Essays on Russia's Economic Transition

This study comprises an introductory section and three essays analysing Russia's economic transition from the early 1990s up to the present. The papers present a combination of both theoretical and empirical analysis on some of the key issues Russia has faced during its somewhat troublesome transformation from state-controlled command economy to market-based economy. The first essay analyses fiscal competition for mobile capital between identical regions in a transition country. A standard tax competition framework is extended to account for two features of a transition economy: the presence of two sectors, old and new, which differ in productivity; and a non-benevolent regional decision-maker. It is shown that in very early phase of transition, when the old sector clearly dominates, consumers in a transition economy may be better off in a competitive equilibrium. Decision-makers, on the other hand, will prefer to coordinate their fiscal policies. The second essay uses annual data for 1992-2003 to examine income dispersion and convergence across 76 Russian regions. Wide disparities in income levels have indeed emerged during the transition period. Dispersion has increased most among the initially better-off regions, whereas for the initially poorer regions no clear trend of divergence or convergence could be established. Further, some - albeit not highly robust - evidence was found of both unconditional and conditional convergence, especially among the initially richer regions. Finally, it is observed that there is much less evidence of convergence after the economic crisis of 1998. The third essay analyses industrial firms' engagement in provision of infrastructure services, such as heating, electricity and road maintenance. Using a unique dataset of 404 large and medium-sized industrial enterprises in 40 regions of Russia, the essay examines public infrastructure provision by Russian industrial enterprises. It is found that to a large degree engagement in infrastructure provision, as proxied by district heating production, is a Soviet legacy. Secondly, firms providing district heating to users outside their plant area are more likely to have close and multidimensional relations with the local public sector.

Response of a turbulent boundary layer to a step change in surface heat flux

Measurements of both the velocity and the temperature field have been made in the thermal layer that grows inside a turbulent boundary layer which is subjected to a small step change in surface heat flux. Upstream of the step, the wall heat flux is zero and the velocity boundary layer is nearly self-preserving. The thermal-layer measurements are discussed in the context of a self-preserving analysis for the temperature disturbance which grows underneath a thick external turbulent boundary layer. A logarithmic mean temperature profile is established downstream of the step but the budget for the mean-square temperature fluctuations shows that, in the inner region of the thermal layer, the production and dissipation of temperature fluctuations are not quite equal at the furthest downstream measurement station. The measurements for both the mean and the fluctuating temperature field indicate that the relaxation distance for the thermal layer is quite large, of the order of 1000θ0, where θ0 is the momentum thickness of the boundary layer at the step. Statistics of the thermal-layer interface and conditionally sampled measurements with respect to this interface are presented. Measurements of the temperature intermittency factor indicate that the interface is normally distributed with respect to its mean position. Near the step, the passive heat contaminant acts as an effective marker of the organized turbulence structure that has been observed in the wall region of a boundary layer. Accordingly, conditional averages of Reynolds stresses and heat fluxes measured in the heated part of the flow are considerably larger than the conventional averages when the temperature intermittency factor is small.

Mu in vitro Transposition Technology in Functional Genetics and Genomics: Applications on Mouse and Bacteriophages

