SUPERVISION

by Michael Nguyen, Umeå University, Full Text

Cryptocurrencies as an asset group have become more common during the past years and have received increased investors’ acceptance. Since its introduction, Bitcoin has risen in both ranks and in value and has been one of the most popular assets in the financial market. Due to its increased vogue, Bitcoin has paved the way for alternative cryptocurrencies (Altcoins) introduction to the market. With the possibilities of improving Bitcoin, Altcoins have been inaugurated through initial coin offerings (ICO), where several exciting projects have caught the eye of investors. In this thesis, Bitcoin, together with Altcoins, will analyse whether they can provide diversifying advantages when included in a traditional global portfolio. The selected Altcoins, established on their market capitalisation, are Ethereum, Litecoin, Ripple (XRP) and Cardano for this study. Regarding the global traditional assets, this study’s assets comprise stock indices, fixed income indices, gold, commodities, currencies, and real estate from several parts of the world. Previous studies explored Bitcoin as a potential diversifier. However, Altcoins have received less publicity due to their inferior status as a cryptocurrency due to the popularity of the formerly mentioned coin. Therefore, this thesis investigates whether Altcoins can provide diversifying benefits when included in a portfolio, together with Bitcoin, and the optimal weights of the cryptocurrencies is also discussed. This thesis employs the conditional value-at-risk (cVaR) method, focusing on minimising the extreme negative returns for a given expected return. Building further on Kajtazi & Moro (2019), different portfolios are constructed with constraints to compare one another. In addition, the analysis is performed for both an unbalanced- and a re-balanced investment strategy where the optimal weight is found for each period. Employing the portfolio optimisation method of Wurtz et al. (2015), the optimal weights are discovered for the cryptocurrencies in their respective portfolio. The results indicate that the inclusion of Bitcoin and Altcoin improves the portfolio performance for each portfolio constructed. For a traditional global portfolio containing cryptocurrencies, the return increases significantly concerning its risk. Furthermore, the results exhibit that while cryptocurrencies improve the portfolios’ return, the risk also increases compared to the traditional portfolio consisting of only traditional assets. As for the differences between Bitcoin and Altcoin, both indicate similar results with increases in portfolio performance regarding the portfolio evaluators (Sharpe-, Sortino- and Omegaratio). The optimal weight is dependent on an investor’s risk preference. The results indicate that the optimal weight for risk-averse or risk-neutral investors is equal to less than 5% for both investment strategies. As for risk-loving investors, the optimal weight results in more than 20%, where the return improves significantly compared to risk.

by Niklas Fjordstrand and Nikolaos Vuotos; University of Gothenburg, Full Text

In this paper, the authors have made an empirical investigation on the performance of a feed-forward artificial neural network (ANN) on the four main Nordic stock markets, Sweden, Norway, Denmark, and Finland. First, a benchmark OLS regression model is compared against an ANN model to see which model performs best in terms of predictive accuracy and has the least amount of error. From the results of the study, it cannot be concluded that an ANN model outperforms the benchmark OLS regression model in predicting risk premia in terms of out-of-sample predictive forecast accuracy on the Nordic stock markets, when using the same dataset (for 5% confidence level). However, it is logical for practitioners to consider ANN for predictions of risk premia since ANN models can accommodate more features and variables than regression models. Thus, the authors of this paper further implemented an ANN model to predict excess returns for the Nordic stock markets and check their performance. The ANN model was further developed by trying five different ANN architectures for each one of the Nordic countries. The best ANN model of the five different ANN architectures for each country was used to evaluate the predictive performance. However, it was concluded that the performance in terms out-of-sample R-squared of an ANN model that should predict market returns in the Nordic stock markets resulted in negative out-of-sample R-squared for all the four Nordic countries and stock markets in this study. The economic interpretation of this result is that a model with a negative out-of-sample R2 cannot explain the data or the trend. An important note here is that our dataset may not be an ideal one to use for predicting returns in the Nordic stock markets. This is because advanced index metrics were not available for dates before 2001, so with this limited amount of data the ANN model cannot train itself properly.

