Trading the changes of stock market index composition: Evidence from European markets

This paper studies the changes in European stock market indexes composition from 1995 to 2015. It was found that there are mixed price effects producing abnormal returns around the effective replacement of added and deleted stocks. The price pressure hypothesis seems to hold for added stocks in some indexes but not for deleted stocks as there is not a clear inversion of behaviour after the replacement. Finally, the building and back testing of a trading strategy aiming to capture some of those abnormal returns shows it yields a Sharpe Ratio of 1.4 and generates an annualised alpha of 11%.

Common and Idiosyncratic Factors of the Exchange Risk Premium in Emerging European Markets

Existing empirical evidence suggests that the Uncovered Interest Rate Parity (UIRP) condition may not hold due to an exchange risk premium. For a panel data set of eleven emerging European economies we decompose this exchange risk premium into an idiosyncratic (country-specific) elements and a common factor using a principal components approach. We present evidence of a stationary idiosyncratic component and nonstationary common factor. This result leads to the conclusion of a nonstationary risk premium for these countries and a violation of the UIRP in the long-run, which is in contrast to previous studies often documenting a stationary premium in developed countries. Furthermore, we report that the variation in the premium is largely attributable to a common factor influenced by economic developments in the United States.

Sovereign Credit Rating Announcements and Equity Market Response: Evidence from the European Markets

This thesis examines the equity market reactions on credit rating announcements. The study covers 12 European countries during the period of 2000-2012. By using an event study methodology and daily collected stock market returns, the impact of the sovereign credit rating announcements to national stock indices is examined. The thesis finds evidence for the rating downgrades having a statistically significant negative effect on the stock markets. This finding is in line with earlier literature (see Brooks, 2004). The paper also discusses whether the changes in the sovereign credit ratings are contagious, anticipated by the market, and persistent. There is some evidence found for the contagion effects in case of downgrades, but not for upgrades. Markets seem to anticipate rating upgrades, but not downgrades. In addition, market´s reaction towards rating announcements seems not to be persistent.

Ownership Advantages in Cross-border Real Estate Development: Some Evidence from European Markets

Drawing upon European industry and country case studies, this paper investigates the scope and drivers of cross-border real estate development. It is argued that the real estate development process encompasses a diverse range of activities and actors. It is inherently localised, the production process is complex and emphermal, and the outputs are heterogeneous. It analyses a transactions database of European real estate markets to provide insights into the extent of, and variations in, market penetration by non-domestic real estate developers. The data were consistent with the expectation that non-domestic real estate developers from mature markets would have a high level of market penetration in immature markets. Compared to western European markets, the CEE real estate office sales by developers were dominated by US, Israeli and other EU developers. This pattern is consistent with the argument that non-domestic developers have substantial Dunning-type ownership advantages when entering immature real estate markets. However, the data also suggested some unexpected patterns. Relative to their GDP, Austria, Belgium, Denmark, Sweden, Netherlands and Israel accounted for large proportions of sales by developers. All are EU countries (except Israel) with small, open, affluent, highly traded economies. Further, the data also indicate that there may be a threshold where locational disadvantages outweigh ownership advantages and deter cross-border real estate development.

Evidence of cycles in European commercial real estate markets and some hypotheses

In this paper, we seek to achieve four objectives. First, we provide some contextual material concerning the performance of the UK real estate market relative to stocks and bonds over a long period. Second, we provide UK – and some non-UK European - evidence of the tendency for property demand, supply, prices and returns to fluctuate around their long term trends or averages. Third, we briefly examine some hypotheses which suggest institutional contributions to property cycles in European markets. Fourth, we suggest some reasons why the future may not be as cyclical as the past.

Breaking the boundaries. The transformation of Central European gas markets. OSW Point of View Number 46, December 2014

According to the European Council decision of February 2011, the process of creating the European Union’s internal gas market should be completed by the end of 2014. Therefore, it is worth summarising the changes which have taken place in the gas markets of Central Europe so far. The past few years have seen not only a period of gradual ‘marketisation’ of the national gas sectors, but also the building of new gas infrastructure, a redrawing of the gas flow map, and changes in the ownership of the Central European gas companies. Another change in Central Europe is the fact that individual states and companies are moving away from their traditional focus on their national gas markets; instead, they are beginning to develop a variety of concepts for the regional integration of Central European markets. This publication attempts to grasp the main elements of the ongoing transformation of Central Europe’s gas markets, with particular emphasis on the situation in Poland, the Czech Republic, Slovakia and Hungary.

