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.

Blood corticosterone levels and intersexual selection games: best-of-bad-job strategies of male common lizards

Glucocorticoids affect physiology and behaviour, reproduction and potentially sexual selection as well. Shortterm and moderate glucocorticoid elevations are suggested to be adaptive, and prolonged and high elevations may be extremely harmful. This suggests that optimal reproductive strategies, and thus sexual selection, may be dose dependent. Here, we investigate effects of moderate and high elevations of blood corticosterone levels on intra- and intersexual behaviour and mating success of male common lizards Lacerta vivipara. Females showed less interest and more aggressive behaviour towards high corticosterone males and blood corticosterone levels affected male reproductive strategy. Males of moderate and high corticosterone elevations, compared with Control males, showed increased interest (i.e., higher number of chases, tongue extrusions, and approaches) towards females and high corticosterone males initiated more copulation attempts. However, neither increased male interest nor increased copulation attempts resulted in more copulations. This provides evidence for a best-of-a-bad-job strategy, where males with higher corticosterone levels compensated for reduced female interest and increased aggressive female behaviour directed towards them, by showing higher interest and by conducting more copulation attempts. Blood corticosterone levels affected intrasexual selection as well since moderate corticosterone levels positively affected male dominance, but dominance did not affect mating success. These findings underline the importance of female mate choice and are in line with adaptive compensatory behaviours of males. They further show that glucocorticoid effects on behaviour are dose dependent and that they have important implications for sexual selection and social interactions, and might potentially affect Darwinian fitness.

Measurement Errors Should Always Be Incorporated in Phylogenetic Comparative Analysis

The evolution of continuous traits is the central component of comparative analyses in phylogenetics, and the comparison of alternative models of trait evolution has greatly improved our understanding of the mechanisms driving phenotypic differentiation. Several factors influence the comparison of models, and we explore the effects of random errors in trait measurement on the accuracy of model selection. We simulate trait data under a Brownian motion model (BM) and introduce different magnitudes of random measurement error. We then evaluate the resulting statistical support for this model against two alternative models: Ornstein-Uhlenbeck (OU) and accelerating/decelerating rates (ACDC). Our analyses show that even small measurement errors (10%) consistently bias model selection towards erroneous rejection of BM in favour of more parameter-rich models (most frequently the OU model). Fortunately, methods that explicitly incorporate measurement errors in phylogenetic analyses considerably improve the accuracy of model selection. Our results call for caution in interpreting the results of model selection in comparative analyses, especially when complex models garner only modest additional support. Importantly, as measurement errors occur in most trait data sets, we suggest that estimation of measurement errors should always be performed during comparative analysis to reduce chances of misidentification of evolutionary processes.

Congenital disorder of glycosylation type Id (CDG Id) : phenotypic, biochemical and molecular characterization of a new patient

