Common Investors Research Articles

Vulnerability to spillovers

This paper quantifies the impact of common investors in creating vulnerability through international spillovers in the 1980s, 1990s and 2000s. A spillover is the impact on a country resulting from changes occurring abroad; domestic economy fundamentals are assumed to remain constant. The impact arises from a purely external shock because of changes in linked countries. A vulnerability index proposed by Kelejian and Mukerji (Pap Reg Sci 90(4):693–702, 2011) is used to measure the spillover. This paper proposes a novel method to split the vulnerability into two parts: one arising from international linkages and another from prevailing domestic conditions determining sensitivity to spillovers. Findings suggest a rising vulnerability index over successive decades, chiefly driven by international linkages.

Corporate Governance Practices of Family Enterprises: A Study on Some Selected Indian Family Governed Companies

<p>Corporate governance implies how an organization is directed and controlled under a set of mission, values, and philosophy (Cadbury, 1992). But unfortunately, over time, the common investors all over the globe have suffered a lot in the hands of the greedy managers and scams like Enron, Adelphia, Tyco, Worldcom, Xerox, Paramalt, and Satyam have shattered the trust in the very mechanism of corporate management and governance. However, despite a lot of initiatives had been taken around the world in the form of codes/laws for ensuring good governance for corporate sector, the issue of governance practices of family enterprises operating in India had not been discussed in detail. But, in view of the contribution of the family enterprises to Indian Economy over the years, a renewed interest on their governance mechanism is the need of the hour. Starting from Tata to Birla, Ambani, Goenka, Ruia, Mittal etc. Corporate India had a long heritage of domination of family governed firms. They contribute significantly towards economic growth of the country, employment generation, boosting up Gross Domestic Production as well as accumulation of foreign reserve through growth in export and also engaged into cross border Merger and Amalgamations. However, time and again the issues of governance and succession policy had perturbed the smooth sailings of these family governed firms in India. Recent examples like clash between Ambani brothers, inheritance issues in Birla clan proved that case. Against this backdrop the present study is a humble attempt to enquire the state of affairs of corporate governance in major family governed firms in India.</p>

Fund Portfolio Holdings and Affiliated Analyst's Objectivity: Do Equity and Employment Relationship Matter?

ABSTRACTThe author investigates how the equity relationship between fund company and brokerage firm as well as employment relationship between analyst and brokerage firm affect affiliated fund stock portfolio holding and the affiliated analyst's objectivity. By using the specific data of such equity and employment relationship, the author finds that equity and employment relationship do matter in fund portfolio holdings and analyst objectivity. Specifically, analysts tend to release more optimal ratings on stocks that have been hold by the funds, and the funds tend to significantly reduce the stocks in their portfolio once the analysts have announced high ratings on the stocks. Moreover, the analysts in employment relationships with majority shareholders of funds and with a low reputation reveal worse objectivity. In addition, from the point of abnormal return, analysts in employment relationships with majority shareholders of funds and with a low reputation damage the interests of common investors.

Corporate Investors Increased Common Ownership In Hospitals And The Postacute Care And Hospice Sectors.

The sharing of investors across firms is a new antitrust focus because of its potential negative effects on competition. Historically, the ability to track common investors across the continuum of health care providers has been limited. Thus, little is known about common investor ownership structures that might exist across health care delivery systems and how these linkages have evolved over time. We used data from the Provider Enrollment, Chain, and Ownership System of the Centers for Medicare and Medicaid Services to identify common investor ownership linkages across the acute care, postacute care, and hospice sectors within the same geographic markets. To our knowledge, this study provides the first description of common investor ownership trends in these sectors. We found that the percentage of acute care hospitals having common investor ties to the postacute or hospice sectors increased from 24.6percent in 2005 to 48.9percent in 2015. These changes have important implications for antitrust, payment, and regulatory policies.

