Testing Futures Market Efficiency and Optimal Hedge Ratio Estimation: Evidence from Futures and Options on RTS

This study investigates futures market efficiency and optimal hedge ratio estimation. First, cointegration between spot and futures prices is studied using Johansen method, with two different model specifications. If prices are found cointegrated, restrictions on cointegrating vector and adjustment coefficients are imposed, to account for unbiasedness, weak exogeneity and prediction hypothesis. Second, optimal hedge ratios are estimated using static OLS, and time-varying DVEC and CCC models. In-sample and out-of-sample results for one, two and five period ahead are reported. The futures used in thesis are RTS index, EUR/RUB exchange rate and Brent oil, traded in Futures and options on RTS.(FORTS) For in-sample period, data points were acquired from start of trading of each futures contract, RTS index from August 2005, EUR/RUB exchange rate March 2009 and Brent oil October 2008, lasting till end of May 2011. Out-of-sample period covers start of June 2011, till end of December 2011. Our results indicate that all three asset pairs, spot and futures, are cointegrated. We found RTS index futures to be unbiased predictor of spot price, mixed evidence for exchange rate, and for Brent oil futures unbiasedness was not supported. Weak exogeneity results for all pairs indicated spot price to lead in price discovery process. Prediction hypothesis, unbiasedness and weak exogeneity of futures, was rejected for all asset pairs. Variance reduction results varied between assets, in-sample in range of 40-85 percent and out-of sample in range of 40-96 percent. Differences between models were found small, except for Brent oil in which OLS clearly dominated. Out-of-sample results indicated exceptionally high variance reduction for RTS index, approximately 95 percent.

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)

The Evolution of Securities Lending and Risk Mitigation: A Finnish Market Case Study

Although securities lending is an important function of the financial markets, it has not received that much academic attention. This study examines the evolution of European securities lending and risk management with an emphasis on the development of collateral management, the function responsible for reducing credit risk. The effects of the recent financial instabilities are also considered. The evolution of the Finnish securities lending market is examined in more detail through a case-study. This study can be classified as a constructive qualitative case study. The initial practical knowledge comes from the author's own experience and additional insight and theoretical background is acquired through a literature review. The case study is based on research, semi-structured interviews and a brief analysis of numerical data. The main observation of this study was that securities lending is now recognized as more of an investment management discipline than an operational support function. The recent financial instabilities have resulted in an increased focus on risk and transparency. In securities lending this is directly reflected in collateral management guidelines and procedures. Collateral management has become increasingly technologically developed and automated. Collateral optimization initiatives have been started to make the process more efficient, liquid, and cost effective. Although securities lending is generally an OTC-market with no standard market place, centralized exchange-like models have been introduced. Finnish securities lending has now shifted towards the more common global OTC model. Although the Finnish securities lending industry has developed, and the main laws governing it (tax legislation) have changed, there is still need for development. There are still not many Finnish participants involved and due to legal issues most securities loans are collateralized with cash and not securities (e.g. government bonds).

Strategic alliances as an international entry strategy: Finnish cleantech SMEs and the Indian market

The demand for environmental technologies, also called cleantech, is growing globally but the need is especially high in emerging markets such as India where the rising economy and rapid industrialisation have led to increasing energy needs and environmental degradation. The market is of great potential also for the Finnish cleantech cluster that represents advanced expertise in several fields of environmental technologies. However, most of the Finnish companies in the field are SMEs that face challenges in their internationalisation due to their limited resources. The objective of this study was to estimate, whether strategic alliances could be an efficient entry strategy for Finnish cleantech SMEs entering the Indian market. This was done by studying what are the key factors influencing the international entry mode decision of Finnish cleantech SMEs, what are the major factors affecting the entry of Finnish cleantech SMEs to the Indian market and how do Finnish cleantech SMEs use strategic alliances in their internationalisation process. The study was realised as a qualitative multi-case study through theme interviews of Finnish cleantech SME representatives. The results indicated that Finnish cleantech SMEs prefer to enter international markets through non-equity and collaborative modes of entry. These entry modes are chosen because of the small size and limited resources of companies, but also because they want to protect their innovative technologies from property rights violations. India is an attracting market for Finnish cleantech SMEs mainly because of its size and growth, but insufficient environmental regulation and high import tariffs have hindered entry to the market. Finnish cleantech SMEs commonly use strategic alliances in their internationalisation process but the use is rather one-sided. Most of the formed strategic alliances are low-commitment, international contractual agreement in sales and distribution. Alliance partner selection receives less attention. In the future, providing Finnish cleantech SMEs with international experience and training could help in diversifying the use of strategic alliances and increase their benefits to SME internationalisation.

