Three essays in financial economics: asset pricing, optimal portfolio selection and financial integration

Executive Summary The unifying theme of this thesis is the pursuit of a satisfactory ways to quantify the riskureward trade-off in financial economics. First in the context of a general asset pricing model, then across models and finally across country borders. The guiding principle in that pursuit was to seek innovative solutions by combining ideas from different fields in economics and broad scientific research. For example, in the first part of this thesis we sought a fruitful application of strong existence results in utility theory to topics in asset pricing. In the second part we implement an idea from the field of fuzzy set theory to the optimal portfolio selection problem, while the third part of this thesis is to the best of our knowledge, the first empirical application of some general results in asset pricing in incomplete markets to the important topic of measurement of financial integration. While the first two parts of this thesis effectively combine well-known ways to quantify the risk-reward trade-offs the third one can be viewed as an empirical verification of the usefulness of the so-called "good deal bounds" theory in designing risk-sensitive pricing bounds. Chapter 1 develops a discrete-time asset pricing model, based on a novel ordinally equivalent representation of recursive utility. To the best of our knowledge, we are the first to use a member of a novel class of recursive utility generators to construct a representative agent model to address some long-lasting issues in asset pricing. Applying strong representation results allows us to show that the model features countercyclical risk premia, for both consumption and financial risk, together with low and procyclical risk free rate. As the recursive utility used nests as a special case the well-known time-state separable utility, all results nest the corresponding ones from the standard model and thus shed light on its well-known shortcomings. The empirical investigation to support these theoretical results, however, showed that as long as one resorts to econometric methods based on approximating conditional moments with unconditional ones, it is not possible to distinguish the model we propose from the standard one. Chapter 2 is a join work with Sergei Sontchik. There we provide theoretical and empirical motivation for aggregation of performance measures. The main idea is that as it makes sense to apply several performance measures ex-post, it also makes sense to base optimal portfolio selection on ex-ante maximization of as many possible performance measures as desired. We thus offer a concrete algorithm for optimal portfolio selection via ex-ante optimization over different horizons of several risk-return trade-offs simultaneously. An empirical application of that algorithm, using seven popular performance measures, suggests that realized returns feature better distributional characteristics relative to those of realized returns from portfolio strategies optimal with respect to single performance measures. When comparing the distributions of realized returns we used two partial risk-reward orderings first and second order stochastic dominance. We first used the Kolmogorov Smirnov test to determine if the two distributions are indeed different, which combined with a visual inspection allowed us to demonstrate that the way we propose to aggregate performance measures leads to portfolio realized returns that first order stochastically dominate the ones that result from optimization only with respect to, for example, Treynor ratio and Jensen's alpha. We checked for second order stochastic dominance via point wise comparison of the so-called absolute Lorenz curve, or the sequence of expected shortfalls for a range of quantiles. As soon as the plot of the absolute Lorenz curve for the aggregated performance measures was above the one corresponding to each individual measure, we were tempted to conclude that the algorithm we propose leads to portfolio returns distribution that second order stochastically dominates virtually all performance measures considered. Chapter 3 proposes a measure of financial integration, based on recent advances in asset pricing in incomplete markets. Given a base market (a set of traded assets) and an index of another market, we propose to measure financial integration through time by the size of the spread between the pricing bounds of the market index, relative to the base market. The bigger the spread around country index A, viewed from market B, the less integrated markets A and B are. We investigate the presence of structural breaks in the size of the spread for EMU member country indices before and after the introduction of the Euro. We find evidence that both the level and the volatility of our financial integration measure increased after the introduction of the Euro. That counterintuitive result suggests the presence of an inherent weakness in the attempt to measure financial integration independently of economic fundamentals. Nevertheless, the results about the bounds on the risk free rate appear plausible from the view point of existing economic theory about the impact of integration on interest rates.

