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.

Optimized venous return with a self-expanding cannula: from computational fluid dynamics to clinical application.

The Smart canula concept allows for collapsed cannula insertion, and self-expansion within a vein of the body. (A) Computational fluid dynamics, and (B) bovine experiments (76+/-3.8 kg) were performed for comparative analyses, prior to (C) the first clinical application. For an 18F access, a given flow of 4 l/min (A) resulted in a pressure drop of 49 mmHg for smart cannula versus 140 mmHg for control. The corresponding Reynolds numbers are 680 versus 1170, respectively. (B) For an access of 28F, the maximal flow for smart cannula was 5.8+/-0.5 l/min versus 4.0+/-0.1 l/min for standard (P<0.0001), for 24F 5.5+/-0.6 l/min versus 3.2+/-0.4 l/min (P<0.0001), and for 20F 4.1+/-0.3 l/min versus 1.6+/-0.3 l/min (P<0.0001). The flow obtained with the smart cannula was 270+/-45% (20F), 172+/-26% (24F), and 134+/-13% (28F) of standard (one-way ANOVA, P=0.014). (C) First clinical application (1.42 m2) with a smart cannula showed 3.55 l/min (100% predicted) without additional fluids. All three assessment steps confirm the superior performance of the smart cannula design.

ADOS: an educational primary prevention programme for preventing excess body weight in adolescents.

OBJECTIVE: The prevalence of adolescent obesity has increased considerably over the past decade in Switzerland and has become a serious public health problem in Europe. Prevention of obesity using various comprehensive programmes appears to be very promising, although we must admit that several interventions had generally disappointing results compared with the objectives and target initially fixed. Holistic programmes including nutritional education combined with promotion of physical activity and behaviour modification constitute the key factors in the prevention of childhood and adolescent obesity. The purpose of this programme was to incorporate nutrition/physical education as well as psychological aspects in selected secondary schools (9th grade, 14-17 years). METHODS: The educational strategy was based on the development of a series of 13 practical workshops covering wide areas such as physical inactivity, body composition, sugar, energy density, invisible lipids, how to read food labels, is meal duration important? Do you eat with pleasure or not? Do you eat because you are hungry? Emotional eating. For teachers continuing education, a basic highly illustrated guide was developed as a companion booklet to the workshops. These materials were first validated by biology, physical education, dietician and psychologist teachers as well as school medical officers. RESULTS: Teachers considered the practical educational materials innovative and useful, motivational and easy to understand. Up to now (early 2008), the programme has been implemented in 50 classes or more from schools originating from three areas in the French part of Switzerland. Based on the 1-week pedometer value assessed before and after the 1 school-year programme, an initial evaluation indicated that overall physical placidity was significantly decreased as evidenced by a significant rise in the number of steps per day. CONCLUSION: Future evaluation will provide more information on the effectiveness of the ADOS programme.

