Jaana Aaltonen

Growth and Profitability in Small Privately Held Biotech Firms: Preliminary Findings

This paper reports on preliminary findings on a study of the relationship of growth and profitability among small privately held Finnish Life Science firms. Previous research results concerning growth and profitability are mixed, ranging from strongly positive to a negative relationship. The conventional wisdom states that growth is a prerequisite for profitability. Our results suggest that the reverse is the case. A high profitability-low growth biotech firm is more probably to make the transition to high profitability-high growth than a firm that starts off with low profitability and high growth.

A rolling test of granger causality between the Finnish and Japanese security markets

In the paper we test the impact of the Japanese stock market on two financial asset groups, free and restricted shares, on the Finnish market in the early 90s. The causality is tested in the Granger sense. The research issue is particularly interesting, since the restrictions on foreign ownership were abolished by the end of 1992. The linkage between the Japanese and Finnish financial economies is seen to be stronger for free shares than for restricted. In particular, significant Granger causality between Japanese and Finnish free shares is observed at relatively long consecutive time intervals, whereas the Japanese impact on the restricted shares is only occasional. Thus, the decision to abolish the restrictions not only leads to increased international dependence in the future, but will also change the risk profile of the restricted shares.

Nonlinear modelling of the Finnish Banking and Finance branch index

It is well documented that daily returns of several financial assets cannot be modelled by pure linear processes. It seems to be generally accepted that many economic variables follow nonlinear processes. The sources of nonlinearity can be divided in two classes: those where nonlinearities stem from the conditional variance and those where non-linearities enter through the conditional mean. Efforts in modelling the former have resulted in development of the ARCH-family models. There is, however, less evidence on nonlinearity in the mean of financial time series. One family of models that is applied in finance is the STAR. In this paper some nonlinear modelling techniques are applied to a Finnish financial time series, the daily Banking and Finance branch index on the Helsinki Stock Exchange. The techniques include a variance-nonlinear model from the ARCH family, a mean-nonlinear model, namely Smooth Transition Autoregression (STAR)-model and a neural network. Linearity is tested for by standard autocorrelation tests, LM-tests against the specific nonlinear models and the BDS-test. The study provides supplements to a range of earlier research. It demonstrates that the stock series is both linearly and nonlinearly dependent. Adapting an ARCH(3) eliminates the dependencies most satisfactorily. The ARCH-models and STAR-models were estimated using the SHAZAM-package.

Recursive portfolio management: large-scale evidence from two Scandinavian stock markets

In the present study, we present evidence on the efficiency of a recursive linear portfolio management system. Extensive tests have been performed using data from two Scandinavian stock markets. The optimal ex-ante investment strategies generated by the system yield a yearly return on investment of 75 to 80% when using a forecasting horizon of three to five days. The computational efficiency of the system can be improved considerably by using a faster optimization algorithm.

Mixed Markov modelling of financial success

Discusses and empirically tests special cases of multiple‐chain mixed Markov latent class models with business data. The switches between negative and positive changes in earnings‐per‐share of firms are captured by alternative Markov models. The estimated response probabilities and state transition probabilities show interesting changes in the transformation patterns of the firms over time. Shows that Markov models can be valuable tools in predicting switches in profitability of firms.

The economic value of stock and call options on the Swedish financial market

Abstract The intense trading activity and the very existence of organized stock option markets suggest that these financial contracts provide noticeable economic benefits as compared to trades on the stock market. In this paper, we test the efficiency of recursive optimization strategies on a combined portfolio of stocks and call options series listed on the Swedish stock market. For comparison, the same recursive optimization is performed on a portfolio purely consisting of stocks. The portfolio efficiency of the recursive optimization strategy is also compared to results obtained with call options using a Black-Scholes strategy.

Competing transformation models

The paper is presented in two parts. The first is concerned with the methodology of the competing transformation models and the second details the results of the empirical tests. In particular, it concentrates on empirical testing of the stability and cross‐sectional invariance of the factor patterns underlying the arbitrage pricing models of two neighbouring security markets. In previous studies, the method of transformation analysis has been used to address these issues at the individual asset level. In the present study three alternative transformation analysis models are used to study the stability and invariance problems. The tests are carried out at an aggregated level, such that subsets of asset returns are combined in equally weighted portfolios in the spirit of Fama and MacBeth. Portfolio formation is motivated by the observed anomalies of individual asset return series. Even if some anomalies may be present on the aggregated level also, their impact will be weaker. The amount of different issues of the same company in the database is varied in order to study the impact of parallel issues on the empirical results.

Comparing the causality patterns between some Scandinavian stock returns and global return factors

In this paper we study the Granger causality between Scandinavian stock returns and a representative set of global return factors. The database is initially subjected to factor analysis, where three global factors are identified, a European, an American and an Asian. The Granger causality between the Finnish-Swedish market returns and these factors is studied. The results indicate that only the European factor is relevant and has an incremental impact on the Nordic stock returns. The timeliness hypothesis is accepted for all three factors. The global factors exhibit interesting causality patterns over time.

The structural relationship between financial ratios and capital asset pricing

The relationship between financial statement information and security market information has been the subject of intensive theoretical and empirical research. The bulk of empirical studies consider this relationship without an explicit consideration of causality. In the present study we put forward some novel results concerning the direction of causality between these two information sets. Our results indicate that the accrual information in financial statements has some projective value with respect to future reactions on the security markets.

Testing the relevance of accounting numbers in security valuation: a structural model with Scandinavian data

In the present study we consider the causal structural relationship between financial accounting information and stock market reactions in Scandinavian conditions, applying the Linear Structural Relationships (LISREL) methodology. A significant causality from the accounting information to stock market characteristics was found on both Finnish and Swedish markets. In a closer analysis of the individual measurement variables, relatively similar signal patterns were observed on the neighbouring markets. Only reactions to dividend payments have different signs with Finnish and Swedish data.