Pricing anomalies in the Finnish stock market

The aim of this thesis is to examine whether the pricing anomalies exists in the Finnish stock markets by comparing the performance of quantile portfolios that are formed on the basis of either individual valuation ratios, composite value measures or combined value and momentum indicators. All the research papers included in the thesis show evidence of value anomalies in the Finnish stock markets. In the first paper, the sample of stocks over the 1991-2006 period is divided into quintile portfolios based on four individual valuation ratios (i.e., E/P, EBITDA/EV, B/P, and S/P) and three hybrids of them (i.e. composite value measures). The results show the superiority of composite value measures as selection criterion for value stocks, particularly when EBITDA/EV is employed as earnings multiple. The main focus of the second paper is on the impact of the holding period length on performance of value strategies. As an extension to the first paper, two more individual ratios (i.e. CF/P and D/P) are included in the comparative analysis. The sample of stocks over 1993- 2008 period is divided into tercile portfolios based on six individual valuation ratios and three hybrids of them. The use of either dividend yield criterion or one of three composite value measures being examined results in best value portfolio performance according to all performance metrics used. Parallel to the findings of many international studies, our results from performance comparisons indicate that for the sample data employed, the yearly reformation of portfolios is not necessarily optimal in order to maximally gain from the value premium. Instead, the value investor may extend his holding period up to 5 years without any decrease in long-term portfolio performance. The same holds also for the results of the third paper that examines the applicability of data envelopment analysis (DEA) method in discriminating the undervalued stocks from overvalued ones. The fourth paper examines the added value of combining price momentum with various value strategies. Taking account of the price momentum improves the performance of value portfolios in most cases. The performance improvement is greatest for value portfolios that are formed on the basis of the 3-composite value measure which consists of D/P, B/P and EBITDA/EV ratios. The risk-adjusted performance can be enhanced further by following 130/30 long-short strategy in which the long position of value winner stocks is leveraged by 30 percentages while simultaneously selling short glamour loser stocks by the same amount. Average return of the long-short position proved to be more than double stock market average coupled with the volatility decrease. The fifth paper offers a new approach to combine value and momentum indicators into a single portfolio-formation criterion using different variants of DEA models. The results throughout the 1994-2010 sample period shows that the top-tercile portfolios outperform both the market portfolio and the corresponding bottom-tercile portfolios. In addition, the middle-tercile portfolios also outperform the comparable bottom-tercile portfolios when DEA models are used as a basis for stock classification criteria. To my knowledge, such strong performance differences have not been reported in earlier peer-reviewed studies that have employed the comparable quantile approach of dividing stocks into portfolios. Consistently with the previous literature, the division of the full sample period into bullish and bearish periods reveals that the top-quantile DEA portfolios lose far less of their value during the bearish conditions than do the corresponding bottom portfolios. The sixth paper extends the sample period employed in the fourth paper by one year (i.e. 1993- 2009) covering also the first years of the recent financial crisis. It contributes to the fourth paper by examining the impact of the stock market conditions on the main results. Consistently with the fifth paper, value portfolios lose much less of their value during bearish conditions than do stocks on average. The inclusion of a momentum criterion somewhat adds value to an investor during bullish conditions, but this added value turns to negative during bearish conditions. During bear market periods some of the value loser portfolios perform even better than their value winner counterparts. Furthermore, the results show that the recent financial crisis has reduced the added value of using combinations of momentum and value indicators as portfolio formation criteria. However, since the stock markets have historically been bullish more often than bearish, the combination of the value and momentum criteria has paid off to the investor despite the fact that its added value during bearish periods is negative, on an average.

Yritysjärjestelyn toteutuneeseen kauppahintaan vaikuttavat tekijät – empiirinen tutkimus ulkoisen neuvonantajan suoriutumisesta yritysjärjestelyissä

