Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Vaniprevir with pegylated interferon alpha-2a and ribavirin in treatment-naïve patients with chronic hepatitis C: a randomized phase II study.

Vaniprevir (MK-7009) is a macrocyclic hepatitis C virus (HCV) nonstructural protein 3/4A protease inhibitor. The aim of the present phase II study was to examine virologic response rates with vaniprevir in combination with pegylated interferon alpha-2a (Peg-IFN-α-2a) plus ribavirin (RBV). In this double-blind, placebo-controlled, dose-ranging study, treatment-naïve patients with HCV genotype 1 infection (n = 94) were randomized to receive open-label Peg-IFN-α-2a (180 μg/week) and RBV (1,000-1,200 mg/day) in combination with blinded placebo or vaniprevir (300 mg twice-daily [BID], 600 mg BID, 600 mg once-daily [QD], or 800 mg QD) for 28 days, then open-label Peg-IFN-α-2a and RBV for an additional 44 weeks. The primary efficacy endpoint was rapid viral response (RVR), defined as undetectable plasma HCV RNA at week 4. Across all doses, vaniprevir was associated with a rapid two-phase decline in viral load, with HCV RNA levels approximately 3 log(10) IU/mL lower in vaniprevir-treated patients, compared to placebo recipients. Rates of RVR were significantly higher in each of the vaniprevir dose groups, compared to the control regimen (68.8%-83.3% versus 5.6%; P < 0.001 for all comparisons). There were numerically higher, but not statistically significant, early and sustained virologic response rates with vaniprevir, as compared to placebo. Resistance profile was predictable, with variants at R155 and D168 detected in a small number of patients. No relationship between interleukin-28B genotype and treatment outcomes was demonstrated in this study. The incidence of adverse events was generally comparable between vaniprevir and placebo recipients; however, vomiting appeared to be more common at higher vaniprevir doses. CONCLUSION: Vaniprevir is a potent HCV protease inhibitor with a predictable resistance profile and favorable safety profile that is suitable for QD or BID administration.

Angiotensin II receptor blockade: is there truly a benefit of adding an ACE inhibitor?

We assessed the blockade of the renin-angiotensin system (RAS) achieved with 2 angiotensin (Ang) antagonists given either alone at different doses or with an ACE inhibitor. First, 20 normotensive subjects were randomly assigned to 100 mg OD losartan (LOS) or 80 mg OD telmisartan (TEL) for 1 week; during another week, the same doses of LOS and TEL were combined with 20 mg OD lisinopril. Then, 10 subjects were randomly assigned to 200 mg OD LOS and 160 mg OD TEL for 1 week and 100 mg BID LOS and 80 mg BID TEL during the second week. Blockade of the RAS was evaluated with the inhibition of the pressor effect of exogenous Ang I, an ex vivo receptor assay, and the changes in plasma Ang II. Trough blood pressure response to Ang I was blocked by 35+/-16% (mean+/-SD) with 100 mg OD LOS and by 36+/-13% with 80 mg OD TEL. When combined with lisinopril, blockade was 76+/-7% with LOS and 79+/-9% with TEL. With 200 mg OD LOS, trough blockade was 54+/-14%, but with 100 mg BID it increased to 77+/-8% (P<0.01). Telmisartan (160 mg OD and 80 mg BID) produced a comparable effect. Thus, at their maximal recommended doses, neither LOS nor TEL blocks the RAS for 24 hours; hence, the addition of an ACE inhibitor provides an additional blockade. A 24-hour blockade can be achieved with an angiotensin antagonist alone, provided higher doses or a BID regimen is used.

Three essays on bankruptcy risk

Abstract Market prices of corporate bond spreads and of credit default swap (CDS) rates do not match each other. In this paper, we argue that the liquidity premium, the cheapest-to-deliver (CTD) option and actual market segmentation explain the pricing differences. Using the European transaction data from Reuters and Bloomberg, we estimate the liquidity premium that is time- varying and firm-specific. We show that when time-dependent liquidity premiums are considered, corporate bond spreads and CDS rates behave in a much closer way than previous studies have shown. We find that high equity volatility drives pricing differences that can be explained by the CTD option.

