Asset Diversification Research Articles

Impact of Liquidity Shortage Risk on Financial Performance of Sudanese Islamic Banks

The paper aims to examine the impact of Liquidity Shortage Risk (LSR) on the financial performance of Islamic Commercial Banks (ICBs) in Sudan (1992-2018). The following explanatory powers were used to indicate LSR; which include: liquid assets to total assets, total finance to total deposits, current deposits to total deposits and inflation as a control factor. The financial performance of ICBs (the dependent variable) was measured by the Return on assets. To concludes the relation between the variables, data were analyzed thought used Ordinary Least Squares technique. The main findings revealed that current deposits to total deposits, total finance to total deposits and inflation negatively affected the financial performance. While liquid assets to total assets have positive influence to the performance of ICBs. Monetary policy indirectly contributed to the exposure of ICBs to LSR through money supply increase. Moreover, high inflation motivated depositors to high cash withdrawal from their deposits; and, consequently exposed ICBs to LSR. The study recommends that ICBs should not wholly depend on current deposits as a source of finance, because customersʹ default might lead to LSR resulting in deteriorating profitability. Moreover, diversification of financial assets (with high liquidity) protects them from LSR. As for the central bank, the contractionary monetary policy is a crucial to control inflation in order to improve the financial performance of ICBs.

The Determinants of Stock Prices of European Football Clubs: An Empirical Analysis

This study investigates the sporting and financial performances impacts of football clubs on stock price dynamics. The sample covers all the European football companies listed on the Stock Exchange over the period 2012-2017. The stock price formation process for listed football companies is investigated through a multiple regression model in which the share price is a function of several variables of listed European football companies, because the authors analyze the impact of both sports and financial and management performance on the share prices of the companies. Panel data fixed effects estimations are employed to mitigate endogeneity concerns and to control for within-firm dynamics. It was found that on market performance: i) positively impacts of sports performance; ii) positively impacts of economic performance; iii) positively impacts of asset and revenue diversification. This topic would be of interest to international investors and will push club managers to nurture their own corporate culture, which, in many cases, is still not in keeping with the size or pace of market development. These findings have important implications for investors as well as club managers. The empirical research provides useful implications to direct club managements towards best practices that will help football clubs access capital markets. Indeed, they present an encouragement for the improvement of the competitive results and the economic-financial performances.

The effect of diversification on bank performance in dual banking system

This study analyses the impact of banks' diversification strategies on their risk-adjusted performance using the sample of commercial banks in 22 Muslim countries with dual banking system during 2000-2016. Islamic banks' performance is more strongly affected by diversification strategies. Revenue, non-interest income and asset diversification dampen the risk adjusted returns of Islamic banks but enhance their stability. Higher dependence on non-interest income lowers conventional banks risk adjusted returns, while higher dependence on non-loan assets raises it. Before crisis, non-interest income diversification raises the risk adjusted returns of Islamic and conventional banks. Revenue and non-interest income diversification have positive impact on Islamic banks' stability after crisis. Size influences the impact of diversification on bank performance.

Portfolio optimisation with cardinality constraint based on expected shortfall

Assets diversification is a well-known strategy to reduce the investment risk and become a mathematical problem since Markowitz's work in 1952. In this paper, we investigated the portfolio selection method using expected shortfall (ES), which also known as expected tail loss (ETL) or conditional value-at-risk (CVaR), as a risk measure. A cardinality constraint was added to the model in order to help the investor choose k from n available assets into the portfolio, where k is higher than the lower bound L and smaller than the upper bound U. To solve this complex portfolio optimisation problem, we use the genetic algorithm method with binary chromosomes and obtain the optimal weight using exact method. A numerical case-study is provided using several stocks in Indonesia Stock Market.

The Conquest of Cattle Dominancy Statuesque in Pastoral Area: A Case of Borana Pastoral in Southern Ethiopia, Ethiopia

This study was undertaken in Borana zone to evaluate the livestock production and composition using 125 respondents. The sample households were selected randomly from the randomly selected districts and PAs. The result showed that the livelihood diversification is the reality on the ground unlike the pastoralism jargon. The survey data indicated that crop production covers about 22% of annual income of the Agro/pastoralists. The diversification to the drought resistant livestock and dryland crop farming become expanded in the zone. However, the shift from cattle dominance social system to crop and drought resistant livestock should be examined from economics autonomy besides ecological maintenance. Additionally, this research did not provided attention to the optimization of pastoral livelihood diversification to systemize the natural enforced diversification in the pastoral area. Additionally, this conclusion opens the entry for further investigation to prove the wealth dynamics and asset diversification index in the pastoral area. Thus, it calls for further pastoral economy (income) analysis beyond this study, which demands an integrative research and development interventions to balance the livelihood diversification and ecological balance.

