Browsing by Department "Department of Finance"

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Ability, Educational Attainment, and Household Financial Distress
(2022-12) Luotonen, Niilo; Puttonen, Vesa; Rantapuska, Elias
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
Using register data on the Finnish population, we show that both ability (measured with comprehensive school GPA) and educational attainment are relevant predictors of financial distress, even after accounting for childhood family environment. Low GPA is an especially useful predictor of financial distress years later for those who attain a secondary-level education at most. Our results suggest that any societal interventions to mitigate financial distress should particularly focus on low GPA individuals, and especially those unlikely to continue their studies after completing comprehensive school.
Abnormal returns in an efficient market? Statistical and economic weak form efficiency of online sports betting in European soccer
(2016) Tiitu, Tero
School of Business | Master's thesis
Online sports betting markets have expanded significantly during the recent decade. At the same time, due to their apparent similarities with traditional financial markets, the academic literature has perceived sports betting markets as a suitable empirical setting for different tests of efficiency. Employing a data set more extensive than in any previous relevant study, this thesis investigates weak form efficiency of online sports betting in European soccer between seasons 2009 and 2014 from two perspectives: statistical and economic. The statistical tests examine whether subjective probability indicated by average market odds is an unbiased estimator of objective outcome probability. Economic tests, representing the stricter tests of efficiency, inspect whether any betting strategy yields positive returns, utilizing highest odds quoted in the market. The statistical tests find clear evidence of a persistent favorite-longshot bias and hence of statistical weak form betting market inefficiency. On the aggregate level, both the linear and logit regression models reveal that as the subjective probability of an outcome increases, the objective probability increases more than implied by market efficiency. On the individual odds level, the technique that sorts odds into groups based on subjective probability discovers that the deviations between subjective and objective probability occur on both perimeters of the odds spectrum, not in the middle of it. Thus, in a statistical sense, the betting market appears to be weak form inefficient at high respective low probabilities, while being efficient in between. The economic tests give a more ambiguous view on weak form efficiency. When considering all the matches in the sample, neither the tobit regression model nor any of the naïve strategies show chances for profitable betting, while some of the odds groups with highest subjective probability demonstrate moderately positive returns. When only including matches with a positive expected value and simulating the associated returns, the sophisticated strategy based on quasi-arbitrage yields no profits, but the strategy that takes into account the favorite-longshot bias generates consistent profits. Therefore, the betting market seems to be inefficient also in an economic sense. The study concludes that the European online sports betting market in soccer is weak form inefficient. The results are consistent with the earlier literature in terms of statistical efficiency but not in terms of economic efficiency. Due to the lower bookmaker margins in the current market, it is shown that well known statistical biases now also lead to economic inefficiency. The study provides two explanations for the persistence of these inefficiencies: institutional arrangements and market immaturity. Since sports betting markets are not yet as sophisticated as many financial markets, they provide attractive investment opportunities for sharp bettors.
Abnormal trading by advisory banks before M&A announcements: coincidence, skills or insider trading?
(2012) Chu Ngoc, Trung
School of Economics | Master's thesis
ABNORMAL TRADING BY ADVISORY BANKS BEFORE M&A ANNOUNCEMENTS: COINCIDENCE, SKILLS OR INSIDER TRADING? PURPOSE OF THE STUDY In a merger and acquisition (M&A), acquirer’s advisory banks are believed to have information about the target beforehand. This study investigates whether the banks exploit this inside information to increase their holdings in the target firm before the public announcement. DATA The institutional holdings data are collected from the quarterly 13F fillings of SEC via WRDS database. The M&A data are collected from SDC Platinum. Other supporting data such as share prices, deal characteristics and company characteristics are acquired from SDC Platinum, Thomson One Banker, CRSP and COMPUSTAT. The final data set consists of 1064 cases for insider trading investigation from 715 M&As. RESULTS The main findings suggest that advisory banks do increase their holdings in the targets before takeover announcements. These increases have already been benchmarked against those of the advisory banks in targets’ peers. On average, the banks start accumulating targets’ shares since 11 quarters before the announcement. However, their changes in holdings in the targets during the last five quarters immediately prior to the takeover are positive, but not statistically significant. In addition, the results of this study suggest a positive relationship between the trading behavior of the advisory banks and the target premium. KEYWORDS Insider trading, investment bank, merger and acquisition, 13F filling.
