Liquidity, governance and adverse selection in asset pricing

A plethora of recent literature on asset pricing provides plenty of empirical evidence on the importance of liquidity, governance and adverse selection of equity on pricing of assets together with more traditional factors such as market beta and the Fama-French factors. However, literature has usually stressed that these factors are priced individually. In this dissertation we argue that these factors may be related to each other, hence not only individual but also joint tests of their significance is called for. ^ In the three related essays, we examine the liquidity premium in the context of the finer three-digit SIC industry classification, joint importance of liquidity and governance factors as well as governance and adverse selection. Recent studies by Core, Guay and Rusticus (2006) and Ben-Rephael, Kadan and Wohl (2010) find that governance and liquidity premiums are dwindling in the last few years. One reason could be that liquidity is very unevenly distributed across industries. This could affect the interpretation of prior liquidity studies. Thus, in the first chapter we analyze the relation of industry clustering and liquidity risk following a finer industry classification suggested by Johnson, Moorman and Sorescu (2009). In the second chapter, we examine the dwindling influence of the governance factor if taken simultaneously with liquidity. We argue that this happens since governance characteristics are potentially a proxy for information asymmetry that may be better captured by market liquidity of a company's shares. Hence, we jointly examine both the factors, namely, governance and liquidity - in a series of standard asset pricing tests. Our results reconfirm the importance of governance and liquidity in explaining stock returns thus independently corroborating the findings of Amihud (2002) and Gompers, Ishii and Metrick (2003). Moreover, governance is not subsumed by liquidity. Lastly, we analyze the relation of governance and adverse selection, and again corroborate previous findings of a priced governance factor. Furthermore, we ascertain the importance of microstructure measures in asset pricing by employing Huang and Stoll's (1997) method to extract an adverse selection variable and finding evidence for its explanatory power in four-factor regressions.^

Data compilation on the biological response to ocean acidification: environmental and experimental context of data sets and related literature

The exponential growth of studies on the biological response to ocean acidification over the last few decades has generated a large amount of data. To facilitate data comparison, a data compilation hosted at the data publisher PANGAEA was initiated in 2008 and is updated on a regular basis (doi:10.1594/PANGAEA.149999). By January 2015, a total of 581 data sets (over 4 000 000 data points) from 539 papers had been archived. Here we present the developments of this data compilation five years since its first description by Nisumaa et al. (2010). Most of study sites from which data archived are still in the Northern Hemisphere and the number of archived data from studies from the Southern Hemisphere and polar oceans are still relatively low. Data from 60 studies that investigated the response of a mix of organisms or natural communities were all added after 2010, indicating a welcomed shift from the study of individual organisms to communities and ecosystems. The initial imbalance of considerably more data archived on calcification and primary production than on other processes has improved. There is also a clear tendency towards more data archived from multifactorial studies after 2010. For easier and more effective access to ocean acidification data, the ocean acidification community is strongly encouraged to contribute to the data archiving effort, and help develop standard vocabularies describing the variables and define best practices for archiving ocean acidification data.

Variable mutation rates as an adaptive strategy in replicator populations

For evolving populations of replicators, there is much evidence that the effect of mutations on fitness depends on the degree of adaptation to the selective pressures at play. In optimized populations, most mutations have deleterious effects, such that low mutation rates are favoured. In contrast to this, in populations thriving in changing environments a larger fraction of mutations have beneficial effects, providing the diversity necessary to adapt to new conditions. What is more, non-adapted populations occasionally benefit from an increase in the mutation rate. Therefore, there is no optimal universal value of the mutation rate and species attempt to adjust it to their momentary adaptive needs. In this work we have used stationary populations of RNA molecules evolving in silico to investigate the relationship between the degree of adaptation of an optimized population and the value of the mutation rate promoting maximal adaptation in a short time to a new selective pressure. Our results show that this value can significantly differ from the optimal value at mutation-selection equilibrium, being strongly influenced by the structure of the population when the adaptive process begins. In the short-term, highly optimized populations containing little variability respond better to environmental changes upon an increase of the mutation rate, whereas populations with a lower degree of optimization but higher variability benefit from reducing the mutation rate to adapt rapidly. These findings show a good agreement with the behaviour exhibited by actual organisms that replicate their genomes under broadly different mutation rates. © 2010 Stich et al.