by Mihail Huzun; University of Gothenburg, Full Text

This paper investigates the role of cryptocurrencies in enhancing the performance of portfolios constructed with traditional assets. Therefore, my thesis wants to ascertain if investors should consider adding cryptocurrencies to their investment portfolios. The sample period covers almost seven years of daily data. I consider four cryptocurrencies: Bitcoin, Ethereum, Ripple, and Litecoin. Using the mean-variance framework, I document that these cryptocurrencies can improve the risk-adjusted returns of different allocation strategies. Both the in-sample and out-of-sample analyses suggest that the diversification benefits of cryptocurrencies are present before and after the onset of the Covid-19 pandemic. The contribution and weight of cryptocurrencies within portfolios vary according to investors’ preferences. The Maximum Utility portfolio suggests that risk-taking investors should give more weight to cryptocurrencies in their portfolios. As for an investor inclined to minimize the volatility, the Minimum Variance portfolio recommends weights close to zero.

by Olle Blennskog and Markus Gillesén; University of Gothenburg, Full Text

The chase for maximum returns is a race every investor participates in. The number of investing strategies is almost equal to the number of investors, and everyone claims that their strategy is the best. Socially responsible investing is a popular strategy and is gaining a lot of attention by the masses, investors are ready to pay a high premium for stocks that are considered ethical and have low impact on the environment. The opposite of this is to invest in companies operating in questionable moral sectors. These companies may be undervalued and perform better than the market as they are not often purchased at a premium. This paper has examined the returns of a portfolio, only including companies that operates in these unethical sectors. The sectors have been selected by thorough research among peers and academics and are the following: Aerospace & Defense, Brewers, Casinos & Gaming, Distillers & Wineries and Tobacco. The returns of this portfolio were then compared to the S&P 500 index, an index chosen to represent the US market which this research is based on. The comparison was measured by several ratios and calculations. These includes Sharpe ratio, Information ratio, Treynor ratio and Sortino ratio. The most comprehensive analysis was the ordinary least squares regression, this was also followed up by a T-test. Overall, the results indicates that the S&P 500 index performed better in all aspects. It had a lower risk and a higher return. All results were not statistically significant but after careful consideration and discussion the conclusion was made that the S&P 500 did perform better under the set time period.

by Jonathan Grudin and Christopher Severin; University of Gothenburg, Full Text

In this report, the aim was to investigate what determinants or associations may affect an individual’s choice when facing different risk-related prospectus. Through surveys based on previous literature, a study on a sample of 119 respondents, containing students from the School of Business, Economics, and Law in Gothenburg was done. The survey focused on different individuals’ determinants and associations. Cognitive abilities, financial literacy, numerical ability and personal traits like gender, age and demographics were studied. All the questions that were asked in the survey have been collected from prior studies created by well-renowned authors. The results from the paper were rather vague regarding the characteristics of interest. Most of them turned out to be insignificant in explaining the dependent variables, but there were still significant results. The data showed that both the CRT-score and financial literacy could be correlated with risk attitude. Men tend to be less risk averse compared to women, and that older people take less risks in general. These findings were in line with prior research.

by Mathilda Bålström and Alice Evebring; University of Gothenburg, Full Text

The aim of this study is to investigate visitors’ willingness to pay for Gothenburg’s botanical garden, based on its current state and after some improvement measures have been taken. For purposes of estimating the willingness to pay, the contingent valuation method was applied. Data was collected through questionnaires, with an open-ended elicitation format, that was handed out to visitors. The study shows that there is a great interest in preserving urban green areas in general, and Gothenburg’s botanical garden in particular. The average willingness to pay for preservation was estimated to be 29 SEK per visit, while the average willingness to pay regarding the improvement measures was estimated to be an additional 17 SEK per visit. Thus, this study concludes that the willingness to pay exceeds the current voluntary entrance fee of 20 SEK. It also shows that the willingness to pay, regarding both preservation and improvements, depends on the visitors’ level of income. Some of the studied income groups have a higher average willingness to pay compared to the lowest income group. Furthermore, it has been found that having visited Gothenburg’s botanical garden more than five times, significantly affects different levels of willingness to pay for preservation. It has also been found that visitors’ age has an impact on different levels of willingness to pay regarding the improvement measures.

