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Journal articles on the topic 'Liquidity; Portfolio management'
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Pereira, Gabriel Matos, Leonardo Riegel Sant'Anna, Tiago Pascoal Filomena, and João Luiz Becker. "Restrição de Liquidez para Modelos de Seleção de Carteiras." Brazilian Review of Finance 13, no. 2 (November 5, 2015): 288. http://dx.doi.org/10.12660/rbfin.v13n2.2015.47744.
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Liquidity is an important issue in portfolio management. In 2012, the Brazilian market regulatory agency (CVM) started to require all banks and brokerages to maintain liquidity control of their portfolios. This study presents a liquidity constraint which is endogenously incorporated to portfolio optimization to Brazilian Financial Institutions. The proposed constraint incorporates endogenously some practical issues such as: portfolio value, monetary volume traded, maximum percentage of monetary value, liquidation term date and liquidation level. This constrain is applied to the Brazilian Stock Market. The selected constraint parameters have high influence on the liquidity level of the portfolio.
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Trimborn, Simon, Mingyang Li, and Wolfgang Karl Härdle. "Investing with Cryptocurrencies—a Liquidity Constrained Investment Approach*." Journal of Financial Econometrics 18, no. 2 (June 3, 2019): 280–306. http://dx.doi.org/10.1093/jjfinec/nbz016.
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Abstract Cryptocurrencies have left the dark side of the finance universe and become an object of study for asset and portfolio management. Since they have low liquidity compared to traditional assets, one needs to take into account liquidity issues when adding them to a portfolio. We propose a Liquidity Bounded Risk-return Optimization (LIBRO) approach, which is a combination of risk-return portfolio optimization under liquidity constraints. Cryptocurrencies are included in portfolios formed with stocks of the S&P 100, US Bonds, and commodities. We illustrate the importance of the liquidity constraints in an in-sample and out-of-sample study. LIBRO improves the weight optimization in the sense that it only adds cryptocurrencies in tradable amounts depending on the intended investment amount. The returns greatly increase compared to portfolios consisting only of traditional assets. We show that including cryptocurrencies in a portfolio can indeed improve its risk–return trade-off.
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Vrăjitoru, Eugen-Silviu, Mircea Boscoianu, and Elena-Corina Boscoianu. "Applications of Game- Theory in Active Strategic Portfolio Management- the Case of Hedge - Funds Adaptation for the Real Constraints in Romanian Capital Market." International conference KNOWLEDGE-BASED ORGANIZATION 27, no. 2 (June 1, 2021): 100–104. http://dx.doi.org/10.2478/kbo-2021-0055.
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Abstract The application is focused on strategies for portfolio management in the case of hedge-funds for emerging markets taking into account the severe constraints for a real-world implementation. In the case of Romanian capital market, the design of a hedge-fund architecture should respond to the typical constraints for using alternative strategies. Beyond the liquidity problems there exits only a limited set of alternative instruments and strategies with impact on diversification, on the functionality and efficiency. The objective is to develop a better understanding of alternative actions and innovations for real adaptation of the architecture of a hedge-fund at these emerging market conditions, especially the lack of short and hedging instruments and the liquidity problems. Based on this new innovative framework that could capture the value of multiple rotating satellite sub-portfolio paradigm, as an active strategy, it is possible to build a different paradigm for active portfolio management in a dynamic manner. Based on an adequate dynamic of rotation of these sub-portfolios it results an optimal risk- return-liquidity profile for the whole hedge-fund portfolio, adaptable for different contexts.
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Dai, Min, Luis Goncalves-Pinto, and Jing Xu. "How Does Illiquidity Affect Delegated Portfolio Choice?" Journal of Financial and Quantitative Analysis 54, no. 2 (September 10, 2018): 539–85. http://dx.doi.org/10.1017/s0022109018000753.
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In response to how they are compensated, mutual fund managers who are underperforming by mid-year are likely to increase the risk of their portfolios toward the year-end. We argue that an increase in the liquidity of the stocks that managers use to shift risk can lead to an increase in the size of their risky bets. This in turn hurts fund investors by increasing the costs of misaligned incentives associated with delegated portfolio management. We provide both theoretical and empirical results that are consistent with this argument. We use decimalization as an exogenous shock to liquidity to identify causal effects.
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Botha, Marius. "Portfolio liquidity-adjusted value-at-risk." South African Journal of Economic and Management Sciences 11, no. 2 (September 28, 2011): 203–16. http://dx.doi.org/10.4102/sajems.v11i2.309.
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An important, yet neglected, aspect of risk management is liquidity risk; changes in value due to reduced availability of traded financial instruments. This ubiquitous risk has emerged as one of the key drivers of the developing “credit crunch” with global financial liquidity plummeting since the crisis began. Despite massive cash injections by governments, the crisis continues. Contemporary research has focussed on the liquidity component of single instruments’ value-at-risk. This work is extended in this article to measure portfolio value-at-risk, employing a technique which integrates individual instruments’ liquidity-adjusted VaR into a portfolio environment without a commensurate increase of statistical assumptions.
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Malla, Buddhi Kumar. "Credit Portfolio Management in Nepalese Commercial Banks." Journal of Nepalese Business Studies 10, no. 1 (February 5, 2018): 101–9. http://dx.doi.org/10.3126/jnbs.v10i1.19138.
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Credit portfolio management is a key function for banks (and other financial institutions, including insurers and institutional investors) with large, multifaceted portfolios of credit, often including illiquid loans (Nario, Pfister, Poppensieker & Stegemann, 2016). After global financial crisis of 2007-2008, the credit portfolio management function has become most crucial functions of the bank and financial institutions. The Basel III, third installment of Basel accord was developed after crisis to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage that encourages banks to measure credit risk of bank's portfolios. The Basel committee also raises an issue concerning the application of the risk weights used in the capital adequacy framework to determine exposure to risk assets for the purpose of determining large credit exposure (Morris, 2001).The portfolio management of the Nepalese banking sector has been improved remarkably during last 10 years due to the strict regulation of Nepal Rastra Bank. This journal will try to describe the present credit portfolio management practice of Nepalese commercial banks by using qualitative and quantitative methods. In this study, concentration of banks for credit portfolio management has been studied by analyzing security wise loan, product wise loan and sector wise concentration of loan where the researcher has found assorted outcomes. This research also aims to provide some suggestions to overcome with problems associated with credit portfolio.The Journal of Nepalese Business Studies Vol. X No. 1 December 2017, Page: 101-109
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Astic, Fabian, and Agnès Tourin. "Optimal bank management under capital and liquidity constraints." Journal of Financial Engineering 01, no. 03 (September 2014): 1450022. http://dx.doi.org/10.1142/s2345768614500226.
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We propose a model of a bank that invests in both liquid and illiquid assets and whose goal is to maximize its shareholders' profit while satisfying some regulatory constraints. We study the sensitivity of the shareholders' gain and optimal portfolio allocations, as well as the associated bondholders' payoff, to the minimal capital requirement and liquidity ratio. We find that tightening the liquidity constraint adversely affects their rates of return, while preventing some large losses that occur when the portfolio is very illiquid. Stiffening the minimal capital requirement penalizes the shareholders but seems to have little influence on the bondholders.
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Giulioni, Gianfranco. "Policy interest rate, loan portfolio management and bank liquidity." North American Journal of Economics and Finance 31 (January 2015): 52–74. http://dx.doi.org/10.1016/j.najef.2014.10.008.
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Rutkauskas, Aleksandras Vytautas, and Jelena Stankeviciene. "INTEGRATED ASSET AND LIABILITY PORTFOLIO AS INSTRUMENT OF LIQUIDITY MANAGEMENT IN THE COMMERCIAL BANK." Journal of Business Economics and Management 7, no. 2 (June 30, 2006): 45–57. http://dx.doi.org/10.3846/16111699.2006.9636123.
