Performance Comparison of Behavioral Finance -based Investment Strategies in the Finnish Stock Market 1996-2010

In this thesis traditional investment strategies (value and growth) are compared to modern investment strategies (momentum, contrarian and GARP) in terms of risk, performance and cumulative returns. Strategies are compared during time period reaching from 1996 to 2010 in the Finnish stock market. Used data includes all listed main list stocks, dividends and is adjusted in case of splits, and mergers and acquisitions. Strategies are tested using different holding periods (6, 12 and 36 months) and data is divided into tercile portfolios based on different ranking criteria. Contrarian and growth strategies are the only strategies with improved cumulative returns when longer holding periods are used. Momentum (52-week high price1) and GARP strategies based on short holding period have the best performance and contrarian and growth strategies the worst. Momentum strategies (52-week high price) along with short holding period contrarian strategies (52-week low price2) have the lowest risk. Strategies with the highest risk are both growth strategies and two momentum strategies (52-week low price). The empirical results support the efficiency of momentum, GARP and value strategies. The least efficient strategies are contrarian and growth strategies in terms of risk, performance and cumulative returns. Most strategies outperform the market portfolio in all three measures. 1 Stock ranking criterion (current price/52-week highest price) 2 Stock ranking criterion (current price/52-week lowest price)

Diversification benefits for a Finnish non-industrial private forest investor: Real Estate Investment Trusts in the USA

This thesis examined both domestic and international forest investment options for a Finnish non-industrial private forest investor. The focus was on forest-based investment instruments. The influence of movements of currency exchange rates on foreign returns were also taken into account. Annual data from 1995 to 2011 was used. The main portfolio optimization model in this study was the Mean-Variance model but the results were also validated by using the Value at Risk and Expected Shortfall models. In addition, the exchange rate risk hedging was established by using one-week-maturity forward contracts. The results suggested that 75 % of the total wealth should be invested in Finnish private forests and the rest, 25 %, to a US REIT, in this case Rayonier. With hedging, the total return on the portfolio was 7.21 % (NIPF 5.3%) with the volatility of 6.63 % (NIPF 7.9%). Taxation supported US investments in this case. As a conclusion, a Finnish private forest investor may, as evidenced, benefit in diversifying a portfolio using REITs in the US.

Foreign Direct Investment and Shareholder Wealth Gains: Evidence from Finnish FDI in China

In Finnish discourse, “The China Effect” refers to the surge of offshoring activities by Western companies to China during the past couple of decades. Inspired by event studies concerning announcements of foreign direct investment, this thesis investigates the market’s reaction to Finnish companies’ announcement of FDI targeting the People’s Republic of China. Standard event study methodology is applied to 135 announcements related to subsidiaries, joint ventures and acquisitions between 1997 and 2014. The data is checked for contamination by unrelated coinciding events and outliers. A positive average abnormal return is found to take place on the date of the announcement. Additionally, the abnormal returns are found to exist only for projects announced before 2008, and only when the investment project is new, as opposed to investments made to extend previously established projects. Ownership arrangement and the novelty of facilities do not influence the market’s reaction towards the investment announcement.

TAKING ADVANTAGE OF THE LOCAL ADVANTAGE? - Investment value of the analyst local advantage in the Finnish stock market in 2006–2014

An investor can either conduct independent analysis or rely on the analyses of others. Stock analysts provide markets with expectations regarding particular securities. However, analysts have different capabilities and resources, of which investors are seldom cognizant. The local advantage refers to the advantage stemming from cultural or geographical proximity to securities analyzed. The research has confirmed that local agents are generally more accurate or produce excess returns. This thesis tests the investment value of the local advantage regarding Finnish stocks via target price data. The empirical section investigates the local advantage from several aspects. It is discovered that local analysts were more focused on certain sectors generally located close to consumer markets. Market reactions to target price revisions were generally insignificant with the exception to local positive target prices. Both local and foreign target prices were overly optimistic and exhibited signs of herding. Neither group could be identified as a leader or follower of new information. Additionally, foreign price change expectations were more in line with the quantitative models and ideas such as beta or return mean reversion. The locals were more accurate than foreign analysts in 5 out of 9 sectors and vice versa in one. These sectors were somewhat in line with coverage decisions and buttressed the idea of local advantage stemming from proximity to markets, not to headquarters. The accuracy advantage was dependent on sample years and on the measure used. Local analysts ranked magnitudes of price changes more accurately in optimistic and foreign analysts in pessimistic target prices. Directional accuracy of both groups was under 50% and target prices held no linear predictive power. Investment value of target prices were tested by forming mean-variance efficient portfolios. Parallel to differing accuracies in the levels of expectations foreign portfolio performed better when short sales were allowed and local better when disallowed. Both local and non-local portfolios performed worse than a passive index fund, albeit not statistically significantly. This was in line with previously reported low overall accuracy and different accuracy profiles. Refraining from estimating individual stock returns altogether produced statistically significantly higher Sharpe ratios compared to local or foreign portfolios. The proposed method of testing the investment value of target prices of different groups suffered from some inconsistencies. Nevertheless, these results are of interest to investors seeking the advice of security analysts.