Scaling limits of a model for selection at two scales

The dynamics of a population undergoing selection is a central topic in evolutionary biology. This question is particularly intriguing in the case where selective forces act in opposing directions at two population scales. For example, a fast-replicating virus strain outcompetes slower-replicating strains at the within-host scale. However, if the fast-replicating strain causes host morbidity and is less frequently transmitted, it can be outcompeted by slower-replicating strains at the between-host scale. Here we consider a stochastic ball-and-urn process which models this type of phenomenon. We prove the weak convergence of this process under two natural scalings. The first scaling leads to a deterministic nonlinear integro-partial differential equation on the interval $[0,1]$ with dependence on a single parameter, $\lambda$. We show that the fixed points of this differential equation are Beta distributions and that their stability depends on $\lambda$ and the behavior of the initial data around $1$. The second scaling leads to a measure-valued Fleming-Viot process, an infinite dimensional stochastic process that is frequently associated with a population genetics.

A Comprehensive Portfolio Construction Under Stochastic Environment

Prior research has established that idiosyncratic volatility of the securities prices exhibits a positive trend. This trend and other factors have made the merits of investment diversification and portfolio construction more compelling. A new optimization technique, a greedy algorithm, is proposed to optimize the weights of assets in a portfolio. The main benefits of using this algorithm are to: a) increase the efficiency of the portfolio optimization process, b) implement large-scale optimizations, and c) improve the resulting optimal weights. In addition, the technique utilizes a novel approach in the construction of a time-varying covariance matrix. This involves the application of a modified integrated dynamic conditional correlation GARCH (IDCC - GARCH) model to account for the dynamics of the conditional covariance matrices that are employed. The stochastic aspects of the expected return of the securities are integrated into the technique through Monte Carlo simulations. Instead of representing the expected returns as deterministic values, they are assigned simulated values based on their historical measures. The time-series of the securities are fitted into a probability distribution that matches the time-series characteristics using the Anderson-Darling goodness-of-fit criterion. Simulated and actual data sets are used to further generalize the results. Employing the S&P500 securities as the base, 2000 simulated data sets are created using Monte Carlo simulation. In addition, the Russell 1000 securities are used to generate 50 sample data sets. The results indicate an increase in risk-return performance. Choosing the Value-at-Risk (VaR) as the criterion and the Crystal Ball portfolio optimizer, a commercial product currently available on the market, as the comparison for benchmarking, the new greedy technique clearly outperforms others using a sample of the S&P500 and the Russell 1000 securities. The resulting improvements in performance are consistent among five securities selection methods (maximum, minimum, random, absolute minimum, and absolute maximum) and three covariance structures (unconditional, orthogonal GARCH, and integrated dynamic conditional GARCH).

Over 30% of patients with splenic marginal zone lymphoma express the same immunoglobulin heavy variable gene: ontogenetic implications.

We performed an immunogenetic analysis of 345 IGHV-IGHD-IGHJ rearrangements from 337 cases with primary splenic small B-cell lymphomas of marginal-zone origin. Three immunoglobulin (IG) heavy variable (IGHV) genes accounted for 45.8% of the cases (IGHV1-2, 24.9%; IGHV4-34, 12.8%; IGHV3-23, 8.1%). Particularly for the IGHV1-2 gene, strong biases were evident regarding utilization of different alleles, with 79/86 rearrangements (92%) using allele (*)04. Among cases more stringently classified as splenic marginal-zone lymphoma (SMZL) thanks to the availability of splenic histopathological specimens, the frequency of IGHV1-2(*)04 peaked at 31%. The IGHV1-2(*)04 rearrangements carried significantly longer complementarity-determining region-3 (CDR3) than all other cases and showed biased IGHD gene usage, leading to CDR3s with common motifs. The great majority of analyzed rearrangements (299/345, 86.7%) carried IGHV genes with some impact of somatic hypermutation, from minimal to pronounced. Noticeably, 75/79 (95%) IGHV1-2(*)04 rearrangements were mutated; however, they mostly (56/75 cases; 74.6%) carried few mutations (97-99.9% germline identity) of conservative nature and restricted distribution. These distinctive features of the IG receptors indicate selection by (super)antigenic element(s) in the pathogenesis of SMZL. Furthermore, they raise the possibility that certain SMZL subtypes could derive from progenitor populations adapted to particular antigenic challenges through selection of VH domain specificities, in particular the IGHV1-2(*)04 allele.