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Liquidity, or the ability to fund increases in assets and meet obligations as they come due, is crucial to the ongoing viability of any banking organization. Therefore, managing liquidity is among the most important activities conducted by banks. Liquidity management model proposed by the authors can reduce the probability of serious problems. Indeed, the importance of liquidity transcends the individual bank, since a liquidity shortfall at a single institution can have system‐wide repercussions. For this reason, the analysis of liquidity requires bank management not only to measure the liquidity position of the bank on an ongoing basis but also to examine how funding requirements are likely to evolve under various scenarios, including adverse conditions. The authors have focused on developing a greater understanding of the way in which banks can manage their liquidity using a broad potential of integrated asset and liability portfolio. As instrument for the solution of the assessed problem the integrated total commercial bank asset and liability structure formation and management when useful occurrence of integrated structure and every outcome is followed with some guarantee to occur was chosen. An academic example is shown as an illustration for ideas analyzed. The formality and sophistication of the process used to manage liquidity depends on the size and sophistication of the bank, as well as the nature and complexity of its activities. The principles focused in the paper have broad applicability to all banks. In particular, good management information systems, analysis of net funding requirements under alternative scenarios, diversification of funding sources, and contingency planning are crucial elements of strong liquidity management at a bank of any size or scope of operations.
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McCarthy, J. F. "PORTFOLIO RISK MANAGEMENT AT BHP BILLITON." APPEA Journal 42, no. 1 (2002): 663. http://dx.doi.org/10.1071/aj01042.
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BHP Billiton has implemented a portfolio risk management strategy. The strategy is based on extensive quantitative analysis of the risks and opportunities in the BHP Billiton portfolio and applies leading financial markets thinking to a portfolio of natural resource assets. It enables BHP Billiton to more rigorously manage the risks within its portfolio.This paper will discuss the portfolio modelling process supporting Portfolio Risk Management. The process involves detailed modelling of changing financial markets (i.e. commodities, currencies, interest rates), the implications for the financial strength of the company (i.e. interest cover, liquidity profile, credit rating, gearing) and, ultimately, the implications for the business strategy (i.e. financial targets, growth aspirations, capital investments, acquisitions, share buybacks). This will illustrate how quantitative tools become building blocks for decision making beyond the market risk strategy and strengthen capital disciplines.
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Vrăjitoru, Eugen-Silviu, Mircea Boscoianu, and Elena-Corina Boscoianu. "Aspects Regarding a New Methodology for Active Portfolio Management of Hedge Funds Alternative in Emerging Markets-the Case of Romanian Capital Market in the Actual Context of Post-Crisis Recovery." International conference KNOWLEDGE-BASED ORGANIZATION 27, no. 2 (June 1, 2021): 94–99. http://dx.doi.org/10.2478/kbo-2021-0054.
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Abstract In emerging markets, the processes in portfolio management should be adapted according to the typical constraints (market liquidity aspect and other market imperfections)that limits the use of alternative instruments / strategies and diversification capabilities. The aim is to develop a new way to understand and implement innovative solutions in real portfolio management in the case of Romanian capital market. The innovation is based on a scalable hedge-fund (HF) structure that capture different alternative instruments. This HF architecture represents a versatile dynamic AIF, equipped with capabilities to integrate the synergies between diversification based on alternative instruments but also the diversification based on alternative strategies and it integrates a core thematic sub-portfolio and 2-4 satellite rotating sub-portfolios capable to compensate the impossibility to use short sales and leverage strategies.
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Vadiei Nowghabi, Mohammad Hossein, Ali Shirazd, Shaban Mohammadi, and Alireza Khorshidi. "The Effect of Earnings Management on Liquidity Criteria and Lack of Liquidity Stock." International Letters of Social and Humanistic Sciences 63 (November 2015): 71–81. http://dx.doi.org/10.18052/www.scipress.com/ilshs.63.71.
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Liquidity criteria that investors in making portfolio investments are involved. Among the factors that could affect liquidity, earnings management. Earnings management can accrual-based earnings management aspects and management of real benefit to be evaluated; Therefore, the aim of this study is to estimate the accrual-based earnings management and gain real management and its effects on liquidity of companies listed on the Stock Exchange in Tehran. The sample consisted of 78 companies for the period 2008 to 2012. We used multivariate regression model based on panel data is performed. Our results show that research hypotheses are tested between accrual-based earnings management positive and significant relationship with the lack of liquidity, and the liquidity and significant negative relationship. As well as the actual management of non-profit with a positive and significant relationship between stock liquidity, and the liquidity is insignificant and there is a negative relationship.
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Ametefe, Frank Kwakutse, Steven Devaney, and Simon Andrew Stevenson. "Optimal composition of hybrid/blended real estate portfolios." Journal of Property Investment & Finance 37, no. 1 (February 4, 2019): 20–41. http://dx.doi.org/10.1108/jpif-04-2018-0022.
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PurposeThe purpose of this paper is to establish an optimum mix of liquid, publicly traded assets that may be added to a real estate portfolio, such as those held by open-ended funds, to provide the liquidity required by institutional investors, such as UK defined contribution pension funds. This is with the objective of securing liquidity while not unduly compromising the risk-return characteristics of the underlying asset class. This paper considers the best mix of liquid assets at different thresholds for a liquid asset allocation, with the performance then evaluated against that of a direct real estate benchmark index.Design/methodology/approachThe authors employ a mean-tracking error optimisation approach in determining the optimal combination of liquid assets that can be added to a real estate fund portfolio. The returns of the optimised portfolios are compared to the returns for portfolios that employ the use of either cash or listed real estate alone as a liquidity buffer. Multivariate generalised autoregressive models are used along with rolling correlations and tracking errors to gauge the effectiveness of the various portfolios in tracking the performance of the benchmark index.FindingsThe results indicate that applying formal optimisation techniques leads to a considerable improvement in the ability of the returns from blended real estate portfolios to track the underlying real estate market. This is the case at a number of different thresholds for the liquid asset allocation and in cases where a minimum return requirement is imposed.Practical implicationsThe results suggest that real estate fund managers can realise the liquidity benefits of incorporating publicly traded assets into their portfolios without sacrificing the ability to deliver real estate-like returns. However, in order to do so, a wider range of liquid assets must be considered, not just cash.Originality/valueDespite their importance in the real estate investment industry, comparatively few studies have examined the structure and operation of open-ended real estate funds. To the authors’ knowledge, this is the first study to analyse the optimal composition of liquid assets within blended or hybrid real estate portfolios.
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Kinlaw, Will, Mark Kritzman, and David Turkington. "Liquidity and Portfolio Choice: A Unified Approach." Journal of Portfolio Management 39, no. 2 (January 31, 2013): 19–27. http://dx.doi.org/10.3905/jpm.2013.39.2.019.
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Puopolo, Giovanni Walter. "Portfolio selection with transaction costs and default risk." Managerial Finance 43, no. 2 (February 13, 2017): 231–41. http://dx.doi.org/10.1108/mf-01-2016-0007.
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Purpose The purpose of this paper is to investigate the effect of default risk and transaction costs on the investor’s asset allocation and the liquidity premium. More precisely, it aims at answering the following question: can default risk generate a first-order effect on the investor’s asset allocation and a liquidity premium of the same order of magnitude as transaction costs? Design/methodology/approach The author proposes a very simple consumption-investment model in which an infinitely lived investor allocates her wealth between a risky asset and a riskless security, and incurs in proportional transaction costs when exchanging them. In addition, the risky asset may default at some random time, thus reducing the available wealth of the agent. Two different scenarios of default risk are considered. In the total default scenario, the value of the risky asset drops to zero when default occurs, whereas, in the partial default case, the proceeds from the liquidation of the risky asset amount to 50 percent of its value. Findings The paper shows that default risk can generate a first-order effect on the investor’s asset allocation. On the contrary, the liquidity premium is one order of magnitude smaller than the transaction costs, implying that the additional source of risk determined by the possibility of default is not able to generate a first-order effect on asset pricing. Originality/value To the author knowledge, this is the first paper that investigates the interaction of default risk and transaction costs on the investor’s asset allocation and its effects on the liquidity premium.
