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.

Randomized trial of pacemaker and lead system for safe scanning at 1.5 Tesla.

BACKGROUND: Magnetic resonance imaging (MRI) of pacemakers is a relative contraindication because of the risks to the patient from potentially hazardous interactions between the MRI and the pacemaker system. Chest scans (ie, cardiac magnetic resonance scans) are of particular importance and higher risk. The previously Food and Drug Administration-approved magnetic resonance conditional system includes positioning restrictions, limiting the powerful utility of MRI. OBJECTIVE: To confirm the safety and effectiveness of a pacemaker system designed for safe whole body MRI without MRI scan positioning restrictions. METHODS: Primary eligibility criteria included standard dual-chamber pacing indications. Patients (n = 263) were randomized in a 2:1 ratio to undergo 16 chest and head scans at 1.5 T between 9 and 12 weeks postimplant (n = 177) or to not undergo MRI (n = 86) post-implant. Evaluation of the pacemaker system occurred immediately before, during (monitoring), and after MRI, 1-week post-MRI, and 1-month post-MRI, and similarly for controls. Primary end points measured the MRI-related complication-free rate for safety and compared pacing capture threshold between MRI and control subjects for effectiveness. RESULTS: There were no MRI-related complications during or after MRI in subjects undergoing MRI (n = 148). Differences in pacing capture threshold values from pre-MRI to 1-month post-MRI were minimal and similar between the MRI and control groups. CONCLUSIONS: This randomized trial demonstrates that the Advisa MRI pulse generator and CapSureFix MRI 5086MRI lead system is safe and effective in the 1.5 T MRI environment without positioning restrictions for MRI scans or limitations of body parts scanned.

The impact of fasting on the interpretation of triglyceride levels for predicting myocardial infarction risk in HIV-positive individuals: the D:A:D study.

We assessed whether fasting modifies the prognostic value of these measurements for the risk of myocardial infarction (MI). Analyses used mixed effect models and Poisson regression. After confounders were controlled for, fasting triglyceride levels were, on average, 0.122 mmol/L lower than nonfasting levels. Each 2-fold increase in the latest triglyceride level was associated with a 38% increase in MI risk (relative rate, 1.38; 95% confidence interval, 1.26-1.51); fasting status did not modify this association. Our results suggest that it may not be necessary to restrict analyses to fasting measurements when considering MI risk.

Exposure to radio-frequency electromagnetic fields from broadcast transmitters and risk of childhood cancer: a census-based cohort study.

We investigated the association between exposure to radio-frequency electromagnetic fields (RF-EMFs) from broadcast transmitters and childhood cancer. First, we conducted a time-to-event analysis including children under age 16 years living in Switzerland on December 5, 2000. Follow-up lasted until December 31, 2008. Second, all children living in Switzerland for some time between 1985 and 2008 were included in an incidence density cohort. RF-EMF exposure from broadcast transmitters was modeled. Based on 997 cancer cases, adjusted hazard ratios in the time-to-event analysis for the highest exposure category (>0.2 V/m) as compared with the reference category (<0.05 V/m) were 1.03 (95% confidence interval (CI): 0.74, 1.43) for all cancers, 0.55 (95% CI: 0.26, 1.19) for childhood leukemia, and 1.68 (95% CI: 0.98, 2.91) for childhood central nervous system (CNS) tumors. Results of the incidence density analysis, based on 4,246 cancer cases, were similar for all types of cancer and leukemia but did not indicate a CNS tumor risk (incidence rate ratio = 1.03, 95% CI: 0.73, 1.46). This large census-based cohort study did not suggest an association between predicted RF-EMF exposure from broadcasting and childhood leukemia. Results for CNS tumors were less consistent, but the most comprehensive analysis did not suggest an association.

A prognostic score to identify low-risk outpatients with acute deep vein thrombosis in the upper extremity.

BACKGROUND: No studies have identified which patients with upper-extremity deep vein thrombosis (DVT) are at low risk for adverse events within the first week of therapy. METHODS: We used data from Registro Informatizado de la Enfermedad TromboEmbólica to explore in patients with upper-extremity DVT a prognostic score that correctly identified patients with lower limb DVT at low risk for pulmonary embolism, major bleeding, or death within the first week. RESULTS: As of December 2014, 1135 outpatients with upper-extremity DVT were recruited. Of these, 515 (45%) were treated at home. During the first week, three patients (0.26%) experienced pulmonary embolism, two (0.18%) had major bleeding, and four (0.35%) died. We assigned 1 point to patients with chronic heart failure, creatinine clearance levels 30-60 mL min(-1) , recent bleeding, abnormal platelet count, recent immobility, or cancer without metastases; 2 points to those with metastatic cancer; and 3 points to those with creatinine clearance levels < 30 mL min(-1) . Overall, 759 (67%) patients scored ≤ 1 point and were considered to be at low risk. The rate of the composite outcome within the first week was 0.26% (95% confidence interval [CI] 0.004-0.87) in patients at low risk and 1.86% (95% CI 0.81-3.68) in the remaining patients. C-statistics was 0.73 (95% CI 0.57-0.88). Net reclassification improvement was 22%, and integrated discrimination improvement was 0.0055. CONCLUSIONS: Using six easily available variables, we identified outpatients with upper-extremity DVT at low risk for adverse events within the first week. These data may help to safely treat more patients at home.

