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.

VAP-1 as drug target in inflammation : structural features determining ligand interactions

Vascular adhesion protein-1 (VAP-1), which belongs to the copper amine oxidases (CAOs), is a validated drug target in inflammatory diseases. Inhibition of VAP-1 blocks the leukocyte trafficking to sites of inflammation and alleviates inflammatory reactions. In this study, a novel set of potent pyridazinone inhibitors is presented together with their X-ray structure complexes with VAP-1. The crystal structure of serum VAP-1 (sVAP-1) revealed an imidazole binding site in the active site channel and, analogously, the pyridazinone inhibitors were designed to bind into the channel. This is the first time human VAP-1 has been crystallized with a reversible inhibitor and the structures reveal detailed information of the binding mode on the atomic level. Similarly to some earlier studied inhibitors of human VAP-1, the designed pyridazinone inhibitors bind rodent VAP-1 with a lower affinity than human VAP-1. Therefore, we made homology models of rodent VAP-1 and compared human and rodent enzymes to determine differences that might affect the inhibitor binding. The comparison of the crystal structures of the human VAP-1 and the mouse VAP-1 homology model revealed key differences important for the species specific binding properties. In general, the channel in mouse VAP-1 is more narrow and polar than the channel in human VAP-1, which is wider and more hydrophobic. The differences are located in the channel leading to the active site, as well as, in the entrance to the active site channel. The information obtained from these studies is of great importance for the development and design of drugs blocking the activity of human VAP-1, as rodents are often used for in vivo testing of candidate drugs. In order to gain more insight into the selective binding properties of the different CAOs in one species a comprehensive evolutionary study of mammalian CAOs was performed. We found that CAOs can be classified into sub-families according to the residues X1 and X2 of the Thr/Ser-X1-X2-Asn-Tyr-Asp active site motif. In the phylogenetic tree, CAOs group into diamine oxidase, retina specific amine oxidase and VAP-1/serum amine oxidase clades based on the residue in the position X2. We also found that VAP-1 and SAO can be further differentiated based on the residue in the position X1. This is the first large-scale comparison of CAO sequences, which explains some of the reasons for the unique substrate specificities within the CAO family.

Cross Listing of a Finnish Company on an Exchange in the United States of America

Finnish companies cross listing in the United States is an exceptional phenomenon. This study examines the cross listing decision, cross listing choice and cross listing process with associated challenges and critical factors. The aim is to create an in-depth understanding of the cross listing process and the required financial information. Based on that, the aim is to establish the process phases with the challenges and the critical factors that ought to be considered be- fore establishing the process plus re-evaluated and further considered at points in time during the process. The empirical part of this study is conducted as a qualitative study. The research data was collected through the adoption of two approaches, which are the interview approach and the textual data approach. The interviews were conducted with Finnish practitioners in the field of accounting and finance. The textual data was from publicly available publications of this phenomenon by the two BIG5 accounting companies worldwide. The results of this study demonstrate the benefits of cross listing in the U.S. are the better growth opportunities, the reduction of cost of capital and the production of higher quality financial information. In the decision making process companies should assess whether the benefits exceed the increased costs, the pressure for performance, the uncertainty of market recognition and the requirements of management. The exchange listing is seen as the most favourable cross listing choice for Finnish companies. The establishment of the processes for producing reliable, transparent and timely financial information was seen as both highly critical and very challenging. The critical success factors relating to the cross listing phases are the assessment and planning as well as the right mix of experiences and expertise. The timing plays important role in the process. The results mainly corroborate the literature concerning cross listing decision and choice. This study contributes to the literature on the cross listing process offering a useful model for the phases of the cross listing process.