Tämän Pro Gradu -tutkielman tavoitteena on tutkia mitkä tekijät vaikuttavat yritysjärjestelyn toteutuneeseen kauppahintaan. Lisäksi tämä tutkimus pyrkii vastaamaan mikä on ulkoisen neuvonantajan rooli kauppahinnan muodostumisessa sekä miten ulkoinen neuvonantaja suoriutuu erilaisista yritysjärjestelyistä. Tutkimuksen syntyä motivoi vähäinen tutkimusten määrä pienten yritysten yritysjärjestelyistä; yritysjärjestelyt toteutetaan usein puutteellisilla resursseilla ja epäonnistuneet yritysjärjestelyt nähdään uhkana Euroopan unionin talouskasvulle. Empiirinen tutkimus koostuu 104 toteutuneesta pienen yrityksen yritysjärjestelyn tilastollisesta analyysistä. Pääsääntöisesti otosta on tutkittu keskiarvovertailulla (Ttesti ja Oneway Anova) sekä korrelaatiotestauksella. Tutkimuksen tulokset osoittavat, että arvonmääritys on merkittävimmin kauppahintaan vaikuttava tekijä. Tämän lisäksi tilinpäätöstiedoilla on positiivinen yhteys kauppahintaan, kun taas myyntiajalla tai preemiolla ei ole yhteyttä kauppahintaan. Sekä osake- ja liiketoimintakaupan että sukupolvenvaihdosten ja yrityskauppojen välillä tehty keskiarvovertailu osoittaa, että ulkoinen neuvonantaja suoriutuu ammattitaitoisesti erilaisista yritysjärjestelytilanteista osaten huomioida näihin liittyviä erityispiirteitä.

Kirjallisuutta

Kirjallisuusarvostelu

The Use of Systematic Value Strategies in Separating the Winners from the Losers: Evidence from the Finnish Markets

This study examines the Magic Formula and ERP5 value strategies in the Finnish stocks markets. Magic Formula ranks stocks based on EV/EBIT and ROA and ERP5 based on EV/EBIT, ROA, P/B and five-year trailing ROA. The purpose of the study is to examine whether the value strategies can be used to generate excess returns over the market index. The data has been collected from the Datastream database for the sample period from May 1997 to May 2010 and consists of the companies listed on the main list of Helsinki Stock Exchange. This study confirms the findings of previous research that value premium exists in the Finnish stock markets and that systematic value strategies can be used to form portfolios that outperform the market index with lower volatility.

Das persönliche Glück auf dem unpersönlichen Markt. Deutsche und finnische Kontaktanzeigen im 20. Jahrhundert - eine kontrastive und diachrone Textsortenuntersuchung

Min avhandling är en diakronisk och kontrastiv undersökning av texttyper. Forskningsmaterialet består av kontaktannonser i tidningarna Süddeutsche Zeitung och Helsingin Sanomat under tiden 1900 – 1999. Materialet består av 652 tyska och 538 finska annonser. De undersökta annonserna har publicerats i maj och har samlats från ovannämnda tidningar vart tionde år. Materialet har analyserats med ett statistiskt SPSS-program. I avhandlingen analyseras utvecklingen av ovannämnda texttyp under hundra år i två olika kulturer, den tyska och den finska. Syftet med avhandlingen är att med hjälp av detta material finna språkliga och kulturella likheter och skillnader i kontaktannonser. Utgångspunkten är att språkliga uttryck avspeglar sin tids samhälleliga värderingar, vilka således också påverkar sökandet efter en livskamrat. Analysresultaten granskas sålunda i ett större samhälleligt sammanhang under olika decennier. Annonstexterna undersöks dock inte utgående från enskilda samhälleliga skeenden. Avhandlingen analyserar 13 olika informationsenheter i kontaktannonserna, huruvida dessa enheter förekommer under hela den aktuella perioden och om samma informationsenheter förekommer i annonser i de båda kulturerna. Avhandlingen är sålunda intra- och interlingual samt interkulturell. Genom denna metod får man fram de kännetecken som är betecknande för denna texttyp under en viss tid i de bägge kulturerna. Avhandlingen är indelad i tre delar. Den första delen ger bakgrundsinformation om äktenskapets och familjebegreppets historia samt om uppkomsten av den tyska och finska pressen. Den andra teoretiska delen behandlar text- och texttyplingvistik samt nuvarande forskning inom dessa områden. Den tredje och mest omfattade delen består av en kvalitativ och kvantitativ analys, som omfattar 11 olika forskningsdelar. Undersökningen visar att man i texttypen kontaktannonser kan upptäcka skillnader t ex redan däri att en tysk annons skiljer sig från en finsk vad längd och informationsmängd beträffar. En finsk annons förlitar sig i sin språkliga knapphet på att läsaren förstår kontexten i texttypen. Av avhandlingen framgår också att vid analys av texttyper bör deras historiska och kulturella kontext beaktas, eftersom analysen påvisar att texttyperna är historie- och kulturbundna.

