n this paper, followed by the market efficiency definition of the absence of arbitrage opportunity in the market, we test the market efficiency of the OMXS30 index option market.

We first check the arbitrage opportunity by examining the boundary conditions and the

Put Call Parity that must be satisfied in the market. Then a variance based efficiency test is performed by establishing a

risk neutral portfolio and re-balancing the initial portfolio in different trading strategies. In order to choose the most appropriate model for option price and hedging strategies, we calibrate several most applied models, i.e. the Black Scholes, Merton, Heston, Bates, and Affine Jump Diffusion models. Our results indicate that the Affine Jump Diffusion model significantly outperforms other models in the option price forecast and the trading strategies. Both the boundary and the Put Call Parity tests and the dynamic hedging strategy give evidence that no significant abnormal returns can be obtained in the OMXS30 option market, thereby supporting the market efficiency.

This paper employs a semiparametric procedure to estimate the diffusion process of short-term interest rates. The Monte Carlo study shows that the semiparametric approach produces more accurate volatility estimates than models that accommodate asymmetry, level effect and serial dependence in the conditional variance. Moreover, the semiparametric approach yields robust volatility estimates even if the short rate drift function and the underlying innovation distribution are misspecified. Empirical investigation with the U.S. three-month Treasury bill rates suggests that the semiparametric procedure produces superior in-sample and out-of-sample forecast of short rate changes volatility compared with the widely used single-factor diffusion models. This forecast improvement has implications for pricing interest rate derivatives.

The tick size regime on systematic internalisers (SIs) was seen as a necessary action to level the playing field between SIs and other trading venues, with the hopes to improve the market composition and market quality in favour of regulated markets. However, the previous literature objects to the view as SIs may have gained the first-mover advantage from their previous tick size exemption. This thesis aims to examine whether the MiFID II tick size regime implementation for SIs on June 26, 2020, alters the market composition and improves the market quality at Nasdaq Stockholm. We consider 45 Swedish stocks with the highest daily average turnover to conduct difference-in-difference regressions. We find that the market quality worsens at Nasdaq Stockholm, while the market composition remains unaffected by the SI tick size regime implementation. The quoted spreads, effective spreads and price impact increase at Nasdaq Stockholm following the SI tick size regime. Impatient traders who trade on information may have rerouted their orders to Nasdaq Stockholm after the event since SIs can no longer offer the avoidance of the price-time priority. Therefore, SIs may have an important role in attracting informed traders who consume rather than supply liquidity. However, the interpretation of the results is conditioned on an inflow of traders from SIs to Nasdaq Stockholm, which we cannot explicitly measure due to the order flow not being adjusted for orders less than the standard market size.

In this paper we show that the long-run stock and bond volatility and the long-run stock-bond correlation depend on macroeconomic uncertainty. We use the mixed data sampling (MIDAS) econometric approach. The findings are in accordance with the flight-to-quality phenomenon when macroeconomic uncertainty is high.

We model the spillover effect between competing firms’ daily idiosyncratic stock returns, using spatial econometric techniques. Contagion effect from rival firms dominates competitive effect, and the net effect is larger from negative return shocks of rival firms than from positive ones. The net effect is strong for firms in product markets with low concentration and high product market fluidity. 

We analyze the importance of different asset holdings for the interdependence of the yield curves in the Euro area using a spatial VAR model. We find that the cross-border holdings of long-term debt and bank lending are important for the interdependence. We also find that comovement in the Euro area declines after 2008. We show that this decline is not related to the difference among countries in reacting to shocks from the US during the financial crisis. Rather, it largely reflects the segmentation between GIIPS and non-GIIPS countries. Our analysis of dispersion in sovereign-CDS-spread term structure shows that the differential in sovereign creditworthiness in the Euro area is a main driver of the yield-curve divergence after 2008.

We study performance and competition among high-frequency traders (HFTs). We construct measures of latency and find that differences in relative latency account for large differences in HFTs’ trading performance. HFTs that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.