Role and regulation of islet-Brain 1 in pancreatic β-cells

Résumé : L'insuline est produite et sécrétée par la cellule ß-pancréatique. Son rôle est de régler le taux de sucre dans le sang. Si ces cellules meurent ou échouent à produire suffisamment de l'insuline, les sujets développent le diabète de type 2 (DT2), une des maladies les plus communes dans les pays développés. L'excès chronique des lipoprotéines LDL oxydés (oxLDL) et/ou des cytokines pro-inflammatoires comme l'interleukine-1ß (IL-1ß) participent au dérèglement et à la mort des cellules ß. Nous avons montré qu'une chute des niveaux d'expression de la protéine nommée «mitogen activated protein kinase 8 interacting protein 1» ou «islet brain 1 (IB 1)» est en partie responsable des effets provoqués par les oxLDL ou IL-1ß. IB1 régule l'expression de l'insuline et la survie cellulaire en inhibant la voie de signalisation « c-jun N-terminal Kinase (JNK)». La réduction des niveaux d'expression d'IB1 provoque l'activation de la voie JNK en réponse aux facteurs environnementaux, et ainsi initie la réduction de l'expression de l'insuline et l'induction du programme de mort cellulaire. Les mimétiques de l'hormone "Glucagon-like peptide 1", tel que l'exendin-4 (ex-4), sont une nouvelle classe d'agents hypoglycémiants utilisés dans le traitement du DT2. Les effets bénéfiques de l'ex-4 sont en partie accomplis en préservant l'expression de l'insuline et la survie des cellules ß contre les stress associés au DT2. La restauration des niveaux d'expression d'IB1 est un des mécanismes par lequel l'ex-4 prodigue son effet sur la cellule. En effet, cette molécule stimule l'activité du promoteur du gène et ainsi compense la réduction du contenu en IB1 causée par le stress. Outre ce rôle anti-apoptotique, dans ce travail de thèse nous avons mis en évidence une autre fonction d'IB1 dans la cellule ß. La réduction de l'activité ou des niveaux d'expression d'IB1 induisent une réduction importante de la sécrétion de l'insuline en réponse au glucose. Le mécanisme par lequel IB1 régule la sécrétion de l'insuline implique à la fois le métabolisme du glucose et éventuellement le transport vésiculaire en contrôlant l'expression de la protéine annexin A2. En résumé, IB 1 est une molécule clé à travers laquelle l'environnement du diabétique pourrait exercer un effet délétère sur la cellule ß. L'amélioration de l'activité d'IB1 et/ou de son expression devrait être considérée dans les approches thérapeutiques futures visant à limiter la perte des cellules ß dans le diabète. Abstract : ß-cells of the pancreatic islets of Langerhans produce and secrete insulin when blood glucose rises. In turn, insulin ensures that plasma glucose concentrations return within a relatively narrow physiological range. If ß-cells die or fail to produce enough insulin, individuals develop one of the most common diseases in Western countries, namely type 2 diabetes (T2D). Chronic excess of oxidized low density lipoproteins (oxLDL) and/or pro-inflammatory cytokines such as interleukin 1-ß (IL-1ß) contribute to decline of ß-cells and thereby are thought to accelerate progression of the disease overtime. We showed that profound reduction in the levels of the mitogen activated protein kinase 8 interacting protein 1 also called islet brain 1 (IB1) causes ß-cell failure accomplished by oxLDL or IL-1 ß. IB1 regulates insulin expression and cell survivals by inhibiting the c-Jun N-terminal Kinase pathway. Diminution in IB 1 levels leads to an increase in activation of the JNK pathway induced by environmental stressors, and thus initiates loss of insulin expression and programmed cell death. The mimetic agents of the glucoincretin glucagon-like peptide 1 such as exendin-4 (ex-4) are new class of hypoglycaemic medicines for treatment of T2D. The beneficial property is in part achieved by preserving insulin expression and ß-cell survival against stressors related to diabetes. Restored levels in IB 1 account for the cytoprotective effect of the ex-4. In fact, the latter molecule .stimulates the promoter activity of the gene and thus compensates loss of IB1 content triggered by stress. Beside of the anti-apoptotic role, an additional leading function for IB 1 in ß-cells was highlighted in this thesis. Impairment in IB1 activity or silencing of the gene in ß-cells revealed a major reduction in insulin secretion elicited by glucose. The mechanisms whereby IB 1 couples glucose to insulin release involve glucose metabolism and potentially, vesicles trafficking by maintaining the levels of annexin A2. IB 1 is therefore a key molecule through which environmental factors related to diabetes may exert harmful effects on ß-cells. Improvement in IB 1 activity and/or expression should be considered as a target for therapeutic purpose.

The return of increased blood pressure after discontinuation of antihypertensive treatment is associated with an impaired post-ischemic skin blood flow response.

