Vesa Puttonen

• PhD
• Professor (Full) at Aalto University

Purpose We study how the target fund in mutual fund mergers performed compared to the acquiring funds had they not been merged but continued on their own as buy-and-hold portfolios. Design/methodology/approach We develop a novel approach to examine post-merger wealth effects. We study how the target portfolios would have performed compared to th...

This paper complements the literature on style migration by examining value and size premiums throughout Europe. Information from more than 25 European markets indicates an average value premium of 9.58% per year. The primary determinants of the persistent value outperformance are: 1) value firms migrating to a neutral or growth portfolio, and 2) g...

We develop two new methods for calibrating subjective expectations regarding the return generating process (RGP) of financial assets without resorting to noisy realized returns. Using finance professionals’ expectations of average and extreme returns, volatilities, and probabilities of stocks beating bonds, we investigate what these expectations im...

According to the Capital Asset Pricing Model (CAPM), a capitalisation-weighted market portfolio is mean-variance optimal. From this, one could conclude that an average investor could not do better than just hold a market portfolio. Arnott et al. (2005) demonstrate that investors can do much better than capitalisation-weighted market indexes. Their...

We develop two new methods for calibrating subjective expectations regarding the return generating process (RGP) of financial assets without resorting to noisy realized returns. Using finance professionals’ expectations of average and extreme returns, volatilities, and probabilities of stocks beating bonds, we investigate what these expectations im...

Tracking the changes in the ownership base of Nokia Corporation in 1993-2013, we find that Finnish investors, on average, tended to be contrarians and, as a result, were able to benefit at the expense of the foreign investors in the long run. In total, Finnish investors gained 39 billion at the cost of foreign investors. The domestic institutional...

We use unique data from financial advisers’ professional exam scores and combine it with other variables to create an index of financial sophistication. Using this index to explain long-term stock return expectations, we find that more sophisticated financial advisers tend to have lower return expectations. A one standard deviation increase in the...

We use data from financial advisers' professional exam scores and other variables to build an index of financial sophistication. A one standard deviation reduction in sophistication increases long-term expected returns quoted to clients by 1.1 percentage points, and twice as much for emerging markets. Being optimistic on stocks likely boosts sales....

We examine what happens to the executive stock options (ESO) at the time of mergers and acquisitions (M&As) when the underlying shares cease to exist. The question is highly relevant for the valuation of ESOs since at the time of M&A, ESOs expire earlier than originally intended. The early expiration may lead to a significant loss of time value. Fo...

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 mon...

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 i...

By using a unique dataset of Finnish mutual funds and fund managers, we investigate whether manager ownership is related to fund performance. When we examine manager ownership measured as a percentage of the fund's total assets, we find no relation between ownership and performance. This finding contradicts with US evidence. Further, when we employ...

"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 influenc...

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 wi...

Purpose The paper aims to examine the effect of advertising on mutual fund cash flows in the Finnish fund market. Design/methodology/approach The paper's unique data set allows the observation of the effects of monetary advertising spending and the choice of advertising media. Findings The paper finds that neither past year's performance nor adve...

We examine the influence of anti-takeover provisions on valuation, stock return and operating performance using data from an extensive sample of publicly listed Nordic companies during the time period of 1999-2004 (similar to Gompers, Ishii, and Metrick 2003 [Corporate governance and equity prices. The Quarterly Journal of Economics 118: 107-55] in...

This paper provides new empirical evidence on day-of-the-week effects in Finnish financial markets. On the Finnish stock market, significant Monday effect is not observed but negative returns on Tuesdays and Wednesdays are evident. In stock index options and futures markets, however, significant negative returns on Mondays are observable, while the...

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 non-linear dependence is investigated. Consistent with earlier US results, our empirical evidence indicates significant bidirectional feedback between v...

The Morningstar fund rating has been reported to affect mutual fund flows in the US markets. This paper finds that flow patterns in Finnish bank-managed funds are significantly different from the patterns in the US. Specifically, non-bank funds attract flows in a manner similar to the US markets, that is Morningstar ratings affect fund flows. In co...

