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.

Three essays in risk management in financial institutions

The choice to adopt risk-sensitive measurement approaches for operational risks: the case of Advanced Measurement Approach under Basel II New Capital Accord This paper investigates the choice of the operational risk approach under Basel II requirements and whether the adoption of advanced risk measurement approaches allows banks to save capital. Among the three possible approaches for operational risk measurement, the Advanced Measurement Approach (AMA) is the most sophisticated and requires the use of historical loss data, the application of statistical tools, and the engagement of a highly qualified staff. Our results provide evidence that the adoption of AMA is contingent on the availability of bank resources and prior experience in risk-sensitive operational risk measurement practices. Moreover, banks that choose AMA exhibit low requirements for capital and, as a result might gain a competitive advantage compared to banks that opt for less sophisticated approaches. - Internal Risk Controls and their Impact on Bank Solvency Recent cases in financial sector showed the importance of risk management controls on risk taking and firm performance. Despite advances in the design and implementation of risk management mechanisms, there is little research on their impact on behavior and performance of firms. Based on data from a sample of 88 banks covering the period between 2004 and 2010, we provide evidence that internal risk controls impact the solvency of banks. In addition, our results show that the level of internal risk controls leads to a higher degree of solvency in banks with a major shareholder in contrast to widely-held banks. However, the relationship between internal risk controls and bank solvency is negatively affected by BHC growth strategies and external restrictions on bank activities, while the higher regulatory requirements for bank capital moderates positively this relationship. - The Impact of the Sophistication of Risk Measurement Approaches under Basel II on Bank Holding Companies Value Previous research showed the importance of external regulation on banks' behavior. Some inefficient standards may accentuate risk-taking in banks and provoke a financial crisis. Despite the growing literature on the potential effects of Basel II rules, there is little empirical research on the efficiency of risk-sensitive capital measurement approaches and their impact on bank profitability and market valuation. Based on data from a sample of 66 banks covering the period between 2008 and 2010, we provide evidence that prudential ratios computed under Basel II standards predict the value of banks. However, this relation is contingent on the degree of sophistication of risk measurement approaches that banks apply. Capital ratios are effective in predicting bank market valuation when banks adopt the advanced approaches to compute the value of their risk-weighted assets.

Comparison of three antigenic extracts of Eurotium amstelodami in serological diagnosis of farmer's lung disease.

In France and Finland, farmer's lung disease (FLD), a hypersensitivity pneumonitis common in agricultural areas, is mainly caused by Eurotium species. The presence of antibodies in patients' serum is an important criterion for diagnosis. Our study aimed to improve the serological diagnosis of FLD by using common fungal particles that pollute the farm environment as antigens. Fungal particles of the Eurotium species were observed in handled hay. A strain of Eurotium amstelodami was grown in vitro using selected culture media; and antigen extracts from sexual (ascospores), asexual (conidia), and vegetative (hyphae) forms were made. Antigens were tested by enzyme-linked immunosorbent assay (ELISA), which was used to test for immunoglobulin G antibodies from the sera of 17 FLD patients, 40 healthy exposed farmers, and 20 nonexposed controls. The antigens were compared by receiver operating characteristic analysis, and a threshold was then established. The ascospores contained in asci enclosed within cleistothecia were present in 38% of the hay blades observed; conidial heads of aspergillus were less prevalent. The same protocol was followed to make the three antigen extracts. A comparison of the results for FLD patients and exposed controls showed the area under the curve to be 0.850 for the ascospore antigen, 0.731 for the conidia, and 0.690 for the hyphae. The cutoffs that we determined, with the standard deviation for measures being taken into account, showed 67% for sensitivity and 92% for specificity with the ascospore antigen. In conclusion, the serological diagnosis of FLD by ELISA was improved by the adjunction of ascospore antigen.

Three-dimensional aspects of fluid flows in channels. II. Effects of meniscus and thin film regimes on viscous fingers

We perform a three-dimensional study of steady state viscous fingers that develop in linear channels. By means of a three-dimensional lattice-Boltzmann scheme that mimics the full macroscopic equations of motion of the fluid momentum and order parameter, we study the effect of the thickness of the channel in two cases. First, for total displacement of the fluids in the channel thickness direction, we find that the steady state finger is effectively two-dimensional and that previous two-dimensional results can be recovered by taking into account the effect of a curved meniscus across the channel thickness as a contribution to surface stresses. Second, when a thin film develops in the channel thickness direction, the finger narrows with increasing channel aspect ratio in agreement with experimental results. The effect of the thin film renders the problem three-dimensional and results deviate from the two-dimensional prediction.

Three-dimensional aspects of fluid flows in channels. I. Meniscus and thin film regimes

We study the forced displacement of a fluid-fluid interface in a three-dimensional channel formed by two parallel solid plates. Using a lattice-Boltzmann method, we study situations in which a slip velocity arises from diffusion effects near the contact line. The difference between the slip and channel velocities determines whether the interface advances as a meniscus or a thin film of fluid is left adhered to the plates. We find that this effect is controlled by the capillary and Péclet numbers. We estimate the crossover from a meniscus to a thin film and find good agreement with numerical results. The penetration regime is examined in the steady state. We find that the occupation fraction of the advancing finger relative to the channel thickness is controlled by the capillary number and the viscosity contrast between the fluids. For high viscosity contrast, lattice-Boltzmann results agree with previous results. For zero viscosity contrast, we observe remarkably narrow fingers. The shape of the finger is found to be universal.