Ant Colony Optimization for Requirement selection in Incremental Software development

This proposal shows that ACO systems can be applied to problems of requirements selection in software incremental development, with the idea of obtaining better results of those produced by expert judgment alone. The evaluation of the ACO systems should be done through a compared analysis with greedy and simulated annealing algorithms, performing experiments with some problems instances

Multi-objective ant colony optimization for requirements selection

The selection of a set of requirements between all the requirements previously defined by customers is an important process, repeated at the beginning of each development step when an incremental or agile software development approach is adopted. The set of selected requirements will be developed during the actual iteration. This selection problem can be reformulated as a search problem, allowing its treatment with metaheuristic optimization techniques. This paper studies how to apply Ant Colony Optimization algorithms to select requirements. First, we describe this problem formally extending an earlier version of the problem, and introduce a method based on Ant Colony System to find a variety of efficient solutions. The performance achieved by the Ant Colony System is compared with that of Greedy Randomized Adaptive Search Procedure and Non-dominated Sorting Genetic Algorithm, by means of computational experiments carried out on two instances of the problem constructed from data provided by the experts.

'Bayesian Optimisation for Nurse Scheduling'

A Bayesian optimisation algorithm for a nurse scheduling problem is presented, which involves choosing a suitable scheduling rule from a set for each nurse's assignment. When a human scheduler works, he normally builds a schedule systematically following a set of rules. After much practice, the scheduler gradually masters the knowledge of which solution parts go well with others. He can identify good parts and is aware of the solution quality even if the scheduling process is not yet completed, thus having the ability to finish a schedule by using flexible, rather than fixed, rules. In this paper, we design a more human-like scheduling algorithm, by using a Bayesian optimisation algorithm to implement explicit learning from past solutions. A nurse scheduling problem from a UK hospital is used for testing. Unlike our previous work that used Genetic Algorithms to implement implicit learning [1], the learning in the proposed algorithm is explicit, i.e. we identify and mix building blocks directly. The Bayesian optimisation algorithm is applied to implement such explicit learning by building a Bayesian network of the joint distribution of solutions. The conditional probability of each variable in the network is computed according to an initial set of promising solutions. Subsequently, each new instance for each variable is generated by using the corresponding conditional probabilities, until all variables have been generated, i.e. in our case, new rule strings have been obtained. Sets of rule strings are generated in this way, some of which will replace previous strings based on fitness. If stopping conditions are not met, the conditional probabilities for all nodes in the Bayesian network are updated again using the current set of promising rule strings. For clarity, consider the following toy example of scheduling five nurses with two rules (1: random allocation, 2: allocate nurse to low-cost shifts). In the beginning of the search, the probabilities of choosing rule 1 or 2 for each nurse is equal, i.e. 50%. After a few iterations, due to the selection pressure and reinforcement learning, we experience two solution pathways: Because pure low-cost or random allocation produces low quality solutions, either rule 1 is used for the first 2-3 nurses and rule 2 on remainder or vice versa. In essence, Bayesian network learns 'use rule 2 after 2-3x using rule 1' or vice versa. It should be noted that for our and most other scheduling problems, the structure of the network model is known and all variables are fully observed. In this case, the goal of learning is to find the rule values that maximize the likelihood of the training data. Thus, learning can amount to 'counting' in the case of multinomial distributions. For our problem, we use our rules: Random, Cheapest Cost, Best Cover and Balance of Cost and Cover. In more detail, the steps of our Bayesian optimisation algorithm for nurse scheduling are: 1. Set t = 0, and generate an initial population P(0) at random; 2. Use roulette-wheel selection to choose a set of promising rule strings S(t) from P(t); 3. Compute conditional probabilities of each node according to this set of promising solutions; 4. Assign each nurse using roulette-wheel selection based on the rules' conditional probabilities. A set of new rule strings O(t) will be generated in this way; 5. Create a new population P(t+1) by replacing some rule strings from P(t) with O(t), and set t = t+1; 6. If the termination conditions are not met (we use 2000 generations), go to step 2. Computational results from 52 real data instances demonstrate the success of this approach. They also suggest that the learning mechanism in the proposed approach might be suitable for other scheduling problems. Another direction for further research is to see if there is a good constructing sequence for individual data instances, given a fixed nurse scheduling order. If so, the good patterns could be recognized and then extracted as new domain knowledge. Thus, by using this extracted knowledge, we can assign specific rules to the corresponding nurses beforehand, and only schedule the remaining nurses with all available rules, making it possible to reduce the solution space. Acknowledgements The work was funded by the UK Government's major funding agency, Engineering and Physical Sciences Research Council (EPSRC), under grand GR/R92899/01. References [1] Aickelin U, "An Indirect Genetic Algorithm for Set Covering Problems", Journal of the Operational Research Society, 53(10): 1118-1126,