What Transaction Costs are Acceptable in Life Insurance Products from the Policyholders' Viewpoint?

Purpose - The purpose of this paper is to analyze what transaction costs are acceptable for customers in different investments. In this study, two life insurance contracts, a mutual fund and a risk-free investment, as alternative investment forms are considered. The first two products under scrutiny are a life insurance investment with a point-to-point capital guarantee and a participating contract with an annual interest rate guarantee and participation in the insurer's surplus. The policyholder assesses the various investment opportunities using different utility measures. For selected types of risk profiles, the utility position and the investor's preference for the various investments are assessed. Based on this analysis, the authors study which cost levels can make all of the products equally rewarding for the investor. Design/methodology/approach - The paper notes the risk-neutral valuation calibration using empirical data utility and performance measurement dynamics underlying: geometric Brownian motion numerical examples via Monte Carlo simulation. Findings - In the first step, the financial performance of the various saving opportunities under different assumptions of the investor's utility measurement is studied. In the second step, the authors calculate the level of transaction costs that are allowed in the various products to make all of the investment opportunities equally rewarding from the investor's point of view. A comparison of these results with transaction costs that are common in the market shows that insurance companies must be careful with respect to the level of transaction costs that they pass on to their customers to provide attractive payoff distributions. Originality/value - To the best of the authors' knowledge, their research question - i.e. which transaction costs for life insurance products would be acceptable from the customer's point of view - has not been studied in the above described context so far.

Genetic diversity and ecological success of Staphylococcus aureus strains colonizing humans.

The genetic determinants and phenotypic traits which make a Staphylococcus aureus strain a successful colonizer are largely unknown. The genetic diversity and population structure of 133 S. aureus isolates from healthy, generally risk-free adult carriers were investigated using four different typing methods: multilocus sequence typing (MLST), amplified fragment length polymorphism analysis (AFLP), double-locus sequence typing (DLST), and spa typing were compared. Carriage isolates displayed great genetic diversity which could only be revealed fully by DLST. Results of AFLP and MLST were highly concordant in the delineation of genotypic clusters of closely related isolates, roughly equivalent to clonal complexes. spa typing and DLST provided considerably less phylogenetic information. The resolution of spa typing was similar to that of AFLP and inferior to that of DLST. AFLP proved to be the most universal method, combining a phylogeny-building capacity similar to that of MLST with a much higher resolution. However, it had a lower reproducibility than sequencing-based MLST, DLST, and spa typing. We found two cases of methicillin-resistant S. aureus colonization, both of which were most likely associated with employment at a health service. Of 21 genotypic clusters detected, 2 were most prevalent: cluster 45 and cluster 30 each colonized 24% of the carrier population. The number of bacteria found in nasal samples varied significantly among the clusters, but the most prevalent clusters were not particularly numerous in the nasal samples. We did not find much evidence that genotypic clusters were associated with different carrier characteristics, such as age, sex, medical conditions, or antibiotic use. This may provide empirical support for the idea that genetic clusters in bacteria are maintained in the absence of adaptation to different niches. Alternatively, carrier characteristics other than those evaluated here or factors other than human hosts may exert selective pressure maintaining genotypic clusters.

Predictive value of readiness, importance, and confidence in ability to change drinking and smoking.

