Added Value of Combining Value and Momentum Indicators in the Swiss Stock Market

The purpose of the thesis is to examine the added value of combining value and momentum indicators in the Swiss stock exchange. Value indicators employed are P/E, EV/EBITDA, P/CF, P/B ja P/S. Momentum indicators examined are 52-week high, acceleration rate, 12-month past return and 6-month past return. The thesis examines whether the composite value measures based on the above mentioned ratios can add value and whether the inclusion of momentum can further improve the risk return profile of the value portfolios. The data is gathered from the Swiss equity market during the sample period from May 2001 to May 2011. Previous studies have shown that composite value measures can somewhat add value to the value portfolio strategy. Similarly, recent academic literature have found evidence that momentum works well as a timing indicator for time to entry to value stocks. This study indicates that the added value of composite value measures exists. It also shows that momentum combined to acceleration rate can significantly improve the risk adjusted performance of value-only portfolios.

Portfolio Selection via Composite Measure Analysis: Evidence from the U.S. Stock Market

The aim of this research is to examine the pricing anomalies existing in the U.S. market during 1986 to 2011. The sample of stocks is divided into decile portfolios based on seven individual valuation ratios (E/P, B/P, S/P, EBIT/EV, EVITDA/EV, D/P, and CE/P) and price momentum to investigate the efficiency of individual valuation ratio and their combinations as portfolio formation criteria. This is the first time in financial literature when CE/P is employed as a constituent of composite value measure. The combinations are based on median scaled composite value measures and TOPSIS method. During the sample period value portfolios significantly outperform both the market portfolio and comparable glamour portfolios. The results show the highest return for the value portfolio that was based on the combination of S/P & CE/P ratios. The outcome of this research will increase the understanding on the suitability of different methodologies for portfolio selection. It will help managers to take advantage of the results of different methodologies in order to gain returns above the market.

Pricing anomalies in the Finnish stock market

The aim of this thesis is to examine whether the pricing anomalies exists in the Finnish stock markets by comparing the performance of quantile portfolios that are formed on the basis of either individual valuation ratios, composite value measures or combined value and momentum indicators. All the research papers included in the thesis show evidence of value anomalies in the Finnish stock markets. In the first paper, the sample of stocks over the 1991-2006 period is divided into quintile portfolios based on four individual valuation ratios (i.e., E/P, EBITDA/EV, B/P, and S/P) and three hybrids of them (i.e. composite value measures). The results show the superiority of composite value measures as selection criterion for value stocks, particularly when EBITDA/EV is employed as earnings multiple. The main focus of the second paper is on the impact of the holding period length on performance of value strategies. As an extension to the first paper, two more individual ratios (i.e. CF/P and D/P) are included in the comparative analysis. The sample of stocks over 1993- 2008 period is divided into tercile portfolios based on six individual valuation ratios and three hybrids of them. The use of either dividend yield criterion or one of three composite value measures being examined results in best value portfolio performance according to all performance metrics used. Parallel to the findings of many international studies, our results from performance comparisons indicate that for the sample data employed, the yearly reformation of portfolios is not necessarily optimal in order to maximally gain from the value premium. Instead, the value investor may extend his holding period up to 5 years without any decrease in long-term portfolio performance. The same holds also for the results of the third paper that examines the applicability of data envelopment analysis (DEA) method in discriminating the undervalued stocks from overvalued ones. The fourth paper examines the added value of combining price momentum with various value strategies. Taking account of the price momentum improves the performance of value portfolios in most cases. The performance improvement is greatest for value portfolios that are formed on the basis of the 3-composite value measure which consists of D/P, B/P and EBITDA/EV ratios. The risk-adjusted performance can be enhanced further by following 130/30 long-short strategy in which the long position of value winner stocks is leveraged by 30 percentages while simultaneously selling short glamour loser stocks by the same amount. Average return of the long-short position proved to be more than double stock market average coupled with the volatility decrease. The fifth paper offers a new approach to combine value and momentum indicators into a single portfolio-formation criterion using different variants of DEA models. The results throughout the 1994-2010 sample period shows that the top-tercile portfolios outperform both the market portfolio and the corresponding bottom-tercile portfolios. In addition, the middle-tercile portfolios also outperform the comparable bottom-tercile portfolios when DEA models are used as a basis for stock classification criteria. To my knowledge, such strong performance differences have not been reported in earlier peer-reviewed studies that have employed the comparable quantile approach of dividing stocks into portfolios. Consistently with the previous literature, the division of the full sample period into bullish and bearish periods reveals that the top-quantile DEA portfolios lose far less of their value during the bearish conditions than do the corresponding bottom portfolios. The sixth paper extends the sample period employed in the fourth paper by one year (i.e. 1993- 2009) covering also the first years of the recent financial crisis. It contributes to the fourth paper by examining the impact of the stock market conditions on the main results. Consistently with the fifth paper, value portfolios lose much less of their value during bearish conditions than do stocks on average. The inclusion of a momentum criterion somewhat adds value to an investor during bullish conditions, but this added value turns to negative during bearish conditions. During bear market periods some of the value loser portfolios perform even better than their value winner counterparts. Furthermore, the results show that the recent financial crisis has reduced the added value of using combinations of momentum and value indicators as portfolio formation criteria. However, since the stock markets have historically been bullish more often than bearish, the combination of the value and momentum criteria has paid off to the investor despite the fact that its added value during bearish periods is negative, on an average.

