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When managers get to trade in options received as compensation, their trading prices reveal several aspects of subjective option pricing and risk preferences. Two subjective pricing models are fitted to show that executive stock option prices incorporate a subjective discount. It depends positively on implied volatility and negatively on option moneyness. Further, risk preferences are estimated using the semiparametric model of Ait-Sahalia and Lo (2000). The results suggest that relative risk aversion is just above 1 for a certain stock price range. This level of risk aversion is low but reasonable, and it may be explained by the typical manager being wealthy and having low marginal utility. Related to risk aversion, it is found that marginal rate of substitution increases considerably in states with low stock prices.

Using a design involving a between-subjects experimental manipulation, this study surveyed 742 Finnish financial advisers about requiring a risk premium in one mode and about expected returns in the other mode. Company-level risk factors (e.g., leverage) caused an increased return requirement in the first mode but led to lower return expectations in the second mode. Sensitivity to the form of the question revealed an inconsistency in the advisers’ perception of risk and return. Advisers seemed to associate safe stocks with relatively lower discount rates (and thus higher valuations) but also with higher return expectations. This inconsistency may contribute to the overpricing and subsequent inferior performance of glamour stocks. Giving consistent advice is a necessary condition for providing valuable client service.

We use data from surveys involving 300 Scandinavian financial market professionals and 213 university students to conduct three controlled experiments in which we manipulate the background information given to subjects. We find a very large anchoring effect in the students' long-term stock return expectations, that is, their estimates are influenced by an initial starting value. Professionals show a much smaller anchoring effect, but it nevertheless remains statistically and economically significant, even when we restrict the sample to more experienced professionals. We also find that the professionals are not conscious of the impact of historical returns on their expectations.

Using data on all real estate transactions in the greater Helsinki area during 1987–2003 (about 80,000 apartment transactions with capital gains available), we find substantial support for loss realization aversion. Further, a disproportionate number of sales occurred exactly at the original purchase price. Reluctance to realize losses is weaker with pricier apartments, seasoned sellers, and apartments that are likely bought for investment purposes. Mortgage down payment requirements are unlikely to fully explain the results. On the whole the results are consistent with loss aversion and mental accounting.

We compare the market values of executive stock option (ESO) trades with their Black & Scholes (1973) model values calculated following the major accounting standards, SFAS No. 123r and IFRS2. Our results show major underpricing compared to the traditional B&S method values. This should be considered while applying SFAS No. 123r and IFRS2 for estimating fair values. Especially time to expiration has a major influence on the undervaluation suggesting that the possibility of a change in corporate structure lowers the cost of ESOs to shareholders.

This paper empirically examines the strategic asset allocation and the asset/liability issues in the Finnish defined benefit pension funds. The results indicate that there is a relationship between the liability structure and the asset allocation. While pension funds with younger participants have more equity exposure, more mature pension funds have more fixed income investments.Wide dispersion in asset allocations is also found between the funds. One fund holds its entire portfolio in fixed income securities, whereas other funds have none or only few fixed income holdings. Equity investments also vary dramatically, ranging from 0% to over 70% of the asset allocation. The same applies to investments in a sponsor, real estate investment, and money market investments. A portion of these different asset allocations is explained by the liability structure, but another part remains unexplained. The other variables affecting strategic asset allocation of a pension fund are not obvious, but they could include factors such as regulatory environment, historical reasons, mean-variance optimization instead of ALM, sponsor's own preferences or pension fund's irrationality. Analyzing these factors would be a fruitful topic for further research. Additionally, international comparisons would be a fruitful topic for further investigation.

The paper investigates the predictability of Finnish stock and stock index futures returns by the volume of index options. Absolute stock market returns are predictable by options volume while returns per se are not. However, call and put volume offer useful information on the future behaviour of stock and futures markets. Profitable trading strategies based on the so called call-put signal are created.

This paper investigates empirically how the information of the world's stock markets is reflected in the thin Finnish stock index futures and cash markets. The world-wide returns seem to have a significant leading ability for predicting Finnish stock index futures returns. However, this kind of causal relation is not observed between the world-wide and stock market returns. The Finnish stock index futures returns then show significant Granger causality with Finnish stock market returns, the stock market being the lagging one. The relationship is improved by allowing the association between markets to be different for positive and negative returns. The findings of this study suggest short selling restrictions and other market frictions to be a significant factor leading to a delay in the pricing process in the stock market.

This paper investigates the dynamic linkages between stock returns and trading volume in a small stock market, i.e. the Helsinki Stock Exchange in Finland during the period 1977–88. Both linear and...

This paper investigates the informational flow from the world's stock markets to the small Finnish stock and stock index futures markets. Our results indicate that the returns of the world's stock markets are reflected more strongly in the Finnish stock index futures market than in the Finnish stock market. This is apparently due to trading mechanisms, short selling restrictions and thin trading in the Helsinki Stock Exchange. Thus, our evidence suggests that results concerning the informational flow between the world's financial markets may be significantly underestimated if purely stock market returns are used in the tests.

This paper offers a study of relevant transaction costs when examining the efficiency of stock index futures markets. We suggest that a different transaction cost estimate should be used when testing the upper side of the cost of carry model than when testing the lower side of the model. Empirical evidence indicates that this explains most of the underpricing observed in the Finnish stock index futures market.