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Kumar, Gaurav, and Arun Kumar Misra. "Long run commonality in Indian stocks: empirical evidence from national stock exchange of India." Journal of Indian Business Research 12, no. 4 (May 20, 2020): 441–58. http://dx.doi.org/10.1108/jibr-09-2016-0091.
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Purpose The purpose of this paper is to investigate long-run commonality in liquidity using multiple proxies computed from limited order book data of NIFTY50 stocks. The findings indicate the existence of systematic liquidity or commonality on NIFTY50 market and comprising industries. Design/methodology/approach The sample comprises all intraday transactions corresponding to NIFTY 50 stocks for April 2015. The study runs firm by firm time series regressions to test the concept of long-run commonality, while controlling other effects. Findings Strong evidence is found in support of long-run commonality across three liquidity measures. On the basis of significance (10%) of long-run commonality beta (βLR), the strength of long-run commonality is found to be highest in natural resources and infrastructure sector. Portfolios having greater exposure to these sectors will face diversification risk to a great extent. Practical implications Knowledge of long-run commonality helps portfolio managers in formulating diversification strategies and reshuffling the portfolio over the period. Commonality risk being non-diversifiable is a policy concern for regulators and central bankers. Its empirical evidence will assist in managing exchange organization and thus preventing market crashes because of sudden liquidity evaporation. Originality/value Although there are recent studies documenting commonality in short run, little empirical work has been done on commonality in the long run and in emerging markets such as India. This research contributes to the literature by testing concept of commonality in long-run on NIFTY50 stocks using detailed transaction data from National Stock Exchange.
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Ostrovska, N. "Modeling of credit portfolio management efficiency." Galic'kij ekonomičnij visnik 70, no. 3 (2021): 89–101. http://dx.doi.org/10.33108/galicianvisnyk_tntu2021.03.089.
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Credit operations, among the great variety of services provided by the bank, are one of the most important activities. In the assets of commercial banks, loans occupy a strong position of the most extensional and profitable items. The reliability and financial stability of commercial banks depends on the composition and structure of the bank's loan portfolio and the process of its management. Under current conditions, the development and improvement of the bank's loan portfolio management system intended to minimize the credit risks and ensure the sustainable operation of commercial banks have become particularly important. Crisis phenomena in economy have proved that the activities of any economic entity is associated with uncertainty in market development. Adverse developments in the world markets directly affected the solvency of borrowers of many banks. The increase in defaults of most borrowers resulted in the increase in defaults on loans, causing the increase in overdue debt, lower profitability and liquidity problems in banks. Thus, the recent crisis in the world economy, including Ukrainian economy, has demonstrated the failure of the methods used to assess and manage credit risk in banking, as well as the imperfection of the methods used to manage the loan portfolios of commercial banks. The results of the previous carried out investigation indicate that in order to form the correct management decisions and take practical actions concerning the formation of loan portfolio for commercial bank, it is necessary to assess its status. In this regard, the method of econometric modeling (determination of the relationship between gross domestic product and overdue debt of the banking system in Ukraine, the relationship between the volume of loans issued by banks and the discount rate; the relationship between the volume of loans issued to individuals and the volume of the loan portfolio in general) is differentiated in this paper from other estimation methods. This method made it possible to determine the effectiveness of loan portfolio management of commercial banks. The results of the calculations provide reasons to confirm that there is insignificant relationship between the level of loans to individuals and the loan portfolio.
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Al Janabi, Mazin A. M. "Scenario optimization technique for the assessment of downside-risk and investable portfolios in post-financial crisis." International Journal of Financial Engineering 02, no. 03 (September 2015): 1550028. http://dx.doi.org/10.1142/s2424786315500280.
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The aim of this paper is to develop an optimization technique for the assessment of downside-risk limits and investable financial portfolios under crisis-driven outlooks subject to applying meaningful financial and operational constraints. The simulation and testing methods are based on the renowned concept of liquidity-adjusted value-at-risk (LVaR) along with the development of an optimization risk-algorithm utilizing matrix–algebra technique. With the purpose of demonstrating the effectiveness of LVaR and stress-testing techniques, real-world quantitative analysis of structured equity portfolios are depicted for the Gulf Cooperation Council (GCC) financial markets. To this end, several structural simulations studies are accomplished with the goal of establishing realistic financial modeling algorithm for the calculation of downside-risk parameters and to empirically assess portfolio managers' optimal and investable portfolios. The developed methodology and risk valuation algorithms can aid in advancing risk assessment and portfolio management practices in emerging markets, particularly in the wake of the most recent credit crunch and the subsequent financial turmoil.
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Solimanpur, Maghsoud, Gholamreza Mansourfar, and Farzad Ghayour. "Optimum portfolio selection using a hybrid genetic algorithm and analytic hierarchy process." Studies in Economics and Finance 32, no. 3 (August 3, 2015): 379–94. http://dx.doi.org/10.1108/sef-08-2012-0085.
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Purpose – The purpose of this paper is to present a multi-objective model to the optimum portfolio selection using genetic algorithm and analytic hierarchy process (AHP). Portfolio selection is a multi-objective decision-making problem in financial management. Design/methodology/approach – The proposed approach solves the problem in two stages. In the first stage, the portfolio selection problem is formulated as a zero-one mathematical programming model to optimize two objectives, namely, return and risk. A genetic algorithm (GA) with multiple fitness functions called as Multiple Fitness Functions Genetic Algorithm is applied to solve the formulated model. The proposed GA results in several non-dominated portfolios being in the Pareto (efficient) frontier. A decision-making approach based on AHP is then used in the second stage to select the portfolio from among the solutions obtained by GA which satisfies a decision-maker’s interests at most. Findings – The proposed decision-making system enables an investor to find a portfolio which suits for his/her expectations at most. The main advantage of the proposed method is to provide prima-facie information about the optimal portfolios lying on the efficient frontier and thus helps investors to decide the appropriate investment alternatives. Originality/value – The value of the paper is due to its comprehensiveness in which seven criteria are taken into account in the selection of a portfolio including return, risk, beta ratio, liquidity ratio, reward to variability ratio, Treynor’s ratio and Jensen’s alpha.
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Ha, Youngmin, and Hai Zhang. "Algorithmic trading for online portfolio selection under limited market liquidity." European Journal of Operational Research 286, no. 3 (November 2020): 1033–51. http://dx.doi.org/10.1016/j.ejor.2020.03.050.
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O. Al-Smadi, Mohammad. "Determinants of foreign portfolio investment: the case of Jordan." Investment Management and Financial Innovations 15, no. 1 (March 28, 2018): 328–36. http://dx.doi.org/10.21511/imfi.15(1).2018.27.
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This study investigates the determinants of foreign portfolio investment in Jordan using series of data covering the period from 2000 to 2016. Eight independent variables were employed. They are: aggregate economic activity, inflation, interest rate differentiation, stock market performance, risk diversification, country creditworthiness, governance, and corruption. The regression results show that good and stable macroeconomic environment attracts foreign investors. In addition, foreign investors prefer to invest in the capital market which provides an opportunity of risk diversification. A country that has enough liquidity to meet its obligation, and has well-governed environment attracts more portfolio investment. The results of the study provide empirical evidence about the factors that have a significant impact on the flow of foreign portfolio investment to Jordan. These factors can be utilized when formulating polices by the specialized authorities who are seeking to attract more portfolio investment.