Transposons are mobile elements of genetic material that are able to move in the genomes of their host organisms using a special form of recombination called transposition. Bacteriophage Mu was the first transposon for which a cell-free in vitro transposition reaction was developed. Subsequently, the reaction has been refined and the minimal Mu in vitro reaction is useful in the generation of comprehensive libraries of mutant DNA molecules that can be used in a variety of applications. To date, the functional genetics applications of Mu in vitro technology have been subjected to either plasmids or genomic regions and entire genomes of viruses cloned on specific vectors. This study expands the use of Mu in vitro transposition in functional genetics and genomics by describing novel methods applicable to the targeted transgenesis of mouse and the whole-genome analysis of bacteriophages. The methods described here are rapid, efficient, and easily applicable to a wide variety of organisms, demonstrating the potential of the Mu transposition technology in the functional analysis of genes and genomes. First, an easy-to-use, rapid strategy to generate construct for the targeted mutagenesis of mouse genes was developed. To test the strategy, a gene encoding a neuronal K+/Cl- cotransporter was mutagenised. After a highly efficient transpositional mutagenesis, the gene fragments mutagenised were cloned into a vector backbone and transferred into bacterial cells. These constructs were screened with PCR using an effective 3D matrix system. In addition to traditional knock-out constructs, the method developed yields hypomorphic alleles that lead into reduced expression of the target gene in transgenic mice and have since been used in a follow-up study. Moreover, a scheme is devised to rapidly produce conditional alleles from the constructs produced. Next, an efficient strategy for the whole-genome analysis of bacteriophages was developed based on the transpositional mutagenesis of uncloned, infective virus genomes and their subsequent transfer into susceptible host cells. Mutant viruses able to produce viable progeny were collected and their transposon integration sites determined to map genomic regions nonessential to the viral life cycle. This method, applied here to three very different bacteriophages, PRD1, ΦYeO3 12, and PM2, does not require the target genome to be cloned and is directly applicable to all DNA and RNA viruses that have infective genomes. The method developed yielded valuable novel information on the three bacteriophages studied and whole-genome data can be complemented with concomitant studies on individual genes. Moreover, end-modified transposons constructed for this study can be used to manipulate genomes devoid of suitable restriction sites.

Functional Analysis of MrpL55, Vig and Mat1 Acting at the Crossroad of Cell Cycle, Transcription and Metabolism Regulation

Cell proliferation, transcription and metabolism are regulated by complex partly overlapping signaling networks involving proteins in various subcellular compartments. The objective of this study was to increase our knowledge on such regulatory networks and their interrelationships through analysis of MrpL55, Vig, and Mat1 representing three gene products implicated in regulation of cell cycle, transcription, and metabolism. Genome-wide and biochemical in vitro studies have previously revealed MrpL55 as a component of the large subunit of the mitochondrial ribosome and demonstrated a possible role for the protein in cell cycle regulation. Vig has been implicated in heterochromatin formation and identified as a constituent of the RNAi-induced silencing complex (RISC) involved in cell cycle regulation and RNAi-directed transcriptional gene silencing (TGS) coupled to RNA polymerase II (RNAPII) transcription. Mat1 has been characterized as a regulatory subunit of cyclin-dependent kinase 7 (Cdk7) complex phosphorylating and regulating critical targets involved in cell cycle progression, energy metabolism and transcription by RNAPII. The first part of the study explored whether mRpL55 is required for cell viability or involved in a regulation of energy metabolism and cell proliferation. The results revealed a dynamic requirement of the essential Drosophila mRpL55 gene during development and suggested a function of MrpL55 in cell cycle control either at the G1/S or G2/M transition prior to cell differentiation. This first in vivo characterization of a metazoan-specific constituent of the large subunit of mitochondrial ribosome also demonstrated forth compelling evidence of the interconnection of nuclear and mitochondrial genomes as well as complex functions of the evolutionarily young metazoan-specific mitochondrial ribosomal proteins. In studies on the Drosophila RISC complex regulation, it was noted that Vig, a protein involved in heterochromatin formation, unlike other analyzed RISC associated proteins Argonaute2 and R2D2, is dynamically phosphorylated in a dsRNA-independent manner. Vig displays similarity with a known in vivo substrate for protein kinase C (PKC), human chromatin remodeling factor Ki-1/57, and is efficiently phosphorylated by PKC on multiple sites in vitro. These results suggest that function of the RISC complex protein Vig in RNAi-directed TGS and chromatin modification may be regulated through dsRNA-independent phosphorylation by PKC. In the third part of this study the role of Mat1 in regulating RNAPII transcription was investigated using cultured murine immortal fibroblasts with a conditional allele of Mat1. The results demonstrated that phosphorylation of the carboxy-terminal domain (CTD) of the large subunit of RNAPII in the heptapeptide YSPTSPS repeat in Mat-/- cells was over 10-fold reduced on Serine-5 and subsequently on Serine-2. Occupancy of the hypophosphorylated RNAPII in gene bodies was detectably decreased, whereas capping, splicing, histone methylation and mRNA levels were generally not affected. However, a subset of transcripts in absence of Mat1 was repressed and associated with decreased occupancy of RNAPII at promoters as well as defective capping. The results identify the Cdk7-CycH-Mat1 kinase submodule of TFIIH as a stimulatory non-essential regulator of transcriptional elongation and a genespecific essential factor for stable binding of RNAPII at the promoter region and capping. The results of these studies suggest important roles for both MrpL55 and Mat1 in cell cycle progression and their possible interplay at the G2/M stage in undifferentiated cells. The identified function of Mat1 and of TFIIH kinase complex in gene-specific transcriptional repression is challenging for further studies in regard to a possible link to Vig and RISC-mediated transcriptional gene silencing.