This paper employs a new set of variables in examining the determinants of fund expenses. The Finnish Association of Mutual Funds requires the industry to disclose new variables such as turnover and tracking error from 2002. Using this information the authors examine whether bank-managed funds are managed more actively than their non-bank competito...

Styles have become an essential concept in the development, analysis and performance evaluation of investment strategies. We analyze if there are major differences in the behavior of the commonly used Stoxx and MSCI European style indices. We report minor differences. As the Dow Jones Stoxx does not charge for basic data required one may suggest th...

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 estim...

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 hav...

This study employs questionnaire survey and financial accounting data to extend earlier empirical work on the foreign exchange (FX) exposure management practices of Finnish industrial firms. The paper concentrates on: (i) the form that FX corporate hedging policy takes; (ii) the control of FX procedures and trading; and, (iii) our respondents' perc...

This study investigates foreign exchange risk management in major Finnish firms. The shift to a floating foreign-exchange regime has increased risk aversion and intensified risk management in a number of firms. The managers feel they can forecast foreign exchange development, and that they have been successful in risk management. Managers pay atten...

The interest rate policies of Finnish firms appear risk aversive, but hedging decisions are influenced by market view. Managers find they can forecast trends in interest rate development, and employ the forecasts in the choice of debt and hedging instruments. The use of risk assessment methods and hedging instruments are related to firm size but no...

Futures market officials are confronted with the difficult task of setting appropriate margin levels that must balance the costs of trader default and the benefits of increased market liquidity. One way to guard against default is prudent margin setting practices designed to protect futures positions from extreme price movements. The objective of t...

Modern finance theory assumes that stock returns are in efficient markets nonpredictable. Furthermore, it is often assumed that stock returns are i.i.d. normal random variables. Several studies have shown that return series are slightly autocorrelated and therefore at least partially predictable. Moreover, squares of stock returns are clearly autoc...

This paper investigates the hypothesis of sequential information arrival in the Finnish stock index futures and options markets. With no short selling restrictions in the derivatives markets, no causality relationships between returns and trading volume are observed. However, by using the so-called call-put signal, based on call and put volumes, ca...

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 strate...

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...

This paper provides further evidence on the predictability of the Finnish stock market returns. The results show the significant role of index futures returns as an important vehicle in stock market return and volatility prediction.

This paper examines the efficiency of the relatively new Finnish futures market. Firstly, the relevant aspects of prior studies are incorporated into the futures pricing model. Large and persistent violations of the arbitrage conditions are reported in the empirical tests. The results from ex ante tests suggest that restrictions on trading, particu...

This paper investigates the dynamic linkages between stock market prices, accrual earnings and cash flows using Finnish data. We find that stock returns lead accounting returns rather than vice versa. Thus, the thin Finnish stock market appears to produce important information about the future success of Finnish companies for decision making purpos...

This paper examines the pricing of stock index futures contracts on the new Finnish market. The striking feature of the Finnish market is that there is no institutional framework for short selling of stocks. This has been suggested to be the most important reason for the underpricing futures contracts. Persistent mispricing would, however, imply th...

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...

This paper analyzes the information flow between U.S. and Finnish stock index futures and cash markets. Its results support earlier findings indicating no significant causal relationship between U.S. and Finnish cash market returns. When futures market returns are evaluated, however, the conclusions are considerably different. U.S. futures returns...

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 mechani...

In this paper put-call-futures (PCF) parity and put-call-spot (PCS) parity are tested all the new Finnish stock index derivatives markets. Two levels of transaction costs are cOnsidered. Using daily closing price data, we find that, in particular, PCS parity is violated. The violations are due to the fact that the puts have been overpriced compared...

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 u...

The purpose of this survey is to review the recent relevant research on the Finnish stock and stock index derivatives markets. Several empirical studies are examined, the topics of which cover a wide range of market efficiency tests. First, we briefly review development of the Finnish derivatives mar-kets. Then, we review the studies that have look...