Capital Portfolio Research Articles

Risk and Performance of Islamic Indexes During Subprime Crisis

We looked for evaluating and comparing the risk and performance of both Islamic and conventional indices during subprime crisis. We used daily closing stock indices data of the Dow Jones Index series and we evaluated the volatilities of Islamic indices over a period of eleven years. The results suggested that Islamic indexes family is not fully sheltered from the subprime crisis. Similar to the conventional indexes, all Islamic indexes recorded lower average returns and higher volatility in the crisis period compared to the pre-crisis as well as after crisis period. However, outcomes results from Sharpe ratio, Treynor index and Jensen’s alpha affirm that the impact of the crisis on ethical investment is as severe as it is on the conventional peers except four Islamic index that prove their resilience versus their counterparts during turbulent time and they continue their outperformance even during calmness period. Meanwhile, geographical factor is shown to be relevant diversification criteria particularly during the crisis period. In term of portfolio diversification benefits, investors should be aware of the market condition in strategizing their capital portfolio in the context of both the level of development and also depending on geographical area and ethics factors.

Angel Investment Management and Venture Capital

How do you model the suitable angel investing in the capital market that managing venture capital portfolio, maintaining high returns and minimizing the downside risk where the venture investments including seed, start-up, bridge, acquisition and merger, and turnaround firm utilize new idea and create innovative technologies in efficient capital market to safeguard investment opportunities? Even though possibilities of the expected rate of return is related to increase in the value of the firm, time or opportunity cost and cash flow, the expected rate of return for venture capital investing increase as the total investment risk lower and survival rate for venture capital-funded enterprises increase to compensate for diversified portfolio through productive investing in initial public offering, leveraged buyout, acquisition and merger, and company buyback. Private-public policy drive by efficient market reduce capital gap of financial resources, but the capital loss and investment risk are associated with liquidity and rate of return so angel investing valuation and investment should guarantee time to finance working capital of ongoing concern and business transaction to expect returns and realize returns. The risk of liquidity losses can be covered and reaped with excellent return through hedging strategies and diversification to build sustainable company from angel investing that supply internal fund for operation, and research and development investment

The Space of Capital: A Latent Class Analysis of Capital Portfolios in Germany

The aim of this paper is to construct the “space of capital” based on disaggregated measures of capital portfolios and to analyze the dynamics of class mobility over time. Drawing on Pierre Bourdieu’s concept of the “social space”, we argue that it is possible to directly assess the structural dimensions of the social space as a space of (economic and cultural) capital, including wealth as an important but often neglected form of economic capital. Using household panel data from 2002-2012 (SOEP), we apply latent class analysis in order to detect distinct classes based on specific capital portfolios. We find nine classes with diverging capital portfolios. When interpreting the nine latent classes, we find clear evidence for the two main axis of the social space, namely the vertical axis of the overall volume of capital, and the horizontal axis representing the composition of capital in terms of the relative weight of economic and cultural capital. Further exploration of class mobility reveals that the horizontal axis is even more stable over time. Most mobility occurs along the vertical axis of the social space, while there is only little horizontal mobility indicating that individuals rarely change their investment and accumulation strategies. This research adds to Bourdieu inspired class analysis as well as sociological perspectives on wealth and accumulation.

High School Human Capital Portfolio and College Outcomes

This paper assesses the relationship between courses taken in high school and college major choice. It considers individuals as holding a portfolio of relative human capital rates that may be either similar to those in their major—specialized—or different from those in their major—diversified. Using High School and Beyond survey data, I find a U-shaped relationship between the diversification of the high school courses portfolio and college performance. Policy experiments, using a structural model, suggest that taking an additional quantitative course in high school increases the probability that a college student chooses a STEM major by 4 percentage points.

