Heikki Lehkonen, D.Sc. (Econ. & Bus. Adm.), has been awarded first prize in the OP-Pohjola Group Research Foundation Doctoral Thesis competition, for his doctoral dissertation in the field of finance titled "Essays on Emerging Financial Markets, Political Institutions and Development Differences." The dissertation was approved in the Jyväskylä University School of Business and Economics. The award is worth 10,000 euros
Heikki Lehkonen researched the behaviour of emerging equity markets, their macroeconomic and political environments, and the differences compared to developed countries. The dissertation provides new information on the effect of institutions on global market integration, political risk and risk diversification benefits.
The first section of the dissertation looks at the effects of the integration of financial markets on the spread of the 2007-2009 financial crisis, and examines the factors affecting the level of integration. The results suggest that the level of integration affected the breadth, but not the depth of the crisis.
Key factors contributing to increasing integration in emerging markets are the openness of the market; financial, technological and social development; and the reduction of political risks. In developed countries, international investors are attracted to the markets by a high-quality investment environment and factors related to market efficiency. Not all factors affecting the level of integration can be modified through national measures, because international credit risk also appears to affect integration.
The second section of the dissertation examines the impact of the political regime on political risks and stock returns. Examples of the connection between political regimes and political risks include the conflicts in the Middle East and North Africa, the demonstrations in Thailand and Venezuela, and the situation in Ukraine and Russia.
Lehkonen's research suggests that the effect of democracy on political risk is parabolic (taking the shape of an inverted U), rather than linear. In other words, the smallest political risks are to be found in the most democratic and most autocratic countries. Risks are higher in countries whose democracy is still developing. The research also suggests that a smaller political risk implies higher profits. Stock returns were correspondingly higher in democratic countries.
Lehkonen's dissertation also examines the correlations between different markets and the changes therein. The results suggest that, in the short run, markets can be categorised into American, European and Asian markets. On a longer time-scale, correlations between markets help to distinguish developed from emerging markets. No significant increase in correlations was observed within the studied timeframe.
The dissertation was approved in the Jyväskylä University School of Business and Economics on 27 May 2014 and was graded excellent. The winner was selected by the Board of OP-Pohjola Group Research Foundation.
For more information, please contact: Maarit Lindström, Representative of OP-Pohjola Group Research Foundation, tel. +358 (0)40 531 8262.