Asset Composition Research Articles

Generating Virtual Scenarios of Multivariate Financial Data for Quantitative Trading Applications

In this article, the authors present a novel approach to the generation of virtual scenarios of multivariate financial data of arbitrary length and composition of assets. With this approach, decades of realistic time-synchronized data can be simulated for a large number of assets, producing diverse scenarios to test and improve quantitative investment strategies. The authors’ approach is based on the analysis and synthesis of the time-dependent individual and joint characteristics of real financial time series, using stochastic sequences of market trends to draw multivariate returns from time-dependent probability functions that preserve both distributional properties of asset returns and time-dependent correlation among time series. Moreover, new time-synchronized assets can be arbitrarily generated through a principal component analysis-based procedure to obtain any number of assets in the final virtual scenario. The validation of such a simulation is tested with an extensive set of measurements and shows a significant degree of agreement with the reference performance of real financial series-better than that obtained with other classical and state-of-the-art approaches.

The Nexus of Asset Composition with Accounting and Market Performance of Firms in Nigeria

This ex-post facto design study examined the link between asset composition and accounting and market performance of insurance, banking and manufacturing firms quoted on Nigeria Stock Exchange using cross sectional secondary data from 2013 to 2017. The asset structure decomposed into plant property and equipment, long term investment, intangible asset and current assets were regressed against accounting measures of return on asset and return on equity on the one hand and market measures of price earnings ratio, earnings yield, Tobin’s Q and market valuation on the other hand. Property plant and equipment, long term investments, intangible asset and current assets all returned a positive and statistically significant relationship with return on assets. Similar result were equally returned by the assets components in relation to return on equity except property, plant and equipment and long-term investment that posted negative and statistically significant result. The result further indicate a positive but not statistically significant relationship of current assets with price earnings ratio contrary to the negative but statistically significant relationship of property, plant and equipment with the same performance measure. Also, long term investment and intangible assets both have a positive and statistically significant relationship with price earnings ratio. The result also indicate that long term investment and current assets have a positive and statistically significant relationship with earnings yield. Conversely, property plant and equipment and intangible asset posted a negative and statistically significant relationship with earnings yield. Intangibles and current asset have a positive and statistically significant relationship with market valuation while on the other hand increases in property, plant and equipment and long term investment reduces market valuation and Tobin’s Q in view of their negative but statistically significant relationship. The macroeconomic control variables of inflation and GDP and the microeconomic control variables of leverage and liquidity effectively performed their moderating roles between the dependent and the independent variables by differentially returning both positive and negative relationships. We recommend that IPO firms should invest less in PPE and Long-Term Assets to avoid negative investors pricing while at the same time increasing investment in current assets and developing intangibles. Also, firms with high asset base should increase leverage to enjoy tax advantage. We also recommend that firms with low asset base should avoid increased borrowing to mitigate risk of bankruptcy Keywords: Earnings Yield, Price Earnings Ratio, Tobin’s Q, Return on Assets, Return on Equity, Gross Domestic Product, Inflation, Leverage DOI : 10.7176/JESD/10-22-01 Publication date: November 30 th 2019

How Have Banks Been Managing the Composition of High-Quality Liquid Assets?

Banks? liquidity management practices are fundamental to understanding the implementation and transmission of monetary policy. Since the Global Financial Crisis of 2007-09, these practices have been shaped importantly by the liquidity coverage ratio requirement. Given the lack of public data on how banks have been meeting this requirement, we construct estimates of U.S. banks? high-quality liquid assets (HQLA) and examine how banks have managed these assets since the crisis. We find that banks have adopted a wide range of HQLA compositions and show that this empirical finding is consistent with a risk-return framework that hinges on banks? aversion to liquidity and interest rate risks. We discuss how various regulations and business model choices can drive HQLA compositions in general, and connect many of the specific compositions we see to banks? own public statements regarding their liquidity strategies. Finally, we highlight how banks? preferences for the share of HQLA met with reserves affect the Fed?s monetary policy implementation framework.