by Rasmus Eriksson, Full Text

The purpose of this study is to investigate the relationship between economic preferences and attitudes towards vaccination against COVID-19. These relationships are important to explore in order to design correct and effective vaccination policies that can increase vaccination willingness and decrease vaccination hesitancy. This study is specifically looking at risk preferences, ambiguity preferences and other regarding preferences. Vaccination is arguably a decision between two risky options. The risk of vaccination and the risk of non-vaccination. It is also possible to argue that vaccination is a decision between a perceived unknown risk of vaccination and a known risk of non-vaccination. This introduces the concept of ambiguity aversion where ambiguity averse people arguably prefer the known risk of non-vaccination over the unknown risk of vaccination. It is also possible to argue that vaccination is one form of prosocial behaviour and people have various preferences for the wellbeing of others, i.e., other regarding preferences. Data on economic preferences and vaccination attitudes was gathered with an online survey and measured with validated survey questions. The survey was distributed to students at the School of Business, Economics and Law at the University of Gothenburg. The data was analysed with multiple different data analysis methods, most notably ordered probit regression and probit regression. A significant positive relationship is found between risk preferences and willingness to vaccinate against COVID-19. Ambiguity averse people are significantly more likely to vaccinate against COVID-19. Perfect altruists are significantly less likely to vaccinate against COVID-19 compared to free riders. Future research is encouraged to investigate whether these findings hold true for a larger and more representative sample.

by Ellinor Bernsro and Jimmy Sandgren, Full Text

The public transportation system in the region of Västra Götaland elicits quick and efficient travel, while, simultaneously, decreasing the negative effects of driving. However, the system suffers from various problems, mainly fare-evasion. The importance of behavioral economics has recently been recognized in policymaking, and could be very useful for understanding travel behavior, and thereby developing a beneficial and accessible public transport system. This thesis investigates the relationship between economic preferences, and opinions on the financing of the system. We intend to put forward the possibilities of, and the reasons advocating for, Fare-Free Public Transport to be implemented in Västra Götaland, based on behavioral economic factors. Through a web survey, answered by residents of Västra Götaland, we measure degrees of altruism, cooperation, status-quo, and sunk-cost fallacy. We also elicit opinions on the functionality of public transportation, travel behavior, inclination to pay, and attitudes towards alternative ways of financing public transport. In order to answer our research questions, a literature review of examples of Fare-Free public transport implementations and regression analyses were conducted. The results show that behavioral factors greatly affect travel habits and opinions on how public transport should be financed and that a majority of respondents prefer a change in public transport financing. People exhibiting pro-social behavior tend to lean more towards tax-funded alternatives, while people exhibiting status-quo or sunk-cost behaviors tend to be negative towards any form of change. The alternative with the highest approval rate turns out to be earmarking and transferring all parking fees and fines to finance public transport.

by Matilda Keskinen and Melissa Au, University of Gothenburg, Full Text

This thesis aims to investigate the effects of the pandemic on individuals’ expectations regarding future income and thus their consumption behavior. The research will therefore contribute with new insights into the relationship between consumer behaviour and income expectations, which can be useful for future studies and for policy design during this or future pandemics. To analyse the consumption changes due to expected future income as a result of the pandemic, a web survey was sent to the mailing list of the School of Business, Economics and Law at the University of Gothenburg. Consequently, the sample mainly consists of Swedish students at a mean age of 25 years old. The data was later used in various ordered probit regressions to analyse the variables of interest. The results have shown that an employee’s expected future income is not only dependent on how their income has been affected as a result of Covid-19, but also if they are at risk of losing their job. When testing what economic factors affect a student expected future income, none of the included variables were significant, which can be due to the sample not being adequately sized. It was also found that change in consumption is generally associated with expected future income. In conclusion, the analysis has given us an important insight on how Covid-19 has affected future income expectations and thereby consumption. This can be beneficial when predicting the effects future pandemics, hence introducing more suited policies that can reduce the negative effect on the economy.

by Linnéa Casselryd, Agnes Lantto and Alicia Julienne Zanic, Umeå University, Full Text

There is no clear consensus about whether green investments perform better, worse or equal to conventional brown investments. With the rising popularity of social investments, it becomes increasingly important to understand these investments. The recent launch of the MSCI Climate Paris Aligned Indices (CPAI) aim to illustrate the development of an economy that is in line with the requirements and goals of the Paris Agreement from 2015. In this research we aim to find out whether the MSCI Europe, USA and EM Climate Paris Aligned Indices outperform their parent indices. We do this by comparing performance measures such as the net return, standard deviation of net returns and Sharpe ratio. We further conduct an ordinary least squares regression to test whether the betas and Jensen´s alphas of the CPAI differ significantly from their parent indices. The results show that only the USA CPAI clearly outperforms its parent index. This is due to it having a higher Sharpe Ratio and Jensen’s alpha as well as higher monthly net returns and a lower standard deviation compared to its parent index. The regression shows that it does perform better than the parent index. The results for the EM CPAI show that it performs in a similar way as its parent index. It has a higher monthly net return but also slightly higher standard deviation which leads to an equally large Sharpe ratio. Neither the estimated Jensen’s alpha nor the beta are significantly different from those of its parent index and thus the hypothesis of it performing equally as well as its parent index cannot not be rejected. Lastly, the Europe CPAI has a higher Sharpe ratio, Jensen’s alpha and monthly net returns than its parent index, but it also exhibits a higher standard deviation. The regression indicated that it performs in a similar way as its parent index, no difference could be proven. In conclusion, this means that all CPAI perform at least equally as well as their parent indices, if not better.