Rapport de synthèseLes troubles de la glycosylation (Congenital Disorders of Glycosylation, CDG) regroupent une famille de maladies multi-systémiques héréditaires causées par des défauts dans la synthèse de glycoconjugés. La glycosylation est une réaction enzymatique consistant à lier de façon covalente un glucide à une chaîne peptidique ou une protéine. Il existe deux types de glycosylation. La N-gjycosylation est l'addition de glucides aux chaînes peptidiques en croissance dès leur entrée dans la lumière du réticulum endoplasmique. Elle s'effectue sur les futures glycoprotéines membranaires et conduit à des chaînes de sucres courtes et ramifiées. La O-glycosylation est l'addition de glucides au niveau des résidus hydroxylés des acides aminés sérine et thréonine des chaînes peptidiques déjà présentes dans la lumière de l'appareil de Golgi. Elle est, dans la plupart des cas, effectuée sur îes protéoglycanes et conduit à des chaînes de sucres longues et non ramifiées. La classification des CDG repose sur le niveau de l'étape limitante de la glycosylation. Les CDG de type 1, plus fréquents, regroupent les déficits enzymatiques se situant en amont du transfert de Poligosaccharide sur la chaîne peptidique. Les CDG de type 2 regroupent ceux ayant lieu en aval de ce transfert. Parmi les nombreux différents sous-types de CDG, le CDG de type ld est causé par une anomalie de la mannosyltransferase, enzyme codée par le gène ALG3 (chromosome 3q27). Jusqu'à ce jour, six patients atteints de CDG ld ont été reportés dans la littérature. Notre travail a permis de décrire un septième patient et d'affiner les caractéristiques cliniques, biologiques, neuroradiologiques et moléculaires du CDG ld. Notre patient est notamment porteur d'une nouvelle mutation de type missense sur le gène ALG3. Tous les patients atteints de CDG ld présentent une encéphalopathie progressive avec microcéphalie, retard psychomoteur sévère et épilepsie. Une ostéopénie marquée est présente chez certains patients. Elle est parfois sous diagnostiquée et révélée uniquement lors de fracture pathologique. Les patients atteints de CDG ld présentent également des traits dysmorphiques typiques, mais aucune atteinte multi-systémique ou anomalie biologique spécifique n'est retrouvée telle que dans les autres types de CDG. Le dépistage biochimique des troubles de la glycosylation se fait par une analyse simple et peu coûteuse qui est l'analyse de la transferrine sérique par isoelectrofocusing ou par électrophorèse capillaire. Un tel dépistage devrait être effectué chez tout patient présentant une encéphalopathie d'origine indéterminée, et cela même en l'absence d'atteinte multi- systémique. Notre travail a été publié sous forme d'article de type « short report », peer-reviewed, dans le Journal of Inherited Metabolic Diseases. Le Journal est une révue spécialisée du domaine des erreirs innées du métabolisme. S'agissant d'un seul patient rapporté, l'article ne montre que très synthétiquement le travail effectué, Pour cette raison un complément à l'article avec matériel, méthodes et résultats figure ci-après et concerne la partie de recherche moléculaire de notre travail. La doctorante a non seulement encadré personnellement le patient au niveau clinique et biochimique, mais a plus particulièrement mis au point l'analyse moléculaire du gène ALG3 dans le laboratoire de Pédiatrie Moléculaire pour la première fois ; cela a impliqué l'étude du gène, le choix des oligonucleotides et l'optimisation des réactions d'amplification et séquençage.

Geographical and altitudinal population genetic structure of two dung fly species with contrasting mobility and temperature preference.

Local adaptation of populations requires some degree of spatio-temporal isolation. Previous studies of the two dung fly species Scathophaga stercoraria and Sepsis cynipsea have revealed low levels of geographic and altitudinal genetic differentiation in quantitative life history and morphological traits, but instead high degrees of phenotypic plasticity. These patterns suggest that gene flow is extensive despite considerable geographic barriers and large spatio-temporal variation in selection on body size and related traits. In this study we addressed this hypothesis by investigating genetic differentiation of dung fly populations throughout Switzerland based on the same 10 electrophoretic loci in each species. Overall, we found no significant geographic differentiation of populations for either species. This is inconsistent with the higher rates of gene flow expected due to better flying capacity of the larger S. stercoraria. However, heterozygote deficiencies within populations indicated structuring on a finer scale, seen for several loci in S. cynipsea, and for the locus PGM (Phosphoglucomutase) in S. stercoraria. Additionally, S. cynipsea showed a tendency towards a greater gene diversity at higher altitudes, mediated primarily by the locus MDH (malate dehydrogenase), at which a second allele was only present in populations above 1000 m. This may be caused by increased environmental stress at higher altitudes in this warm-adapted species. MDH might thus be a candidate locus subject to thermal selection in this species, but this remains to be corroborated by direct evidence. In S. stercoraria, no altitudinal variation was found.

Male cognitive performance declines in the absence of sexual selection.

Sexual selection is responsible for the evolution of male ornaments and armaments, but its role in the evolution of cognition--the ability to process, retain and use information--is largely unexplored. Because successful courtship is likely to involve processing information in complex, competitive sexual environments, we hypothesized that sexual selection contributes to the evolution and maintenance of cognitive abilities in males. To test this, we removed mate choice and mate competition from experimental populations of Drosophila melanogaster by enforcing monogamy for over 100 generations. Males evolved under monogamy became less proficient than polygamous control males at relatively complex cognitive tasks. When faced with one receptive and several unreceptive females, polygamous males quickly focused on receptive females, whereas monogamous males continued to direct substantial courtship effort towards unreceptive females. As a result, monogamous males were less successful in this complex setting, despite being as quick to mate as their polygamous counterparts with only one receptive female. This diminished ability to use past information was not limited to the courtship context: monogamous males (but not females) also showed reduced aversive olfactory learning ability. Our results provide direct experimental evidence that the intensity of sexual selection is an important factor in the evolution of male cognitive ability.