BACKGROUND: Visual analog scales (VAS) are sometimes used to assess change constructs that are often considered critical for change. Aims of Study: 1.) To determine the association of readiness to change, importance of changing and confidence in ability to change alcohol and tobacco use at baseline with the risk for drinking (more than 21 drinks per week/6 drinks or more on a single occasion more than once per month) and smoking (one or more cigarettes per day) six months later. 2.) To determine the association of readiness, importance and confidence with alcohol (number of drinks/week, number of binge drinking episodes/month) and tobacco (number of cigarettes/day) use at six months. METHODS: This is a secondary analysis of data from a multi-substance brief intervention randomized trial. A sample of 461 Swiss young men was analyzed as a prospective cohort. Participants were assessed at baseline and six months later on alcohol and tobacco use, and at baseline on readiness to change, importance of changing and confidence in ability to change constructs, using visual analog scales ranging from 1-10 for drinking and smoking behaviors. Regression models controlling for receipt of brief intervention were employed for each change construct. The lowest level (1-4) of each scale was the reference group that was compared to the medium (5-7) and high (8-10) levels. RESULTS: Among the 377 subjects reporting unhealthy alcohol use at baseline, mean (SD) readiness, importance and confidence to change drinking scores were 3.9 (3.0), 2.7 (2.2) and 7.2 (3.0), respectively. At follow-up, 108 (29%) reported no unhealthy alcohol use. Readiness was not associated with being risk-free at follow-up, but high importance (OR 2.94; 1.15, 7.50) and high confidence (OR 2.88; 1.46, 5.68) were. Among the 255 smokers at baseline, mean readiness, importance and confidence to change smoking scores were 4.6 (2.6), 5.3 (2.6) and 5.9 (2.7), respectively. At follow-up, 13% (33) reported no longer smoking. Neither readiness nor importance was associated with being a non-smoker, whereas high confidence (OR 3.29; 1.12, 9.62) was. CONCLUSIONS: High confidence in ability to change was associated with favorable outcomes for both drinking and smoking, whereas high importance was associated only with a favorable drinking outcome. This study points to the value of confidence as an important predictor of successful change for both drinking and smoking, and shows the value of importance in predicting successful changes in alcohol use. TRIAL REGISTRATION NUMBER: ISRCTN78822107.

Predictive Value of Readiness, Importance, and Confidence in Ability to Change Drinking and Smoking

Background: Visual analog scales (VAS) are used to assess readiness to changeconstructs, which are often considered critical for change.Objective: We studied whether 3 constructs -readiness to change, importance of changing and confidence inability to change- predict risk status 6 months later in 20 year-old men with either orboth of two behaviors: risky drinking and smoking. Methods: 577 participants in abrief intervention randomized trial were assessed at baseline and 6 months later onalcohol and tobacco consumption and with three 1-10 VAS (readiness, importance,confidence) for each behavior. For each behavior, we used one regression model foreach constructs. Models controlled for receipt of a brief intervention and used thelowest level (1-4) in each construct as the reference group (vs medium (5-7) and high(8-10) levels).Results: Among the 475 risky drinkers, mean (SD) readiness, importance and confidence to change drinking were 4.0 (3.1), 2.8 (2.2) and 7.2 (3.0).Readiness was not associated with being alcohol-risk free 6 months later (OR 1.3[0.7; 2.2] and 1.4 [0.8; 2.6] for medium and high readiness). High importance andhigh confidence were associated with being risk free (OR 0.9 [0.5; 1.8] and 2.9 [1.2;7.5] for medium and high importance; 2.1 [1.0;4.8] and 2.8 [1.5;5.6] for medium andhigh confidence). Among the 320 smokers, mean readiness, importance andconfidence to change smoking were 4.6 (2.6), 5.3 (2.6) and 5.9 (2.6). Neitherreadiness nor importance were associated with being smoking free (OR 2.1 [0.9; 4.7]and 2.1 [0.8; 5.8] for medium and high readiness; 1.4 [0.6; 3.4] and 2.1 [0.8; 5.4] formedium and high importance). High confidence was associated with being smokingfree (OR 2.2 [0.8;6.6] and 3.4 [1.2;9.8] for medium and high confidence).Conclusions: For drinking and smoking, high confidence in ability to change wasassociated -with similar magnitude- with a favorable outcome. This points to thevalue of confidence as an important predictor of successful change.

Randomised, multicentre, phase III, open-label study of alectinib vs crizotinib in treatment-naïve anaplastic lymphoma kinase (ALK)-positive advanced NSCLC (ALEX study).

