Modeling Nonlinearities and Asymmetries in Asset Pricing

Financial time series tend to behave in a manner that is not directly drawn from a normal distribution. Asymmetries and nonlinearities are usually seen and these characteristics need to be taken into account. To make forecasts and predictions of future return and risk is rather complicated. The existing models for predicting risk are of help to a certain degree, but the complexity in financial time series data makes it difficult. The introduction of nonlinearities and asymmetries for the purpose of better models and forecasts regarding both mean and variance is supported by the essays in this dissertation. Linear and nonlinear models are consequently introduced in this dissertation. The advantages of nonlinear models are that they can take into account asymmetries. Asymmetric patterns usually mean that large negative returns appear more often than positive returns of the same magnitude. This goes hand in hand with the fact that negative returns are associated with higher risk than in the case where positive returns of the same magnitude are observed. The reason why these models are of high importance lies in the ability to make the best possible estimations and predictions of future returns and for predicting risk.

Short-term Price Behavior and the Effect of Foreign Investors in Finnish Equity Markets (summary section only)

As globalization and capital free movement has increased, so has interest in the effects of that global money flow, especially during financial crises. The concern has been that large global money flows will affect the pricing of small local markets by causing, in particular, overreaction. The purpose of this thesis is to contribute to the body of work concerning short-term under- and overreaction and the short-term effects of foreign investment flow in the small Finnish equity markets. This thesis also compares foreign execution return to domestic execution return. This study’s results indicate that short-term under- and overreaction occurs in domestic-buy portfolios (domestic net buying) rather than in foreign-buy portfolios. This under- and overreaction, however, is not economically meaningful after controlling for the bid-ask bounce effect. Based on this finding, one can conclude that foreign investors do not have a destabilizing effect in the short-term in the Finnish markets. Foreign activity affects short-term returns. When foreign investors are net buyers (sellers) there are positive (negative) market adjusted returns. Literature related to nationality and institutional effect leads us to expect these kind of results. These foreign flows are persistent at a 5 % to 21 % level and the persistence of foreign buy flow is higher than the foreign sell flow. Foreign daily trading execution is worse than domestic execution. Literature which quantifies foreign investors as liquidity demanders and literature related to front-running leads us to expect poorer foreign execution than domestic execution.

Test of the Clustering Hypothesis in the Helsinki Exchanges

This paper investigates the clustering pattern in the Finnish stock market. Using trading volume and time as factors capturing the clustering pattern in the market, the Keim and Madhavan (1996) and the Engle and Russell (1998) model provide the framework for the analysis. The descriptive and the parametric analysis provide evidences that an important determinant of the famous U-shape pattern in the market is the rate of information arrivals as measured by large trading volumes and durations at the market open and close. Precisely, 1) the larger the trading volume, the greater the impact on prices both in the short and the long run, thus prices will differ across quantities. 2) Large trading volume is a non-linear function of price changes in the long run. 3) Arrival times are positively autocorrelated, indicating a clustering pattern and 4) Information arrivals as approximated by durations are negatively related to trading flow.

An Empirical Study of the Mixture of Time and Movements in Prices

This paper investigates the persistent pattern in the Helsinki Exchanges. The persistent pattern is analyzed using a time and a price approach. It is hypothesized that arrival times are related to movements in prices. Thus, the arrival times are defined as durations and formulated as an Autoregressive Conditional Duration (ACD) model as in Engle and Russell (1998). The prices are defined as price changes and formulated as a GARCH process including duration measures. The research question follows from market microstructure predictions about price intensities defined as time between price changes. The microstructure theory states that long transaction durations might be associated with both no news and bad news. Accordingly, short durations would be related to high volatility and long durations to low volatility. As a result, the spread will tend to be larger under intensive moments. The main findings of this study are 1) arrival times are positively autocorrelated and 2) long durations are associated with low volatility in the market.

On the Importance of Mutual Fund Families in Emerging Markets

This study contributes to the mutual fund literature by looking at performance persistence on a fund family level, allowing for individual equity, bond and balanced funds to be included under single family umbrellas. The study is conducted on the emerging Finnish mutual fund market, an environment in which the importance of superior fund family teams is likely to be accentuated. Using both non–parametric and parametric tests we find robust evidence of performance persistence for the fund families. Persistence is particularly strong in the first half of the investigation period, which highlights the importance of fund families at early stages of market development.