Academic abilities, education and performance in the stock market
(2020-08) Talpsepp, Tõnn; Liivamägi, Kristjan; Vaarmets, Tarvo
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
The paper assesses how cognitive abilities and education affect the performance of individual investors in the stock market. We use an exhaustive NASDAQ Tallinn dataset covering two bull markets and one bear market. We show that stronger mathematical and overall academic abilities are associated with more profitable investments and relative outperformance, after trading style, income, experience and a variety of educational characteristics are controlled for. However, the effects are not always linear or monotonic. A similar positive effect on performance is produced by higher education or specialisation in certain subjects. None of these factors is able to explain the performance of investors during bear markets, and none is a substitute for experience. Investors with strong academic abilities tend to have moderate trading frequency and performance seems to be affected more by the ability to find good trades than by the use of any particular trading strategies.
Acquirer return at cross-border acquisition announcement by emerging market companies: Observations from BRICS countries
(2015) Hämäläinen, Yanxin
School of Business | Master's thesis
Since the late 1990s and early 2000s, the world has witnessed a rapid growth of cross-border ac-quisitions conducted by emerging market acquirers. This thesis, inspired by several prior papers in the field, intends to analyse the acquirer return at the cross-border acquisition announcement from a group of emerging markets, namely Brazil, Russia, India, China, and South Africa (the BRICS countries). The main research goal of this thesis is to find out whether emerging market companies benefit from cross-border acquisitions in the form of stock return and what are the fac-tors that influence the return. The data used in this study covers cross-border acquisitions from the BRICS countries from Jan-uary 1, 1995 to December 31, 2014. The data is retrieved from Thomson Financial Securities Data Company (SDC) and Thomson One systems. Using publicly listed acquiring company, sufficient stock price data, and single acquisition announcement by the same acquirer during the event win-dow as the selection criteria, a full sample of 958 deals is obtained. Event study methodology and cross-sectional regression analysis are used in the empirical tests. The event study is carried out using cumulative abnormal returns from event windows (-1, +1), (-3, +3), and (-5, +5). For the cross-sectional regression analysis, a total of 14 variables are introduced, which lead to a reduced subsample of 535 deals. Event study results show that emerging market acquirers enjoys significant positive returns dur-ing 3-day event window when the target companies are from developed markets and when acquir-ers themselves don't have government ownership involvement. Natural resources relatedness gives mixed results: emerging market acquirers of non natural resources related deals enjoy signif-icant positive returns from 3-day event window, while acquirers of natural resources related deals enjoy significant positive returns from 7-day and 11-day event windows. Cross-sectional regression results show that relative deal size has significant positive influence on the acquirer return.
Acquirers performance persistence in acquisitions - European evidence
(2013) Chen, Yu
School of Business | Master's thesis
Objective of the study The purpose of this thesis is to study acquirers performance persistence issue in merger and acquisition (M&A) market based on empirical evidence from EU 15 countries. This study provides an overview of different factors affecting serial acquirers' performance in M&A market as measured by excess stock returns. Focus of this thesis is to test the existence of acquirers performance persistence and factors contributing to this possible persistence effect. Academic background and methodology An overview of existing theories and analysis framework regarding M&A market and acquirers' performance behaviors is obtained through literature research. Empirical data regarding M&A market in EU 15 countries are obtained from various data sources available from Aalto University School of Business. Data are processed by using statistical package EViews. The purpose of the statistical analysis is to discover relations between various variables and acquirers' performance persistence in M&A deals. The regression results are analyzed using established theories on M&A performance, as well as by comparing with relevant study from other scholars. Findings and conclusions This thesis uses a statistical analysis model in which different variables pertinent to M&A deals, together with acquirers' prior performance, are analyzed for detecting their impacts on acquirers' performance. This study reveals that depending on different model specifications, acquirers' performance persistence can be identified in terms of value creation for own companies, value creation for both acquirers and targets, and acquirers' bargaining power in acquisition deals.