Does Quantitative Easing Boost Bank Lending to the Real Economy or Cause Other Bank Asset Reallocation? The Case of the UK

We investigate the impact of the asset purchase program (APP) introduced by the Bank of England (BOE) in 2009 on the composition of assets of UK banks, and the implications for bank lending to the real economy, using a unique database on the program. Knowing the identity of the banks that receive reserves injections through the BOE’s APP (QE banks) provides us with an ideal empirical design for a difference-in-differences exercise. The Monetary Policy Committee (MPC) didn’t expect there to be strong transmission of the APP’s impact through the bank lending channel. In line with that, we find no evidence that suggests that QE directly boosted bank lending to the real economy, even when controlling fully for demand-side effects. The overall reduction of retail lending is more pronounced for treated (QE) banks than for the control group. QE banks reallocated their assets towards lower risk-weighted investments, such as government securities, as suggested by the increased sensitivity of their equity returns to peripheral EU bond returns. Overall, our findings suggest that, if banks are not adequately capitalised, risk-based capital constraints can limit the transmission of expansionary unconventional monetary policies via the bank lending channel, and provide incentives for carry trade activities.

Information Acquisition and Liquidity Traps in Over-the-Counter Markets

I analyze the interaction between buyers’ information acquisition and market liquidity in over-the-counter markets with adverse selection. If a buyer anticipates that future buyers will acquire information about asset quality, she has an incentive to acquire information to avoid buying a lemon that will be hard to sell later. However, when current buyers acquire information, they cream-skim the market, leaving a larger fraction of lemons for sale and giving future buyers an incentive to acquire information. A liquid market can go through a self-fulfilling market freeze when buyers start to acquire information. More importantly, if information acquisition continues for a long enough period of time, the market gets stuck in an information trap with low liquidity: information acquisition worsens the composition of assets remaining on the market, and the bad composition incentivizes information acquisition. This prediction helps explain why the market for non-agency residential mortgage-backed securities experienced a sudden drop in liquidity—as potential buyers realized the need for greater due diligence—but has remained essentially dormant despite a strong recovery in the housing market.

УДОСКОНАЛЕННЯ ПОЛІТИКИ ФОРМУВАННЯ ТА ЕФЕКТИВНОГО ВИКОРИСТАННЯ ОБОРОТНИХ АКТИВІВ АГРАРНИХ ПІДПРИЄМСТВ

Розглянуто теоретичні передумови і практичні аспекти формування й ефективного використання оборотних активів аграрних підприємств. Установлено, що сучасна практика управління формуванням і використанням оборотних активів у сільському господарстві потребує суттєвого перегляду форм, методів, принципів та інструментів його здійснення, забезпечуючи високий рівень рентабельності та фінансової стійкості. Проаналізовано склад і структуру оборотних активів різних галузей економіки. Проведено вибіркове обстеження діяльності 362 великих і середніх сільськогосподарських підприємств Харківської області, діяльність яких суттєво впливає на загальні показники регіону в цілому. Для виявлення впливу частки власних оборотних засобів у джерелах їх формування на фінансову стійкість за основними її показниками застосовано метод аналітичного групування. Зафіксовано тенденцію, за якої зі збільшенням частки власних оборотних засобів у джерелах формування простежується тенденція до поліпшення фінансової стійкості обстежених підприємств. Установлено, що повна відмова від залучених і позикових джерел значно зменшує показники маневреності власного капіталу і власних оборотних коштів, що вимагає оптимізації структури джерел їх фінансування. Досліджено взаємозв`язок між співвідношенням оборотних активів та основних засобів і тенденціями до зміни ефективності використання оборотних засобів аграрних підприємств Харківської області за 2015–2016 рр. залежно від глибини їх спеціалізації та доведено скорочення тривалості обороту оборотних засобів зі зростанням частки оборотних активів.Запропоновано концептуальну модель політики управління оборотними активами аграрного підприємства, яка полягає в органічній єдності цілей, принципів, методів, підсистем, інформаційного забезпечення реалізації організаційно-економічного механізму ефективного використання оборотних активів. Обґрунтовано, що пропоновані складові цього механізму не вичерпні, а їх реалізація не є останнім етапом у системі фінансового менеджменту аграрних підприємств, а лише частиною складної та багатокомпонентної політики управління оборотними активами.

Internal Factors, External Factors and Bank’s Profitability

A developed banking sector provides the impetus for the economy to grow. However, in order to maintain financial stability and sustain negative shocks, it is important to understand the factors that influence the profitability of banks. The aim of the study was to analyse the effect of internal and external factors on the profitability of banks in Pakistan for the period 2007-2015. Fixed effects model was used to analyse the effect of internal and external factors on the profitability of banks in Pakistan. The findings of the study revealed that among internal factors only bank size and asset composition significantly influences the profitability of banks whereas in the external determinants only real interest rates and GDP growth rates has a significant effect on the profitability of banks.