European luxury brands made in China: the effect of low-cost country manufacturing on brand image and purchase decisions

European luxury brands have an image of manufacturing their products in the same country where the brands originate. However, in the past years many luxury brands have shifted their manufacturing to countries outside Europe. China is now a common manufacturing country for European luxury brands despite the country’s poor image as a manufacturer. Chinese manufacturing is often associated with bad quality, bad labour conditions, mass production, and counterfeits. The image of China does not quite match the image luxury brands enjoy including characteristics such as high end quality, craftsmanship, details, design, or premium price. A negatively perceived country-of-manufacture may have an effect on a brand’s image and consumers’ purchase decisions. This thesis is focused on European luxury brands manufacturing in China, and how this effects the brand image and purchase decisions among luxury consumers. The empirical part of this thesis is based on focus group research, which is a popular method in the field of qualitative research. The main focus group is female luxury consumers in Finland. This main group has been divided into three categories: 1) the university students, 2) the young career women, 3) the experienced luxury consumers. This categorization has been done based on their different stages in luxury consumption. All in all, the empirical research consisted of 11 interviews and 29 participants. The main contribution of this thesis was that there is a difference between the opinions of the younger groups (university students and young career women) and the experienced luxury consumers when discussing the effect of country-of-manufacture on brand image and purchase decisions of luxury brands. The younger participants thought that manufacturing luxury products in China might affect the brand image, but their purchase decisions would not be that much affected by the country-of-origin. The experienced luxury consumers had quite a different view on the country-of-origin of luxury brands – they found it an important decisive factor prior making purchases. The majority of experienced luxury consumers would not buy luxury products made in China, and they would always check where these products are made in.

Homoavioliiton historia pohjoismaisesta näkökulmasta

Kirjallisuusarvostelu

Liquidity and Asset Pricing in the French Stock Market

This thesis investigates pricing of liquidity in the French stock market. The study covers 835 ordinary shares traded in the period of 1996-2014 on Paris Euronext. The author utilizes the Liquidity-Adjusted Capital Asset Pricing Model (LCAPM) recently developed by Acharya and Pedersen (2005) to test whether liquidity level and risks significantly affect stock returns. Three different liquidity measures – Amihud, FHT, and PQS – are incorporated into the model to find any difference between the results they could provide. It appears that the findings largely depend on the liquidity measure used. In general the results exhibit more evidence for insignificant influence of liquidity level and risks as well as market risk on stock returns. The similar conclusion was reported earlier by Lee (2011) for several regions, including France. This finding of the thesis, however, is not consistent across all the liquidity measures. Nevertheless, the difference in the results between these measures provides new insight to the existing literature on this topic. The Amihud-based findings might indicate that market resiliency is not priced in the French stock market. At the same time the contradicting results from FHT and PQS provide some foundation for the hypothesis that one of two leftover liquidity dimensions – market depth or breadth – could significantly affect stock returns. Therefore, the thesis’ findings suggest a conjecture that different liquidity dimensions have different impacts on stock returns.

Portfolio Selection via Composite Measure Analysis: Evidence from the U.S. Stock Market

The aim of this research is to examine the pricing anomalies existing in the U.S. market during 1986 to 2011. The sample of stocks is divided into decile portfolios based on seven individual valuation ratios (E/P, B/P, S/P, EBIT/EV, EVITDA/EV, D/P, and CE/P) and price momentum to investigate the efficiency of individual valuation ratio and their combinations as portfolio formation criteria. This is the first time in financial literature when CE/P is employed as a constituent of composite value measure. The combinations are based on median scaled composite value measures and TOPSIS method. During the sample period value portfolios significantly outperform both the market portfolio and comparable glamour portfolios. The results show the highest return for the value portfolio that was based on the combination of S/P & CE/P ratios. The outcome of this research will increase the understanding on the suitability of different methodologies for portfolio selection. It will help managers to take advantage of the results of different methodologies in order to gain returns above the market.

Venäläisen aatelisperheen tarina

Kirjallisuusarvostelu

Analyzing the Effects of the New Renewable Energy Policy in Russia on Investments into Wind, Solar and Small Hydro Power

