Finance

 

Nyligen publicerat

  • Pettersson, John (Hanken School of Economics, 2015-07-02)
    The efficient market hypothesis stipulates that investors are unable to consistently gain risk adjusted returns with the information known to them at the time of the investment. The expected return, conditional on the information set known to investors, is determined from an assumed expected return theory (asset pricing model). However, it has previously been shown that past winners outperform past losers. A trading strategy taking a long position in previous winner stocks and a short in previous loser stocks earn positive statistically and economically significant risk-adjusted returns. These results are confirmed in international markets, but also in different asset classes. A number of alternative asset pricing models explaining momentum returns imply that momentum should be stronger among high uncertainty assets. Many of these alternative asset pricing models build on investor psychology. This premium, with higher momentum returns among high risk stocks has also been empirically documented. This dissertation evaluates some behavioral explanations to momentum returns by their implications. Behavioral explanations often imply that the momentum anomaly is stronger when uncertainty about information is high. Essay one confirms that there is an overreaction to information causing momentum to be high when uncertainty is high. However, when uncertainty is low momentum still exists, now caused by a slow incorporation of new information into asset prices. Contrary to what many behavioral models imply, the results in essay three suggest that uncertainty about information in the portfolio formation period does not cause a stronger momentum anomaly. Stock prices imply a larger under-reaction to positive and relatively reliable information, than to more uncertain information. Based on previous literature, the results in this study suggest that the driver of the return premium in high volatility assets is the general risk level of single stocks, and not uncertainty about portfolio formation period information. Using equity index futures data, essay two links time series momentum profits to volatility states. Time series momentum portfolio returns are driven by assets in a low volatility state. These results support the general finding that momentum is not caused by uncertainty about portfolio formation period information.
  • Blomkvist, Magnus (Svenska handelshögskolan, 2014-09-29)
    The recent financial crisis of 2007-2009 highlights the impact that financial markets can have on firm behavior. The effect of market states on asset prices is well documented. Until recently, market states have played a less significant role in the corporate finance literature. This dissertation aims to give further understanding concerning firms’ financing and investments during different market states. In the first essay, I study firm-specific factors behind merger waves. My evidence suggests that acquisition activity of financially constrained firms is an important determinant of the observed waves in the aggregate M&A activity. When capital liquidity increases, financially constrained firms are better able to obtain debt and equity financing to finance their investment opportunities. In contrast, financially unconstrained firms are indifferent to the overall capital liquidity and thereby do not have equally clustered M&A activity. In the second essay, I study the behavior of equity issuing firms during cold IPO-markets. I find that firms that go public during cold markets tend to stage their financing while firms that issue during hot markets tend to raise a larger amount financing, which is consistent with the market timing effect. In the third essay, I study whether the acquisition motive of equity issuance differs between firms going public in hot and cold markets.
  • Délèze, Frédéric (Svenska handelshögskolan, 2014-08-15)
    Financial assets prices are not always in perfect equilibrium and deviate from their fundamental values. The dramatic rise and fall of the stock market raises concern about the rationality of sudden changes in stock valuations. The mispricing of assets contributes to financial crises, which can damage the overall economy. This dissertation analyses the effect of market imperfections at different time horizons. Starting at a macroeconomic level with a change of currency, the first essay analyses the impact of the introduction of Euro on interest rate sensitivity of European firms. We found that the connection between bond issuance and reductions in interest rate sensitivity is most significant among financially constrained firms, which suggests that financially constrained firms are the main beneficiaries of the relaxed public borrowing constraint in Europe after the introduction of euro. Releases of macroeconomic news announcements cause sudden price discontinuities, or jumps and co-jumps, on financial markets. The second essay attempts to explain the effect of US macroeconomic announcements on European equity, interest rate and foreign exchange markets at a high-frequency level. While European equity markets are more sensitive to US fundamentals, US macroeconomic announcements cause significant jumps and cojumps on all European asset classes. We found that European markets are highly co-integrated and observed a strong correlation between the type of news and the direction of the jumps. Motivated by the phenomenal success of some quantitative trading funds, the third essay describes a new pairs trading strategy, where the spread between two co-integrated portfolios is modelled stochastically. Taking into account transaction costs, the algorithm generates a systematic positive excess return based on a pure statistical arbitrage strategy. While very convenient, traditional asset pricing relies on two restrictive assumptions. First, asset returns are conventionally modelled with Gaussian-based distributions even though actual financial time series exhibit volatility clustering. The second assumption mainly affects market microstructure studies. Time series are sampled at regular interval of time and asset return distribution is used as the unique driver to model the price fluctuation of an asset over time. In reality, the time between two transactions, often called waiting-time, is stochastic and conveys important information about price formation. The two last essays relax the assumptions of log-normally of asset prices and model asset prices with a continuous-time random walk. The fourth article compares the Markovian and non-Markovian forms of the continuous-time random walk process and shows the relevance of the waiting-time distribution on price formation. The last article applies the framework to statistical arbitrage.
