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

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

Visual-gustatory interaction: orbitofrontal and insular cortices mediate the effect of high-calorie visual food cues on taste pleasantness.

Vision provides a primary sensory input for food perception. It raises expectations on taste and nutritional value and drives acceptance or rejection. So far, the impact of visual food cues varying in energy content on subsequent taste integration remains unexplored. Using electrical neuroimaging, we assessed whether high- and low-calorie food cues differentially influence the brain processing and perception of a subsequent neutral electric taste. When viewing high-calorie food images, participants reported the subsequent taste to be more pleasant than when low-calorie food images preceded the identical taste. Moreover, the taste-evoked neural activity was stronger in the bilateral insula and the adjacent frontal operculum (FOP) within 100 ms after taste onset when preceded by high- versus low-calorie cues. A similar pattern evolved in the anterior cingulate (ACC) and medial orbitofrontal cortex (OFC) around 180 ms, as well as, in the right insula, around 360 ms. The activation differences in the OFC correlated positively with changes in taste pleasantness, a finding that is an accord with the role of the OFC in the hedonic evaluation of taste. Later activation differences in the right insula likely indicate revaluation of interoceptive taste awareness. Our findings reveal previously unknown mechanisms of cross-modal, visual-gustatory, sensory interactions underlying food evaluation.

Visuospatial working memory deficits and visual pursuit impairments are not directly related in schizophrenia.

OBJECTIVE: Patients with schizophrenia show deficits in visuospatial working memory and visual pursuit processes. It is currently unclear, however, whether both impairments are related to a common neuropathological origin. The purpose of the present study was therefore to examine the possible relations between the encoding and the discrimination of dynamic visuospatial stimuli in schizophrenia. METHOD: Sixteen outpatients with schizophrenia and 16 control subjects were asked to encode complex disc displacements presented on a screen. After a delay, participants had to identify the previously presented disc trajectory from a choice of six static linear paths, among which were five incorrect paths. The precision of visual pursuit eye movements during the initial presentation of the dynamic stimulus was assessed. The fixations and scanning time in definite regions of the six paths presented during the discrimination phase were investigated. RESULTS: In comparison with controls, patients showed poorer task performance, reduced pursuit accuracy during incorrect trials and less time scanning the correct stimulus or the incorrect paths approximating its global structure. Patients also spent less time scanning the leftmost portion of the correct path even when making a correct choice. The accuracy of visual pursuit and head movements, however, was not correlated with task performance. CONCLUSIONS: The present study provides direct support for the hypothesis that active integration of visuospatial information within working memory is deficient in schizophrenia. In contrast, a general impairment of oculomotor mechanisms involved in smooth pursuit did not appear to be directly related to lower visuospatial working memory performance in schizophrenia.

Rpe65-Gene Transfer Using an Integration-Deficient Lentiviral Vector

Purpose: We previously demonstrated efficient retinal rescue of RPE65 mouse models (Rpe65-/- (Bemelmans et al, 2006) and Rpe65R91W/R91W mice) using a HIV1-derived lentiviral vector encoding for the mouse RPE65 cDNA. In order to optimize a lentiviral vector as an alternative tool for RPE65-derived Leber Congenital Amaurosis clinical trials, we evaluated the efficiency of an integration-deficient lentiviral vector (IDLV) encoding the human RPE65 cDNA to restore retinal function in the Rpe65R91W/R91W mice. Methods: An HIV-1-derived lentiviral vector expressing either the hrGFPII or the human Rpe65 cDNA under the control of a 0.8 kb fragment of the human Rpe65 promoter (R0.8) was produced by transient transfection of 293T cells. A LQ-integrase mutant was used to generate the IDLV vectors. IDLV-R0.8-hRPE65 or hrGFPII were injected subretinally into 1 month-old Rpe65R91W/R91W mice. Functional rescue was assessed by ERG (1 and 3 months post-injection) and cone survival by immunohistology. Results: An increased light sensitivity was detected by scotopic ERG in animals injected with IDLV-R0.8-hRPE65 compared to hrGFPII-treated animals or untreated mice. However the improvement was delayed compared to integration-proficient LV and observed at 3 months but not 1 month post-injection. Immunolabelling of cone markers showed an increased number of cones in the transduced area compared to control groups. Conclusions: The IDLV-R0.8-hRPE65 vectors allow retinal improvement in the Rpe65R91W/R91W mice. Both rod function and cone survival were demonstrated even if there is a delay in the rescue as assessed by scotopic ERG. Integration-deficient vectors minimize insertional mutagenesis and thus are safer candidates for human application. Further experiments using large animals are now needed to validate correct gene transfer and expression of the RPE65 gene as well as tolerance of the vector after subretinal injection before envisaging a clinical trial application.