Robust/optimal temperature profile control using neural networks

An approximate dynamic programming (ADP) based neurocontroller is developed for a heat transfer application. Heat transfer problem for a fin in a car's electronic module is modeled as a nonlinear distributed parameter (infinite-dimensional) system by taking into account heat loss and generation due to conduction, convection and radiation. A low-order, finite-dimensional lumped parameter model for this problem is obtained by using Galerkin projection and basis functions designed through the 'Proper Orthogonal Decomposition' technique (POD) and the 'snap-shot' solutions. A suboptimal neurocontroller is obtained with a single-network-adaptive-critic (SNAC). Further contribution of this paper is to develop an online robust controller to account for unmodeled dynamics and parametric uncertainties. A weight update rule is presented that guarantees boundedness of the weights and eliminates the need for persistence of excitation (PE) condition to be satisfied. Since, the ADP and neural network based controllers are of fairly general structure, they appear to have the potential to be controller synthesis tools for nonlinear distributed parameter systems especially where it is difficult to obtain an accurate model.

Non-periodic tilings in 2-dimensions with 4, 6, 8, 10 and 12-fold symmetries

The two dimensional plane can be filled with rhombuses, so as to generate non-periodic tilings with 4, 6, 8, 10 and 12-fold symmetries. Some representative tilings constructed using the rule of inflation are shown. The numerically computed diffraction patterns for the corresponding tilings are also shown to facilitate a comparison with possible X-ray or electron diffraction pictures.

Molecular characterization of sediment bacterial communities affected by fish farming

Fish farming introduces nutrients, microbes and a wide variety of chemicals such as heavy metals, antifoulants and antibiotics to the surrounding environment. Introduction of antibiotics has been linked with the increased incidence of antibiotic resistant pathogenic bacteria in the farm vicinities. In this thesis molecular methods such as quantitative PCR and DNA sequencing were applied to analyze bacterial communities in sediments from fish farms and pristine locations. Altogether four farms and four pristine sites were sampled in the Baltic Sea. Two farm and two pristine locations were sampled over a surveillance period of four years. Furthermore, a new methodology was developed as a part of the study that permits amplifying single microbial genomes and capturing them according to any genetic traits, including antibiotic resistance genes. The study revealed that several resistance genes for tetracycline were found at the sediment underneath the aquaculture farms. The copy number of these genes remained elevated even at a farm that had not used any antibiotics since year 2000, six years before this study started. Similarly, an increase in the amount of mercury resistance gene merA was observed at the aquaculture sediment. The persistence of the resistance genes in absence of any selection pressure from antibiotics or heavy metals suggests that the genes may be introduced to the sediment by the farming process. This is also supported by the diversity pattern of the merA gene between farm and pristine sediments. The bacterial community-level changes in response to fish farming were very complex and no single phylogenetic groups were found that would be typical to fish farm sediments. However, the community structures had some correlation with the exposure to fish farming. Our studies suggest that the established approaches to deal with antibiotic resistance at the aquaculture, such as antibiotic cycling, are fundamentally flawed because they cannot prevent the introduction of the resistance genes and resistant bacteria to the farm area by the farming process. Further studies are required to study the entire fish farming process to identify the sources of the resistance genes and the resistant bacteria. The results also suggest that in order to prevent major microbiological changes in the surrounding aquatic environment, the farms should not be founded in shallow water where currents do not transport sedimenting matter from the farms. Finally, the technique to amplify and select microbial genomes will potentially have a considerable impact in microbial ecology and genomics.

Interannual Variations of Sea Surface Temperature over the Arabian Sea and the Indian Monsoon: A New Perspective

The interannual variation of surface fields over the Arabian Sea and Bay of Bengal are studied using data between 1900 and 1979. It is emphasized that the monthly mean sea surface temperature (SST) over the north Indian Ocean and monsoon rainfall are significantly affected by synoptic systems and other intraseasonal variations. To highlight the interannual signals it is important to remove the large-amplitude high-frequency noise and very low frequency long-term trends, if any. By suitable spatial and temporal averaging of the SST and the rainfall data and by removing the long-term trend from the SST data, we have been able to show that there exists a homogeneous region in the southeastern Arabian Sea over which the March�April (MA) SST anomalies are significantly correlated with the seasonal (June�September) rainfall over India. A potential of this premonsoon signal for predicting the seasonal rainfall over India is indicated. It is shown that the correlation between the SST and the seasonal monsoon rainfall goes through a change of sign from significantly positive with premonsoon SST to very small values with SST during the monsoon season and to significantly negative with SST during the post-monsoon months. For the first time, we have demonstrated that heavy or deficient rainfall years are associated with large-scale coherent changes in the SST (although perhaps of small amplitude) over the north Indian 0cean. We also indicate possible reasons for the apparent lack of persistence of the premonsoon SST anomalies.