  • Pöyry, Salla (Svenska handelshögskolan, 2014-08-05)
    The fundamental function of financial markets is to channel funds within an economy. To efficiently do so, financial markets need to generate asset prices that consistently incorporate all available information and reflect all non-diversifiable dimensions of risk. While perhaps elegant, perfect market functionality and efficiency can nonetheless be seen as an unattainable ideal. Financial market imperfections, such as those generated by asymmetric information or transactions costs, can easily distort the underlying financial markets mechanisms. The research questions that are addressed in this thesis are all related to phenomena that have been associated with, or explained by, financial market frictions or imperfections. This thesis consists of four separate essays that examine questions that would be irrelevant in a perfect market – that is, in a world with no predictability of returns, informational advantages or institutional weaknesses. At least, they would be irrelevant when considering the perfect market setting as described by financial economists up until the mid- 1980s. While the guiding principles may have been somewhat updated, it is nonetheless important to stress that recent findings do not necessarily conflict with the view that markets are reasonably efficient or driven by rational market forces. The first essay of this thesis examines the under-diversification of investors and its sources using data from the Finnish Central Securities Depository (FCSD) legal liability accounts. That is, is under-diversification rational and driven by informational advantages, or the result of the behavioral biases of investors? The former source relies on market inefficiency to justify its existence whereas the latter is an imperfection in itself. In the second essay, I examine the impact of market fragmentation on private investors using the same data source. It examines whether market functionality deteriorated for private investors as a result of a regulatory change (MiFID I) that enabled market fragmentation on a large scale, but did not guarantee equal access to all market venues across all investor types. In the third essay, we explore and document a novel and robust connection between firm-level asset changes and return momentum using US stock data. The momentum anomaly is one of the most robust documented return anomalies and is recognized as one of the biggest challenges to asset pricing research. While the existing theoretical literatures on risk-based or behavioral models do not offer a clear explanation to our empirical results, recent real options models appear to hold the most promise. In the last paper, we explore the relation between ownership structures and capital structures in Russia. This is a market plagued by severe institutional imperfections and inefficiencies.
