Common Stock Investment Research Articles

Effect of Attitude Towards Risk on Individual Portfolio Choice at the Nairobi Securities Exchange, Kenya

Attitude towards riskplays a major role of determining a portfolio choice of an investment portfolio composed of a single or multiple assets that an investor chooses within a certain period of time. Although there exist numerous controversial arguments of the factors that determine the level of individual portfolio choice, focus on multidimensional perceptions of investors characteristics have been given little attention. The objective of this study was to determine the effect of investor’s attitude towards risk on individual portfolio choice at the Nairobi securities exchange and to investigate the moderating effect of investor’s age on the correlation between attitude towards riskand individual portfolio choice on common stocks at the Nairobi securities exchange. The study is anchored on risk aversion theory. A correlational research design was used for collecting data for the variables under study over a period of five years from January, 2013 to December, 2017. The population consisted of individual investors estimated at 2.4 million as at 31 st December 2017 based on Central Depository and Settlement Corporation Limited (CDSC). A target population of 997,605 active retail investors who also form the accessible population at Nairobi securities exchange(NSE) were used to draw a sample size of 385 active individual retail investors. Both stratified and convenience sampling was used to select the required number of respondents. A structured questionnaire was used to collect the data whereby drop and pick approach was used by the researcher and research assistants. Pilot testing of the instruments was performed to assess its reliability. Further, multiple regression techniques were used to analyze the data obtained that was presented using frequency tables, means, standard deviations and correlation tables. The study findings revealed that attitude towards risk, have a positive and significant effect on the common stocks. As such a unit increase in a predictor variable leads to an increase in investment in common stocks. Further, the results of the study indicated that age moderate the relationship between attitude towards risk and the individual portfolio choice in respect to common stocks. The study will benefit management of investment banks and brokerage firms in policy formulation to assist individual investors in their portfolio choices and also to the academicians to advance the conceptual arguments of the moderating effect of age on the relationship between attitude towards risk and individual portfolio choice. Keywords: Attitude towards risk, Individual portfolio choice, Risk aversion,Investor’s age. DOI: 10.7176/RJFA/13-20-01 Publication date: October 31 st 2022

The Business Cycle And The Portfolio Composition Of Mutual Funds

This paper summarizes the arguments and counterarguments within the scientific discussion on the issue of mutual funds’ composition across the business cycle. The main purpose of the research is to determine whether mutual funds alter their investments across the business cycle. Systematization of the literary sources and approaches for solving the problem of the relationship between the business cycle and the composition of mutual funds indicates that five-star rated mutual funds may have an investment strategy that is different from lower-rated funds. Investigation of the topic of the relationship between the business cycle and composition of mutual funds in the paper is carried out in the following logical sequence: First, we classified each quarter as an “improving” or a “worsening” business condition period based on the Aruoba-Diebold-Scotti Business Conditions Index. As a result, we had seven “improving” and seven “worsening” business condition periods during our sample period. Then, we compared each star group (one-star to five-star) investments in common stocks, preferred stocks, convertible bonds, warrants, corporate bonds, municipal bonds, government bonds, other securities, and cash across the “improving” versus the “worsening” periods. The methodological tools utilized in this research were nonparametric tests. The objects of the research are the mutual funds listed in the CRSP quarterly mutual funds dataset for the 2003-2006 period. The paper presents the results of empirical analysis for these mutual funds, which showed that five-star funds tend to have a different strategy when compared to lower-rated funds. The research empirically confirms and theoretically proves that the five-star funds tend to invest more in riskier assets and they tend to better adjust to the conditions (i.e. invest more in common stocks and less in bonds in improving periods) when compared to the other groups. This explains their success: higher NAVs compared to the other groups and higher star ratings. On the other hand, our results show that the lower-rated funds do not adjust their investments in main asset classes like stock and bonds during “improving” versus “worsening” business condition periods. Overall, our results indicate that mutual funds’ star ratings and NAVs are linked to these funds’ success in their adaptation to the macro-economic environment. The results of the research can be useful for investment firms or individual investors that consider investing in U.S. mutual funds. Keywords: mutual fund, portfolio, business cycle, recession, net asset value.

Risk and Return Analysis of Commercial Banks of Nepal (with reference to NABIL and NIBL)

This paper analyze the risk and return on common stock investment of Nepalese stock market and it is focused on common stock of two commercial banks listed in Nepal stock exchange Limited. Investors have varying perception towards risk and enterprising activities. They invest in those opportunities which have certain degree of risk associated with it. This research study found that there is a positive relationship between risk and return. Most of the investors are risk averter. It suggest to construct appropriate portfolio instead of investment in a single security which would be able to reduce unsystematic or diversifiable risk. The secondary data which was collected from NEPSE website (www.nepalstock.com), previous studies, NRB publications and publication of selected commercial banks, website of security board of Nepal (SEBO), Journals and internet. Both quantitative and qualitative analysis has been analyzed by using scientific methods. After the analysis of risk and return of sample bank and based on the past data of their last five fiscal years i.e. (FY-2012/13 to FY-2016/17), it is concluded that all the commercial banks are very much risky with fluctuated rate of return. From the findings of beta coefficient of each sample bank, the C.S. of NABIL is seems very much volatile than NIBL stock. It was also found that both selected bank have a high proportion of unsystematic risk.Pravaha Vol. 24, No. 1, 2018, Page: 109-119