A Team of Continuous-Action Learning Automata for Noise-Tolerant Learning of Half-Spaces

Learning automata are adaptive decision making devices that are found useful in a variety of machine learning and pattern recognition applications. Although most learning automata methods deal with the case of finitely many actions for the automaton, there are also models of continuous-action-set learning automata (CALA). A team of such CALA can be useful in stochastic optimization problems where one has access only to noise-corrupted values of the objective function. In this paper, we present a novel formulation for noise-tolerant learning of linear classifiers using a CALA team. We consider the general case of nonuniform noise, where the probability that the class label of an example is wrong may be a function of the feature vector of the example. The objective is to learn the underlying separating hyperplane given only such noisy examples. We present an algorithm employing a team of CALA and prove, under some conditions on the class conditional densities, that the algorithm achieves noise-tolerant learning as long as the probability of wrong label for any example is less than 0.5. We also present some empirical results to illustrate the effectiveness of the algorithm.

An extragenic suppressor of prp24-1 defines genetic interaction between PRP24 and PRP21 gene products of Saccharomyces cerevisiae

The temperature-sensitive prp24-1 mutation defines a gene product required for the first step in pre-mRNA splicing. PRP24 is probably a component of the U6 snRNP particle. We have applied genetic reversion analysis to identify proteins that interact with PRP24. Spontaneous revertants of the temperature-sensitive (ts) prp24-1 phenotype were analyzed for those that are due to extragenic suppression. We then extended our analysis to screen for suppressors that confer a distinct conditional phenotype. We have identified a temperature-sensitive extragenic suppressor, which was shown by genetic complementation analysis to be allelic to prp21-1. This suppressor, prp21-2, accumulates pre-mRNA at the non-permissive temperature, a phenotype similar to that of prp21-1. prp21-2 completely suppresses the splicing defect and restores in vivo levels of the U6 snRNA in the prp24-1 strain. Genetic analysis of the suppressor showed that prp21-2 is not a bypass suppressor of prp24-1. The suppression of prp24-1 by prp21-2 is gene specific and also allele specific with respect to both the loci. Genetic interactions with other components of the pre-spliceosome have also been studied. Our results indicate an interaction between PRP21, a component of the U2 snRNP, and PRP24, a component of the U6 snRNP. These results substantiate other data showing U2-U6 snRNA interactions.

Whole-genome sequencing identifies EN1 as a determinant of bone density and fracture

The extent to which low-frequency (minor allele frequency (MAF) between 1-5%) and rare (MAF conditional loss of En1 results in low bone mass, probably as a consequence of high bone turnover. We also identified a novel low-frequency non-coding variant with large effects on BMD near WNT16 (rs148771817(T), MAF = 1.2%, replication effect size = +0.41 s.d., Pmeta = 1 x 10(-11)). In general, there was an excess of association signals arising from deleterious coding and conserved non-coding variants. These findings provide evidence that low-frequency non-coding variants have large effects on BMD and fracture, thereby providing rationale for whole-genome sequencing and improved imputation reference panels to study the genetic architecture of complex traits and disease in the general population.

Predicting the temporal response of seagrass meadows to dredging using Dynamic Bayesian Networks

