Low-Volatility Anomaly in Helsinki Stock Exchange

International research shows that low-volatility stocks have beaten high-volatility stocks in terms of returns for decades on multiple markets. This abbreviation from traditional risk-return framework is known as low-volatility anomaly. This study focuses on explaining the anomaly and finding how strongly it appears in NASDAQ OMX Helsinki stock exchange. Data consists of all listed companies starting from 2001 and ending close to 2015. Methodology follows closely Baker and Haugen (2012) by sorting companies into deciles according to 3-month volatility and then calculating monthly returns for these different volatility groups. Annualized return for the lowest volatility decile is 8.85 %, while highest volatility decile destroys wealth at rate of -19.96 % per annum. Results are parallel also in quintiles that represent larger amount of companies and thus dilute outliers. Observation period captures financial crisis of 2007-2008 and European debt crisis, which embodies as low main index annual return of 1 %, but at the same time proves the success of low-volatility strategy. Low-volatility anomaly is driven by multiple reasons such as leverage constrained trading and managerial incentives which both prompt to invest in risky assets, but behavioral matters also have major weight in maintaining the anomaly.

Low Volatility Options and Numerical Diffusion of Finite Difference Schemes

2000 Mathematics Subject Classification: 65M06, 65M12.

A comparative review of risk based portfolio allocations: An empirical study throughout rising yields

Since the financial crisis, risk based portfolio allocations have gained a great deal in popularity. This increase in popularity is primarily due to the fact that they make no assumptions as to the expected return of the assets in the portfolio. These portfolios implicitly put risk management at the heart of asset allocation and thus their recent appeal. This paper will serve as a comparison of four well-known risk based portfolio allocation methods; minimum variance, maximum diversification, inverse volatility and equally weighted risk contribution. Empirical backtests will be performed throughout rising interest rate periods from 1953 to 2015. Additionally, I will compare these portfolios to more simple allocation methods, such as equally weighted and a 60/40 asset-allocation mix. This paper will help to answer the question if these portfolios can survive in a rising interest rate environment.

Alhaisen volatiliteetin anomalia Suomen osakemarkkinoilla

Tutkielman tavoitteena on selvittää esiintyykö Suomen osakemarkkinoilla alhaisen volatiliteetin anomaliaa. Tutkielman tavoitteeseen vastataan työn empiirisessä osassa analysoimalla Suomen osakemarkkinoilla listattujen osakkeiden tuottoaikasarjoja. Tutkielmassa tarkastellaan myös finanssikriisin vaikutusta anomalian ilmenemiseen. Tutkimus sijoittuu aikavälille tammikuusta 2001 tammikuuhun 2015. Tutkielmassa muodostetaan portfolioita osakkeiden historiallisen volatiliteetin mukaan. Näiden portfolioiden menestymistä suhteessa markkinoihin arvioidaan absoluuttisten tuottojen, Sharpen luvun sekä Jensenin alfan avulla. Markkinaindekseinä käytetään OMXH CAP -indeksiä sekä tutkimusaineiston pohjalta muodostettua markkinaportfoliota. Kaikkein parhaimman absoluuttisen tuoton on saanut vuodesta 2001 vuoteen 2015 sijoittamalla keskiverron volatiliteetin osakkeisiin. Parhaan riskikorjatun tuoton on kuitenkin saavuttanut sijoittamalla alhaisen volatiliteetin osakkeisiin. Tutkielmassa löydetään todisteita alhaisen volatiliteetin anomalian esiintymisestä Suomen osakemarkkinoilla koko tutkimusaineisto huomioon ottaen. Tutkielman ehkä mielenkiintoisin löydös on kuitenkin huomio alhaisen volatiliteetin anomalian häviämisestä Suomen osakemarkkinoilta finanssikriisin jälkeen. Ennen finanssikriisiä esiintynyt erittäin vahva alhaisen volatiliteetin osakkeiden ylisuoriutuminen hävisi täysin finanssikriisin jälkeen. Toisin sanoen riskin ja tuoton suhde on kääntynyt päälaelleen finanssikriisin jälkeen, eikä alhaisen volatiliteetin anomaliaa voida enää sanoa esiintyvän.

Volatility regimes for the VIX index

This article presents a Markov chain framework to characterize the behavior of the CBOE Volatility Index (VIX index). Two possible regimes are considered: high volatility and low volatility. The specification accounts for deviations from normality and the existence of persistence in the evolution of the VIX index. Since the time evolution of the VIX index seems to indicate that its conditional variance is not constant over time, I consider two different versions of the model. In the first one, the variance of the index is a function of the volatility regime, whereas the second version includes an autoregressive conditional heteroskedasticity (ARCH) specification for the conditional variance of the index.