TAKING ADVANTAGE OF THE LOCAL ADVANTAGE? - Investment value of the analyst local advantage in the Finnish stock market in 2006–2014

An investor can either conduct independent analysis or rely on the analyses of others. Stock analysts provide markets with expectations regarding particular securities. However, analysts have different capabilities and resources, of which investors are seldom cognizant. The local advantage refers to the advantage stemming from cultural or geographical proximity to securities analyzed. The research has confirmed that local agents are generally more accurate or produce excess returns. This thesis tests the investment value of the local advantage regarding Finnish stocks via target price data. The empirical section investigates the local advantage from several aspects. It is discovered that local analysts were more focused on certain sectors generally located close to consumer markets. Market reactions to target price revisions were generally insignificant with the exception to local positive target prices. Both local and foreign target prices were overly optimistic and exhibited signs of herding. Neither group could be identified as a leader or follower of new information. Additionally, foreign price change expectations were more in line with the quantitative models and ideas such as beta or return mean reversion. The locals were more accurate than foreign analysts in 5 out of 9 sectors and vice versa in one. These sectors were somewhat in line with coverage decisions and buttressed the idea of local advantage stemming from proximity to markets, not to headquarters. The accuracy advantage was dependent on sample years and on the measure used. Local analysts ranked magnitudes of price changes more accurately in optimistic and foreign analysts in pessimistic target prices. Directional accuracy of both groups was under 50% and target prices held no linear predictive power. Investment value of target prices were tested by forming mean-variance efficient portfolios. Parallel to differing accuracies in the levels of expectations foreign portfolio performed better when short sales were allowed and local better when disallowed. Both local and non-local portfolios performed worse than a passive index fund, albeit not statistically significantly. This was in line with previously reported low overall accuracy and different accuracy profiles. Refraining from estimating individual stock returns altogether produced statistically significantly higher Sharpe ratios compared to local or foreign portfolios. The proposed method of testing the investment value of target prices of different groups suffered from some inconsistencies. Nevertheless, these results are of interest to investors seeking the advice of security analysts.

Konenäköinvestoinnin soveltuvuus- ja esikannattavuustukimus sahalaitoksessa

Diplomityön tavoitteena oli selvittää sahalaitokselle mahdollisen konenäköinvestoinninsoveltuvuus ja kannattavuus. Tutkimus rajattiin vaihtoehtojen tunnistamisen ja investoinnin kannattavuuden alustavaan analyysiin. Tutkimuksessa arvioitiin konenäkötekniikan mahdollisuuksia sahateollisuusprosessissa yleisesti sekä erityisesti sahatavaran pitkittäis- ja poikittaissuuntaisissa sahatavaran pinnantarkastuksissa. Konenäköjärjestelmien toimittajia ja heidän referenssejään haastattelemalla saatiin selvitettyä tarjottujen järjestelmien tekninen soveltuvuus. Tutkimus liitettiin työn toimeksiantajan toimintastrategiaan, jotta voitiin arvioida mahdollisimman kattavasti kaikki investoinnilla saavutettavat hyödyt. Kannattavuuslaskentaa varten arvioitiin investoinnilla saavutettavat nettotuotot suunnitellulle pitoajalle. Laskennassa käytettiin perinteisiä investointilaskentamenetelmiä kuten nykyarvomenetelmää, takaisinmaksuaikaa ja sisäistä korkokantaa. Poikittaissuuntainen sahatavaran pinnantarkastus tuoreen ja kuivan tavaran tasaamolla todettiin teknisesti toteuttamiskelpoiseksi vaihtoehdoksi. Kyseisessä vaihtoehdossa liitännäisinvestointien määrän arvioidaan jäävän melko vähäisiksi. Konenäköinvestoinnin voidaan arvioida kannattavan, muttakannattavuuden edellytyksenä on vahva johdon ja muun henkilöstön sitoutuminen uuteen haasteeseen.