Crossing Interagency Lines

Coast guard and navies, despite their varying missions, doctrine, and asset composition, share the responsibility of monitoring and defending coastal States from intrusions by foreign vessels into territorial waters. This shared responsibility has taken on added significance over the last decade due to the increasing challenge posed by gray zone actions by maritime actors in East Asia. States now desire greater coast guard-naval cooperation to address such actions, especially near disputed territory where policy-makers seek to contain the challenge using law enforcement, not military means. Yet for most States, the nature of this delineation has not been adequately addressed or is still being determined. Using the region of East Asia as a case study, and drawing upon interoperability linkages with the United States Coast Guard (USCGG) and United States Navy, this paper proposes that greater coordination and interoperability between navies and coast guards should be pursued among States in the region as one prescription to address gray zone challenges. While significant investments in training, C4I (Command, Control, Communications, Computers and Intelligence) and legal authorities are necessary in the long term to achieve true interoperability, this paper proposes steps that states can take to enhance existing linkages.

Factors Influencing in the Fraudulent Financial Reporting

Fraudulent practice in financial report has resulted in the decrease of reliablity in financial report, causing losses for investors and creditors. The population used in this study are all listed on the Indonesia Stock Exchange (BEI) throughout 2010-2016. The sampling method used is purposive sampling. The number of samples used is 52 companies, consisting of 26 fraud companies obtained from the database of sanctioned misstatement of financial reporting issued by OJK during 2010-2016 period and 26 non-fruad companies with the same size determined under OJK regulation No. POJK.04 about Statement of Registration in the Public Offering and Capital Addition by Granting Right of Priority Effect by Companies with Small Scale Assets or Companies with Medium Scale Assets. This study used logistic regression analysis to examine the research hypothesis. The results of this study indicate that financial leverage and asset composition ratio have positive effect on the possibility of fraudulent financial reporting. Meanwhile, the profitability, liquidity, capital turnover, and receivable turnover ratio have negative effect on the possibility of fraudulent financial reporting .

Central Bank purchases of private assets: An evaluation

We develop a model of asset exchange and monetary policy, augmented to incorporate a housing market and a frictional financial market. Homeowners take out mortgages with banks using their residential properties as collateral to finance consumption. Banks use mortgages and government liabilities as collateral to secure deposit contracts, but they have an incentive to falsify the quality of mortgages at a cost. Quantitative easing in the form of central bank purchases of mortgages from private banks has an effect on the composition of assets in the economy and on the incentive structure of the private sector. When the incentive problem is severe, private banks hold capital with mortgage retention to mitigate the incentive problem, and the central bank can unambiguously improve welfare by purchasing mortgages. However, when this problem is not severe, the central bank's mortgage purchases cause a housing construction boom and can sometimes decrease an exchange in the economy, thereby reducing welfare.

Optimal composition of hybrid/blended real estate portfolios

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.

Corporate income taxes around the world: a survey on forward-looking tax measures and two applications

This study provides a survey on corporate taxes around the world. Our analysis has three main objectives. First, we collect tax data and calculate (forward-looking) effective tax measures for a large sample of countries and recent years. We particularly describe how these measures vary over time and across countries. Second, we augment the country-level information with firm- and industry-level data (providing weights for financial structure and asset composition) to contrast statutory measures at the level of countries with measures accounting for firm- and industry-specific weights. Third, we utilize our new data to (i) estimate Laffer-Curves, i.e., the relationship between statutory tax rate and tax revenue, based on nonparametric as well as parametric specifications; (ii) examine how taxes affect investment in fixed assets at the level of firms. As for the latter, our preferred specification, in which we use a firm-specific effective marginal tax rate to capture tax incentives, suggests an elasticity of $$-\,0.33$$ .

The Distribution of Household Assets in India: 1991–1992 to 2012–2013

This article is a fairly straightforward quantitative assessment of the distribution of household assets in rural and urban India, based on data available in the All-India Debt and Investment Surveys (AIDIS) over the last three decadal survey years: 1991–1992, 2002–2003 and 2012–2013. The article reviews some limitations of the data base and examines the magnitudes and trends in the levels of average per household assets, it describes the composition of household assets, it traces the over-time evolution of both vertical (inter-household) and horizontal (inter-group) inequality in the distribution of household assets, and briefly appraises levels and disparities in wealth holdings among the very small number of ultra-rich households. The article concludes that both vertical and horizontal inequalities have evolved into levels that could be socially disruptive and pose a threat to the democratic viability of the country.

