Essays on pricing of risk and international linkage of Russian stock market

Last two decades have seen a rapid change in the global economic and financial situation; the economic conditions in many small and large underdeveloped countries started to improve and they became recognized as emerging markets. This led to growth in the amounts of global investments in these countries, partly spurred by expectations of higher returns, favorable risk-return opportunities, and better diversification alternatives to global investors. This process, however, has not been without problems and it has emphasized the need for more information on these markets. In particular, the liberalization of financial markets around the world, globalization of trade and companies, recent formation of economic and regional blocks, and the rapid development of underdeveloped countries during the last two decades have brought a major challenge to the financial world and researchers alike. This doctoral dissertation studies one of the largest emerging markets, namely Russia. The motivation why the Russian equity market is worth investigating includes, among other factors, its sheer size, rapid and robust economic growth since the turn of the millennium, future prospect for international investors, and a number of important major financial reforms implemented since the early 1990s. Another interesting feature of the Russian economy, which gives motivation to study Russian market, is Russia’s 1998 financial crisis, considered as one of the worst crisis in recent times, affecting both developed and developing economies. Therefore, special attention has been paid to Russia’s 1998 financial crisis throughout this dissertation. This thesis covers the period from the birth of the modern Russian financial markets to the present day, Special attention is given to the international linkage and the 1998 financial crisis. This study first identifies the risks associated with Russian market and then deals with their pricing issues. Finally some insights about portfolio construction within Russian market are presented. The first research paper of this dissertation considers the linkage of the Russian equity market to the world equity market by examining the international transmission of the Russia’s 1998 financial crisis utilizing the GARCH-BEKK model proposed by Engle and Kroner. Empirical results shows evidence of direct linkage between the Russian equity market and the world market both in regards of returns and volatility. However, the weakness of the linkage suggests that the Russian equity market was only partially integrated into the world market, even though the contagion can be clearly seen during the time of the crisis period. The second and the third paper, co-authored with Mika Vaihekoski, investigate whether global, local and currency risks are priced in the Russian stock market from a US investors’ point of view. Furthermore, the dynamics of these sources of risk are studied, i.e., whether the prices of the global and local risk factors are constant or time-varying over time. We utilize the multivariate GARCH-M framework of De Santis and Gérard (1998). Similar to them we find price of global market risk to be time-varying. Currency risk also found to be priced and highly time varying in the Russian market. Moreover, our results suggest that the Russian market is partially segmented and local risk is also priced in the market. The model also implies that the biggest impact on the US market risk premium is coming from the world risk component whereas the Russian risk premium is on average caused mostly by the local and currency components. The purpose of the fourth paper is to look at the relationship between the stock and the bond market of Russia. The objective is to examine whether the correlations between two classes of assets are time varying by using multivariate conditional volatility models. The Constant Conditional Correlation model by Bollerslev (1990), the Dynamic Conditional Correlation model by Engle (2002), and an asymmetric version of the Dynamic Conditional Correlation model by Cappiello et al. (2006) are used in the analysis. The empirical results do not support the assumption of constant conditional correlation and there was clear evidence of time varying correlations between the Russian stocks and bond market and both asset markets exhibit positive asymmetries. The implications of the results in this dissertation are useful for both companies and international investors who are interested in investing in Russia. Our results give useful insights to those involved in minimising or managing financial risk exposures, such as, portfolio managers, international investors, risk analysts and financial researchers. When portfolio managers aim to optimize the risk-return relationship, the results indicate that at least in the case of Russia, one should account for the local market as well as currency risk when calculating the key inputs for the optimization. In addition, the pricing of exchange rate risk implies that exchange rate exposure is partly non-diversifiable and investors are compensated for bearing the risk. Likewise, international transmission of stock market volatility can profoundly influence corporate capital budgeting decisions, investors’ investment decisions, and other business cycle variables. Finally, the weak integration of the Russian market and low correlations between Russian stock and bond market offers good opportunities to the international investors to diversify their portfolios.

