Asset Diversity Research Articles

Portfolio simplification arising from a century of change in salmon population diversity and artificial production

Abstract Population and life‐history diversity can buffer species from environmental variability and contribute to long‐term stability through differing responses to varying conditions akin to the stabilizing effect of asset diversity on financial portfolios. While it is well known that many salmon populations have declined in abundance over the last century, we understand less about how different dimensions of diversity may have shifted. Specifically, how has diminished wild abundance and increased artificial production (i.e. enhancement) changed portfolios of salmon populations, and how might such change influence fisheries and ecosystems? We apply modern genetic tools to century‐old sockeye salmon Oncorhynchus nerka scales from Canada's Skeena River watershed to (a) reconstruct historical abundance and age‐trait data for 1913–1947 to compare with recent information, (b) quantify changes in population and life‐history diversity and the role of enhancement in population dynamics, and (c) quantify the risk to fisheries and local ecosystems resulting from observed changes in diversity and enhancement. The total number of wild sockeye returning to the Skeena River during the modern era is 69% lower than during the historical era; all wild populations have declined, several by more than 90%. However, enhancement of a single population has offset declines in wild populations such that aggregate abundances now are similar to historical levels. Population diversity has declined by 70%, and life‐history diversity has shifted: populations are migrating from freshwater at an earlier age, and spending more time in the ocean. There also has been a contraction in abundance throughout the watershed, which likely has decreased the spatial extent of salmon provisions to Indigenous fisheries and local ecosystems. Despite the erosion of portfolio strength that this salmon complex hosted a century ago, total returns now are no more variable than they were historically perhaps in part due to the stabilizing effect of artificial production. Policy implications. Our study provides a rare example of the extent of erosion of within‐species biodiversity over the last century of human influence. Rebuilding a diversity of abundant wild populations—that is, maintaining functioning portfolios—may help ensure that watershed complexes like the Skeena are robust to global change.

Detecting Asset Misappropriation: Forensic Accounting

The main task of the investigation of asset misappropriation is the correct classification of a crime: identification of the fact of misappropriation and determination of the amount of misappropriated assets. Specificity of asset diversity, asset accounting requirements, and a wide range of misappropriation opportunities require specialised knowledge in accounting and economics that investigators often lack. The aim of the study is to increase the knowledge of investigators in forensic accounting in order to increase effectiveness of investigations in detecting asset misappropriation. In this article, the authors, Latvian and Lithuanian accounting experts, talk about typologies of asset misappropriation and ways to detect misappropriation. The authors have compiled a list of red flags for misappropriation of assets and proposed an algorithm for determining the shortage or surplus of assets using forensic accounting methods. Research methods include: qualitative and quantitative methods of economic science, analysis of international standards and scientific literature, and graphical analysis.

Diversification, Industry Concentration, and Bank Margins: Empirical Evidence from an Emerging South Asian Economy

The study aims to empirically examine the determinants of bank margins from Pakistan, an emerging South Asian economy. To elucidate the importance of the Pakistani banking sector, secondary data has been used, which was extracted from the annual accounts of twenty-four Pakistani scheduled commercial banks (20 conventional, four full-fledged Islamic) over a sample period of 2006 to 2017. The factors identified in the dealership model and the subsequent empirical developments in the dealership model categorized as bank-specific, diversification, regulatory, and industry concentration are analyzed by applying the most-common linear dynamic panel-data estimator, the Generalized Method of Moments (GMM) estimator, developed by Arellano and Bond (1991). The findings reveal that, among the bank-specific variables, funding cost, credit risk, managerial efficiency, market share, and operating cost are significant predictors of bank margins. For diversification variables employed in the study, both variables including net non-interest income and asset diversity are as well significant predictors of bank margins. It is also found that the market concentration variable proxied by the Herfindahl-Hirschman Index (HHI) is significantly predicting bank margins. Subsequently, one of the regulatory variables, the opportunity cost of holding reserves, and one bank-specific variable, the degree of risk aversion, are insignificant in the model.

The diversity of household assets holdings in the United States in 2007 and 2009: measurement and determinants

We apply diversity indices, such as the Gini-Simpson index and entropy related indices, to the study of the distribution of individual asset holdings in the United States in 2007 and 2009. We examine the impact of the 2008 recession on asset diversity and the way individual socio-economic characteristics as well as important life events affect this measure. The focus of our analysis is on financial assets. We use a unique panel data set that provides us with comprehensive household level data for 2007 and 2009 in the United States—the Survey of Consumer Finances. We find that asset diversity increases between 2007 and 2009. In addition, it increases with age, education and income and it is lower at the bottom of the wealth distribution. Life changing situations such as getting divorced or losing one’s job have a statistically significant negative effect on a change in diversity, while getting married or having deteriorating health have a positive effect. Active money management also affects asset diversity positively.

