Regime-Switching in the Impact of Oil Price Shocks on Stock Market Volatility: Evidence from Oil-Importing and Oil-Exporting Countries

Research has highlighted the adequacy of Markov regime-switching model to address dynamic behavior in long term stock market movements. Employing a purposed Extended regime-switching GARCH(1,1) model, this thesis further investigates the regime dependent nonlinear relationship between changes in oil price and stock market volatility in Saudi Arabia, Norway and Singapore for the period of 2001-2014. Market selection is prioritized to national dependency on oil export or import, which also rationalizes the fitness of implied bivariate volatility model. Among two regimes identified by the mean model, high stock market return-low volatility regime reflects the stable economic growth periods. The other regime characterized by low stock market return-high volatility coincides with episodes of recession and downturn. Moreover, results of volatility model provide the evidence that shocks in stock markets are less persistent during the high volatility regime. While accelerated oil price rises the stock market volatility during recessions, it reduces the stock market risk during normal growth periods in Singapore. In contrast, oil price showed no significant notable impact on stock market volatility of target oil-exporting countries in either of the volatility regime. In light to these results, international investors and policy makers could benefit the risk management in relation to oil price fluctuation.

Dynamic linkages of real estate and stock markets in Finland

Traditionally real estate has been seen as a good diversification tool for a stock portfolio due to the lower return and volatility characteristics of real estate investments. However, the diversification benefits of a multi-asset portfolio depend on how the different asset classes co-move in the short- and long-run. As the asset classes are affected by the same macroeconomic factors, interrelationships limiting the diversification benefits could exist. This master’s thesis aims to identify such dynamic linkages in the Finnish real estate and stock markets. The results are beneficial for portfolio optimization tasks as well as for policy-making. The real estate industry can be divided into direct and securitized markets. In this thesis the direct market is depicted by the Finnish housing market index. The securitized market is proxied by the Finnish all-sectors securitized real estate index and by a European residential Real Estate Investment Trust index. The stock market is depicted by OMX Helsinki Cap index. Several macroeconomic variables are incorporated as well. The methodology of this thesis is based on the Vector Autoregressive (VAR) models. The long-run dynamic linkages are studied with Johansen’s cointegration tests and the short-run interrelationships are examined with Granger-causality tests. In addition, impulse response functions and forecast error variance decomposition analyses are used for robustness checks. The results show that long-run co-movement, or cointegration, did not exist between the housing and stock markets during the sample period. This indicates diversification benefits in the long-run. However, cointegration between the stock and securitized real estate markets was identified. This indicates limited diversification benefits and shows that the listed real estate market in Finland is not matured enough to be considered a separate market from the general stock market. Moreover, while securitized real estate was shown to cointegrate with the housing market in the long-run, the two markets are still too different in their characteristics to be used as substitutes in a multi-asset portfolio. This implies that the capital intensiveness of housing investments cannot be circumvented by investing in securitized real estate.

The use of genes for performance enhancement: doping or therapy?

Recent biotechnological advances have permitted the manipulation of genetic sequences to treat several diseases in a process called gene therapy. However, the advance of gene therapy has opened the door to the possibility of using genetic manipulation (GM) to enhance athletic performance. In such ‘gene doping’, exogenous genetic sequences are inserted into a specific tissue, altering cellular gene activity or leading to the expression of a protein product. The exogenous genes most likely to be utilized for gene doping include erythropoietin (EPO), vascular endothelial growth factor (VEGF), insulin-like growth factor type 1 (IGF-1), myostatin antagonists, and endorphin. However, many other genes could also be used, such as those involved in glucose metabolic pathways. Because gene doping would be very difficult to detect, it is inherently very attractive for those involved in sports who are prepared to cheat. Moreover, the field of gene therapy is constantly and rapidly progressing, and this is likely to generate many new possibilities for gene doping. Thus, as part of the general fight against all forms of doping, it will be necessary to develop and continually improve means of detecting exogenous gene sequences (or their products) in athletes. Nevertheless, some bioethicists have argued for a liberal approach to gene doping.

Myosin light chain kinase is necessary for post-shock mesenteric lymph drainage enhancement of vascular reactivity and calcium sensitivity in hemorrhagic-shocked rats