Genetic regulation of colony social organization in fire ants: an integrative overview

Expression of colony social organization in fire ants appears to be under the control of a single Mendelian factor of large effect. Variation in colony queen number in Solenopsis invicta and its relatives is associated with allelic variation at the gene Gp-9, but not with variation at other unlinked genes; workers regulate queen identity and number on the basis of Gp-9 genotypic compatibility. Nongeneticfactors, such as prior social experience, queen reproductive status, and local environment, have negligible effects on queen number which illustrates the nearly complete penetrance of Gp-9. As predicted, queen number can be manipulated experimentally by altering worker Gp-9 genotype frequencies. The Gp-9 allele lineage associated with polygyny in South American fire? ants has been retained across multiple speciation events, which may signal the action of balancing selection to maintain social polymorphism in these species. Moreover positive selection is implicated in driving the molecular evolution of Gp-9 in association with the origin of polygyny. The identity of the product of Gp-9 as an odorant-binding protein suggests plausible scenarios for its direct involvement in the regulation of queen number via a role in chemical communication. While these and other lines of evidence show that Gp-9 represents a legitimate candidate gene of major effect, studies aimed at determining (i) the biochemical pathways in which GP-9 functions; (ii) the phenotypic effects of molecular variation at Gp-9 and other pathway genes; and (iii) the potential involvement of genes in linkage disequilibrium with Gp-9 are needed to elucidate the genetic architecture underlying social organization in fire ants. Information that reveals the links between molecular variation, individual phenotype, and colony-level behaviors, combined with behavioral models that incorporate details of the chemical communication involved in regulating queen number will yield a novel integrated view of the evolutionary changes underlying a key social adaptation.

Evolution of mRNA expression levels of autosomal and sex-linked genes in amniotes

In addition to differences in protein-coding gene sequences, changes in expression resulting from mutations in regulatory sequences have long been hypothesized to be responsible for phenotypic differences between species. However, unlike comparison of genome sequences, few studies, generally restricted to pairwise comparisons of closely related mammalian species, have assessed between-species differences at the transcriptome level. They reported that gene expression evolves at different rates in various organs and in a pattern that is overall consistent with neutral models of evolution. In the first part of my thesis, I investigated the evolution of gene expression in therian mammals (i.e.7 placental and marsupials), based on microarray data from human, mouse and the gray short-tailed opossum (Monodelphis domestica). In addition to autosomal genes, a special focus was given to the evolution of X-linked genes. The therian X chromosome was recently shown to be younger than previously thought and to harbor a specific gene content (e.g., genes involved in brain or reproductive functions) that is thought to have been shaped by specific sex-related evolutionary forces. Sex chromosomes derive from ordinary autosomes and their differentiation led to the degeneration of the Y chromosome (in mammals) or W chromosome (in birds). Consequently, X- or Z-linked genes differ in gene dose between males and females such that the heterogametic sex has half the X/Z gene dose compared to the ancestral state. To cope with this dosage imbalance, mammals have been reported to have evolved mechanisms of dosage compensation.¦In the first project, I could first show that transcriptomes evolve at different rates in different organs. Out of the five tissues I investigated, the testis is the most rapidly evolving organ at the gene expression level while the brain has the most conserved transcriptome. Second, my analyses revealed that mammalian gene expression evolution is compatible with a neutral model, where the rates of change in gene expression levels is linked to the efficiency of purifying selection in a given lineage, which, in turn, is determined by the long-term effective population size in that lineage. Thus, the rate of DNA sequence evolution, which could be expected to determine the rate of regulatory sequence change, does not seem to be a major determinant of the rate of gene expression evolution. Thus, most gene expression changes seem to be (slightly) deleterious. Finally, X-linked genes seem to have experienced elevated rates of gene expression change during the early stage of X evolution. To further investigate the evolution of mammalian gene expression, we generated an extensive RNA-Seq gene expression dataset for nine mammalian species and a bird. The analyses of this dataset confirmed the patterns previously observed with microarrays and helped to significantly deepen our view on gene expression evolution.¦In a specific project based on these data, I sought to assess in detail patterns of evolution of dosage compensation in amniotes. My analyses revealed the absence of male to female dosage compensation in monotremes and its presence in marsupials and, in addition, confirmed patterns previously described for placental mammals and birds. I then assessed the global level of expression of X/Z chromosomes and contrasted this with its ancestral gene expression levels estimated from orthologous autosomal genes in species with non-homologous sex chromosomes. This analysis revealed a lack of up-regulation for placental mammals, the level of expression of X-linked genes being proportional to gene dose. Interestingly, the ancestral gene expression level was at least partially restored in marsupials as well as in the heterogametic sex of monotremes and birds. Finally, I investigated alternative mechanisms of dosage compensation and found that gene duplication did not seem to be a widespread mechanism to restore the ancestral gene dose. However, I could show that placental mammals have preferentially down-regulated autosomal genes interacting with X-linked genes which underwent gene expression decrease, and thus identified a novel alternative mechanism of dosage compensation.