Common Asset Holdings and Stock Return Comovement

A growing literature highlights the effect of common asset holdings on market dynamics. Focusing on relatively large stocks, Anton and Polk (2014) find that assets with many common investors comove more strongly in the future than otherwise similar stocks. In order to acknowledge the shift in institutional preferences over the last two decades we perform a similar analysis but also include small stocks in our sample. Our main findings are as follows: first, we document a strong increase in both institutional ownership and common asset holdings over the sample period, particularly so for the smallest stocks. Second, raw stock return correlations have also increased strongly over time, while the increase is much more modest for factor model residual correlations. Third, we confirm that common ownership is significantly related to future return correlations for relatively large stocks, but the relationship appears to become less important over time. For relatively small stocks the relationship is often insignificant, but the effect appears to become more important over time. Lastly, we find no evidence that institutional ownership Granger-causes return correlations for the subset of small stocks.

The Wonderland of Equity and Real Estate Investment

The Equity investment is an avenue where even a common man has an opportunity to enter the wonderland of investment with his meager savings. Common investors in the stock market generally rely on rumor, tipsters and manipulators They rarely use the marvels of modern technology which to a great extent are in favour of genuine investor. There is no other avenue of investments that offers better returns than equity stock market. The Real Estate investment is other end of investment where the entry is for financially sound investors. The present paper tries to offer a bunch of a few suggestions with which a sensible, patient and disciplined investor can earn a few bucks.

Dynamical evolution of trading behavior on anti-coordination game in complex networks

Purpose The purpose of this paper is to explore the evolvement of investors’ behavior in stock market dynamically on the basis of non-cooperative strategy applied by investors in complex networks. Design/methodology/approach Using modeling and simulation research method, this study designs and conducts a mathematical modeling and its simulation experiment of financial market behavior according to research’s basic norms of complex system theory and methods. Thus the authors acquire needed and credible experimental data. Findings The conclusions drawn in this paper are as follows. The dynamical evolution of investors’ trading behavior is not only affected by the stock market network structure, but also by the risk dominance degree of certain behavior. The dynamics equilibrium of trading behavior’s evolvement is directly influenced by the risk dominance degree of certain behavior, connectivity degree and the heterogeneity of the stock market networks. Research limitations/implications This paper focuses on the dynamical evolvement of investors’ behavior on the basis of the hypothesis that common investors prefer to mimic their network neighbors’ behavior through different analysis by the strategy of anti-coordination game in complex network. While the investors’ preference and the beliefs among them are not easy to quantify, that is deterministic or stochastic as the environment changes, and is heterogeneous definitely. Thus, these limitations should be broken through in the future research. Originality/value This paper aims to address the dynamical evolvement of investors’ behavior in stock market networks on the principle of non-cooperative represented by anti-coordination game in networks for the first time, considering that investors prefer to mimic their network neighbors’ behavior through different analysis by the strategy of differential choosing in every time step. The methodology designed and used in this study is a pioneering and exploratory experiment.

Motivations behind irrationality in the shipping asset management

Purpose The purpose of this paper is to investigate and clarify “irrationality” problem through the maritime industry practices and leading incentives behind common investors. Design/methodology/approach This paper includes a review of broader business and economics literature; review of shipping business practices and detection of institutional pathways and misleading mechanisms behind the irrational preferences; investigation of data (for some arguments); and introduction of a theoretical approach. Findings There are several industry practices and norms well established and followed by decision makers, which may cause and initiate illogical and irrational (long-run) preferences. Short-termism is an erroneous habit of common shipping investors, which is embedded and forced through traditional financial math (i.e. discounted cash flow), financial system (e.g. initial public offerings with high-frequency transactions, interest rate governance and asset valuation mechanism) or flawed contracting tradition (i.e. commission bias). Practical implications Both shipping business and financial institutions need to redesign their working mechanisms, evaluation systems, risk detection and assessment procedures. As discussed in Section 4.7, commission-based (float) services must be converted to regular flat rate payments with long-term contracts to protect investors from rational choices of intermediaries in the short-run which encourages investor’s irrationality. Having a long-term service contract will also improve sustainability of intermediaries and lower their business risk (win-win). Originality/value The impact of this paper is two-fold. First, it raises critical questions about professional decay and drawbacks of some traditional instruments in the shipping business. For the first time, this paper emphasises on various challenges which deteriorate credibility of the industry and causes ill-defined investments. Some arguments have extreme priority for strengthening the foundations of the industry. Second, this paper establishes a new stream of scholarly research highlighting weaknesses of conventional economic approach and demand for outsourcing other schools of economics (e.g. institutional and behavioural) into the shipping business.