  • Wang, Peng (Svenska handelshögskolan, 2014-06-16)
    This dissertation consists of four self-contained papers. The first two of them concern pyramidal ownership structure, the third one deals with dual-board system, and the last one explores the contemporaneous relation between foreign investment flows and local equity returns. I choose the Chinese stock market as my laboratory. China will soon become the largest economy in the world, and China’s domestic stock markets are growing up rapidly since their establishment in the early 1990s. According to the World Federation of Exchanges (WFE), the number of listed companies in the two domestic stock markets, i.e., the Shanghai Stock Exchange and the Shenzhen Stock Exchange reaches 2,491 with a total market capitalization of 3.7 trillion of U.S. dollars at the end of 2012. Despite this fast growth, extant studies on the Chinese stock market are still limited in scope. Perhaps because researchers’ perceptions on Chinese listed firms still remain with older patterns, such as the dominance of state-owned enterprises (SOEs), the corrupted bureaucracy, the politically-appointed executives, and a market that is inaccessible to foreign investors. In this regard, one of my objectives in this dissertation is to provide some new insights into the modern corporate finance issues among Chinese listed firms. The first essay examines the ownership structure of the Chinese Growth Enterprise Market (GEM). I show that 46% of sample firms are set up in the pyramidal structure. Further, I demonstrate that the owners of most firms in the GEM are families, which stands in stark contrast with the firms listed on the main board in China, which are state-owned. The second essay is naturally an extension of the first one, we investigate Initial Public Offerings (IPOs) of firms on the GEM. The likelihood of a pyramid structure increases with the size of the IPO firm and state control. Our results do not suggest that pyramids are set up to overcome financial constraints. However, we document that pyramid IPOs are discounted before the IPO. The price to book ratio estimated at the subscription price is significantly lower for pyramid IPOs compared to stand-alone IPOs. The third one examines board effectiveness and independence by studying all firms listed in China from 2000 to 2009. I find a significant inverse relationship between supervisory board size and firm performance. This result indicates that large supervisory board size per se causes free-rider and communication or coordination problems, as occurs with boards of directors. The last essay examines the trading behavior and price effects of foreign institutions under the celebrated Qualified Foreign Institutional Investor (QFII) scheme on all non-financial firms in the Chinese A-share markets. I find that foreign institutions in the Chinese A-share markets do not show positive or negative feedback trading; however, their flows have a strong impact on future equity returns because of informational advantage.
  • Hyttinen, Lilia (Svenska handelshögskolan, 2013-06-13)
    The aim of this dissertation is to examine critical issues that pharmaceutical industry currently facing through lenses of corporate finance theories. Tirole (2006) suggest that the pharmaceuticals market is primarily an innovation market; thus, each firm must develop new technology and know-how in order to enter and serve the market. A firm’s profit, when it succeeds in a development, depends on whether it faces a competitor, that is, whether the other firm also succeeds. A common theme in the essays stems from a role corporate finance decisions are playing in the interactions of a pharmaceutical firm with its strategic partners and/or competitors. The modern theoretical Corporate Finance research asks how the agency problems, asymmetric information, signaling and incomplete contracting affect corporations’ optimal investing and financing activities while taking into consideration also the strategic behavior of other market participants. This research is a collection of three empirical studies of economics of pharmaceutical industry, while three theoretical corporate finance models, i.e. incomplete contracting, asymmetric information and signaling render frameworks for the three essays respectively. I explore the impact of corporate finance decisions by addressing three broad questions. First: How the ownership and control over assets are allocated within drug development partnerships; and how contracts are designed to incorporate contingency provisions, such as a drug failure in clinical trials and monitoring problems? Second: What are determinants of the settlements of pharmaceuticals’ patents litigations and whether settlements can help alleviate the costs of the informational asymmetry problem (i.e. a patent’s validity)? Third: Can a firm, by signaling high barriers to entry and commitment to behave aggressively, effectively deter potential market entrants? This thesis contributes to the several lines of literature by increasing the knowledge as to how the drug development partnerships’ contracts are structured, what are determinants and benefits of the settlements of pharmaceuticals’ disputes as well as sheds the light on biologic drugs competitive strategies. The problems being examined are focused on the specific strategic interactions (events) of the pharmaceutical and biotechnology firms, and because the dissertation’s issues all are relatively little analyzed, the study is very relevant. More specific knowledge of the issues that pharmaceutical firms face plausibly increases the intelligence of the practitioner and, thus, leads to better finance and investment decisions, as well as, increased value creation in corporate world.
