Which heuristics can aid financial-decision-making?

© 2015 Elsevier Inc. We evaluate the contribution of Nobel Prize-winner Daniel Kahneman, often in association with his late co-author Amos Tversky, to the development of our understanding of financial decision-making and the evolution of behavioural finance as a school of thought within Finance. Whilst a general evaluation of the work of Kahneman would be a massive task, we constrain ourselves to a more narrow discussion of his vision of financial-decision making compared to a possible alternative advanced by Gerd Gigerenzer along with numerous co-authors. Both Kahneman and Gigerenzer agree on the centrality of heuristics in decision making. However, for Kahneman heuristics often appear as a fall back when the standard von-Neumann-Morgenstern axioms of rational decision-making do not describe investors' choices. In contrast, for Gigerenzer heuristics are simply a more effective way of evaluating choices in the rich and changing decision making environment investors must face. Gigerenzer challenges Kahneman to move beyond substantiating the presence of heuristics towards a more tangible, testable, description of their use and disposal within the ever changing decision-making environment financial agents inhabit. Here we see the emphasis placed by Gigerenzer on how context and cognition interact to form new schemata for fast and frugal reasoning as offering a productive vein of new research. We illustrate how the interaction between cognition and context already characterises much empirical research and it appears the fast and frugal reasoning perspective of Gigerenzer can provide a framework to enhance our understanding of how financial decisions are made

Geographical segment disclosure and capital market risk assessment of multinational enterprises

Abstract available : p.ii-ii

BRAND DRIVEN GROWTH: CASE AMER SPORTS CORPORATION IN THE SPORTING GOODS INDUSTRY

Brands have increased their importance in recent years due to various aspects. In the absence of a comprehensive theoretical framework for the phenomenon of brand driven growth, in this thesis the phenomenon is investigated using a case study as research strategy. Sporting goods industry is a highly competitive and growing, but also maturing industry, which provides a fruitful platform for investigating the phenomenon. Within the sporting goods industry, the case company Amer Sports Corporation is an atypical case, which enables more information to be revealed, because it activates more mechanisms and more actors in the situation studied. The company has a wide portfolio of brands, which enables better targeted offering to each relevant market segment and establishment of a differentiated and authentic brand positioning for each brand. The case company and its business environment are profoundly analyzed through four layers: macro-environment, industry, competitors and markets, and organization. In the context of the thesis the phenomenon of brand driven growth is investigated using multiple viewpoints during the iterative research process, and the main focus is specified as financial aspect of brand driven growth, including brands’ impact on both company’s financial performance and shareholder value, i.e. the process how customer value is translated into shareholder value. As a result of the identified points of convergence of the findings, and theoretical approaches and frameworks used in assessing possible elements of brand driven growth, a framework for the phenomenon has been created, and it serves also as a platform for future research efforts and development of the framework towards a general theory. Brand valuation is a core theme of the framework, and the respective process and its outcomes can be used in an ongoing form in investor relations communication and brand management, and as a tool of strategic control systems to create additional value for the organization and its shareholders besides the common use in acquisitions. Current brand valuation methods are based on single-brand approaches, although multi-brand portfolios are increasingly common. During the research process, a need for further research related to brand portfolio valuation methods was identified.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format

Shipping Investor Sentiment and International Stock Return Predictability

Stock return predictability by investor sentiment has been subject to constant updating, but reaching a decisive conclusion seems rather challenging as academic research relies heavily on US data. We provide fresh evidence on stock return predictability in an international setting and show that shipping investor sentiment is a common leading indicator for financial markets. We establish out-of-sample predictability and demonstrate that investor sentiment is also economically significant in providing utility gains to a mean-variance investor. Finally, we find evidence that the predictive power of sentiment works best when negative forecasts are also taken into account

Three empirical studies on market efficiency – evidence from the Pakistan stock exchange

