Distribution Of Portfolios Research Articles

Gamson going global? Cabinet proportionality in comparative perspective

Abstract We conduct a global, large-N analysis of proportionality in the partisan distribution of cabinet portfolios. Formulated in the context of postwar Western European parliamentary democracy, Gamson’s Law predicts that parties joining a coalition government will receive cabinet ministries in direct proportion to the seats they are contributing to the coalition on the floor of the legislature. Using a sample of 1551 country-years of coalitional government in 97 countries from 1966 to 2019, and comparing all main constitutional formats (parliamentary, presidential, and semi-presidential), we find that Gamson’s Law does not travel well outside its context of origin. Among the constitutional predictors of cabinet proportionality, we find that pure presidentialism is a major outlier, with an exaggerated form of formateur advantage. Introducing party-system and assembly-level predictors to the debate, we find that party institutionalization tends to increase fairness in portfolio allocation within parliamentary systems only.

Household portfolios in Türkiye: Results from the household finance and consumption survey

This paper analyzes the distribution of household portfolios in Türkiye using a fresh data set, the Central Bank of the Republic of Türkiye – Household Finance and Consumption Survey. The empirical analysis concentrates on the motives behind household saving preferences and the distribution of household portfolios. Moreover, the financial situation of households in Türkiye is compared with Euro area countries. First, we find that income and household characteristics are among the leading determinants of households' portfolio choices in Türkiye. Second, we reveal that households’ portfolios are under-diversified, since they own relatively small amounts of financial wealth and hold a few types of financial assets. Furthermore, risky asset categories such as shares of publicly traded companies are rarely included among them. Third, households are more likely to invest in financial assets as their income increases, but the share of financial assets in total wealth remains subdued as household income increases, since at that point real estate wealth becomes dominant. Finally, we discover that households are more likely to be in debt in Türkiye compared to households from the Euro area. Additionally, they are more likely to accumulate non-collateralized debt and also private debt, which is owed to friends and relatives to be repaid. However, the percentage of households with mortgage debt and the share of mortgage debt in total household liabilities are smaller in Türkiye, suggesting that many households have to rely on their own funds or private loans to purchase homes. As a result, we can argue that households need to be encouraged to invest a larger share of their wealth in financial assets to raise household savings and to deepen financial markets in Türkiye.

The long-run redistributive effects of monetary policy

Using a general equilibrium search-theoretic model of money, I study the long-run distributional effects of monetary policy. In my model, heterogeneous agents trade bilaterally in a frictional market and save using cash and illiquid short-term nominal government bonds. Wealth effects generate slow adjustments in agents’ portfolios following their trading activity in decentralized markets, giving rise to a persistent and non-degenerate distribution of assets. The model reproduces the distribution of asset levels and portfolios across households observed in the data. I show that, as wealth inequality increases the incidence of inefficiencies in decentralized trading, policies that improve the ability to self-insure against idiosyncratic shocks are welfare-improving and redistribute resources towards agents that are relatively poor and more liquidity constrained.

Partisan distribution of ministerial portfolios in Asian-Pacific democracies

How are ministerial portfolios distributed among coalition parties in Asian-Pacific democracies? Studies of power-sharing in Asia tend to focus on democratization processes rather than executive cabinets, although government coalitions occur regularly in the region. Using an original dataset of governments in 27 Asian-Pacific democracies from 1945 to 2018, I examine the bargaining advantage of the formateur party - the party managing the government formation process - over other parties entering government. We know from existing studies, mainly on Europe, that government parties holding larger shares of legislative seats receive larger shares of cabinet posts. I argue that portfolio allocation also depends on institutional context, and use the substantial institutional variation across countries in my dataset to test implications of this argument. I find that formateur parties have a greater advantage over coalition partners in presidential systems than in parliamentary ones, but that this advantage diminishes as political constraints facing the formateur increase.