¿Pueden contribuir los métodos visuales a avanzar hacia una investigación inclusiva? Un estudio sobre inclusión sociolaboral con personas con Trastorno Mental Grave (TMG) = Can visual methods help to go forward inclusive research? A study about social and labor inclusion with people with Severe Mental Illness (SMI)

En este artículo se pretende mostrar cómo la utilización de métodos visuales en la investigación contribuye a potenciar la participación activa de las personas con TMG. Se utiliza como ejemplo un estudio de caso de corte cualitativo que incorpora tres actividades de componente visual (el dibujo “el río de la vida”, las fotografías y el dibujo de proyección de futuro) para favorecer la reflexión narrada que, sobre sus experiencias y vivencias, desarrollan cinco personas con TMG. El uso de las fotografías y dibujos en este estudio permite afirmar que estas estrategias se han mostrado válidas para acceder, en la medida que los participantes han querido, a esferas de vida personales en trayectorias vitales determinadas por la enfermedad mental

Advancing towards inclusive social research: visual methods as opportunities for people with severe mental illness to participate in research

This article explores the possibilities offered by visual methods in the move towards inclusive research, reviewing some methodological implications of said research and reflecting on the potential of visual methods to meet these methodological requirements. A study into the impact of work on social inclusion and the social relationships of people suffering from severe mental illness (SMI) serves to illustrate the use of visual methods such as photo elicitation and graphic elicitation in the context of in-depth interviews with the aim of improving the aforementioned target group’s participation in research, participation understood as one of the basic elements of inclusive approaches. On the basis of this study, we reflect on the potential of visual methods to improve the inclusive approach to research and conclude that these methods are open and flexible in awarding participantsa voice, allowingpeople with SMI to express their needs, and therefore adding value to said approach

Trilling race : the political economy of racialised visual-aural encounters

This thesis investigates the matter of race in the context of Finnish language acquisition among adult migrants in Finland. Here matter denotes both the materiality of race and how race comes to matter. Drawing primarily on an auto/ethno/graphic account of learning the Finnish language as a participant in the Finnish for foreigners classes, this thesis problematises the ontology and epistemology of race, i.e., what race is, how it is known, and what an engagement with race entails. Taking cues from the bodily practices of learning the Finnish trill or the rolling r, this study proposes a notion of “trilling race” and argues for an onto-epistemological dis/continuity that marks race’s arrival. The notion of dis/continuity reworks the distinction between continuity and discontinuity, and asks about the how of the arrival of any identity, the where, and the when. In so doing, an analysis of “trilling race” engages with one of the major problematics that has exercised much critical attention, namely: how to read race differently. That is, to rethink the conundrum of the need to counter “representational weight” (Puar 2007, 191) of race on the one hand, and to account for the racialised lived realities on the other. The link between a study of the phenomenon of host country language acquisition and an examination of the question of race is not as obvious as it might seem. For example, what does the argument that the process of language learning is racialised actually imply? Does it mean that race, as a process of racialisation or an ongoing configuration of sets of power relations, exerts force from an outside on the otherwise neutral process of learning the host country language? Or does it mean that race, as an identity category, presents as among the analytical perspectives, along with gender and class for instance, of the phenomenon of host country language acquisition? With these questions in mind, and to foreground the examination of the question of race in the context of Finnish language acquisition among adult migrants, this thesis opens with a discussion of the art installation Finnexia by Lisa Erdman. Finnexia is a fictitious drug said to facilitate Finnish language learning through accelerating the cognitive learning process and reducing the anxiety of speaking the Finnish language. Not only does the Finnexia installation make visible the ways in which the lack of skill in Finnish is fgured as the threshold – a border that separates the inside from the outside – to integration, but also, and importantly, it raises questions about the nature of difference, and the process of differentiation that separates the individual from the social, fact from fiction, nature from culture. These puzzles animate much of the analysis in this dissertation. These concerns continue to be addressed in the rest of part one. Whereas chapter two offers a reconsideration of the ambiguities of ethnisme/ethnicity and race, chapter three dilates on the methodological implications of a conception of the dis/continuity of race. Part two focuses on the matter of race and examines the political economy of visual-aural encounters, whereas part three shifts the focus and rethinks the possibilities and limitations of transforming racialised and normative constraints. Taking up these particular problematics, this thesis as a whole argues that race trills itself: its identity/difference is simultaneously made possible and impossible.

Extensión de la especificación IMS Learning Design desde la adaptación e integración de unidades de aprendizaje. `Extension of the IMS Learnin Design specification based on adaptation and integration of units of learning´.