Zeitpunkt der Medikamenten-einnahme bei Hypertonie und Angina pectoris. Eine kontrollierte Uberwachungsstudie. [Time of drug intake in hypertension and angina pectoris. A controlled monitoring study]

A prospective cross-over study was performed in a general practice environment to assess and compare compliance data obtained by electronic monitoring on a BID or QD regimen in 113 patients with hypertension or angina pectoris. All patients were on a BID regimen (nifedipine SR) during the first month and switched to QD regimen (amlodipine) for another month. Taking compliance (i.e. the proportion of days with correct dosing) improved in 30% of patients (95% confidence interval 19 to 41%, p < 0.001), when switching from a BID to a QD regimen, but at the same time there was a 15% increase (95% confidence interval 5 to 25%, p < 0.02) in the number of patients with one or more no-dosing days. About 8% of patients had a low compliance rate, irrespective of the dosage regimen. Actual dosage intervals were used to estimate extent and timing of periods with unsatisfactory drug activity for various hypothetical drug durations of action, and it appears that the apparent advantage of QD regimen in terms of compliance is clinically meaningful only, when the duration of activity extents beyond the dosage interval in all patients.

The attractiveness of nations in global competition : an empirical assessment of the effects of country attractiveness on the success of strategy for hosting international sports events, 1990-2012

This dissertation aims to investigate empirical evidence on the importance and influence of attractiveness of nations in global competition. The notion of country attractiveness, which has been widely developed in the research areas of international business, tourism and migration, is a multi-dimensional construct to measure a country's characteristics with regard to its market or destination that attract international investors, tourists and migrants. This analytical concept provides an account of the mechanism as to how potential stakeholders evaluate more attractive countries based on certain criteria. Thus, in the field of international sport-event bidding, do international sport event owners also have specific country attractiveness for their sport event hosts? The dissertation attempts to address this research question by statistically assessing the effects of country attractiveness on the success of strategy for hosting international sports events. Based on theories of signaling and soft power, country attractiveness is defined and measured as the three dimensions of sustainable development: economic, social, and environmental attractiveness. This thesis proceeds to examine the concept of sport-event-hosting strategy and explore multi-level factors affecting the success in international sport-event bidding. By exploring past history of the Olympic Movement from theoretical perspectives, the thesis proposes and tests the hypotheses that economic, social and environmental attractiveness of a country may be correlated with its bid wins or the success of sport-event-hosting strategy. Quantitative analytical methods with various robustness checks are employed with using collected data on bidding results of major events in Olympic sports during the period from 1990 to 2012. The analysis results reveal that event owners of international Olympic sports are likely to prefer countries that have higher economic, social, and environmental attractiveness. The empirical assessment of this thesis suggests that high country attractiveness can be an essential element of prerequisites for a city/country to secure in order to bid with an increased chance of success.

Exploring triangulation in infancy : Two contrasted cases.

Two contrasted father-mother-infant interactions are observed longitudinally during trilogue play. They illustrate the contribution of recent research to the exploration of triangulation in infancy: namely, the infant's capacity to handle triangular interactions and share her affects with her two parents, and the way that this capacity is recruited in functional versus problematic alliances. It is likely that an infant under stress when interacting with one parent will protest at that parent and also at the other. Such is the case when, for example, the father acts intrusively while playing with his baby. The infant is then driven to avert and turns to the mother. The regulation of this dyadic intrusion-avoidance pattern at family level depends on the family alliance. When coparenting is supportive, the mother validates the infant's bid for help without interfering with the father. Thus, the problematic pattern is contained in the dyad, and the infant's triangular capacities remain in the service of her own developmental goals. But when coparenting is hostile-competitive, the mother ignores the infant's bid or engages with her in a way that interferes with her play with her father. In this case, the infant's triangular capacities are used to relieve the tension between the parents. The importance of tracing family process back to infancy for family therapy is discussed.