Acquiring acquirers: Evidence from Europe
(2016) Valtonen, Antti
School of Business | Master's thesis
OBJECTIVES OF THE STUDY The value creation effects of M&A activity is one of the most researched phenomena within the corporate finance literature. Especially the close to zero and negative announcement returns realized to the acquirer has had their fair share of spotlight. However, the recent papers have mainly been focusing on the traditional drivers behind M&A value creation effects and have disregarded how target's prior acquisition activity might impact this phenomenon. I follow the paper of Phalippou et al. (2015) studying acquisitions of acquisitive targets and provide comparable results of such acquisitions from European perspective, by using the "eat or be eaten" theory of Gorton et al. (2009) as my motivation. DATA AND METHODOLOGY The sample used in this thesis is gathered from the SDC and Datastream databases and covers the years from 1995 to 2014.The main sample comprises of 727 individual M&A deals completed in one of the EU14 countries, of which 71 (9.77%) are deals where the target has made prior acquisitions over the preceding five years before the acquisition announcement. The secondary sample also includes withdrawn deals and has 890 individual observations. The thesis uses OLS and logistic regression models to assess the hypotheses based on the recent academia and highly motivated by the "eat or be eaten" theory of Gorton et al. (2009). MAIN FINDINGS I find no significant relationship between the number of target's prior acquisitions and target's announcement returns. However, acquirer announcement returns are significantly and negatively driven by the number of target's prior acquisitions, on average decreasing by -0.81% when target's number of prior acquisitions increases by one. I also find that acquisitive targets are able to resist takeover attempts 12.63% more often and that failing to acquire an acquisitive target significantly increases acquirer's probability of being acquired over the following five years 103.70% more than failing to acquire a non-acquisitive target. In addition, I find acquisitive targets to only significantly destroy acquirer shareholder value when the industry concentration is lower, the relative target size is higher, the deal occurs pre-merger wave, and when the deal is a cross-industry or an intra-border deal. In Europe, the results are only partially supportive of the idea that acquisitions of acquisitive firms would have a defensive nature. The value-destroying nature could also arise from the fact that acquisitive targets are simply able to resist takeover attempts more often, making the acquisition more expensive for the acquirer.
Adverse effect of outflows and flow volatility on fund managers' stock picking ability
(2013) Isto, Eetu
School of Business | Master's thesis
The effect of fund flows on the stock-picking ability of fund managers is still largely unresolved. Most of the previous studies have focused on fund level returns that are affected by investor flow driven mechanistic issue of liquidity motivated trading that incurs transaction costs, liquidity consumption, and excess cash holdings. Therefore, the effect of flows on the stock picking ability is yet to be studied separately. Concentrating in the performance of the synthetic portfolio of stocks that fund managers over-weight the most, allows me to study how the fund flows affect the behavior and success of fund managers in their stock picking work. My hypothesis is that negative fund flows pose the fund managers in greater job market risk and thus they decrease their risk taking by diversifying rather than over-weighting their best ideas or choosing less unconventional stocks. This can lead to lower stock picking success. Also, I argue that abnormal and volatile fund flows move fund managers' attention from stock picking to managing the cash inflows or paying for redemptions by liquidating assets, which distracts and decreases their stock picking success. I collect the stock market data from CRSP (The Center for Research in Security Prices), the fund holdings data from Thomson Reuters's Mutual Fund s12 data base, and the fund flow data from CRSP Survivor-Bias-Free US Mutual Fund Data Base. I limit my scope to consider US domestic equity funds that are open to retail investors in 2003-2010, that results in 2,161 funds and 2,939,901 quarterly holdings analyzed in the 2007-2010 crisis sample and ca. 2,403 funds and 3,062,516 holdings in the 2003-2006 pre-crisis sample. As proxy for the stock picking ability I use the synthetic portfolio that includes only the stocks, towards which fund managers show the greatest belief following the method