Regime-Switching in the Impact of Oil Price Shocks on Stock Market Volatility: Evidence from Oil-Importing and Oil-Exporting Countries

Research has highlighted the adequacy of Markov regime-switching model to address dynamic behavior in long term stock market movements. Employing a purposed Extended regime-switching GARCH(1,1) model, this thesis further investigates the regime dependent nonlinear relationship between changes in oil price and stock market volatility in Saudi Arabia, Norway and Singapore for the period of 2001-2014. Market selection is prioritized to national dependency on oil export or import, which also rationalizes the fitness of implied bivariate volatility model. Among two regimes identified by the mean model, high stock market return-low volatility regime reflects the stable economic growth periods. The other regime characterized by low stock market return-high volatility coincides with episodes of recession and downturn. Moreover, results of volatility model provide the evidence that shocks in stock markets are less persistent during the high volatility regime. While accelerated oil price rises the stock market volatility during recessions, it reduces the stock market risk during normal growth periods in Singapore. In contrast, oil price showed no significant notable impact on stock market volatility of target oil-exporting countries in either of the volatility regime. In light to these results, international investors and policy makers could benefit the risk management in relation to oil price fluctuation.

Volatility changes caused by the trading system:a Markov switching application

An expanding literature exists to suggest that the trading mechanism can influence the volatility of security returns. This study adds to this literature by examining the impact that the introduction of SETS, on the London Stock Exchange, had on the volatility of security returns. Using a Markov switching regime change model security volatility is categorized as being in a regime of either high or low volatility. It is shown that prior to the introduction of SETS securities tended to be in a low volatility regime. At the time SETS was introduced securities moved to a high volatility regime. This suggests that volatility increased when SETS was introduced.

Aplicações de cromatografia líquida de alta eficiência para o estudo de poluentes orgânicos emergentes

Emerging organic pollutants (EOP) include many environmental contaminants based on commercial products such as pharmaceuticals, personal care products, detergents, gasoline, polymers, etc. EOP may be candidates for future regulation as they offer potential risk to environmental and human health due to their continual entrance into the environment and to the fact that even the most modern wastewater treatment plants are not able to totally transform / remove these compounds. High performance liquid chromatography is recommended to separate emerging organic pollutants with characteristics of high polarity and low volatility, especially pharmaceuticals, from environmental matrices.

Seismic imaging of the western Iberian crust using ambient noise: Boundaries and internal structure of the Iberian Massif

We present new Rayleigh-wave dispersion maps of the western Iberian Peninsula for periods between 8 and 30 s, obtained from correlations of seismic ambient noise, following the recent increase in seismic broadband network density in Portugal and Spain. Group velocities have been computed for each station pair using the empirical Green's functions generated by cross-correlating one-day-length seismic ambient-noise records. The resulting high-path density allows us to obtain lateral variations of the group velocities as a function of period in cells of 0.5 degrees x 0.5 degrees with an unprecedented resolution. As a result we were able to address some of the unknowns regarding the lithospheric structure beneath SW Iberia. The dispersion maps allow the imaging of the major structural units, namely the Iberian Massif, and the Lusitanian and Algarve Meso-Cenozoic basins. The Cadiz Gulf/Gibraltar Strait area corresponds to a strong low-velocity anomaly, which can be followed to the largest period inverted, although slightly shifted to the east at longer periods. Within the Iberian Massif, second-order perturbations in the group velocities are consistent with the transitions between tectonic units composing the massif. (C) 2013 Elsevier B.V. All rights reserved.

The accuracy of the escrowed dividend model on the value of European options on a stock paying discrete dividend

This project characterizes the accuracy of the escrowed dividend model on the value of European options on a stock paying discrete dividend. A description of the escrowed dividend model is provided, and a comparison between this model and the benchmark model is realized. It is concluded that options on stocks with either low volatility, low dividend yield, low ex-dividend to maturity ratio or that are deep in or out of the money are reasonably priced with the escrowed dividend model.

Codes of best practice in competitive markets for managers

We study firms' corporate governance in environments where possibly heterogeneous shareholders compete for possibly heterogeneous managers. A firm, formed by a shareholder and a manager, can sign either an incentive contract or a contract including a Code of Best Practice. A Code allows for a better manager's control but makes manager's decisions hard to react when market conditions change. It tends to be adopted in markets with low volatility and in low-competitive environments. The firms with the best projects tend to adopt the Code when managers are not too heterogeneous while the best managers tend to be hired through incentive contracts when the projects are similar. Although the matching between shareholders and managers is often positively assortative, the shareholders with the best projects might be willing to renounce to hire the best managers, signing contracts including Codes with lower-ability managers.