Dimensions of Personal Finance and Investment : An Overview

Personal Financial Planning The domestic and work related responsibilities of most investors do not permit them to go deep into the intricacies of investment, insurance, finance, real estate and taxation. Common investors require investment advice that is simple, effective, easily understood and easily remembered. Few sectors are witnessing such explosive growth as the financial services sector. There is a crying need for properly trained financial advisors in India today.

A Study on Stock Co-Movement’s Analysis of Select Bank and IT Company Stocks

The risk of a portfolio depends on the co- movement between the security returns forming the portfolio. The coefficient of correlation is an important measure for studying co movement between securities. Banking and IT company’s shares represent sizable share of market portfolio of common investors. In this perspective the present study has been undertaken to help small retail investors who commonly invest in these two major sectors to understand the co movement of returns among Banking and IT industry stocks. This study covers correlation co movement calculation between selected four Banking shares and four IT companies’ shares for a period from 16th June 2014 to 15th June 2015. The correlation between banking shares are more positive compared to correlation between IT company shares. This implies that the banking stocks return more or less move in the same direction. The correlation between Banking and IT Company stocks are either zero or negative which implies that these two sectors shares are not related or move in the opposite direction in terms of return. This implies that banking and IT industry shares are good combinations for portfolio construction which substantially reduces the risk of that particular portfolio.

Are Women Financially Educated? A Study with Reference to Earning Women of Aurangabad District, Maharashtra

The global economic crisis has been a learning experience the world over. The causes of this crisis have been critically analyzed by many. One of the important reasons identified by the analysts is the complexity of financial instruments and the lack of proper understanding of them among the common investors. This clearly points out the inadequacy of financial education among the populace. Research from around the world reports inadequate financial literacy which raises serious concerns about the ability of individuals to secure their financial well-being. There is evidence that individuals under-save, fail to invest wisely, and are often indebted. The fact needs be emphasized that in today's world that promotes gender equality, both women and men need to be sufficiently financially literate. However, women often are observed to be playing a passive role in case of financial decision making. This research paper attempted to study the extent of financial awareness and financial knowledge among earning women. The paper concluded with an emphasis on financially educated women for financial well being.

Fund Portfolio Holdings and Affiliated Analyst's Objectivity: Do Equity and Employment Relationship Matter?

This paper investigates how the equity relationship between fund company and brokerage firm as well as employment relationship between analyst and brokerage firm affect affiliated fund stock portfolio holding and affiliated analyst’s objectivity. By using a specific data of such equity and employment relationship, we find that equity and employment relationship do matter in fund portfolio holdings and analyst’s objectivity. Specifically, analysts tend to release more optimal ratings on stocks that have been hold by the funds, and the funds tend to significantly reduce the stocks in their portfolio once the analysts have announced high ratings on the stocks. Moreover, the analysts in employment relationship with majority-shareholder of funds and with low reputation reveal worse objectivity. In addition, from the point of abnormal return, analysts in employment relationship with majority-shareholder of funds and with low reputation damage the interests of common investors.

An intelligent pattern recognition model for supporting investment decisions in stock market

For many years, how to make stock market predictions has been a prevalent research topic. To carry out accurate forecasting, stock analysts and academic researchers have tried various analysis techniques, algorithms, and models. For example, "technical analysis” is a popular approach used by common stock investors to analyze market trend, and Artificial Intelligence (AI) algorithms such as genetic algorithms (GAs), neural network (NN), and fuzzy time-series (FTS), were proposed by researchers to forecast the future stock index. Although the daily forecasts are very useful for professional investors who implement intraday trading, we argue that forecasting a bullish turning point is a more interesting issue than the future stock index for common investor because an accurate forecast will bring a huge amount of stock return. Therefore, this paper proposes an intelligent pattern recognition model, based on two new stock pattern recognition methods, “PIP bull-flag pattern matching” and the “floating-weighted bull-flag template,” to recognize a bull-flag stock pattern. The bull-flag pattern is a stock's turning point with proper timing, which can enable a stock investor to profit. To promote recognition accuracy, the proposed model employs chart patterns and technical indicators, simultaneously, as pattern recognition factors. In the model verification, we evaluate the proposed model with stock returns by forecasting two stock databases (TAIEX and NASDAQ), and comparing the returns with other advanced algorithms. The experimental results indicate that the proposed model outperforms the published algorithms, such as rough set theory (RST), genetic algorithms (GAs) and their hybrid model, and gives a high-level of profitability. Additionally, the trading strategies, provided by the proposed model, also help investors to make beneficial investment decisions in the stock market.