  • Virk, Nader (Svenska handelshögskolan, 2013-05-23)
    The fundamental issue in financial economics is looking for new solutions to the age-old problems at the very intersection of economic design of human rationality and mathematical formulation of it; including how assets are priced. Notwithstanding, the ever present uncertainty in analyzing and categorizing valuable information and inability to fully comprehend human behavior provides the twist in cluttering observable realities across financial markets. This limitation in segregating, what is important and is of economic rationale from noise and idiosyncrasies, has bestowed numerous interpretations of similar occurrences. The cornerstone of solving the central puzzle – that expected returns on financial assets are different – in the asset pricing theory remain the search for measuring risk that could identify why the payoffs vary across assets, business cycle conditions and markets. Overall, the testing of asset pricing models provides diverging evidence depending upon the cross-section of test assets used across markets. This thesis delves into the Finnish stock market for reporting independent evidence; given the peculiarities associated with this market. The first essay shows macro risks possess sufficient ability to capture variations in industry portfolio expected returns and are significantly more important than the systematic market factor. The second essay reports among canonical asset pricing models – that identify consumption variations across states and periods capture variations in investor marginal utilities to proxy aggregate risk – habit specification of Campbell and Cochrane (1999) explain variations in Finnish stock and bond returns better than the remaining. The third essay given the peculiar conditions in Finnish stock market, for few big firms making abnormally large component of total market capitalization, reports size and value risk factors are important risk factors in suppressing model specification errors. Furthermore, the conditional CAPM, when provided the opportunity to have time varying factor sensitivities, improves in reducing model specification than its unconditional counterpart. Fourth essay identifies liquidity risks capture important variations in aggregate risk premium; nevertheless remain pertinent risk for small capitalization and less traded stocks. The chaos in asset pricing, for the reported success of numerous discounting proxies in explaining periodical variations in expected returns, is also evident in the Finnish market. The unfinished task is to look for a risk proxy which is able to explain not only all kinds of independent sorts and partitions of data across markets and could also be linked with the variations in investor marginal utilities and variations in risk premia in the long run, ex-ante.
  • Liu, Xing (Svenska handelshögskolan, 2012-11-05)
    The integration of European agriculture into the world economy has also accelerated price interaction between member states and the rest of the world during last decades. Consequently, the fluctuation in world market prices was more quickly transmitted to European member states, including Finland. Increasing price uncertainty and price volatility in agricultural products became more evident. The openness of regional agriculture such as EU and Finnish to the world is irreversible, and the international community needs timely and differentiated information on the situation in different places in order to respond appropriately. The theme of this dissertation concerns the properties of price linkage of agricultural commodities across space during the last decades. Such properties include hedging issues, price transmission and marketing margin in the agricultural commodity market. By understanding the issues, agricultural market participants, including farmers, processors, industries, consumers and policy makers can benefit from insights into these issues either in order to assess past actions and decisions or to derive guidelines for future action. In summary, this dissertation consists of 5 independent articles. Article 1 presents a case study on optimal hedging on Finnish wheat under both price and yield risks. The result shows that the forward contract might not be the best hedging tool for the farmers in Finland where the yield volatility per unit is bigger than price volatility. Article 2 presents an efficiency test of the CPO futures market in Malaysia for European participants using the cointegration technique. The results suggest that the futures market in Malaysia is not efficient for European participants, which indicates that they should be more cautious in using the hedging strategy in this futures market. Articles 3 focuses on the price transmission of the Finnish food market at vertical level, and Article 4 investigates horizontal price transmission of the Finnish meat market towards the European market in both symmetric and asymmetric ways. The result from Article 3 implies that the Finnish market is characterized by buyer power according to the measure of Lloyd et al. (2009). The result from Article 4 detects that the Finnish meat sector is integrated with EU benchmark countries symmetrically or asymmetrically. Moreover, the degree of integration and speed of adjustment of Finnish pork and beef towards the EU market are proved in different level. Article 5 presents an inventory model to investigate the relationship between price volatility and the inventory in the global wheat market. The results reveal that there is only a short-term significant relationship between price volatility and the inventory.