Developmentally regulated extinction of Ly-49 receptor expression permits maturation and selection of NK1.1+ T cells.

Clonally distributed inhibitory receptors negatively regulate natural killer (NK) cell function via specific interactions with allelic forms of major histocompatibility complex (MHC) class I molecules. In the mouse, the Ly-49 family of inhibitory receptors is found not only on NK cells but also on a minor (NK1.1+) T cell subset. Using Ly-49 transgenic mice, we show here that the development of NK1.1+ T cells, in contrast to NK or conventional T cells, is impaired when their Ly-49 receptors engage self-MHC class I molecules. Impaired NK1.1+ T cell development in transgenic mice is associated with a failure to select the appropriate CD1-reactive T cell receptor repertoire. In normal mice, NK1.1+ T cell maturation is accompanied by extinction of Ly-49 receptor expression. Collectively, our data imply that developmentally regulated extinction of inhibitory MHC-specific receptors is required for normal NK1.1+ T cell maturation and selection.

Evaluating the Effectiveness of Red Light Running Camera Enforcement in Cedar Rapids and Developing Guidelines For Selection and use of Red Light Running Countermeasures, Midwest Transportation Consortium, Final Report November 2011.

Red light running (RLR) is a problem in the US that has resulted in 165,000 injuries and 907 fatalities annually. In Iowa, RLR-related crashes make up 24.5 percent of all crashes and account for 31.7 percent of fatal and major injury crashes at signalized intersections. RLR crashes are a safety concern due to the increased likelihood of injury compared to other types of crashes. One tool used to combat red light running is automated enforcement in the form of RLR cameras. Automated enforcement, while effective, is often controversial. Cedar Rapids, Iowa installed RLR and speeding cameras at seven intersections across the city. The intersections were chosen based on crash rates and whether cameras could feasibly be placed at the intersection approaches. The cameras were placed starting in February 2010 with the last one becoming operational in December 2010. An analysis of the effect of the cameras on safety at these intersections was determined prudent in helping to justify the installation and effectiveness of the cameras. The objective of this research was to assess the safety effectiveness of the RLR program that has been implemented in Cedar Rapids. This was accomplished by analyzing data to determine changes in the following metrics:  Reductions in red light violation rates based on overall changes, time of day changes, and changes by lane  Effectiveness of the cameras over time  Time in which those running the red light enter the intersection  Changes in the average headway between vehicles entering the intersection

Self-selection and risk selection on the Swiss health insurance market

Abstract This thesis presents three empirical studies in the field of health insurance in Switzerland. First we investigate the link between health insurance coverage and health care expenditures. We use claims data for over 60 000 adult individuals covered by a major Swiss Health Insurance Fund, followed for four years; the data show a strong positive correlation between coverage and expenditures. Two methods are developed and estimated in order to separate selection effects (due to individual choice of coverage) and incentive effects ("ex post moral hazard"). The first method uses the comparison between inpatient and outpatient expenditures to identify both effects and we conclude that both selection and incentive effects are significantly present in our data. The second method is based on a structural model of joint demand of health care and health insurance and makes the most of the change in the marginal cost of health care to identify selection and incentive effects. We conclude that the correlation between insurance coverage and health care expenditures may be decomposed into the two effects: 75% may be attributed to selection, and 25 % to incentive effects. Moreover, we estimate that a decrease in the coinsurance rate from 100% to 10% increases the marginal demand for health care by about 90% and from 100% to 0% by about 150%. Secondly, having shown that selection and incentive effects exist in the Swiss health insurance market, we present the consequence of this result in the context of risk adjustment. We show that if individuals choose their insurance coverage in function of their health status (selection effect), the optimal compensations should be function of the se- lection and incentive effects. Therefore, a risk adjustment mechanism which ignores these effects, as it is the case presently in Switzerland, will miss his main goal to eliminate incentives for sickness funds to select risks. Using a simplified model, we show that the optimal compensations have to take into account the distribution of risks through the insurance plans in case of self-selection in order to avoid incentives to select risks.Then, we apply our propositions to Swiss data and propose a simple econometric procedure to control for self-selection in the estimation of the risk adjustment formula in order to compute the optimal compensations.