Predicting temporal responses of ecosystems to disturbances associated with industrial activities is critical for their management and conservation. However, prediction of ecosystem responses is challenging due to the complexity and potential non-linearities stemming from interactions between system components and multiple environmental drivers. Prediction is particularly difficult for marine ecosystems due to their often highly variable and complex natures and large uncertainties surrounding their dynamic responses. Consequently, current management of such systems often rely on expert judgement and/or complex quantitative models that consider only a subset of the relevant ecological processes. Hence there exists an urgent need for the development of whole-of-systems predictive models to support decision and policy makers in managing complex marine systems in the context of industry based disturbances. This paper presents Dynamic Bayesian Networks (DBNs) for predicting the temporal response of a marine ecosystem to anthropogenic disturbances. The DBN provides a visual representation of the problem domain in terms of factors (parts of the ecosystem) and their relationships. These relationships are quantified via Conditional Probability Tables (CPTs), which estimate the variability and uncertainty in the distribution of each factor. The combination of qualitative visual and quantitative elements in a DBN facilitates the integration of a wide array of data, published and expert knowledge and other models. Such multiple sources are often essential as one single source of information is rarely sufficient to cover the diverse range of factors relevant to a management task. Here, a DBN model is developed for tropical, annual Halophila and temperate, persistent Amphibolis seagrass meadows to inform dredging management and help meet environmental guidelines. Specifically, the impacts of capital (e.g. new port development) and maintenance (e.g. maintaining channel depths in established ports) dredging is evaluated with respect to the risk of permanent loss, defined as no recovery within 5 years (Environmental Protection Agency guidelines). The model is developed using expert knowledge, existing literature, statistical models of environmental light, and experimental data. The model is then demonstrated in a case study through the analysis of a variety of dredging, environmental and seagrass ecosystem recovery scenarios. In spatial zones significantly affected by dredging, such as the zone of moderate impact, shoot density has a very high probability of being driven to zero by capital dredging due to the duration of such dredging. Here, fast growing Halophila species can recover, however, the probability of recovery depends on the presence of seed banks. On the other hand, slow growing Amphibolis meadows have a high probability of suffering permanent loss. However, in the maintenance dredging scenario, due to the shorter duration of dredging, Amphibolis is better able to resist the impacts of dredging. For both types of seagrass meadows, the probability of loss was strongly dependent on the biological and ecological status of the meadow, as well as environmental conditions post-dredging. The ability to predict the ecosystem response under cumulative, non-linear interactions across a complex ecosystem highlights the utility of DBNs for decision support and environmental management.

Analyzing information flow in brain networks with nonparametric Granger causality

Multielectrode neurophysiological recording and high-resolution neuroimaging generate multivariate data that are the basis for understanding the patterns of neural interactions. How to extract directions of information flow in brain networks from these data remains a key challenge. Research over the last few years has identified Granger causality as a statistically principled technique to furnish this capability. The estimation of Granger causality currently requires autoregressive modeling of neural data. Here, we propose a nonparametric approach based on widely used Fourier and wavelet transforms to estimate both pairwise and conditional measures of Granger causality, eliminating the need of explicit autoregressive data modeling. We demonstrate the effectiveness of this approach by applying it to synthetic data generated by network models with known connectivity and to local field potentials recorded from monkeys performing a sensorimotor task.

Testing against changing correlation

A test for time-varying correlation is developed within the framework of a dynamic conditional score (DCS) model for both Gaussian and Student t-distributions. The test may be interpreted as a Lagrange multiplier test and modified to allow for the estimation of models for time-varying volatility in the individual series. Unlike standard moment-based tests, the score-based test statistic includes information on the level of correlation under the null hypothesis and local power arguments indicate the benefits of doing so. A simulation study shows that the performance of the score-based test is strong relative to existing tests across a range of data generating processes. An application to the Hong Kong and South Korean equity markets shows that the new test reveals changes in correlation that are not detected by the standard moment-based test.