The Myth of Diversification: The Destabilizing Impact of Diversification on Financial Institutions

Abstract This article analyses the impact of asset and activity diversification on the stability of major financial institutions. Diversification is typically viewed as a positive element in risk management. However, examining recent examples concerning diversified multinational financial institutions and a theoretical model of failure risk facing them, this article demonstrates that under certain conditions, diversification can actually increase systemic risk. Financial conglomerates can be ‘too big to manage’, they can become too similar to each other and susceptible to coordinated failure, and, most importantly, catastrophic losses in one part of the firm can overwhelm the whole firm. Based on this finding, this article proposes a number of mitigation measures to limit intra-firm spillover and to make the resolution of troubled financial institutions smoother.

Ponašanje gomile na tržištu kriptovalute - stvarno vs lažno gomilanje

This paper sets out to explore whether the investor herding in the cryptocurrency market induces correlations in cryptocurrency returns using the methodology of Chang et al. (2000) and Galariotis et al. (2015) from a daily data sampling period of 3/30/2015 to 5/24/2019. The initial regression results show that the cross-sectional absolute deviation of return can only be explained by GSCI oil and gold index return, but no relationship exists between cross-sectional absolute deviation of return and other regression variables, such as return on CCi30, US equity risk premium and US/Euro exchange rate return. The herding regression results under normal market condition show that a strong tendency exists to herd on non-fundamental information that explains cross-sectional absolute deviation of returns. As such, cryptocurrency returns cannot be predicted on the basis of fundamental economic information (e.g., major macroeconomic announcements). Herding on non-fundamental information is found to be more pronounced during an upward-trending period of the market and other than upward-trending period. No signs of herding on fundamental information could be observed under other market conditions. Although the theory suggests that herding on non-fundamental information results in more efficient outcomes, the above findings do not encourage the diversification of traditional assets with cryptocurrency on the basis of low correlation. Since cryptocurrency lacks intrinsic value, the exchange is shown to provide a pseudo-efficient trading platform for speculative investors. Implications for future research are discussed.

Analysis on the Asset and Liability Management of Commercial Banks under the Background of Strict Supervision

Since 2017, domestic financial regulatory policies have become increasingly stringent, and regulators have formulated a series of regulatory measures. Commercial Banks are facing multiple pressures, such as increased risk exposure on the asset side, intensified deposit competition on the liability side and insufficient capital. Under the background of strict supervision, commercial Banks need to strengthen the ability of asset and liability management, complete transformation and upgrading. With income as the core, establish a diversified asset allocation system, take service as the core, improve the management model of active liabilities, pay attention to risk management and control, and take measures to ensure capital adequacy ratio

Diversification Benefits, Where Art Thou?

Following the global financial crisis, a portfolio concentrated in US large cap equity and aggregate fixed income has provided higher returns than diversified portfolios through 2019. Such a prolonged experience causes investors to question the benefits of diversification. This leads us to use a longer history of data across 15 asset classes to understand the historical benefits of diversifying a portfolio with international equity, real assets, and below investment grade fixed income. Our results portray the frequency and magnitude of risk-adjusted return improvement coming from different diversifying asset classes over five-year holding periods. We find that certain asset classes, such as below investment grade fixed income, regularly improve risk-adjusted return of the portfolio, while other asset classes like commodities improve risk-adjusted returns less frequently. Further, we observe that some asset classes do not deliver meaningful risk-adjusted return improvements in the presence of other asset classes. Our conclusion is that investors should continue to build diversified portfolios, but in doing so they should consider that some asset classes more consistently improved risk-adjusted returns than others. TOPICS:Wealth management, retirement, fixed-income portfolio management Key Findings • Certain asset classes such as below investment grade fixed income have provided consistent diversification benefits through time, while other asset classes such as commodities (despite its low correlation to other asset classes) have less frequently improved portfolio performance. • Some asset classes have not delivered meaningful portfolio diversification benefits in the presence of other asset classes during the periods we examined. • We observe cyclicality in the improvement of portfolio returns from holding a more diversified portfolio. The periodicity appears longer than the US business cycle. Moreover, the time series of relative price-to-earnings ratios of US and international equity appears to move countercyclically with the outperformance of diversified portfolios.

