Performance characteristic of moving average trading rules in the Finnish stock market

The thesis examines the profitability of DMAC trading rules in the Finnish stock market over the 1996-2012 period. It contributes to the existing technical analysis literature by comparing for the first time the performance of DMAC strategies based on individual stock trading portfolios to the performance of index trading strategies based on the trading on the index (OMX Helsinki 25) that consists of the same stocks. Besides, the market frictions including transaction costs and taxes are taken into account, and the results are reported from both institutional and individual investor’s perspective. Performance characteristic of DMAC rules are evaluated by simulating 19,900 different trading strategies in total for two non- overlapping 8-year sub-periods, and decomposing the full-sample-period performance of DMAC trading strategies into distinct bullish- and bearish-period performances. The results show that the best DMAC rules have predictive power on future price trends, and these rules are able to outperform buy-and-hold strategy. Although the performance of the DMAC strategies is highly dependent on the combination of moving average lengths, the best DMAC rules of the first sub-period have also performed well during the latter sub-period in the case of individual stock trading strategies. According to the results, the outperformance of DMAC trading rules over buy-and-hold strategy is mostly attributed to their superiority during the bearish periods, and particularly, during stock market crashes.

Market integration, return and volatility dynamics; empirical evidence from African stock markets

Frontier and Emerging economies have implemented policies with the objective of liberalizing their equity markets. Equity market liberalization opens the domestic equity market to foreign investors and as well paves the way for domestic investors to invest in foreign equity securities. Among other things, equity market liberalization results in diversification benefits. Moreover, equity market liberalization leads to low cost of equity capital resulting from the lower rate of return by investors. Additionally, foreign and local investors share any potential risks. Liberalized equity markets also become liquid considering that there are more investors to trade. Equity market liberalization results in financial integration which explains the movement of two markets. In crisis period, increased volatility and co-movement between two markets may result in what is termed contagion effects. In Africa, major moves toward financial liberalization generally started in the late 1980s with South Africa as the pioneer. Over the years, researchers have studied the impact of financial liberalization on Africa’s economic development with diverse results; some being positive, others negative and still others being mixed. The objective of this study is to establish whether African stock-markets are integrated into the United States (US) and World market. Furthermore, the study helps to see if there are international linkages between the Africa, US and the world markets. A Bivariate- VAR- GARCH- BEKK model is employed in the study. In the study, the effect of thin trading is removed through series of econometric data purification. This is because thin trading, also known as non-trading or inconsistency of trading, is a main feature of African markets and may trigger inconsistency and biased results. The study confirmed the widely established results that the South Africa and Egypt stock markets are highly integrated with the US and World market. Interestingly, the study adds to knowledge in this research area by establishing the fact that Kenya is very integrated with the US and World markets and that it receives and exports past innovations as well as shocks to and from the US and World market.

Currency Carry Trades – Excess Returns and Performance Optimization of G10 Currency Carry Trade Strategies during the Euro Era

This study examines the excess returns provided by G10 currency carry trading during the Euro era. The currency carry trade has been a popular trade throughout the past decades offering excess returns to investors. The thesis aims to contribute to existing research on the topic by utilizing a new set of data for the Euro era as well as using the Euro as a basis for the study. The focus of the thesis is specifically on different carry trade strategies’ performance, risk and diversification benefits. The study finds proof of the failure of the uncovered interest rate parity theory through multiple regression analyses. Furthermore, the research finds evidence of significant diversification benefits in terms of Sharpe ratio and improved return distributions. The results suggest that currency carry trades have offered excess returns during 1999-2014 and that volatility plays an important role in carry trade returns. The risk, however, is diversifiable and therefore our results support previous quantitative research findings on the topic.

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.

Achieving EU energy targets – Impacts of evolutionary and revolutionary transition paths on power systems

Ambitious energy targets set by EU put pressures to increase share of renewable electricity supply in this and next decades and therefore, some EU member countries have boosted increasing renewable energy generation capacity by implementing subsidy schemes on national level. In this study, two different change approaches to increase renewable energy supply and increase self-sufficiency of supply are assessed with respect to their impacts on power system, electricity market and electricity generation costs in Finland. It is obtained that the current electricity generation costs are high compared to opportunities of earnings from present-day investor’s perspective. In addition, the growth expectations of consumptions and the price forecasts do not stimulate investing in new generation capacity. Revolutionary transition path is driven by administrative and political interventions to achieve the energy targets. Evolutionary transition path is driven by market-based mechanisms, such as market itself and emission trading scheme. It is obtained in this study that in the revolutionary transition path operation of market-based mechanisms is distorted to some extent and it is likely that this path requires providing more public financial resources compared to evolutionary transition path. In the evolutionary transition path the energy targets are not achieved as quickly but market-based mechanisms function better and investment environment endures more stable compared to revolutionary transition path.

