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.

Essays on Stock Option Compensation and the Role of Incentives and Risk (summary section only)

Managerial pay-for-performance sensitivity has increased rapidly around the world. Early empirical research showed that pay-for-performance sensitivity resulting from stock ownership and stock options appeared to be quite low during the 1970s and early 1980s in the U.S. However, recent empirical research from the U.S. shows an enormous increase in pay-for-performance sensitivity. The global trend has also reached Finland, where stock options have become a major ingredient of executive compensation. The fact that stock options seem to be an appealing form of remuneration from a theoretical point of view combined with the observation that the use of this compensation form has increased significantly during the recent years, implies that research on the dynamics of stock option compensation is highly relevant for the academic community, as well as for practitioners and regulators. The research questions of the thesis are analyzed in four separate essays. The first essay examines whether stock option compensation practices of Finnish firms are consistent with predictions from principal-agent theory. The second essay explores one of the major puzzles in the compensation literature by studying determinants of stock option contract design. In theory, optimal contract design should vary according to firm characteristics. However, in the U.S., variation in contract design seems to be surprisingly low, a phenomenon generally attributed to tax and accounting considerations. In Finland, however, firms are not subject to stringent contracting restrictions, and the variation in contract design tends, in fact, to be quite substantial. The third essay studies the impact of price- and risk incentives arising from stock option compensation on firm investment. In addition, the essay explores one of the most debated questions in the literature, in particular, the relation between incentives and firm performance. Finally, several strands of literature in both economics and corporate finance hypothesize that economic uncertainty is related to corporate decision-making. Previous research has shown that risk tends to slow down firm investment. In the fourth essay, it is hypothesized that firm risk slows down growth from a more universal perspective. Consistent with this view, it is shown that risk not only tends to slow down firm investment, but also employment growth. Moreover, the essay explores whether the nature of firms’ compensation policies, in particular, whether firms make use of stock option compensation, affects the relation between risk and firm growth. In summary, the four essays contribute to the current understanding of stock options as a form of equity incentives, and how incentives and risk affect corporate decision-making. By this, the thesis promotes the knowledge related to the modern theory of the firm.

Performance of Finnish Mutual Funds: A Decomposition Approach

Mutual funds have increased in popularity among Finnish investors in recent years. In this study returns on domestic funds have been decomposed into several elements that measure different aspects of fund performance. The results indicate that fund managers in the long run tend to allocate fund capital between different stock categories in a profitable way. When it comes to the short term timing of their allocation decisions they are however unable to further improve overall performance. The evidence also suggests that managers possess the ability to pick above average performing stocks within the individual stock categories. During the investigated period most funds returned more than a broad benchmark index even after fees and indirect costs were taken into account.

Swedish Premium Pension Funds: Attributes and Performance

This study investigates the relationship between fund attributes and performance. The focus is on funds available in the Swedish Premium Pension system (PPM-funds). The aim has been to investigate whether administration fees, manager tenure or past performance are of importance for pension savers when they pick their PPM-funds. The results indicate that high fees are a disadvantage to pension savers investing in bond funds but not to those investing in stock funds. Manager tenure has no relationship with performance. There is evidence of performance persistency in most of the investigated fund categories.

Corporate Governance Mechanisms and Firm Performance:Evidence from Finland

This paper examines the association between corporate governance attributes and firm performance of Finnish firms during 1990 – 2000. The empirical results suggest that corporate governance matters for firm performance. First, univariate test results indicate that firms characterized by a high (efficient) level of corporate governance have delivered greater stock returns, are higher valued based on the measure of Tobin’s Q, and exhibit higher ratios of cash flow to assets, on average, in comparison to their counterparts characterized by a low (inefficient) level of corporate governance. Second, controlling for a number of well-known determinants of stock returns, we find evidence that firms categorized by inefficient corporate governance have delivered inferior returns to shareholders during the investigation period. Finally, after controlling for several common determinants of firm value, we find that firms characterized by efficient corporate governance have been valued higher during the investigation period, measured by Tobin’s Q.

Excellent performance of Pt-free cathode in alkaline direct methanol fuel cell at room temperature

We report the room temperature cell performance of alkaline direct methanol fuel cells (ADMFCs) with nitrogen-doped carbon nanotubes (NCNTs) as cathode materials. NCNTs show excellent oxygen reduction reaction activity and methanol tolerance in alkaline medium. The open-circuit-voltage (OCV) as well as the power density of ADMFCs first increases and then saturates with NCNT loading. Similarly, the OCV initially increases and reaches saturation with the increase in the concentration of methanol feed stock. Overall, NCNTs exhibit excellent catalytic activity and stability with respect to Pt based cathodes.