Particulate soil organic carbon and stratification ratio increases in response to crop residue decomposition under no-till

In soils under no-tillage (NT), the continuous crop residue input to the surface layer leads to carbon (C) accumulation. This study evaluated a soil under NT in Ponta Grossa (State of Paraná, Brazil) for: 1) the decomposition of black oat (Avena strigosa Schreb.) residues, 2) relation of the biomass decomposition effect with the soil organic carbon (SOC) content, the particulate organic carbon (POC) content, and the soil carbon stratification ratio (SR) of an Inceptisol. The assessments were based on seven samplings (t0 to t6) in a period of 160 days of three transects with six sampling points each. The oat dry biomass was 5.02 Mg ha-1 at t0, however, after 160 days, only 17.8 % of the initial dry biomass was left on the soil surface. The SOC in the 0-5 cm layer varied from 27.56 (t0) to 30.07 g dm-3 (t6). The SR increased from 1.33 to 1.43 in 160 days. There was also an increase in the POC pool in this period, from 8.1 to 10.7 Mg ha-1. The increase in SOC in the 0-5 cm layer in the 160 days was mainly due to the increase of POC derived from oat residue decomposition. The linear relationship between SOC and POC showed that 21 % of SOC was due to the more labile fraction. The results indicated that the continuous input of residues could be intensified to increase the C pool and sequestration in soils under NT.

s-wave charmed baryon resonances from a coupled-channel approach with heavy quark symmetry

We study charmed baryon resonances that are generated dynamically within a unitary meson-baryon coupled-channel model that treats the heavy pseudoscalar and vector mesons on equal footing as required by heavy-quark symmetry. It is an extension of recent SU(4) models with t-channel vector-meson exchanges to an SU(8) spin-flavor scheme, but differs considerably from the SU(4) approach in how the strong breaking of the flavor symmetry is implemented. Some of our dynamically generated states can be readily assigned to recently observed baryon resonances, while others do not have a straightforward identification and require the compilation of more data as well as an extension of the model to d-wave meson-baryon interactions and p-wave coupling in the neglected s- and u-channel diagrams. Of several novelties, we find that the Delta c(2595), which emerged as a ND quasibound state within the SU(4) approaches, becomes predominantly a ND* quasibound state in the present SU(8) scheme.

Symmetry breaking in small rotating clouds of trapped ultracold Bose atoms

We study the signatures of rotational and phase symmetry breaking in small rotating clouds of trapped ultracold Bose atoms by looking at rigorously defined condensate wave function. Rotational symmetry breaking occurs in narrow frequency windows, where energy degeneracy between the lowest energy states of different total angular momentum takes place. This leads to a complex condensate wave function that exhibits vortices clearly seen as holes in the density, as well as characteristic local phase patterns, reflecting the appearance of vorticities. Phase symmetry (or gauge symmetry) breaking, on the other hand, is clearly manifested in the interference of two independent rotating clouds.

Noether's theorem and gauge transformations. Application to the bosonic string and CP(2,n-1) model

New results on the theory of constrained systems are applied to characterize the generators of Noethers symmetry transformations. As a byproduct, an algorithm to construct gauge transformations in Hamiltonian formalism is derived. This is illustrated with two relevant examples.

Transparency ratio in γ A -> η' A ' and the in-medium η ' width

The photoproduction of η′η′-mesons off different nuclei has been measured with the CBELSA/TAPS detector system for incident photon energies between 15002200 MeV. The transparency ratio has been deduced and compared to theoretical calculations describing the propagation of η′η′-mesons in nuclei. The comparison indicates a width of the η′η′-meson of the order of Γ=1525 MeVΓ=1525 MeV at ρ=ρ0ρ=ρ0 for an average momentum pη′=1050 MeV/cpη′=1050 MeV/c, at which the η′η′-meson is produced in the nuclear rest frame. The inelastic η′Nη′N cross section is estimated to be 310 mb. Parameterizing the photoproduction cross section of η′η′-mesons by σ(A)=σ0Aασ(A)=σ0Aα, a value of α=0.84±0.03α=0.84±0.03 has been deduced.

