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.

Evolution of the Finnish military doctrine, 1945-1985

Finnish Defence Studies is published under the auspices of the War College, and the contributions reflect the fields of research and teaching of the College. Finnish Defence Studies will occasionally feature documentation on Finnish Security Policy. Views expressed are those of the authors and do not necessarily imply endorsement by the War College.

Development of military technology and its impact on the Finnish land warfare doctrine

Finnish Defence Studies is published under the auspices of the War College, and the contributions reflect the fields of research and teaching of the College. Finnish Defence Studies will occasionally feature documentation on Finnish Security Policy. Views expressed are those of the authors and do not necessarily imply endorsement by the War College.

Liquidity Risk in the Finnish Stock Market

This study explores the pricing of liquidity risk and its effect on stock returns in the Finnish stock market. In addition to that, it investigates whether there is a trend in liquidity risk. Finally, it analyzes whether the two chosen liquidity measures provide different results. The data consists of all the common shares listed in the Finnish stock market during the period of 1/1997–7/2015. To examine whether liquidity risk affects stock returns in the Finnish stock market, this study utilizes a conditional version of liquidity-adjusted capital asset pricing model (LCAPM) by Acharya and Pedersen (2005). Two recently proposed illiquidity measures – PQS and AdjILLIQ – are used in the empirical estimation to see whether there are differences in the results between the measures. The time-varying conditional liquidity risks are estimated by using a multivariate DCC-GARCH model, while the pricing of the liquidity risk is conducted by applying fixed effect panel regression. The results imply that investors in the Finnish stock market are willing to pay a premium to hedge from wealth shocks and having liquid assets during the declined market liquidity. However, investors are not willing to pay a premium for stocks with higher returns during illiquid markets. The total annualized illiquidity premiums found in the Finnish stock market are 1.77% and 1.04%, based on the PQS and AdjILLIQ measures, respectively. The study also shows that liquidity risk does not exhibit decreasing trend, and investors should consider liquidity risk in their portfolio diversification in the Finnish stock market.

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.

ATTITUDES TOWARD RUSSIAN CUSTOMERS IN THE FINNISH RETAIL TRADE SECTOR – A salesperson’s point of view

The amount of Russian tourists in Finland has increased significantly in the past years. The impact of Russian tourism to the Finnish retail trade sector is enormous, since Russian tourists often spend a lot of money particularly on shopping. Shopping tourism is mainly focused in the near border cities, such as Imatra and Lappeenranta, and in addition in Helsinki metropolitan area. The purpose of this study is to map the attitudes and perceptions of the sales personnel who are working in the Finnish retail trade sector towards Russian customers and to discover which elements affect these attitudes. The theories in this study are based on cultural elements and elements related to sales behavior and performance. Cultural differences between Finland and Russia, cultural distance and cultural intelligence form the cultural aspect of this study. Customer orientation vs. sales orientation (SOCO), adaptive selling, selling skills and job competency, salesperson’s affect and empathy toward customers, and job autonomy form the elements concerning sales behavior and performance. Furthermore, the attitude – behavior link, based on social psychology is addressed. A survey was conducted in two retail trade chains operating in Finland. These retail companies have stores and department stores in different geographical areas in Finland and the survey was conducted in altogether 19 cities. In addition to the theories that were discussed, two expert interviews were conducted in order to get a deeper understanding of the phenomenon at hand. Moreover the interviews helped in the formulation of the hypotheses and the questionnaire design. The questionnaires were sent directly to the stores, where they were placed so that they were available for the sales personnel. Altogether 487 usable responses were collected. The returned questionnaires were analyzed with IBM SPSS 21 statistics program. The results of this study indicated that the attitudes toward Russian customers are more negative compared to other foreign customers. However, the respondents’ attitudes toward and perceptions of Russian customers varied a lot. From the background variables age, education level, length of employment in current workplace, and length of experience in customer service had an effect on the attitudes of the respondents. In addition, the perceptions of Russian customers were more positive in the Eastern Finland compared to Helsinki metropolitan area. The cultural elements; cultural knowledge, cultural distance and cultural intelligence all affected the attitudes of the respondents. From the elements related to sales behavior and performance customer orientation, salesperson’s affect and empathy toward customers, and perceived job autonomy had an effect on the attitudes

Pairs trading profitability in the Finnish stock market: A comparison between three methods

Pairs trading is an algorithmic trading strategy that is based on the historical co-movement of two separate assets and trades are executed on the basis of degree of relative mispricing. The purpose of this study is to explore one new and alternative copula-based method for pairs trading. The objective is to find out whether the copula method generates more trading opportunities and higher profits than the more traditional distance and cointegration methods applied extensively in previous empirical studies. Methods are compared by selecting top five pairs from stocks of the large and medium-sized companies in the Finnish stock market. The research period includes years 2006-2015. All the methods are proven to be profitable and the Finnish stock market suitable for pairs trading. However, copula method doesn’t generate more trading opportunities or higher profits than the other methods. It seems that the limitations of the more traditional methods are not too restrictive for this particular sample data.