This study is testing the effects of mergers & acquisitions in banking sector and provides insights about their role on financial profitability of USA bidder banks. In this paper five financial ratios are used for analysis. The ratios are return on asset(ROA) ; return on equity (ROE); earning per share (EPS) ; capital ratio (CR); liabilities/ assets ratio(L/A). Thirty banks are selected as sample for the analysis which get into mergers from 2006 to 2012. Two years pre-merger and two years post-merger data points are taken for all the thirty banks and the average are compared. We first uses accounting formulas to calculate all financial ratios and then uses R studio to complete the Wilcoxon signed rang test required for testing pre-and-post merger financial performance of banks. At 5% level of significance findings show that mergers & acquisitions have no significant impact on financial performance of acquirer banks in USA during the studied period and often they are even performing worst.

Hedge funds are increasingly becoming a popular alternative investment vehicle. They are much more flexible and can freely choose from a pool of investment strategies due to their limited regulations. This gives them the flexibility to exploit opportunities in order to generate high returns at low risk. In order to have access to the freedom and flexibility to engage in different investment strategies, hedge funds often impose share restrictions in the form of lockup, redemption notice period and redemption frequency period to limit the ease with which investors can have access to their investment (limited liquidity). In this study, we evaluate the effects that share restriction could have on the performance of hedge funds in both crisis and non-crisis periods. We find that consistent with previous studies hedge fund performance is positively related with share restrictions. That is, funds that impose stricter share restriction have a better performance in terms of returns and alphas. This is especially seen in the non-crisis period where funds that are more illiquid are able to generate and illiquidity premium for investors to reward them for limiting their investment. However, in the crisis period we find out that this illiquidity premium changes into an illiquidity discount. We also find that funds that impose stricter share restrictions are more volatile and are more likely to take on more risky investment in order reap an illiquidity premium. Our results show a positive correlation between the three share restrictions. Thus, in our study we find that funds that impose one share restriction are more likely to impose the others. Hedge funds with stricter share restriction mostly invest in illiquid assets. We find that the underperformance of illiquid funds during the crisis was majorly driven by styles consisting mostly of illiquid funds such as relative value and event driven styles. We also investigate the performance of funds with an asset-liability mismatch- funds holding a combination of illiquid asset portfolios and weak share restrictions. Our findings suggest that funds that have an asset-liability mismatch perform particularly poorly during the crisis and that there are possibilities to prevent an asset-liability mismatch by ensuring a proper alignment of share restrictions with asset portfolio liquidity. This study contributes to previous academic studies by investigating whether after the crisis period hedge funds yielded comparatively high returns as prior to the crisis period. We compare hedge funds returns from before, during and after the crisis to see if during the period preceding the crisis hedge funds continued reaping high return as they did prior to the crisis. We do this to prevent generalizing the effect of share restrictions on hedge fund performance to all market conditions. The results from our contribution shows that just like most industries the hedge fund industry did not earn as high returns as they did before the crisis (even though they had positive returns). It seems that they were struck severely by the financial crisis and have been unable to pick up quickly to where they were (in terms of returns) prior to the financial crisis

Tässä kandidaatintutkielmassa käsitellään riskifaktoreita osakkeiden tuottojen selittäjinä. Tutkielmaan mukaan valitut riskifaktorit ovat arvo-, momentum-, koko- ja defensiivinen faktori. Teoreettisena viitekehyksenä käytetään Capital Asset Pricing -mallia. Riskifaktoreiden erillisen läpikäymisen lisäksi tutkielmassa käydään läpi faktoreiden keskinäisiä korrelaatioita sekä salkunmuodostusta riskifaktoreilla. Tutkimuskysymyksinä tutkielmassa ovat: Voiko faktorisijoittamisella päästä markkinoiden keskimääräistä tuottoa korkeampiin riskiin suhteutettuihin tuottoihin? Onko sijoittajalle hyötyä käsitellä riskifaktoreita erikseen vai yhdessä yhtenä kokonaisuutena? Ovatko riskifaktorit relevantteja osakkeiden tuottojen selittäjiä?