Foreign exchange exposure management in a fuel procurement company operating in the commodity markets

Fluctuating commodity prices, foreign exchange rates and interest rates are causing changes in cash flows, market value and the companies’ profit. Most of the commodities are quoted in US dollar. Companies with non-dollar accounting face a double risk in the form of the commodity price risk and foreign exchange risk. The objective of this Master’s thesis is to find out how companies under commodity should manage foreign exchange exposure. The theoretical literature is based on foreign exchange risk, commodity risk and foreign exchange exposure management. The empirical research is done by using constructive modelling of a case company in the oil industry. The exposure is model with foreign exchange net cash flow and net working capital. First, the factors affecting foreign exchange exposure in case company are analyzed, then a model of foreign exchange exposure is created. Finally, the models are compared and the most suitable method is defined. According to the literature, foreign exchange exposure is the foreign exchange net cash flow. However, the results of the study show that foreign exchange risk can be managed also with net working capital. When the purchases, sales and storage are under foreign exchange risk, the best way to manage foreign exchange exposure is with combined net cash flow and net working capital method. The foreign exchange risk policy of the company defines the appropriate way to manage foreign exchange risk.

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.

National exchange rate policies and international debt crises: how Brazil did not follow Argentina into a default in 2001-2002

This paper examines how exchange rate policies and IMF Stand-By Arrangements affect debt crises using econometrics and a comparison between Argentina and Brazil. It refines an existing diagram outlining crisis development to propose crisis prevention strategies. Flexible exchange rate policies reduce a country's probability of default by over 4%, but Stand-By Arrangements increase it by an inconsequential percentage. Unlike Argentina, Brazil avoided a default via a freely-floating exchange rate system, fiscal deficit reduction, and a cooperative and coordinated relationship with the IMF. The results provide policymakers from developing countries with lessons to manage their countries' default risks more effectively.

Unconventional integrin-ligand interactions

Integrins are cell surface adhesion and signaling receptors. Cells use integrins to attach to the extracellular matrix and to other cells, as well as for sensing their environment. In addition to adhesion and migration, integrins have been shown to be important for many biological processes including apoptosis, cell proliferation, and differentiation into specific tissues. Many important next generation biological drugs inhibit integrin functions. Thus, research into interactions between integrins and their ligands under different physiological and pathological conditions is not only of academic interest, but is also important for the field of drug discovery. In this Ph.D. project, the functions of integrin-ligand interactions were studied under different physiologically interesting conditions including 1) human echovirus 1 binding to integrin α2β1, 2) integrin α2β1 binding to collagen under flow conditions, 3) integrin α2β1 binding to a ligand in the presence of the angiogenesis inhibitor histidine rich glycoprotein (HRG) and 4) integrin binding to posttranslationally citrullinated ligands. As a result of the project, we could show that for each condition the integrin-ligand interaction is somewhat unconventional. 1) Echovirus 1 binds only to non-activated conformations of integrin α2β1. 2) Surprisingly, the non-activated conformation is also the primary conformation of integrin α2β1 when it binds to collagen under flow conditions, like when platelets adhere to subendothelial collagen in vascular injuries. In addition, the pre-activation of integrin α2β1 does not increase adhesion under flow. 3) HRG binds to integrin α2β1 through a low-affinity interaction that inhibits integrin binding to collagen. This shows that low affinity interactions could be biologically relevant and possibly regulate angiogenesis. 4) The citrullination of collagen, a posttranslational modification reported to occur in rheumatoid arthritis, specifically inhibits the binding of integrin α10β1 and α11β1, but does not affect the binding of α1β1 ja α2β1. On the other hand, the citrullination of isoDGR in fibronectin and RGD in pro-TGF- β:n inhibit integrin binding completely. Citrullination seems to be an inflammation related process and integrin ligands become citrullinated frequently in vivo. This Ph.D. thesis suggests that unconventional interaction mechanisms between integrins and their ligands, such as posttranslational modifications, low affinity interactions, and non-activated integrin conformations, can have an important role in pathological processes. The study of these kinds of integrin-ligand interactions is important for understanding biological phenomena more deeply. The research might also be beneficial for the development of integrin based therapies for treating diseases.

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.

Exchange rate regulation, the behavior of exchange rates, and macroeconomic stability in Brazil

In the last two decades an entirely new set of rules governing the foreign exchange transactions was established in Brazil, substituting for the framework inherited from the 1930s. Foreign exchange controls were dismantled and a floating exchange rate regime replaced different forms of peg. In this paper we argue that although successful by comparison to previous experiences, the current arrangement has important flaws that should be addressed. We discuss how it first led to high volatility and extremely high interest rates, which, when overcome, gave way to a long lasting appreciation of the real exchange rate with adverse consequences to industry.