Has Co-Movement Dynamics in Brazil, Russia, India, China and South Africa (BRICS) Markets Changed After Global Financial Crisis? New Evidence from Wavelet Analysis

We investigate the changes in the co-movement dynamics in the stock market returns of Brazil, Russia, India, China and South Africa (BRICS) with that of US during pre and post-global financial crisis (GFC). The stock returns of BRICS and the US markets over the period of 1999A±2016 are analysed using wavelet transformation, with equal time phase of eight years on both sides of GFC. We find the existence of co-movement at both high and low frequencies. In addition, the contagion effect is also noted around the GFC year 2008. Further we also report that despite the high correlation of BRICS portfolio, it facilitates asset diversification benefits in the medium run. Finally, there is significant changes in correlation dynamics for Russia and China during post-GFC period, whereas the multiple correlations dynamics amongst BRICS markets remain unchanged.

Do bank independency and diversification affect bank failures in Europe?

Purpose Motivated by agency theory, this paper aims to explore the impact of bank diversification and bank independency on the likelihood of bank failure. The effects of corporate governance (ownership and board structures) are also examined. Design/methodology/approach Logistic regressions are used to explore the role of corporate governance on bank failure risk. This sample covers 608 banks from eight European countries. Findings The results suggest that the well-documented finding that diversification and bank independency may increase bank failure risk does not persist under strong corporate governance mechanism. Thus, to reduce the bank failure risk, diversification should be strongly monitored by the management to avoid excessive risk-taking by shareholders. Originality/value The approach used in this study differs from that used in previous studies from certain perspectives. First, unlike most previous studies that focused on the relationship between bank performance and bank diversification, the impact of income and asset diversification on bank failure is tested. Also, the impact of a combined effect of diversification and corporate governance variables on bank failure is tested. This allows the control for different ownership and board variables as factors that would potentially affect the likelihood of bank failure.

Bank diversification and performance in an emerging market

Purpose The purpose of this paper is to investigate the impact of diversification on profitability, profit efficiency and financial stability of Ghanaian banks. Design/methodology/approach The authors employed a panel regression technique on a data set of 32 banks from 2000 to 2015. The data envelopment analysis is used to compute profit efficiency scores with credit risk accounted for. Findings The results suggest that income diversification decreases profit, profit efficiency and financial stability. The impact on profit and stability is U-shaped. The impact of asset diversification was found to be insignificant. High competition reduces both profitability and profit efficiency which is inconsistent with the quiet-life hypothesis of Hicks (1935), but financial stability increases with competition. High investment in tangible assets is associated with poor performance. Non-banking financial institutions that later became universal banks are not financially stable. Competition, size, age, government ownership and leverage which are controlled for and a sensitivity analysis conducted also provided relevant insights. Practical implications The results are relevant in understanding the events in the Ghanaian banking industry in 2017–2018. Income diversification strategy is essential in determining the performance of banks. Management has to figure out the extent and scope of their diversification to benefit from the strategy. Originality/value The authors examined diversification from the view-point of both the income statement and statement of financial position while most prior studies focused on only one aspect. The study is one of the few studies that employed the risk-adjusted profit efficiency measure in Sub-Saharan Africa.

Practical Applications of The (Mis)Behavior of Hedge Fund Strategies: A Network-Based Analysis

<h3>Practical Applications Summary</h3> In <b>The (Mis)Behavior of Hedge Fund Strategies: <i>A Network-Based Analysis</i></b>, from the Summer 2019 issue of <b><i>The Journal of Alternative Investments</i></b>, authors <b>Eduard Baitinger</b> and <b>Thomas Maier</b> (both of <b>FERI Trust GmbH</b>) demonstrate that some hedge fund (HF) strategies deviate sharply from their strategy classifications, sometimes in very pronounced ways. By analyzing such strategies with a network-based methodology that clusters underlying assets into a financial matrix, the authors reveal hidden overlaps among strategies, as well as unforeseen risks due to interconnected assets. They also discover that some strategies are less predictable than others, behaving quite erratically over time. This innovative study unveils the shortcomings of some traditional hedge fund strategy classifications. Investment professionals should be aware of the risks that HF strategy misbehavior creates, and the authors provide a number of network diagrams to help guide investors to proper diversification of assets. <b>TOPICS:</b>Real assets/alternative investments/private equity, risk management, performance measurement