Hybrid Variable Neighborhood HyperHeuristics for Exam Timetabling Problems

This paper presents our work on analysing the high level search within a graph based hyperheuristic. The graph based hyperheuristic solves the problem at a higher level by searching through permutations of graph heuristics rather than the actual solutions. The heuristic permutations are then used to construct the solutions. Variable Neighborhood Search, Steepest Descent, Iterated Local Search and Tabu Search are compared. An analysis of their performance within the high level search space of heuristics is also carried out. Experimental results on benchmark exam timetabling problems demonstrate the simplicity and efficiency of this hyperheuristic approach. They also indicate that the choice of the high level search methodology is not crucial and the high level search should explore the heuristic search space as widely as possible within a limited searching time. This simple and general graph based hyperheuristic may be applied to a range of timetabling and optimisation problems.

Hybrid Variable Neighborhood HyperHeuristics for Exam Timetabling Problems

This paper presents our work on analysing the high level search within a graph based hyperheuristic. The graph based hyperheuristic solves the problem at a higher level by searching through permutations of graph heuristics rather than the actual solutions. The heuristic permutations are then used to construct the solutions. Variable Neighborhood Search, Steepest Descent, Iterated Local Search and Tabu Search are compared. An analysis of their performance within the high level search space of heuristics is also carried out. Experimental results on benchmark exam timetabling problems demonstrate the simplicity and efficiency of this hyperheuristic approach. They also indicate that the choice of the high level search methodology is not crucial and the high level search should explore the heuristic search space as widely as possible within a limited searching time. This simple and general graph based hyperheuristic may be applied to a range of timetabling and optimisation problems.

'Bayesian Optimisation for Nurse Scheduling'

A Bayesian optimisation algorithm for a nurse scheduling problem is presented, which involves choosing a suitable scheduling rule from a set for each nurse's assignment. When a human scheduler works, he normally builds a schedule systematically following a set of rules. After much practice, the scheduler gradually masters the knowledge of which solution parts go well with others. He can identify good parts and is aware of the solution quality even if the scheduling process is not yet completed, thus having the ability to finish a schedule by using flexible, rather than fixed, rules. In this paper, we design a more human-like scheduling algorithm, by using a Bayesian optimisation algorithm to implement explicit learning from past solutions. A nurse scheduling problem from a UK hospital is used for testing. Unlike our previous work that used Genetic Algorithms to implement implicit learning [1], the learning in the proposed algorithm is explicit, i.e. we identify and mix building blocks directly. The Bayesian optimisation algorithm is applied to implement such explicit learning by building a Bayesian network of the joint distribution of solutions. The conditional probability of each variable in the network is computed according to an initial set of promising solutions. Subsequently, each new instance for each variable is generated by using the corresponding conditional probabilities, until all variables have been generated, i.e. in our case, new rule strings have been obtained. Sets of rule strings are generated in this way, some of which will replace previous strings based on fitness. If stopping conditions are not met, the conditional probabilities for all nodes in the Bayesian network are updated again using the current set of promising rule strings. For clarity, consider the following toy example of scheduling five nurses with two rules (1: random allocation, 2: allocate nurse to low-cost shifts). In the beginning of the search, the probabilities of choosing rule 1 or 2 for each nurse is equal, i.e. 50%. After a few iterations, due to the selection pressure and reinforcement learning, we experience two solution pathways: Because pure low-cost or random allocation produces low quality solutions, either rule 1 is used for the first 2-3 nurses and rule 2 on remainder or vice versa. In essence, Bayesian network learns 'use rule 2 after 2-3x using rule 1' or vice versa. It should be noted that for our and most other scheduling problems, the structure of the network model is known and all variables are fully observed. In this case, the goal of learning is to find the rule values that maximize the likelihood of the training data. Thus, learning can amount to 'counting' in the case of multinomial distributions. For our problem, we use our rules: Random, Cheapest Cost, Best Cover and Balance of Cost and Cover. In more detail, the steps of our Bayesian optimisation algorithm for nurse scheduling are: 1. Set t = 0, and generate an initial population P(0) at random; 2. Use roulette-wheel selection to choose a set of promising rule strings S(t) from P(t); 3. Compute conditional probabilities of each node according to this set of promising solutions; 4. Assign each nurse using roulette-wheel selection based on the rules' conditional probabilities. A set of new rule strings O(t) will be generated in this way; 5. Create a new population P(t+1) by replacing some rule strings from P(t) with O(t), and set t = t+1; 6. If the termination conditions are not met (we use 2000 generations), go to step 2. Computational results from 52 real data instances demonstrate the success of this approach. They also suggest that the learning mechanism in the proposed approach might be suitable for other scheduling problems. Another direction for further research is to see if there is a good constructing sequence for individual data instances, given a fixed nurse scheduling order. If so, the good patterns could be recognized and then extracted as new domain knowledge. Thus, by using this extracted knowledge, we can assign specific rules to the corresponding nurses beforehand, and only schedule the remaining nurses with all available rules, making it possible to reduce the solution space. Acknowledgements The work was funded by the UK Government's major funding agency, Engineering and Physical Sciences Research Council (EPSRC), under grand GR/R92899/01. References [1] Aickelin U, "An Indirect Genetic Algorithm for Set Covering Problems", Journal of the Operational Research Society, 53(10): 1118-1126,

