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.

Life-course socioeconomic environment and health risk behaviours: a multilevel small-area analysis of young-old persons in an urban neighbourhood in Lausanne, Switzerland

With a life expectancy at the age of 65 of around 20 years, damaging health risk behaviours of young-old adults have become a target for preventive actions. Such risk factors necessitate an accurate understanding of the present and past socioeconomic conditions associated with health risk behaviours. The aim of our study is to assess the impact of certain life events as well as economic and environmental factors on health risk behaviours. We included 1309 participants of the Lausanne Cohort Lc65+ aged 65-70 years and employed logistic regression analyses, with individuals nested within areas. The results illustrate the influences of socioeconomic factors from childhood to young-old age. Life experiences in adulthood and economic resources in young-old age are both associated with unfavourable health behaviours. Neighbourhood is a modest determinant as well, particularly regarding alcohol consumption. Therefore, prevention against health risk behaviours should focus on population subgroups defined on the basis of their socioeconomic and living contexts.

Psychiatric co-morbidities and cardiovascular risk factors in people with lifetime history of epilepsy of an urban community.

OBJECTIVES: Depression has been consistently reported in people with epilepsy. Several studies also suggest a higher burden of cardiovascular diseases. We therefore analysed psychosocial co-morbidity and cardiovascular risk factors in patients with a lifetime history of epilepsy in the PsyCoLaus study, a Swiss urban population-based assessment of mental health and cardiovascular risk factors in adults aged between 35 and 66 years. PATIENTS AND METHODS: Among 3719 participants in the PsyCoLaus study, we retrospectively identified those reporting at least 2 unprovoked seizures, defined as epilepsy. These subjects were compared to all others regarding psychiatric, social, and cardiovascular risk factors data using uni- and multivariable assessments. RESULTS: A significant higher need for social help (p<0.001) represented the only independent difference between 43 subjects with a history of epilepsy and 3676 controls, while a higher prevalence of psychiatric co-morbidities (p=0.015) and a lower prevalent marital status (p=0.01) were only significant on univariate analyses. Depression and cardio-vascular risk factors, as well as educational level and employment, were similar among the groups. CONCLUSIONS: This analysis confirms an increased prevalence of psychosocial burden in subjects with a lifetime history of epilepsy; conversely, we did not find a higher cardiovascular risk. The specific urban and geographical location of our cohort and the age span of the studied population may account for the differences from previous studies.

Economics of dialysis dependence following renal replacement therapy for critically ill acute kidney injury patients.

BACKGROUND: The obective of this study was to perform a cost-effectiveness analysis comparing intermittent with continuous renal replacement therapy (IRRT versus CRRT) as initial therapy for acute kidney injury (AKI) in the intensive care unit (ICU). METHODS: Assuming some patients would potentially be eligible for either modality, we modeled life year gained, the quality-adjusted life years (QALYs) and healthcare costs for a cohort of 1000 IRRT patients and a cohort of 1000 CRRT patients. We used a 1-year, 5-year and a lifetime horizon. A Markov model with two health states for AKI survivors was designed: dialysis dependence and dialysis independence. We applied Weibull regression from published estimates to fit survival curves for CRRT and IRRT patients and to fit the proportion of dialysis dependence among CRRT and IRRT survivors. We then applied a risk ratio reported in a large retrospective cohort study to the fitted CRRT estimates in order to determine the proportion of dialysis dependence for IRRT survivors. We conducted sensitivity analyses based on a range of differences for daily implementation cost between CRRT and IRRT (base case: CRRT day $632 more expensive than IRRT day; range from $200 to $1000) and a range of risk ratios for dialysis dependence for CRRT as compared with IRRT (from 0.65 to 0.95; base case: 0.80). RESULTS: Continuous renal replacement therapy was associated with a marginally greater gain in QALY as compared with IRRT (1.093 versus 1.078). Despite higher upfront costs for CRRT in the ICU ($4046 for CRRT versus $1423 for IRRT in average), the 5-year total cost including the cost of dialysis dependence was lower for CRRT ($37 780 for CRRT versus $39 448 for IRRT on average). The base case incremental cost-effectiveness analysis showed that CRRT dominated IRRT. This dominance was confirmed by extensive sensitivity analysis. CONCLUSIONS: Initial CRRT is cost-effective compared with initial IRRT by reducing the rate of long-term dialysis dependence among critically ill AKI survivors.