Arvostrategioiden menestys Suomen osakemarkkinoilla

Tämän tutkimuksen tavoitteena on selvittää saavutetaanko passiivisilla arvostrategioilla riskikorjattuna ylisuuria tuottoja Suomen osakemarkkinoilla. Tuottaako matalien tunnuslukujen perusteella valittujen osakkeiden portfolio enemmän kuin korkeiden tunnuslukujen portfolio? Ovatko alfat tilastollisesti merkitseviä? Tutkimuksen tavoitteena on myös selvittää, ovatko korkeimman ja matalimman arvostustason portfolioiden menestyserot tilastollisesti merkitseviä. Tunnuslukuina on tarkasteltu P/E-, EV/EBIT- ja EV/EBITDA-tunnuslukuja sekä P/B- ja P/S–lukuja. Lisäksi on tutkittu yhdistelmätunnuslukuina P/E- ja P/B–lukujen tulon muodostamaa tunnuslukua, sekä suhteellisiin EV/EBITDA-, P/B- ja P/S-lukuihin perustuvaa arvostusmittaria. Tutkimusaineisto koostuu Suomen osakemarkkinoilla julkisesti noteeratuista yrityksistä toukokuusta 1991 toukokuuhun 2006. Osakkeet järjestettiin tunnuslukujen arvostustason perusteella kvintiiliportfolioihin. Myöhemmin portfoliot muodostettiin uudelleen kolmen ja viiden vuoden välein. Lopuksi tarkasteltiin kvintiiliportfolioiden kuukausittaisia tuottoja tunnuslukukohtaisesti koko tutkimusjakson ajalta. Tulosten perusteella on selkeästi havaittavissa, että matalan tunnusluvun kvintiiliportfoliot menestyivät paremmin kuin korkean tunnusluvun kvintiiliportfoliot. Kolmen vuoden jaksoissa P/E-, EV/EBITDA-, P/B-, P/S- ja kolmen tunnusluvun yhdistelmällä muodostetuilla kvintiiliportfolioilla arvopreemio oli selkeästi havaittavissa. Viiden vuoden jaksoissa vastaava ilmiö toistui EV/EBITDA-tunnusluvulla muodostetuilla kvintiiliportfolioilla. Eniten tuotti absoluuttisesti sekä riskikorjattuna tutkimuksessa esiteltävä kolmen vuoden jaksoissa kolmen tunnusluvun yhdistelmällä muodostettu matalimman arvostustason kvintiiliportfolio, joka tuotti riskikorjattuna tilastollisesti erittäin merkitsevästi positiivista alfaa matalalla riskitasolla.