Does national culture affect the intensity of volatility linkages in international equity markets?

We investigate whether cultural proximity can intensify volatility linkages across international equity markets. Using daily data on national stock market indices for a sample of 49 developed and developing countries, we find that our cultural distance measure is inversely related to the strength in return volatility linkages between country pairs. We also find evidence that national culture is particularly important when there is a wider common investor base between two markets with greater bilateral portfolio investments. Furthermore, we reveal that when one market within a country pair is relatively less open than another market in terms of their foreign exchange trading activity then the cultural distance between them will further weaken volatility linkages. Our results suggest that market participants with similar cultural backgrounds respond to and impound information into equity prices in a similar fashion and this works to intensify volatility linkages around the world.

Market Runs of Hedge Funds During Financial Crises

We develop a market model to illustrate synchronized market runs by informed and rational hedge funds. A hedge fund’s capital structure is fragile because uninformed fund investors are highly loss sensitive and easily withdraw capital in response to bad news. Hedge fund managers, sharing common investors and interacting with each other through market price, sensitively react to other funds’ investment decisions. In this environment, we use a global game technique to show the likelihood of panic-based market runs arising not because of systematic risk but because of the fear of runs. We also find that when the market regime changes from a normal state (in which runs are impossible) to a “bad” state (in which runs are possible), hedge funds reduce investment prior to runs. In addition, by calculating the ex ante probability of market runs, the model shows that they are more likely to occur in a market where hedge funds hold greater market exposure and uninformed traders have greater sensitivity to past price movement. Our findings help to understand the relation between stock price deterioration and resulting hedge funds’ reactions, such as the quick leverage reduction and stock market exodus observed during the global financial crisis of 2007-2009.

An Empirical Analysis On Perception of Investors’ Towards Various Investment Avenues

Purpose: The economic liberalization and globalization have brought a fervent environment for the common and small investors who are willing to participate in the various investment avenues available in India. There are large number of small investors, who have the ability to save and make an investment in share market, gold, real estate, insurance and post office. In recent years, numerous researches have been conducted on investors’ perception towards various investment from various perspectives. From a survey on investment literatures of equity, insurance, and mutual fund perspective, there are some studies based on the investment on various avenues made by researchers. However, the investors’ perception towards various investment avenues in Vellore city, Tamil Nadu and India is yet to be explored. This article is therefore timely and fills the gap in investment avenues literature. Furthermore, by pooling small amounts of money into a single investment value, individual investors are able to participate in investment strategies that would have otherwise been financially unfeasible. The Indian investment industry is witnessing a rapid growth as a result of infrastructural development, manufacturing and service sector, in personal financial assets and rise in foreign participation. With the growing risk appetite, rising income, and increasing awareness. Mutual funds and shares are becoming a preferred investment vehicles like bank fixed deposits and post office savings that are considered safe. The present empirical study is an attempt to examine the investors’ perception towards various investment avenues in Vellore city, Tamil Nadu, India. Design/Methodology/Approach: Primary data using convenient sampling through questionnaire and interview method as well as secondary data from wide range of literature from various journal publications had been utilized. Frequency distribution, percentage analysis, Mann Whitney and Kruskal-Wallis Test were used to test the objectives of the study. In order to test the reliability of the scale, the researchers applied Cronbach’s Alpha (CFA) to measure the internal consistency of the variables. Findings: The findings of the study on investors’ perception towards various investment avenues emphasized that the aged and high income investors prefer to invest only in post office and bank deposits for safety investment reason. Originality/Value: An Empirical Analysis on Investors’ perception towards various investment avenues in Vellore city, Tamil Nadu and India is the original work of the authors. DOI: 10.5901/mjss.2015.v6n4p427