O Impacto da colocação secundária na performance das firmas

O objetivo do presente trabalho foi examinar o desempenho das firmas em períodos próximos à realização da colocação secundária, perfazendo uma análise das pesquisas relatadas sobre o evento. Como constatado na literatura, os agentes alienam sua participação acionária por motivos diversos e, dependendo do tipo de informação que o alienante possui, a performance das ações e operacional das firmas tendem a ser robusto em momentos próximos ao fenômeno e fraco conforme vai se distanciando do mesmo. Foi a demonstração dessa repercussão que se buscou comprovar nesse trabalho, tratando de diferenciar os efeitos no mercado quando a venda é feita por um detentor de informação privilegiada da que é realizada por um alienante que não detém esse tipo de informação. O que se depreende da literatura é que os agentes no momento da venda de suas ações tendem a se aproveitar da janela de oportunidade. Apresentando ainda as teorias levantadas sobre o tema, percebe-se que elas possuem um poder de explicação sobre o que ocorre no mercado de capitais no momento da distribuição secundária.

Management of fishing capacity in a spiny lobster (Panulirus argus) fishery: analysis of trap performance under the Florida spiny lobster Trap Certificate Program

The spiny lobster (Panulirus argus) fishery in Florida was operationally inefficient and overcapitalized throughout the 1980s. The Trap Certificate Program initiated during the 1992–93 season was intended to increase gear efficiency by reducing the number of traps being used while maintaining the same catch level in the fishery. A depletion model was used to estimate trap fishing efficiency. The costs of fishing operations and the value of the catch were used to determine the revenues generated by the fishery under different trap levels. A negative functional relationship was found between the catchability coefficient and the number of traps, which indicated that the fewer traps operating under the trap reduction scheme were more efficient. Also, the financial analyses indicated that the higher catch efficiency resulting from fewer traps generated significantly higher revenues, despite lower stock abundances. This study indicates that the trap reduction program had improved a situation that would have been much worse.

Stock evaluation and development of a breeding program for common carp (Cyprinus carpio) in Karnataka, India: progress of a research project

Common carp (Cyprinus carpio) is the single most important species for aquaculture in the state of Karnataka, India, where it is generally grown in polyculture with Indian major carps. Precocious maturation and unwanted reproduction in the species have been identified as constraints to increase production in aquaculture and culture-based fisheries in Karnataka state. Stocks of C. carpio obtained from Hungary (Amur and P3), Indonesia (Rajdanu) and Vietnam (SV) are being assessed alongside two local stocks (L-BRP and L-FRS) in a series of culture performance trials with the objective of setting up a base population for selective breeding. The paper presents progress of research being undertaken at the Fisheries Research Station, University of Agricultural Sciences, Bangalore, India.

Growth performance of Nigerian fish stocks

Parameters of the von Bertalanffy growth function are presented for 42 fish stocks belonging to 16 families, 22 genera and 27 species. The growth performance index, Phi '(= log K + 2logL sub( infinity )), was computed for each stock and was found to be highest in male Gymnarchus niloticus (Gymnarchidae) from Lake Chad and lowest in Chrysichthys auratus (Bagridae) from the Cross River. Mean Phi ' for major fish genera and families are also presented and was highest in brackishwater fishes, closely followed by freshwater and inshore marine water fishes.

Wadge Bank trawl fishery studies. Pt. 1. The effect of the 1928 to 1935 commercial trawling on the demersal stock

The demersal fish stock of Wadge Bank is one of the important fish resources for both Sri Lanka and India. Sivalingam and Medcof (1957) have given an account of its history, general features and relative productivity. According to records the total fishing effort on the bank had been fluctuating and very recently the number of boats operating on the bank has suddenly increased, and there is a possibility that still more will begin operating on the bank in the near future (Mendis, 1965). The increased fishing effort with the possibility of still further increase calls for proper management practices by those concerned, in order to obtain the maximum sustained yield from the demersal stock. For this purpose a detailed study of the past performance of the fishery is essential. With this in view all records of commercial operations up to 1960 are being analysed by the present author and are to be published in a series. This is the first paper in the series and gives a detailed analysis of the first commercial trawling operations from 1928 to 1935. Since there had been a major break of about 10 years between this and the present fishery this data is being analysed separately.