OBJECTIVE: To assess the post-ischemic skin blood flow response after withdrawal of antihypertensive therapy in hypertensive patients with normal blood pressure during treatment. DESIGN AND METHODS: Twenty hypertensive patients (group A) with a normal clinic blood pressure (<140/ 90 mmHg) receiving antihypertensive treatment (any monotherapy; one pill per day for at least 6 months) had their treatment discontinued. Before medication withdrawal and 2, 4, 12 and 24 weeks thereafter, the following measurements were made: clinic blood pressure, home blood pressure (three times per week, morning and evening) and skin blood flow response to a 5 min forearm arterial occlusion (using laser Doppler flowmetry). The patients were asked to perform an ambulatory blood pressure recording at any time if home blood pressure was > or =160/95 mmHg on two consecutive days, and treatment was initiated again, after determination of the skin hyperemic response, if daytime ambulatory blood pressure was > or =140/90 mmHg. The same studies were performed in 20 additional hypertensive individuals in whom antihypertensive treatment was not withdrawn (group B). The allocation of patients to groups A and B was random. RESULTS: The data fom 18 patients in group A who adhered strictly to the procedure were available for analysis. Seven of them had to start treatment again within the first 4 weeks of follow-up; four additional patients started treatment again during the next 8 weeks (group A1). The seven other patients remained untreated (group A2). The skin hyperemic response decreased significantly in patients in group A1 and returned to baseline values at the end of the study, when there were again receiving antihypertensive treatment. In patients in group A2 a significant attenuation of the hyperemic response was also observed. This impaired response was present even at the end of the 6 month follow-up, at which time the patients were still untreated but exhibited a significantly greater blood pressure than before drug discontinuation. The hyperemic response of patients who did not stop treatment (group B) did not change during the course of the study. CONCLUSIONS: Our findings show a decrease in the postischemic skin blood flow response after withdrawal of antihypertensive treatment in hypertensive patients. This impaired response may be due to the development of endothelial dysfunction, vascular remodeling, or both, and might contribute to the return of blood pressure to hypertensive values after withdrawal of antihypertensive therapy.

Predictors of return to work after a knee injury in patients hospitalized in vocational rehabilitation

Introduction.- Knee injuries are frequent in a young and active population. Most of the patients resume their professional activity but few studies were interested in factors that predict a return to work. The aim of this study is to identify these predictors from a large panel of bio-psychosocial variables. We postulated that the return to work 3 months and 2 years after discharge is mostly predicted by psychosocial variables.Patients and methods.- Prospective study, patients hospitalized for a knee injury. Variables measured: the abbreviated injury score (AIS) for the gravity of the injuries, analog visual scale for the intensity of pain, INTERMED for the bio-psychosocial complexity, SF-36 for the quality of life, HADs for the anxiety/depression symptoms and IKDC score for the knee function. Univariate logistic regressions, adjusted for age and gender, were performed in order to predict return to work.Results.- One hundred and twenty-six patients hospitalized during 8 months after the accident were included into this prospective study. A total of 73 (58%) and 75 (59%) questionnaires were available after 3 months and 2 years, respectively. The SF-36 pain was the sole predictor of return to work at 3 months (odds Ratio 1.06 [1.02-1.10], P = 0.01; for a one point increase) and 2 years (odds Ratio 1.06 [1.02-1.10], P = 0.01). At three months, other factors are SF-36 (physic sub-scale), IKDC score, the presence of a work contract and the presence of litigation. The bio-psychosocial complexity, the presence of depressive symptoms predicts the return to work at two years.Discussion.- Our working hypothesis was partially confirmed: some psychosocial factors (i.e. depressive symptoms, work contract, litigation, INTERMED) predict the return to work but the physical health and the knee function, perceived by the patient, are also correlated. Pain is the sole factor isolated at both times (i.e. 3 months and 2 years) and, consequently, appears a key element in the prediction of the return to work. Some factors are accessible to the rehabilitation program but only if an interdisciplinary approach is performed.

The effect of recalled previous work environment on return to work after a rehabilitation program including vocational aspects for trauma patients.

INTRODUCTION: The aim of the present study was to assess the association between remembered previous work place environment and return to work (RTW) after hospitalisation in a rehabilitation hospital. METHODS: A cohort of 291 orthopedic trauma patients discharged from hospital between 15 December 2004 and 31 December 2005 was included in a study addressing quality of life and work-related questions. Remembered previous work environment was measured by Karasek's 31-item Job Content Questionnaire (JCQ), given to the patients during hospitalisation. Post-hospitalisation work status was assessed 3 months, 1, and 2 years after discharge, using a questionnaire sent to the ex-patients. Logistic regression models were used to test the role of four JCQ variables on RTW at each time point while controlling for relevant confounders. RESULTS: Subjects perceiving a higher physical demand were less likely to return to work 1 year after hospital discharge. Social support at work was positively associated with RTW at all time points. A high job strain appeared to be positively associated with RTW 1 year after rehabilitation, with limitations due to large confidence intervals. CONCLUSIONS: Perceptions of previous work environment may influence the probability of RTW. In a rehabilitation setting, efforts should be made to assess those perceptions and, if needed, interventions to modify them should be applied.

