Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Chronic exercise preserves lean muscle mass in masters athletes.

Aging is commonly associated with a loss of muscle mass and strength, resulting in falls, functional decline, and the subjective feeling of weakness. Exercise modulates the morbidities of muscle aging. Most studies, however, have examined muscle-loss changes in sedentary aging adults. This leaves the question of whether the changes that are commonly associated with muscle aging reflect the true physiology of muscle aging or whether they reflect disuse atrophy. This study evaluated whether high levels of chronic exercise prevents the loss of lean muscle mass and strength experienced in sedentary aging adults. A cross-section of 40 high-level recreational athletes ("masters athletes") who were aged 40 to 81 years and trained 4 to 5 times per week underwent tests of health/activity, body composition, quadriceps peak torque (PT), and magnetic resonance imaging of bilateral quadriceps. Mid-thigh muscle area, quadriceps area (QA), subcutaneous adipose tissue, and intramuscular adipose tissue were quantified in magnetic resonance imaging using medical image processing, analysis, and visualization software. One-way analysis of variance was used to examine age group differences. Relationships were evaluated using Spearman correlations. Mid-thigh muscle area (P = 0.31) and lean mass (P = 0.15) did not increase with age and were significantly related to retention of mid-thigh muscle area (P < 0.0001). This occurred despite an increase in total body fat percentage (P = 0.003) with age. Mid-thigh muscle area (P = 0.12), QA (P = 0.17), and quadriceps PT did not decline with age. Specific strength (strength per QA) did not decline significantly with age (P = 0.06). As muscle area increased, PT increased significantly (P = 0.008). There was not a significant relationship between intramuscular adipose tissue (P = 0.71) or lean mass (P = 0.4) and PT. This study contradicts the common observation that muscle mass and strength decline as a function of aging alone. Instead, these declines may signal the effect of chronic disuse rather than muscle aging. Evaluation of masters athletes removes disuse as a confounding variable in the study of lower-extremity function and loss of lean muscle mass. This maintenance of muscle mass and strength may decrease or eliminate the falls, functional decline, and loss of independence that are commonly seen in aging adults.

International Olympic Committee consensus statement on thermoregulatory and altitude challenges for high-level athletes

Challenging environmental conditions, including heat and humidity, cold, and altitude, pose particular risks to the health of Olympic and other high-level athletes. As a further commitment to athlete safety, the International Olympic Committee (IOC) Medical Commission convened a panel of experts to review the scientific evidence base, reach consensus, and underscore practical safety guidelines and new research priorities regarding the unique environmental challenges Olympic and other international-level athletes face. For non-aquatic events, external thermal load is dependent on ambient temperature, humidity, wind speed and solar radiation, while clothing and protective gear can measurably increase thermal strain and prompt premature fatigue. In swimmers, body heat loss is the direct result of convection at a rate that is proportional to the effective water velocity around the swimmer and the temperature difference between the skin and the water. Other cold exposure and conditions, such as during Alpine skiing, biathlon and other sliding sports, facilitate body heat transfer to the environment, potentially leading to hypothermia and/or frostbite; although metabolic heat production during these activities usually increases well above the rate of body heat loss, and protective clothing and limited exposure time in certain events reduces these clinical risks as well. Most athletic events are held at altitudes that pose little to no health risks; and training exposures are typically brief and well-tolerated. While these and other environment-related threats to performance and safety can be lessened or averted by implementing a variety of individual and event preventative measures, more research and evidence-based guidelines and recommendations are needed. In the mean time, the IOC Medical Commission and International Sport Federations have implemented new guidelines and taken additional steps to mitigate risk even further.

Effects of Intermittent Training on Anaerobic Performance and MCT Transporters in Athletes.