  • Kuttu, Saint (Svenska handelshögskolan, 2012-07-30)
    The 2008 financial crisis brought to the fore the relative resilience of emerging and frontier equity markets. This has made international investors to turn their attention to emerging and frontier equity markets to minimise their down side risk exposure. Against this backdrop, it is important for international investors to understand and appreciate the unique features such as pervasive thin trading and severe illiquidity which impact on the evolution of returns and volatility in these equity markets. This thesis, which consists of three essays, examines the first and the second moment dynamics in thinly traded African equity markets. The main findings of the first essay suggest a reciprocal return stimuli spillover between Ghana and Kenya, and between Nigeria and South Africa. South Africa passes past return stimuli to Kenya and Nigeria but receives none. In the second moment, however, Nigeria appears to be the dominant one. Specifically, Nigeria exports volatility stimuli to Kenya and South Africa and receives none. Bad news from Kenya increases volatility on the equity market of Ghana more than good news of equal magnitude from the same source. Also, for the equity markets of Ghana, Nigeria and South Africa, changes in volatility in the four markets from domestic shocks are comparatively more important than the innovations from the other markets. Essay two reports a bi-directional mean relationship between the equity and foreign exchange markets of Ghana. Also past returns in the foreign exchange market influence current returns in the equity market of Nigeria. In the second moment, previous volatility in the equity market of Ghana influences current volatility in the foreign exchange market and not vice versa. In addition, political violence related negative news affects the equity and the currency markets of Nigeria, but for Ghana, it only affects the equity market. Furthermore, ethnic violence related negative news affects respectively the returns of the equity and the foreign exchange markets of Ghana and Nigeria. Only the volatility in the foreign exchange markets of Ghana is sensitive to political violence related news. The findings in essay three suggest that conditional jumps are time varying, and jumps are sensitive to past shocks for the equity markets of Egypt and South Africa. For Nigeria, however, the jump intensity is constant. Jump sensitivity is persistent in all the equity markets, and only the equity market of South Africa displays jump volatility asymmetry. Overall, this thesis which, adjusted for thin trading before the models were applied, sheds light on the importance of the proper handling of the thin trading issue in order to minimise spurious dependencies from plaguing the results.
  • Mänttäri, Henri (Svenska handelshögskolan, 2005-08-02)
    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.
  • Westerholm, Joakim (Svenska handelshögskolan, 2002-09-06)
    Liquidity, or how easy an investment is to buy or sell, is becoming increasingly important for financial market participants. The objective of this dissertation is to contribute to the understanding of how liquidity affects financial markets. The first essays analyze the actions taken by underwriters immediately after listing to improve liquidity of IPO stock. To estimate the impact of underwriter activity on the pricing of the IPOs, the order book during the first weeks of trading in the IPO stock is studied. Evidence of stabilization and liquidity enhancing activities by underwriters is found. The second half of the dissertation is concerned with the daily trading of stocks where liquidity may be impacted by policy issues such as changes in taxes or exchange fees and by opening the access to the markets for foreign investors. The desirability of a transaction tax on securities trading is addressed. An increase in transaction tax is found to cause lower prices and higher volatility. In the last essay the objective is to determine if the liquidity of a security has an impact on the return investors require. The results support the notion that returns are negatively correlated to liquidity.
  • Maukonen, Marko S (Svenska handelshögskolan, 2004-08-17)
    First, in Essay 1, we test whether it is possible to forecast Finnish Options Index return volatility by examining the out-of-sample predictive ability of several common volatility models with alternative well-known methods; and find additional evidence for the predictability of volatility and for the superiority of the more complicated models over the simpler ones. Secondly, in Essay 2, the aggregated volatility of stocks listed on the Helsinki Stock Exchange is decomposed into a market, industry-and firm-level component, and it is found that firm-level (i.e., idiosyncratic) volatility has increased in time, is more substantial than the two former, predicts GDP growth, moves countercyclically and as well as the other components is persistent. Thirdly, in Essay 3, we are among the first in the literature to seek for firm-specific determinants of idiosyncratic volatility in a multivariate setting, and find for the cross-section of stocks listed on the Helsinki Stock Exchange that industrial focus, trading volume, and block ownership, are positively associated with idiosyncratic volatility estimates––obtained from both the CAPM and the Fama and French three-factor model with local and international benchmark portfolios––whereas a negative relation holds between firm age as well as size and idiosyncratic volatility.