introduced by Cohen et al. (2009). I run OLS regressions on the returns of the "best ideas" portfolio controlling for the market risk premium, size, value, momentum, short term reversal, idiosyncratic risk, and liquidity factors. I incorporate the preceding flow measures and flow related control variables in the regressions to analyze their effect on the returns. I provide evidence that volatile and negative fund flows cast a statistically and economically significant negative drag on the stock-picking ability that is separated from the negative effects of liquidity trading. This negative effect spans over a quarter and is rather a result of decreased ability to conduct fundamental analysis or fund managers' decreased willingness to take idiosyncratic risk, than inability to execute short term trading strategies indicated by the daily results of Rakowski (2010). I add to the literature of the widely accepted model of Berk and Green (2004) by noting that large inflows not only decrease fund level alpha but also affect the stock picking ability negatively. On the contrary, their model predicts that fund level returns would increase in outflows but I show that large outflows may radically reduce the underlying stock picking ability.
Adverse selection in lit markets and dark pools: evidence from OMX Helsinki 25 stocks
(2014) Sänkiaho, Saku
School of Business | Master's thesis
PURPOSE OF THE STUDY: Over the last few years, adverse selection has been a widely discussed topic in the equity markets as it has traditionally been seen as having a detrimental effect on a trader's performance. Especially, institutional investors have raised concerns of adverse selection from executing with high-frequency trading (HFT) counterparties. In Europe, today's institutional investors have the opportunity to trade away from the displayed markets and execute orders in dark pools, which should lead to reduced information leakage, and thus also to reduced adverse selection. Although the usage of dark pools is primarily driven by the urge to reduce information leakage, the perception has however grown that even dark pools might leak sensitive information, leading to increased adverse selection. The purpose of this study is to investigate whether dark pools do offer institutional investors the possibility to trade orders with less adverse selection compared to lit markets, and if so, to what extent. DATA AND METHODOLOGY: The incidence of adverse selection in lit markets and dark pools is investigated by looking at the stock price development around a Finnish asset management company's resting order fills, which are drawn from the company's algorithmic order flow. The unique data have made it possible for me to examine price moves even in the initial milliseconds around each lit and dark fill. Overall, the data set comprises 152,261 lit market and 16,044 dark pool fills, which occurred during continuous trading hours over the ten-month period from August 1, 2012 to May 31, 2013. All fills are in OMX Helsinki 25 stocks. The lit fills are executed in the Helsinki Stock Exchange and two multilateral trading facilities (MTFs). The dark fills are executed at the primary or the EBBO mid-price in 8 different European MTF dark pools. RESULTS: On average, resting orders are getting adversely selected on individual fills in both lit markets and dark pools. However, in dark pools there is less adverse selection, which is the case across the venues and fill size categories. Looking at the whole sample and the average price development over the one-minute post-fill time interval, in lit markets, adverse selection costs are around four times higher compared to dark pools. The stock price starting to move down (up), on average, in less than a second after a buy (sell) order gets filled in a lit market or dark pool is a possible indication of the actions of market participants trading at very high frequency.
Advertising, Attention, and Financial Markets
(2020-10-01) Focke, Florens; Ruenzi, Stefan; Ungeheuer, Michael
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
Using daily advertising data, we analyze the short-term effects of advertising on investor attention and on financial market outcomes. Based on various investor attention proxies, we show that advertising positively affects attention. However, it has only little impact on turnover and liquidity. Most importantly, short-term stock returns are not significantly influenced by advertising. Further results suggest that previous findings of an economically significant positive relation between advertising and returns are due to reverse causality. Thus, the belief that stock prices can be temporarily inflated via advertising is misguided.