As the market entity, the investment behavior of individual investors play a key role for the operation of securities market. The early research of investors’ financial behavior mainly includes the classic theories such as Efficient Market Hypothesis (EMH) and Arbitrage Pricing Theory (APT). However, many anomalies cannot be well explained by traditional financial theory. In actual, there exists a large amount of irrational investors in the market. Combined with the practical situation of Chinese policy-oriented market and the characteristics of Chinese individual investors, the circumstance is more serious in Chinese market. Thus, applying financial behavior theory to investigate the investment decision of investors is necessary. This article adopts financial behavior theory and data analysis to examine the two main anomalies of Chinese individual investors, which are herding behavior and overconfidence phenomenon. Also, it proposes the corresponding policy suggestions for Chinese stock market.

We study the risk-return characteristics in the time series of a broad collection of hedge funds from the TASS database, especially their exposure to aggregate volatility risk and whether their returns resemble a position in index options. Earlier research has suggested a non-linear relation between the returns of hedge funds and those of the market index akin to a short position in an index put option. We find no evidence of such a relation, as hedge funds have no exposure whatsoever to factors proxying for the returns of call or put index options. However, hedge funds exhibit non-linearity with respect to the market in way of a negative aggregate volatility beta, where volatility risk is proxied by an index straddle. Earlier literature having established a negative volatility risk premium, our results suggest that hedge funds perform well during times of low and expected volatility, while performing poorly when the volatility of the market rises. The volatility exposure is both statistically and economically significant, with one standard deviation change in the monthly return of the straddle factor being associated with 0.25 percentage points in the monthly return of the aggregate hedge fund index. We also study whether hedge funds’ direct use of options as investments has an effect on these measures. We divide funds into option users and non-users and find that, in the aggregate, option users have a larger (less negative) volatility beta. This suggests options being used with a hedging purpose, although our binary measure of option use leaves much to be desired in determining the exact source of this difference. Finally, we sort funds into deciles based on their historical volatility betas, and find that funds with more negative volatility exposure consistently beat their less-negative counterparts in terms of both Sharpe ratios and alphas, with a spread portfolio of low-minus-high beta funds having an annual alpha of 5.3%.

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The aim of this thesis is to create a framework to analyze capital investment projects. The teaching case was designed as a byproduct of this thesis which is targeted to be used as a teaching material in a university level investment management course. The goal of the fictive teaching case is to encourage students to become enthusiastic about making investment decisions and in all challenge the process. The case should help students to generally observe problems around investment decision-making, and make it easier to analyze investment projects. This thesis presents a solution approach to consider the investment opportunities of the fictive teaching case. The capital investment possibilities of the case are evaluated through cash-flow estimation. This thesis suggests that first when evaluating alternative capital investment projects, the firm’s management should consider the firm’s own goals for the future. The goal reveals also much about the risk bearing capacity of the firm. For example, if the firm’s goal is to grow it acts differently than when it is just trying to survive to the next month. After recognizing the future goals and analyzing the risks of the possible investment opportunities, the net present values of the possible investment opportunities are calculated. Generally, it can be said that one should invest in every project that is worth more than its cost. This thesis proposes that managers should consider risks and their own firm’s goals along with the firm’s net present value after choosing one new investment opportunity.

Exchange Traded Funds (ETFs) should trade at a price equal to their fundamental Net Asset Value (NAV). However, ETFs’ can occasionally pose economically significant premiums/discounts to their NAV prices, i.e. arbitrage opportunities. The theoretical part focuses on ETF arbitrage and explains why this arbitrage trading is attractive to high-frequency traders (HFTs). In the empirical part, we introduce HFT activity proxies to a factor model explaining the observed SPDR trust (SPY) premiums during 2.1.2002–15.1.2013. A range of statistical and econometrical tools are then employed to study the detailed relationship between these factors and the SPY premiums. In addition, we replicate a popular method used to study HFTs’ effects on stock markets, and apply it to analyze HFTs’ effects on ETF pricing process. By utilizing an exogenous technology shock (implementation of Regulation National Market System) which improved U.S. market infrastructure, we should be able to dissect the effects caused by heightened HFT activity. The absolute size of SPY premium is significantly related to endogenous ETF factors. The exogenous factors serving as proxies for available arbitrage capital improve the explanatory power. The Reg. NMS implementation fails to serve as an exhaustive structural break point in ETF pricing dynamics. Although, the post-Reg. NMS era has very low ETF premiums and higher trading volumes. This can indicate that Reg. NMS made markets more suitable for HFT, and therefore high-frequency ETF arbitrage might have been more efficient during the post-Reg. NMS era. Simple implications are: ETF premiums can be significant in relation to their annual expense ratios and investors can improve their trade execution by understanding the drivers behind ETF premiums. ETF premium volatility modeling can also be useful in risk management and in investment decision making. Understanding HFTs’ role in ETF mispricing adds to our incomplete knowledge on the effects of individual HFT strategies.