  • von Nandelstadh, Alexander (Svenska handelshögskolan, 2003-10-24)
    The trade of the financial analyst is currently a much-debated issue in today’s media. As a large part of the investment analysis is conducted under the broker firms’ regime, the incentives of the financial analyst and the investor do not always align. The broker firm’s commercial incentives may be to maximise its commission from securities trading and underwriting fees. The purpose of this thesis is to extend our understanding of the work of a financial analyst, the incentives he faces and how these affect his actions. The first essay investigates how the economic significance of the coverage of a particular firm impacts the analysts’ accuracy of estimation. The hypothesis is that analysts put more effort in analysing firms with a relatively higher trading volume, as these firms usually yield higher commissions. The second essay investigates how analysts interpret new financial statement information. The essay shows that analysts underreact or overreact to prior reported earnings, depending on the short-term pattern in reported earnings. The third essay investigates the possible investment value in Finnish stock recommendations, issued by sell side analysts. It is established that consensus recommendations issued on Finnish stocks contain investment value. Further, the investment value in consensus recommendations improves significantly through the exclusion of recommendations issued by banks. The fourth essay investigates investors’ behaviour prior to financial analysts’ earnings forecast revisions. Lately, the financial press have reported cases were financial analysts warn their preferred clients of possible earnings forecast revisions. However, in the light of the empirical results, it appears that the problem of analysts leaking information to some selected customers does not appear systematically on the Finnish stock market.
  • Li, Hongzhu (Svenska handelshögskolan, 2004-05-27)
    A better understanding of stock price changes is important in guiding many economic activities. Since prices often do not change without good reasons, searching for related explanatory variables has involved many enthusiasts. This book seeks answers from prices per se by relating price changes to their conditional moments. This is based on the belief that prices are the products of a complex psychological and economic process and their conditional moments derive ultimately from these psychological and economic shocks. Utilizing information about conditional moments hence makes it an attractive alternative to using other selective financial variables in explaining price changes. The first paper examines the relation between the conditional mean and the conditional variance using information about moments in three types of conditional distributions; it finds that the significance of the estimated mean and variance ratio can be affected by the assumed distributions and the time variations in skewness. The second paper decomposes the conditional industry volatility into a concurrent market component and an industry specific component; it finds that market volatility is on average responsible for a rather small share of total industry volatility — 6 to 9 percent in UK and 2 to 3 percent in Germany. The third paper looks at the heteroskedasticity in stock returns through an ARCH process supplemented with a set of conditioning information variables; it finds that the heteroskedasticity in stock returns allows for several forms of heteroskedasticity that include deterministic changes in variances due to seasonal factors, random adjustments in variances due to market and macro factors, and ARCH processes with past information. The fourth paper examines the role of higher moments — especially skewness and kurtosis — in determining the expected returns; it finds that total skewness and total kurtosis are more relevant non-beta risk measures and that they are costly to be diversified due either to the possible eliminations of their desirable parts or to the unsustainability of diversification strategies based on them.
  • Al-Khail, Mohammed Aba (Svenska handelshögskolan, 2003-08-29)
    Investors significantly overweight domestic assets in their portfolios. This behavior which is commonly called “home bias” contradicts the prescriptions of portfolio theory. This thesis explores potential reasons for the “home bias” by examining the characteristics of the investing and the target countries and features of the interaction between them. A common theme of the four essays is a focus on the importance of information about foreign markets in explaining the share of these markets in investors’ portfolios. The results indicate that the size of the equity ownership in another country strongly relates to the distance to the financial capital of that country, and to trade in goods with and direct investments (FDI) to that country. The first essay empirically investigates the relationship between trade in real goods and portfolio investments. Overall, the evidence indicates a substantial role for trade in reducing the information cost relating to portfolio investments. The second essay examines the implications of the launch of the European Monetary Union (EMU) on international portfolio investments. The evidence on the allocation of Finnish international portfolio investments is more consistent with an information-based than a diversification motive explanation. The third essay employs new data for a large number of countries and further explores the role of trade on international portfolio investments. The results indicate that trade provides important information especially on firms in countries in which the corporate governance structure and the information environment of firms generate less reliable information. The fourth essay examines the relationship between direct investments (FDI) and portfolio investments. In contrast to the predications of portfolio theory, it provides evidence that FDI is a complement rather than a substitute for portfolio investments.