by Anton Leth and Jakob Vikström, Umeå University, Full Text

This thesis analyzes the relationship between investor attention and the performance of the Swedish stock market. Investor attention is measured in an innovative way by analyzing Google search volumes for the major Swedish stockbrokers Avanza and Nordnet over a tenyear period. The sample consists of three stock indices from the Nasdaq Stockholm main market, in order to measure if the effect of investor attention varies depending on the size of the firm. Previous studies have established that investor attention impacts stock performance. However, no clear consensus has been reached whether the impact is positive or negative, displaying an evident need for further research. Through statistical analysis, this study is able to clarify and add new knowledge to this research field. A positive relationship between investor attention and stock performance is found, indicating that an increased amount of Google searches for Avanza and Nordnet is connected to positive market performance. Further, the impact is larger for the smaller stock indices included in the sample, highlighting that the influence of investor attention differs depending on firm size. By implementing a theoretical framework, a deeper analysis of the proposed relationship is made. We argue for an opportunistic investor, where higher investor attention leads to improved stock performance, indicating a positive market sentiment. A willingness to seek high rewards seems evident, where the element of risk may be neglected. While this may lead to positive gains in the short term, it can possibly lead to major losses in the long run when the market inevitably takes a downturn.

by Magnus Frank-Bille and David Olsson; University of Gothenburg, Full Text

In early spring 2020, Covid-19 spread around the world and dominated the media coverage. It acutely impacted the global economy as countries went into lockdown and health services struggled to administer the situation. The purpose of this thesis is to investigate the relationship between economic preferences and perceptions about Covid-19 and changes in consumption behavior. We argue that understanding these relationships can lead to a better understanding of behavioural effects of Covid-19 and potential future pandemics. Using a web-survey we elicit measures of risk attitude, altruism, reciprocity, trust and influence of media in a student sample. We also elicit measures on anxiety, subjective probabilities regarding the risks of Covid-19 and changes in consumption behavior. This study aims to answer a series of relevant research questions using different regression models. The results show that economic preferences are important predictors of perceptions regarding Covid-19 but seem to have no statistically significant effect on changes in consumption behavior. Higher risk tolerance and trust in government information are associated with lower levels of anxiety, while altruism and higher influence of media are associated with more anxiety. We also find strong relationship between different economic preferences and anxiety about medical and economic consequences, respectively. We find less conclusive evidence of the relationship between economic preferences and consumption behavior. Our results can be used to guide policymaking during pandemics to achieve a better coordination and cooperation in society.

by Henrik Lättman and Anton Rosdahl; University of Gothenburg, Full Text

Amplified by the introduction of the smartphone, which is now integrated in nearly every aspect of daily life,consumer credit-financed purchases are more accessible than ever and can now be spontaneously made in amatter of minutes. The aim of this thesis is to investigate the relationship between various financial decisions and time spent on social media (SMT). We theorize unprecedented exposure to the consumption and carefully managed narrative of others displayed on social media systematically make social comparisons unfavourable, implicitly causing young adults to overspend using consumer credit. Based on our hypothesized narrative, we stepwise explore the predictive power of SMT on (1) attitudes towards financing non-durable goods by instalment, (2) instalment lending, and (3) payment troubles. Through a web survey we collect individual measures of SMT, relative preferences, time preferences and various other variables we conjecture affect people’s economic attitudes and decisions in this context, such as feelings of inferiority as a prerequisite for envy. Our results show that SMT has a significant, positive effect on attitudes towards financing consumption of non-durable goods but does not further predict actual instalment lending or payment troubles. Also, individual time preferences are significant predictors of both attitudes towards- and realized instalment lending, whereas inferiority is positively significant for both instalment lending and payment troubles. Though, we refrain from drawing any strong inferential conclusions from these findings as clarified in the paper.

by Bahtiyar Yilmaz; Swedish University of Agricultural Sciences