Agency conflicts and company valuation: A study on dual-class shares, supervisory boards, staggered boards and board independency
(2014) Tervo, Markku
School of Business | Master's thesis
This thesis examines agency conflicts in companies with the focus on majority-minority shareholder conflicts and conflicts between the management and shareholders. These agency conflicts are addressed by studying the impact of dual-class shares, supervisory boards, staggered boards and board independency on company valuation of the Finnish and Swedish stock-listed companies at the end of the year 2013. The valuation impact of each mechanism is tested with a separate regression models where Tobin's Q is regressed on dummies for the respective mechanism and a set of control variables. Furthermore, an additional event study on the Finnish supervisory board abolitions is performed. The descriptive statistics show that dual-class shares are still common in Finland and especially in Sweden. On the contrary, the other three mechanisms are rare and mainly concentrated on certain industries in Finland. Moreover, the four mechanisms appear to serve as complements rather than substitutes to each other. The regression models yield negative coefficients for dual-class share and staggered board dummies. The staggered board dummy is statistically significant, while the dummy for dual-class shares is at the most suggestive. The event study on supervisory board abolitions fails to document any statistically significant cumulative abnormal returns around the event date. Unexpectedly, the cumulative abnormal returns are lower for state-owned companies that dismantle their supervisory board than for their privately owned counterparts. The possible endogeneity problems, small sample sizes and low number other mechanisms than dual-class shares impose certain methodological challenges. Therefore, the robustness of the results and the direction of causality cannot be fully ensured.
Agent-based modeling as an approach to evaluate price discovery process in double auction markets
(2011) Jahnsson, Niklas
School of Economics | Master's thesis
PURPOSE OF THE STUDY This study investigates how agent-based modeling can be used to evaluate the price discovery process in double auction markets. The study is limited to single-unit continuous double auctions, and especially to constrained zero-intelligence (ZI-C) trader markets first introduced by Gode and Sunder (1993a). STRUCTURE First, I evaluate the earlier models and construct an agent-based model using the guidelines from the literature. In particular, the idea is to create an agent-based model as simple as possible, because the earlier literature in agent-based modeling lacks synthesis about the modeling principles used. After having created the model, I compare its results comprehensively against the earlier literature. In addition, I concentrate especially to evaluating the methods of Cliff and Bruten (1997) to analyze ZI-C trader markets as their ideas have influenced literature substantially, but have been recently questioned by Othman (2008). RESULTS The results indicate that the methods of Cliff and Bruten (1997) can be improved. Especially, it appears that the probability density functions (PDF) of bids and asks proposed by Cliff and Bruten (1997) have to be constructed in a slightly different manner than what was originally proposed. However, the results also suggest that after refining the ideas of Cliff and Bruten (1997), it is possible to describe the PDF of transaction prices in ZI-C trader markets. Generally, the results suggest that the earlier literature has overlooked the importance of the evolution in the trader population participating in the ZI-C market. In addition, the results indicate that the trading in ZI-C trader markets closely mimics a sequence of trades that would take place on the Marshallian path, which has been previously suggested, but not comprehensively analyzed by Brewer et al. (2002).
Aid and income: Another time-series perspective
(2015) Lof, Matthijs; Mekasha, Tseday Jemaneh; Tarp, Finn
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
This study provides a replication of the empirical results reported by Nowak-Lehmann, Dreher, Herzer, Klasen, and Martínez-Zarzoso (2012) (henceforth NDHKM). We uncover that NDHKM relied on a regression model which included a log transformation of variables that are not strictly positive. This led to nonrandom omission of a large proportion of observations. Furthermore, we show that NDHKM’s use of co-integrated regressions is not a suitable empirical strategy for estimating the causal effect of aid on income. Evidence from a Panel VAR model estimated on the dataset of NDHKM, suggests a positive and statistically significant long-run effect of aid on income.