The European Union and Assembling Biofuel Development – topological investigations concerning the associations between law, policy and space

Biofuels for transport are a renewable source of energy that were once heralded as a solution to multiple problems associated with poor urban air quality, the overproduction of agricultural commodities, the energy security of the European Union (EU) and climate change. It was only after the Union had implemented an incentivizing framework of legal and political instruments for the production, trade and consumption of biofuels that the problems of weakening food security, environmental degradation and increasing greenhouse gases through land-use changes began to unfold. In other words, the difference between political aims for why biofuels are promoted and their consequences has grown – which is also recognized by the EU policy-makers. Therefore, the global networks of producing, trading and consuming biofuels may face a complete restructure if the European Commission accomplishes its pursuit to sideline crop-based biofuels after 2020. My aim with this dissertation is not only to trace the manifold evolutions of the instruments used by the Union to govern biofuels but also to reveal how this evolution has influenced the dynamics of biofuel development. Therefore, I study the ways the EU’s legal and political instruments of steering biofuels are coconstitutive with the globalized spaces of biofuel development. My analytical strategy can be outlined through three concepts. I use the term ‘assemblage’ to approach the operations of the loose entity of actors and non-human elements that are the constituents of multi-scalar and -sectorial biofuel development. ‘Topology’ refers to the spatiality of this European biofuel assemblage and its parts whose evolving relations are treated as the active constituents of space, instead of simply being located in space. I apply the concept of ‘nomosphere’ to characterize the framework of policies, laws and other instruments that the EU applies and construes while attempting to govern biofuels. Even though both the materials and methods vary in the independent articles, these three concepts characterize my analytical strategy that allows me to study law, policy and space associated with each other. The results of my examinations underscore the importance of the instruments of governance of the EU constituting and stabilizing the spaces of producing and, on the other hand, how topological ruptures in biofuel development have enforced the need to reform policies. This analysis maps the vast scope of actors that are influenced by the mechanism of EU biofuel governance and, what is more, shows how they are actively engaging in the Union’s institutional policy formulation. By examining the consequences of fast biofuel development that are spatially dislocated from the established spaces of producing, trading and consuming biofuels such as indirect land use changes, I unfold the processes not tackled by the instruments of the EU. Indeed, it is these spatially dislocated processes that have pushed the Commission construing a new type of governing biofuels: transferring the instruments of climate change mitigation to land-use policies. Although efficient in mitigating these dislocated consequences, these instruments have also created peculiar ontological scaffolding for governing biofuels. According to this mode of governance, the spatiality of biofuel development appears to be already determined and the agency that could dampen the negative consequences originating from land-use practices is treated as irrelevant.

A Template for Cloud Technology Deployment in an Energy Trading Environment

Nykyaikaiset pilvipalvelut tarjoavat suurille yrityksille mahdollisuuden tehostaa laskennallista tietojenkäsittelyä. Pilvipalveluiden käyttöönotto tuo mukanaan kuitenkin esimerkiksi useita tietoturvakysymyksiä, joiden vuoksi käyttöönoton tulee olla tarkasti suunniteltua. Tämä tutkimus esittelee kirjallisuuskatsaukseen perustuvan, asteittaisen suunnitelman pilvipalveluiden käyttöönotolle energialiiketoimintaympäristössä. Kohdeyrityksen sisäiset haastattelut ja katsaus nykyisiin energiateollisuuden pilviratkaisuihin muodostavat kokonaiskuvan käyttöönoton haasteista ja mahdollisuuksista. Tutkimuksen päätavoitteena on esittää ratkaisut tyypillisiin pilvipalvelun käyttöönotossa esiintyviin ongelmiin käyttöönottomallin avulla. Tutkimuksessa rakennettu käyttöönottomalli testattiin esimerkkitapauksen avulla ja malli todettiin toimivaksi. Ulkoisten palveluiden herättämien tietoturvakysymysten takia käyttöönoton ensimmäiset osiot, kuten lopputuotteen määrittely ja huolellinen suunnittelu, ovat koko käyttöönottoprosessin ydin. Lisäksi pilvipalveluiden käyttöönotto vaatii nykyiseltä käyttöympäristöltä uusia teknisiä ja hallinnollisia taitoja. Tutkimuksen tulokset osoittavat pilvipalveluiden monipuolisen hyödyn erityisesti laskentatehon tarpeen vaihdellessa. Käyttöönottomallin rinnalle luotu kustannusvertailu tukee kirjallisuuskatsauksessa esille tuotuja hyötyjä ja tarjoaa kohdeyritykselle perusteen tutkimuksen eteenpäin viemiselle.