Portfolio Balance Approach to Exchange Rate Determination: Testing a Model by Applying Bilateral Data of Turkey and United States1

Turkish economy started to be liberated in the beginning of 1980’s and gradually to be a part of global economic and financial system. But as a result of economic articulation of Turkey to the global world, global economic and financial headwinds have affected trade and economy especially via exchange rates. Since Turkey is of ever-growing foreign trade volume with global economic world determination of fluctuations in exchange rates has increased in importance. Due to global integration of financial markets, inflow and outflow of foreign bonds could cause economic agents to change currency composition of foreign assets to reduce the risks arisen from exchange rates. This situation can negatively affect exchange rates by fluctuating them. Aim of this study is to empirically investigate the portfolio balance effect on exchange rates. In this context, different version of Cushman’s model (2007) using monthly bilateral data of Turkey and U.S. covering the period 2006-2016 will be employed and portfolio balance approach to the exchange rates determination will be tested by performing cointegration test allowing for multiple structural breaks.

Corporate financialization in South Africa: From investment strike to housing bubble

This article reveals the processes of financialization in the South African economy by tracing the sources and destinations of non-financial corporations’ liquidity. The paper argues that rather than the volume of non-financial corporations’ financial investment, the composition of financial assets is crucial to assess corporate financialization in the country. Non-financial businesses in South Africa fundamentally transformed their investment behaviour during the 1990s, shifting from more productive uses such as trade credit towards highly liquid and potentially innovative (and therefore risky) financial investment. Following the direction of financial flows the article shows that companies’ financial operations – fuelled by foreign capital inflows – are linked to the price inflation in South African property markets.

Analisis Rasio Keuangan Sebagai Deteksi Kecurangan Laporan Laporan Keuangan Perusahaan Barang Konsumsi yang Terdaftar di Bursa Efek Indonesia

Tujuan utama dari penelitian ini adalah untuk menganalisis rasio keuangan (yaitu leverage, profitabilitas, komposisi aset, likuiditas dan capital turnover) dalam mendeteksi kecurangan laporan keuangan. Model logit digunakan untuk mengidentifikasi perusahaan yang terkait dengan FFR. Perusahaan sampel yang terlibat dalam kecurangan diperoleh dari survei perusahaan barang konsumsi yang terdaftar di Bursa Efek Indonesia. Data tersebut mencakup periode tiga tahun dari tahun 2014 sampai 2016. Hasilnya menunjukkan bahwa leverage yang diproksikan oleh total hutang terhadap total ekuitas tidak signifikan sementara leverage yang dipaksakan oleh total hutang terhadap total aset signifikan. Komposisi aset dan likuiditas tidak signifikan terhadap FFR sedangkan profitabilitas dan capital turnover merupakan prediktor signifikan FFR.

How Do Homeowners Use Interest-Only Mortgages?

Using a unique data set with detailed information on Danish households and their mortgages, we show that young and old households are more likely to use IO mortgages compared to middle-aged households. Young households use IO mortgages because they expect higher future income, old households because IO mortgages allow them to circumvent an otherwise binding liquidity constraint. Through different channels, IO mortgages thus facilitate consumption smoothing for young and old households. Our detailed data also allow us to examine how households with IO mortgages differ from households with repayment mortgages in terms of leverage, debt and asset composition, and pension contributions.

Estimation risk for the VaR of portfolios driven by semi-parametric multivariate models

Joint estimation of market and estimation risks in portfolios is investigated, when the individual returns follow a semi-parametric multivariate dynamic model and the asset composition is time-varying. Under ellipticity of the conditional distribution, asymptotic theory for the estimation of the conditional Value-at-Risk (VaR) is developed. An alternative method – the Filtered Historical Simulation – which does not rely on ellipticity, is also studied. Asymptotic confidence intervals for the conditional VaR, which allow for simultaneous quantification of the market and estimation risks, are derived. The particular case of minimum variance portfolios is analyzed in more detail. Potential usefulness, feasibility and drawbacks of the two approaches are illustrated via Monte-Carlo experiments and an empirical study based on stock returns.