Algorithmic pairs trading: empirical investigation of exchange traded funds
(2013) Sipilä, Miika
School of Business | Master's thesis
ALGORITHMIC PAIRS TRADING: EMPIRICAL INVESTIGATION OF EXCHANGE TRADED FUNDS PURPOSE OF THE STUDY The objective of this thesis is to study whether the algorithmic pairs trading with Exchange Traded Funds (ETFs) generates abnormal return. Particularly, I firstly study whether the trading strategy used in this thesis generates higher return than the benchmark index MSCI World and secondly even higher return than stocks. DATA AND METHODOLOGY The dataset includes over 66,000 possible pairs of ETFs worldwide from 2004 to 2012. In addition, I use the empirical results from the relevant papers in comparison. To test the hypothesis, I first apply cointegration tests to identify ETFs to be used in pairs trading strategies. Subsequently, I select ETF pairs to compose a pairs trading portfolio based on profitability and finally compare the results to the benchmark index and the empirical results of the relevant papers. RESULTS The empirical results of this thesis show that pairs trading with ETFs generate significant abnormal return with low volatility from the eight year trading period compared to the benchmark index as well as stocks traded with pairs trading strategy. The cumulate net profit is 105.43% and an annual abnormal return of 27.29% and with volatility of 10.57%. Furthermore, the results confirmed market neutrality with no significant correlation with MSCI World index.
Analysis of expected sale time and behavior on the Finnish housing market
(2013) Oinonen, Pontus
School of Business | Master's thesis
PURPOSE OF THE STUDY The purpose of this thesis is to determine how expected sale time of housing in Finland is formed and which factors have an effect on it. I use marketing time of dwellings as a proxy of expected sale time. This is a descriptive study in nature, because no earlier papers with Finnish data exist to compare the results with. The analysis covers housing features as well as its location. In addition, I study macro-economy and date of market entry related variables' effects on expected sale time. For most individuals, housing transactions are largest investment decisions of their lives and I aim to explain the high variation in the sale times within the Finnish housing market and in comparison with other asset classes. DATA I study my research questions mainly based on housing advertisements from January 2004 to July 2012. The advertisement data was collected from three sources: Etuovi, Oikotie and Kiinteistömaailma. In addition, I collected real transaction data from asuntojen.hintatiedot.fi and various background data from Statistics Finland. RESULTS The results show that nearly all available housing and listing date related features have a statistically significant relationship with expected sale time. I also find that submarkets within certain cities do not vary much from the city consensus and more variation is present at times with poor state of economy. Results suggest that a seller with no rush to sell should wait for the optimal listing time to ensure her dwelling to raise interest in the market. I find that buyers' search criteria selection has a clear link to expected sale time as well. With a careful selection of listing price the seller may lower her dwelling's expected sale time.
Anatomy of performance fees in Finnish mutual funds
(2013) Pohjanpalo, Timo
School of Business | Master's thesis
OBJECTIVES OF THE STUDY: In this thesis, I study the use of performance fees in Finnish mutual funds, their impact on the funds' risk-adjusted return, risk and their theoretical value. Furthermore, utilizing simulation-based methods, my objective is to calculate a theoretical value for the performance fee structures in Finnish mutual funds. Finally, I also study the different regulatory approaches to performance fees in select European countries and the disclosure of Finnish funds' performance fees. DATA AND METHODOLOGY: My sample consists of 332 mutual funds registered in Finland and contains quarterly observations on each fund from March 2007 to December 2012. 40 of these funds utilize performance fees. The sample is free from survivorship bias. My analysis is primarily based on random effects panel regressions with a variety of risk and return variables as dependent variables and funds' individual characteristics as explanatory variables. I also utilize Monte Carlo simulation and the Margrabe model to calculate the cost of the fee for each of the funds in the sample. FINDINGS OF THE STUDY: Funds with performance fees offer better risk-adjusted returns. The introduction of a performance fee increases the funds' ex post four-factor alpha by on average 83 basis points per quarter. The results hold also when using Sharpe ratio and the raw quarterly return as dependent variables. The use of performance fees does not increase funds' volatility levels relative to funds without such fees. However, funds with performance fees exhibit higher tracking errors, implying that funds take more active risk compared to their counterparts. The theoretical value of the performance fee is on average 1.35% Furthermore, funds with performance fees, on average, offer significantly lower management and redemption fees than funds without such fee structures. The difference is 22 and 24 basis points p.a. for management and redemption fees, respectively. However, the extra cost associated with the performance fees makes these funds more expensive on an annual basis.