Variability of root traits in common bean genotypes at different levels of phosphorus supply and ontogenetic stages

Selection of common bean (Phaseolus vulgaris L.) cultivars with enhanced root growth would be a strategy for increasing P uptake and grain yield in tropical soils, but the strong plasticity of root traits may compromise their inclusion in breeding programs. The aim of this study was to evaluate the magnitude of the genotypic variability of root traits in common bean plants at two ontogenetic stages and two soil P levels. Twenty-four common bean genotypes, comprising the four growth habits that exist in the species and two wild genotypes, were grown in 4 kg pots at two levels of applied P (20 and 80 mg kg-1) and harvested at the stages of pod setting and early pod filling. Root area and root length were measured by digital image analysis. Significant genotype × P level and genotype × harvest interactions in analysis of variance indicate that the genotypic variation of root traits depended on soil nutrient availability and the stage at which evaluation was made. Genotypes differed for taproot mass, basal and lateral root mass, root area and root length at both P levels and growth stages; differences in specific root area and length were small. Genotypes with growth habits II (upright indeterminate) and III (prostrate indeterminate) showed better adaptation to limited P supply than genotypes of groups I (determinate) and IV (indeterminate climbing). Between the two harvests, genotypes of groups II and III increased the mass of basal and lateral roots by 40 and 50 %, respectively, whereas genotypes of groups I and IV by only 7 and 19 %. Values of the genotypic coefficient of determination, which estimates the proportion of phenotypic variance resulting from genetic effects, were higher at early pod filling than at pod setting. Correlations between shoot mass and root mass, which could indicate indirect selection of root systems via aboveground biomass, were higher at early pod filling than at pod setting. The results indicate that selection for root traits in common bean genotypes should preferentially be performed at the early pod-filling stage.

Dark energy equation of state and anthropic selection

We explore the possibility that the dark energy is due to a potential of a scalar field and that the magnitude and the slope of this potential in our part of the Universe are largely determined by anthropic selection effects. We find that, in some models, the most probable values of the slope are very small, implying that the dark energy density stays constant to very high accuracy throughout cosmological evolution. In other models, however, the most probable values of the slope are such that the slow roll condition is only marginally satisfied, leading to a recollapse of the local universe on a time scale comparable to the lifetime of the Sun. In the latter case, the effective equation of state varies appreciably with the redshift, leading to a number of testable predictions.

Habitat selection in zones of parapatric contact between the Common shrew Sorex araneus and Millet's shrew S. coronatus

(1) The common shrew Sorex araneus and Millet's shrew S. coronatus are sibling species.They are morphologically and genetically very similar but do not hybridize. Their parapatric distribution throughout south-western Europe, with a few narrow zones of distributional overlap, suggests that they are in competitive parapatry. (2) Two of these contact zones were studied; there was evidence of coexistence over periods of 2 years as well as habitat segregation. In both zones, the species segregated on litter thickness and humidity variables. (3) A simple analysis of spatial distribution showed that habitats visible in the field corresponded to the habitats selected by the species. Habitat selection was found throughout the annual life-cycle of the shrews. (4) In one contact zone, a removal experiment was performed to test whether habitat segregation is induced by interspecific interactions. The experiment showed that the species select habitats differentially when both are present and abandon habitat selection when their competitor is removed. (5) These results confirm the role of resource partitioning in promoting narrow rangesof distributional overlap between such parapatric species and qualitatively support the prediction of habitat selection theory that, in a two-species system, coexistence may be achieved by differential habitat selection to avoid competition. The results also support the view that the common shrew and Millet's shrew are in competitive parapatry.