We exploit an optional colocation upgrade at NASDAQ OMX Stockholm to assess how speed affects market liquidity. Liquidity improves for the overall market and even for noncolocated trading entities. We find that the upgrade is pursued mainly by participants who engage in market making. Those that upgrade use their enhanced speed to reduce their exposure to adverse selection and to relax their inventory constraints. In particular, the upgraded trading entities remain competitive at the best bid and offer even when their inventories are in their top decile. Our results suggest that increasing the speed of market making participants benefits market liquidity.

High-frequency trading (HFT) certainly captures public (and regulatory) attention. On May 6^th 2010, the Dow Jones (DJ) experienced its largest intraday point drop in history, shedding $1 trillion of its market value in half an hour. Largely as a consequence of the event– named Flash Crash–regulatory authorities sharpened the regulations concerning HFT: in the U.S., circuit breakers were introduced [1], and the European Union made regulative changes that require equity orders to delay for at least half a second. Also, in the markets, there has been a demand for introducing a financial transactions tax (FTT) in order to discourage high frequency trading.

So, what is high-frequency trading? And why should it be regulated? And if it is regulated, how should that regulation be designed? In this editorial article, I will focus on existing scientific evidence on how HFT affects the market, and on the big questions about HFT that remain unanswered.

In this editorial article, I will discuss what chairmen and CEOs perceive to be the most and least important aspects of their board’s work for a high-quality outcome. I focus on the chairman and CEO because they are the two most important persons affected by their board’s work, but they have different roles and perspectives. The chairman leads the board, while the CEO leads the company’s daily operations.

How should we attempt to answer the following question: which aspects of the board’s work are more important and which are less important? The most direct method is to ask chairmen and CEOs. Therefore, I will base my discussion on data from a questionnaire sent to Nordic listed companies that asked chairmen and CEOs how they perceive different aspects of the work on the board they serve. The respondents responded on a 1-5 Likert-scale. An optimal model is estimated for each working aspect, starting with an overall satisfaction question.

We contribute to the previous literature on the use of derivatives by studying separately the determinants of profit seeking versus those of hedging. In our sample of listed firms from four Nordic countries, about 62% use derivatives. Although the hedging motive clearly dominates, over half of the firms give some weight for additional income as a motive for the use of derivatives. Combining survey data on the use of derivatives with financial variables, data on management and blockholder ownership, and data on firm-level diversification, we find that very different determinants drive the use of derivatives for these two motives. Firm-level diversification is negatively related to hedging, but is positively related to the use of derivatives for additional income. Financial firms use derivatives more for profit than for hedging. We also find weak support for a value-increasing effect of the use of derivatives.

The article analyzes theoretically how a firm maximizes the value of shareholder’s wealth with its dividend policy. Corporate dividend policy is one of the major puzzles with modern finance. The overall question is whether company should pay out dividend at all. However, the large majority of listed companies pay dividend and they also carry sophisticated dividend policies. In this paper we outline when it is optimal for a company to pay out dividend and when it should reinvest the profit from operations. The model takes taxes in to consideration estimating the value of a company, i.e., the present value after deduction for taxes, is used as objective function.Four different taxes are considered. The analysis shows the terms on which it is profitable to receive dividend payout or to reinvest at an arbitrary time. Under the assumption of a unique maximum net present value, the terms at the time for the maximum net present value are also presented.

In this study we consider the consequences of female board representation on board work in listed firms in the five Nordic countries. Using survey data provided by company chairmen, we contribute to the literature on gender diversity in boards by providing an insider perspective. Survey data reveals that chairmen, the operative syllable being "men," are significantly less satisfied with female board members when asked to rate various groups of board members. Controlling for a number of factors, gender diversity is not perceived to provide a positive contribution to board work. However, concluding that homogeneous groups would work better when risk is high is not warranted, as data reveals evidence that gender diversity produces positive results in high-risk firms. Furthermore, the results indicate that when a company has a nomination committee, the likelihood that the company will have a gender diverse board increases dramatically.

