Daniel Pasternack

Bio: Daniel Pasternack is an academic researcher from Hanken School of Economics. The author has contributed to research in topics: Dividend & Dividend policy. The author has an hindex of 11, co-authored 16 publications receiving 321 citations.

Share Repurchases, Dividends and Executive Options: the Effect of Dividend Protection

Abstract: We study the determinants of share repurchases and dividends in Finland. We find that higher foreign ownership serves as a determinant of share repurchases and suggest that this is explained by the different tax treatment of foreign and domestic investors. Further, we also find support for the signalling and agency cost hypotheses for cash distributions. The fact that 41% of the option programmes in our sample are dividend protected allows us to test more directly the ‘substitution/ managerial wealth’ hypothesis for the choice of distribution method. When options are dividend protected, the relationship between dividend distributions and the scope of the options programme turns to a significantly positive one instead of the negative one documented in US data.

Overconfidence and Investor Size

Abstract: Recent research documents that institutional or large investors act as antagonists to other investors by showing opposite trading behaviour following the disclosure of new information. Using an extremely comprehensive official transactions data set from Finland, we set out to explore the interrelation between investor size and behaviour. More specifically, we test whether investor size is positively (negatively) correlated with investor reaction following positive (negative) news. We document robust evidence of that investor size affects investor behaviour under new information, as larger investors on average react more positively (negatively) to good (bad) news than smaller investors. We furthermore find that the performance of smaller, or more overconfident, investors is in general hurt by their behaviour.

The Negative News Threshold - an Explanation for Negative Skewness in Stock Returns

Abstract: A vast literature documents negative skewness in stock index return distributions on several markets. We approach the issue of negative skewness from a different angle than in previous studies by combining the Trueman (1997) model of management disclosure practices with symmetric market responses in order to explain negative skewness in stock returns. Our empirical tests reveal that returns for days when non-scheduled news are disclosed are the source of negative skewness in stock returns, as predicted. Our findings hence suggest that negative skewness in stock returns is induced by asymmetries in the news disclosure policies of firm management.

High-Water Marks and Hedge Fund Management Contracts

Abstract: Incentive or performance fees for money managers are frequently accompanied by high-water mark provisions which condition the payment of the performance fee upon exceeding the maximum achieved share value. In this paper, we show that hedge fund performance fees are valuable to money managers, and conversely represent a claim on a significant proportion of investor wealth. The high-water mark provisions in these contracts limit the value of the performance fees. We provide a closed-form solution to the high-water mark

Behavioural biases in investment decision making – a systematic literature review

Abstract: Purpose – The purpose of this paper is to systematically review the literature published in past 33 years on behavioural biases in investment decision-making. The paper highlights the major gaps in the existing studies on behavioural biases. It also aims to raise specific questions for future research. Design/methodology/approach – We employ systematic literature review (SLR) method in the present study. The prominence of research is assessed by studying the year of publication, journal of publication, country of study, types of statistical method, citation analysis and content analysis on the literature on behavioural biases. The present study is based on 117 selected articles published in peer- review journals between 1980 and 2013. Findings – Much of the existing literature on behavioural biases indicates the limited research in emerging economies in this area, the dominance of secondary data-based empirical research, the lack of empirical research on individuals who exhibit herd behaviour, the focus o...

Beyond Sharpe ratio: Optimal asset allocation using different performance ratios.

Abstract: As the assumption of normality in return distributions is relaxed, classic Sharpe ratio and its descendants become questionable tools for constructing optimal portfolios. In order to overcome the problem, asymmetrical parameter-dependent performance ratios have been recently proposed in the literature. The aim of this note is to develop an integrated decision aid system for asset allocation based on a toolkit of eleven performance ratios. A multi-period portfolio optimization up covering a fixed horizon is set up: at first, bootstrapping of asset return distributions is assessed to recover all ratios calculations; at second, optimal rebalanced-weights are achieved; at third, optimal final wealth is simulated for each ratios. Eventually, we make a robustness test on the best performance ratios. Empirical simulations confirm the weakness in forecasting of Sharpe ratio, whereas asymmetrical parameter-dependent ratios, such as the Generalized Rachev, Sortino–Satchell and Farinelli–Tibiletti ratios show satisfactorily robustness.

Do Limit Orders Alter Inferences about Investor Performance and Behavior

Abstract: Individual investors lose money around earnings announcements, experience poor posttrade returns, exhibit the disposition effect, and make contrarian trades. Using simulations and trading records of all individual investors in Finland, I find that these trading patterns can be explained in large part by investors’ use of limit orders. These patterns arise mechanically because limit orders are price-contingent and suffer from adverse selection. Reverse causality from behavioral biases to order choices does not appear to explain my findings. I propose a simple method for measuring a data set’s susceptibility to this limit order effect. IN THIS PAPER, I show that the use of limit orders significantly alters inferences about individuals’ trading intentions and investment abilities. This “limit order effect” arises because a limit order executes only if the price moves against the order. Further, limit orders alter inferences about investors’ trading abilities due to limit orders’ exposure to adverse selection risk. I measure the significance of the limit order effect by reexamining four individual investor trading patterns, namely, individual investors’ tendency to misinterpret new information, show poor stock-picking skills, exhibit the disposition effect, and make contrarian trades. Using simulations, I show that, even if investors decide randomly what to buy and sell, investors’ reliance on limit orders creates the appearance that they follow specific trading rules. I simulate trades for both market order and limit order investors. Whereas market order traders’ randomizing behavior