Associations of interleukin-1 (IL-1) gene variation and IL-1 receptor antagonist phenotypes with immunological responses, metabolic dysregulation and type 2 diabetes

The upstream proinflammatory interleukin-1 (IL-1) cytokines, together with a naturally occurring IL-1 receptor antagonist (IL-1Ra), play a significant role in several diseases and physiologic conditions. The IL-1 proteins affect glucose homeostasis at multiple levels contributing to vascular injuries and metabolic dysregulations that precede diabetes. An association between IL-1 gene variations and IL-1Ra levels has been suggested, and genetic studies have reported associations with metabolic dysregulation and altered inflammatory responses. The principal aims of this study were to: 1) examine the associations of IL-1 gene variation and IL-1Ra expression in the development and persistence of thyroid antibodies in subacute thyroiditis; 2) investigate the associations of common variants in the IL-1 gene family with plasma glucose and insulin concentrations, glucose homeostasis measures and prevalent diabetes in a representative population sample; 3) investigate genetic and non-genetic determinants of IL-1Ra phenotypes in a cross-sectional setting in three independent study populations; 4) investigate in a prospective setting (a) whether variants of the IL-1 gene family are predictors for clinically incident diabetes in two population-based observational cohort studies; and (b) whether the IL-1Ra levels predict the progression of metabolic syndrome to overt diabetes during the median follow-up of 10.8 and 7.1 years. Results from on patients with subacte thyroiditis showed that the systemic IL-1Ra levels are elevated during a specific proinflammatory response and they correlated with C-reactive protein (CRP) levels. Genetic variation in the IL-1 family seemed to have an association with the appearance of thyroid peroxidase antibodies and persisting local autoimmune responses during the follow-up. Analysis of patients suffering from diabetes and metabolic traits suggested that genetic IL-1 variation and IL-1Ra play a role in glucose homeostasis and in the development of type 2 diabetes. The coding IL-1 beta SNP rs1143634 was associated with traits related to insulin resistance in cross-sectional analyses. Two haplotype variants of the IL-1 beta gene were associated with prevalent diabetes or incident diabetes in a prospective setting and both of these haplotypes were tagged by rs1143634. Three variants of the IL-1Ra gene and one of the IL-1 beta gene were consistently identified as significant, independent determinants of the IL-1Ra phenotype in two or three populations. The proportion of the phenotypic variation explained by the genetic factors was modest however, while obesity and other metabolic traits explained a larger part. Body mass index was the strongest predictor of systemic IL-1Ra concentration overall. Furthermore, the age-adjusted IL-1Ra concentrations were elevated in individuals with metabolic syndrome or diabetes when compared to those free of metabolic dysregulation. In prospective analyses the systemic IL-1Ra levels were found as independent predictors for the development of diabetes in people with metabolic syndrome even after adjustment for multiple other factors, including plasma glucose and CRP levels. The predictive power of IL-1Ra was better than that of CRP. The prospective results also provided some evidence for a role of common IL-1 alpha promoter SNP rs1800587 in the development of type 2 diabetes among men and suggested that the role may be gender specific. Likewise, common variations in the IL-1 beta coding region may have a gender specific association with diabetes development. Further research on the potential benefits of IL-1Ra measurements in identifying individuals at high risk for diabetes, who then could be targeted for specific treatment interventions, is warranted. It has been reported in the recent literature that IL-1Ra secreted from adipose tissue has beneficial effects on glucose homeostasis. Furthermore, treatment with recombinant human IL-1Ra has been shown to have a substantial therapeutic potential. The genetic results from the prospective analyses performed in this study remain inconclusive, but together with the cross-sectional analyses they suggest gender-specific effects of the IL-1 variants on the risk of diabetes. Larger studies with more extensive genotyping and resequencing may help to pinpoint the exact variants responsible and to further elucidate the biological mechanisms for the observed associations. This would improve our understanding of the pathways linking inflammation and obesity with glucose and insulin metabolism.