Two mechanisms of caspase 9 processing in double-stranded RNA- and virus-triggered apoptosis.

Viral double-stranded RNA (dsRNA) is a ubiquitous intracellular "alert signal" used by cells to detect viral infection and to mount anti-viral responses. DsRNA triggers a rapid (complete within 2-4 h) apoptosis in the highly-susceptible HeLa cell line. Here, we demonstrate that the apical event in this apoptotic cascade is the activation of procaspase 8. Downstream of caspase 8, the apoptotic signaling cascade bifurcates into a mitochondria-independent caspase 8/caspase 3 arm and a mitochondria-dependent, caspase 8/Bid/Bax/Bak/cytochrome c arm. Both arms impinge upon, and activate, procaspase 9 via two different cleavage sites within the procaspase 9 molecule (D330 and D315, respectively). This is the first in vivo demonstration that the "effector" caspase 3 plays an "initiator" role in the regulation of caspase 9. The dsRNA-induced apoptosis is potentiated by the inhibition of protein synthesis, whose role is to accelerate the execution of all apoptosis steps downstream of, and including, the activation of caspase 8. Thus, efficient apoptosis in response to viral dsRNA results from the co-operation of the two major apical caspases (8 and 9) and the dsRNA-activated protein kinase R (PKR)/ribonuclease L (RNase L) system that is essential for the inhibition of protein synthesis in response to viral infection.