The influence of the symmetry energy on the giant monopole resonance of neutron-rich nuclei analyzed in Thomas-Fermi theory

We analyze the influence of the density dependence of the symmetry energy on the average excitation energy of the isoscalar giant monopole resonance (GMR) in stable and exotic neutron-rich nuclei by applying the relativistic extended Thomas-Fermi method in scaling and constrained calculations. For the effective nuclear interaction, we employ the relativistic mean field model supplemented by an isoscalar-isovector meson coupling that allows one to modify the density dependence of the symmetry energy without compromising the success of the model for binding energies and charge radii. The semiclassical estimates of the average energy of the GMR are known to be in good agreement with the results obtained in full RPA calculations. The present analysis is performed along the Pb and Zr isotopic chains. In the scaling calculations, the excitation energy is larger when the symmetry energy is softer. The same happens in the constrained calculations for nuclei with small and moderate neutron excess. However, for nuclei of large isospin the constrained excitation energy becomes smaller in models having a soft symmetry energy. This effect is mainly due to the presence of loosely-bound outer neutrons in these isotopes. A sharp increase of the estimated width of the resonance is found in largely neutron-rich isotopes, even for heavy nuclei, which is enhanced when the symmetry energy of the model is soft. The results indicate that at large neutron numbers the structure of the low-energy region of the GMR strength distribution changes considerably with the density dependence of the nuclear symmetry energy, which may be worthy of further characterization in RPA calculations of the response function.

Critical Behavior and Axis Defining Symmetry Breaking in Hydra Embryonic Development

The formation of a hollow cellular sphere is often one of the first steps of multicellular embryonic development. In the case of Hydra, the sphere breaks its initial symmetry to form a foot-head axis. During this process a gene, ks1, is increasingly expressed in localized cell domains whose size distribution becomes scale-free at the axis-locking moment. We show that a physical model based solely on the production and exchange of ks1-promoting factors among neighboring cells robustly reproduces the scaling behavior as well as the experimentally observed spontaneous and temperature-directed symmetry breaking.

Estimation of soil moisture in the root-zone from remote sensing data

Field-based soil moisture measurements are cumbersome. Thus, remote sensing techniques are needed because allows field and landscape-scale mapping of soil moisture depth-averaged through the root zone of existing vegetation. The objective of the study was to evaluate the accuracy of an empirical relationship to calculate soil moisture from remote sensing data of irrigated soils of the Apodi Plateau, in the Brazilian semiarid region. The empirical relationship had previously been tested for irrigated soils in Mexico, Egypt, and Pakistan, with promising results. In this study, the relationship was evaluated from experimental data collected from a cotton field. The experiment was carried out in an area of 5 ha with irrigated cotton. The energy balance and evaporative fraction (Λ) were measured by the Bowen ratio method. Soil moisture (θ) data were collected using a PR2 - Profile Probe (Delta-T Devices Ltd). The empirical relationship was tested using experimentally collected Λ and θ values and was applied using the Λ values obtained from the Surface Energy Balance Algorithm for Land (SEBAL) and three TM - Landsat 5 images. There was a close correlation between measured and estimated θ values (p<0.05, R² = 0.84) and there were no significant differences according to the Student t-test (p<0.01). The statistical analyses showed that the empirical relationship can be applied to estimate the root-zone soil moisture of irrigated soils, i.e. when the evaporative fraction is greater than 0.45.

Fat oxidation kinetics during exercise in obese individuals.