Application in Risk Management

To investigate professional practice regarding applications in corporate finance this Application component provides generalized recommendations on how to use correlations and volatility to determine a hedging strategy in the currency markets. The next section entails a framework to help describe applied risk management methods pertaining to risk exposure in the currency spot market. A formulated discussion on how to implement and use different hedging strategies to improve financial performance either for a corporation or private investor by reducing risk in the currency spot market is provided. In the Breadth component an analysis of capital budgeting, portfolio investments, risk management, optimization, financial planning, mergers, acquisitions, and corporate governance was put forth. A compare and contrast was performed for each of the above theories in corporate finance. This component included a discussion of how these theories contribute to better performance from a corporate financial perspective. Influential writers from each theory, as to the role that contemporary corporate finance plays in promoting performance, were part of the analysis. There was a question posed: Why do fundamental analysis, risk management strategies, and knowledge of the agency problem still lead to system failure in corporations? To answer this question moral hazard was investigated through the framework of corporate governance. When the risk and rewards are out of sync excessive risk taking usually results. When socialized risks and privatized rewards are present in a system, such as the banking industry, then imprudent risk behavior is exhibited by the corporate leaders in that industry.It was shown in the Depth component that risk management can be an important tool to improve investors’ portfolios. Development of hedging models that reduce computational time and hedging error was shown. But hedging a portfolio is just one aspect of a risk manager. Risk managers are also heavily interested in counterparty risk exposure, expected loss calculations, and systemic risk from low probability events. Methods like VaR guide the risk manager in mitigating too much leverage for a corporation, such as a bank or investment firm. How can a risk manager mitigate risk exposure? This question was explored using different GARCH modeling techniques, the use of Sharpe ratios, systemic risk exposure using different visualization methods, and realization that illiquidity in markets can have distortions in VaR calculations.In the Application component a model is proposed to help hedge spot market positions in the currency market without the use of complicated mathematical models. An investor or treasurer at a corporation needs to hedge risk with low cognitive processing. If a simple and useful model can be developed then mitigating currency risk exposure will be possible. The key to this proposed hedging strategy is that currency pairs have a correlation with each other and that the returns on a certain currency pair have clustered volatility. It is possible to hedge a spot position in the currency pair with an offset position in a related currency pair. How do we determine the proper weight of the hedge? This can be done by understanding the level of correlation. The level of correlation can be a proxy to a delta hedge. The volatility of the currency pair is a metric to predict through chart patterns that a certain volatility epoch is approaching. When higher volatility is expected then a more immunized hedge is appropriate. Likewise, when volatility is expected to be low the hedge can be less protective.

Effect of Bank Capital Requirements on Bank Risk-taking and Financial Stability

This paper reviews theoretical and empirical studies on the way that capital requirements influences bank capital structure, risk-taking and lending. Deposit insurance, when not fairly priced, give incentives for excessive risk-taking. To alleviate this problem regulator found as necessary the use of certain requirements such as capital requirement. Based on this, it is obligatory for banks to hold more capital that means to have more of their own funds at risk. The theoretical literature related to the way how capital regulation influences banks on their decision for the capital structure and portfolio risk says more than that. Capital requirements were supposed to enhance financial stability and economic growth. Regarding economic growth, the effects of capital requirements can influence it directly or indirectly. Changes that capital requirements bring to the credit supply, costs of capital and to the bank asset risks affect indirectly the economic growth. Higher capital requirements reduce credit supply and decreases credit demand which in turn may slow down economic growth. Nevertheless, well-capitalized banks make provision of credit more consistent and enhance financial stability. Suggestions given from the theoretical literature and lessons learned from empirical researches are going to be used in analyzing effects of bank capital requirements on the relation between efficiency, capital and risk-taking in Albanian banking system DOI: 10.5901/mjss.2016.v7n1p340

The Impact of Capital Regulation on Bank Capital and Risk Decision. Evidence for European Global Systemically Important Banks

Large banks were largely blamed for the recent financial crisis, due to their roles in the propagation of the crisis. Partly due to the unprecedented amount of public funds disbursed to rescue the fail banks to avert the total breakdown of the global financial system and the resultant moral hazard of their bailout. Policymakers and regulators have significantly increased bank regulations after the crisis to rein-in some of the “excesses” of the banks that cause to the financial crisis. Particularly, Basel III capital regulation came into existence largely to strengthening the capital framework for banks and increases the loss absorbency for the so-called too big to fail banks. This study investigates the impact of capital regulation on the capital and risk portfolio behaviour of European large and complex banks during the period 2009–2014. By using a modified version of the structural equation model developed by Shrieves and Dahl (1992) to estimate the effect of capital regulation on banks’ capital and risk portfolios decisions. The findings of our model estimation indicate that regulation has a significant impact on changes in bank capital. We, however, do not find any significant evidence of the impact of regulation on bank risk portfolio decisions. Model estimation results also show that there is a significant negative relationship between changes in bank capital level and changes in risk portfolio level and vice versa.

Corporate venture capital portfolios and firm innovation

This study examines the conditions under which portfolios of corporate venture capital (CVC) relationships influence corporate investor innovation performance. We investigate this question using longitudinal data on CVC investment portfolios of 40 telecommunications equipment manufacturers. We find an inverted U-shaped effect of portfolio diversity on corporate investor innovation performance. We also find that the effect of diversity depends on the depth of knowledge resources available in the portfolio. These results contribute to the interorganizational learning, corporate venture capital and open innovation literatures by showing how the breadth and depth of knowledge resources available in a portfolio of external partnerships with young ventures interact to influence firm innovation.