Performance of active portfolio management and the effect of stock market trend

Purpose of the study is to evaluate performance of active portfolio management and the effect of stock market trend on the performance. Theory of efficient markets states that market prices reflect all available information and that all investors share a common view of future price developments. This view gives little room for the success of active management, but the theory has been disputed – at least the level of efficiency. Behavioral finance has developed theories that identify irrational behavior patterns of investors. For example, investment decisions are not made independent of past market developments. These findings give reason to believe that also the performance of active portfolio management may depend on market developments. Performance of 16 Finnish equity funds is evaluated during the period of 2005 to 2011. In addition two sub periods are constructed, a bull market period and a bear market period. The sub periods are created by joining together the two bull market phases and the two bear market phases of the whole period. This allows for the comparison of the two different market states. Performance of the funds is measured with risk-adjusted performance by Modigliani and Modigliani (1997), abnormal return over the CAPM by Jensen (1968), and market timing by Henriksson and Merton (1981). The results suggested that in average the funds are not able to outperform the market portfolio. However, the underperformance was found to be lower than the management fees in average which suggests that portfolio managers are able to do successful investment decisions to some extent. The study revealed substantial dependence on the market trend for all of the measures. The risk-adjusted performance measure suggested that in bear markets active portfolio managers in average are able to beat the market portfolio but not in bull markets. Jensen´s alpha and the market timing model also showed striking differences between the two market states. The results of these two measures were, however, somewhat problematic and reliable conclusions about the performance could not be drawn.

Insiders´ views as a predictor of stock performance : can insider trading be used to predict stock performance on the United States stock market?

This thesis studies the possibility of using information on insiders’ transactions to forecast future stock returns after the implementation of Sarbanes Oxley Act in July 2003. Insider transactions between July 2003 and August 2009 are analysed with regression tests to identify the relationships between insiders’ transactions and future stock returns. This analysis is complemented with rudimentary bootstrapping procedures to verify the robustness of the findings. The underlying assumption of the thesis is that insiders constantly receive pieces of information that indicate future performance of the company. They may not be allowed to trade on large and tangible pieces of information but they can trade on accumulation of smaller, intangible pieces of information. Based on the analysis in the thesis insiders’ profits were found not to differ from the returns from broad stock index. However, their individual transactions were found to be linked to future stock returns. The initial model was found to be unstable but some of the predictive power could be sacrificed to achieve greater stability. Even after sacrificing some predictive power the relationship was significant enough to allow external investors to achieve abnormal profits after transaction costs and taxes. The thesis does not go into great detail about timing of transactions. Delay in publishing insiders’ transactions is not taken into account in the calculations and the closed windows are not studied in detail. The potential effects of these phenomena are looked into and they do not cause great changes in the findings. Additionally the remuneration policy of an insider or a company is not taken into account even though it most likely affects the trading patterns of insiders. Even with the limitations the findings offer promising opportunities for investors to improve their investment processes by incorporating additional information from insiders’ transaction into their decisions. The findings also raise questions on how insider trading should be regulated. Insiders achieve greater returns than other investors based on superior information. On the other hand, more efficient information transfer could warrant more lenient regulation. The fact that insiders’ returns are dominated by the large investment stake they maintain all the time in their own companies also speaks for more leniency. As Sarbanes Oxley Act considerably modified the insider trading landscape, this analysis provides information that has not been available before. The thesis also constitutes a thorough analysis of insider trading phenomenon which has previously been somewhat separated into several studies.

On advancing business intelligence in the electricity retail market

In recent decades, business intelligence (BI) has gained momentum in real-world practice. At the same time, business intelligence has evolved as an important research subject of Information Systems (IS) within the decision support domain. Today’s growing competitive pressure in business has led to increased needs for real-time analytics, i.e., so called real-time BI or operational BI. This is especially true with respect to the electricity production, transmission, distribution, and retail business since the law of physics determines that electricity as a commodity is nearly impossible to be stored economically, and therefore demand-supply needs to be constantly in balance. The current power sector is subject to complex changes, innovation opportunities, and technical and regulatory constraints. These range from low carbon transition, renewable energy sources (RES) development, market design to new technologies (e.g., smart metering, smart grids, electric vehicles, etc.), and new independent power producers (e.g., commercial buildings or households with rooftop solar panel installments, a.k.a. Distributed Generation). Among them, the ongoing deployment of Advanced Metering Infrastructure (AMI) has profound impacts on the electricity retail market. From the view point of BI research, the AMI is enabling real-time or near real-time analytics in the electricity retail business. Following Design Science Research (DSR) paradigm in the IS field, this research presents four aspects of BI for efficient pricing in a competitive electricity retail market: (i) visual data-mining based descriptive analytics, namely electricity consumption profiling, for pricing decision-making support; (ii) real-time BI enterprise architecture for enhancing management’s capacity on real-time decision-making; (iii) prescriptive analytics through agent-based modeling for price-responsive demand simulation; (iv) visual data-mining application for electricity distribution benchmarking. Even though this study is from the perspective of the European electricity industry, particularly focused on Finland and Estonia, the BI approaches investigated can: (i) provide managerial implications to support the utility’s pricing decision-making; (ii) add empirical knowledge to the landscape of BI research; (iii) be transferred to a wide body of practice in the power sector and BI research community.