Three essays in control, entrepreneurship and innovation

One of the key emphases of these three essays is to provide practical managerial insight. However, good practical insight, can only be created by grounding it firmly on theoretical and empirical research. Practical experience-based understanding without theoretical grounding remains tacit and cannot be easily disseminated. Theoretical understanding without links to real life remains sterile. My studies aim to increase the understanding of how radical innovation could be generated at large established firms and how it can have an impact on business performance as most businesses pursue innovation with one prime objective: value creation. My studies focus on large established firms with sales revenue exceeding USD $ 1 billion. Usually large established firms cannot rely on informal ways of management, as these firms tend to be multinational businesses operating with subsidiaries, offices, or production facilities in more than one country. I. Internal and External Determinants of Corporate Venture Capital Investment The goal of this chapter is to focus on CVC as one of the mechanisms available for established firms to source new ideas that can be exploited. We explore the internal and external determinants under which established firms engage in CVC to source new knowledge through investment in startups. We attempt to make scholars and managers aware of the forces that influence CVC activity by providing findings and insights to facilitate the strategic management of CVC. There are research opportunities to further understand the CVC phenomenon. Why do companies engage in CVC? What motivates them to continue "playing the game" and keep their active CVC investment status. The study examines CVC investment activity, and the importance of understanding the influential factors that make a firm decide to engage in CVC. The main question is: How do established firms' CVC programs adapt to changing internal conditions and external environments. Adaptation typically involves learning from exploratory endeavors, which enable companies to transform the ways they compete (Guth & Ginsberg, 1990). Our study extends the current stream of research on CVC. It aims to contribute to the literature by providing an extensive comparison of internal and external determinants leading to CVC investment activity. To our knowledge, this is the first study to examine the influence of internal and external determinants on CVC activity throughout specific expansion and contraction periods determined by structural breaks occurring between 1985 to 2008. Our econometric analysis indicates a strong and significant positive association between CVC activity and R&D, cash flow availability and environmental financial market conditions, as well as a significant negative association between sales growth and the decision to engage into CVC. The analysis of this study reveals that CVC investment is highly volatile, as demonstrated by dramatic fluctuations in CVC investment activity over the past decades. When analyzing the overall cyclical CVC period from 1985 to 2008 the results of our study suggest that CVC activity has a pattern influenced by financial factors such as the level of R&D, free cash flow, lack of sales growth, and external conditions of the economy, with the NASDAQ price index as the most significant variable influencing CVC during this period. II. Contribution of CVC and its Interaction with R&D to Value Creation The second essay takes into account the demands of corporate executives and shareholders regarding business performance and value creation justifications for investments in innovation. Billions of dollars are invested in CVC and R&D. However there is little evidence that CVC and its interaction with R&D create value. Firms operating in dynamic business sectors seek to innovate to create the value demanded by changing market conditions, consumer preferences, and competitive offerings. Consequently, firms operating in such business sectors put a premium on finding new, sustainable and competitive value propositions. CVC and R&D can help them in this challenge. Dushnitsky and Lenox (2006) presented evidence that CVC investment is associated with value creation. However, studies have shown that the most innovative firms do not necessarily benefit from innovation. For instance Oyon (2007) indicated that between 1995 and 2005 the most innovative automotive companies did not obtain adequate rewards for shareholders. The interaction between CVC and R&D has generated much debate in the CVC literature. Some researchers see them as substitutes suggesting that firms have to choose between CVC and R&D (Hellmann, 2002), while others expect them to be complementary (Chesbrough & Tucci, 2004). This study explores the interaction that CVC and R&D have on value creation. This essay examines the impact of CVC and R&D on value creation over sixteen years across six business sectors and different geographical regions. Our findings suggest that the effect of CVC and its interaction with R&D on value creation is positive and significant. In dynamic business sectors technologies rapidly relinquish obsolete, consequently firms operating in such business sectors need to continuously develop new sources of value creation (Eisenhardt & Martin, 2000; Qualls, Olshavsky, & Michaels, 1981). We conclude that in order to impact value creation, firms operating in business sectors such as Engineering & Business Services, and Information Communication & Technology ought to consider CVC as a vital element of their innovation strategy. Moreover, regarding the CVC and R&D interaction effect, our findings suggest that R&D and CVC are complementary to value creation hence firms in certain business sectors can be better off supporting both R&D and CVC simultaneously to increase the probability of generating value creation. III. MCS and Organizational Structures for Radical Innovation Incremental innovation is necessary for continuous improvement but it does not provide a sustainable permanent source of competitiveness (Cooper, 2003). On the other hand, radical innovation pursuing new technologies and new market frontiers can generate new platforms for growth providing firms with competitive advantages and high economic margin rents (Duchesneau et al., 1979; Markides & Geroski, 2005; O'Connor & DeMartino, 2006; Utterback, 1994). Interestingly, not all companies distinguish between incremental and radical innovation, and more importantly firms that manage innovation through a one-sizefits- all process can almost guarantee a sub-optimization of certain systems and resources (Davila et al., 2006). Moreover, we conducted research on the utilization of MCS along with radical innovation and flexible organizational structures as these have been associated with firm growth (Cooper, 2003; Davila & Foster, 2005, 2007; Markides & Geroski, 2005; O'Connor & DeMartino, 2006). Davila et al. (2009) identified research opportunities for innovation management and provided a list of pending issues: How do companies manage the process of radical and incremental innovation? What are the performance measures companies use to manage radical ideas and how do they select them? The fundamental objective of this paper is to address the following research question: What are the processes, MCS, and organizational structures for generating radical innovation? Moreover, in recent years, research on innovation management has been conducted mainly at either the firm level (Birkinshaw, Hamel, & Mol, 2008a) or at the project level examining appropriate management techniques associated with high levels of uncertainty (Burgelman & Sayles, 1988; Dougherty & Heller, 1994; Jelinek & Schoonhoven, 1993; Kanter, North, Bernstein, & Williamson, 1990; Leifer et al., 2000). Therefore, we embarked on a novel process-related research framework to observe the process stages, MCS, and organizational structures that can generate radical innovation. This article is based on a case study at Alcan Engineered Products, a division of a multinational company provider of lightweight material solutions. Our observations suggest that incremental and radical innovation should be managed through different processes, MCS and organizational structures that ought to be activated and adapted contingent to the type of innovation that is being pursued (i.e. incremental or radical innovation). More importantly, we conclude that radical can be generated in a systematic way through enablers such as processes, MCS, and organizational structures. This is in line with the findings of Jelinek and Schoonhoven (1993) and Davila et al. (2006; 2007) who show that innovative firms have institutionalized mechanisms, arguing that radical innovation cannot occur in an organic environment where flexibility and consensus are the main managerial mechanisms. They rather argue that radical innovation requires a clear organizational structure and formal MCS.