Examining the Skewness and Kurtosis of Value vs. Glamour Portfolios

We analyze the relationships between higher moments (i.e., skewness and kurtosis) of common stock portfolio returns in the context of how they reflect the behavioral traits or investment style of market participants. Normally, any participant in the stock market is classified as an investor. However, Benjamin Graham, the acknowledged father of value investing, defines investment as an operation that upon thorough analysis promises safety of principal and satisfactory returns. Anything other than that is speculative. We classify investors, or more specifically value investors, as those who make their investment decisions in a manner consistent with Benjamin Graham’s definition. In contrast to Benjamin Graham’s definition, traditional finance theory labels as “investor” anyone who is making choices among financial assets. In this paper, we make a distinction between those who are behaving as investors as defined by Benjamin Graham and those who are making common stock investment decisions that are more representative of gambling behavior. We hypothesize that the common stock portfolio returns of value investors will be more negatively skewed, or at least lower than that of gamblers. Similarly, we hypothesize that the kurtosis of portfolio returns of value investors will be greater than that of gamblers. Using stock returns data from NYSE from 1999 to 2013, we created two portfolios based on price-to-book ratio: one we call quasi value (lowest price-to-book) and the other glamour portfolios (highest price-to-book). We then compared the higher moments of both sets of portfolios. The results show that contrary to what we hypothesized, the returns of glamour portfolios had lower skewness than the quasi value portfolios. However, as hypothesized, the kurtosis of the quasi value portfolios were higher than those of the glamour portfolios. We interpret that to mean that without a full value investing analysis, the extent of diversification of a portfolio is the primary determinant of its skewness.

Cap-Weighted All Stock Indices, Emerging Markets

The all-stock equity indices provide important information to market participants for asset allocation and investment performance evaluations. In this paper, we construct market capitalization weighted indexes for each of the 23 countries included in the MSCI Emerging Markets index as of December 31, 2014. We filter out country level data for illiquid and very small companies and construct indexes that represent most of the market capitalization of each country. We then combine each one of the country indexes based on the total U.S. dollar market capitalizations of each country to create an emerging markets index. We believe that this index represents the overall common stock investment opportunity set in emerging markets and that the investment returns of this index represents the investment returns of all investors in emerging markets.

Cap-Weighted All Stock Indices, Developed Markets

The all-stock equity indices provide important information to market participants for asset allocation and investment performance evaluations. In this paper, we construct market capitalization weighted indexes for each of the 23 countries included in the MSCI World Developed Market index as of December 31, 2014. We filter out country level data for illiquid and very small companies and construct indexes that represent most of the market capitalization of each country. We then combine each one of the country indexes based on the total U.S. dollar market capitalizations of each country to create a developed market index. We believe that this index represents the overall common stock investment opportunity set in developed markets and that the investment returns of this index represents the investment returns of all investors in developed markets.

Redefining Risk and Return in Common Stock Investment

Redefining Risk and Return in Common Stock Investment

Surprising Comparison Of Risk And Return Factors Between Real Estate Investment Trusts (REITs) And The S&P 500 Index During The 2000-2011 Time Period

<p>We composed and contrasted stock returns for large capitalized companies (S&P 500) with returns of real estate investment trusts using the Financial Times equity, mortgage and composite indexes. The time period which was chosen was 2000 through 2011. This period is significant because up until the crash of 2008, the real estate bubble was forming. Major real estate problems were already in force in 2007, but serious deflation really did not fully commence until the stock market crash in the late summer and early fall of 2008. With such heavy doses of deflation, one would think real estate was doomed. We found that average returns for the S&P 500 during this time period was 2.44% vs. a 13.73% average return for the composite Real Estate Investment Trusts (REIT) index. We calculated the geometric returns of .0054% for the S&P 500 vs. 11.21% for the composite REIT. This geometric return calculation was necessary because of many negative returns over a short period of time. The real surprise came when we risk adjusted our numbers using coefficients of variation. Using average returns, we found that the S&P 500 took 7.9959 units of risk for each unit of return, while the composite REIT composite only took 1.6497 units of risk per return. Even the SE Mortgage index only took 2.4914 units of risk per unit of return, while the Equity REIT index took on 1.5744 units of risk per return. Utilizing geometric returns or compounded rates of return, we found a coefficient of variation (CV) of 9.755 for the S&P 500, where the composite REIT experienced a 2.0205 CV and the FTSE Mortgage index showed a 4.0023 CV. Even though mortgage REITs took a greater hit than equity REITs, we still found a favorable relationship of risk and return vs. investment in common stocks. Money managers, who were properly diversified, rode out the financial storm much more comfortably with REITs as part of their diversification parameters.</p>

Governments as Investors of Last Resort, Credit Crisis Comparative Case Studies

Governments in Europe and the US have recently acquired significant stakes in a number of financial institutions, raising fears that they will use their investments to pursue interventionist goals. The comparative analysis of 16 major bail-outs in Belgium, Germany, France, Ireland, Switzerland, the UK and the US provides evidence to the contrary. Fiscal and political considerations have prompted governments to generally avoid common stock investments, limit direct managerial involvement and favor early exits. While this investment strategy may prove detrimental to other stakeholders, it resembles the approach distressed asset investors would adopt under the circumstances.