Financial Constraints and Firm Innovative Performance: Evidence from Chinese Companies

For a developing country undergoing economic transition like China, innovation plays an important role in optimizing the industrial structure and in improving economic growth. In general, due to the risk adverse behavior of the common investors, innovation activities often face a greater financial constraint compared to other routine activities of the firm. This study aims at examining the effect of financial constraints on firm innovative performance in the Chinese economic context. It further examines the moderating effects of state ownership and institutional environment on the relationship between financial constraints and innovative performance, using a firm level data set from 25 representative Chinese cities in 2012. The empirical results show that financial constraints do impede firms' innovative performances. Although state-owned equity has no direct effect on innovative activities, the negative effect of financial constraints on innovative performance is smaller for controlling state-owned compa...

Economic and Statistical Significance of Disposition Effect and Momentum in the US Stock Market

Disposition effect is the tendency of investors to ride losses and lock in gains. Capital gains overhang is a quantity used in prior literature to construct hypothesis tests for the existence of the disposition effect using publicly available stock market data. This quantity estimates the difference between the current price of a stock and the average price at which the currently held shares of the stock have been purchased by their current owners. Momentum effect is the tendency of the recent price trends to persist. We construct a number of trading strategies based on the capital gains overhang and momentum. We use the US stock market data to show that these strategies were consistently profitable during 1980-2013, and negatively correlated with the market. These conclusions hold even after eliminating small-cap and small-price stocks that may be difficult to trade, and after introducing a realistic trading cost for every transaction. We find a high empirical correlation between the strategies based on momentum and on the capital gains overhang, and argue that the former may be preferable for practitioners because of better performance and simpler implementation. These results also suggest that, rather than measuring the disposition effect, the capital gains overhang may simply be a proxy for momentum. Our findings would be of interest to portfolio managers, quantitative traders, researchers who analyze financial signals, as well as ordinary investors seeking to avoid common investor biases.

Stock trading rule discovery with an evolutionary trend following model

Evolutionary learning is one of the most popular techniques for designing quantitative investment (QI) products. Trend following (TF) strategies, owing to their briefness and efficiency, are widely accepted by investors. Surprisingly, to the best of our knowledge, no related research has investigated TF investment strategies within an evolutionary learning model. This paper proposes a hybrid long-term and short-term evolutionary trend following algorithm (eTrend) that combines TF investment strategies with the eXtended Classifier Systems (XCS). The proposed eTrend algorithm has two advantages: (1) the combination of stock investment strategies (i.e., TF) and evolutionary learning (i.e., XCS) can significantly improve computation effectiveness and model practicability, and (2) XCS can automatically adapt to market directions and uncover reasonable and understandable trading rules for further analysis, which can help avoid the irrational trading behaviors of common investors. To evaluate eTrend, experiments are carried out using the daily trading data stream of three famous indexes in the Shanghai Stock Exchange. Experimental results indicate that eTrend outperforms the buy-and-hold strategy with high Sortino ratio after the transaction cost. Its performance is also superior to the decision tree and artificial neural network trading models. Furthermore, as the concept drift phenomenon is common in the stock market, an exploratory concept drift analysis is conducted on the trading rules discovered in bear and bull market phases. The analysis revealed interesting and rational results. In conclusion, this paper presents convincing evidence that the proposed hybrid trend following model can indeed generate effective trading guidance for investors.

Applying contingent capital in Canada

This article discusses a financial instrument – non-viability contingent capital (NVCC) – that could help policymakers manage distress at systemically important banks, and facilitate their resolution with less risk to taxpayers. The article sets out the motivation for, and key features of, NVCC. It also considers mechanisms that could be used to mitigate the risk of death spirals, which could be associated with such a convertible instrument. As well, with reference to the major Canadian banks, the article simulates the effects of converting NVCC into equity for the dilution of common stock at non-viability, and provides rates of recovery for common shareholders and NVCC investors, based on illustrative conversion formulas.