Diagnostic Tests Based on Quantile Residuals for Nonlinear Time Series Models

This thesis studies quantile residuals and uses different methodologies to develop test statistics that are applicable in evaluating linear and nonlinear time series models based on continuous distributions. Models based on mixtures of distributions are of special interest because it turns out that for those models traditional residuals, often referred to as Pearson's residuals, are not appropriate. As such models have become more and more popular in practice, especially with financial time series data there is a need for reliable diagnostic tools that can be used to evaluate them. The aim of the thesis is to show how such diagnostic tools can be obtained and used in model evaluation. The quantile residuals considered here are defined in such a way that, when the model is correctly specified and its parameters are consistently estimated, they are approximately independent with standard normal distribution. All the tests derived in the thesis are pure significance type tests and are theoretically sound in that they properly take the uncertainty caused by parameter estimation into account. -- In Chapter 2 a general framework based on the likelihood function and smooth functions of univariate quantile residuals is derived that can be used to obtain misspecification tests for various purposes. Three easy-to-use tests aimed at detecting non-normality, autocorrelation, and conditional heteroscedasticity in quantile residuals are formulated. It also turns out that these tests can be interpreted as Lagrange Multiplier or score tests so that they are asymptotically optimal against local alternatives. Chapter 3 extends the concept of quantile residuals to multivariate models. The framework of Chapter 2 is generalized and tests aimed at detecting non-normality, serial correlation, and conditional heteroscedasticity in multivariate quantile residuals are derived based on it. Score test interpretations are obtained for the serial correlation and conditional heteroscedasticity tests and in a rather restricted special case for the normality test. In Chapter 4 the tests are constructed using the empirical distribution function of quantile residuals. So-called Khmaladze s martingale transformation is applied in order to eliminate the uncertainty caused by parameter estimation. Various test statistics are considered so that critical bounds for histogram type plots as well as Quantile-Quantile and Probability-Probability type plots of quantile residuals are obtained. Chapters 2, 3, and 4 contain simulations and empirical examples which illustrate the finite sample size and power properties of the derived tests and also how the tests and related graphical tools based on residuals are applied in practice.

Hard Custom, Hard Dance : Social Organisation, (Un)Differentiation and Notions of Power in a Tabiteuean Community, Southern Kiribati

Hard Custom, Hard Dance: Social Organisation, (Un)Differentiation and Notions of Power in a Tabiteuean Community, Southern Kiribati is an ethnographic study of a village community. This work analyses social organisation on the island of Tabiteuea in the Micronesian state of Kiribati, examining the intertwining of hierarchical and egalitarian traits, meanwhile bringing a new perspective to scholarly discussions of social differentiation by introducing the concept of undifferentiation to describe non-hierarchical social forms and practices. Particular attention is paid to local ideas concerning symbolic power, abstractly understood as the potency for social reproduction, but also examined in one of its forms; authority understood as the right to speak. The workings of social differentiation and undifferentiation in the village are specifically studied in two contexts connected by local notions of power: the meetinghouse institution (te maneaba) and traditional dancing (te mwaie). This dissertation is based on 11 months of anthropological fieldwork in 1999‒2000 in Kiribati and Fiji, with an emphasis on participant observation and the collection of oral tradition (narratives and songs). The questions are approached through three distinct but interrelated topics: (i) A key narrative of the community ‒ the story of an ancestor without descendants ‒ is presented and discussed, along with other narratives. (ii) The Kiribati meetinghouse institution, te maneaba, is considered in terms of oral tradition as well as present-day practices and customs. (iii) Kiribati dancing (te mwaie) is examined through a discussion of competing dance groups, followed by an extended case study of four dance events. In the course of this work the community of close to four hundred inhabitants is depicted as constructed primarily of clans and households, but also of churches, work co-operatives and dance groups, but also as a significant and valued social unit in itself, and a part of the wider island district. In these partly cross-cutting and overlapping social matrices, people are alternatingly organised by the distinct values and logic of differentiation and undifferentiation. At different levels of social integration and in different modes of social and discursive practice, there are heightened moments of differentiation, followed by active undifferentiation. The central notions concerning power and authority to emerge are, firstly, that in order to be valued and utilised, power needs to be controlled. Secondly, power is not allowed to centralize in the hands of one person or group for any long period of time. Thirdly, out of the permanent reach of people, power/authority is always, on the one hand, left outside the factual community and, on the other, vested in community, the social whole. Several forms of differentiation and undifferentiation emerge, but these appear to be systematically related. Social differentiation building on typically Austronesian complementary differences (such as male:female, elder:younger, autochtonous:allotochtonous) is valued, even if eventually restricted, whereas differentiation based on non-complementary differences (such as monetary wealth or level of education) is generally resisted, and/or is subsumed by the complementary distinctions. The concomitant forms of undifferentiation are likewise hierarchically organised. On the level of the society as a whole, undifferentiation means circumscribing and ultimately withholding social hierarchy. Potential hierarchy is both based on a combination of valued complementary differences between social groups and individuals, but also limited by virtue of the undoing of these differences; for example, in the dissolution of seniority (elder-younger) and gender (male-female) into sameness. Like the suspension of hierarchy, undifferentiation as transformation requires the recognition of pre-existing difference and does not mean devaluing the difference. This form of undifferentiation is ultimately encompassed by the first one, as the processes of the differentiation, whether transformed or not, are always halted. Finally, undifferentiation can mean the prevention of non-complementary differences between social groups or individuals. This form of undifferentiation, like the differentiation it works on, takes place on a lower level of societal ideology, as both the differences and their prevention are always encompassed by the complementary differences and their undoing. It is concluded that Southern Kiribati society be seen as a combination of a severely limited and decentralised hierarchy (differentiation) and of a tightly conditional and contextual (intra-category) equality (undifferentiation), and that it is distinctly characterised by an enduring tension between these contradicting social forms and cultural notions. With reference to the local notion of hardness used to characterise custom on this particular island as well as dance in general, it is argued in this work that in this Tabiteuean community some forms of differentiation are valued though strictly delimited or even undone, whereas other forms of differentiation are a perceived as a threat to community, necessitating pre-emptive imposition of undifferentiation. Power, though sought after and displayed - particularly in dancing - must always remain controlled.

