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.

Influence of transport and time on blood variables commonly measured for the athlete biological passport.

Some recent studies have characterized the stability of blood variables commonly measured for the Athlete Biological Passport. The aim of this study was to characterize the impact of different shipments conditions and the quality of the results returned by the haematological analyzer. Twenty-two healthy male subjects provided five EDTA tubes each. Four shipment conditions (24, 36, 48, 72 h) under refrigerated conditions were tested and compared to a set of samples left in the laboratory also under refrigerated conditions (group control). All measurements were conducted using two Sysmex XT-2000i analyzers. Haemoglobin concentration, reticulocytes percentage, and OFF-score numerical data were the same for samples analyzed just after collection and after a shipment under refrigerated conditions up to 72 h. Detailed information reported especially by the differential (DIFF) channel scatterplot of the Sysmex XT-2000i indicated that there were signs of blood deterioration, but were not of relevance for the variables used in the Athlete Biological Passport. As long as the cold chain is guaranteed, the time delay between the collection and the analyses of blood variables can be extended. Copyright© 2015 John Wiley & Sons, Ltd.