Essays on the Linkages Between Financial Markets, and Risk Asymmetries (summary section only)

During the last few decades there have been far going financial market deregulation, technical development, advances in information technology, and standardization of legislation between countries. As a result, one can expect that financial markets have grown more interlinked. The proper understanding of the cross-market linkages has implications for investment and risk management, diversification, asset pricing, and regulation. The purpose of this research is to assess the degree of price, return, and volatility linkages between both geographic markets and asset categories within one country, Finland. Another purpose is to analyze risk asymmetries, i.e., the tendency of equity risk to be higher after negative events than after positive events of equal magnitude. The analysis is conducted both with respect to total risk (volatility), and systematic risk (beta). The thesis consists of an introductory part and four essays. The first essay studies to which extent international stock prices comove. The degree of comovements is low, indicating benefits from international diversification. The second essay examines the degree to which the Finnish market is linked to the “world market”. The total risk is divided into two parts, one relating to world factors, and one relating to domestic factors. The impact of world factors has increased over time. After 1993, when foreign investors were allowed to freely invest in Finnish assets, the risk level has been higher than previously. This was also the case during the economic recession in the beginning of the 1990’s. The third essay focuses on the stock, bond, and money markets in Finland. According to a trading model, the degree of volatility linkages should be strong. However, the results contradict this. The linkages are surprisingly weak, even negative. The stock market is the most independent, while the money market is affected by events on the two other markets. The fourth essay concentrates on volatility and beta asymmetries. Contrary to many international studies there are only few cases of risk asymmetries. When they occur, they tend to be driven by the market-wide component rather than the portfolio specific element.

The Relationship Between Liquidity, Trading Activity and Return - Studies of the Finnish and Swedish Stock Markets

Liquidity, or how easy an investment is to buy or sell, is becoming increasingly important for financial market participants. The objective of this dissertation is to contribute to the understanding of how liquidity affects financial markets. The first essays analyze the actions taken by underwriters immediately after listing to improve liquidity of IPO stock. To estimate the impact of underwriter activity on the pricing of the IPOs, the order book during the first weeks of trading in the IPO stock is studied. Evidence of stabilization and liquidity enhancing activities by underwriters is found. The second half of the dissertation is concerned with the daily trading of stocks where liquidity may be impacted by policy issues such as changes in taxes or exchange fees and by opening the access to the markets for foreign investors. The desirability of a transaction tax on securities trading is addressed. An increase in transaction tax is found to cause lower prices and higher volatility. In the last essay the objective is to determine if the liquidity of a security has an impact on the return investors require. The results support the notion that returns are negatively correlated to liquidity.

Short-term Price Behavior and the Effect of Foreign Investors in Finnish Equity Markets (summary section only)

As globalization and capital free movement has increased, so has interest in the effects of that global money flow, especially during financial crises. The concern has been that large global money flows will affect the pricing of small local markets by causing, in particular, overreaction. The purpose of this thesis is to contribute to the body of work concerning short-term under- and overreaction and the short-term effects of foreign investment flow in the small Finnish equity markets. This thesis also compares foreign execution return to domestic execution return. This study’s results indicate that short-term under- and overreaction occurs in domestic-buy portfolios (domestic net buying) rather than in foreign-buy portfolios. This under- and overreaction, however, is not economically meaningful after controlling for the bid-ask bounce effect. Based on this finding, one can conclude that foreign investors do not have a destabilizing effect in the short-term in the Finnish markets. Foreign activity affects short-term returns. When foreign investors are net buyers (sellers) there are positive (negative) market adjusted returns. Literature related to nationality and institutional effect leads us to expect these kind of results. These foreign flows are persistent at a 5 % to 21 % level and the persistence of foreign buy flow is higher than the foreign sell flow. Foreign daily trading execution is worse than domestic execution. Literature which quantifies foreign investors as liquidity demanders and literature related to front-running leads us to expect poorer foreign execution than domestic execution.

Flexible Budgeting under Uncertainty: A Real Options Perspective

This paper examines the relationships between uncertainty and the perceived usefulness of traditional annual budgets versus flexible budgets in 95 Swedish companies. We form hypotheses that the perceived usefulness of the annual budgets as well as the attitudes to more flexible budget alternatives are influenced by the uncertainty that the companies face. Our study distinguishes between two separate kinds of uncertainty: exogenous stochastic uncertainty (deriving from the firm’s environment) and endogenous deterministic uncertainty (caused by the strategic choices made by the firm itself). Based on a structural equations modelling analysis of data from a mail survey we found that the more accentuated exogenous uncertainty a company faces, the more accentuated is the expected trend towards flexibility in the budget system, and vice versa; the more endogenous uncertainty they face, the more negative are their attitudes towards budget flexibility. We also found that these relationships were not present with regard to the attitudes towards the usefulness of the annual budget. Noteworthy is, however, that there was a significant negative relationship between the perceived usefulness of the annual budget and budget flexibility. Thus, our results seem to indicate that the degree of flexibility in the budget system is influenced by both general attitudes towards the usefulness of traditional budgets and by the actual degree of exogenous uncertainty a company faces and by the strategy that it executes.