Nonlinear mixture autoregressive model: economic applications

The aim of this dissertation is to model economic variables by a mixture autoregressive (MAR) model. The MAR model is a generalization of linear autoregressive (AR) model. The MAR -model consists of K linear autoregressive components. At any given point of time one of these autoregressive components is randomly selected to generate a new observation for the time series. The mixture probability can be constant over time or a direct function of a some observable variable. Many economic time series contain properties which cannot be described by linear and stationary time series models. A nonlinear autoregressive model such as MAR model can a plausible alternative in the case of these time series. In this dissertation the MAR model is used to model stock market bubbles and a relationship between inflation and the interest rate. In the case of the inflation rate we arrived at the MAR model where inflation process is less mean reverting in the case of high inflation than in the case of normal inflation. The interest rate move one-for-one with expected inflation. We use the data from the Livingston survey as a proxy for inflation expectations. We have found that survey inflation expectations are not perfectly rational. According to our results information stickiness play an important role in the expectation formation. We also found that survey participants have a tendency to underestimate inflation. A MAR model has also used to model stock market bubbles and crashes. This model has two regimes: the bubble regime and the error correction regime. In the error correction regime price depends on a fundamental factor, the price-dividend ratio, and in the bubble regime, price is independent of fundamentals. In this model a stock market crash is usually caused by a regime switch from a bubble regime to an error-correction regime. According to our empirical results bubbles are related to a low inflation. Our model also imply that bubbles have influences investment return distribution in both short and long run.

Association between molecular variation in the phosphoglucose isomerase (Pgi) locus and migration propensity in the Glanville fritillary butterfly

Habitat fragmentation produces patches of suitable habitat surrounded by unfavourable matrix habitat. A species may persist in such a fragmented landscape in an equilibrium between the extinctions and recolonizations of local populations, thus forming a metapopulation. Migration between local populations is necessary for the long-term persistence of a metapopulation. The Glanville fritillary butterfly (Melitaea cinxia) forms a metapopulation in the Åland islands in Finland. There is migration between the populations, the extent of which is affected by several environmental factors and variation in the phenotype of individual butterflies. Different allelic forms of the glycolytic enzyme phosphoglucose isomerase (Pgi) has been identified as a possible genetic factor influencing flight performance and migration rate in this species. The frequency of a certain Pgi allele, Pgi-f, follows the same pattern in relation to population age and connectivity as migration propensity. Furthermore, variation in flight metabolic performance, which is likely to affect migration propensity, has been linked to genetic variation in Pgi or a closely linked locus. The aim of this study was to investigate the association between Pgi genotype and the migration propensity in the Glanville fritillary both at the individual and population levels using a statistical modelling approach. A mark-release-recapture (MRR) study was conducted in a habitat patch network of M. cinxia in Åland to collect data on the movements of individual butterflies. Larval samples from the study area were also collected for population level examinations. Each butterfly and larva was genotyped at the Pgi locus. The MRR data was parameterised with two mathematical models of migration: the Virtual Migration Model (VM) and the spatially explicit diffusion model. VM model predicted and observed numbers of emigrants from populations with high and low frequencies of Pgi-f were compared. Posterior predictive data sets were simulated based on the parameters of the diffusion model. Lack-of-fit of observed values to the model predicted values of several descriptors of movements were detected, and the effect of Pgi genotype on the deviations was assessed by randomizations including the genotype information. This study revealed a possible difference in the effect of Pgi genotype on migration propensity between the two sexes in the Glanville fritillary. The females with and males without the Pgi-f allele moved more between habitat patches, which is probably related to differences in the function of flight in the two sexes. Females may use their high flight capacity to migrate between habitat patches to find suitable oviposition sites, whereas males may use it to acquire mates by keeping a territory and fighting off other intruding males, possibly causing them to emigrate. The results were consistent across different movement descriptors and at the individual and population levels. The effect of Pgi is likely to be dependent on the structure of the landscape and the prevailing environmental conditions.