Introduction An impaired ability to oxidize fat may be a factor in the obesity's aetiology (3). Moreover, the exercise intensity (Fatmax) eliciting the maximal fat oxidation rate (MFO) was lower in obese (O) compared with lean (L) individuals (4). However, difference in fat oxidation rate (FOR) during exercise between O and L remains equivocal and little is known about FORs during high intensities (>60% ) in O compared with L. This study aimed to characterize fat oxidation kinetics over a large range of intensities in L and O. Methods 12 healthy L [body mass index (BMI): 22.8±0.4] and 16 healthy O men (BMI: 38.9±1.4) performed submaximal incremental test (Incr) to determine whole-body fat oxidation kinetics using indirect calorimetry. After a 15-min resting period (Rest) and 10-min warm-up at 20% of maximal power output (MPO, determined by a maximal incremental test), the power output was increased by 7.5% MPO every 6-min until respiratory exchange ratio reached 1.0. Venous lactate and glucose and plasma concentration of epinephrine (E), norepinephrine (NE), insulin and non-esterified fatty acid (NEFA) were assessed at each step. A mathematical model (SIN) (1), including three variables (dilatation, symmetry, translation), was used to characterize fat oxidation (normalized by fat-free mass) kinetics and to determine Fatmax and MFO. Results FOR at Rest and MFO were not significantly different between groups (p≥0.1). FORs were similar from 20-60% (p≥0.1) and significantly lower from 65-85% in O than in L (p≤0.04). Fatmax was significantly lower in O than in L (46.5±2.5 vs 56.7±1.9 % respectively; p=0.005). Fat oxidation kinetics was characterized by similar translation (p=0.2), significantly lower dilatation (p=0.001) and tended to a left-shift symmetry in O compared with L (p=0.09). Plasma E, insulin and NEFA were significantly higher in L compared to O (p≤0.04). There were no significant differences in glucose, lactate and plasma NE between groups (p≥0.2). Conclusion The study showed that O presented a lower Fatmax and a lower reliance on fat oxidation at high, but not at moderate, intensities. This may be linked to a: i) higher levels of insulin and lower E concentrations in O, which may induce blunted lipolysis; ii) higher percentage of type II and a lower percentage of type I fibres (5), and iii) decreased mitochondrial content (2), which may reduce FORs at high intensities and Fatmax. These findings may have implications for an appropriate exercise intensity prescription for optimize fat oxidation in O. References 1. Cheneviere et al. Med Sci Sports Exerc. 2009 2. Holloway et al. Am J Clin Nutr. 2009 3. Kelley et al. Am J Physiol. 1999 4. Perez-Martin et al. Diabetes Metab. 2001 5. Tanner et al. Am J Physiol Endocrinol Metab. 2002

Decision-making in pediatrics: a practical algorithm to evaluate complementary and alternative medicine for children.

We herein present a preliminary practical algorithm for evaluating complementary and alternative medicine (CAM) for children which relies on basic bioethical principles and considers the influence of CAM on global child healthcare. CAM is currently involved in almost all sectors of pediatric care and frequently represents a challenge to the pediatrician. The aim of this article is to provide a decision-making tool to assist the physician, especially as it remains difficult to keep up-to-date with the latest developments in the field. The reasonable application of our algorithm together with common sense should enable the pediatrician to decide whether pediatric (P)-CAM represents potential harm to the patient, and allow ethically sound counseling. In conclusion, we propose a pragmatic algorithm designed to evaluate P-CAM, briefly explain the underlying rationale and give a concrete clinical example.

Numerical algorithm for spectroscopic ellipsometry of thick transparent films

We present a numerical method for spectroscopic ellipsometry of thick transparent films. When an analytical expression for the dispersion of the refractive index (which contains several unknown coefficients) is assumed, the procedure is based on fitting the coefficients at a fixed thickness. Then the thickness is varied within a range (according to its approximate value). The final result given by our method is as follows: The sample thickness is considered to be the one that gives the best fitting. The refractive index is defined by the coefficients obtained for this thickness.

Divergent signal-to-noise ratio and stochastic resonance in monostable systems

We present a class of systems for which the signal-to-noise ratio always increases when increasing the noise and diverges at infinite noise level. This new phenomenon is a direct consequence of the existence of a scaling law for the signal-to-noise ratio and implies the appearance of stochastic resonance in some monostable systems. We outline applications of our results to a wide variety of systems pertaining to different scientific areas. Two particular examples are discussed in detail.

General method to determine replica symmetry breaking transitions

We introduce a new parameter to investigate replica symmetry breaking transitions using finite-size scaling methods. Based on exact equalities initially derived by F. Guerra this parameter is a direct check of the self-averaging character of the spin-glass order parameter. This new parameter can be used to study models with time reversal symmetry but its greatest interest lies in models where this symmetry is absent. We apply the method to long-range and short-range Ising spin-glasses with and without a magnetic field as well as short-range multispin interaction spin-glasses.