Liquidity and Asset Pricing in the French Stock Market

This thesis investigates pricing of liquidity in the French stock market. The study covers 835 ordinary shares traded in the period of 1996-2014 on Paris Euronext. The author utilizes the Liquidity-Adjusted Capital Asset Pricing Model (LCAPM) recently developed by Acharya and Pedersen (2005) to test whether liquidity level and risks significantly affect stock returns. Three different liquidity measures – Amihud, FHT, and PQS – are incorporated into the model to find any difference between the results they could provide. It appears that the findings largely depend on the liquidity measure used. In general the results exhibit more evidence for insignificant influence of liquidity level and risks as well as market risk on stock returns. The similar conclusion was reported earlier by Lee (2011) for several regions, including France. This finding of the thesis, however, is not consistent across all the liquidity measures. Nevertheless, the difference in the results between these measures provides new insight to the existing literature on this topic. The Amihud-based findings might indicate that market resiliency is not priced in the French stock market. At the same time the contradicting results from FHT and PQS provide some foundation for the hypothesis that one of two leftover liquidity dimensions – market depth or breadth – could significantly affect stock returns. Therefore, the thesis’ findings suggest a conjecture that different liquidity dimensions have different impacts on stock returns.

Time to volume through efficient multi-site ramp-up

The aim of this thesis was to create a process for all multi-site ramp-up (MSRU) projects in the case company in order to have simultaneous ramp-ups early in the market. The research was done through case study in one company and semi-structured interviews. There are already processes, which are now in use in MSRU-cases. Interviews of 20 ramp-up specialists revealed topics to be improved. Those were project team set up, roles and responsibilities and recommended project organization, communication, product change management practices, competence and know how transfer practices and support model. More R&D support and involvement is needed in MSRU-projects. DCM’s role is very important in the MSRU-projects among PMT-team; he should be the business owner of the project. Recommendation is that product programs could take care of the product and repair training of new products in volume factories. R&D’s participation in competence transfers is essential important in MSRU-projects. Communication in projects could be shared through special intranet commune. Blogging and tweeting could be considered in the communication plan. If hundreds of change notes are open in ramp-up phase, it should be considered not to approve the product into volume ramp-up. PMTs’ supports are also important and MSRU-projects should be planned, budgeted and executed together. Finally a new MSRU-process is presented in this thesis to be used in all MSRU-projects.

Market anomalies and tactical asset allocation: Utilising market anomalies in multiple asset class portfolios with the Black−Litterman model

This thesis discusses the basic problem of the modern portfolio theory about how to optimise the perfect allocation for an investment portfolio. The theory provides a solution for an efficient portfolio, which minimises the risk of the portfolio with respect to the expected return. A central feature for all the portfolios on the efficient frontier is that the investor needs to provide the expected return for each asset. Market anomalies are persistent patterns seen in the financial markets, which cannot be explained with the current asset pricing theory. The goal of this thesis is to study whether these anomalies can be observed among different asset classes. Finally, if persistent patterns are found, it is investigated whether the anomalies hold valuable information for determining the expected returns used in the portfolio optimization Market anomalies and investment strategies based on them are studied with a rolling estimation window, where the return for the following period is always based on historical information. This is also crucial when rebalancing the portfolio. The anomalies investigated within this thesis are value, momentum, reversal, and idiosyncratic volatility. The research data includes price series of country level stock indices, government bonds, currencies, and commodities. The modern portfolio theory and the views given by the anomalies are combined by utilising the Black-Litterman model. This makes it possible to optimise the portfolio so that investor’s views are taken into account. When constructing the portfolios, the goal is to maximise the Sharpe ratio. Significance of the results is studied by assessing if the strategy yields excess returns in a relation to those explained by the threefactormodel. The most outstanding finding is that anomaly based factors include valuable information to enhance efficient portfolio diversification. When the highest Sharpe ratios for each asset class are picked from the test factors and applied to the Black−Litterman model, the final portfolio results in superior riskreturn combination. The highest Sharpe ratios are provided by momentum strategy for stocks and long-term reversal for the rest of the asset classes. Additionally, a strategy based on the value effect was highly appealing, and it basically performs as well as the previously mentioned Sharpe strategy. When studying the anomalies, it is found, that 12-month momentum is the strongest effect, especially for stock indices. In addition, a high idiosyncratic volatility seems to be positively correlated with country indices on stocks.

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.

