Classes Of Investors Research Articles

The institutional context of financial fraud in a post-transition economy: The Quaestor scandal

The article will analyse the greatest Hungarian securities fraud to date: the Quaestor scandal. Quaestor was a holding of several companies, including one of Hungary’s biggest investment adviser and brokerage firms, which went into bankruptcy in early 2015. Later investigations uncovered a massive fraud with an estimated loss close to €500 million to investors, mainly caused by affiliated companies overselling their bonds many times over the limit set by the securities regulator. Using theoretical approaches from comparative political economy, economic sociology and organizational theory, the article will analyse how the institutional context of economic action on the financial markets was conductive to the fraud. Two major factors in particular will be emphasized: the political economy of finance, especially the underdeveloped nature of financial markets and the lack of a retail investor class; and the relative scarcity of capital.

Confirmation and Disconfirmation in the Evaluation Process of Investors in Equity Crowdfunding

Crowd investors have emerged as a new class of equity investors, yet we still know little about their decision-making process. We build on research on heuristics in decision making, to theorize how...

Corporate social responsibility disclosure and financial transparency: Evidence from India

Disclosures are expected to foster financial transparency and improve the quality of information available to investors. Previous research has examined the role of non-financial disclosures in achieving this goal. Corporate social responsibility (CSR) disclosure has been widely employed as representative of non-financial disclosure. Recent legislation in some countries mandating non-financial disclosure makes this debate even more pertinent. We investigate the role of CSR disclosure in financial transparency in India, where mandatory CSR disclosure is required for firms to meet the thresholds set by the Companies Act 2013. Our investigation straddles mandatory disclosure regime and considers different classes of investors. Our findings suggest that CSR disclosure improves financial transparency during mandatory disclosure regime. We also find that ownership by the retail investors strengthens the association between CSR disclosure and financial transparency. However, we fail to document any significant effects of ownership by the institutional investors on the association between CSR disclosure and financial transparency.

Comparative analysis of Shari’ah-compliant portfolios: evidence from Pakistan

PurposeThis study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods.Design/methodology/approachThe authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973).FindingsThe authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market.Practical implicationsIt will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments.Originality/valueThe authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.

Firm Size, Political Connections, and the Value Relevance of Environmental Enforcement in China

Curbing environmental pollution is a key priority in China as reflected in the adoption of policies such as “New Normal” and the takeover of environmental enforcement by the top leadership of the central government in 2015. In this paper, we use a dataset of publicly-traded firms in the Shanghai and Shenzhen stock exchanges and the event study methodology to gauge the reaction of the investor class to the new environmental enforcement regime. Our results indicate that, together, the announcement and implementation of the new enforcement regime spurred a significant decline of over $29 billion in shareholder value of polluting companies, suggesting that capital market participants expect increased regulatory costs for targeted companies. We also find that neither political connections nor firm size mitigated the severity of the market losses. Instead, larger firms and state-owned enterprises with excess capacity experienced bigger declines in market value.

Practical Applications of Cryptocurrency: A New Investment Opportunity?

<h3>Practical Applications Summary</h3> In <b>Cryptocurrency: <i>A New Investment Opportunity?</i></b> from the winter 2018 issue of <b><i>The Journal of Alternative Investments</i></b>, authors <b>David LEE Kuo Chuen</b>, <b>Yu Wang</b> (both of <b>Singapore Management University</b>) and <b>Li Guo</b> (of <b>Singapore Management University</b>) provide an in-depth introduction to Bitcoin and other cryptocurrencies, and explore their potential as an alternative investment class. Their results show that the return correlations between cryptocurrencies and traditional assets are low, and that adding the Cryptocurrency Index (CRIX) to a traditional asset portfolio helps diversify risk, and, under some circumstances, may improve overall performance. Given the difficulty of valuation in the cryptocurrency market, however, the authors explore the possibility of generating positive risk-adjusted profits with a “sentiment” strategy that evaluates each cryptocurrency individually. <b>TOPICS:</b>Currency, risk management, performance measurement, mutual funds/passive investing/indexing

Perspective on Underpricing of IPOs in Emerging Economies

Pricing of initial public offerings (IPOs) has received considerable attention from the perspective of asymmetric information theories, among others. Specific aspects of emerging markets have been incorporated into models to explain the varying degrees of underpricing. Using three features that are deemed to be important for such economies, that is, principal–principal conflicts, disclosure norms and legitimacy of the top management, and two different classes of investors, institutional and retail, two frameworks have been designed to explain the expected levels of underpricing under various pair-wise combinations of these parameters. The state of the secondary market, which is an important determinant of the decision to go public, is incorporated into the framework. JEL Classifications: G3, G14, G15, G18

Expansion of the investor base for the energy transition

Despite the emergence of the green bond market, the Energy Service Company (ESCO) model and green investment banks, the opportunities which the world's capital markets present to increase the pool of potential investors and reduce project financing costs for renewable, energy efficient and low carbon assets remain under-exploited. This has been a persistent concern for policy-makers. We review the appeal of this sector to different classes of investor and assess the successes and failures of several innovative products including securitisations, yieldcos, green bonds, green investment banks and crowdfunding. We analyse the experiences with these products and suggest that policy needs to recognise how fiscal initiatives can leverage their inherent appeal.