Does asset diversification in banks reduce risk? Turkey case

The banking sector is one of the leading sectors in a country's economy. The fact that banks are financially sound ensures their sustainability on the one hand and a sustainable profit level on the other. In the banking sector, where there is intense competition, it is a necessity to offer products that are suitable for the conditions of the day and the needs of customers. In this context, it is possible to see the usage and distribution of the resources of banks' assets in different areas. At the same time, banks assume different risks at every stage of their activities. In this study, it is investigated whether the diversification of banks' asset items has a financial impact on the risk level. In this context, panel data analysis was conducted by taking into consideration the data of the 15 largest banks operating in the Turkish Banking Sector for the period 2008-2017, and the relationship between banks' asset diversification and riskiness was investigated. While this relationship was found in some banks, it was observed that some banks did not.

Економічна оцінка використання торгових стратегій на товарному біржовому ринку

Introduction. The development of the domestic economy largely depends on the stock sector. Exchanges are one of the key elements of the market mechanism. Their role is to establish links between producer and end consumer. Exchanges help to determine the objective market value of products, increase its competitiveness. The purpose of the research is to generalize the theoretical aspects of evaluating the use of trading strategies in the commodity exchange market. Results. The main shortcomings of the developed strategies of traders are highlighted. It is established that the influence of the trader is the most unpredictable factor in the process of forming and implementing strategies. The importance of keeping a trader's diary is noted. It was found that the trader reflects not quite the real situation in the process of keeping a diary. This reduces the level of objectivity of information. The structure is described and the method of filling in the trader's diary is considered. The role of keeping a transaction log for the trader is substantiated. The importance of risk management in the process of exchange trading is noted. The role of the decision-making mechanism is described in the trading stock market in conditions of uncertainty. The essence and stages of risk management strategy are determined. Price types of risks are characterized. Risk assessment methods are systematized. The main methods of risk management are given. Methods of risk avoidance, methods of risk reduction, methods of risk absorption and financing, methods of risk transfer are described. Emphasis is placed on the expediency of consistent use of these methods. Measures to minimize the degree of risk (diversification of assets, hedging and risk insurance, creation of reserves to cover risks) are identified. Conclusions. The development of traders' strategy should reduce risks in exchange activities. The formation of such a strategy takes into account many factors. It is proved that the use of risk management methods is the key to the effective operation of traders. The possible results from the introduction of such methods are described. Keywords: commodity exchange, trader, trading strategy, risk management, economic evaluation.

Volatility forecasting, downside risk, and diversification benefits of Bitcoin and oil and international commodity markets: A comparative analysis with yellow metal

This study examines the diversification and hedging properties of Bitcoin (BTC) and gold assets for oil and S&P GSCI investors. We model and forecast the volatility performance of the pairs BTC–oil, gold–oil, BTC–S&P GSCI, and gold–GSCI using five bivariate DCC-GARCH family models, two popular forecasting measures (MSE and MAE), the Diebold and Mariano (1995) test, and different risk measures (value-at-risk, expected shortfall, semivariance, and regret) for different portfolios. We find that BTC and gold provide diversification benefits for oil and S&P GSCI. Moreover, by comparing the fitting and forecast performances of the five GARCH models, we find that the standard GARCH model is the best for the gold–oil and BTC–S&P GSCI pairs, while the HYGARCH model is the best for the BTC–oil and gold–S&P GSCI pairs regardless of the time horizon. Finally, we find strong evidence of hedging effectiveness and downside risk reductions, confirming the importance of BTC and gold in oil and S&P GSCI portfolio management.