Classification of urban multi-angular image sequences by aligning their manifolds

When dealing with multi-angular image sequences, problems of reflectance changes due either to illumination and acquisition geometry, or to interactions with the atmosphere, naturally arise. These phenomena interplay with the scene and lead to a modification of the measured radiance: for example, according to the angle of acquisition, tall objects may be seen from top or from the side and different light scatterings may affect the surfaces. This results in shifts in the acquired radiance, that make the problem of multi-angular classification harder and might lead to catastrophic results, since surfaces with the same reflectance return significantly different signals. In this paper, rather than performing atmospheric or bi-directional reflection distribution function (BRDF) correction, a non-linear manifold learning approach is used to align data structures. This method maximizes the similarity between the different acquisitions by deforming their manifold, thus enhancing the transferability of classification models among the images of the sequence.

Etat des lieux et potentiel de l'agriculture urbaine en Suisse : analyse de deux projets d'agriculture urbaine sous l'angle des régimes institutionnels des ressources naturelles

Ce travail de recherche dresse un panorama de l'état du développement des pratiques d'agriculture urbaine en Suisse et analyse le potentiel que celles-ci pourraient y développer, compte tenu des particularités du contexte national. La démarche adoptée suit une logique allant du général au particulier, de la théorie à la pratique, du descriptif vers l'analytique. Dans un premier temps, l'agriculture urbaine est abordée sous un angle conceptuel, comprenant un retour historique sur la relation ville-campagne et sur l'apparition récente du terme d'agriculture urbaine, un tour d'horizon de la littérature sur le sujet, une revue de ses diverses approches scientifiques et la circonscription des enjeux de sa définition. Dans un deuxième temps, l'agriculture urbaine est envisagée sous sa forme pratique, en Suisse comme à l'étranger. En ressort un inventaire étendu de ses différents types de mises en application, auquel correspond un panel d'atouts identifiés selon les trois versants du développement durable : social, écologique et économique. En troisième lieu les spécificités du contexte helvétique sont étudiées afin de comprendre quel est le cadre dans lequel le potentiel de l'agriculture urbaine pourrait se développer. Finalement, ce sont deux cas concrets d'agriculture urbaine qui sont analysés et évalués dans les détails, selon l'approche dite des régimes institutionnels des ressources naturelles (RIRN): le « plantage » lausannois du quartier de la Bourdonnette et le Stadiongarten dans le quartier Kreis 5 à Zurich. Au fil de cette recherche, il apparaît que l'agriculture urbaine révèle toute une série d'avantages en termes de développement durable, alors même que les villes suisses sont unanimement reconnues comme présentant un déficit dans ce domaine. De même, malgré les bienfaits importants que présentent ses diverses pratiques, l'agriculture urbaine reste encore très peu répandue en Suisse, le concept lui-même n'apparaissant que très rarement dans le discours des pouvoirs publics. Le principal frein à l'agriculture en ville est identifié comme étant le manque d'espace disponible dans les agglomérations, contrainte pourtant largement surmontable en y regardant de plus près. De par sa configuration topographique, le territoire suisse est particulièrement sujet à une étroite proximité entre espaces urbains et étendues agricoles, accroissant de ce fait la problématique de l'étalement urbain et du mitage du paysage. Parmi les enjeux de la lutte contre ces phénomènes concomitants, l'agriculture urbaine aurait un rôle important à jouer. En conclusion, une série de recommandations sont proposées afin que les projets d'agriculture urbaine puissent se développer et perdurer en Suisse. Abstract : This research paper provides an overview of the state of development of urban agriculture practices in Switzerland. It analyzes their potential of expansion while taking into account the particularities of the national context. The method follows a general to particular, theory to practice and descriptive to analytical reasoning. Firstly, urban agriculture is approached through a conceptual view, including a historical overview of the relationship between town and country and of the recent appearance of the term "urban agriculture". An outline of the literature on the subject, an examination of its various scientific approaches and riding issues of its definition are elaborated as well. In a second step, urban agriculture is considered in its practical form, both in Switzerland and abroad. From this we created an extensive inventory of various types of implementations which corresponds to a panel of assets identified according to the three aspects of sustainable development: social, ecology and economics. Thirdly the specificities of Swiss context are studied in order to understand the frame in which the potential of urban agriculture could be developed. Finally, two case studies of urban agriculture are analyzed and evaluated in detail, according to the so-called institutional regimes of natural resources (RIRN) approach: the "plantage" of the Bourdonnette neighborhood in Lausanne and the "Stadiongarten" in the Kreis 5 neighborhood in Zurich. Throughout this research, urban agriculture reveals a number of advantages in terms of sustainable development, even though the Swiss cities are unanimously recognized as having a deficit in this area. As well, despite the significant benefits that are its various practices, urban agriculture is still very uncommon in Switzerland, the concept itself appearing only rarely in public debates. The main obstacle to city agriculture is identified as the lack of available space in urban areas, however this constraint can easily be surpassed. By its topographical configuration, Switzerland is particularly prone to a close proximity between urban and agricultural spaces, thereby increasing the problems of urban sprawl. Among the stakes in the struggle against these interrelated phenomena, urban agriculture could play an important role. In conclusion, a series of recommendations are proposed so that urban agriculture projects can grow and persist in Switzerland.