The Venture Capital Premium: A New Approach

We introduce a novel method to estimate the risk premium that investors should demand on top of public equity’s return to be properly compensated for the peculiar hazards of investing in venture capital. Unlike existing CAPM-based methods, our benchmarks are based upon direct measures of the factors that affect the value of venture capital portfolios—i.e., illiquidity, hazard of failure and control; being, at the same time, clear of the confounding effects of superior fund management. Our method is an empirically grounded alternative to the rules of thumb employed by institutional investors and fund managers when defining target returns on venture capital.

The Venture Capital Premium: A New Approach

We introduce a novel method to estimate the risk premium that investors should demand on top of public equity’s return to be properly compensated for the peculiar hazards of investing in venture capital. Unlike existing CAPM-based methods, our benchmarks are based upon direct measures of the factors that affect the value of venture capital portfolios — i.e., illiquidity, hazard of failure and control; being, at the same time, clear of the confounding effects of superior fund management. Our method is an empirically-grounded alternative to the rules-of-thumb employed by institutional investors and fund managers when defining target returns on venture capital.

A Note on Bank Capital Buffer, Portfolio Risk and Business Cycle

Bu calismada is cevrimlerinin bankalarin sermaye tamponlari ve portfoy riskleri uzerindeki etkisi, Turk bankacilik sektorunde faaliyet gosteren ticari bankalarin 2002Q1:2012Q2 donemi icin ceyreklik veriler kullanarak incelenmistir. Calisma bulgulari is cevrimleri ile sermaye tamponu arasinda ters yonlu bir iliskiye isaret etmekte; bir diger deyisle bankalarin sermaye tamponlarinin ekonomik kosullar kotulestikce (iyilestikce) arttigini (azaldigini) gostermektedir. Calismanin bir baska bulgusu da bankalarin temerrut riskinin sermaye uzerindeki etkisinin pozitif, sermaye tamponunun temerrut riski uzerindeki etkisinin ise negatif ve istatistiksel olarak anlamli oldugu yonundedir. Ayrica, Turk Bankacilik sistemindeki ticari bankalarin gelir kaynaklarindaki cesitlilikten yararlanamadiklari, buyuk bankalarin daha az sermaye tamponu tuttugu ve son olarak da; karlilik orani daha yuksek olan bankalarin daha fazla sermaye tamponu tutarken, yine bu banklarin daha az temerrut riski tasidigi da calismanin diger bulgulari arasindadir

Stress Test of Banks in India Across Ownerships: A VAR Approach

This paper examines whether the Indian banking system is robust to withstand unexpected shocks from external and domestic macroeconomic factors. Demirguc et al (1998) Kaminsky et al (1999) demonstrate that banking crisis follow financial liberalization. India embarked financial deregulation from 1992 whereas the ongoing global financial crisis (GFC) could jeopardize bank portfolios. Stress-test is undertaken through the Vector Auto Regressive (VAR) model to examine if decline in GDP, exchange rate volatility and foreign capital portfolio funds adversely impact bank asset quality through higher defaults. VAR model is run for banks belonging to public, private and foreign ownerships. Banks’ soundness is measured by the non-performing assets (NPA) with quarterly data from 1997 to 2014. Our contribution lies in finding that there is little divergence among the banks of different ownerships in their response to the shocks from real effective exchange rate, capital flows and GDP output gap. IRF shows that GDP shock to NPA of public and private banks take more than 9 and 8 quarters to stabilize. The shock from Net Foreign Institutional Investment to private banks NPAs take 8 lags. Foreign banks are impacted by the same macroeconomic factors. The stress test exhibits that public banks are more vulnerable and need re-capitalization. We also demonstrate that the domestic banks are not adversely affected by the GFC credit for this could be attributed to the well calibrated regulatory policies of the RBI. Although foreign banks may have suffered setbacks, it is not captured in our analysis.

Small fish, big fish: The performance effects of the relative standing in partners' affiliate portfolios

This study examines whether the value a venture derives from an affiliation depends on its relative standing in the portfolio of all affiliations held by its partner. Relative standing refers to how thenventure ranks among other ventures in the partner’s portfolio with respect to expected returns. The relative standing of a venture in its partner’s portfolio influences the venture’s access to the partner’s resources and the venture’s performance. We also argue that a venture’s relative standing becomes more important to performance when the partner has a larger portfolio or higher status. In addition to a field study, we test the effect of a venture’s relative standing in a venture capital portfolio on its exit likelihood, controlling for endogeneity. We find support for our hypotheses.

Human capital portfolios

This paper assesses the trade-off between acquiring specialized skills targeted for a particular occupation and acquiring a package of skills that diversifies risk across occupations. Individual-level data on college credits across subjects and labor market dynamics reveal that diversification generates higher income for individuals who switch occupations whereas specialization benefits those who stick with one type of job. A human capital portfolio choice problem featuring skills, abilities, and uncertain labor outcomes replicates this general pattern and generates a sizable amount of inequality. Policy experiments illustrate that mandatory specialization generates lower average income growth, lower turnover and marginally lower inequality.