Bank globalization and financial stability: International evidence

With a comprehensive dataset covering 129 countries over 1995–2013, this study investigates the impact of bank globalization on financial stability. I find strong evidence that foreign bank entry increases both loan risk and the overall risk of bank failure, and threatens the financial stability of the host country. However, this link is dependent on the regulatory and institutional framework of the host country. The adverse impact from foreign banks can be mitigated when the host country has more restrictions on fee-generating activities, less stringent capital requirement, more asset diversification guidelines, a single supervisor, less government-owned banks, lower market entry barrier, and/or less effective credit information sharing. Instead, foreign bank entry could even lower bank risk when host country regulations on bank activities are highly restrictive, capital requirement is less stringent, and/or market entry barrier is low. The need to improve financial stability and that to reduce the adverse impact of foreign bank entry impose conflicting demand on some bank regulations, thus policymakers need to balance both needs and carefully condition the prudential regulations to ensure financial stability and at the same time minimize the adverse impact from foreign bank entry.

A Study on the Relationship Between Diversification and Firm Performance Using the GSEM Method

ABSTRACT This study adds another perspective on corporate diversification and asset investment diversification, including related and unrelated asset investment diversification, and examines the relationship between this diversification, business diversification, and performance. Because business diversification includes related business and unrelated business diversification, we developed a hypothesis that related business acts as a mediating factor between related asset investment diversification and performance. Similarly, unrelated business plays a mediating role in the relationship between asset diversification and performance. We applied a general linear structural model (GSEM) to panel data on 470 firms listed on the Vietnamese stock exchange from 2008 to 2015. The empirical evidence demonstrates that related assets increase their performance through the mediating effects of related business. By contrast, unrelated assets show an insignificant impact on performance, and unrelated business does not play a mediating role between asset diversification and performance.

The Impact of Bank Regulation and Supervision on Competition: Evidence from Emerging Economies

ABSTRACTThis article empirically investigates the influence of bank regulation and supervision on the competitive landscape in banking systems. Using the information on 23 emerging economies from 1996 to 2016, we confirm that banking systems with fewer activity restrictions and (foreign) bank entry barriers are more competitive. Greater capital strictness and official supervision enhance competition in the banking industry. Our findings also highlight that greater explicit guidelines on asset diversification and deposit insurance coverage and lower private-sector monitoring are associated with more intensive bank competition. A further examination reveals that, during a bank crisis, the relationship between activity restrictions, entry barriers, diversification guidelines, and competition become more pronounced, and the positive effect of foreign bank limitations, capital strictness, official supervision, and private monitoring on competitive conditions become less effective. Finally, we divide our sample into foreign banks and domestic banks and find that foreign banks are more sensitive to official supervision and private monitoring, and less sensitive to activity restrictions, foreign bank limitations, and diversification guidelines.

The effect of diversification on risk and return in banking sector

PurposeThe purpose of this paper is to investigate the effect of revenue diversification, non-interest income and asset diversification on the performance and stability of the Gulf Cooperation Council (GCC) conventional and Islamic banking systems.Design/methodology/approachThe authors implement a panel of 69 conventional and Islamic banks listed in six GCC markets over the period of 2003–2015, using the System Generalized Method of Moments methodology.FindingsNon-interest income diversification has a negative impact on GCC banks’ performance, while asset-based diversification affects banks performance positively. However, Investors tend to penalize the value of the banks’ assets, which are highly diversified. Government intervention, lack of competition, legal protection and high control of Central banks on GCC banks’ have positive impact on performance. Contrary to the results on conventional banks, asset diversification adds value to Islamic banks. Overall, both banks’ revenue and non-interest diversification have negative impact on GCC banks’ stability, while asset diversification improves Islamic banks’ stability.Research limitations/implicationsThe analysis is limited to a sample of banks, which are listed in the GCC stock exchanges. The lack of data on private and foreign banks operating in the region made the analysis and, consequently, the results specific to shareholding companies. Also, the authors’ measures of bank stability might not be appropriate to use for Islamic banks, given their banking models implemented.Practical implicationsResearch results provide important implications for regulators, bank managers and policy makers, as to the expected ways to support economic diversification through bank diversification strategies.Originality/valueUnlike related studies, the authors’ sample of homogeneous banks has a market structure that is different from the samples in the literature covering either developed countries or heterogeneous samples from both developed and developing countries. Furthermore, using an efficient econometric methodology, the authors deal with two types of banks: conventional banks and Islamic banks. The research determines which type of bank is more able to benefit from different types of diversification. Unlike previous research, this research explores the sensitivity of the results both to the regulatory environment of the GCC market and to general market conditions.