Purpose – The purpose of this paper is to survey chairmen's perceptions of female board representation in five Nordic countries, focussing on whether the chairman's perception of board work is related to gender diversity, and on differences between high- and low-risk firms. Design/methodology/approach – The authors combine data from a questionnaire directed to the chairmen of the boards in Nordic listed companies with data on firm characteristics and board composition. Findings – The authors find that the chairmen (97.5 percent male) are significantly less satisfied with female board members as compared to male ones. The authors also find that firms with nomination committees have more gender diverse boards, as well as indications of a more positively perceived contribution of female representation in high-risk firms. Research limitations/implications – The study is restricted to perceptions of chairmen for listed Nordic firms. The low response rate of 20.1 percent is a severe limitation. Practical implications – The increasing practice of using nomination committees in the Nordic countries seems advantageous from gender balance perspective. Originality/value – The authors contribute to the literature on gender diversity in boards by providing results from a board intern perspective.

In this paper we report the results from a survey among all publicly listed Nordic firms on their policy decisions concerning their capital structure. We find that more than 60 percent of the companies have rather or relatively flexible debt target, whereas a strict target or no target at all is approximately equally common. We also study the determinants for the strictness of the debt target, and find support for both firm characteristics as well as behavioral variables. We also study the link between capital structure policy and dividend policy, and find that dividend paying firms - firms with a definite dividend policy are more likely to have a stricter debt target. These results indicate that more research should be done on the joint setting of capital structure and dividend policies.

In this paper we analyze the results from a survey among all publicly listed Nordic firms on their dividend payout policy. The results show that 72% of the Nordic companies have a specified dividend policy. Larger and more profitable companies are more likely to have a defined dividend policy in place. The dividend policy is mostly influenced by capital structure considerations and the outlook of future earnings. We also find that the likelihood for a firm having an explicit dividend policy is positively related to ownership concentration as well as to the presence of large long-term private or industrial owners. Our results support the use of defined dividend policies for agency or monitoring reasons rather than signaling reasons.

In this paper we analyze the results from a survey among all publicly listed Nordic firms on their dividend payout policy. A number of interesting results are found. The results show e.g. that 72 percent of the Nordic companies have a specified dividend policy. Larger and more profitable companies are more likely to have a defined dividend policy in place. The dividend policy is mostly influenced by the considerations of company’s capital structure and future earnings. We get indirect support for agency / monitoring motives, or the need for a stable cash flow, rather than for the signaling motive, since the likelihood for a firm having an explicit dividend policy is positively related to ownership concentration as well as to large long-term, private or industrial owners.

We report empirical evidence regarding the disciplining role of differentinstitutional and other owners in reducing managerial myopia. Using data from alarge Nordic survey, we find that companies to a reasonably high degree feelthat external pressure for a good result in the short-term generates conflictwith the company’s long-term goals. We test for the effect of several ownershiptypes, and find that especially in firms with a large private equity owner theperceived pressure for short-term actions is reduced. In addition, we find anegative association between firm profitability and short-term pressure. Wealso find support for a behavioral characteristic: younger managers feelsignificantly more pressure. Firms subject to higher pressure undertake moreactions to accommodate that pressure. Again, the impact of especially a largeprivate equity owner is beneficial because such firms undertake significantlyless often actions that are likely to destroy value, such as deprioritizingtheir long-term investments or R&D.

Large orders are usually split into small pieces and traded over long time horizons. The order splitting reduces the price impact but increases the risk of non-execution. I show that the cost of non-execution can be substantial. By ignoring this cost, the literature underestimates the total transaction cost of large orders. Additionally, this article shows that investors can lower the cost of non-execution by speeding up the trading pace, which, however, increases the cost of successfully filled orders.  Investors’ choice of trading pace is associated with a trade-off where lowering one cost increases the other.

I estimate the price impact implied by limit order book (LOB) depth, using methodology from Sandås (2001). The idea is that LOB depth reflects market makers’ beliefs about the price impact of market orders. I find the price impact estimates are slightly lower than those from a structural vector autoregressive model, but slightly higher than those from price impact regression. Thus, the LOB-implied price impact estimates match those from benchmark models, contradicting earlier research. I shed new light on limit order informativeness, contributing to contemporary literature on the increased information content of limit orders relative to market orders.

Almost all limit orders are canceled. We examine two economic channels that can motivate cancellations: reductions in the expected profit at execution, and reductions in the probability of execution. An order-level analysis shows that changes in depth at the best bid and offer prices, as well as changes in the order queue position, influence cancellation in a way consistent with the former channel, that market makers monitor the expected profit at execution of each limit order. Although buy-side investors use passive orders extensively, our findings indicate that limit order cancellations on aggregate are best understood through models of liquidity provision.