Do we fear tax competition among new and old European countries ?

The purpose of this paper is to study both theoretically and empirically tax competition in the enlarged EU and to provide some insights on ongoing reforms concerning business taxation. We support the idea that even if one can observe cuts in "new" members statutory business tax rates, this should not result in fiercer tax competition between the "core" and "the "periphery" since infrastructure endowments and the existence of agglomeration rents in the core of the EU may prevent (at least partially) activities to relocate to the "new" members.

A Small World Perspective on Urban Systems

The theory of small-world networks as initiated by Watts and Strogatz (1998) has drawn new insights in spatial analysis as well as systems theory. The theoryâeuro?s concepts and methods are particularly relevant to geography, where spatial interaction is mainstream and where interactions can be described and studied using large numbers of exchanges or similarity matrices. Networks are organized through direct links or by indirect paths, inducing topological proximities that simultaneously involve spatial, social, cultural or organizational dimensions. Network synergies build over similarities and are fed by complementarities between or inside cities, with the two effects potentially amplifying each other according to the âeurooepreferential attachmentâeuro hypothesis that has been explored in a number of different scientific fields (Barabási, Albert 1999; Barabási A-L 2002; Newman M, Watts D, Barabàsi A-L). In fact, according to Barabási and Albert (1999), the high level of hierarchy observed in âeurooescale-free networksâeuro results from âeurooepreferential attachmentâeuro, which characterizes the development of networks: new connections appear preferentially close to nodes that already have the largest number of connections because in this way, the improvement in the network accessibility of the new connection will likely be greater. However, at the same time, network regions gathering dense and numerous weak links (Granovetter, 1985) or network entities acting as bridges between several components (Burt 2005) offer a higher capacity for urban communities to benefit from opportunities and create future synergies. Several methodologies have been suggested to identify such denser and more coherent regions (also called communities or clusters) in terms of links (Watts, Strogatz 1998; Watts 1999; Barabási, Albert 1999; Barabási 2002; Auber 2003; Newman 2006). These communities not only possess a high level of dependency among their member entities but also show a low level of âeurooevulnerabilityâeuro, allowing for numerous redundancies (Burt 2000; Burt 2005). The SPANGEO project 2005âeuro"2008 (SPAtial Networks in GEOgraphy), gathering a team of geographers and computer scientists, has included empirical studies to survey concepts and measures developed in other related fields, such as physics, sociology and communication science. The relevancy and potential interpretation of weighted or non-weighted measures on edges and nodes were examined and analyzed at different scales (intra-urban, inter-urban or both). New classification and clustering schemes based on the relative local density of subgraphs were developed. The present article describes how these notions and methods contribute on a conceptual level, in terms of measures, delineations, explanatory analyses and visualization of geographical phenomena.

Densité urbaine et psychose - est-ce que vivre en ville rend schizophrène [Urban density and psychosis - does living in a city cause schizophrenia?].

While it has often been stated that prevalence of schizophrenia is the same around the world, many publications have shown this illness is twice more frequent in urban areas. Although many hypotheses have been proposed, the mechanisms explaining this phenomenon are still unknown. Besides potential biological explanations, a certain number of hypotheses emerging from social sciences have recently enriched the debate. This article reviews the literature related to this issue and describes the development of a research projects conducted in collaboration between the Institut of Geography at the University of Neuchâtel, the Department of Psychiatry at the Lausanne University and the Swiss branch of ISPS, a society promoting the psychological treatment of schizophrenia and other psychoses.