This thesis presents an analysis of recently enacted Russian renewable energy policy based on capacity mechanism. Considering its novelty and poor coverage by academic literature, the aim of the thesis is to analyze capacity mechanism influence on investors’ decision-making process. The current research introduces a number of approaches to investment analysis. Firstly, classical financial model was built with Microsoft Excel® and crisp efficiency indicators such as net present value were determined. Secondly, sensitivity analysis was performed to understand different factors influence on project profitability. Thirdly, Datar-Mathews method was applied that by means of Monte Carlo simulation realized with Matlab Simulink®, disclosed all possible outcomes of investment project and enabled real option thinking. Fourthly, previous analysis was duplicated by fuzzy pay-off method with Microsoft Excel®. Finally, decision-making process under capacity mechanism was illustrated with decision tree. Capacity remuneration paid within 15 years is calculated individually for each RE project as variable annuity that guarantees a particular return on investment adjusted on changes in national interest rates. Analysis results indicate that capacity mechanism creates a real option to invest in renewable energy project by ensuring project profitability regardless of market conditions if project-internal factors are managed properly. The latter includes keeping capital expenditures within set limits, production performance higher than 75% of target indicators, and fulfilling localization requirement, implying producing equipment and services within the country. Occurrence of real option shapes decision-making process in the following way. Initially, investor should define appropriate location for a planned power plant where high production performance can be achieved, and lock in this location in case of competition. After, investor should wait until capital cost limit and localization requirement can be met, after that decision to invest can be made without any risk to project profitability. With respect to technology kind, investment into solar PV power plant is more attractive than into wind or small hydro power, since it has higher weighted net present value and lower standard deviation. However, it does not change decision-making strategy that remains the same for each technology type. Fuzzy pay-method proved its ability to disclose the same patterns of information as Monte Carlo simulation. Being effective in investment analysis under uncertainty and easy in use, it can be recommended as sufficient analytical tool to investors and researchers. Apart from described results, this thesis contributes to the academic literature by detailed description of capacity price calculation for renewable energy that was not available in English before. With respect to methodology novelty, such advanced approaches as Datar-Mathews method and fuzzy pay-off method are applied on the top of investment profitability model that incorporates capacity remuneration calculation as well. Comparison of effects of two different RE supporting schemes, namely Russian capacity mechanism and feed-in premium, contributes to policy comparative studies and exhibits useful inferences for researchers and policymakers. Limitations of this research are simplification of assumptions to country-average level that restricts our ability to analyze renewable energy investment region wise and existing limitation of the studying policy to the wholesale power market that leaves retail markets and remote areas without our attention, taking away medium and small investment into renewable energy from the research focus. Elimination of these limitations would allow creating the full picture of Russian renewable energy investment profile.

Siirtyminen ilmaisesta versiosta maksulliseen Spotify-musiikkipalvelussa

Freemiumilla tarkoitetaan liiketoimintamallia, jossa tuotteen perusominaisuudet annetaan kuluttajan käyttöön ilmaiseksi, mutta kehittyneemmät ominaisuudet ja premium-sisältö ovat maksullisia. Freemium-mallissa olennaista on löytää hyvä tasapaino ilmaisversion ja maksullisen version välille. Hyvä ilmainen versio houkuttelee tehokkaasti uusia käyttäjiä, mutta myös maksullisen version tulee tarjota lisäarvoa, jotta käytöstä oltaisiin valmiita myös maksamaan. Tutkielmassa selvitettiin eri tekijöiden, kuten ohjelmaversioiden ominaisuuksien vaikutusta käyttäjien siirtymään ilmaisversiosta maksulliseen musiikin suoratoistopalvelussa, Spotifyssa, sekä tutkittiin arvonmuodostuksen kehitystä ostopäätöksen jälkeen. Tutkimus toteutettiin kvalitatiivisin menetelmin haastattelemalla henkilöitä, joilla oli kokemusta Spotifyn maksullisen version käyttämisestä. Tutkimuksen perusteella eniten vaikutusta konversioon ilmaisversiosta maksulliseen oli versioiden teknisillä eroavaisuuksilla. Näistä tärkeimpiä konversion kannalta olivat ilmaisversion käyttöä heikentävät tai rajoittavat ominaisuudet: Tärkein yksittäinen peruste maksulliseen versioon siirtymiseen oli mainoksista eroon pääseminen, mutta myös kuuntelurajoitukset vaikuttivat päätökseen merkittävästi. Maksullisen version lisäominaisuuksista mobiiliversio ja offline-tila olivat molemmat myös tärkeitä ostopäätöksen kannalta, mutta esimerkiksi maksullisen version paremmalla äänenlaadulla ei juuri ollut vaikutusta konversioon. Teknisten eroavaisuuksien lisäksi ostopäätökseen vaikuttivat myös mm. sosiaaliset tekijät ja olosuhteiden muutokset. Suurin osa käyttäjistä koki maksullisesta versiosta saadun lisäarvon pysyneen samankaltaisena myös ostopäätöksen jälkeen. Jälkeenpäin saadun arvon suhdetta hintaan ei enää arvioitu niin tarkasti kuin ostohetkellä. Teknisten eroavaisuuksien muuttaminen on helpoin tapa vaikuttaa siihen, miten paljon lisäarvoa käyttäjät maksullisesta versiosta saavat. Versioiden eroavaisuuksia säätelemällä pystytään vaikuttamaan siihen, miten suureksi konversioprosentti muodostuu.