Corporate restructuring: empirical evidence from the UK

Corporate restructuring is perceived as a challenge to research. Prior studies do not provide conclusive evidence regarding the effects of restructuring. Since there are discernible findings, this research attempts to examine the effects of restructuring events amongst the UK listed firms. The sample firms are listed in the LSE and London AIM stock exchange. Only completed restructuring transactions are included in the study. The time horizon extends from year 1999 to 2003. A three-year floating window is assigned to examine the sample firms. The key enquiry is to scrutinise the ex post effects of restructuring on performance and value measures of firms with contrast to a matched criteria non-restructured sample. A cross sectional study employing logit estimate is undertaken to examine firm characteristics of restructuring samples. Further, additional parameters, i.e. Conditional Volatility and Asymmetry are generated under the GJR-GARCH estimate and reiterated in logit models to capture time-varying heteroscedasticity of the samples. This research incorporates most forms of restructurings, while prior studies have examined certain forms of restructuring. Particularly, these studies have made limited attempts to examine different restructuring events simultaneously. In addition to logit analysis, an event study is adopted to evaluate the announcement effect of restructuring under both the OLS and GJR-GARCH estimate supplementing our prior results. By engaging a composite empirical framework, our estimation method validates a full appreciation of restructuring effect. The study provides evidence that restructurings indicate non-trivial significant positive effect. There are some evidences that the response differs because of the types of restructuring, particularly while event study is applied. The results establish that performance measures, i.e. Operating Profit Margin, Return on Equity, Return on Assets, Growth, Size, Profit Margin and Shareholders' Ownership indicate consistent and significant increase. However, Leverage and Asset Turn Over suggest reasonable influence on restructuring across the sample period. Similarly, value measures, i.e. Abnormal Returns, Return on Equity and Cash Flow Margin suggest sizeable improvement. A notable characteristic seen coherently throughout the analysis is the decreasing proportion of Systematic Risk. Consistent with these findings, Conditional Volatility and Asymmetry exhibit similar trend. The event study analysis suggests that on an average market perceives restructuring favourably and shareholders experience significant and systematic positive gain.

Class benefits of AT1 antagonists in Type 2 diabetes with nephropathy

Diabetes mellitus has reached epidemic proportions in many countries and is the most common cause of end stage renal disease (ESRD). The angiotensin II receptor-1 (AT1) antagonists losartan and irbesartan have recently been evaluated as renoprotective agents in large clinical trials of patients with Type 2 diabetes and nephropathy. In the Reduction of End points in Non-insulin-dependent diabetes mellitus with the Angiotensin II Antagonist (RENAAL) study, losartan decreased the number of patients reaching the primary end point of a composite of measures of neuropathy. The relative risk reduction was ~ 15% with losartan and this was due to a reduction in both the doubling of creatinine concentration (25%) and of ESRD (28%) but not in death. In the Irbesartan Diabetic Nephropathy Trial (IDNT), the beneficial effect of irbesartan was mainly against the doubling of the baseline creatinine concentration (37% risk reduction) but there was also a 20% reduction in the onset of ESRD. Irbesartan had no effect on mortality. Beneficial effects occurred in addition to blood pressure being controlled by agents other than the AT1 antagonists. These clinical trials suggest that there may be a class renoprotective action with AT1 antagonists, although the mechanism is not clear. Patients with Type 2 diabetes and nephropathy should receive either an AT1 antagonist or the angiotensin converting enzyme inhibitor ramipril to ensure renoprotection.

Arvo- ja momentum-strategioiden yhdistäminen Suomen osakemarkkinoilla

Tämän tutkielman tavoitteena on selvittää pystytäänkö momentum-strategiaa hyödyntämällä parantamaan arvostrategian tuottoja Suomen osakemarkkinoilla. Yhdistetyn arvo- ja momentum-strategian lisäksi tutkitaan myös arvosrategian menestystä. Tutkimuksessa arvostusmittareina on käytetty P/E-, P/B-, P/CF-, P/S-, P/D-, EV/EBITDA-lukuja sekä kolmea näistä muodostettua yhdistelmätunnuslukua. Tutkimusaineisto koostuu Suomen osakemarkkinoilla julkisesti noteerattujen osakkeiden tuottoaikasarjoista vuosilta 1992-2008. Osakkeet on järjestetty tunnuslukujen ja momentum-indikaattorien perusteella kolmeen tertiiliportfolioon. Sijoitusten pitoaikana on käytetty yhtä ja kolmea vuotta. Portfolioista on raportoitu keskimääräisen vuosituoton lisäksi riskikorjattu tuotto Sharpen luvulla ja Jensenin alfalla mitattuna sekä näiden tilastollinen merkitsevyys. Tulosten perusteella voidaan päätellä, ettei momentum-strategian avulla pystytä parantamaan arvostrategian tuottoja Suomen osakemarkkinoilla. Arvostrategia menestyi kuitenkin erittäin hyvin etenkin yhdistelmätunnuslukujen sekä P/D-, EV/EBITDA- ja P/E-lukujen osalta.