La tesis se centra en el aprendizaje personalizado y en la integración de Unidades de Aprendizaje. El objetivo fundamental es mejorar la expresividad pedagógica de IMS-LD, refinando estructuras de modelado y arquitectura existentes y desarrollando estructuras complementarias que permitan una formalización más precisa, versátil y sencilla de procesos de aprendizaje adaptativo y de mecanismos y procesos de integración con sistemas de aprendizaje y otras especificaciones. En esta tesis se estudia la especificación desde la base, analizando su modelo de información y cómo se construyen Unidades de Aprendizaje. Se analiza la estructura de la especificación, basándose en un estudio teórico y una investigación práctica fruto del modelado de Unidades de Aprendizaje reales y ejecutables que proporcionan una información útil de base. A partir de este estudio, se analiza la integración de Unidades de Aprendizaje con otros sistemas y especificaciones, abarcando desde la integración mínima mediante un enlace directo hasta compartir variables y estados que permiten una comunicación en tiempo real de ambas partes. La conclusión es que IMS-LD necesita una reestructuración y modificación de ciertos elementos, así como la incorporación de otros nuevos, para mejorar una expresividad pedagógica y una capacidad de integración con otros sistemas de aprendizaje y estándares eLearning, si se pretenden alcanzar: la personalización del proceso de aprendizaje y la interoperabilidad real. La implantación de la especificación se vería mejorada si existieran unas herramientas de más alto nivel, preferiblemente con planteamiento visual, que permitieran un modelado sencillo por parte de los usuarios finales reales de este tipo de especificaciones, como son los profesores, los creadores de contenido y los pedagogos-didactas que diseñan la experiencia de aprendizaje.

A proposal to estimate the motion of an underwater vehicle through visual mosaicking

This thesis proposes a solution to the problem of estimating the motion of an Unmanned Underwater Vehicle (UUV). Our approach is based on the integration of the incremental measurements which are provided by a vision system. When the vehicle is close to the underwater terrain, it constructs a visual map (so called "mosaic") of the area where the mission takes place while, at the same time, it localizes itself on this map, following the Concurrent Mapping and Localization strategy. The proposed methodology to achieve this goal is based on a feature-based mosaicking algorithm. A down-looking camera is attached to the underwater vehicle. As the vehicle moves, a sequence of images of the sea-floor is acquired by the camera. For every image of the sequence, a set of characteristic features is detected by means of a corner detector. Then, their correspondences are found in the next image of the sequence. Solving the correspondence problem in an accurate and reliable way is a difficult task in computer vision. We consider different alternatives to solve this problem by introducing a detailed analysis of the textural characteristics of the image. This is done in two phases: first comparing different texture operators individually, and next selecting those that best characterize the point/matching pair and using them together to obtain a more robust characterization. Various alternatives are also studied to merge the information provided by the individual texture operators. Finally, the best approach in terms of robustness and efficiency is proposed. After the correspondences have been solved, for every pair of consecutive images we obtain a list of image features in the first image and their matchings in the next frame. Our aim is now to recover the apparent motion of the camera from these features. Although an accurate texture analysis is devoted to the matching pro-cedure, some false matches (known as outliers) could still appear among the right correspon-dences. For this reason, a robust estimation technique is used to estimate the planar transformation (homography) which explains the dominant motion of the image. Next, this homography is used to warp the processed image to the common mosaic frame, constructing a composite image formed by every frame of the sequence. With the aim of estimating the position of the vehicle as the mosaic is being constructed, the 3D motion of the vehicle can be computed from the measurements obtained by a sonar altimeter and the incremental motion computed from the homography. Unfortunately, as the mosaic increases in size, image local alignment errors increase the inaccuracies associated to the position of the vehicle. Occasionally, the trajectory described by the vehicle may cross over itself. In this situation new information is available, and the system can readjust the position estimates. Our proposal consists not only in localizing the vehicle, but also in readjusting the trajectory described by the vehicle when crossover information is obtained. This is achieved by implementing an Augmented State Kalman Filter (ASKF). Kalman filtering appears as an adequate framework to deal with position estimates and their associated covariances. Finally, some experimental results are shown. A laboratory setup has been used to analyze and evaluate the accuracy of the mosaicking system. This setup enables a quantitative measurement of the accumulated errors of the mosaics created in the lab. Then, the results obtained from real sea trials using the URIS underwater vehicle are shown.