Bank diversification strategy and intellectual capital in Ghana: an empirical analysis

Purpose The purpose of this paper is to examine the impact of intellectual capital and its components on bank diversification choice. Design/methodology/approach Both asset and income diversification are computed and an unbalanced panel data set of 32 banks covering the period 2000–2015 have been used. The panel corrected standard error regression has been used to account for serial correlation and heteroscedasticity. Findings The study found that intellectual capital determines the choice of diversifying. Precisely, intellectual capital motivates asset diversity but it dissuades income diversification. Human capital and structural capital are major components that determine asset diversity decisions. Income diversification decision, in this case to choose a focus strategy, is determined by human capital. This gives credence for the human capital theory in Ghana. Competition encourages a focus strategy. Bank size and leverage enhances income diversification while stock exchange listing and government ownership fosters the focus strategy. Practical implications Diversification strategy, knowledge base of staff, corporate governance and internal control have been considered as factors leading to the collapse of some Ghanaian banks in 2017–2018. The study provides relevant insights for regulators, decision support units and corporate boards. Intellectual capital and value added metrics should be used for modelling and decision making as they have value relevance. Originality/value This is a premier study that has examined the nexus between diversification strategy and intellectual capital in banks.

Financial Preparation, Disaster Experience, and Disaster Risk Perception of Rural Households in Earthquake-Stricken Areas: Evidence From the Wenchuan and Lushan Earthquakes in China's Sichuan Province.

Sichuan is a province in Southwest China that is famous worldwide for its earthquakes. However, few quantitative studies in China have probed the correlations between rural households’ financial preparation, disaster experience, and disaster-risk perception. Using survey data of 327 rural households from four areas stricken by the Wenchuan Earthquake and Lushan Earthquake in Sichuan, the ordinary least square (OLS) method was used to quantitatively explore the correlations between these three factors. The results show that rural households’ total family cash income, asset diversity, and whether rural households can borrow money from relatives and friends whenever there is a catastrophe such as an earthquake are significantly negatively correlated with the probability of disaster occurrence. Asset diversity and whether rural households can borrow money from banks whenever there is a catastrophe such as an earthquake are significantly positively related to the severity of disaster occurrence. The severity of residents’ disaster experience is not significantly correlated with the probability of disaster occurrence, but is significantly positively related to the severity of the disaster. The research results can provide useful enlightenment for the improvement of financial preparedness and disaster risk management for rural households in earthquake-stricken areas.

On the Diversity of Assets Holdings in the United States in 2007 and 2009

This paper proposes to apply diversity indices to the study of wealth composition. At the individual level a diversity index like the so-called Gini-Simpson index would then measure the probability that two dollars, drawn randomly from the total wealth of an individual, are allocated to two different types of wealth. Other diversity indices, such as entropy related indices, may be similarly defined when analyzing the composition of wealth. These basic ideas will then be applied to the study of wealth in the United States. The recession which started in the United States in December 2007 has affected numerous families and in many ways. Families have seen an increase in unemployment, had serious difficulties in meeting debt obligation and had to face changing levels of income and wealth, to mention just a few of the problems they had to deal with. Some of the literature examining the effect of the recession on the well-being of households has examined income and wealth levels and inequality and have found that although wealth levels have fallen and inequality has increased the effect has not been uniform across families. In this paper we will investigate the determinants of asset diversity and the impact of life course changes during the period of the Great Recession. We will examine this in the context of financial assets. We use a unique panel data set that provides us with comprehensive household level income and wealth data for 2007 and 2009 for the United States, the Survey of Consumer Finances.

The Diversity of Household Assets Holdings in the United States in 2007 and 2009: Measurement and Determinants

We apply diversity indices, such as the Gini-Simpson index and entropy related indices, to the study of the distribution of individual asset holdings in the United States in 2007 and 2009. We examine the impact of the 2008 recession on asset diversity and the way individual socio-economic characteristics as well as important life events affect this measure. The focus of our analysis is on financial assets. We use a unique panel data set that provides us with comprehensive household level data for 2007 and 2009 in the United States-- the Survey of Consumer Finances. We find that asset diversity increases between 2007 and 2009. In addition, it increases with age, education and income and it is lower at the bottom of the wealth distribution. Life changing situations such as getting divorced or losing one’s job have a statistically significant negative effect on a change in diversity, while getting married or having deteriorating health have a positive effect. Active money management also affects asset diversity positively.