Flow analysis by using solenoid valves for As(III) determination in natural waters by an on-line separation and pre-concentration system coupled to a tungsten coil atomizer

A flow system coupled to a tungsten coil atomizer in an atomic absorption spectrometer (TCA-AAS) was developed for As(III) determination in waters, by extraction with sodium diethyldithiocarbamate (NaDDTC) as complexing agent, and by sorption of the As(III)-DDTC complex in a micro-column filled with 5 mg C18 reversed phase (10 µL dry sorbent), followed by elution with ethanol. A complete pre-concentration/elution cycle took 208 s, with 30 s sample load time (1.7 mL) and 4 s elution time (71 µL). The interface and software for the synchronous control of two peristaltic pumps (RUN/ STOP), an autosampler arm, seven solenoid valves, one injection valve, the electrothermal atomizer and the spectrometer Read function were constructed. The system was characterized and validated by analytical recovery studies performed both in synthetic solutions and in natural waters. Using a 30 s pre-concentration period, the working curve was linear between 0.25 and 6.0 µg L-1 (r = 0.9976), the retention efficiency was 94±1% (6.0 µg L-1), and the pre-concentration coefficient was 28.9. The characteristic mass was 58 pg, the mean repeatability (expressed as the variation coefficient) was 3.4% (n=5), the detection limit was 0.058 µg L-1 (4.1 pg in 71 µL of eluate injected into the coil), and the mean analytical recovery in natural waters was 92.6 ± 9.5 % (n=15). The procedure is simple, economic, less prone to sample loss and contamination and the useful lifetime of the micro-column was between 200-300 pre-concentration cycles.

Development of Russian Ports in The Gulf of Finland

Russia has been one of the fastest developing economic areas in the world. Based on the GDP, the Russian economy grew evenly since the crisis in 1998 up till 2008. The growth in the gross domestic product has annually been some 5–10%. In 2007, the growth reached 8.1%, which is the highest figure after the 10% growth in 2000. Due to the growth of the economy and wage levels, purchasing power and consumption have been strongly increasing. The growing consumption has especially increased the imports of durables, such as passenger cars, domestic appliances and electronics. The Russian ports and infrastructure have not been able to satisfy the growing needs of exports and imports, which is why quite a large share of Russian foreign trade is going through third countries as transit transports. Finnish ports play a major role in transit transports to and from Russia. About 15% of the total value of Russian imports was transported through Finland in 2008. The economic recession that started in autumn 2008 and continues to date has had an impact on the economic development of Russia. The export income has decreased, mainly due to the reduced world market prices of energy products (oil and gas) and raw minerals. Investments have been postponed, getting credit is more difficult than before, and the ruble has weakened in relation to the euro and the dollar. The imports are decreasing remarkably, and are not forecast to reach the 2008 volumes even in 2012. The economic crisis is reflected in Finland's transit traffic. The volume of goods transported through Finland to and from Russia has decreased almost in the same proportion as the imports of goods to Russia. The biggest risk threatening the development of the Russian economy over long term is its dependence on export income from oil, gas, metals, minerals and forest products, as well as the trends of the world market prices of these products. Nevertheless, it is expected that the GDP of Russia will start to grow again in the forthcoming years due to the increased demand for energy products and raw minerals in the world. At the same time, it is obvious that the world market prices of these products will go up with the increasing demand. The increased income from exports will lead to a growth of imports, especially those of consumer goods, as the living standard of Russian citizens rises. The forecasts produced by the Russian Government concerning the economic development of Russia up till 2030 also indicate a shift in exported goods from raw materials to processed products, which together with energy products will become the main export goods of Russia. As a consequence, Russia may need export routes through third countries, which can be seen as an opportunity for increased transit transports through the ports of Finland. The ports competing with the ports of Finland for Russian foreign trade traffic are the Russian Baltic Sea ports and the ports of the Baltic countries. The strongest competitors are the Baltic Sea ports handling containers. On the Russian Baltic Sea, these ports include Saint Petersburg, Kaliningrad and, in the near future, the ports of Ust-Luga and possibly Vyborg. There are plans to develop Ust-Luga and Vyborg as modern container ports, which would become serious competitors to the Finnish ports. Russia is aiming to redirect as large a share as possible of foreign trade traffic to its own ports. The ports of Russia and the infrastructure associated with them are under constant development. On the other hand, the logistic capacity of Russia is not able to satisfy the continually growing needs of the Russian foreign trade. The capacity problem is emphasized by a structural incompatibility between the exports and imports in the Russian foreign trade. Russian exports can only use a small part of the containers brought in with imports. Problems are also caused by the difficult ice conditions and narrow waterways leading to the ports. It is predicted that Finland will maintain its position as a transit route for the Russian foreign trade, at least in the near future. The Russian foreign trade is increasing, and Russia will not be able to develop its ports in proportion with the increasing foreign trade. With the development of port capacity, cargo flows through the ports of Russia will grow. Structural changes in transit traffic are already visible. Firms are more and more relocating their production to Russia, for example as regards the assembly of cars and warehousing services. Simultaneously, an increasing part of transit cargoes are sent directly to Russia without unloading and reloading in Finland. New product groups have nevertheless been transported through Finland (textile products and tools), replacing the lost cargos. The global recession that started in autumn 2008 has influenced the volume of Russian imports and, consequently, the transit volumes of Finland, but the recession is not expected to be of long duration, and will thus only have a short-term impact on transit volumes. The Finnish infrastructure and services offered by the logistic chain should also be ready to react to the changes in imported product groups as well as to the change in Russian export products in the future. If the development plans of the Russian economy are realized, export products will be more refined, and the share of energy and raw material products will decrease. The other notable factor to be taken into consideration is the extremely fast-changing business environment in Russia. Operators in the logistic chain should be flexible enough to adapt to all kinds of changes to capitalise on business opportunities offered by the Russian foreign trade for the companies and for the transit volumes of Finnish ports, also in the future.