This Master Thesis examines corporate governance in Russia and effects of ownership concentration on dividend policies in the Russian companies. We find that the classical agency approach is not applicable in the case of the Russian firms, but the stakeholder theory should be applied instead. We discuss effects of different stakeholders on the corporate governance. According to the existing evidence insiders (large shareholders, managers and employees) and outsiders (minority shareholders and creditors) can impose constraints on the companies in Russia. Also the State and product markets can affect corporate governance practices in the Russian companies. At the same time the role of boards of directors is very important in countries like Russia, where low legal enforcement and weak investor protection prevail. Boards should mitigate the agency problem in absence of proper investor protection and law enforcement. The previous research suggests that a classical conflict of owners and managers is not the case in the Russian corporations. Instead the conflict of large and small shareholders should be considered. Thus, our research focuses on the analysis of ownership concentration effects on corporate governance. We use dividend payout ratios as a proxy for corporate governance practices in the Russian companies. We find extremely low dividend payouts in the Russian companies. The finding implies that the agency problem does exist in the Russian companies. However, our results suggest that it is not caused by ownership concentration. Instead ownership concentration has a significant positive effect on dividend payouts. Our findings support the prior research suggesting that a large shareholder has enough incentive and power to monitor management. The results are also in line with the substitute dividend model, according to which we can conclude that large shareholders would compensate minority shareholders for weak investor protection and also would try to establish good reputation on the capital markets.

This study concentrates on clarifying the background of downsizing as a strategy, measuring the profitability effects of downsizing and finding out the signal value of downsizing announcements in the capital markets. The research focuses on deriving the effects of downsizing among Finnish large cap companies between 2005 and 2010: what are the effects, what are the main drivers behind the effects and do future profitability development correlate with initial market reaction. The sample of 197 downsizing events consists of stock exchange releases regarding new downsizing actions from Helsinki stock exchange OMX 25 companies. The effects on profitability are measured by market adjusted ROA, ROE, EBIT margin and sales productivity through seven year event window: three years before and three years after the downsizing announcement year. The signal effect in the capital markets is studied with event study methodology through 41 days event window: 20 days before and 20 days after the announcement. Events are categorized in subsamples and cross–sectional analysis is used to derive the effects of downsizing and the main drivers behind the effects. This study shows evidence that downsizing does not have a significant impact on profitability on an aggregate level. Market adjusted return on assets and return on equity improve roughly 1% whereas EBIT margin decreases by the same amount among downsizers during three years after the announcement. Low- and high-profitability subsamples seem to be the most economically and statistically significant factor affecting post-announcement financials; low-profitability subsample clearly outperforms high-profitability subsample in post-announcement financial development. The abnormal return patterns related to the downsizing announcement correlate with post-announcement financial development on subsample level. On aggregate level, the compounded abnormal returns related to the announcements are slightly positive but statistically insignificant. The positive abnormal returns are driven by reactive downsizing strategies, downsizing made during recession and downsizing made by companies with low profitability. The key indications of the research are as follows: 1. Downsizing does not have a significant impact on profitability and signal value for the capital markets is insignificant on an aggregate level 2. Same factors seem to drive both: post-announcement financials and the effect on capital markets 3. Market absorbs the positive or negative information related to the future financial performance correctly and efficiently on subsample level 4. Constant adjustment of resources and reacting to negative demand shocks deliver better future financial performance 5. Market awards companies that react to negative demand shocks and poor financial performance 6. The management of Finnish large cap companies has the ability to inform the market correctly and promptly of the future financial performance and the effects of downsizing; the market reaction is fair compared to the ability to improve efficiency of operations.