Investment Determinants and Future Shape of Russia's Power Generation

The reformation of power sector is still in the process of development. The present day situation in Russian electricity power market ischaracterized as transitional period: competitive electricity market is forming, new companies are being created and the power of government regulation is decreasing. The main aim of the reformation is to attract much-needed private investments to the power sector. The electricity consumption increases very rapidly and power sector has to cope with high demand. The goal of this master's thesis is to analyze the nowadays situation in Russian power sector, such as generation structure, condition of electricity networks, electricity price formation for end-users, shape of fuel sector and investments risks and attraction.The final result of this work is creation of scenario of Russian power sector future shape and analysis of the present day situation.

Paperikoneen käyttöönoton onnistumisen riippuvuus valmistelutyöstä

Paperikoneinvestointi toteutetaan projekteina, joista muodostuvaa ketjua kutsutaan projektien elinkaareksi. Toteutusketjun viimeinen lenkki on käynnistykseen huipentuva käyttöönotto. Hyvä käyttöönotto palvelee investointia. Käyttöönotoissa koetaan erilaisia ongelmatilanteita, joista osa on satunnaisesti tai usein toistuvia. Investoinnin onnistumisen ja aikataulun asettama paine luo tilanteiden selvittämiseen erityishaasteita. Aina ei selvitä ilman takaiskuja. Tutkimustavoitteena oli kartoittaa käyttöönoton yleiset ongelmat ja niiden yhteydet projektihistoriaan, sekä ne projektinhallinnan osa-alueet, joita parantamalla varmistetaan käyttöönoton ja investoinnin onnistuminen. Tutkimus pohjautuu erilaisistainvestointiprojekteista ja käyttöönotoista saatuihin kokemuksiin, haastatteluihin (3 kpl) ja kyselypalautteeseen (42 kpl). Investoinnin onnistumisedellytykset luodaan projektihistoriassa, käyttöönotossa ne viimeistellään. Onnistuminen mitataan tuotto-odotusten saavuttamisena aikataulussa, johon vaikuttavia tekijöitä ovat tuotannon hallinta, käyttövarmuus ja markkinat. Käyttöönoton onnistumista tulee arvioida käyttöönottotehtävistäsuoriutumisen pohjalta, ei pelkästään investoinnille asetettujen aikataulu- ja tuotantotavoitteiden (laatu, määrä, hallinta) saavuttamisena, kuten usein tapahtuu. Tulosten perusteella käyttöönoton merkittävimmät ongelmat ovat tiedonkulun puutteet, ohjelmallisten korjausten suuri määrä ja palautumisajan riittämättömyys. Tärkeimmät painotukset ovat laiterikkojen estäminen, ohjelmavirheiden korjaaminen ja henkilöstön osaamisen varmentaminen. Konelinjan vaikeimmin hallittava osa on radan päänvienti. Osapuolten poikkeavat näkökulmat sekä työn laadun merkitys testauksissa, koulutuksissa ja kenttätoiminnoissa nousee tuloksista myös vahvasti esiin. Tutkimus on selvittänyt sille asetetut tavoitteet. Käyttöönoton merkittävimmät ongelmat syntyvät sen lähihistoriassa: testauksissa, koulutuksessa ja kenttätoiminnoissa. Käyttöönoton onnistumiseksi tulee painotusprojektinhallinnassa keskittää käynnistysvaiheen suunnitteluun sekä kenttätoimintojen hallintaan.

Strategic investment appraisal; extended real options approach

Tutkielma keskittyy lisäämään investointiarviointiprosessien rationaalisuutta strategisten investointien arvioinnissa duopoli- / oligopolimarkkinoilla. Tutkielman päätavoitteena on selvittää kuinka peliteorialla laajennettu reaalioptioperusteinen investointien arviointimenetelmä, laajennettu reaalioptiokehikko, voisi mahdollisesti parantaa analyysien tarkkuutta. Tutkimus lähestyy ongelmaa investoinnin ajoituksen sekä todellisten investoinnin arvoattribuuttien riippuvuuksien kautta. Laajennettu reaalioptiokehikko on investointien analysointi- ja johtamistyökalu, joka tarjoaa osittain rajoitetun (sisältää tällä hetkellä ainoastaan parametrisen ja peliteoreettisen epävarmuuden) optimaalisen arvovälin investoinnin todellisesta arvosta. Kehikossa, ROA kartoittaa mahdolliset strategiset hyödyt tunnistamalla investointiinliittyvät eri optiot ja epävarmuudet, peliteoria korostaa ympäristön luomia paineita investointiin liittyvän epävarmuuden hallitsemisessa. Laajennettu reaalioptiokehikko tarjoaa rationaalisemman arvion strategisen investoinnin arvosta, koska se yhdistää johdonmukaisemmin option toteutuksen ja siten myös optioiden aika-arvon, yrityksen todellisiin rajoitettuihin (rajoituksena muiden markkinatoimijoiden toimet) polkuriippuvaisiin kyvykkyyksiin.