Issues in the Transatlantic Trade and Investment Partnership: A critical discourse analysis

Negotiating trade agreements is an important part of government trade policies, economic planning and part of the globally operating trading system of today. European Union and the United States have been active in the formation of trade agreements in global comparison. Now these two economic giants are engaged in negotiations to form their own trade agreement, the so called Transnational Trade and Investment Partnership (TTIP). The purpose of this thesis is to understand the reasons for making a trade agreement between two economic areas and understanding the issues it may include in the case of the TTIP. The TTIP has received a great deal of attention in the media. The opinions towards the partnership have been extreme, and the debate has been heated. The purpose of this study is to introduce the nature of the public discussion regarding the TTIP from Spring 2013 until 2014. The research problem is to find out what are the main issues in the agreement and what are the values influencing them. The study was conducted applying methods of critical discourse analysis to the chosen data. This includes gathering the issues from the data based on the attention each has received in the discussion. The underlying motives for raising different issues were analysed by investigating the authors’ position in the political, economic and social circuits. The perceived economic impacts of the TTIP are also under analysis with the same criteria. Some of the most respected economic newspapers globally were included in the research material as well as papers or reports published by the EU and global organisations. The analysis indicates a clear dichotomy of the attitudes towards the TTIP. Key problems include lack of transparency in the negotiations, the misunderstood investor-state dispute settlement, the constantly expanding regulatory issues and the risk of protectionism. The theory and data does suggest that the removal of tariffs is an effective tool for reaching economic gains in the TTIP and even more effective would be the reducing of non-tariff barriers, such as protectionism. Critics are worried over the rising influence of corporations over governments. The discourse analysis reveals that the supporters of the TTIP have values related to increasing welfare through economic growth. Critics do not deny the economic benefits but raise the question of inequality as a consequence. Overall they represent softer values such as sustainable development and democracy as a counter-attack to the corporate values of efficiency and the maximising of profits.

Return and Volatility spillovers among stock and Foreign Exchange Markets: Empirical Evidence from selected African Markets

Return and volatility dynamics in financial markets across the world have recently become important for the purpose of asset pricing, portfolio allocation and risk management. However, volatility, which come about as a result of the actions of market participants can help adapt to different situations and perform when it really matters. With recent development and liberalization among financial markets in emerging and frontier markets, the need for how the equity and foreign exchange markets interact and the extent to which return and volatility spillover are spread across countries is of importance to investors and policy makers at large. Financial markets in Africa have received attention leading to investors diversifying into them in times of crisis and contagion effects in developed countries. Regardless of the benefits these markets may offer, investors must be wary of issues such as thin trading, volatility that exists in the equity and currency markets and its related fluctuations. The study employs a VAR-GARCH BEKK model to study the return and volatility dynamics between the stock and foreign exchange sectors and among the equity markets of Egypt, Kenya, Nigeria, South Africa and Tunisia. The main findings suggest a higher dependence of own return in the stock markets and a one way return spillover from the currencies to the equity markets except for South Africa which has a weaker interrelation among the two markets. There is a relatively limited integration among the equity markets. Return and volatility spillover is mostly uni-directional except for a bi-directional relationship between the equity markets of Egypt and Tunisia. The study implication still proves a benefit for portfolio managers diversifying in these African equity markets, since they are independent of each other and may not be highly affected by the influx of negative news from elsewhere. However, there is the need to be wary of return and volatility spillover between the equity and currency markets, hence devising better hedging strategies to curb them.

A performance analysis of conventional and fundamental exchange traded funds: ETFs and their risk-return characteristics in relation to building institutional investor’s passive portfolio

An exchange traded fund (ETF) is a financial instrument that tracks some predetermined index. Since their initial establishment in 1993, ETFs have grown in importance in the field of passive investing. The main reason for the growth of the ETF industry is that ETFs combine benefits of stock investing and mutual fund investing. Although ETFs resemble mutual funds in many ways, also many differences occur. In addition, ETFs not only differ from mutual funds but also differ among each other. ETFs can be divided into two categories, i.e. market capitalisation ETFs and fundamental (or strategic) ETFs, and further into subcategories depending on their fundament basis. ETFs are a useful tool for diversification especially for a long-term investor. Although the economic importance of ETFs has risen drastically during the past 25 years, the differences and risk-return characteristics of fundamental ETFs have yet been rather unstudied area. In effect, no previous research on market capitalisation and fundamental ETFs was found during the research process. For its part, this thesis seeks to fill this research gap. The studied data consist of 50 market capitalisation ETFs and 50 fundamental ETFs. The fundaments, on which the indices that the fundamental ETFs track, were not limited nor segregated into subsections. The two types of ETFs were studied at an aggregate level as two different research groups. The dataset ranges from June 2006 to December 2014 with 103 monthly observations. The data was gathered using Bloomberg Terminal. The analysis was conducted as an econometric performance analysis. In addition to other econometric measures, the methods that were used in the performance analysis included modified Value-at-Risk, modified Sharpe ratio and Treynor ratio. The results supported the hypothesis that passive market capitalisation ETFs outperform active fundamental ETFs in terms of risk-adjusted returns, though the difference is rather small. Nevertheless, when taking into account the higher overall trading costs of the fundamental ETFs, the underperformance gap widens. According to the research results, market capitalisation ETFs are a recommendable diversification instrument for a long-term investor. In addition to better risk-adjusted returns, passive ETFs are more transparent and the bases of their underlying indices are simpler than those of fundamental ETFs. ETFs are still a young financial innovation and hence data is scarcely available. On future research, it would be valuable to research the differences in risk-adjusted returns also between the subsections of fundamental ETFs.