A nonlinear threshold model for the dependence of extremes of stationary sequences

One of the main implications of the efficient market hypothesis (EMH) is that expected future returns on financial assets are not predictable if investors are risk neutral. In this paper we argue that financial time series offer more information than that this hypothesis seems to supply. In particular we postulate that runs of very large returns can be predictable for small time periods. In order to prove this we propose a TAR(3,1)-GARCH(1,1) model that is able to describe two different types of extreme events: a first type generated by large uncertainty regimes where runs of extremes are not predictable and a second type where extremes come from isolated dread/joy events. This model is new in the literature in nonlinear processes. Its novelty resides on two features of the model that make it different from previous TAR methodologies. The regimes are motivated by the occurrence of extreme values and the threshold variable is defined by the shock affecting the process in the preceding period. In this way this model is able to uncover dependence and clustering of extremes in high as well as in low volatility periods. This model is tested with data from General Motors stocks prices corresponding to two crises that had a substantial impact in financial markets worldwide; the Black Monday of October 1987 and September 11th, 2001. By analyzing the periods around these crises we find evidence of statistical significance of our model and thereby of predictability of extremes for September 11th but not for Black Monday. These findings support the hypotheses of a big negative event producing runs of negative returns in the first case, and of the burst of a worldwide stock market bubble in the second example. JEL classification: C12; C15; C22; C51 Keywords and Phrases: asymmetries, crises, extreme values, hypothesis testing, leverage effect, nonlinearities, threshold models

Approaches to identifying and quantifying polycyclic aromatic hydrocarbons of molecular weight 302 in diesel particulates

Among the PAH class of compounds, high molecular weight PAH are now considered as relevant cancer inducers, but not all of them have the same biological activity. However, their analysis is difficult, mainly due to the presence of numerous isomers and due to their low volatility. Retention indices (Ri) for 13 dibenzopyrenes and homologues were determined by high-resolution capillary gas chromatography (GC) with four different stationary phases: a 5% phenyl-substituted methylpolysiloxane column (DB-5 ms), a 35% phenyl-substituted methylpolysiloxane column (BPX-35), a 50% phenyl-substituted methylpolysiloxane column (BPX-50), and a 35% trifluoropropylmethyl polysiloxane stationary phase (Rtx-200). Correlations for retention on each phase were investigated by using 8 independent molecular descriptors. Ri has been shown to be linearly correlated to PAH volume, polarisability alpha, Hückel-pi energy on the four examined columns. Ionisation potential Ip is a fourth variable which improves the regression model for DB-5ms, BPX-35, and BPX-50 column. Correlation coefficients ranging from r2 = 0.935 to r2 = 0.952 are then observed. Application of these indices to the identification and quantification of PAH with MW 302 in certified diesel particulate matter SRM 1650a is presented and discussed. [Authors]

Short-term investment and equilibrium multiplicity

I study the effects of the heterogeneity of traders'horizon in the context of a 2-period NREE model whereall traders are risk averse. Owing to inventory effects,myopic trading behavior generates multiplicity ofequilibria. In particular, two distinct patterns arise.Along the first equilibrium, short term tradersanticipate higher second period price reaction toinformation arrival and, owing to risk aversion,scale back their trading intensity. This, in turn,reduces both risk sharing and information impoundinginto prices enforcing a high returns' volatility-lowprice informativeness equilibrium. In the second one,the opposite happens and a low volatility-high priceinformativeness equilibrium arises.

Localization and characterization of an active fault in an urbanized area in central Guatemala by means of geoelectrical imaging

The Polochic and Motagua faults define the active plate boundary between the North American and Caribbean plates in central Guatemala. A splay of the Polochic Fault traverses the rapidly growing city of San Miguel Uspantan that is periodically affected by destructive earthquakes. This fault splay was located using a 2D electrical resistivity tomography (ERT) survey that also characterized the fault damage zone and evaluated the thickness and nature of recent deposits upon which most of the city is built. ERT images show the fault as a similar to 50 m wide, near-vertical low-resistivity anomaly, bounded within a few meters by high resistivity anomalies. Forward modeling reproduces the key aspects of the observed electrical resistivity data with remarkable fidelity thus defining the overall location, geometry, and internal structure of the fault zone as well as the affected lithologies. Our results indicate that the city is constructed on a similar to 20 m thick surficial layer consisting of poorly consolidated, highly porous, water-logged pumice. This soft layer is likely to amplify seismic waves and to liquefy upon moderate to strong ground shaking. The electrical conductivity as well as the major element chemistry of the groundwater provides evidence to suggest that the local aquifer might, at least in part, be fed by water rising along the fault. Therefore, the potential threat posed by this fault splay may not be limited to its seismic activity per se, but could be compounded its potential propensity to enhance seismic site effects by injecting water into the soft surficial sediments. The results of this study provide the basis for a rigorous analysis of seismic hazard and sustainable development of San Miguel Uspantan and illustrate the potential of ERT surveying for paleoseismic studies.