Modeling equity market integration using smooth transition analysis:a study of Eastern European stock markets

This paper assesses the extent to which the equity markets of Hungary, Poland the Czech Republic and Russia have become less segmented. Using a variety of tests it is shown there has been a consistent increase in the co-movement of some Eastern European markets and developed markets. Using the variance decompositions from a vector autoregressive representation of returns it is shown that for Poland and Hungary global factors are having an increasing influence on equity returns, suggestive of increased equity market integration. In this paper we model a system of bivariate equity market correlations as a smooth transition logistic trend model in order to establish how rapidly the countries of Eastern Europe are moving away from market segmentation. We find that Hungary is the country which is becoming integrated the most quickly. © 2005 ELsevier Ltd. All rights reserved.

Developing markets of energy biomass – local and global perspectives

The thesis explores global and national-level issues related to the development of markets for biomass for energy. The thesis consists of five separate papers and provides insights on selected issues. The aim of Paper I was to identify methodological and statistical challenges in assessing international solid and liquid biofuels trade and provide an overview of the Finnish situation with respect to the status of international solid and liquid biofuels trade. We found that, for the Finnish case, it is possible to qualify direct and indirect trade volumes of biofuels. The study showed that indirect trade of biofuels has a highly significant role in Finland and may be a significant sector also in global biofuels trade. The purpose of Paper II was to provide a quantified insight into Finnish prospects for meeting the national 2020 renewable energy targets and concurrently becoming a largescale producer of forest-biomass-based second-generation biofuels for feeding increasing demand in European markets. We found that Finland has good opportunities to realise a scenario to meet 2020 renewable energy targets and for large-scale production of wood-based biofuels. The potential net export of transport biofuels from Finland in 2020 would correspond to 2–3% of European demand. Paper III summarises the global status of international solid and liquid biofuels trade as illuminated by several separate sources. International trade of biofuels was estimated at nearly 1 EJ for 2006. Indirect trade of biofuels through trading of industrial roundwood and material by-products comprises the largest proportion of the trading, with a share of about two thirds. The purpose of Paper IV was to outline a comprehensive picture of the coverage of various certification schemes and sustainability principles relating to the entire value-added chain of biomass and bioenergy. Regardless of the intensive work that has been done in the field of sustainability schemes and principles concerning use of biomass for energy, weaknesses still exist. The objective of Paper V was to clarify the alternative scenarios for the international biomass market until 2020 and identify the underlying steps needed toward a wellfunctioning and sustainable market for biomass for energy purposes. An overall conclusion drawn from this analysis concerns the enormous opportunities related to the utilisation of biomass for energy in the coming decades.

Container logistic innovations in forest-energy sector: Markets, future service concepts and technical improvements

The report presents the results of the commercialization project called the Container logistic services for forest bioenergy. The project promotes new business that is emerging around overall container logistic services in the bioenergy sector. The results assess the European markets of the container logistics for biomass, enablers for new business creation and required service bundles for the concept. We also demonstrate the customer value of the container logistic services for different market segments. The concept analysis is based on concept mapping, quality function deployment process (QFD) and business network analysis. The business network analysis assesses key shareholders and their mutual connections. The performance of the roadside chipping chain is analysed by the logistic cost simulation, RFID system demonstration and freezing tests. The EU has set the renewable energy target to 20 % in 2020 of which Biomass could account for two-thirds. In the Europe, the production of wood fuels was 132.9 million solid-m3 in 2012 and production of wood chips and particles was 69.0 million solidm3. The wood-based chips and particle flows are suitable for container transportation providing market of 180.6 million loose- m3 which mean 4.5 million container loads per year. The intermodal logistics of trucks and trains are promising for the composite containers because the biomass does not freeze onto the inner surfaces in the unloading situations. The overall service concept includes several packages: container rental, container maintenance, terminal services, RFID-tracking service, and simulation and ERP-integration service. The container rental and maintenance would provide transportation entrepreneurs a way to increase the capacity without high investment costs. The RFID-concept would lead to better work planning improving profitability throughout the logistic chain and simulation supports fuel supply optimization.

Measuring European real estate investment performance: A comparison of different approaches

The performance of real estate investment markets is difficult to monitor because the constituent assets are heterogeneous, are traded infrequently and do not trade through a central exchange in which prices can be observed. To address this, appraisal based indices have been developed that use the records of owners for whom buildings are regularly re-valued. These indices provide a practical solution to the measurement problem, but have been criticised for understating volatility and not capturing market turning points in a timely manner. This paper evaluates alternative ‘Transaction Linked Indices’ that are estimated using an extension of the hedonic method for index construction and with Investment Property Databank data. The two types of indices are compared over Q4 2001 to Q4 2012 in order to examine whether movements in these indices are consistent. The Transaction Linked Indices show stronger growth and sharper declines than their appraisal based counterparts over the course of the cycle in different European markets and they are typically two to four times more volatile. However, they have some limitations; for instance, only country level indicators can be published in many cases owing to low trading volumes in the period studied.