Are firms credit constrained? The supply effect of bond market access on firm leverage
(2011) Soini, Aleksi
School of Economics | Master's thesis
PURPOSE OF THE STUDY The banking market is hypothesized of having a tendency to ration and constrain lending to firms, while the public debt market (bond market) is hypothesized to afford borrowers with added supply of debt capital thereby having the effect of relaxing credit constraints. This study examines the degree to which bond market access of firms is correlated with the leverage of firms to uncover whether bond market access has a significant effect on leverage. Two-stage least squares regressions employing instrumental variables are employed to robustly uncover the exogenous effect of bond market access on leverage. The research questions ask whether bank dependent firms are credit constrained and whether access to the bond market relaxes possible credit constraints? Also, important theories and determinants of firm leverage are reviewed and examined in regressions providing for an understanding of what determines firm leverage. DATA The sample of this study includes all of the Finnish and Swedish publicly listed companies in the OMXH and OMXS exchanges excluding companies included in the GICS groups of 4010-4040 (Financials). Yearly observation from years 2000-2009 are observed and a maximum sample size of 4690 firm-year observations is obtained. The Thomson ONE Banker service and the Datastream bond issuances database are used as data sources. RESULTS Firms predicted to have bond market access are found to have significantly higher financial leverage compared to firms without predicted bond market access even after controlling for leverage demand factors, industry, time period and for country. This difference ranges from 3.41 to 8.85 percentage points in market leverage which translates to 22.4% and 58.6% more relative debt when measuring from average leverage. Without the control for endogeneity, bond market access seems to significantly increase the debt of firms. However, controlling for endogeneity of bond market access makes the positive correlation statistically insignificant albeit remaining positive. Evidently, the degree of credit constraints in the bank lending markets of Finland and Sweden and the degree to which bond market access relaxes credit constraints are insufficient to be observable in my empirical tests. The leverage demand factors in the regression models are found to be highly explanatory factors of leverage. At best, 37.8% of all variation in firm leverage is explained in regressions. Significant findings for the factors of tangibility of assets, profitability and growth opportunities are found to support the trade-off- and pecking order theories of capital structure.
Are speculative futures traders behind coffee price trends?
(2013) Pakarinen, Teemu
School of Business | Master's thesis
I study whether speculative futures traders' position changes lead coffee price changes by studying linkages between futures and spot prices, traders' positions in futures contracts as well as by utilizing novel time periods and perspectives through robustness testing. The data includes ICE Coffee "C" futures contracts, ICO spot price indices and CFTC trader position information. I utilize weekly data with sample period from January 2000 to June 2012. To find answers to my research questions, I utilize cointegration and Granger causality tests. For robustness, I study sub-samples, as well as sensitivity of cointegration results to frequency of observations and lag order. Moreover, I run Granger causality tests with commercial and non-reportable trader position information. I also provide findings about excess speculation by studying speculative positions beyond what is needed to balance commercial hedging needs. Finally, I provide new information to current research literature by studying the summer time period when sub-optimal weather conditions may lower harvesting yields and cause sudden coffee price fluctuations. I find that Coffee "C" futures and ICO spot prices are tied together in a sense that a long-run equilibrium exists. Moreover, speculative futures traders' position changes do not lead or precede Coffee "C" futures or ICO spot price changes. The results imply that speculative futures traders do not drive coffee price trends. On the contrary, unprecedented in current research, I find that commercial futures traders' position changes lead coffee prices through futures markets inside key harvesting period from June to August. In economic terms, the results imply that ICE Coffee "C" futures contracts could be utilized to hedge long-term coffee spot exposure that is equivalent to ICO Arabicas Mild average spot prices. The new findings inside harvesting period also provide novel information to current commodity speculation research and offer important future policy implications. Commercial traders' position changes lead coffee price changes inside fundamentally meaningful time period. Therefore, inside certain time periods, trader groups may bring about trends in commodities prices instead of being trend followers as mainly suggested by current research literature. Hence, regulatory bodies should concentrate to the speculative futures trades in total, regardless the trader groups behind them.