Occurrence of agrochemicals in surface waters of shallow soils and steep slopes cropped to tobacco

Tobacco cultivation in shallow soils and steep landscape under intense use of agrochemicals contributes to environment degradation. In this study, we assessed the concentration of agrochemicals in draw wells used for human consumption and a creek in a small catchment predominantly cropped to tobacco. Chlorpyrifos, flumetralin, and iprodione were determined by gas chromatography with electron capture detection, while imidalcloprid, atrazine, simazine, and clomazone were quantified by high-performance liquid chromatography with UV detection. Considering all sampling sites, all agrochemicals were detected at least once, except for flumetralin. The occurrence of agrochemicals in tobacco crops is a consequence of their fast transfer to surface water.

Wet oxidation of recalcitrant lignin waters: Experimental and kinetic studies

The dissertation is based on four articles dealing with recalcitrant lignin water purification. Lignin, a complicated substance and recalcitrant to most treatment technologies, inhibits seriously pulp and paper industry waste management. Therefore, lignin is studied, using WO as a process method for its degradation. A special attention is paid to the improvement in biodegradability and the reduction of lignin content, since they have special importance for any following biological treatment. In most cases wet oxidation is not used as a complete ' mineralization method but as a pre treatment in order to eliminate toxic components and to reduce the high level of organics produced. The combination of wet oxidation with a biological treatment can be a good option due to its effectiveness and its relatively low technology cost. The literature part gives an overview of Advanced Oxidation Processes (AOPs). A hot oxidation process, wet oxidation (WO), is investigated in detail and is the AOP process used in the research. The background and main principles of wet oxidation, its industrial applications, the combination of wet oxidation with other water treatment technologies, principal reactions in WO, and key aspects of modelling and reaction kinetics are presented. There is also given a wood composition and lignin characterization (chemical composition, structure and origin), lignin containing waters, lignin degradation and reuse possibilities, and purification practices for lignin containing waters. The aim of the research was to investigate the effect of the operating conditions of WO, such as temperature, partial pressure of oxygen, pH and initial concentration of wastewater, on the efficiency, and to enhance the process and estimate optimal conditions for WO of recalcitrant lignin waters. Two different waters are studied (a lignin water model solution and debarking water from paper industry) to give as appropriate conditions as possible. Due to the great importance of re using and minimizing the residues of industries, further research is carried out using residual ash of an Estonian power plant as a catalyst in wet oxidation of lignin-containing water. Developing a kinetic model that includes in the prediction such parameters as TOC gives the opportunity to estimate the amount of emerging inorganic substances (degradation rate of waste) and not only the decrease of COD and BOD. The degradation target compound, lignin is included into the model through its COD value (CODligning). Such a kinetic model can be valuable in developing WO treatment processes for lignin containing waters, or other wastewaters containing one or more target compounds. In the first article, wet oxidation of "pure" lignin water was investigated as a model case with the aim of degrading lignin and enhancing water biodegradability. The experiments were performed at various temperatures (110 -190°C), partial oxygen pressures (0.5 -1.5 MPa) and pH (5, 9 and 12). The experiments showed that increasing the temperature notably improved the processes efficiency. 75% lignin reduction was detected at the lowest temperature tested and lignin removal improved to 100% at 190°C. The effect of temperature on the COD removal rate was lower, but clearly detectable. 53% of organics were oxidized at 190°C. The effect of pH occurred mostly on lignin removal. Increasing the pH enhanced the lignin removal efficiency from 60% to nearly 100%. A good biodegradability ratio (over 0.5) was generally achieved. The aim of the second article was to develop a mathematical model for "pure" lignin wet oxidation using lumped characteristics of water (COD, BOD, TOC) and lignin concentration. The model agreed well with the experimental data (R2 = 0.93 at pH 5 and 12) and concentration changes during wet oxidation followed adequately the experimental results. The model also showed correctly the trend of biodegradability (BOD/COD) changes. In the third article, the purpose of the research was to estimate optimal conditions for wet oxidation (WO) of debarking water from the paper industry. The WO experiments were' performed at various temperatures, partial oxygen pressures and pH. The experiments showed that lignin degradation and organics removal are affected remarkably by temperature and pH. 78-97% lignin reduction was detected at different WO conditions. Initial pH 12 caused faster removal of tannins/lignin content; but initial pH 5 was more effective for removal of total organics, represented by COD and TOC. Most of the decrease in organic substances concentrations occurred in the first 60 minutes. The aim of the fourth article was to compare the behaviour of two reaction kinetic models, based on experiments of wet oxidation of industrial debarking water under different conditions. The simpler model took into account only the changes in COD, BOD and TOC; the advanced model was similar to the model used in the second article. Comparing the results of the models, the second model was found to be more suitable for describing the kinetics of wet oxidation of debarking water. The significance of the reactions involved was compared on the basis of the model: for instance, lignin degraded first to other chemically oxidizable compounds rather than directly to biodegradable products. Catalytic wet oxidation of lignin containing waters is briefly presented at the end of the dissertation. Two completely different catalysts were used: a commercial Pt catalyst and waste power plant ash. CWO showed good performance using 1 g/L of residual ash gave lignin removal of 86% and COD removal of 39% at 150°C (a lower temperature and pressure than with WO). It was noted that the ash catalyst caused a remarkable removal rate for lignin degradation already during the pre heating for `zero' time, 58% of lignin was degraded. In general, wet oxidation is not recommended for use as a complete mineralization method, but as a pre treatment phase to eliminate toxic or difficultly biodegradable components and to reduce the high level of organics. Biological treatment is an appropriate post treatment method since easily biodegradable organic matter remains after the WO process. The combination of wet oxidation with subsequent biological treatment can be an effective option for the treatment of lignin containing waters.