Dynamics of driven three-dimensional thin films: from hdrophilic to superhydrophobic substrates

We study the forced displacement of a thin film of fluid in contact with vertical and inclined substrates of different wetting properties, that range from hydrophilic to hydrophobic, using the lattice-Boltzmann method. We study the stability and pattern formation of the contact line in the hydrophilic and superhydrophobic regimes, which correspond to wedge-shaped and nose-shaped fronts, respectively. We find that contact lines are considerably more stable for hydrophilic substrates and small inclination angles. The qualitative behavior of the front in the linear regime remains independent of the wetting properties of the substrate as a single dispersion relation describes the stability of both wedges and noses. Nonlinear patterns show a clear dependence on wetting properties and substrate inclination angle. The effect is quantified in terms of the pattern growth rate, which vanishes for the sawtooth pattern and is finite for the finger pattern. Sawtooth shaped patterns are observed for hydrophilic substrates and low inclination angles, while finger-shaped patterns arise for hydrophobic substrates and large inclination angles. Finger dynamics show a transient in which neighboring fingers interact, followed by a steady state where each finger grows independently.

Soil losses from typic cambisols and red latosol as related to three erosive rainfall patterns

Rainfall erosivity is one of the main factors related to water erosion in the tropics. This work focused on relating soil loss from a typic dystrophic Tb Haplic Cambisol (CXbd) and a typic dystrophic Red Latosol (LVdf) to different patterns of natural erosive rainfall. The experimental plots of approximately 26 m² (3 x 8.67 m) consisted of a CXbd area with a 0.15 m m-1 slope and a LVdf area with 0.12 m m-1 slope, both delimited by galvanized plates. Drainpipes were installed at the lower part of these plots to collect runoff, interconnected with a Geib or multislot divisor. To calculate erosivity (EI30), rainfall data, recorded continuously at a weather station in Lavras, were used. The data of erosive rainfall events were measured (10 mm precipitation intervals, accuracy 0.2 mm, 24 h period, 20 min intervals), characterized as rainfall events with more than 10 mm precipitation, maximum intensity > 24 mm h-1 within 15 min, or kinetic energy > 3.6 MJ, which were used in this study to calculate the rainfall erosivity parameter, were classified according to the moment of peak precipitation intensity in advanced, intermediate and delayed patterns. Among the 139 erosive rainfall events with CXbd soil loss, 60 % were attributed to the advanced pattern, with a loss of 415.9 Mg ha-1, and total losses of 776.0 Mg ha-1. As for the LVdf, of the 93 erosive rainfall events with soil loss, 58 % were listed in the advanced pattern, with 37.8 Mg ha-1 soil loss and 50.9 Mg ha-1 of total soil loss. The greatest soil losses were observed in the advanced rain pattern, especially for the CXbd. From the Cambisol, the soil loss per rainfall event was greatest for the advanced pattern, being influenced by the low soil permeability.

Damn Platonism! Concrete Persons' Skin, Flesh and Bodies: Three Phases of a Won Battle in Miquel Àngel Riera's poetry

The aim of this article is to show how, throughout M. A. Riera's poetry, an evident anti-metaphysical sensibility can be easily detected, which in its turn makes the poet to praise concrete person's skin, flesh and bodies, thus avoiding any personal Platonic or idealistic experience of human love. In the author's opinion, an accurate reading of his poems makes us discover Plato and Platonism as one of the great responsible thinkers for the contempt of carnal love, which has been undoubtedly the origin of a real human pain as a result of denying the somatic side of eros.

Complicated intra-abdominal infections in Europe: preliminary data from the first three months of the CIAO Study.

The CIAO Study is a multicenter observational study currently underway in 66 European medical institutions over the course of a six-month study period (January-June 2012).This preliminary report overviews the findings of the first half of the study, which includes all data from the first three months of the six-month study period.Patients with either community-acquired or healthcare-associated complicated intra-abdominal infections (IAIs) were included in the study.912 patients with a mean age of 54.4 years (range 4-98) were enrolled in the study during the first three-month period. 47.7% of the patients were women and 52.3% were men. Among these patients, 83.3% were affected by community-acquired IAIs while the remaining 16.7% presented with healthcare-associated infections. Intraperitoneal specimens were collected from 64.2% of the enrolled patients, and from these samples, 825 microorganisms were collectively identified.The overall mortality rate was 6.4% (58/912). According to univariate statistical analysis of the data, critical clinical condition of the patient upon hospital admission (defined by severe sepsis and septic shock) as well as healthcare-associated infections, non-appendicular origin, generalized peritonitis, and serious comorbidities such as malignancy and severe cardiovascular disease were all significant risk factors for patient mortality.White Blood Cell counts (WBCs) greater than 12,000 or less than 4,000 and core body temperatures exceeding 38°C or less than 36°C by the third post-operative day were statistically significant indicators of patient mortality.

Description of three new arctic bramble cultivars and proposal for cultivar identification

Selostus: Kolmen uuden mesimarjalajikkeen kuvaukset ja lajikekuvausohjeet mesimarjalle ja jalomaaraimelle

Three faces of Midwestern isolationism,1981.

The papers presented in this volume were delivered at a conference held on April 2, 1980, in Iowa City under the sponsorship of the Center for the Study of the Recent History of the United States, a cooperative undertaking involving the State Historical Society of Iowa, the Herbert Hoover Presidential Library, and the University of Iowa. The institutions were working together to make a larger contribution to the study of the history of the United States in the 20th century.