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Amanda, Citra, and Zaäfri Ananto Husodo. "Empirical test of Fama French three factor model and illiquidity premium in Indonesia." Corporate Ownership and Control 12, no. 2 (2015): 362–73. http://dx.doi.org/10.22495/cocv12i2c3p2.
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This study, using more than 10 years of monthly time-series data and controlling for the non-crisis as well as crisis period, investigates the existence of Fama-French three factors and liquidity to the excess return of stock portfolio in Indonesia. The results show that market beta is consistently positive and significant in each portfolios, when sorted by size-illiquidity and book-to-market (BM)-illiquidity. SMB could explain ILLIQ and vice versa, and in general the hypothesis in this research are accepted, also there are consistency in SMB when sorted by size-illiquidity and also BM-illiquidity which are two out of six are not significant. Subprime mortgage crisis statistically has no effect in all portfolios. The results supported Fama and French (1992, 1993) and the results of Lam and Tam (2011).
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Ganguli, Santanu K. "Excessive Corporate Liquidity and Stock Return: Evidence from the Indian Business Environment." Global Business Review 20, no. 4 (July 23, 2019): 946–61. http://dx.doi.org/10.1177/0972150919845238.
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The article examines the determinants, financial characteristics and the stock returns of Indian firms which held excessive liquidity during the post-meltdown period of 2008–2012 in the backdrop of an uncertain business environment. The research design is essentially based on a model developed by Opler, Pinkowitz, Stulz, and Williamson (1999) adjusted for variable specification necessitated by Indian conditions and data availability. The model is used to identify the transitory and persistent excess liquidity firms. Quarterly, bi-yearly and yearly stock returns of excess liquidity firms are compared with the returns of non-excess liquidity control firms. In India where banks play a major role in financing in view of the illiquid debt market, speculative motive plays a dominant role in holding excess liquidity. Build-up of excess liquidity arising from the relatively strong economic performance of earlier years is utilized conservatively to decrease leverage rather than gear up investment when investment opportunity is depressed due to a weak macroeconomic outlook and structural factors. Greater liquidity and longer holdings do not generate lesser returns for varying periods till 1 year compared to a portfolio of non-excess liquidity control firms. At variance with the existing literature the results indicate that marginal value of liquidity in terms of stockholders’ returns does not decline with higher or longer liquidity holding when the investment environment is unfavourable.
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Cardona, Juan C. "Do taxable REIT subsidiary spell risk for REITs? An empirical examination." Journal of Property Investment & Finance 34, no. 4 (July 4, 2016): 387–406. http://dx.doi.org/10.1108/jpif-09-2015-0066.
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Purpose – The purpose of this paper is to employ a unique data sample to study the relationship between risk and the use of taxable real estate investment trusts (REITs) subsidiary (TRS). Design/methodology/approach – Total volatility is decomposed into systematic risk and idiosyncratic risk in order to examine whether cross-sectional variations in REITs’ risk are related to use of TRS. The relation between REITs risk and REITs liquidity is also explored in this paper by using three liquidity measures: percentage spread, dollar volume and price impact. GMM regressions are used to explore diversification and risk-adjusted returns. Findings – The evidence, using GMM regressions, suggests that: REITs increased in firm risk during the years 2002-2011; REITs with TRS are more liquid than REITs with non-TRS; TRS-REITs’ prices becomes more volatile than the broader market after year 2007 – S & P500 index is used as benchmark; and TRS-REITs’ portfolios requires a larger number of securities to obtain similar levels of diversification as non-TRS portfolio. Practical implications – TRS-REITs’ portfolio is riskier (systematic risk) than non-TRS-REITs, its assets are the more demanded (liquid) among investor, meaning that when necessary those assets can be easier converted to cash without affecting to much its prices. When S & P500 is used as benchmark the TRS-REITs’ portfolio requires a larger number of securities to obtain similar levels of diversification as non-TRS portfolio. Originality/value – This paper employs a unique data sample to study the relationship between risk and the use of TRS in the USA. Although the relationship between risk and returns has been largely studied in the finance field, still there is a gap in REIT literature about the relation between REIT return volatility and the use of TRS’s.
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Lei, Qin, Murli Rajan, and Xuewu Wang. "Can traders beat the market? Evidence from insider trades." China Finance Review International 4, no. 3 (August 12, 2014): 243–70. http://dx.doi.org/10.1108/cfri-02-2014-0006.
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Purpose – The purpose of this paper is to investigate how insiders’ trades are executed and whether and how outside investors can mimic outperforming insiders and reap substantial portfolio returns that withstand the erosion from adjustments for both the standard factors and stock characteristics in the asset pricing literature. Design/methodology/approach – The authors design a metric for measuring insiders’ trade execution quality: the trading alpha. The authors run regression analysis to control for trade difficulty, insider reputations and the corporate role ranks of insiders and document the existence of the abnormal trading alpha. The authors further form portfolios based on the abnormal trading alpha and document a significant abnormal return that is robust to both standard asset pricing factors model and the stock characteristics adjustments. Findings – Outperforming insiders at the aggregate level resemble value investors who trade on long-term fundamental information, trade patiently and earn rents from providing liquidity. Outside investors can mimic the outperforming insiders and reap significant abnormal portfolio returns. Research limitations/implications – Data limitations on insider trades and their association/interaction with their brokers prevent us from having a conclusive investigation of the trading skill hypothesis. The authors hope to further research along the lines of the trading skill hypothesis as compared to investment style hypothesis with more detailed data about the brokers used by insiders. Practical implications – The findings can be applied for money management profession in that outsider investors can monitor the trading execution and construct portfolios based on the adjusted abnormal trading alpha. The resulting portfolio has been documented to be highly profitable after risk adjustments using standard asset pricing factors as well as stock characteristics. Social implications – Professional money managers and outsider investors should be able to benefit from the findings in this paper and use the proposed trading alpha metric to construct and rebalance real-time investment portfolios. Originality/value – Outperforming insiders at the aggregate level resemble value investors who act on long-term fundamental information, trade patiently and earn rents from providing liquidity. From the perspective of investment implications, outside investors can mimic the outperforming insiders and reap substantial portfolio returns that withstand the erosion from adjustments for both the standard factors and stock characteristics in the asset pricing literature.
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Narkevich, S. "International Practices in Foreign Exchange Reserves Management." World Economy and International Relations 60, no. 2 (2016): 40–51. http://dx.doi.org/10.20542/0131-2227-2016-60-2-40-51.
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The paper explores modern international practices in foreign exchange reserves management. First, key goals of FX reserves management are presented. According to the goals, there are two dimensions of reserve portfolio management that are employed by monetary authorities: achieving optimal size of the portfolio and constructing optimal structure of the portfolio. Then, general rules of FX reserves management are discussed. Best practices developed by IMF and major world central banks require several salient features to be implemented into the reserve management framework. The strategy of reserve management and its targets should be clearly defined with basic principles ingrained in the everyday routine of portfolio managers. Technological and organizational practices should produce a reliable and efficient operational system that processes transactions quickly and without interruptions. Sufficient flexibility and possibilities for upgrade should be factored into all IT-systems. Reserve facilities and back-up systems need to be created and installed in advance so that they can be put into use instantly and provide uninterrupted functioning and transactions execution. Risk management framework should incorporate rules dealing with all major types of risks and at the same time meeting operational targets that are specific to central banks as portfolio managers. Thus, among the most important questions of risk management is matching ample liquidity of the portfolio with the necessity to maintain its value and provide some extra yield. This directly influences the asset structure of FX reserves portfolio with large share of high-rated and liquid assets (mostly sovereign issued bonds). Finally, FX reserves management system in Japan and Norway are analyzed. With 2nd largest reserves portfolio in the world Japan pays surprisingly low attention to FX portfolio management keeping most of its reserves in highly liquid US-issued papers. Norway’s experience of managing its oil and gas revenues provides insights in how it should be done in an efficient manner for a resource-exporting country.