Neighborhood Shopkeepers in Contemporary South Korea: Household, Work, and Locality

This is an ethnographic study of the lived worlds of the keepers of small shops in a residential neighborhood in Seoul, South Korea. It outlines, discusses, and analyses the categories and conceptualizations of South Korean capitalism at the level of households, neighborhoods, and Korean society. These cultural categories were investigated through the neighborhood shopkeepers practices of work and reciprocal interaction as well as through the shopkeepers articulations of their lived experience. In South Korea, the keepers of small businesses have continued to be a large occupational category despite of societal and economic changes, occupying approximately one fourth of the population in active work force. In spite of that, these people, their livelihoods and their cultural and social worlds have rarely been in the focus of social science inquiry. The ethnographic field research for this study was conducted during a 14-month period between November 1998 and December 1999 and in three subsequent short visits to Korea and to the research neighborhood. The fieldwork was conducted during the aftermath of the Asian currency crisis, colloquially termed at the time as the IMF crisis, which highlighted the social and cultural circumstances of small businesskeeper in a specific way. The livelihoods of small-scale entrepreneurs became even more precarious than before; self-employment became an involuntary choice for many middle-class salaried employees who were laid off; and the cultural categories and concepts of society and economy South Korean capitalism were articulated more sharply than before. This study begins with an overview of the contemporary setting, the Korean society under the socially and economically painful outcomes of the economic crisis, and continues with an overview of relevant literature. After introducing the research area and the informants, I discuss the Korean notion of neighborhood, which incorporates both the notions of culturally valued Koreanness and deficiency in the sense of modernity and development. This study further analyses the ways in which the businesskeepers appropriate and reproduce the Korean ideas of men s and women s gender roles and spheres of work. As the appropriation of children s labor is conditional to intergenerational family trajectories which aim not to reproduce parents occupational status but to gain entry to salaried occupations via educational credentials, the work of a married couple is the most common organization of work in small businesses, to which the Korean ideas of family and kin continuity are not applied. While the lack of generational businesskeeping succession suggests that the proprietors mainly subscribe to the notions of familial status that emanate from the practices of the white-collar middle class, the cases of certain women shopkeepers show that their proprietorship and the ensuing economic standing in the family prompts and invites inversed interpretations and uses of common cultural notions of gender. After discussing and analyzing the concept of money and the cultural categorization of leisure and work, topics that emerged as very significant in the lived world of the shopkeepers, this study charts and analyses the categories of identification which the shopkeepers employ for their cultural and social locations and identities. Particular attention is paid to the idea of ordinary people (seomin), which shopkeepers are commonly considered to be most representative of, and which also sums up the ambivalence of neighborhood shopkeepers as a social category: they are not committed to familial reproduction and continuity of the business but aspire non-entrepreneurial careers for their children, while they occupy a significant position in the elaborations of culturally valued notions and ideologies defining Koreanness such as warmheartedness and sociability.