Separation of Gas Bubbles from Circulation Waters and Pulp Suspensions in Open Channel Flow

The objective of this thesis was to study the removal of gases from paper mill circulation waters experimentally and to provide data for CFD modeling. Flow and bubble size measurements were carried out in a laboratory scale open gas separation channel. Particle Image Velocimetry (PIV) technique was used to measure the gas and liquid flow fields, while bubble size measurements were conducted using digital imaging technique with back light illumination. Samples of paper machine waters as well as a model solution were used for the experiments. The PIV results show that the gas bubbles near the feed position have the tendency to escape from the circulation channel at a faster rate than those bubbles which are further away from the feed position. This was due to an increased rate of bubble coalescence as a result of the relatively larger bubbles near the feed position. Moreover, a close similarity between the measured slip velocities of the paper mill waters and that of literature values was obtained. It was found that due to dilution of paper mill waters, the observed average bubble size was considerably large as compared to the average bubble sizes in real industrial pulp suspension and circulation waters. Among the studied solutions, the model solution has the highest average drag coefficient value due to its relatively high viscosity. The results were compared to a 2D steady sate CFD simulation model. A standard Euler-Euler k-ε turbulence model was used in the simulations. The channel free surface was modeled as a degassing boundary. From the drag models used in the simulations, the Grace drag model gave velocity fields closest to the experimental values. In general, the results obtained from experiments and CFD simulations are in good qualitative agreement.

Exploring potentialities of the HR-CS FAAS technique in the determination of Ni and Pb in mineral waters

National Health Surveillance Agency (ANVISA) established in the decree number 54 maximum allowed levels for Ni and Pb in mineral and natural waters at 20 µg L-1 and 10 µg L-1, respectively. For screening analysis purposes, the high-resolution continuum source flame atomic absorption spectrometry technique (HR-CS FAAS) was evaluated for the fast-sequential determination of nickel and lead in mineral waters.Two atomic lines for Ni (232.003 nm - main and 341.477 nm - secondary) and Pb (217.0005 nm - main and 283.306 nm - secondary) at different wavelength integrated absorbance (number of pixels) were evaluated. Sensitivity enhanced with the increase of the number of pixels and with the summation of the atomic lines absorbances. The main figures of merit associated to the HR-CS FAAS technique were compared with that obtained by line-source flame atomic absorption spectrometry (LS FAAS). Water samples were pre-concentrated about 5-fold by evaporation before analysis. Recoveries of Pb significantly varied with increased wavelength integrated absorbance. Better recoveries (92-93%) were observed for higher number of pixels at the main line or summating the atomic lines (90-92%). This influence was irrelevant for Ni, and recoveries in the 92-104% range were obtained in all situations.