: (Intergenerational Financial Satisfaction and Related Factors in Korea: Focusing on Financial Self-Efficacy)

Korean Abstract: 본 연구에서는 현재 우리나라의 세대별 재무만족도 수준과 재무만족도에 영향을 미치는 요인을 파악하고자 하였다. 특별히 선행연구에서 밝혀진 다양한 요인들 중에서 개인의 심리적 특성에 해당하는 개인의 재무적 자기효능감이 재무만족도에 어떠한 영향을 미치는 가를 파악하고자 하였다. 또한 재무만족도에 영향을 미치는 요인이 세대별로 차이를 보이는 가를 파악하여 재무만족도의 증진을 위해 세대별로 다른 접근이 필요한 가를 살펴보고자 하였다. 대면 면접을 통하여 전국의 만 18세 이상 성인 1,017명을 대상으로 한 조사의 주요 분석 결과는 다음과 같다. 선행연구를 바탕으로 응답자 연령을 기준으로 M세대(1988년 및 이후 출생), N세대 (1975~1987년 출생), X세대(1964~1974년 출생), 베이비부머(1955~1963년 출생), 전쟁세대(1954년 및 이전 출생)로 구분하여 각 세대의 재무상태 및 금융상품 보유 행태를 분석한 결과 세대별로 자산의 구성과 금융상품 보유에 차이를 보였다. 이는 각 세대가 처한 라이프사이클 상의 특성에 의한 차이와 코호트적 특성의 차이를 반영하는 것으로 보인다. 재무만족도에 영향을 미치는 변수를 파악하기 위한 회귀분석 결과 다른 변수를 통제한 상태에서 세대별 재무만족도의 차이를 볼 수는 없었고 전체 응답자를 대상으로 한 분석에서 재무만족도와 관련을 보이는 변수는 결혼상태, 소득, 금융자산, 부채, 재무지식, 재무적 자기효능감으로 나타났다. 하지만, 이러한 재무만족도 관련 요인을 각 세대별로 분류하여 분석해 본 결과 회귀분석의 사후검증을 통해 파악한 바에 의하면 각 세대별로 재무만족도에 영향을 미치는 변수는 다소 상이하게 나타났다. 따라서 본 연구의 결과는 재무만족도에 영향을 미치는 변수로 재무적 자기효능감과 기타 변수가 세대별로 차이가 있음을 보여 재무만족도를 증진하기 위한 노력 또한 세대별로 다르게 접근할 필요성이 있다는 것을 보여주었다. English Abstract: This study examined the factors associated with intergenerational financial satisfaction in Korea by focusing special attention on financial self-efficacy. Financial self-efficacy has been identified as one of the significant factors to financial satisfaction, but little research has examined financial self-efficacy in Korea. To examine the intergenerational differences in financial satisfaction and its related factors, face-to-face interviews with adults aged 18 and over were conducted in Korea in March 2017. A total of 1,017 respondents were categorized into five different generations: M generation (those born in 1988 and later), N generation(between 1975 and 1987), X generation (between 1964 and 1974), Babyboomers(between 1955 and 1963), and war generation (1954 and before). The results showed that each generation has different asset composition and financial products ownership and that these could reflect their life-cycle stages and cohort characteristics. Even though the financial satisfaction levels were different for the five generations when compared bivariately, multiple regression results showed no generational differences in financial satisfaction when controlling for other factors. In general, financial satisfaction level was positively related with financial self-efficacy, and with other financial status characteristics such as income and financial assets. Financial satisfaction was negatively related with debt levels. Subjective financial knowledge also showed a positive relationship with financial satisfaction. However, specific factors associated with financial satisfaction were different for each generation. These results suggested that the adoption of different approaches for improving financial satisfaction for different generation groups.

Monetary Policy and the Interest Rate: Reflections on Allan Meltzer's Contributions to Monetary Economics

The monetary framework developed by Karl Brunner and Allan Meltzer emphasized the interaction between the supply and demand for money and the supply and demand for credit. In a general equilibrium setting, the money market and the credit market jointly determine the short term interest rate and the price level of real assets. Open market operations change the composition of assets and, in turn, the price level of real assets and the interest rate. The effect of monetary policy on real activity depends on both the change in the interest rate and the change in the price level of real assets. The Brunner-Meltzer model therefore emphasizes the role of changes in relative prices of financial and real assets in response to changes in monetary policy. In recent years, the Federal Reserve has moved to a system that uses the interest rate on reserves as the primary tool of monetary policy. In doing so, the Federal Reserve has implicitly accepted the idea that monetary policy is entirely transmitted through the short term nominal interest rate. In this paper, I present Brunner and Meltzer's view of monetary transmission and their critique of monetary models that exclusively focus on the interest rate. In addition, I argue that the lack of evidence in support of the interest rate channel in conjunction with the change in the Federal Reserve's operating procedures presents an opportune time to revisit the Brunner-Meltzer critique.