How to write a passable technical paper

In my job I see many students who have not learned to write a technical paper. When they do competent work, I want them to be able to write passable reports. This article is for them. There are well established principles for citing the relevant work of others; for not copying things without giving credit; for not stealing. If a reader feels you have copied anything, a figure, even a phrase, from elsewhere without citing its source, then you are guilty of plagiarism in the eyes of that reader. Committing plagiarism is so bad that I cannot do justice to it here. So I merely say: never do it. On, then, to writing your own honest and original material. Art requires talent. In contrast, through discipline and persistence alone, you can learn how to differentiate functions and ride bicycles. Similarly, you can write a passable technical paper. You just have to realize that your job does not end with research. Writing a passable paper involves extra work.

How do heterogametic females survive without gene dosage compensation?

When the male is the heterogametic sex (XX♀-XY♂ or XX♀-XO♂), as inDrosophila, orthopteran insects, mammals andCaenorhabditis elegans, X-linked genes are subject to dosage compensation: the single X in the male is functionally equivalent to the two Xs in the female. However, when the female is heterogametic (ZZ♂-ZW♀), as in birds, butterflies and moths, Z-linked genes are apparently not dosage-compensated. This difference between X-linked and Z-linked genes raises fundamental questions about the role of dosage compensation. It is argued that (i) genes which require dosage compensation are primarily those that control morphogenesis and the prospective body plan; (ii) the products of these genes are required in disomic doses especially during oogenesis and early embryonic development; (iii) heterogametic females synthesize and store during oogenesis itself morphogenetically essential gene products - including those encoded by Z-linked genes — in large quantities; (iv) the abundance of these gene products in the egg and their persistence relatively late into embryogenesis enables heterogametic females to overcome the monosomic state of the Z chromosome in ZW embryos. Female heterogamety is predominant in birds, reptiles and amphibians, all of which have megalecithal eggs containing several thousand times more maternal RNA and other maternal messages than eggs of mammals,Caenorhabditis elegans, orDrosophila. This increase in egg size, yolk content and, concomitantly, the size of the maternal legacy to the embryo, may have facilitated female heterogamety and the absence of dosage compensation.

Bovine mastitis caused by coagulase-negative staphylococci : host response and bacterial factors

Coagulase-negative staphylococci (CNS) are the most common bacteria isolated in bovine subclinical mastitis in many countries, and also a frequent cause of clinical mastitis. The most common species isolated are Staphylococcus (S) chromogenes, S. simulans, S. epidermidis, and S. xylosus. One half of the intramammary infections (IMI) caused by CNS persist in the udder. The pathogenesis of IMI caused by CNS is poorly understood. This dissertation focuses on host response in experimental intramammary infection induced by S. chromogenes, S. epidermidis and S. simulans. Model for a mild experimental CNS infection was developed with S. chromogenes (study I). All cows were infected and most developed subclinical mastitis. In study II the innate immune response to S. epidermidis and S. simulans IMI was compared in eight cows using a crossover design. A larger dose of bacteria was used to induce clinical mastitis. All cows became infected and showed mild to moderate clinical signs of mastitis. S. simulans caused a slightly stronger innate immune response than S. epidermidis, with significantly higher concentrations of the interleukins IL-1beta and IL-8 in the milk. The spontaneous elimination rate of the 16 IMIs was 31%, with no difference between species. No significant differences were recorded between infections eliminated spontaneously or remaining persistent, although the response was stronger in IMIs eliminated spontaneously, except the concentration of TNF-α, which remained elevated in persistent infections. Lactoferrin (Lf) is a component of the humoral defence of the host and is present at low concentrations in the milk. The concentration of Lf in milk is high during the dry period, in colostrum, and in mastitic milk. The effect of an inherent, high concentration of Lf in the milk on experimental IMI induced with S. chromogenes was studied in transgenic cows that expressed recombinant human Lf in their milk. Human Lf did not prevent S. chromogenes IMI, but the host response was milder in transgenic cows than in normal cows, and the former eliminated infection faster. Biofilm production has been suggested to promote persistence of IMI. Phenotypic biofilm formation and slime producing ability of CNS isolates from bovine mastitis was investigated in vitro. One-third of mastitis isolates produced biofilm. Slime production was less frequent for isolates of the most common mastitis causing species S. chromogenes and S. simulans compared with S. epidermidis. No association was found between the phenotypic ability to form biofilm and the persistence of IMI or severity of mastitis. Slime production was associated with persistent infections, but only 8% of isolates produced slime.