Russian Venture Capital Markets

Tämän työn tarkoituksena on arvioida riskipääomasijoittamisen kehitystä ja kasvua Venäjällä, sekä antaa kuva siihen vaikuttavista tekijöistä. Se myös arvioi Venäjän valtion toimintaa niin säätelijänä, kuin myös itsenäisenä sijoittajana. Saavutetut tulokset perustuvat haastatteluihin ja olemassa olevien tilastojen analysointiin. Vuoden 1998 rupla kriisin jälkeen riskipääomasijoittaminen lähti kasvuun joka on jatkunut tasaisella rauhallisella tahdilla. Alueellisista riskipääomarahastoista on siirrytty myös yksityisrahoitteisiin ja yksityishallinnoituihin rahastoihin omine kohde aloineen ja portfolioineen. Silti markkinat ovat säilyneet kyllästymättöminä. Kuluttajavetoiset toimialat ovat keränneet eniten investointeja talouden ja ostovoiman kasvusta johtuen. Alueellisesti Moskova erottuu sijoituskohteena, muiden suurempien kasvukeskusten seuratessa perässä. Venäjällä on vielä paljon heikkouksia jotka vaikuttavat sen houkuttelevuuteen sijoittajan näkökulmasta. Heikot instituutiot ja lainsäädäntö yhdistettynä riskipääomasijoittamisen luonteeseen tekevät Venäjästä arvaamattoman markkina-alueen. Se kuitenkin tarjoaa menestyville sijoittajille korkeat tuotot. Nähtäväksi jää kuinka valtion toiminta vaikuttaa markkinoiden kehitykseen lyhyellä ja pitkällä tähtäimellä, ja kuinka se onnistuu kehittämään Venäjän yleistä kilpailukykyä globaaleilla markkinoilla.

On Doing Successful ICT Business with Russian Manufacturing Enterprises

This Master’s thesis addresses different approaches using which a foreign IT company could enter Russian manufacturing industry with its enterprise information systems and IT services. In order to define the most suitable market entry approach, several aspects related to Russian manufacturing enterprises are studied. These aspects include challenges of doing ICT business with the previously mentioned enterprises, their perception of ICT role and their ICT preferences, as well as their buying behavior related to acquisition of information systems (IS). The study results show that there are several challenges that can be faced by a foreign IT vendor when starting conducting ICT business with Russian manufacturing enterprises. The results also show that Russian manufacturing industry is still rather immature in sense of business process automation, and its IT buying behavior is rather specific and complicated. The results suggest that an efficient way to approach these enterprises is through a network of trusted partners that consists of reliable Russian IS integrators and business consultants having established connections to Russian manufacturing companies and possessing the needed competence.

Flow injection visible diffuse reflectance quantitative analysis of total sulfur in biodiesel, in plant leaves and in natural waters

Flow injection (FI) methodology, using diffuse reflectance in the visible region of the spectrum, for the analysis of total sulfur in the form of sulfate, precipitated in the form of barium sulfate, is presented. The method was applied to biodiesel, to plant leaves and to natural waters analysis. The analytical signal (S) correlates linearly with sulfate concentration (C) between 20 and 120 ppm, through the equation S=-1.138+0.0934 C (r = 0.9993). The experimentally observed limit of detection is about 10 ppm. The mean R.S.D. is about 3.0 %. Real samples containing sulfate were analyzed and the results obtained by the FI and by the reference batch turbidimetric method using the statistical Student's t-test and F-test were compared.

Determination of Alkalinity and dissociation constants of high salinity waters: use of F5BC titration function

Measurements of parameters expressed in terms of carbonic species such as Alkalinity and Acidity of saline waters do not analyze the influence of external parameters to the titration such as Total free and associated Carbonic Species Concentration, activity coefficient, ion pairing formation and Residual Liquid Junction Potential in pH measurements. This paper shows the development of F5BC titration function based on the titrations developed by Gran (1952) for the carbonate system of natural waters. For practical use, samples of saline waters from Pocinhos reservoir in Paraiba were submitted to titration and linear regression analysis. Results showed that F5BC involves F1x and F2x Gran functions determination, respectively, for Alkalinity and Acidity calculations without knowing "a priori" the endpoint of the titration. F5BC also allows the determination of the First and Second Apparent Dissociation Constant of the carbonate system of saline and high ionic strength waters.