Jukka Perttunen

Finnish earnings response coefficients: the information content of losses

This paper provides new evidence on the information content of losses in the relation between stock returns and annual accounting earnings. Consistent with earlier US evidence, accounting losses are not significantly related to stock returns in Finland. Moreover, it is shown that the different methods used to measure earnings in Finland affect the frequency of losses, substantially altering the estimated return-earnings relation. The results suggest that earnings adjusted in accordance with the recommendations of the Finnish Committee for Corporate Analysis are not more useful than the unadjusted reported earnings in explaining stock returns in Finland.

On the causality and co-movements of scandinavian stock market returns

This paper reports some tests of Scandinavian stock market indices. Firstly, Granger causality tests of daily Swedish, Norwegian, Danish and Finnish stock returns are performed. Secondly, the effects of world-wide returns on these four Scandinavian markets are analysed. Some causality between Scandinavian markets is observed. The Swedish market is found to be the leading one of the four, while the other three appear to have no significant influence on other markets. Thus, the results do not indicate full integration of information between Scandinavian stock markets. The world-wide returns seem to have significant leading effects on Scandinavian market returns. This may be due to the growing international capital movements across countries and stock exchanges. The ongoing internationalization may well have significant effects on the returns behaviour of Scandinavian stock markets, in particular in Norway, Denmark and Finland.

Financial ratio distribution irregularities: Implications for ratio classification

Abstract This paper incorporates studies investigating the distributional characteristics of financial ratios to studies related to empirical classification of financial ratios. Even though the distributional properties of financial ratios have received some attention in prior research, the implications of observed results for financial decision making have not been researched in detail. The empirical analysis of this study is carried out for 10 ratios on Finnish listed firms. The results reveal that the observed distribution irregularities have a significant impact on the results obtained from the empirical classification of financial ratios. A large part of the time-series instability of financial ratio patterns is caused by financial ratio distribution irregularities. In addition, it is discovered that the interpretation of the underlying financial factors of firms may be affected if distribution irregularities are not paid due attention to.

The international co-movements of Finish stocks

This paper provides new empirical evidence on the international co-movements of Finnish stocks. The vector autoregression (VAR) approach indicates that US and especially Swedish stock markets lead Finnish stock market returns by approximately one or two months. The results based on international market models indicate that the returns of individual Finnish stocks are significantly positively related to those of Sweden, while the relation between Finnish and US returns is significantly lower. The relation seems to vary clearly between industries, some industries being related to US markets as well. Significant time-series instability is reported in the results, however.

On the riskiness of the world's stock markets

Abstract The main aim of this paper is to study the riskiness of the worlds stock markets. This is carried out by applying the concepts of the two main asset pricing models: the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model (APM). Certain obvious risk categories among world stock markets exist. Three major potential reasons for the existence of these different risk categories are reported. Firstly, economic trade and currency areas seem to affect the riskiness of different stock markets, with North American, European and Oceanic stock exchanges quite clearly creating their own separate factors. Secondly, the level of institutional development of a given market also appears to be a factor determining its riskiness. Thin stock markets, such as those of Finland and Mexico seem to exhibit a different price behaviour of their own. Thirdly, the combined effect of different time zones and efficiency is discussed, especially in the case of the UK stock markets vs. other European stock markets.

The proportionality of financial ratios: implications for ratio classifications

Studies investigating financial ratio proportionality are incorporated with studies related to the empirical classification patterns of financial ratios. The proportionality assumption of ratios seems to hold rather well in a sample of listed Finnish firms. Furthermore, the results of the empirical classification patterns based on the alternative functional specifications of financial statement items are very similar to each other. The results suggest that the ratio approach is a highly useful tool in financial statement analysis, especially when a set of ratios is used to evaluate a firms performance.

Return intervals, systematic risk estimates and firm size: Empirical evidence from a thin security market

Abstract Prior empirical evidence indicates that the size effect in stock returns is sensitive to the return interval used in estimating systematic risk. Recently, Handa, Kothari and Wasley (1989) showed that the size effect is decreased when return interval is lengthened on U.S. data. In this paper, we demonstrate that on a thin European security market, i.e. in the Finnish stock market, the case is just the opposite.

The impact of the return interval on common factors in stock returns: Evidence from a thin security market

Abstract The purpose of this paper is to analyze the effect of the return interval on common factors estimated in Finnish stock returns. Firstly, common factors are identified by factor analysis using daily, weekly and monthly return intervals. The similarity of these factors is then studied applying transformation analysis. It is discovered that the factors produced by alternative return intervals significantly differ from each other. An exception is the first factor representing the market index of securities.

On the impact of infrequent trading on the APT systematic risk components -- Evidence from a thin security market

Abstract The purpose of this note is to analyze the effects of infrequent trading on the APT systematic risk components using Finnish data. Infrequent trading is reported to influence especially the first systematic risk component produced by factor analysis on stock returns.

A pseudo criterion for security betas in the Finnish stock market

Because of nonsynchronous trading, the traditional estimates for systematic risk are biased especially in small security markets. A pseudo criterion is applied to evaluate ten different systematic risk estimates (beta coefficients) in the thin Finnish stock market.