery.

Electronic control device exposure: a review of morbidity and mortality.

The use of electronic control devices has expanded worldwide during the last few years, the most widely used model being the Taser. However, the scientific knowledge about electronic control devices remains limited. We reviewed the medical literature to examine the potential implications of electronic devices in terms of morbidity and mortality, and to identify and evaluate all the existing experimental human studies. A single exposure of an electronic control device on healthy individuals can be assumed to be generally safe, according to 23 prospective human experimental studies and numerous volunteer exposures. In case series, however, electronic control devices could have deleterious effects when used in the field, in particular if persons receive multiple exposures, are intoxicated, show signs of "excited delirium," or present with medical comorbidities. As the use of electronic control devices continues to increase, the controversy about its safety, notably in potentially high-risk individuals, is still a matter of debate. The complications of electronic control device exposure are numerous but often recognizable, usually resulting from barbed dart injuries or from falls. Persons exposed to electronic control devices should therefore be fully examined, and traumatic lesions must be ruled out.

Clinical trial designs for rare diseases: studies developed and discussed by the International Rare Cancers Initiative.

BACKGROUND: The past three decades have seen rapid improvements in the diagnosis and treatment of most cancers and the most important contributor has been research. Progress in rare cancers has been slower, not least because of the challenges of undertaking research. SETTINGS: The International Rare Cancers Initiative (IRCI) is a partnership which aims to stimulate and facilitate the development of international clinical trials for patients with rare cancers. It is focused on interventional--usually randomized--clinical trials with the clear goal of improving outcomes for patients. The key challenges are organisational and methodological. A multi-disciplinary workshop to review the methods used in ICRI portfolio trials was held in Amsterdam in September 2013. Other as-yet unrealised methods were also discussed. RESULTS: The IRCI trials are each presented to exemplify possible approaches to designing credible trials in rare cancers. Researchers may consider these for use in future trials and understand the choices made for each design. INTERPRETATION: Trials can be designed using a wide array of possibilities. There is no 'one size fits all' solution. In order to make progress in the rare diseases, decisions to change practice will have to be based on less direct evidence from clinical trials than in more common diseases.

Toxicity assessment of refill liquids for electronic cigarettes.

We analyzed 42 models from 14 brands of refill liquids for e-cigarettes for the presence of micro-organisms, diethylene glycol, ethylene glycol, hydrocarbons, ethanol, aldehydes, tobacco-specific nitrosamines, and solvents. All the liquids under scrutiny complied with norms for the absence of yeast, mold, aerobic microbes, Staphylococcus aureus, and Pseudomonas aeruginosa. Diethylene glycol, ethylene glycol and ethanol were detected, but remained within limits authorized for food and pharmaceutical products. Terpenic compounds and aldehydes were found in the products, in particular formaldehyde and acrolein. No sample contained nitrosamines at levels above the limit of detection (1 μg/g). Residual solvents such as 1,3-butadiene, cyclohexane and acetone, to name a few, were found in some products. None of the products under scrutiny were totally exempt of potentially toxic compounds. However, for products other than nicotine, the oral acute toxicity of the e-liquids tested seems to be of minor concern. However, a minority of liquids, especially those with flavorings, showed particularly high ranges of chemicals, causing concerns about their potential toxicity in case of chronic oral exposure.

Experts' consensus on use of electronic cigarettes: a Delphi survey from Switzerland.

OBJECTIVES: In some countries, nicotine-containing electronic cigarettes (e-cigarettes) are considered a consumer product without specific regulations. In others (eg, Switzerland), the sale of e-cigarettes containing nicotine is forbidden, despite the eagerness of many smokers to obtain them. As scientific data about efficacy and long-term safety of these products are scarce, tobacco control experts are divided on how to regulate them. In order to gain consensus among experts to provide recommendations to health authorities, we performed a national consensus study. SETTING: We used a Delphi method with electronic questionnaires to bring together the opinion of Swiss experts on e-cigarettes. PARTICIPANTS: 40 Swiss experts from across the country. OUTCOME MEASURES: We measured the degree of consensus between experts on recommendations regarding regulation, sale, use of and general opinion about e-cigarettes containing nicotine. New recommendations and statements were added following the experts' answers and comments. RESULTS: There was consensus that e-cigarettes containing nicotine should be made available, but only under specific conditions. Sale should be restricted to adults, using quality standards, a maximum level of nicotine and with an accompanying list of authorised ingredients. Advertisement should be restricted and use in public places should be forbidden. CONCLUSIONS: These recommendations encompass three principles: (1) the reality principle, as the product is already on the market; (2) the prevention principle, as e-cigarettes provide an alternative to tobacco for actual smokers, and (3) the precautionary principle, to protect minors and non-smokers, since long-term effects are not yet known. Swiss authorities should design specific regulations to sell nicotine-containing e-cigarettes.

Adolescents et cigarettes électroniques [Adolescents and electronic cigarettes].

L'usage de cigarettes électroniques (vapotage) augmente chez les jeunes et les professionnels de la santé se sentent démunis. Ce court article donne quelques informations pratiques. L'usage (vapotage) de cigarettes électroniques (e-cigarettes) est un phénomène relativement récent qui est en train de prendre une ampleur inattendue, surtout chez les jeunes. Bien que les taux de prévalence soient extrêmement variables d'un pays à l'autre, ils sont en net augmentation: tant parmi ceux qui les ont seulement essayées que chez ceux qui les utilisent habituellement, les taux de prévalence ont doublé ou presque triplé en à peine une année. En outre, une proportion notable d'utilisateurs d'e-cigarettes (de 8 à 33% selon les études)n'avaient jamais fumé de cigarettes conventionnelles. Ce phénomène pourrait faire des e-cigarettes la porte d'entrée au tabagisme parmi les jeunes. Adolescents and electronic cigarettes: The use of electronic cigarettes (vaping) is increasing among young people and health professionals feel ill-prepared. This short article provides some practical information The use of electronic cigarettes (vaping) is increasing among young people and health professionals feel ill-prepared. This short article provides some practical information.

A Reappraisal of the Allocation Puzzle through the Portfolio Approach

Paradoxically, high-growth, high-investment developing countries tend to experience capital outflows. This paper shows that this allocation puzzle can be explained simply by introducing uninsurable idiosyncratic investment risk in the neoclassical growth model with international trade in bonds, and by taking into account not only TFP catch-up, but also the capital wedge, that is, the distortions on the return to capital. The model fits the two following facts, documented on a sample of 67 countries between 1980 and 2003: (i) TFP growth is positively correlated with capital outflows in a sample including creditor countries; (ii) the long-run level of capital per efficient unit of labor is positively correlated with capital outflows. Consistently, we show that the capital flows predicted by the model are positively correlated with the actual ones in this sample once the capital wedge is accounted for. The fact that Asia dominates global imbalances can be explained by its relatively low capital wedge.