The thesis is comprised of three interrelated empirical chapters on the Pakistan stock exchange which effects on the market efficiency. In the first empirical chapter, ‘Is the Market Efficient – Evidence from Pakistan stock exchange’. It is evaluating the short and long run market efficiency of the stock market from the period of Jan-2005 to Dec-2014. The chapter examines the market efficiency through using notable methodology of event study and also implementing the parametric and non-parametric test such as CAAR, t-test, Patell Z, Boehmer et al., Corrado rank and sign test. Within the chapter I have arranged the dataset based on firm size in order to evaluate whether the top 25% companies have more influence on market price in comparison with bottom 25% companies. Moreover, my data set also used the technique of market efficiency curve where my analysis is giving understanding of market reaction either it is over reacting or slow response towards the dividend announcement information. Another useful technique also implemented on the dividend announcement to identify the respective information as the good news, bad news or neutral. The results indicate strong evidence in support of dividend announcement towards market reaction. The results from this chapter show evidence in support of weak form of market efficiency in the context of the Pakistan stock exchange.The next empirical chapter entitled “Implementation of new price impact ratios: Evidence from the Pakistan stock Exchange” examines the liquidity measures, and, getting inspiration of the recent research of Florackis et al. (2011). The empirical chapter analyse two latest liquidity measures developed by Amihud (2002) return-to-volume (RtoV) and Florackis et al. (2011) return-to-turnover (RtoTR). Both the measures implemented into the Pakistan stock exchange. The results are more align with Florackis et al. (2011) (RtoTR) which suggests that lower RtoTR values indicates higher returns in contrast of high RtoTR ratio. Moreover, the results are also consistent with the work of Florackis et al. (2011) and Amihud and Mendelson (1986a) where trading frequency and trading cost are important features for evaluating the returns. In addition, the findings relating to RtoV ratio indicates the negative correlation with market capitalisation which explains that small stocks are illiquid.In the third empirical chapter, “Market Efficiency and Anomalies: Evidence from the Pakistan Stock Exchange” analysis is based on examining any existence of market anomalies in the Pakistan stock exchange. The analysis is considering three major anomalies i.e. day of the week effect which includes weekend effect as well, month of the year effect and holiday effect in Pakistan stock market. The importance of the particular study is to scrutinise the market anomalies by using one data set through implementation of ARCH and GARCH models. The results indicate that Pakistan stock exchange has a seasonality effect on weekend (Friday), Monday and Tuesday. The major anomalies exist in the month of August which explains the year end effect and in Pakistan the tax year ends in the month of June, additionally the announcement of budget from Government announced during the June (Federal) and July in (Provinces). However, holiday effect has no particular trend in the Pakistan stock market

Financial predictions using intelligent systems

This thesis was submitted for the degree of Doctor of Philosophy and awarded by Brunel University.This thesis presents a collection of practical techniques for analysing various market properties in order to design advanced self-evolving trading systems based on neural networks combined with a genetic algorithm optimisation approach. Nonlinear multivariate statistical models have gained increasing importance in financial time series analysis, as it is very hard to fmd statistically significant market inefficiencies using standard linear modes. Nonlinear models capture more of the underlying dynamics of these high dimensional noisy systems than traditional models, whilst at the same time making fewer restrictive assumptions about them. These adaptive trading systems can extract information about associated time varying processes that may not be readily captured by traditional models. In order to characterise the fmancial time series in terms of its dynamic nature, this research employs various methods such as fractal analysis, chaos theory and dynamical recurrence analysis. These techniques are used for evaluating whether markets are stochastic and deterministic or nonlinear and chaotic, and to discover regularities that are completely hidden in these time series and not detectable using conventional analysis. Particular emphasis is placed on examining the feasibility of prediction in fmancial time series and the analysis of extreme market events. The market's fractal structure and log-periodic oscillations, typical of periods before extreme events occur, are revealed through recurrence plots. Recurrence qualification analysis indicated a strong presence of structure, recurrence and determinism in the fmancial time series studied. Crucial fmancial time series transition periods were also detected. This research performs several tests on a large number of US and European stocks using methodologies inspired by both fundamental analysis and technical trading rules. Results from the tests show that profitable trading models utilising advanced nonlinear trading systems can be created after accounting for realistic transaction costs. The return achieved by applying the trading model to a portfolio of real price series differs significantly from that achieved by applying it to a randomly generated price series. In some cases, these models are compared against simpler alternative approaches to ensure that there is an added value in the use of these more complex models. The superior performance of multivariate nonlinear models is also demonstrated. The long-short trading strategies performed well in both bull and bear markets, as well as in a sideways market, showing a great degree of flexibility and adjustability to changing market conditions. Empirical evidence shows that information is not instantly incorporated into market pnces and supports the claim that the fmancial time series studied, for the periods analysed, are not entirely random. This research clearly shows that equity markets are partially inefficient and do not behave along lines dictated by the efficient market hypothesis

Financial markets trend: ageing and pension system reform

Ageing have prompted important changes in the structure of pension system with substantial differences across the most developed countries. Given that ageing populations are driving a growing need for private form of saving for retirement, the pension fund industry is like to exert an increasing influence in the financial markets. Much of the additional retirement related flows to capital markets will be intermediated by pension funds although their importance varies considerably across country. This work reviews recent change in the pension funds industry (updated at 2006) originated from pension system reform across countries as well as risk management practices, such as ALM; the paper also focus the potential implication of pension funds investments strategies on financial markets identifying the main gaps in the availability of financial instruments needed for pension funds.pension system, financial markets, pension fund industry