Are stock returns elevated under left-wing governments in Finland? The evidence from 1917-2007
(2014) Isoranta, Tero-Tapio
School of Business | Master's thesis
PURPOSE OF THE STUDY The purpose of this study is to determine whether or not stock returns are higher under left wing governments. The common wisdom might be that right-wing, fiscal conservative, parties are better for economics but the results obtained in studies have been contrary, and mixed. This study will add to the discussion by studying this effect in Finland. Finland has a multi-party parliamentary system, unlike many countries including the United States, and this study contributes by creating a freely varying leftist variable for governments instead of using binary values. Additionally, I have newly created a long-term Finnish stock index dating back to 1917. DATA AND METHODOLY The main data set is comprised of monthly observations for value and equal-weighted total return indexes from the Finnish stock market during a time period between 1917 and 2007. In order to evaluate Finnish governments over the decades I created a (non-binary) political variable that encapsulates the left-right -wing orientation of sixty-two governments incumbent during the time period. To test my hypothesis I complete univariate analysis and ran a series of regressions. I conduct OLS regression on value-weighted and equal-weighted real and excess stock returns alike. To obtain robust results with long time series I will also utilize GARCH regressions for the same variables. All the regressions are both with binary left-right and freely varying "leftist" variables. To determine, if possible, abnormal returns are expected or not, I will also test for election shocks. A greater volatility (risk) of stock returns for left or right-wing governments can explain a difference in stock returns levels as well, and it will be further examined in this study. RESULTS Similar to earlier studies, I find significant abnormal excess returns and non-significant real returns during incumbencies of left-wing governments. The results are more evident when using freely varying leftist variables. Interestingly, abnormal left-wing returns are realized around the election months. Inflation and volatility are on average higher for left-wing governments but this does not alone explain the abnormal stock returns under left-wing governments' incumbencies.
Are target fund shareholders really the winners in mutual fund mergers?
(2015) Lapatto, Anni
School of Business | Master's thesis
OBJECTIVES OF THE STUDY: In my thesis, I study how the target portfolios in mutual fund mergers would have performed compared to the portfolios acquiring them if they had not been merged but continued on their own, target portfolios having a buy-and-hold strategy based on their latest holdings. In other words, I compare the simulated target portfolio returns to the realized acquiring portfolio re-turns in the post-merger period. DATA AND METHODOLOGY: My sample consists of 264 individual merging portfolio pairs from January 2007 to June 2012 and includes mutual fund portfolios investing into US equity products. I compare both raw returns and risk-adjusted returns (Sharpe ratio) on annual basis. All the data is retrieved from CRSP and is free from survivorship bias. For return comparison in the research period I employ Wilcoxon signed rank test and check the robustness of the results with Student's t-test. FINDINGS OF THE STUDY: In the pre-merger period, acquiring portfolios outperform target portfolios. The median paired annual return difference is 1.40% (0.23) two years prior to the merger, and 1.43% (0.23) a year prior to the merger in favour of acquiring portfolios. In the post-merger period, the pattern is reversed as target portfolios have superior performance compared to acquiring portfolios. In the first year after the merger, target portfolios have on median 1.45% (0.13) higher annual returns than their acquiring portfolios, and in the second year the median paired annual return difference has increased to 2.57% (0.49). The superior post-merger performance of target portfolios can be explained by mean reversion taking place from continuity in the underlying holdings sooner than expected and the passive buy-and-hold strategy of target portfolios outperforming the active management of acquiring portfolios.