Trabalho infantil e o status ocupacional dos pais

Child labor and the parents' status of employment. The objective of this paper is to verify the hypothesis of the effect of the status of employment of the head of the family on the occurrence of child labor, as well as to analyze other characteristics which can influence such behavior. A probit model was used to realize the statistical tests. The results ratify the hypothesis proposed that the families whose head works as an independent worker show higher probability for the occurrence of child labor than those whose head works as a formal salaried worker. Among other results, it must be highlighted, making simulations, that increasing parents' schooling is more efficient than augmenting income to reduce the use of child labor. These results endorse the proposition that the status of employment should be used, complementing the criteria of income per capita, to select families in the cash transfers programmes or others to eradicate child labor.

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.

A reaction engineering approach to homogeneously catalyzed glycerol hydrochlorination

The production of biodiesel through transesterification has created a surplus of glycerol on the international market. In few years, glycerol has become an inexpensive and abundant raw material, subject to numerous plausible valorisation strategies. Glycerol hydrochlorination stands out as an economically attractive alternative to the production of biobased epichlorohydrin, an important raw material for the manufacturing of epoxy resins and plasticizers. Glycerol hydrochlorination using gaseous hydrogen chloride (HCl) was studied from a reaction engineering viewpoint. Firstly, a more general and rigorous kinetic model was derived based on a consistent reaction mechanism proposed in the literature. The model was validated with experimental data reported in the literature as well as with new data of our own. Semi-batch experiments were conducted in which the influence of the stirring speed, HCl partial pressure, catalyst concentration and temperature were thoroughly analysed and discussed. Acetic acid was used as a homogeneous catalyst for the experiments. For the first time, it was demonstrated that the liquid-phase volume undergoes a significant increase due to the accumulation of HCl in the liquid phase. Novel and relevant features concerning hydrochlorination kinetics, HCl solubility and mass transfer were investigated. An extended reaction mechanism was proposed and a new kinetic model was derived. The model was tested with the experimental data by means of regression analysis, in which kinetic and mass transfer parameters were successfully estimated. A dimensionless number, called Catalyst Modulus, was proposed as a tool for corroborating the kinetic model. Reactive flash distillation experiments were conducted to check the commonly accepted hypothesis that removal of water should enhance the glycerol hydrochlorination kinetics. The performance of the reactive flash distillation experiments were compared to the semi-batch data previously obtained. An unforeseen effect was observed once the water was let to be stripped out from the liquid phase, exposing a strong correlation between the HCl liquid uptake and the presence of water in the system. Water has revealed to play an important role also in the HCl dissociation: as water was removed, the dissociation of HCl was diminished, which had a retarding effect on the reaction kinetics. In order to obtain a further insight on the influence of water on the hydrochlorination reaction, extra semi-batch experiments were conducted in which initial amounts of water and the desired product were added. This study revealed the possibility to use the desired product as an ideal “solvent” for the glycerol hydrochlorination process. A co-current bubble column was used to investigate the glycerol hydrochlorination process under continuous operation. The influence of liquid flow rate, gas flow rate, temperature and catalyst concentration on the glycerol conversion and product distribution was studied. The fluid dynamics of the system showed a remarkable behaviour, which was carefully investigated and described. Highspeed camera images and residence time distribution experiments were conducted to collect relevant information about the flow conditions inside the tube. A model based on the axial dispersion concept was proposed and confronted with the experimental data. The kinetic and solubility parameters estimated from the semi-batch experiments were successfully used in the description of mass transfer and fluid dynamics of the bubble column reactor. In light of the results brought by the present work, the glycerol hydrochlorination reaction mechanism has been finally clarified. It has been demonstrated that the reactive distillation technology may cause drawbacks to the glycerol hydrochlorination reaction rate under certain conditions. Furthermore, continuous reactor technology showed a high selectivity towards monochlorohydrins, whilst semibatch technology was demonstrated to be more efficient towards the production of dichlorohydrins. Based on the novel and revealing discoveries brought by the present work, many insightful suggestions are made towards the improvement of the production of αγ-dichlorohydrin on an industrial scale.

Market reactions to changes in the Nasdaq-100 Index membership

We examine stock market reactions around the Nasdaq-100 Index reconstitutions. We find a symmetric and transitory price response accompanied by a significant increase in trading volume on the effective date. Firms added to the Nasdaq-100 Index experience significant increases in institutional ownership, the number of market makers, and the number of shareholders. In contrast, firms removed from the index show significant decreases in the number of institutional shareholders. Additions to the Nasdaq-100 Index also show significant increases in four liquidity measures, whereas deletions demonstrate significant decreases in two liquidity measures. These changes in liquidity are related to the abnormal return on the announcement day. Taken together, the results suggest support for the price pressure, liquidity, and investor awareness hypotheses.