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Leung, Som-lok, Marcia Banks, and Rob Kiernan. "Stepping Up to the Liquidity Challenge: The Changing Role of Credit Portfolio Management." Global Credit Review 03, no. 01 (January 2013): 71–76. http://dx.doi.org/10.1142/s2010493613500062.
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Chiesa, Gabriella. "Sovereign Debt, the Blessing Aspects and the Implications for the Euro Area." Vierteljahrshefte zur Wirtschaftsforschung 89, no. 1 (January 1, 2020): 9–30. http://dx.doi.org/10.3790/vjh.89.1.9.
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Summary: The Euro area has a unique monetary authority that governs money creation, but several individual-countries’ sovereign debts that differ in terms of safety. We analyse: i) the interactions between the financial and real sector in such an environment; ii) the role of government bonds as liquidity instruments; iii) whether and how the correlation structure of the sovereign-bonds’ market values affects the portfolio composition of liquidity instruments and prices, and the scope for a debt management policy at the Euro area level.
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Twala, Zintle, Riza Demirer, and Rangan Gupta. "Does Liquidity Risk Explain the Time-Variation in Asset Correlations? Evidence from Stocks, Bonds and Commodities." Journal of Economics and Behavioral Studies 10, no. 2(J) (May 19, 2018): 120–32. http://dx.doi.org/10.22610/jebs.v10i2(j).2221.
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The time-variation in asset correlations have broad implications in asset pricing, portfolio management and hedging. Numerous studies in the literature have found that the change in correlations is mainly related to the magnitude of market movements, hence volatility. However, recent research finds that the size of markets fluctuations is not necessarily the primary driver for the time-variation in correlations, but that the effect of market movements is amplified in times of high financial distress, characterised by low liquidity. This paper seeks to investigate the effect of liquidity on time-varying correlations among different asset classes, namely stocks, corporate bonds and commodities. Our findings show that liquidity indeed has a significant effect on the time-variation in asset correlations, particularly in the case of how bond returns comove with other asset classes. We observe that higher liquidity risk is associated with lower correlation of bond returns with stocks as well as commodities. Our findings suggest that measures of liquidity risk can improve models of correlations; and potentially help improve the effectiveness of risk management strategies during periods of financial distress.
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Twala, Zintle, Riza Demirer, and Rangan Gupta. "Does Liquidity Risk Explain the Time-Variation in Asset Correlations? Evidence from Stocks, Bonds and Commodities." Journal of Economics and Behavioral Studies 10, no. 2 (May 19, 2018): 120. http://dx.doi.org/10.22610/jebs.v10i2.2221.
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The time-variation in asset correlations have broad implications in asset pricing, portfolio management and hedging. Numerous studies in the literature have found that the change in correlations is mainly related to the magnitude of market movements, hence volatility. However, recent research finds that the size of markets fluctuations is not necessarily the primary driver for the time-variation in correlations, but that the effect of market movements is amplified in times of high financial distress, characterised by low liquidity. This paper seeks to investigate the effect of liquidity on time-varying correlations among different asset classes, namely stocks, corporate bonds and commodities. Our findings show that liquidity indeed has a significant effect on the time-variation in asset correlations, particularly in the case of how bond returns comove with other asset classes. We observe that higher liquidity risk is associated with lower correlation of bond returns with stocks as well as commodities. Our findings suggest that measures of liquidity risk can improve models of correlations; and potentially help improve the effectiveness of risk management strategies during periods of financial distress.
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Osterhoff, Friedrich, and Christoph Kaserer. "Determinants of tracking error in German ETFs – the role of market liquidity." Managerial Finance 42, no. 5 (May 9, 2016): 417–37. http://dx.doi.org/10.1108/mf-04-2015-0105.
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Purpose – The purpose of this paper is to contribute to a better understanding of the impact of market liquidity on the daily tracking error of exchange-traded funds (ETFs). It puts a special focus on the liquidity cost of individual underlying stocks as well as the process of creation/redemption of ETF shares as key determinants of tracking ability. Design/methodology/approach – The study is based on daily observations of fund data for eight fully replicating German equity ETFs for July 2001-October 2013. A regression model with fund fixed effects is chosen to determine the effect of liquidity cost, creation/redemption and other control variables on daily tracking error. Data were compiled from issuer websites and Datastream. Proprietary XETRA Liquidity Measure, which was used as proxy for liquidity cost was supplied by Deutsche Börse. Findings – The study finds daily tracking error to significantly depend on the liquidity of underlying stocks. This finding emerges even though the ETFs in this study predominantly use in-kind creation/redemption. Even after controlling for creation/redemption, the liquidity impact remains basically unchanged. One reason might be imperfect replication of index weights: Either the in-kind-basket delivered in the course of creation/redemption does not perfectly match the benchmark-weights or the internal rebalancing of weights causes liquidity cost. Originality/value – To the best of the authors’ knowledge, this is the first paper that uses a specific liquidity measure for each single stock underlying an ETF. The findings extend the literature by corroborating the view that liquidity of individual stocks in the underlying portfolio has an impact on tracking error.
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Choi, Byeongyong Paul, Jin Park, and Chia-Ling Ho. "Liquidity transformation: an examination of US life insurers." Managerial Finance 42, no. 7 (July 11, 2016): 618–34. http://dx.doi.org/10.1108/mf-11-2015-0302.
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Purpose – The purpose of this paper is twofold: first, this paper measures how much liquidity is transformed by the US life insurance industry for the sample period; and Second, this study tests the “risk absorption” hypothesis and “financial fragility-crowding out” hypothesis to identify the impact of capital on liquidity creation in the US life insurance industry. In addition, a regression model is conducted to explore the relationship between liquidity creation and other firm characteristics. Design/methodology/approach – In order to construct the liquidity creation measures, all assets and liabilities are classified as liquid, semi-liquid, or illiquid with appropriate weights to these classifications, which will then be combined to measure the amount of liquidity creation. In addition, a regression model is analyzed. The level of insurers’ liquidity creation is regressed on the capital ratio (surplus over total assets) and other financial and organizational variables to test two prevailing hypotheses. Findings – This paper finds that the US life insurers de-create liquidity. The authors provide that the amount of liquidity de-creation is related to the size of insurers such that liquidity de-creation has increased as assets grow and that large insurers de-create most of liquidity. The US life insurance industry de-created $2.1 trillion in liquidity, i.e., 43 percent of total industry assets, in 2008. The empirical results support the “financial fragility-crowding out” hypothesis. Life insurers’ liquidity de-creation is mainly caused by the large portion of liquid assets, which is required by regulation and capital is not a main factor of liquidity de-creation. Originality/value – There is no known study on the issue of liquidity creation by life insurers. Thus, the extent of liquidity creation by the life insurance industry, if any, is an empirical matter to investigate, but also an important matter to regulators and the academia since the products and business operations (e.g. asset portfolio and asset and liability management) of life insurers are different from those of property and liability insurers.
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Lin, Jyh-Horng, and Chuen-Ping Chang. "Liquidity management and futures hedging under deposit insurance: An option-based analysis." Yugoslav Journal of Operations Research 14, no. 2 (2004): 209–18. http://dx.doi.org/10.2298/yjor0402209l.
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Theories on financial futures hedging are generally based on a portfolio-choice approach. This paper presents an alterative: a firm-theoretic model of bank behavior with financial futures under deposit insurance. Assuming that the bank is a certificate of deposit (CD) rate-setter and faces random CDs, expressions for the optimal futures hedge are derived under the option-based valuation. When the bank is in a bad state of the world, a decrease in the short position of the futures decreases the loan rate and increases the CD rate; an increase in the deposit insurance premium increases the loan rate and decreases the CD rate. We also show that the bank?s amount of futures increases with a lower expected futures interest rate.