Governments as Investors of Last Resort: Comparative Credit Crisis Case-Studies

Governments in Europe and the United States have recently acquired significant stakes in a number of financial institutions, raising fears that they will use their investments to pursue interventionist goals. The comparative analysis of sixteen major bailouts in Belgium, Germany, France, Ireland, Switzerland, the United Kingdom and the United States provides evidence to the contrary. Fiscal and political considerations have prompted governments to generally avoid common stock investments, limit direct managerial involvement and favor early exits. While this investment strategy may prove detrimental to other stakeholders, it resembles the approach distressed asset investors would adopt under the circumstances.

Peer Effects at Work: The Common Stock Investments of Co-Workers

Stock market behavior of individual investors is highly correlated with stock market behavior of their co-workers. For example, a ten percentage point increase in the fraction of co-workers that purchase stocks in a given month is associated with a two percentage point increase in the likelihood of individuals making a purchase. The high correlation exists even after taking controlling for individual socio-demographic characteristics and for time, stock, zip code, and plant fixed effects. Using data on family relations and on residential zip code, we show that the high correlation is not driven by peer effects at the family or zip code level. Moreover, workplace peer effects appear to be strong relative to geographical peer effects.

Abnormal Returns from the Common Stock Investments of Members of the U.S. House of Representatives

Abnormal Returns from the Common Stock Investments of Members of the U.S. House of Representatives

Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives

A previous study suggests that U.S. Senators trade common stock with a substantial informational advantage compared to ordinary investors and even corporate insiders. We apply precisely the same methods to test for abnormal returns from the common stock investments of Members of the U.S. House of Representatives. We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).

Understanding Online Traders' Behavior: An Example from Common Stock Investment in Taiwan

The effect of online trading on investors' trading behavior is analyzed based on investors' trading data provided by a major security firm in Taiwan. Findings are as follows: (1) Male and younger traders preferred online trading. Investors who had a higher gross return tended to switch to using online trading. (2) Even though investors traded more actively after going online, their trading performance was not negatively affected. (3) Online trading did not significantly increase speculative trading even though more information can be assessed online. (4) The order execution efficiency of online trading was better than that of phone-based trading.

Rates of Return on Investment in Common Stocks in Nigeria*

Rates of Return on Investment in Common Stocks in Nigeria*

Rates of Return on Investment in Common Stocks in Nigeria

Rates of Return on Investment in Common Stocks in Nigeria

The Mixed Asset Portfolio for Asia-Pacific Markets

Executive Summary.In this study, mixed-asset portfolios were constructed containing real estate, common stock, and bond investments from various Asian-Pacific countries. The countries of particular interest include six economically developing countries: China, Indonesia, Malaysia, the Philippines, South Korea, and Thailand, and five developed countries: Singapore, Japan, Hong Kong, Australia, and New Zealand. The time period is 1998-2005. Upon close examination of these portfolios, it becomes clear that currency risk is a larger concern when investing in countries with emerging markets in comparison to countries with already developed markets. Despite the currency risk, the results of this study show that mixed-asset portfolios from countries with emerging economies have outperformed the assets of developed countries for moderate and aggressive investors targeting Asian-Pacific countries.

The Built-in Capital Gains Tax Liability for Common Stock: The Importance of the Holding Period Assumption

Abstract While calculating the built-in capital gains tax liability associated with holding common stock investments has been quite controversial, in fact, it is very straightforward. The key is to realize that the assumption of a holding period automatically creates a liability equal to the government's right to participate in a portion of the stocks' dividends and appreciation during the holding period.

Terror and trade of individual investors

A great number of psychological studies document the influence of emotions on individuals’ decision-making processes. This paper contributes to this literature by analyzing the possible impact of terrorism on financial trade by individual investors. Using account data for over 3000 households obtained from a large Israeli bank, we look into reactions of common stock investments to terrorist incidents in the years 1998–2002. The empirical analysis indicates that terror has a significant adverse effect on actual trade, possibly limiting the scope of risk-sharing available through traded securities. Several psychological explanations for investors’ reluctance to trade are provided. Amongst them are the increase in public fear (resulting in pessimistic risk estimates and risk averse choices); the sense of ambiguity caused by terror; repercussions of anxiety and depression disorders; a desire to avoid future regret. Our results add to the recent literature documenting the harmful effects terrorist acts have on various facets of the economy.

Abnormal Returns from the Common Stock Investments of the U.S. Senate

Abnormal Returns from the Common Stock Investments of the U.S. Senate