Short-Horizon Asymmetric Mean-Reversion and Overreactions: Evidence from the Nordic Stock Markets

This paper examines the asymmetric behavior of conditional mean and variance. Short-horizon mean-reversion behavior in mean is modeled with an asymmetric nonlinear autoregressive model, and the variance is modeled with an Exponential GARCH in Mean model. The results of the empirical investigation of the Nordic stock markets indicates that negative returns revert faster to positive returns when positive returns generally persist longer. Asymmetry in both mean and variance can be seen on all included markets and are fairly similar. Volatility rises following negative returns more than following positive returns which is an indication of overreactions. Negative returns lead to increased variance and positive returns leads even to decreased variance.

Intraday Seasonalities and Macroeconomic News Announcements

Using a data set consisting of three years of 5-minute intraday stock index returns for major European stock indices and U.S. macroeconomic surprises, the conditional mean and volatility behaviors in European market were investigated. The findings suggested that the opening of the U.S market significantly raised the level of volatility in Europe, and that all markets respond in an identical fashion. Furthermore, the U.S. macroeconomic surprises exerted an immediate and major impact on both European stock markets’ returns and volatilities. Thus, high frequency data appear to be critical for the identification of news that impacted the markets.

On the Importance of Mutual Fund Families in Emerging Markets

This study contributes to the mutual fund literature by looking at performance persistence on a fund family level, allowing for individual equity, bond and balanced funds to be included under single family umbrellas. The study is conducted on the emerging Finnish mutual fund market, an environment in which the importance of superior fund family teams is likely to be accentuated. Using both non–parametric and parametric tests we find robust evidence of performance persistence for the fund families. Persistence is particularly strong in the first half of the investigation period, which highlights the importance of fund families at early stages of market development.

Sukupuoli ja organisaatiot liikkeessä? Gender and Organisations in Flux?

Viimeaikainen sukupuolta ja organisaatiota käsittelevä tutkimus ja kirjallisuus on saanut paljon (toisinaan epäsuoria) vaikutteita feminismiä ympäröivistä keskusteluista. Lisäksi naisten aseman ja kokemuksien tunnistaminen organisaatioissa ja johtamisessa on vaikuttanut tutkimukseen. Erilaisten kansainvälisesti tutkittujen aiheiden kirjo on laaja: sukupuolisuhteet organisaatioiden ja johtoryhmien kulttuureissa ja kommunikaatiossa; sukupuolittunut työnjako; sukupuolittuneet hierarkiat, valta, auktoriteetti ja johtajuus organisaatioissa ja johtamisessa; sukupuolittuneet markkinat; sukupuolittuneet kuvat, symbolit ja mainokset; sukupuoli ja IT teknologia; seksuaalisuus, häirintä, kiusaaminen ja väkivalta organisaatioissa; työn ja kodin yhteensovittaminen; ja niin edelleen. Myös akateemiset organisaatiot sekä niiden sukupuolittuneet valtasuhteet ja johtaminen kaipaavat kipeästi huomiota. Useimpia mainituista alueista on tutkittu ainakin jonkin verran mutta paljon työtä on vielä myös jäljellä. Tämä kokoelma esittelee ajankohtaista suomalaista tutkimusta seuraavista teemoista: tasa-arvo organisaatioissa, naisjohtajuus, yrittäjyyden sukupuoli, verkostot, sukupuolen representaatio sekä sukupuoli ja uusi teknologia. Kokoelma on työryhmän yhdessä koostama joten se on ennen kaikkea yhteistyön tulos. Recent research and literature on the gendering of organisations has been strongly influenced, though sometimes indirectly, by debates in and around feminism, and on recognising women and women’s situations, experiences and voices in organisations and management. The range of topics and issues that have been studied internationally is vast: gender relations in organizational and management groups, cultures and communication; gender divisions of labour; gender divisions of hierarchy, power, authority and leadership in organizations and management; gendered markets; gender imagery, symbols and advertising; gender and information technology; sexuality, harassment, bullying and violence in organisations; home-work relations; and so on. There are also key issues of gender power relations in academic organizations and management themselves, which need urgent attention. Though most of these areas have been researched to some extent, much remains to be done. This collection brings together current Finnish research on: Equality in Organisations, Women in Management, Gender and Entrepreneurship, Networks, Representation of Gender, Gender and ICTs. The book has been put together by an editorial team and is thus first and foremost a collective effort.