We investigate the economic rationale behind limit order cancellations from the perspective of liquidity suppliers. We predict that an order is cancelled whenever its expected revenue no longer exceeds the expected cost and we model how order profitability variation can be determined from changes in the state of the order book and the order queue position. Our empirical evidence supports the predictions in general and for orders submitted by high-frequency trading firms in particular. Consistent with our model approach, we find that order cancellation patterns are more consistent with market making than with liquidity demand strategies.

Toxic arbitrage opportunities can arise when the prices of two related securities move sequentially rather than simultaneously. Relatively slow liquidity providers could then incur losses to the arbitrageurs, known as snipers. We investigate arbitrage activity between futures and exchange-traded funds in the Swedish blue-chip index. We find that trading firms that otherwise behave as market makers morph into snipers as toxic arbitrage opportunities emerge. In contrast to common belief, market makers are net beneficiaries of toxic arbitrage. The finding can be rationalized by economies of scope, since both arbitrage and market-making strategies rely on low-latency market monitoring technology.

This thesis investigates how two types of artificial neural network models (ANN), feedforwardneural networks (FNN) and long short-term memory (LSTM), used for realized volatility (RV) forecasting, perform during high and low volatility regimes in comparison to the heterogeneousautoregressive (HAR) model. This is done for 23 stocks, constituents of the Swedish index OMXS30, between the 8th of February 2010 and the 31st of January 2022 using ten exogenous and three endogenous input variables. We find the ANNs generally superior to the HAR model, but also a lack of robustness when investigating ANNs performance in different volatilityregimes. The study shows that HAR and ANN models have differing forecasting performances across the volatility range and that the variation is dependent on the regularization regime inplace. Where lower regularization supports enhanced accuracy during high-volatility days while higher regularization promotes performance during low-volatility days. In addition, the existence of a trade-off between model complexity and performance during high versus low volatility for LSTM models are confirmed, and it is concluded that this relation is conditioned upon the regularization.

We explore a unique dataset on individual investors’ online trading accounts to examine the determinants of their attention and its relation to portfolio performance. In particular, we investigate what individual characteristics affect investor attention and what type of information drives investment performance. We find distinct differences in investors’ attention and provide evidence that paying attention has a differential impact on performance depending on the type of information. Portfolio monitoring and attention to financial education are positively related to performance, while attention to analytical information is detrimental to performance. Attention to technical analysis is negatively related to the performance of actively trading investors but improves the performance of less frequent traders. Overall, our results provide additional evidence to the suggestion that attention to financial education is the key to investment success.

We investigate the effects of using different sources of investment leverage, that is, securities with embedded leverage and traditional margin accounts, on the portfolio performance of retail investors, recognizing that these effects may be conditional on investor attention. We find that investors who trade on margin underperform those who do not have margin accounts; we also find that investors trading securities with embedded leverage show even poorer performance than investors trading on margin. The negative effect of leverage usage, however, decreases with greater investor attention, measured by portfolio monitoring frequency. Results suggest that more attentive investors gain more from using investment leverage.

Analyzing a large sample of U.S. firms, we show that the asymmetry of stock return volatility is positively related to investor attention and differences of opinion. Using the number of analysts following a given firm to capture attention and the dispersion in analyst forecasts as a common proxy for differences of opinion, we show that the two effects are complementary. Furthermore, the effect of attention is strongest among stocks with low institutional ownership and high idiosyncratic volatility. Our results are robust to the traditional “leverage effect” explanation of volatility asymmetry. The findings relate to the previously documented relationship between attention and volatility and suggest that volatility asymmetry is driven by asymmetric attention.

We apply the three-dimensional analysis of wavelet coherency to examine the integration of 22 emerging stock markets with the U.S. market. We find a high degree of co-movement at relatively lower frequencies between the U.S. and the 22 individual emerging markets. Our results show that the strength of co-movement, however, differs by country. For example, we report a high degree of co-movement between the U.S. and Brazil, Mexico and Korea, but low co-movement with and Egypt and Morocco. Our analyses also document a general change in the pattern of the market relationship after 2006, where we detect co-movements at relatively higher frequencies. Co-movement at the highest frequencies is, however, weak for fluctuations with duration less than a year. Our findings imply that investing selectively in emerging markets may provide significant diversification benefits which, invariably, depend on the investment horizon.