Nested Rollout Policy Adaptation for optimizing vehicle selection in complex VRPs

The goal of Vehicle Routing Problems (VRP) and their variations is to transport a set of orders with the minimum number of vehicles at least cost. Most approaches are designed to solve specific problem variations independently, whereas in real world applications, different constraints are handled concurrently. This research extends solutions obtained for the traveling salesman problem with time windows to a much wider class of route planning problems in logistics. The work describes a novel approach that:  supports a heterogeneous fleet of vehicles  dynamically reduces the number of vehicles  respects individual capacity restrictions  satisfies pickup and delivery constraints  takes Hamiltonian paths (rather than cycles) The proposed approach uses Monte-Carlo Tree Search and in particular Nested Rollout Policy Adaptation. For the evaluation of the work, real data from the industry was obtained and tested and the results are reported.

Pulmonary vascular resistance: A meaningless variable?

Almost 20 years ago, Adriaan Versprille published an editorial in this journal to explain why, in his opinion, the calculation of pulmonary vascular resistance (PVR) is meaningless [1]. The uncertainties of PVR were underscored a year later by McGregor and Sniderman in the American Journal of Cardiology [2]. Obviously, both papers failed to convince. A Medline search from 1985 to the end of 2002 reveals no less than 7,158 papers with PVR calculations. What is it that could be wrong in all this literature?.

Multi-level, Multi-stage and Stochastic Optimization Models for Energy Conservation in Buildings for Federal, State and Local Agencies

Energy Conservation Measure (ECM) project selection is made difficult given real-world constraints, limited resources to implement savings retrofits, various suppliers in the market and project financing alternatives. Many of these energy efficient retrofit projects should be viewed as a series of investments with annual returns for these traditionally risk-averse agencies. Given a list of ECMs available, federal, state and local agencies must determine how to implement projects at lowest costs. The most common methods of implementation planning are suboptimal relative to cost. Federal, state and local agencies can obtain greater returns on their energy conservation investment over traditional methods, regardless of the implementing organization. This dissertation outlines several approaches to improve the traditional energy conservations models. Any public buildings in regions with similar energy conservation goals in the United States or internationally can also benefit greatly from this research. Additionally, many private owners of buildings are under mandates to conserve energy e.g., Local Law 85 of the New York City Energy Conservation Code requires any building, public or private, to meet the most current energy code for any alteration or renovation. Thus, both public and private stakeholders can benefit from this research. The research in this dissertation advances and presents models that decision-makers can use to optimize the selection of ECM projects with respect to the total cost of implementation. A practical application of a two-level mathematical program with equilibrium constraints (MPEC) improves the current best practice for agencies concerned with making the most cost-effective selection leveraging energy services companies or utilities. The two-level model maximizes savings to the agency and profit to the energy services companies (Chapter 2). An additional model presented leverages a single congressional appropriation to implement ECM projects (Chapter 3). Returns from implemented ECM projects are used to fund additional ECM projects. In these cases, fluctuations in energy costs and uncertainty in the estimated savings severely influence ECM project selection and the amount of the appropriation requested. A risk aversion method proposed imposes a minimum on the number of “of projects completed in each stage. A comparative method using Conditional Value at Risk is analyzed. Time consistency was addressed in this chapter. This work demonstrates how a risk-based, stochastic, multi-stage model with binary decision variables at each stage provides a much more accurate estimate for planning than the agency’s traditional approach and deterministic models. Finally, in Chapter 4, a rolling-horizon model allows for subadditivity and superadditivity of the energy savings to simulate interactive effects between ECM projects. The approach makes use of inequalities (McCormick, 1976) to re-express constraints that involve the product of binary variables with an exact linearization (related to the convex hull of those constraints). This model additionally shows the benefits of learning between stages while remaining consistent with the single congressional appropriations framework.