This study examined the effects of intermittent hypoxic training (IHT) on skeletal muscle monocarboxylate lactate transporter (MCT) expression and anaerobic performance in trained athletes. Cyclists were assigned to two interventions, either normoxic (N; n = 8; 150 mmHg PIO2) or hypoxic (H; n = 10; ∼3000 m, 100 mmHg PIO2) over a three week training (5×1 h-1h30.week-1) period. Prior to and after training, an incremental exercise test to exhaustion (EXT) was performed in normoxia together with a 2 min time trial (TT). Biopsy samples from the vastus lateralis were analyzed for MCT1 and MCT4 using immuno-blotting techniques. The peak power output (PPO) increased (p<0.05) after training (7.2% and 6.6% for N and H, respectively), but VO2max showed no significant change. The average power output in the TT improved significantly (7.3% and 6.4% for N and H, respectively). No differences were found in MCT1 and MCT4 protein content, before and after the training in either the N or H group. These results indicate there are no additional benefits of IHT when compared to similar normoxic training. Hence, the addition of the hypoxic stimulus on anaerobic performance or MCT expression after a three-week training period is ineffective.

Respiratory muscle training enhances maximal minute ventilation and forced vital capacity in adolescent athletes.

Introduction. Respiratory difficulties in athletes are common, especially in adolescents, even in the absence of exercise-induced bronchoconstriction. Immaturity of the respiratory muscles coupling at high respiratory rates could be a potential mechanism. Whether respiratory muscle training (RMT) can positively influence it is yet unknown. Goal. We investigate the effects of RMT on ventilation and performance parameters in adolescent athletes and hypothesize that RMT will enhance respiratory capacity. Methods. 12 healthy subjects (8 male, 4 female, 17±0.5 years) from a sports/study high school class, competitively involved in various sports (minimum of 10 hours per week) underwent respiratory function testing, maximal minute ventilation (MMV) measurements and a maximal treadmill incremental test with VO2max and ventilatory thresholds (VT1 and VT2) determination. They then underwent one month of RMT (4 times/week) using a eucapnic hyperventilation device, with an incremental training program. The same tests were repeated after RMT. Results. Subjects completed 14.8 sessions of RMT, with an increase in total ventilation per session of 211±29% during training. Borg scale evaluation of the RMT session was unchanged or reduced in all subjects, despite an increase in total respiratory work. No changes (p>0.05) were observed pre/post RMT in VO2max (53.4±7.5 vs 51.6±7.7 ml/kg/min), VT2 (14.4±1.4 vs 14.0±1.1 km/h) or Speed max at end of test (16.1±1.7 vs 15.8±1.7 km/h). MVV increased by 9.2% (176.7±36.9 vs 192.9±32.6 l/min, p<0.001) and FVC by 3.3% (6.70±0.75 vs 4.85±0.76 litres, p<0.05). Subjective evaluation of respiratory sensations during exercise and daily living were also improved. Conclusions. RMT improves MMV and FVC in adolescent athletes, along with important subjective respiratory benefits, although no changes are seen in treadmill maximal performance tests and VO2max measurements. RMT can be easily performed in adolescent without side effects, with a potential for improvement in training capacity and overall well-being.

How unethical actions can be learned : the analysis of the sporting life courses of doping athletes

The aim of the present article was to present a specific activity approach called the 'life course of a practice' that could be used for the analysis of the long-term dynamic of learning within diverse social practices. The cases of unethical actions (doping) within a population of high-level athletes were examined, considering they could be fruitful exam- 10 ples for this type of analysis. After describing the theoretical construct 'life course of a practice', the places of these unethical actions in the sporting life courses and elements that characterize their emergence in the long-term dynamics are described. Last, targeted prevention measures of unethical actions over a lifetime are presented.

Putting children first: The role of health psychology in applied child/youth research

Overview Part One • Background/context  – defining and thinking about health • The role of the health psychologist • Promoting the psychosocial well being of children and young people • Early intervention and prevention in Ireland • Intervening in the lives of children with emotional and behavioural difficulties   Part Two • Case-study  – The Incredible Years Ireland Study: theory, practice and research   Part Three • Some key considerations in intervention science for research, policy and practice with children and young people   Sinead McGilloway: Putting children first. The role of health psychology