Thermal and moisture content effects on storability and seed dormancy releasing on Brachiaria brizantha cultivars

Brachiaria species normally show a double seed dormancy mechanism, mainly on fresh-harvested seeds, leading to germination percentages lower than those of viability detected by tetrazolium test (TZ) and causing problems as to storage, trading and seed inspection activities. The adoption of the methodology to detect the constants of the viability equation (high storage temperatures and fixed moisture contents) made feasible in this research to isolate the effects of 40, 50 and 65°C on B. brizantha cultivars Marandu, Mulato 1 and Mulato 2 seed dormancy releasing, after storage with moisture contents ranging from 1.9 and 17.8%. Seed samples presented high dormancy levels, detected by TZ and it was complete and partially released by chemical scarification and accelerated ageing test, respectively. No statistical differences were observed as to the speed of germination (T50); however, differences among cultivars were detected as to number of seed per gram. Sorption and desorption isotherm curves were similar for the cultivars. Seed dormancy releasing was better achieved at 40 and 50°C with mc ranging from 7.6 to 10.8%. The temperature of 50°C appears to be adequate for seed dormancy releasing in all mc analyzed. No significant seed dormancy releasing result was observed at 65°C. The cultivar Marandu presented the highest storability throughout the experiment.

Static waves in corporate space : characterizing oscillating trading patterns in New York stock exchange

Various researches in the field of econophysics has shown that fluid flow have analogous phenomena in financial market behavior, the typical parallelism being delivered between energy in fluids and information on markets. However, the geometry of the manifold on which market dynamics act out their dynamics (corporate space) is not yet known. In this thesis, utilizing a Seven year time series of prices of stocks used to compute S&P500 index on the New York Stock Exchange, we have created local chart to the corporate space with the goal of finding standing waves and other soliton like patterns in the behavior of stock price deviations from the S&P500 index. By first calculating the correlation matrix of normalized stock price deviations from the S&P500 index, we have performed a local singular value decomposition over a set of four different time windows as guides to the nature of patterns that may emerge. I turns out that in almost all cases, each singular vector is essentially determined by relatively small set of companies with big positive or negative weights on that singular vector. Over particular time windows, sometimes these weights are strongly correlated with at least one industrial sector and certain sectors are more prone to fast dynamics whereas others have longer standing waves.

Trade rules and exchange rate misalignments: in search for a WTO solution

The debate on the link between trade rules and rules on exchange rates is raising the attention of experts on international trade law and economics. The main purpose of this paper is to analyze the impacts of exchange rate misalignments on tariffs as applied by the WTO - World Trade Organization. It is divided into five sections: the first one explains the methodology used to determine exchange rate misalignments and also presents its results for Brazil, U.S. and China; the second summarizes the methodology applied to calculate the impacts of exchange rate misalignments on the level of tariff protection through an exercise of "misalignment tariffication"; the third examines the effects of exchange rate variations on tariffs and their consequences for the multilateral trading system; the fourth one creates a methodology to estimate exchange rates against a currency of the World and a proposal to deal with persistent and significant misalignments related to trade rules. The conclusions are present in the last section.

Neoliberalism and global capital mobility: a necessary reconsideration of textbook trade theory

Textbook theory ignores capital flows: trade determines exchange rates and specialisation. Approaches taking the effects of capital movements adequately into account are needed, and a new theory of economic policy including measures to protect the real economy from external volatility. Equilibrating textbook mechanisms cannot work unless trade-caused surpluses and deficits set exchange rates. To allow orthodox trade theory to work one must hinder capital flows from destroying its very basis, which the IMF and wrong regulatory decisions have done, penalising production and trade. A new, real economy based theory is proposed, a Neoclassical agenda of controlling capital flows and speculation.

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.