Human Capital Portfolios

This paper assesses the trade-off between acquiring specialized skills targeted for a particular occupation and acquiring a package of skills that diversifies risk across occupations. Individual-level data on college credits across subjects and labor-market dynamics reveal that diversification generates higher income growth for individuals who switch occupations whereas specialization benefits those who stick with one type of job. A human capital portfolio choice problem featuring skills, abilities, and uncertain labor outcomes replicates this general pattern and generate a sizable amount of inequality. Policy experiments illustrate that forced specialization generates lower average income growth and lower turnover, but also lower inequality.

A situated analysis of global knowledge networks: capital accumulation strategies of transnationally mobile scientists in Singapore

This paper investigates the geographic and professional mobility of scientists employed in Singapore’s publicly funded research institutes in various techno-and lifescience specialisations. Using Bourdieu’s conceptual framework, we analyse the capital portfolios of individual scientists against the structures of power which have informed Singapore’s developmental history, the culture of its westernised political elite and its present day aspirations to become a knowledge-based economy. Using survey and interview data, we examine how individual scientists mobilize their portfolios of social and cultural capital in order to extract maximum value from the transnational field of research and development. These processes of mobilization require individuals to negotiate alignments between their habitus and the political-cultural field in Singapore. This empirical grounding enables us to offer some preliminary ideas about transformations to the scientific habitus.

Transportation with volume discount: a case study of a logistic operator in Ghana

Network models and integer programming are well known variety of decision making problems. A very useful and widespread area of application is the management and efficient use of scarce resources to increase productivity. These applications include operational problems such as the distributions of goods, production scheduling and machine sequencing, and planning problems such as capital budgeting facility allocation, portfolio selection, and design problems such as telecommunication and transportation network design. The transportation problem, which is one of network integer programming problems is a problem that deals with distributing any commodity from any group of 'sources' to any group of destinations or 'sinks' in the most cost effective way with a given 'supply' and 'demand' constraints. Depending on the nature of the cost function, the transportation problem can be categorized into linear and nonlinear transportation problem. We applied Karush-Kuhn-Tucker (KKT) optimality algorithm to solve our problem of transportation with volume discount for a logistic operator in Ghana.

Criminal justice? Using a social capital theory to evaluate probation-managed drug policy

Policy must be theoretically informed and appropriately targeted if it is to be effective (Kerr et al., 2011). In probation-managed drug policy, this demands an appropriate theory framework within which the multi-dimensional nature of problematic drug use can be understood. To engender genuine justice in such policy, theory must give ‘proper weight to both structure and agency, in continuous interaction’ (Bottoms, 2004) (agency refers to the ability of individuals to act of their own free will and structure refers to the social, legal and economic institutions, arrangements and practices which can facilitate, or indeed constrain, the agents’ capacity to do so). This article responds to these challenges by presenting a theory of ‘social capital portfolios’ which was developed from the social capital; substance misuse and desistance literatures and refined through an 18-month longitudinal study of probation-managed drug interventions. The theory is used here to critically evaluate contemporary probation drug policy and developments and to make recommendations on what constitutes criminal and social justice.

Realigning capital portfolios: international students' educational experiences in higher education

This paper reports on first year experiences of international students who use English as an additional language (EAL) in higher education in Australia. It examines how valued resources can foster a positive educational experience of these students from sociological perspectives. It draws data from an interview study, exploring narrative accounts of 17 EAL international students from nine countries about their educational relations and strategies across their first year of study. Their narratives were analysed through Bourdieu's concepts of field, habitus, capital and legitimation, as well as tools of narrative inquiry. The paper finds that the students took up strategies to realign their capital portfolios with new rules of the game. Their decisions were dependent on their personal trajectories and conditions on offer. This paper suggests that more effort needs to be made to understand international students' differentiated access to valued resources in higher education.

Risk Dispersion Tool and Strategies - Peak Catastrophe Event Correlation and Variance Swaps

The growth of risk capital regulatory regimes and continuous convergence of re/insurance and capital markets instruments and investment processes creates demand for quantitative and systematic risk management strategies for portfolio and line-of-business volatility and correlation dispersion. From an active risk management and capital investment perspective portfolio volatility - variance of losses could be an asset. Markets are not efficient when determining volatility. Portfolio loss correlations could also be viewed as an asset as well as a risk factor; and need to be managed as both. Volatility – variance and correlation swaps are two well-developed vehicles for such purposes. In a first of a small series of technical articles we review definitions, component computation, and structuring of correlation and variance swaps for a re/insurance portfolio