Measuring European property investment performance: comparing different approaches

Purpose – Price indices for commercial real estate markets are difficult to construct because assets are heterogeneous, they are spatially dispersed and they are infrequently traded. Appraisal-based indices are one response to these problems, but may understate volatility or fail to capture turning points in a timely manner. This paper estimates “transaction linked indices” for major European markets to see whether these offer a different perspective on market performance. The paper aims to discuss these issues. Design/methodology/approach – The assessed value method is used to construct the indices. This has been recently applied to commercial real estate datasets in the USA and UK. The underlying data comprise appraisals and sale prices for assets monitored by Investment Property Databank (IPD). The indices are compared to appraisal-based series for the countries concerned for Q4 2001 to Q4 2012. Findings – Transaction linked indices show stronger growth and sharper declines over the course of the cycle, but they do not notably lead their appraisal-based counterparts. They are typically two to four times more volatile. Research limitations/implications – Only country-level indicators can be constructed in many cases owing to low trading volumes in the period studied, and this same issue prevented sample selection bias from being analysed in depth. Originality/value – Discussion of the utility of transaction-based price indicators is extended to European commercial real estate markets. The indicators offer alternative estimates of real estate market volatility that may be useful in asset allocation and risk modelling, including in a regulatory context.

The Judicial ‘Bail Out’ of the European Stability Mechanism: Comment on the Pringle Case. Research Paper in Law 09/2013

Since the beginning of the crisis, many responses have been taken to stabilise the European markets. Pringle is the awaited judicial response of the European Court of Justice on the creation of the European Stability Mechanism (ESM), a crisis-related intergovernmental international institution which provides financial assistance to Member States in distress in the Eurozone. The judgment adopts a welcome and satisfactory approach on the establishment of the ESM. This article examines the feasibility of the ESM under the Treaty rules and in light of the Pringle judgment. For the first time, the Court was called to appraise the use of the simplified revision procedure under article 48 TEU with the introduction of a new paragraph to article 136 TFEU as well as to interpret the no bail out clause under article 125 TFEU. The final result is rather positive as the Court endorses the establishment of a stability mechanism of the ESM-kind beyond a strict reading of the Treaty rules. Pringle is the first landmark ECJ decision in which the Court has endorsed the use of new and flexible measures to guarantee financial assistance between Member States. This judgment could act as a springboard for more economic, financial and, possibly, political interconnections between Member States.

Employability and the psychological contract in European ICT sector SMEs

This article explores the employability of information and communication technology (ICT) professionals from the perspective of small- and medium-sized enterprises (SMEs). The first stage of analysis, based on over 100 interviews with managers of ICT supplier companies in seven European countries (Germany, Greece, Italy, the Netherlands, Norway, Poland and the UK), showed most SMEs to have a generally ad hoc approach to managing the employability of their ICT professionals. Assessment and development plans were used primarily to keep skills current to business needs; however, the more developed northern European markets showed greater awareness of the ‘high commitment’ benefits of a more sophisticated approach towards career management (e.g. through mentoring or career planning). A second stage of analysis based only on UK interviews builds on this to propose a model of positive employer influence on psychological contracts through career and employability management practices.

Risk factors of European non-listed real estate fund returns

Acknowledgements: We thank INREV (the European Association for Investors in Non-Listed Real Estate Vehicles) for funding a previous version of this research and providing non-listed fund data as well as very useful comments. This version is published as Delfim, J.-C. and Hoesli, M., 2015, Risk Factor Analysis of European Non-Listed Real Estate Funds, Amsterdam: INREV. The usual disclaimer applies. We also thank three anonymous reviewers and the guest editor, Graeme Newell, for insightful remarks.

Style and performance of international socially responsible funds in Europe

This paper analyses the performance and investment styles of internationally oriented Socially Responsible Investment (SRI)funds, domiciled in eight European markets, in comparison with characteristics-matched conventional funds. To the best of our knowledge, this is the first multi-country study, focused on international SRI funds (investing in Global and in European equities), to combine the matched-pairs approach with the use of robust conditional multi-factor performance evaluation models, which allow for both time-varying alphas and betas and also control for home biases and spurious regression biases.In general, the results show that differences in the performance of international SRI funds and their conventional peers are not statistically significant. Regarding investment styles, SRI and conventional funds exhibit similar factor exposures in most cases. In addition,conventional benchmarks present a higher explaining power of SRI fund returns than SRI benchmarks. Our results also show significant differences in the investment styles of SRI funds according to whether they use “best-in-class” screening strategies or not. When compared to SRI funds that employ simple negative and/or positive screens, SRI “best-in-class” funds present significantly lower exposures to small caps and momentum strategies and significantly higher exposures to local stocks.