Vascular hyporeactivity is an important factor in irreversible shock, and post-shock mesenteric lymph (PSML) blockade improves vascular reactivity after hemorrhagic shock. This study explored the possible involvement of myosin light chain kinase (MLCK) in PSML-mediated vascular hyporeactivity and calcium desensitization. Rats were divided into sham (n=12), shock (n=18), and shock+drainage (n=18) groups. A hemorrhagic shock model (40±2 mmHg, 3 h) was established in the shock and shock+drainage groups. PSML drainage was performed from 1 to 3 h from start of hypotension in shock+drainage rats. Levels of phospho-MLCK (p-MLCK) were determined in superior mesenteric artery (SMA) tissue, and the vascular reactivity to norepinephrine (NE) and sensitivity to Ca2+ were observed in SMA rings in an isolated organ perfusion system. p-MLCK was significantly decreased in the shock group compared with the sham group, but increased in the shock+drainage group compared with the shock group. Substance P (1 nM), an agonist of MLCK, significantly elevated the decreased contractile response of SMA rings to both NE and Ca2+ at various concentrations. Maximum contractility (Emax) in the shock group increased with NE (from 0.179±0.038 to 0.440±0.177 g/mg, P<0.05) and Ca2+ (from 0.515±0.043 to 0.646±0.096 g/mg, P<0.05). ML-7 (0.1 nM), an inhibitor of MLCK, reduced the increased vascular response to NE and Ca2+ at various concentrations in the shock+drainage group (from 0.744±0.187 to 0.570±0.143 g/mg in Emax for NE and from 0.729±0.037 to 0.645±0.056 g/mg in Emax for Ca2+, P<0.05). We conclude that MLCK is an important contributor to PSML drainage, enhancing vascular reactivity and calcium sensitivity in rats with hemorrhagic shock.

Interdependence of Macroeconomics Variables, Stock Market Returns and Stock Market Volatility in Latin America

This thesis examines the interdependence of macroeconomic variables, stock market returns and stock market volatility in Latin America between 2000 and 2015. Argentina, Brazil, Chile, Colombia, Mexico and Peru were chosen as the sample markets, while inflation, interest rate, exchange rate, money supply, oil and gold were chosen as the sample macroeconomic variables. Bivariate VAR (1) model was applied to examine the mean return spillovers between the variables, whereas GARCH (1, 1) – BEKK model was applied to capture the volatility spillovers. The sample was divided into two smaller sub-periods, where the first sub-period covers from 2000 to 2007, and the second sub-period covers from 2007 to 2015. The empirical results report significant shock transmissions and volatility spillovers between inflation, interest rate, exchange rate, money supply, gold, oil and the selected markets, which suggests interdependence between the variables.

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.

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.

Enhancement of ultrafiltration process by pretreatment in recovery of hemicelluloses from wood extracts

Hemicelluloses are potential raw material for several items produced in future wood-based biorefineries. One possible method for recovering hemicelluloses from wood extracts is ultrafiltration (UF). However, low filtration capacities and severe fouling restrict the use of tight UF membranes in the treatment of wood extracts. The lack of suitable commercial membranes creates a need for pretreatment which would decrease fouling and increase the filtration capacity. This thesis focuses on the evaluation of the possibility to improve the filtration capacity and decrease fouling with the pretreatment of wood extracts. Methods which remove harmful compounds and methods which degrade them are studied, as well as combinations of the methods. The tested pretreatments have an influence on both the concentration of different compounds and the molecular mass distribution of the compounds in the extract. This study revealed that in addition to which kind of compounds were removed, also the change in molecular size distribution affected the filtration capacity significantly. It was shown that the most harmful compounds for the filtration capacity of the hydrophobic 5 kDa membrane were the ones capable of permeating the membrane and fouling also the inner membrane structure. Naturally, the size of the most harmful compounds depends on the used UF membrane and is thus case-specific. However, in the choice of the pretreatment method, the focus should be on the removal of harmful compound sizes rather than merely on the total amount of removed foulants. The results proved that filtration capacity can be increased with both adsorptive and oxidative pretreatments even by hundreds of per cents. For instance, the use of XAD7 and XAD16 adsorbents increased the average flux in the UF of a birch extract from nearly zero to 107 kg/(m2h) and 175 kg/(m2h), respectively. In the treatment of a spruce extract, oxidation by pulsed corona discharge (PCD) increased the flux in UF from 46 kg/(m2h) to 158 kg/(m2h). Moreover, when a birch extract batch was treated with laccase enzyme, the flux in UF increased from 15 kg/(m2h) to 36 kg/(m2h). However, fouling was decreased only by adsorptive pretreatment while oxidative methods had a negligible or even negative impact on it. This demonstrates that filtration capacity and fouling are affected by different compounds and mechanisms. The results of this thesis show that filtration capacity can be improved and fouling decreased through appropriate pretreatment. However, the choice of the best possible pretreatment is case-specific and depends on the wood extract and the membrane used. Finding the best option requires information on the extract content and membrane characteristics as well as on the filtration performance of the membrane in the prevailing conditions and a multivariate approach. On the basis of this study, it can be roughly concluded that adsorptive pretreatment improves the filtration capacity and decreases fouling rather reliably, but it may lead to significant hemicellulose losses. Oxidation reduces the loss of valuable hemicelluloses and could improve the filtration capacity, but fouling challenges may remain. Combining oxidation with adsorptive pretreatment was not a solution for avoiding hemicellulose losses in the tested cases.