Essays on the Modeling and Prediction of Volatility and Higher Moments of Stock Returns (summary section only)

One of the most fundamental and widely accepted ideas in finance is that investors are compensated through higher returns for taking on non-diversifiable risk. Hence the quantification, modeling and prediction of risk have been, and still are one of the most prolific research areas in financial economics. It was recognized early on that there are predictable patterns in the variance of speculative prices. Later research has shown that there may also be systematic variation in the skewness and kurtosis of financial returns. Lacking in the literature so far, is an out-of-sample forecast evaluation of the potential benefits of these new more complicated models with time-varying higher moments. Such an evaluation is the topic of this dissertation. Essay 1 investigates the forecast performance of the GARCH (1,1) model when estimated with 9 different error distributions on Standard and Poor’s 500 Index Future returns. By utilizing the theory of realized variance to construct an appropriate ex post measure of variance from intra-day data it is shown that allowing for a leptokurtic error distribution leads to significant improvements in variance forecasts compared to using the normal distribution. This result holds for daily, weekly as well as monthly forecast horizons. It is also found that allowing for skewness and time variation in the higher moments of the distribution does not further improve forecasts. In Essay 2, by using 20 years of daily Standard and Poor 500 index returns, it is found that density forecasts are much improved by allowing for constant excess kurtosis but not improved by allowing for skewness. By allowing the kurtosis and skewness to be time varying the density forecasts are not further improved but on the contrary made slightly worse. In Essay 3 a new model incorporating conditional variance, skewness and kurtosis based on the Normal Inverse Gaussian (NIG) distribution is proposed. The new model and two previously used NIG models are evaluated by their Value at Risk (VaR) forecasts on a long series of daily Standard and Poor’s 500 returns. The results show that only the new model produces satisfactory VaR forecasts for both 1% and 5% VaR Taken together the results of the thesis show that kurtosis appears not to exhibit predictable time variation, whereas there is found some predictability in the skewness. However, the dynamic properties of the skewness are not completely captured by any of the models.

Intraday Dynamics of International Equity Markets

The increased availability of high frequency data sets have led to important new insights in understanding of financial markets. The use of high frequency data is interesting and persuasive, since it can reveal new information that cannot be seen in lower data aggregation. This dissertation explores some of the many important issues connected with the use, analysis and application of high frequency data. These include the effects of intraday seasonal, the behaviour of time varying volatility, the information content of various market data, and the issue of inter market linkages utilizing high frequency 5 minute observations from major European and the U.S stock indices, namely DAX30 of Germany, CAC40 of France, SMI of Switzerland, FTSE100 of the UK and SP500 of the U.S. The first essay in the dissertation shows that there are remarkable similarities in the intraday behaviour of conditional volatility across European equity markets. Moreover, the U.S macroeconomic news announcements have significant cross border effect on both, European equity returns and volatilities. The second essay reports substantial intraday return and volatility linkages across European stock indices of the UK and Germany. This relationship appears virtually unchanged by the presence or absence of the U.S stock market. However, the return correlation among the U.K and German markets rises significantly following the U.S stock market opening, which could largely be described as a contemporaneous effect. The third essay sheds light on market microstructure issues in which traders and market makers learn from watching market data, and it is this learning process that leads to price adjustments. This study concludes that trading volume plays an important role in explaining international return and volatility transmissions. The examination concerning asymmetry reveals that the impact of the positive volume changes is larger on foreign stock market volatility than the negative changes. The fourth and the final essay documents number of regularities in the pattern of intraday return volatility, trading volume and bid-ask spreads. This study also reports a contemporaneous and positive relationship between the intraday return volatility, bid ask spread and unexpected trading volume. These results verify the role of trading volume and bid ask quotes as proxies for information arrival in producing contemporaneous and subsequent intraday return volatility. Moreover, asymmetric effect of trading volume on conditional volatility is also confirmed. Overall, this dissertation explores the role of information in explaining the intraday return and volatility dynamics in international stock markets. The process through which the information is incorporated in stock prices is central to all information-based models. The intraday data facilitates the investigation that how information gets incorporated into security prices as a result of the trading behavior of informed and uninformed traders. Thus high frequency data appears critical in enhancing our understanding of intraday behavior of various stock markets’ variables as it has important implications for market participants, regulators and academic researchers.