Hellinger’s distance to normal distribution as market invariant

Main purpose of distance based portfolio constructions is for portfolio imitation. Here we used distance from normal distribution for other purpose. We attempted to find static market invariant within possible linear combinations of given random variables. We conjectured that “closeness” to normal distribution of possible portfolios in market may reliably represent market microstructure with possible correlations between assets. Taking the squared Hellinger’s distance, we sought for each level of desired mean return the portfolio whose return distribution is closest to Gaussian, with variance taken from efficient frontier found by initially solving mean-variance problem. We found that minimal distance differs significantly from market to market. The sensitivity check showed small average sensitivity for 5% change of a 5% portion of data, small sensitivity for adding new variables in simulated market, and extreme sensitivity to bin numbers. Though distance to normality differed among markets, its sensitivity being small enough in average sometimes showed extreme changes.

The effects of errors in means, variances, and correlations on the mean-variance framework

The mean-variance (MV) framework has been a fundamental tenet of investment management, yet it has been criticized for being too sensitive to parameter estimation errors. Hence, it is important to understand how the errors in parameters affect the MV framework. Although a number of researchers have studied how errors in parameters affect MV optimal portfolios, these studies do not show the complete picture. The MV framework is a tool for systematic evaluation of investment alternatives based on the risk-return trade-off, and MV optimal portfolios are its outputs. In this study, we investigate the effect of errors in parameters on the entire MV framework. We analyze the Sharpe ratio distribution of all possible portfolios, which represents how investments are evaluated under the risk-return trade-off. While means have been widely considered as the most important parameter in the MV optimization, our full-distributional analyses reveal that correlations mostly dominate other parameters.

‘Congruent We Govern’: Cost of Governance in Multiparty Presidentialism

AbstractThe received wisdom on executive–legislative relations in multiparty presidential systems is that the size of the president's majority in Congress is the key factor explaining governance patterns, particularly the president's legislative success. However, in many cases presidents enjoying a nominal majority have been unable to pass legislation and have faced institutional instability. The article departs from a conventional definition of divided government and focuses on the preference incongruence between the governing coalition and the floor of Congress. It argues that the ideological distance between the floor and the coalition is a key factor explaining the president's cost of governing (which includes factors such as the distribution of cabinet portfolios and budgetary transfers to coalition partners). The article provides an empirical test with data from Brazil that find that the greater the ideological incongruence, the higher the cost of governing for the president.

The currency channel of the global bank leverage cycle

The amplitude of leverage procyclicality is heterogeneous across banks and across countries. This paper introduces international diversification of bank balance sheets as a factor in this observed heterogeneity, with a special emphasis on currency diversification. Based on a new theoretical framework, it shows that the impact of international diversification on leverage procyclicality depends on the relative performance of economies, the global business cycle and the exchange rate regime. By altering the distribution of global bank portfolios, international diversification adds a currency channel to the risk channel of the global leverage cycle. Using granular data on banks located in Prance, the paper shows that the pre-crisis international diversification of banks increased leverage procyclicality during the 2008–2009 crisis. Focusing on the currency channel, namely the valuation effect of currency diversification, my results show that it had a negative effect on leverage procyclicality during this period. The currency channel thus helped to offset part of the increased risk caused by the crisis. These findings draw attention to the specific role of balance sheet currency diversification in financial stability risk.

Cabinet Formation and Coalition Governance: The Effect of Portfolio Allocation on Coalition Agreements

AbstractWhile coalition agreements are significant in structuring government behaviour, their comprehensiveness varies considerably across cabinets. We argue that the average correspondence between parties' priorities and portfolio allocation is important in explaining the comprehensiveness of coalition agreements because coalition parties that have obtained their preferred portfolios have less incentive to negotiate a detailed coalition agreement. We test our argument by combining newly collected data on coalition agreements drafted by 218 cabinets in 24 Western and Eastern European countries from 1945 to 2014 with data on the distribution of ministerial portfolios. We find that the shorter and less comprehensive the agreements, the higher the correspondence between parties' priorities and portfolio allocation. Our results have important implications for our understanding of coalition governments and the relationship between government formation and cabinet governance.