The Marriage of Technology, Markets and Sustainable (and) Social Finance: Insights from ICO Markets for a New Regulatory Framework

It is generally agreed that gaps in sustainable and social finance should be met by increased marketization. However, there are significant challenges in galvanising the investment community used to conventional securities and other investment market instruments. Our article proposes using technological innovations in fund-raising, observed in the initial coin offerings (ICOs) market, to transform the asset class of sustainable and social finance in order to achieve greater marketization, creating an integrated form of social-commercial value for a variety of different investors, from conventional to crowdsourced marketplaces. Key to our proposal is the innovation of tokenisation introduced in ICOs. We argue that tokenisation holds transformative potential for restructuring investment opportunities, as assets need not be tied to the expectations and obligations of conventional financial value creation. Tokens can offer different classes of financial and non-financial rights and rewards. We propose that sustainable and social finance can be raised by corporate structures dedicated to sustainable or social purposes, as dual-class offerings. One class of tokens allows holders to commit to the sustainable or social ends and exercise governance rights as part of their investment. Such token-holders are also expected to be long-term investors and subject to lock-in periods, in order to support the ultimate fulfilment of the sustainable or social project. The other class of tokens would carry no governance rights but be immediately tradeable. This class of tokens likely attracts more transient investors but would provide an important source of finance for sustainable and social projects. The success of ICOs reflects the importance of market conditions and liquidity for this class of investors and we make some proposals as to how such markets can be made more robust by appropriate regulation.

Binary Logistic Regression Modeling in Predicting Consumer Behavior towards Mutual Fund Investment

Mutual fund, as a financial investment option, has gained reasonable acceptance in India since its inception. While traditional forms of investment have its own merits, the sheen of mutual fund has also been realized by Indian investors. A huge investor class have scored mutual fund higher than its counterparts on many counts. While the popularity of this new age investment option is on a rise, however, a mixed view is also experienced. The present study explores the behaviour of investors’ towards mutual fund. The study is based on the premise of regression analysis and binary logistic regression has been used to develop a model that best represents the consumer behaviour. The best model selection is based on the information criteria of Akike. Also, from the model, the researchers have evaluated the probability of mutual fund purchase by consumers. Finally, the research work shows computation of odds ratio that signifies the extent to which the probability of purchasing mutual fund would change with unit change in the levels of the covariates. This study is descriptive in nature and is based on primary survey with a sample size of 376. The results reveal that high returns are the most preferred determinant of investment behavior followed by the liquidity which is also evident from the odds ratio computation.

Trajectorial asset models with operational assumptions

The paper addresses the problem of providing a framework and an algorithm to evaluate super and sub replicating prices, for European options, having interesting risk-reward characteristics. A general operational framework is put forward and illustrated by an algorithmic construction of one-dimensional models for option pricing. Asset models are defined based on a class of investors characterized by how they operate on financial data leading to potential portfolio rebalances. Once observable variables are selected for modeling, necessary conditions constraining these variables and resulting from the operational setup are derived. Future uncertainty is then reflected in the construction of combinatorial trajectory spaces satisfying such constraints. As the risky asset unfolds, it can be tested dynamically for the validity of observable sufficient conditions that rigorously imply the validity of the models. The paper describes the resulting algorithmic construction of such trajectory spaces and, in the absence of probability assumptions, a minmax algorithm that is available to evaluate the super and sub replicating prices.

Financing the Next Generations of Innovation: New Dimensions in the Private Equity Model

It is widely acknowledged that, for firms to grow, they need to regularly introduce new generations of innovation; however, this is rarely addressed in the finance or private equity literature. If the private equity investment class is structured based on the business cycle, little is known about how it fosters firms’ capacity to regenerate. This leads to the question: How can private equity support firms’ ability to repeatedly innovate? Building on the literature in innovation management and design theory, we propose complementing private equity models with new dimensions: the design of potential future products and their expected value. This model is used to analyze in-depth a longitudinal case provided by a French investment fund. We show that it is far better suited to certain investment strategies than are classical models. Among other important implications, we suggest that private equity must not only provide seed, venture, or buyout capital, but also support firms’ innovation portfolio regeneration. JEL Codes: G320, O32

Financial Market as Driver for Disparity in Wealth Accumulation—A Receding Horizon Approach

In this paper we study the extent to which the financial market has contributed to wealth disparities. To that end we introduce a stochastic dynamic model of wealth accumulation with preferences, consumption and portfolio choice, which roughly replicates the long-term evolution of assets under management. Using a receding horizon approach for solving nonlinear model predictive control (NMPC) in finite time, we run simulations with three types of investors (conservative, moderate and aggressive) corresponding, roughly, to the social population segments identified in Piketty (Le capital au XXIe siecle, Seuil, Paris, 2013) for thinking about distributional matters, namely the lower segment (bottom 50%), the middle segment (middle 40%), and the upper segment (upper 10%) respectively. We estimate the impact on the end wealth distribution of first, investor-level characteristics (calibrated for each investor class), which directly impact the saving rate; and second, higher expected returns for wealthier (aggressive) investors in the top decile through the availability of leverage. We find that differences in investor-level characteristics (and significantly the length of the receding horizon) combined with access to leverage are sufficient to generate fat tails. Though results are obtained in a stochastic approach, the outcomes are less related to stochastic shocks than to some feedback and scale effects operating in favor of some investors in the financial market.