The integration of figurative language and static depictions: an eye movement study of fictive motion

Do we view the world differently if it is described to us in figurative rather than literal terms? An answer to this question would reveal something about both the conceptual representation of figurative language and the scope of top-down influences oil scene perception. Previous work has shown that participants will look longer at a path region of a picture when it is described with a type of figurative language called fictive motion (The road goes through the desert) rather than without (The road is in the desert). The current experiment provided evidence that such fictive motion descriptions affect eye movements by evoking mental representations of motion. If participants heard contextual information that would hinder actual motion, it influenced how they viewed a picture when it was described with fictive motion. Inspection times and eye movements scanning along the path increased during fictive motion descriptions when the terrain was first described as difficult (The desert is hilly) as compared to easy (The desert is flat); there were no such effects for descriptions without fictive motion. It is argued that fictive motion evokes a mental simulation of motion that is immediately integrated with visual processing, and hence figurative language can have a distinct effect on perception. (c) 2005 Elsevier B.V. All rights reserved.

Adaptive control of event integration

Identifying 2 target stimuli in a rapid stream of visual symbols is much easier if the 2nd target appears immediately after the 1st target (i.e., at Lag 1) than if distractor stimuli intervene. As this phenomenon comes with a strong tendency to confuse the order of the targets, it seems to be due to the integration of both targets into the same attentional episode or object file. The authors investigated the degree to which people can control the temporal extension of their (episodic) integration windows by manipulating the expectations participants had with regard to the time available for target processing. As predicted, expecting more time to process increased the number of order confusions at Lag 1. This was true for between-subjects and within-subjects (trial-to-trial) manipulations, suggesting that integration windows can be adapted actively and rather quickly.

Adaptive control of event integration: evidence from event-related potentials

We investigated whether it is possible to control the temporal window of attention used to rapidly integrate visual information. To study the underlying neural mechanisms, we recorded ERPs in an attentional blink task, known to elicit Lag-1 sparing. Lag-1 sparing fosters joint integration of the two targets, evidenced by increased order errors. Short versus long integration windows were induced by showing participants mostly fast or slow stimuli. Participants expecting slow speed used a longer integration window, increasing joint integration. Difference waves showed an early (200 ms post-T2) negative and a late positive modulation (390 ms) in the fast group, but not in the slow group. The modulations suggest the creation of a separate event for T2, which is not needed in the slow group, where targets were often jointly integrated. This suggests that attention can be guided by global expectations of presentation speed within tens of milliseconds.

Target integration and the attentional blink

If people monitor a visual stimulus stream for targets they often miss the second (T2) if it appears soon after the first (T1)-the attentional blink. There is one exception: T2 is often not missed if it appears right after T1, i.e., at lag 1. This lag-l sparing is commonly attributed to the possibility that T1 processing opens an attentional gate, which may be so sluggish that an early T2 can slip in before it closes. We investigated why the gate may close and exclude further stimuli from processing. We compared a control approach, which assumes that gate closing is exogenously triggered by the appearance of nontargets, and an integration approach, which assumes that gate closing is under endogenous control. As predicted by the latter but not the former, T2 performance and target reversals were strongly affected by the temporal distance between T1 and T2, whereas the presence or the absence of a nontarget intervening between T1 and T2 had little impact. (c) 2005 Elsevier B.V. All rights reserved.

Visual enhancement of touch in spatial body representation

Perception of our own bodies is based on integration of visual and tactile inputs, notably by neurons in the brain’s parietal lobes. Here we report a behavioural consequence of this integration process. Simply viewing the arm can speed up reactions to an invisible tactile stimulus on the arm. We observed this visual enhancement effect only when a tactile task required spatial computation within a topographic map of the body surface and the judgements made were close to the limits of performance. This effect of viewing the body surface was absent or reversed in tasks that either did not require a spatial computation or in which judgements were well above performance limits. We consider possible mechanisms by which vision may influence tactile processing.

Towards a model-based integration of co-registered electroencephalography/functional magnetic resonance imaging data with realistic neural population meshes

Brain activity can be measured with several non-invasive neuroimaging modalities, but each modality has inherent limitations with respect to resolution, contrast and interpretability. It is hoped that multimodal integration will address these limitations by using the complementary features of already available data. However, purely statistical integration can prove problematic owing to the disparate signal sources. As an alternative, we propose here an advanced neural population model implemented on an anatomically sound cortical mesh with freely adjustable connectivity, which features proper signal expression through a realistic head model for the electroencephalogram (EEG), as well as a haemodynamic model for functional magnetic resonance imaging based on blood oxygen level dependent contrast (fMRI BOLD). It hence allows simultaneous and realistic predictions of EEG and fMRI BOLD from the same underlying model of neural activity. As proof of principle, we investigate here the influence on simulated brain activity of strengthening visual connectivity. In the future we plan to fit multimodal data with this neural population model. This promises novel, model-based insights into the brain's activity in sleep, rest and task conditions.