From local to global importance measures of uncertainty propagation in composite structures

The influence of uncertainties of input parameters on output response of composite structures is investigated in this paper. In particular, the effects of deviations in mechanical properties, ply angles, ply thickness and on applied loads are studied. The uncertainty propagation and the importance measure of input parameters are analysed using three different approaches: a first-order local method, a Global Sensitivity Analysis (GSA) supported by a variance-based method and an extension of local variance to estimate the global variance over the domain of inputs. Sample results are shown for a shell composite laminated structure built with different composite systems including multi-materials. The importance measures of input parameters on structural response based on numerical results are established and discussed as a function of the anisotropy of composite materials. Needs for global variance methods are discussed by comparing the results obtained from different proposed methodologies. The objective of this paper is to contribute for the use of GSA techniques together with low expensive local importance measures.

Lean performance measures in a supply chain

Dissertação para obtenção do Grau de Mestre em Engenharia e Gestão Industrial

Missing value imputation in longitudinal measures of alcohol consumption

Attrition in longitudinal studies can lead to biased results. The study is motivated by the unexpected observation that alcohol consumption decreased despite increased availability, which may be due to sample attrition of heavy drinkers. Several imputation methods have been proposed, but rarely compared in longitudinal studies of alcohol consumption. The imputation of consumption level measurements is computationally particularly challenging due to alcohol consumption being a semi-continuous variable (dichotomous drinking status and continuous volume among drinkers), and the non-normality of data in the continuous part. Data come from a longitudinal study in Denmark with four waves (2003-2006) and 1771 individuals at baseline. Five techniques for missing data are compared: Last value carried forward (LVCF) was used as a single, and Hotdeck, Heckman modelling, multivariate imputation by chained equations (MICE), and a Bayesian approach as multiple imputation methods. Predictive mean matching was used to account for non-normality, where instead of imputing regression estimates, "real" observed values from similar cases are imputed. Methods were also compared by means of a simulated dataset. The simulation showed that the Bayesian approach yielded the most unbiased estimates for imputation. The finding of no increase in consumption levels despite a higher availability remained unaltered. Copyright (C) 2011 John Wiley & Sons, Ltd.

Beyond Value-at-Risk : GlueVaR Distortion Risk Measures

We propose a new family of risk measures, called GlueVaR, within the class of distortion risk measures. Analytical closed-form expressions are shown for the most frequently used distribution functions in financial and insurance applications. The relationship between Glue-VaR, Value-at-Risk (VaR) and Tail Value-at-Risk (TVaR) is explained. Tail-subadditivity is investigated and it is shown that some GlueVaR risk measures satisfy this property. An interpretation in terms of risk attitudes is provided and a discussion is given on the applicability in non-financial problems such as health, safety, environmental or catastrophic risk management

Measurement of social value creation with non-financial measures

This research examines the concept of social entrepreneurship which is a fairly new business model. In the field of business it has become increasingly popular in recent years. The growing awareness of the environment and concrete examples of impact created by social entrepreneurship have encouraged entrepreneurs to address social problems. Society’s failures are tried to redress as a result of business activities. The purpose of doing business is necessarily no longer generating just profits but business is run in order to make a social change with the profit gained from the operations. Successful social entrepreneurship requires a specific nature, constant creativity and strong desire to make a social change. It requires constant balancing between two major objectives: both financial and non-financial issues need to be considered, but not at the expense of another. While aiming at the social purpose, the business needs to be run in highly competitive markets. Therefore, both factors need equally be integrated into an organization as they are complementary, not exclusionary. Business does not exist without society and society cannot go forward without business. Social entrepreneurship, its value creation, measurement tools and reporting practices are under discussion in this research. An extensive theoretical basis is covered and used to support the findings coming out of the researched case enterprises. The most attention is focused on the concept of Social Return on Investment. The case enterprises are analyzed through the SROI process. Social enterprises are mostly small or medium sized. Naturally this sets some limitations in implementing measurement tools. The question of resources requires the most attention and therefore sets the biggest constraints. However, the size of the company does not determine all – the nature of business and the type of social purpose need to be considered always. The mission may be so concrete and transparent that in all cases any kind of measurement would be useless. Implementing measurement tools may be of great benefit – or a huge financial burden. Thus, the very first thing to carefully consider is the possible need of measuring value creation.