Spillovers, integration and causality in LME non-ferrous metal markets

We examine the interrelationships in the global base metal markets over a 22 year period 1994–2016 using a variety of econometric methods. The results demonstrate the high intensity of both return and volatility spillovers across the selected markets. Furthermore, the degree of co-movements varies among time and frequencies. The study also contributes to the contagion literature since the results revealed the increase in co-movements after the financial crisis. Aluminium is found to be the driving force, with significant influence across all methodologies. The findings show that the behaviour of the non-ferrous metals is similar to other conventional asset classes, like equities and bonds, justifying the position that metals have become an investment class.

The portfolio of euro area fund investors and ECB monetary policy announcements

This paper studies the impact of major ECB monetary policy announcements on the portfolio allocation of euro area fund investors, using daily data between 2012 and mid-2016, a period that includes a variety of unconventional measures. We distinguish between active portfolio reallocation, driven by redemptions or injections of investors, and passive portfolio rebalancing, triggered by valuation effects related to changes in asset prices and exchange rates. We find that, for this class of fund investors, policy announcements work mainly through valuation effects (the signalling channel), rather than via active reallocation (the portfolio balance channel). Notably, since the autumn of 2014, monetary policy shocks triggered large asset price and exchange rate effects and prompted a passive shift of euro area investors into riskier assets, in particular European and Emerging Market equity funds and out of bond funds.

Risk management in student-managed funds

PurposeStudent-managed investment funds typically pursue “plain vanilla” objectives. The purpose of this paper is to demonstrate the value of adding option strategies to reduce the risk of equity positions around earnings announcements. The collar strategy is one such technique with the advantages of a low net cost and limited potential losses.Design/methodology/approachThe authors provide recommendations for utilizing the collar strategy around earnings announcements. The authors also discuss how the value of this strategy is related to the literature on option pricing and earnings announcement returns.FindingsRisk management strategies can enhance the pedagogical value of student-managed investment funds. The authors document how students have successfully utilized the collar strategy to immunize risk.Originality/valueThe collar strategy can enhance the pedagogical value of student-managed investment classes in several ways. First, students learn how to implement risk reduction strategies. Second, the proper implementation of these strategies requires students to learn the complex mechanisms associated with corporate earnings dissemination and analyst coverage. This also provides an opportunity to study earnings drift, which is a persistent and economically significant financial anomaly.

(Presentation Slides) Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence From Personal Trades

This study tests whether naive trading by individual investors, or some class of individual investors, causes post-earnings announcement drift (PEAD). Inconsistent with the individual trading hypothesis, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns. Moreover, individuals are significant net buyers after both negative and positive extreme earnings surprises, consistent with an attention effect, but not with their trades causing PEAD. Finally, we find no indication that trading by individuals explains the concentration of drift at subsequent earnings announcement dates. The paper is available here: https://ssrn.com/abstract=1120495.

Are investors compensated for their sophistication and informedness for company takeovers – An Australian study

I determine the sophistication and information level in takeovers for four investor classes which are individuals, nominees (fund managers), superannuation (pension) funds and incorporated companies. I also calculate their takeover returns. I find that the superannuation funds are informed and sophisticated; individuals are informed but unsophisticated; nominees are uninformed but sophisticated; and incorporated companies are uninformed and unsophisticated traders, and that the investors realise a return which is commensurate with their information and sophistication. This study improves on existing takeover return research which assumes, as a group, institutions are synonymously informed and sophisticated, and individuals are synonymously unsophisticated and uninformed.

Law firm announces investor class action filed against PPG Industries Inc.

Law firm announces investor class action filed against PPG Industries Inc.

Rates of return for crowdfunding portfolios: theoretical derivation and implications

ABSTRACTCrowdfunding (CF) is emerging as a fast-growing new class of private equity investment. But research on the rates of return that CF investments should yield is sparse. In this paper, we analyse CF investments from the perspective of an investor that exhibits non-satiation behaviour (seeks the maximum return for a given investment risk). Using internal rate of return (IRR) as the return metric, we apply modern portfolio theory, efficient market theory, the Central Limit Theorem and historical returns data for three private equity asset classes – equity funds (1112 funds), venture capital funds (1,474 funds) and Angel investments (1137 exited investments) – to find the efficient frontier of the private equity market. Applying the efficient frontier to CF investments enables us to show with 99% confidence that the target IRR for an efficient CF portfolio is at least 28% if the CF asset class is 10% riskier than Angel investments. We further show that the set of companies that qualify for CF collapses to that small subset that can achieve the revenue growth, and/or can accept the capital structure required to achieve the target IRR.