The effective bid-ask spread measured relative to the spread midpoint overstates the trueeffective bid-ask spread in markets with discrete prices and elastic liquidity demand. Theaverage bias is 13%–18% for S&P 500 stocks in general, depending on the estimator usedas benchmark, and up to 97% for low-priced stocks. Cross-sectional bias variation acrossstocks, trading venues, and investor groups can influence research inference. The use of themidpoint also undermines liquidity timing and trading performance evaluations, and canlead non-sophisticated investors to overpay for liquidity. To overcome these problems, thepaper proposes new estimators of the effective bid-ask spread.

We develop a structural model for the price formation and liquidity supply of an asset. Ourmodel facilitates decompositions of both the bid–ask spread and the return variance intocomponents related to adverse selection, inventory, and order processing costs. Furthermore,the model shows how the fragmentation of trading volume across trading venues influencesinventory pressure and price discovery. We use the model to analyze intraday price formationfor gold futures traded at the Shanghai Futures Exchange. We find that order processing costsexplain about 50% of the futures bid–ask spread, whereas the remaining 50% is equally due toasymmetric information and to inventory costs. About a third of the variance in futures returnsis attributable to microstructure noise. Trading at the spot market has a significant influence onfutures price discovery, but only a limited impact on the futures bid–ask spread.

We study order aggressiveness of market-making high-frequency traders (MM-HFTs), opportunistic HFTs (Opp-HFTs), and non-HFTs. We find that MM-HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opp-HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid–ask spread is wide. Thus, HFTs adhere strongly to the tradeoff between waiting cost and the cost of immediate execution. Non-HFTs care less about this tradeoff, but react somewhat stronger than HFTs to volatility.

Volatility-managed portfolios offer mixed returns in an international setting based on

ex-ante information. The results of this paper further strengthen the theory that the

variability of excess returns from volatility-management are more dependent on

underlying investor strategy rather than differences of global markets. We find that

momentum strategies, as measured by the winners-minus-losers, are universally (except

Japan) benefitted from volatility-management with an excess return between 6.96% and

14.28% annually across different regions/cross-sections garnered by the managed

portfolio controlled against the Fama and French (2015) five-factor model. Value and

profitability factors show mixed results with the beneficial performance in about half of

the examined regions respectively. We prove that these relationships are robust through

periods of market-wide crashes (Dotcom-bubble and financial crises of 2007/2008),

tighter leverage constraints (≤1, ≤1.5) show however that the excess returns are

dampened, concluding that access to leverage is a fundamental aspect of employing

volatility-management to most portfolios. The results of this research paper expand

previous literature of volatility-management by broadening the strategy to global

markets.

This year (2018), it is 25 years since the Momentum Strategy was first scientifically described. Despite this, the cause of the effect has not surely been concluded although it has been empirically studied in several previous studies. It has been shown to be valid for different kinds of assets.

Since the authors of this thesis are based in Stockholm they thought it would be interesting and relevant to study if the strategy is valid on the Swedish market. The stock data comes from the stocks which has been part of the OMXS30 at least once during the period of 2010-2018. This study has also utilised two different ways on how to quantitate the return of the different portfolios. The effect of the holding period has in this report been attempted to address. The holding period is the length of the period which assets should be enclosed in the portfolio.

One of the quantitation methods compared the portfolios’ development each month. The other method was more like a window analysis, to evaluate a portfolio’s return if one decides to invest in that theory until all the invested funds has been turned over.

The study finds that the Momentum Strategy with holding periods of 2, 3 and 4 months significantly outperforms the market. With a higher significance level (10%) Momentum Strategy portfolios with holding periods of 2-6 and 11-14 months are outperforming the market. With a larger sample size, it is possible that the results would have been more conclusive.