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Khan, Mohammad Tariqul Islam, and Siow-Hooi Tan. "Stated Preferences for Firm’s Characteristics and Asset Allocation Decisions." Global Business Review 20, no. 4 (June 23, 2019): 839–55. http://dx.doi.org/10.1177/0972150919844895.
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The present article investigates the relationship between stated preferences for firm’s characteristics and asset allocation decisions. Data from the survey of retail investors in Malaysia are used for estimations by employing binary logit and ordered logistic models. The analyses show that preferences for a firm’s value characteristics, quality of management and product characteristics, risky characteristics, liquidity and trading volume characteristics affect holding of a particular financial asset, number of asset holding, quite diversified portfolio holding and hypothetical asset allocation. However, a firm’s characteristics have no influence on fully diversified portfolio. In Malaysia, the regulators may consider the investor’s preferences for specific firm’s characteristics in designing policies to reduce the apparent structural imbalance in the capital market.
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Lin, Yu-Cheng, Chyi Lin Lee, and Graeme Newell. "The added-value role of industrial and logistics REITs in the Pacific Rim region." Journal of Property Investment & Finance 38, no. 6 (June 18, 2020): 597–616. http://dx.doi.org/10.1108/jpif-09-2019-0129.
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PurposeAs significant listed property investment vehicles, industrial and logistics REITs (I&L REITs) have recently enhanced their property portfolios, often replacing the traditional industrial properties with logistic properties to gain strategic exposure to recent e-commerce trends. This paper aims to assess the investment performance of I&L REITs by assessing the significance, risk-adjusted performance and portfolio diversification benefits of I&L REITs in the Pacific Rim region from July 2011 to December 2018. The strategic property investment implications for I&L REITs are also identified.Design/methodology/approachMonthly total returns from July 2011 to December 2018 were used to analyse the risk-adjusted performance and portfolio diversification benefits for I&L REITs in the United States, Japan, Australia and Singapore. An asset allocation diagram was employed to assess the strategic role of I&L REITs in a mixed-asset portfolio in each case.FindingsI&L REITs generally possessed superior average annual returns compared with the other sub-sector REITs, stocks and bonds in the United States, Japan, Australia and Singapore between July 2011 and December 2018, with desirable portfolio diversification benefits. Importantly, a more significant role for I&L REITs was generally observed in the mixed-asset portfolio compared to the other sub-sector REITs in each of these four markets across the broad portfolio risk spectrum. This reflects I&L REITs delivering enhanced portfolio returns and offering portfolio diversification benefits in a mixed-asset portfolio in the United States, Japan, Australia and Singapore.Practical implicationsProperty investors, particularly property securities funds (PSFs) and income-oriented investors, should consider including I&L REITs in their mixed-asset portfolios, as Pacific Rim–based I&L REITs provided an attractive REIT investment sub-sector, co-existing alongside the other sub-sector REITs and major asset classes in a mixed-asset portfolio in a Pacific Rim context, as well as being a portfolio diversifier. These results confirm the added-value and strategic role of I&L REITs in a mixed-asset portfolio, seeing I&L REITs as an effective investment pathway for I&L property exposure in the Pacific Rim region.Originality/valueThis is the first study to assess the investment performance of I&L REITs in the Pacific Rim region, evaluating their significance, risk-adjusted performance and portfolio diversification benefits, and the role of I&L REITs in a mixed-asset portfolio in the United States, Japan, Australia and Singapore. More importantly, this research is the first paper to provide empirical evidence on I&L REITs, which have often transformed their traditional industrial property portfolios with increased levels of logistics property to gain exposure to recent e-commerce trends. This research enables more informed and practical property investment decision-making regarding I&L REITs and their added-value and strategic role in a mixed-asset portfolio, as well as delivering effective I&L property exposure in the Pacific Rim region, with the added benefits of liquidity, transparency and fiscal efficiency.
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Gubareva, Mariya, and Maria Rosa Borges. "Interest rate, liquidity, and sovereign risk: derivative-based VaR." Journal of Risk Finance 18, no. 4 (August 21, 2017): 443–65. http://dx.doi.org/10.1108/jrf-01-2017-0018.
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Purpose The purpose of this paper is to study connections between interest rate risk and credit risk and investigate the inter-risk diversification benefit due to the joint consideration of these risks in the banking book containing sovereign debt. Design/methodology/approach The paper develops the historical derivative-based value at risk (VaR) for assessing the downside risk of a sovereign debt portfolio through the integrated treatment of interest rate and credit risks. The credit default swaps spreads and the fixed-leg rates of interest rate swap are used as proxies for credit risk and interest rate risk, respectively. Findings The proposed methodology is applied to the decade-long history of emerging markets sovereign debt. The empirical analysis demonstrates that the diversified VaR benefits from imperfect correlation between the risk factors. Sovereign risks of non-core emu states and oil producing countries are discussed through the prism of VaR metrics. Practical implications The proposed approach offers a clue for improving risk management in regards to banking books containing government bonds. It could be applied to access the riskiness of investment portfolios containing the wider spectrum of assets beyond the sovereign debt. The approach represents a useful tool for investigating interest rate and credit risk interrelation. Originality/value The proposed enhancement of the traditional historical VaR is twofold: usage of derivative instruments’ quotes and simultaneous consideration of the interest rate and credit risk factors to construct the hypothetical liquidity-free bond yield, which allows to distil liquidity premium.
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Agrawal, Tarunika Jain, Sanjay Sehgal, and Rahul Agrawal. "Disruptive Innovations, Fundamental Strength and Stock Winners: Implications for Stock Index Revisions." Vision: The Journal of Business Perspective 24, no. 3 (June 14, 2020): 356–70. http://dx.doi.org/10.1177/0972262920928890.
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Globally, disruptions driven by technological advancements are visible in the form of unicorns and declining lifespan of the index constituents. Sectors such as information technology, financial services, energy, consumer goods and automobile are found to be more prone to disruptive innovation. Assessing the financial strength of the incumbents is crucial to assess their strength to endure disruption. We construct a fundamental strength index (FSI) using 11 financial performance measures covering 7 key attributes, namely profitability, efficiency, solvency, liquidity, net investments, pursuance of innovation and entry barriers, over the 5-year period 2014–2019. FSI helps in categorizing stocks of National Stock Exchange (NSE) 200 universe as ‘A’ being the fundamentally strongest and ‘C’ being the weakest. Potential crossovers can take place between ‘C’ category stock in Nifty 50 (Next 50) and ‘A’ category stock belonging to the Next 50 (Nifty Midcap 100). The results show that the disruptor’s portfolio (Next 50 stocks) outperforms the incumbent’s portfolio (Nifty 50 constituents) with a return of 1.61 per cent vs 0.47 per cent. A similar observation holds true for the Next 50 and Nifty Midcap 100, with the disruptor’s portfolio surpassing the incumbent’s portfolio (return of 2.59% vs 0.44%). The study has significant implications for the policymakers, investors, companies and academicians.
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Moss, Alex, and Kieran Farrelly. "The performance of a blended real estate portfolio for UK DC investors." Journal of Property Investment & Finance 33, no. 2 (March 2, 2015): 156–68. http://dx.doi.org/10.1108/jpif-10-2014-0064.