Growth and reproductive performance of locally isolated brackish water rotifer (Brachionus plicatilis) feeding different micro algae

Population growth and reproductive capacity of brackishwater rotifer, Brachionus plicatilis, were evaluated, for a period of 8 days in a temperature controlled ( =25°C) microalgallaborarory, under three different algal feeding regimens. The algal species that were tested are: (i) Chlorella sp. (T1), Tetraselmis chui (T2), Nannochloropsis oculata (T 3). The feeding density of each algal species was maintained similar as of 4.5xW6 ceHs mi. The rotifer fed on T. chui showed the highest (p<0.05) population growth (131.5 ind./ml), compared to that fed on Chlorella sp (45.67 ind./ml) and N oculata (43.44 ind./ml). The abundance of egg bearing rotifers was also higher (35.77%) with T. chuithan with Chlorella sp (27.76%) and N oculara (24.60%). The results of the present study indicate that T. chui could be the most suitable algal food for the stock culture of locally isolated rotifer B. plicatilis.

Growth performance evaluation of genetically improved silver barb (Barbonymus gonionotus Bleeker) in different agro-ecological zones in Bangladesh

On farm trials of silver barb with other carps were carried out in 40 ponds during May to October 2005 in four agro-ecological zones viz., Trishal, Muktagacha, Parbotipur and Paikgacha in Bangladesh. In Trishal and Muktagacha zones, ponds were stocked with silver barb, silver carp and common carp at the stocking density of 11,500 fish/ha, whereas in Parbotipur and Paikgacha zones, ponds were stocked with silver barb, rohu, catla and mrigal at the stocking density of 10,000/ha. Among the ponds, 50% (20 ponds) were stocked with BFRI improved stock of silver barb (Treatment-1) and rest of the 20 ponds stocked with local silver barb stock (Treatment-2). The harvest weight of BFRI improved silver barb were 149±16.01, 168±18.06, 198±14 and 230±9.25g in Trishal, Muktagacha, Paikgacha and Parbotipur, whereas the data obtained at 113±15.52, 136±20.66, 170±17.0 and 205±12.10g for local stock of silver barb, respectively. In all trials, the harvest weight of BFRI improved stock showed significantly higher growth performance (P<0.05) over the local stocks.

A conceptual framework for future-proofing the energy performance of buildings

This paper presents a review undertaken to understand the concept of 'future-proofing' the energy performance of buildings. The long lifecycles of the building stock, the impacts of climate change and the requirements for low carbon development underline the need for long-term thinking from the early design stages. 'Future-proofing' is an emerging research agenda with currently no widely accepted definition amongst scholars and building professionals. In this paper, it refers to design processes that accommodate explicitly full lifecycle perspectives and energy trends and drivers by at least 2050, when selecting energy efficient measures and low carbon technologies. A knowledge map is introduced, which explores the key axes (or attributes) for achieving a 'future-proofed' energy design; namely, coverage of sustainability issues, lifecycle thinking, and accommodating risks and uncertainties that affect the energy consumption. It is concluded that further research is needed so that established building energy assessment methods are refined to better incorporate future-proofing. The study follows an interdisciplinary approach and is targeted at design teams with aspirations to achieve resilient and flexible low-energy buildings over the long-term. © 2012 Elsevier Ltd.

Reversal of impairment losses, firm performance and reporting incentives: Evidence from Malaysia

Malaysian Financial Reporting Standard (FRS) No. 136, Impairment of Assets, was issued in 2005. The standard requires public listed companies to report their non-current assets at no more than their recoverable amount. When the value of impaired assets is recovered, or partly recovered, FRS 136 requires the impairment charges to be reversed to its new recoverable amount. This study tests whether the reversal of impairment losses by Malaysian firms is more closely associated with economic reasons or reporting incentives. The sample of this study consists of 182 public companies listed on Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange) that reported reversals of their impairment charges during the period 2006-2009. These firms are matched with firms which do not reverse impairment on the basis of industrial classification and size. In the year of reversal, this study finds that the reversal firms are more profitable (before reversals) than their matched firms. On average, the Malaysian stock market values the reversals of impairment losses positively. These results suggest that the reversals generally reflect increases in the value of the previously impaired assets. After partitioning firms that are likely to manage earnings and those that are not, this study finds that there are some Malaysian firms which reverse the impairment charges to manage earnings. Their reversals are not value-relevant, and are negatively associated with future firm performance. On the other hand, the reversals of firms which are deemed not to be earnings managers are positively associated with both future firm performance and current stock price performance, and this is the dominant motivation for the reversal of impairment charges in Malaysia. In further analysis, this study provides evidence that the opportunistic reversals are also associated with other earnings management manifestations, namely abnormal working capital accruals and the motivation to avoid earnings declines. In general, the findings suggest that the fair value measurement in impairment standard provides useful information to the users of financial statements.