Systemic Risk in the Interbank Market with Overlapping Portfolios

The increasing frequency and scope of the financial crisis have attracted more attention in the research of the systemic risk of banking system. A new model for the interbank market with overlapping portfolios is proposed to simulate a banking system in this work. The proposed model uses a bipartite network of banks and their assets to analyze the impact of bank investment on the stability of the banking system. In addition, this model introduces investment risk and allows banks to make up for liquidity by selling devaluated assets, which reflects the operating rules of the banking system more realistically. The results show that allowing banks to sell devaluated assets to make up for liquidity can improve the stability of the banking system and the interbank market can also improve the stability of the banking system. For the investment of banks, the investment risk is an uncertain factor that affects the stability of the banking system. The proposed model further analyzes the impact of average investment interest rate, savings interest rate, deposit reserve ratio, and investment asset diversity on the stability of the banking system. The model provides a tool for policy‐makers and supervision agencies to prevent the systemic risk of banking system.

Portfolio optimization for heavy-tailed assets: Extreme Risk Index vs. Markowitz

Using daily returns of the S&P 500 stocks from 2001 to 2011, we perform a backtesting study of the portfolio optimization strategy based on the extreme risk index (ERI). This method uses multivariate extreme value theory to minimize the probability of large portfolio losses. With more than 400 stocks to choose from, our study seems to be the first application of extreme value techniques in portfolio management on a large scale. The primary aim of our investigation is the potential of ERI in practice. The performance of this strategy is benchmarked against the minimum variance portfolio and the equally weighted portfolio. These fundamental strategies are important benchmarks for large-scale applications. Our comparison includes annualized portfolio returns, maximal drawdowns, transaction costs, portfolio concentration, and asset diversity in the portfolio. In addition to that we study the impact of an alternative tail index estimator. Our results show that the ERI strategy significantly outperforms both the minimum-variance portfolio and the equally weighted portfolio on assets with heavy tails.

How Does Diversification Impact Bank Stability? The Role of Globalization, Regulations, and Governance Environments

AbstractThis paper examines the impact of bank diversification on stability, using bank‐level data for 22 Asian countries over the period from 1995 to 2009. We empirically investigate whether country characteristics, economic structure, regulatory and governance environments, and globalization have affected the degree of banking stability in Asia. This study takes on two measures for banking diversification ‐ asset and income diversities ‐ and adopts a broad set of variables as a proxy for bank stability. We apply dynamic panel data techniques and show different results from the U.S. and Europe. Our results first reveal that in Asia asset diversity is not sufficient enough to improve bank stability. However, bank stability can be enhanced through a strategy of income diversity. Second, a higher degree of globalization decreases bank stability through income diversity, but stability rises through asset diversity. Third, a country with a higher level of corporate governance reduces the agency problem, thus further increasing stability through diversity. Finally, a country with a higher level of economic development will support asset diversity so that banks can obtain higher profit accompanied by lower risk.

Population diversity and the portfolio effect in an exploited species

One of the most pervasive themes in ecology is that biological diversity stabilizes ecosystem processes and the services they provide to society, a concept that has become a common argument for biodiversity conservation. Species-rich communities are thought to produce more temporally stable ecosystem services because of the complementary or independent dynamics among species that perform similar ecosystem functions. Such variance dampening within communities is referred to as a portfolio effect and is analogous to the effects of asset diversity on the stability of financial portfolios. In ecology, these arguments have focused on the effects of species diversity on ecosystem stability but have not considered the importance of biologically relevant diversity within individual species. Current rates of population extirpation are probably at least three orders of magnitude higher than species extinction rates, so there is a pressing need to clarify how population and life history diversity affect the performance of individual species in providing important ecosystem services. Here we use five decades of data from Oncorhynchus nerka (sockeye salmon) in Bristol Bay, Alaska, to provide the first quantification of portfolio effects that derive from population and life history diversity in an important and heavily exploited species. Variability in annual Bristol Bay salmon returns is 2.2 times lower than it would be if the system consisted of a single homogenous population rather than the several hundred discrete populations it currently consists of. Furthermore, if it were a single homogeneous population, such increased variability would lead to ten times more frequent fisheries closures. Portfolio effects are also evident in watershed food webs, where they stabilize and extend predator access to salmon resources. Our results demonstrate the critical importance of maintaining population diversity for stabilizing ecosystem services and securing the economies and livelihoods that depend on them. The reliability of ecosystem services will erode faster than indicated by species loss alone.

The importance of household asset diversity for livelihood diversity and welfare among small farm colonists in the Amazon

Taking a small farm colony on the Amazon frontier as a case study, this article examines the relationships among household assets, livelihood diversity and welfare. The findings show that: (1) few households diversified into non-agricultural income sources, but those that did also had agricultural incomes comparable to households primarily reliant on agriculture; (2) distinct household assets influence the extent of agricultural and non-agricultural diversity, implying that households with combinations of specific assets were best able to diversify their livelihoods, and (3) while specific types of household assets influence household welfare, livelihood diversity does not exert an additional effect on welfare. A key issue that emerges is that different arrays of assets are important for agricultural and non-agricultural diversity as well as for household welfare, implying that households need diverse assets for diverse livelihoods as well as better welfare.