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Purpose – The purpose of this paper is to provide a better understanding of the performance implications for UK DC pension fund investors who choose to combine global listed and UK unlisted real estate in a blended allocation relative to a pure unlisted solution. Design/methodology/approach – Blended listed and unlisted real estate portfolios are constructed. Investor risk and returns are then studied over the full 15 year sample horizon and distinct cyclical phases over this period using a number of risk-return metrics. Performance is then contrasted with that of a pure unlisted solution, as well as UK equity market and bond total returns over the same period. Findings – A UK DC pension fund investor choosing to construct a blended global listed and UK unlisted real estate portfolio would have experienced material return enhancement relative to a pure unlisted solution. The “price” of this enhanced performance and improved liquidity profile is, unsurprisingly, higher portfolio volatility. However, because of the improved returns, the impact upon measured risk adjusted returns is less significant. Practical implications – Relatively liquid blended listed and unlisted real estate portfolios create efficient risk and return outcomes for investors. Originality/value – This study uses actual fund rather than index data (i.e. measures delivered returns to investors), has chosen a global rather than single country listed real estate allocation and is focused on providing clarity around the real estate exposure for a specific investment requirement, the UK DC pension fund market.
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Eldomiaty, Tarek Ibrahim, Mohamed Hashem Rashwan, Mohamed Bahaa El Din, and Waleed Tayel. "Firm, industry and economic determinants of working capital at risk." International Journal of Financial Engineering 03, no. 04 (December 2016): 1650031. http://dx.doi.org/10.1142/s2424786316500316.
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Purpose: The objective of this study is to examine the relative contribution of firm-level, industry-level and country level variables to working capital at risk. Working capital at risk is treated as the value at risk for a portfolio of firm’s current assets. As far as short-term liquidity is concerned, working capital at risk, being the maximum amount that a firm may lose at a certain confidence interval, must be the most important part that a firm’s management must focus on. Design/methodology/approach: This study empirically examines the possible associations between wide range of variables and working capital at risk. The sample firms include 143 non-financial firms listed in Egypt stock exchange. The data cover the years 2000–2014. The statistical tests include the fixed and random effects, testing for linearity versus nonlinearity. The least squares dummy variables and discriminant analysis are utilized. The working capital at risk is classified into three levels: low, medium and high. Findings: The general findings of the study show that cash conversion cycle and the leverage are the most significant determinants of working capital at risk. Both determinants have significant influence on the level of volatility of working capital throughout the three categories of working capital at risk. Originality/value: This study offers a new approach that deals with working capital as a portfolio, rather than single ratios, that firm’s management must decrease its volatility (value at risk), therefore, short-term liquidity can be improved significantly. This approach can be considered a financial engineering in terms of monitoring and managing short-term liquidity exposure.
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SIDDIQUI, ASIF IQBAL, and DORA MARINOVA. "FUNDING LIQUIDITY RISK, SYNDICATION BEHAVIOR AND THE RISK CULTURE OF THE AUSTRALIAN VENTURE CAPITAL INDUSTRY." Singapore Economic Review 64, no. 05 (December 21, 2016): 1279–97. http://dx.doi.org/10.1142/s0217590816500405.
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Venture capital (VC) is usually invested in high risk technology companies at their early stages of development. In response to the industry risk environment, the VC fund managers have developed a set of risk management practices appropriate for the industry which include investment syndication. Furthermore, the VC funds are supplied by individual and institutional investors with different risk profiles and investment focus, usually in finite amounts and for a limited period of time. The funding agreement between the VC firms and the fund investors combined with the limited amount and time can lead to additional funding liquidity risks as the VC funds are invested in the portfolio companies. In this paper, we develop a simple two period model from a VC firm’s perspective with funding liquidity constraints to demonstrate how funding liquidity risk can influence syndication decisions. We subsequently analyze the implication of the model, derive a set of predictions and validate them with VC investment data from Australia. The analysis shows that syndication has both instrumental function in risk management and behavioral implications on risk culture essential for addressing the emerging frontiers of sustainability risks.
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BAMA, Pourakin Djarius Dieudonné. "Portfolio Management on an Emerging Market: Dynamic Strategy or Passive Strategy?" Business and Management Studies 6, no. 2 (June 28, 2020): 15. http://dx.doi.org/10.11114/bms.v6i2.4916.
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At first glance, the portfolio management strategy seems like a resolved question, but practitioners continue to perform poorly on the stock markets. This paper highlights the portfolio management in the specific case of the West African regional stock exchange, regarding two management strategies. These are dynamic strategy and passive strategy. Within this framework, we will compare an investor who is constantly betting on price fluctuations with another who is betting on dividends. Its originality lies in the approach that is used. Through a simulation methodology based on real market data, the main results indicate that an emerging market is a savings market more than it is a speculation market. Besides, other results indicate that, one can predict on the West African regional stock exchange tomorrow’s prices from today’s prices. This does not mean that investors are making good predictions because the predictability of prices is due to the absence of changes in asset prices on the market. We draw the conclusion that it is difficult for one speculator to outperform the other. A rational investor would benefit from anticipating the distribution of dividends rather than focusing on price fluctuations. Consequently, the buy and hold strategy is therefore the best to be rewarded in an emerging market. Nonetheless, this practice can lead to a decline in liquidity.
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Twarowski, Bartosz. "Działania Banku Centralnego Norwegii w czasie kryzysu gospodarczego 2007+." Kwartalnik Kolegium Ekonomiczno-Społecznego. Studia i Prace, no. 1 (December 5, 2019): 181–202. http://dx.doi.org/10.33119/kkessip.2013.1.8.
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The period of global economic crisis starting from 2008 is a great challenge for public institutions responsible for macroeconomic management. Although Norway is a country that has not been significantly affected by the crisis, the pace and scale of countercyclical actions were a major challenge for Norwegian institutions. The activities of the Norwegian central bank included interest rate policy, liquidity management on the interbank market and supervision of the oil fund. The policy of interest rates had a huge importance in 2008 when the bank made a few decisions under conditions of high uncertainty and unprecedented scale. The initial phase of the crisis was also crucial in terms of liquidity and policy of enhancing stability of Norwegian banks. Due to high fluctuations of prices on stock, bond and real estate markets it was also extremely difficult to manage the oil fund portfolio. Nevertheless, through effective policy the Bank of Norway has contributed to minimizing the crisis’ costs.
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Jain, Pawan, Spenser J. Robinson, Arjun J. Singh, and Mark Sunderman. "Hospitality REITs and financial crisis: a comprehensive assessment of market quality." Journal of Property Investment & Finance 35, no. 3 (April 3, 2017): 277–89. http://dx.doi.org/10.1108/jpif-08-2016-0068.
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Purpose The purpose of this paper is to examine market microstructure differences in stock market quality for hospitality real estate investment trusts (REITs) during the pre- and post-financial crisis eras. It provides insight on different trading strategies based on the underlying liquidity and volatility of hospitality REITs as compared traditional REITs and the broader market. Design/methodology/approach The paper uses established microstructure measures for liquidity, trading volumes and risk assessment and compares daily and intraday trading patterns of REITs, hospitality REITs and the broad market. Findings The results suggest a quicker recovery of performance for hospitality REITs and some fundamental increases in liquidity measures post-crisis. The results of the study highlight the differences in trading volumes, liquidity and risk profile of hospitality REITs compared to traditional REITs both in the pre- and post-financial crisis periods. Practical implications The quicker recovery of hospitality REITs in key trading measures may suggest flight to quality during periods of high volatility. Originality/value This study fills the gap in the literature relative to microstructure studies and provides information to help hotel firms and portfolio managers choose an appropriate organizational structure and investment vehicle, respectively.
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Shirur, Srinivas. "Are Managers Measuring the Financial Risk in the Right Manner? An Exploratory Study." Vikalpa: The Journal for Decision Makers 38, no. 2 (April 2013): 81–94. http://dx.doi.org/10.1177/0256090920130205.