Hypoglycémie et traitement du diabète de type 2. Le retour à une normoglycémie n'est pas nécessairement la meilleure stratégie thérapeutique [Hypoglycemia and diabetes treatment: the return to normal glucose level is not always the best therapeutic strategy].

Recent clinical trials with type 2 diabetic patients and the quest of normal glyceamic values, have revealed difficulties and limitations. These too normal glyceamic targets corresponding to the physiological standards are associated with very high rate of hypoglycemia and an increase of mortality. A too simplistic view of treatment: "the lowest, the better is in the diabetes" is no longer defensible. The knowledge from complex systems behavior invites us to search targets adapted to a new state of equilibrium due to loss of self-regulation. These targets should not aim the physiological standards but to be adapted to patient's situation. Shared decision-making and consensus are the two pillars of this new strategy supported by the new ADA-EASD guidelines.

The selective migration of young graduates : which of them return to their rural home region and which do not?

This paper addresses the migration behaviours of young university graduates from a rural region in Switzerland. Based on a questionnaire survey, it compares graduates' current place of residence (i.e. whether or not they returned to their home region) with characteristics related to their socio-familial, migration and professional trajectories. The propensity to return varies not only according to labour market variables (employment opportunities), but also to other factors, some of which have even more influence than job opportunities. The graduates' life course position (kind of household), their partners' characteristics (level of education and home region) and their family background (socio-economic status and history of migration) all play a central role. On the whole, results show that migration appears as a selective and complex process embedded in the life course of graduates.

L-canavanine, an inhibitor of inducible nitric oxide synthase, improves venous return in endotoxemic rats.

OBJECTIVE: To investigate the hemodynamic effects of L-canavanine (an inhibitor of inducible, but not of constitutive, nitric oxide synthase) in endotoxic shock. DESIGN: Controlled, randomized, experimental study. SETTING: Animal laboratory. SUBJECTS: Wistar rats. INTERVENTIONS: Rats were anesthetized with pentobarbital, and hemodynamically monitored. One hour after an intravenous challenge with 5 mg/kg of Escherichia coli endotoxin, the rats were randomized to receive a continuous infusion of either L-canavanine (20 mg/kg/hr; n = 8) or vehicle only (isotonic saline, n = 11). In all animals, the infusion was given over 5 hrs at a rate of 2 mL/kg/hr. These experiments were repeated in additional rats challenged with isotonic saline instead of endotoxin (sham experiments). MEASUREMENTS AND MAIN RESULTS: Arterial blood pressure, heart rate, thermodilution cardiac output, central venous pressure, mean systemic filling pressure, urine output, arterial blood gases, blood lactate concentration, and hematocrit were measured. In sham experiments, hemodynamic stability was maintained throughout and L-canavanine had no detectable effect. Animals challenged with endotoxin and not treated with L-canavanine developed progressive hypotension and low cardiac output. After 6 hrs of endotoxemia, both central venous pressure and mean systemic filling pressure were significantly below their baseline values, indicating relative hypovolemia as the main determinant of reduced cardiac output. In endotoxemic animals treated with L-canavanine, hypotension was less marked, while cardiac output, central venous pressure, and mean systemic filling pressure were maintained throughout the experiment. L-canavanine had no effect on the time-course of hematocrit. L-canavanine significantly increased urine output and reduced the severity of lactic acidosis. CONCLUSIONS: Six hours after an endotoxin challenge in rats, low cardiac output develops, which appears to be primarily related to relative hypovolemia. L-canavanine, a selective inhibitor of the inducible nitric oxide synthase, increases the mean systemic filling pressure, thereby improving venous return, under these conditions.