This paper investigates the effects of learning channels on stock market participation. More specifically, we investigate the direct effects of learning about financial matters from one's private network, financial advisors, and the media, as well as the moderating effects of financial literacy on the relationship between learning from these channels and stock market participation. Analyzing a unique cross-section data that combine survey data and bank register data on individual retail investors, we find that media is the only learning channel that increases the likelihood of owning stocks and the portfolio share invested in stocks. We also find that financial literacy has a significant moderating effect: Interactions point to the joint importance of learning from media and financial literacy for individuals' stock market participation. Our findings suggest implications to policymakers when designing financial education programs.

In this article, we consider equity swaps. We provide product definitions and examples of several contracts. We also provide some illustrations of how these contracts can be used.

This article considers the pricing and hedging of inflation-indexed swaps, and the pricing of inflation-indexed swaptions, and options on inflation-indexed bonds. To price the inflation-indexed swaps, we suggest an extended HJM model. The model allows both the forward rates and the consumer price index to be driven, not only by a standard multidimensional Wiener process but also by a general marked point process. Our model is an extension of the HJM approach proposed by Jarrow and Yildirim [Jarrow, R., Yildirim, Y., 2003. Pricing treasury inflation protected securities and related derivatives using an HJM model. Journal of Financial and Quantitative Analysis 38, 409–430] and later also used by Mercurio [Mercurio, F., 2005. Pricing inflation-indexed derivatives. Quantitative Finance 5 (3), 289–302] to price inflation-indexed swaps. Furthermore we price options on so called TIPS-bonds assuming the model is purely Wiener driven. We then introduce an inflation swap market model to price inflation-indexed swaptions. All prices derived have explicit closed-form solutions. Furthermore, we formally prove the validity of the so called foreign-currency analogy.

This thesis explores the relationship between Environmental, Social, and Governance (ESG) ratings and portfolio performance in terms of risk-adjusted returns and volatility during times of crisis. A sample of 761 European public companies with a market capitalisation of at least 300 million euros are divided into high and low ESG portfolios based on their ratings. The high ESG portfolio consists of companies with ratings in the top 20% (fifth quintile) and the low ESG portfolio consists of companies with ratings in the bottom 20% (first quintile). Both portfolios are rebalanced annually throughout the study period. The study finds that both portfolios, especially the low ESG portfolio, outperform the market, in terms of excess returns as well as risk-adjusted returns during the Russia-Ukraine war. Additionally, the study finds that the low ESG portfolio has the lowest risk during the war period. However, the results lack statistical significance. To ensure the robustness of the results, a separate test is conducted studying the COVID-19 instead of the Russia-Ukraine War. The robustness test reveals that both portfolios generated abnormal risk-adjusted returns during the COVID-19 period, in contrast with the original study’s findings. However, the explanatory power of the models is limited.

We examine the effects from the Trading At Settlement (TAS) introduction on VIX futuresmarket quality. We find that the VIX futures market exhibits higher trading activity and betterliquidity after the TAS introduction. VIX futures traders use the TAS limit order book to executelarge transactions, and TAS helps limit order traders from being picked off by informed traderswhen the VIX futures price volatility is high. The TAS introduction has created a highly liquid,low‐cost, trading venue. Although the TAS introduction fragments VIX futures trading into twoorder books, liquidity in the regular order book is not hurt.

This paper introduces a new approach for identifying the ex-ante dates on which the market anticipates both takeovers and their payment forms. This approach predicts when the market receives informative signals about potential takeovers, the variance-covariance of the stock returns shifts. Using a sample of U.S. acquisitions, I find that 86% of takeovers (62% of payment forms) are anticipated on average nine (six) months in advance. This is much earlier than reported by previous studies (two months). Moreover, this paper documents that employing the anticipation dates can improve the identification of takeover studies. Previous findings report that the return correlation (as a proxy of the relatedness) of merging firms is one of the important cross-sectional determinants of the choice between cash and equity payments. However, it loses its explanatory power when I control for the anticipation effects. The evidence indicates that the likelihood of a takeover being anticipated is related to the firm characteristics, so the anticipation variables should be included in the choice-of-payment-method regressions. The return correlation and other price-related variables should also be estimated from the pre-deal-anticipation period to prevent them from being contaminated by the anticipation effects.