Organisation Carescapes: Researching Organisations, Work and Care

This working paper develops an approach to the analysis of care as it is evident in the policies and practices of employing organisations. We identify how notions of care are incorporated in myriad and multi-faceted ways that may support, survey and control workers, as well as having implications for employers, managers, employees and workers. Aspects of care can be found in a range of statutory duties, policies and related activities, including: health and safety, equality and diversity, parental leave, religious observance, bullying and harassment, personal development, voluntary redundancy, early retirement, employer pension schemes, grievance procedures, and dismissal. The conceptual framework of organisation carescapes is offered as an aid to the analysis of employee policies and services. These policies and services are transformed by shifts in supranational and national policies such as European Union (EU) economic strategies and national legislation on disability rights legislation, age discrimination and flexible working, and changes in labour market competitiveness. In conclusion, we consider how the framework of organisation carescapes is informing research design in our and our colleagues’ ongoing programme of research.

Cross-Border Competence Management in Emerging Markets: Voices from China and Russia

This book is on cross-border competence management in Russia and China. Corporations are facing a number of problems and challenges in their international operations, to which there typically are no simple solutions. For instance, they need to understand and respond to cultural and institutional diversity and ascertain that their foreign units are integrated with the rest of the corporation. Throughout this report we will discuss a range of challenges confronting firms as they seek to develop their capabilities to operate internationally. Some of the challenges are clearly case specific, and although this book aims to offer research-based advice to practicing managers there is a potential danger in applying lessons from other companies to the own firm. Our hope is that our analyses of the challenges facing Finnish corporations in China and Russia reported together with extensive quotes from our interviews and insights from other recent studies will help readers draw their own conclusions as to how to deal with issues related to competence management across borders. With this book we also aspire to contribute to the academic literature by providing new insights into cross-border competence management in general and the operations of Finnish corporations in Russia and China in particular.

Learning dynamic prices in multiseller electronic retail markets with price sensitive customers, stochastic demands, and inventory replenishments

In this paper, we use reinforcement learning (RL) as a tool to study price dynamics in an electronic retail market consisting of two competing sellers, and price sensitive and lead time sensitive customers. Sellers, offering identical products, compete on price to satisfy stochastically arriving demands (customers), and follow standard inventory control and replenishment policies to manage their inventories. In such a generalized setting, RL techniques have not previously been applied. We consider two representative cases: 1) no information case, were none of the sellers has any information about customer queue levels, inventory levels, or prices at the competitors; and 2) partial information case, where every seller has information about the customer queue levels and inventory levels of the competitors. Sellers employ automated pricing agents, or pricebots, which use RL-based pricing algorithms to reset the prices at random intervals based on factors such as number of back orders, inventory levels, and replenishment lead times, with the objective of maximizing discounted cumulative profit. In the no information case, we show that a seller who uses Q-learning outperforms a seller who uses derivative following (DF). In the partial information case, we model the problem as a Markovian game and use actor-critic based RL to learn dynamic prices. We believe our approach to solving these problems is a new and promising way of setting dynamic prices in multiseller environments with stochastic demands, price sensitive customers, and inventory replenishments.

A Comparative Study of Liapunov Stability Analyses of Flexible Damped Satellites

A literal Liapunov stability analysis of a spacecraft with flexible appendages often requires a division of the associated dynamic potential into as many dependent parts as the number of appendages. First part of this paper exposes the stringency in the stability criteria introduced by such a division and shows it to be removable by a “reunion policy.” The policy enjoins the analyst to piece together the sets of criteria for each part. Employing reunion the paper then compares four methods of the Liapunov stability analysis of hybrid dynamical systems illustrated by an inertially coupled, damped, gravity stabilized, elastic spacecraft with four gravity booms having tip masses and a damper rod, all skewed to the orbital plane. The four methods are the method of test density function, assumed modes, and two and one-integral coordinates. Superiority of one-integral coordinate approach is established here. The design plots demonstrate how elastic effects delimit the satellite boom length.

Analytical prediction of break-out noise from a reactive rectangular plenum with four flexible walls

This paper describes an analytical calculation of break-out noise from a rectangular plenum with four flexible walls by incorporating three-dimensional effects along with the acoustical and structural wave coupling phenomena. The breakout noise from rectangular plenums is important and the coupling between acoustic waves within the plenum and structural waves in the flexible plenum walls plays a critical role in prediction of the transverse transmission loss. The first step in breakout noise prediction is to calculate the inside plenum pressure field and the normal flexible plenum wall vibration by using an impedance-mobility approach, which results in a compact matrix formulation. In the impedance-mobility compact matrix (IMCM) approach, it is presumed that the coupled response can be described in terms of finite sets of the uncoupled acoustic subsystem and the structural subsystem. The flexible walls of the plenum are modeled as an unfolded plate to calculate natural frequencies and mode shapes of the uncoupled structural subsystem. The second step is to calculate the radiated sound power from the flexible walls using Kirchhoff-Helmholtz (KH) integral formulation. Analytical results are validated with finite element and boundary element (FEM-BEM) numerical models. (C) 2010 Acoustical Society of America. DOI: 10.1121/1.3463801]