Nilotinib compassionate use in advanced GIST : a retrospective analysis

Introduction: Tyrosine kinase inhibitors (TKI) have considerably improved outcome of patients with advanced GIST and extended overall survival to more than 5 years. Yet, the median progression-free survival is approximately 2 years with first-line imatinib and 24 weeks with second-line sunitinib, which calls for treatment alternatives. Nilotinib is a second-generation TKI with at least similar inhibitory activity as imatinib. A Phase I study has shown that nilotinib monotherapy has clinical activity in GIST. Methods: After failure of all available therapeutic options patients had access to nilotinib on a compassionate use (CU) programm. Nilotinib was started at a dose of 400 mg bid, with dose reduction to 400mg qd allowed in the case of toxicity. 94 pts were approved for nilotinib CU in 10 European countries. We herein present retrospective data of 42 pts from 5 European countries treated in 11 centers. Results: Median age at nilotinib treatment start was 59 years (median; range 24-79 y). 30 of 42 patients were male. Most pts had metastatic disease of gastric origin at initial diagnosis. KIT exon 11 mutations were most frequent. The median number of surgical resections was 1 (range 0-8). All pts had failed both imatinib and sunitinib before nilotinib, and few had also received additional investigational treatments. Nilotinib was well tolerated, and discontinued due to toxicity in 15% only. Median follow-up is 176 days (range 15-876 d). Nilotinib treatment duration is 75 days (median; range 3-727 d). Partial remission with nilotinib treatment was seen in 11% of pts. Median OS was 263 days (Kaplan-Meier). Conclusion: This is the largest series reported assessing efficacy of nilotinib for imatinib- and sunitinib-refractory GIST reported yet. Nilotinib displays significant clinical activity in this heavily pretreated group of pts. These results warrant further investigation of nilotinib in GIST, including its use in first or second-line treatment. Patient and data collection is ongoing, updated results will be presented.

The influence of supplementary health insurance on switching behaviour: evidence from Swiss data.

This paper focuses on the switching behaviour of enrolees in the Swiss basic health insurance system. Even though the new Federal Law on Social Health Insurance (LAMal) was implemented in 1996 to promote competition among health insurers in basic insurance, there is limited evidence of premium convergence within cantons. This indicates that competition has not been effective so far, and reveals some inertia among consumers who seem reluctant to switch to less expensive funds. We investigate one possible barrier to switching behaviour, namely the influence of supplementary insurance. We use survey data on health plan choice (a sample of 1943 individuals whose switching behaviours were observed between 1997 and 2000) as well as administrative data relative to all insurance companies that operated in the 26 Swiss cantons between 1996 and 2005. The decision to switch and the decision to subscribe to a supplementary contract are jointly estimated.Our findings show that holding a supplementary insurance contract substantially decreases the propensity to switch. However, there is no negative impact of supplementary insurance on switching when the individual assesses his/her health as 'very good'. Our results give empirical support to one possible mechanism through which supplementary insurance might influence switching decisions: given that subscribing to basic and supplementary contracts with two different insurers may induce some administrative costs for the subscriber, holding supplementary insurance acts as a barrier to switch if customers who consider themselves 'bad risks' also believe that insurers reject applications for supplementary insurance on these grounds. In comparison with previous research, our main contribution is to offer a possible explanation for consumer inertia. Our analysis illustrates how consumer choice for one's basic health plan interacts with the decision to subscribe to supplementary insurance.