The Persistence of Finnish Equity Fund Performance

Tutkimuksen tavoitteena on selvittää, esiintyykö suomeen sijoittavilla osakerahastoilla menestyksen pysyvyyttä. Tutkimusaineisto koostuu kaikista suomalaisista osakerahastoista, jotka toimivat ajanjaksolla 15.1.1998-13.1.2005. Aineisto on vapaa selviytymisvinoumasta. Suorituskyvyn mittareina käytetään CAPM-alfaa sekä kolmi- ja nelifaktori-alfaa. Empiirisessä osassa osakerahastojen menestyksen pysyvyyttä testataan Spearmanin järjestyskorrelaatiotestillä. Evidenssi menestyksen pysyvyydestä jäi vähäiseksi, vaikkakin sitä esiintyi satunnaisesti kaikilla menestysmittareilla joillakin ranking- ja sijoitusperiodin yhdistelmillä. CAPM-alfalla tarkasteltuna tilastollisesti merkitsevää menestyksen pysyvyyttä esiintyi selvästi useammin kuin muilla menestysmittareilla. Tulokset tukevat viimeaikaisia kansainvälisiä tutkimuksia, joiden mukaan menestyksen pysyvyys riippuu usein mittaustavasta. Menestysmittareina käytettyjen regressiomallien merkitsevyystestit osoittavat multifaktorimallien selittävän osakerahastojen tuottoja CAPM:a paremmin. Lisätyt muuttujat parantavat merkittävästi CAPM:n selitysvoimaa.

Are Evaluation of ICTs Investment Using Decision Support Systems:Case Applications from Distributor's and End User's Perspective Group Decision

The evaluation of investments in advanced technology is one of the most important decision making tasks. The importance is even more pronounced considering the huge budget concerning the strategic, economic and analytic justification in order to shorten design and development time. Choosing the most appropriate technology requires an accurate and reliable system that can lead the decision makers to obtain such a complicated task. Currently, several Information and Communication Technologies (ICTs) manufacturers that design global products are seeking local firms to act as their sales and services representatives (called distributors) to the end user. At the same time, the end user or customer is also searching for the best possible deal for their investment in ICT's projects. Therefore, the objective of this research is to present a holistic decision support system to assist the decision maker in Small and Medium Enterprises (SMEs) - working either as individual decision makers or in a group - in the evaluation of the investment to become an ICT's distributor or an ICT's end user. The model is composed of the Delphi/MAH (Maximising Agreement Heuristic) Analysis, a well-known quantitative method in Group Support System (GSS), which is applied to gather the average ranking data from amongst Decision Makers (DMs). After that the Analytic Network Process (ANP) analysis is brought in to analyse holistically: it performs quantitative and qualitative analysis simultaneously. The illustrative data are obtained from industrial entrepreneurs by using the Group Support System (GSS) laboratory facilities at Lappeenranta University of Technology, Finland and in Thailand. The result of the research, which is currently implemented in Thailand, can provide benefits to the industry in the evaluation of becoming an ICT's distributor or an ICT's end user, particularly in the assessment of the Enterprise Resource Planning (ERP) programme. After the model is put to test with an in-depth collaboration with industrial entrepreneurs in Finland and Thailand, the sensitivity analysis is also performed to validate the robustness of the model. The contribution of this research is in developing a new approach and the Delphi/MAH software to obtain an analysis of the value of becoming an ERP distributor or end user that is flexible and applicable to entrepreneurs, who are looking for the most appropriate investment to become an ERP distributor or end user. The main advantage of this research over others is that the model can deliver the value of becoming an ERP distributor or end user in a single number which makes it easier for DMs to choose the most appropriate ERP vendor. The associated advantage is that the model can include qualitative data as well as quantitative data, as the results from using quantitative data alone can be misleading and inadequate. There is a need to utilise quantitative and qualitative analysis together, as can be seen from the case studies.