Background: In ∼5% of advanced NSCLC tumours, ALK tyrosine kinase is constitutively activated after translocation of ALK. ALK+ NSCLC was shown to be highly sensitive to the first approved ALK inhibitor, crizotinib. However, all pts eventually relapse on crizotinib mainly due to secondary ALK mutations/amplification or CNS metastases. Alectinib is a highly selective, potent, oral next-generation ALK inhibitor. Clinical phase II alectinib data in 46 crizotinib-naïve pts with ALK+ NSCLC reported an objective response rate (ORR) of 93.5% and a 1-year progression-free rate of 83% (95% CI: 68-92) (Inoue et al. J Thorac Oncol 2013). CNS activity was seen: of 14 pts with baseline brain metastasis, 11 had prior CNS radiation, 9 of these experienced CNS and systemic PFS of >12 months; of the 3 pts without prior CNS radiation, 2 were >15 months progression free. Trial design: Randomised, multicentre, phase III, open-label study in pts with treatment-naïve ALK+ advanced, recurrent, or metastatic NSCLC. All pts must provide pretreatment tumour tissue to confirm ALK rearrangement (by IHC). Pts (∼286 from ∼180 centres, ∼30 countries worldwide) will be randomised to alectinib (600mg oral bid, with food) or crizotinib (250mg oral bid, with/without food) until disease progression (PD), unacceptable toxicity, withdrawal of consent, or death. Stratification factors are: ECOG PS (0/1 vs 2), race (Asian vs non-Asian), baseline CNS metastases (yes vs no). Primary endpoint: PFS by investigators (RECIST v1.1). Secondary endpoints: PFS by Independent Review Committee (IRC); ORR; duration of response; OS; safety; pharmacokinetics; quality of life. Additionally, time to CNS progression will be evaluated (MRI) for the first time in a prospective randomised NSCLC trial as a secondary endpoint. Pts with isolated asymptomatic CNS progression will be allowed to continue treatment beyond documented progression until systemic PD and/or symptomatic CNS progression, according to investigator opinion. Time to CNS progression will be retrospectively assessed by the IRC using two separate criteria, RECIST and RANO. Further details: ClinicalTrials.gov (NCT02075840). Disclosure: T.S.K. Mok: Advisory boards: AZ, Roche, Eli Lilly, Merck Serono, Eisai, BMS, AVEO, Pfizer, Taiho, Boehringer Ingelheim, Novartis, GSK Biologicals, Clovis Oncology, Amgen, Janssen, BioMarin; board of directors: IASLC; corporate sponsored research: AZ; M. Perol: Advisory boards: Roche; S.I. Ou: Consulting: Pfizer, Chugai, Genentech Speaker Bureau: Pfizer, Genentech, Boehringer Ingelheim; I. Bara: Employee: F. Hoffmann-La Roche Ltd; V. Henschel: Employee and stock: F. Hoffmann-La Roche Ltd.; D.R. Camidge: Honoraria: Roche/Genentech. All other authors have declared no conflicts of interest.

Leukemic cluster growth in culture is an independent risk factor for acute myeloid leukemia and short survival in patients with myelodysplastic syndrome.

In patients with myelodysplastic syndrome (MDS) precursor cell cultures (colony-forming unit cells, CFU-C) can provide an insight into the growth potential of malignant myeloid cells. In a retrospective single-center study of 73 untreated MDS patients we assessed whether CFU-C growth patterns were of prognostic value in addition to established criteria. Abnormalities were classified as qualitative (i.e. leukemic cluster growth) or quantitative (i.e. strongly reduced/absent growth). Thirty-nine patients (53%) showed leukemic growth, 26 patients (36%) had strongly reduced/absent colony growth, and 12 patients showed both. In a univariate analysis the presence of leukemic growth was associated with strongly reduced survival (at 10 years 4 vs. 34%, p = 0.004), and a high incidence of transformation to AML (76 vs. 32%, p = 0.01). Multivariate analysis identified leukemic growth as a strong and independent predictor of early death (relative risk 2.12, p = 0.03) and transformation to AML (relative risk 2.63, p = 0.04). Quantitative abnormalities had no significant impact on the disease course. CFU-C assays have a significant predictive value in addition to established prognostic factors in MDS. Leukemic growth identifies a subpopulation of MDS patients with poor prognosis.

Biopsy diagnosis of intraductal carcinoma is prognostic in intermediate and high risk prostate cancer patients treated by radiotherapy.

AIM: We investigated the prognostic significance of intraductal carcinoma of the prostate (IDC-P) in biopsies and transurethral resections prior to external beam radiotherapy with or without androgen deprivation. METHODS: Cohort 1 consisted of 118 intermediate risk prostate cancer patients treated by radiotherapy, with biochemical relapse as primary end-point (median follow-up 6.5 years). Cohort 2 consisted of 132 high risk patients, enrolled in a phase III randomised trial (EORTC 22863) comparing radiotherapy alone to radiotherapy with long-term androgen deprivation (LTAD) with clinical progression free survival as primary end-point (median follow-up 9.1 years). Presence of IDC-P was identified after central review. Multivariable regression modelling and Kaplan-Meier analysis were performed with IDC-P as dichotomous variable. RESULTS: IDC-P was a strong prognosticator for early (<36 months) biochemical relapse (HR 7.3; p = 0.007) in cohort 1 and for clinical disease-free survival in both arms of cohort 2 (radiotherapy arm: HR 3.5; p < 0.0001; radiotherapy plus LTAD arm: HR 2.8, p = 0.018). IDC-P retained significance after stratification for reviewed Gleason score in the radiotherapy arm (HR 2.3; p = 0.03). IDC-P was a strong prognosticator for metastatic failure rate (radiotherapy arm: HR 5.3; p < 0.0001; radiotherapy plus LTAD arm: HR 3.6; p = 0.05). CONCLUSIONS: IDC-P in diagnostic samples of patients with intermediate or high risk prostate cancer is an independent prognosticator of early biochemical relapse and metastatic failure rate after radiotherapy. We suggest that the presence of IDC-P in prostate biopsies should routinely be reported.