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The basic problem with corporate finance is that it deals with the fundamental analysis issues while the tools used are those applicable for technical analysis. That is the reason why finance managers often arrive at wrong decisions which snowball into issues like the subprime crisis. Initially, Markowitz model was used to calculate risk for portfolio management. It gave importance only to systematic risk as unsystematic risk could be avoided through diversification. Later on, CAPM model was developed for corporate finance and project finance for calculation of risk. Finance models dealing with risk management are applicable only for a short period and that too for an average of a large number of companies. The approach to apply risk measurement technique suitable for portfolio management to corporate finance is not correct. Even the econometric techniques applied to validate calculation of risk for portfolio management should be different from those applied for corporate finance. The present article analyses the problems of applying such risk measurement techniques for corporate finance purpose. A company faces mainly two types of risks: liquidity risk and bankruptcy risk. In case a company suffers from bankruptcy threat (which may or may not lead to actual bankruptcy), i.e., possibilities of closure due to losses, there will be two possibilities: The company may move with market index in normal times while it may come down suddenly with index and may not bounce back (Kink in the beta curve), as in the case of MTNL and Jet Airlines. There may be a sudden bankruptcy threat as in the case of Satyam. The latter case does not allow investors to react. However, corporate managers will have to take account of the first possibility of bankruptcy risk which cannot be ignored by assuming beta to be constant. This paper examines three companies, Mastek, Jet Airlines, and MTNL, in this category. The author suggests that instead of segregating risk into systematic and unsystematic risk, it should be segregated into bankruptcy and liquidity risk. In this way, unsystematic risk is also priced while determining the value of a company.
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Faque, Mustapher. "Cash management strategies and firm financial performance." Bussecon Review of Finance & Banking (2687-2501) 2, no. 2 (December 16, 2020): 36–43. http://dx.doi.org/10.36096/brfb.v2i2.207.
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Cash(liquidity) management is at the heart of a firm’s financial management. It is a silver lining between the bankruptcy and the success story of a company. Therefore, this study intends to contribute some insights into cash management practices and how firms can use them to achieve sound financial performance. This study provides a comprehensive literature review on existing theories and cash management practices that are useful in decision making. After the analysis of the available literature, the study highlights important theories including tradeoff theory (TOT), transaction model, precautionary measures, financial hierarchy, and cash flow theory. Furthermore, management practices such as stochastic cash management model, speeding up cash collections, centralization & decentralization of management, asset portfolio diversification, and cash disbursement are discussed. The study suggests that a sound financial performance can be achieved through a hybrid approach and through adaptation and embracing innovations in cash management systems.
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RUBINSON, TERESA. "MULTI-PERIOD RISK MANAGEMENT USING FUZZY LOGIC." International Journal of Uncertainty, Fuzziness and Knowledge-Based Systems 04, no. 05 (October 1996): 449–66. http://dx.doi.org/10.1142/s0218488596000263.
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In this paper, we present a fuzzy dynamic programming procedure for long term risk management. This approach is designed to provide insights on trade-offs between potential risks and rewards, the dynamics of interacting economic factors, and the feasibility of corporate goals over a long term planning horizon. This approach is applicable to many long term planning problems involving selection from a number of alternatives, when the decision parameters are imprecise and absolute requirements and decision thresholds can not be specified. A few examples of problems of this type include: portfolio optimization, risk management, evaluation of securities, liquidity management, and asset/liability management (which is given particular emphasis in this paper). Our formulation provides a computationally efficient and natural representation of the decision trade-offs inherent in many long term money management problems. This, in turn, facilitates the exploration and analysis of many alternative investment strategies under many possible future scenarios.
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Pham, Hai Yen, Richard Chung, Eduardo Roca, and Ben-Hsien Bao. "Do investors value firm efficiency improvement? Evidence from the Australian context." Corporate Ownership and Control 13, no. 3 (2016): 293–308. http://dx.doi.org/10.22495/cocv13i3c2p4.
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Do investors value improvement in efficiency? This paper investigates the relation between the firm’s technical efficiency change and subsequent stock returns. We employ a stochastic frontier analysis to evaluate a firm’s efficiency for a large panel of non-financial companies in Australia from January 1990 to October 2012. The results show that over the sample period, the estimated mean improvement in firm’s efficiency is 3% per year. We find that an equally-weighted (value-weighted) portfolio of stocks with the top tertile level change in efficiency outperforms an equally-weighted (value-weighted) portfolio of stocks with the bottom tertile level change in efficiency, by an average of 11% (7%) per annum during the sample period. We also find a significant efficiency change effect on a cross-section of stock returns after controlling for other risk factors such as size, book-to-market, market liquidity, industry concentration, and seasonality effect.
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Harijono, A. "PRICE ANDVOLUME EFFECTS ASSOCIATED WITH CHANGES IN THE LQ 45 INDEX AND THE MSCI EQUITY INDEX LISTS." Gadjah Mada International Journal of Business 5, no. 3 (September 12, 2003): 401. http://dx.doi.org/10.22146/gamaijb.5631.
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This paper examines price and trading volume behavior surrounding announcements of changes in the composition of the liquidity (LQ) 45 and the Morgan Stanley Capital International (MSCI) Equity Index at the Jakarta Stock Exchange. Unlike listing studies in the developed markets, the announcements of the LQ45 Index changes have no impact on share price and trading volume. This may be due to the small role of Indonesian domestic institutional investors and purely rule-based characteristics of the LQ45 Index. On the contrary, the markets do respond to the changes in Indonesian stocks composition of the MSCI Equity Index. It seems that global portfolio managers, who dominate trading at the Jakarta Stock Exchange, rebalanced their portfolio when the changes in the MSCI Equity Index occurred because their performances are generally benchmarks to the return on the Index.
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Misztal, Piotr. "Public Debt Management and The Country’s Financial Stability." Studia Humana 10, no. 3 (June 1, 2021): 10–18. http://dx.doi.org/10.2478/sh-2021-0014.
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Abstract The government debt portfolio is usually the largest financial portfolio in the country. It often contains complex and risky financial structures and can generate significant risk to the state budget and the country’s financial stability. Therefore, governments are required to have sound risk management and sound public debt structures to limit exposure to market risk, debt financing or rolling risk, liquidity risk, credit, settlement and operational risk. In recent years, the debt market crises have highlighted the importance of sound public debt management practices and related risks, and the need for an effective and well-developed domestic capital market. This may reduce the vulnerability of the economy to adverse economic and financial shocks. However, it is also important for the government to maintain a macroeconomic policy that ensures sound fiscal and monetary management. The aim of the research is to present the theoretical and practical aspects of extremely important issues such as public debt management and to indicate the most important implications for the financial stability of the country on the example of the Polish economy. The study uses a research method based on literature studies in the field of macroeconomics, economic policy and finance, as well as statistical analysis of the studied phenomenon. Results of research indicate that effective public debt management can reduce the economy’s vulnerability to financial threats, contribute to the financial stability of the country, maintain debt stability and protect the government’s reputation among investors.
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Mačerinskienė, Irena, and Laura Ivaškevičiūtė. "THE EVALUATION MODEL OF A COMMERCIAL BANK LOAN PORTFOLIO." Journal of Business Economics and Management 9, no. 4 (December 31, 2008): 269–77. http://dx.doi.org/10.3846/1611-1699.2008.9.269-277.
Full textAbstract:
As in other countries where the traditional banking is dominating, the major part of banks’ assets and loan interest income makes a significant share of banks’ income. Inappropriate loan portfolio evaluation might have negative impact on a commercial bank's performance, the overall banking system, and the economic growth of the country. It is not enough for a bank to have a precise strategy, high lending culture, and observance of general principles to ensure the further growth of profitable loans. It is necessary to apply various evaluation methods of historical and present data, of ratios and factors enabling to implement coherent and comprehensive loan portfolio evaluation, and to encompass different factors as far as possible. Due to a complex business environment and intense competition between banks, it is not enough to evaluate a commercial bank loan portfolio only through the aspect of credit risk, i.e. loss probability level aspect, as is suggested by the scientists. As to every business subject striving for a successful performance and further development, it is essential for a bank to earn profit by financing the other subjects, and to establish the level of assets liquidity.