Media Exposure of Portfolios as a Measure of Relevance ,

The distribution of ministerial portfolios in the formation of government coalitions in Brazilian presidentialism is a crucial factor in determining the governability of the political system. Objective measurement of the relevance of ministries to political parties offers a means of shedding light on the relations between the executive and legislative branches of Brazil’s government. This research note aims to improve the empirical measurement of the relevance of Federal ministries in negotiations between presidents and political parties by including a fundamental theoretical aspect to political behavior: the media exposure of the various ministries. Given the importance of the media in shaping the political agenda and public opinion, we have expanded the theoretical conceptualization of the means to effect such measurements by adding a construct of ministerial relevance that is exogenous to the government apparatus. We have made empirical use of concepts such as the relative prestige of the various ministries and the degree of public exposure to them by quantifying the frequency of their appearances on the front pages of the three Brazilian newspapers with the largest readerships. Our results demonstrate the empirical utility and theoretical complementarity of the insertion of a variable relating to media exposure into Batista’s ministerial relevance (2017).

Small, micro and medium enterprises financing: Costs and benefits of lending technologies in the Eastern Cape province of South Africa

Orientation: As lack of access to credit hinders small, micro and medium enterprises (SMMEs) success and lending technologies being conduits transmit credit access, more focus must be on the effect of lending technologies on credit rationing.Research purpose: To analyse the extent of credit rationing amongst SMMEs based on lender and firm characteristics.Motivation for the study: In South Africa, SMMEs are funded by different lenders using different lending technologies, but little is known about which ones are more effective.Research approach/design and method: The study takes a quantitative approach. In this study, 321 SMMEs are sampled from 1486 small businesses on the registers of the Nelson Mandela Bay Business Chamber and the Border-Kei Chamber of Business in the Eastern Cape province of South Africa. Financing of SMMEs is captured with a categorical credit-rationing variable. Accordingly, a logit technique is used. The first model captures credit rationing as a binary variable. In the second model, the nature of credit rationing is disaggregated resulting in a four-measure categorical variable.Main findings: Little rationing occurs when asset-based and venture capital methods are used. Microfinance and privately owned development financial institutions have high rationing levels, similar to commercial banks, defeating the purpose of their special existence to address excluded groups. Black people-owned and female-owned businesses are the most rationed. Credit rationing decreases with firm size, but the effects are amplified by race.Practical/managerial implications: To improve SMMEs access to finance, the government should focus on allocating funds to firms using SMMEs’ credit rationing risk profiles.Contribution/value-add: Lending technology, lender type and SMME characteristics relationships indicate that SMMEs can benefit from a well-understood rationing risk profile of firms in the economy. Therefore, policies on support and regulation of the distribution of loan portfolios aligned to empirical rationing risk profiles can improve SMME growth. However, this study has used SMME data from the Eastern Cape province only, one of the nine provinces in South Africa. Thus, the provincial heterogeneity effects are not captured in this study.

Extreme Portfolio Loss Correlations in Credit Risk

The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence, it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We analytically calculate the multivariate joint loss distribution of several credit portfolios on a non-stationary market. To take fluctuating asset correlations into account, we use an random matrix approach which preserves, as a much appreciated side effect, analytical tractability and drastically reduces the number of parameters. We show that, for two disjoint credit portfolios, diversification does not work in a correlated market. Additionally, we find large concurrent portfolio losses to be rather likely. We show that significant correlations of the losses emerge not only for large portfolios with thousands of credit contracts, but also for small portfolios consisting of a few credit contracts only. Furthermore, we include subordination levels, which were established in collateralized debt obligations to protect the more senior tranches from high losses. We analytically corroborate the observation that an extreme loss of the subordinated creditor is likely to also yield a large loss of the senior creditor.

An evaluation of metrics used by the Performance-based Research Fund process in New Zealand

ABSTRACTThe New Zealand Performance-based Research Fund applies a set of metrics to assess researchers and rank disciplines and universities. The process involves giving a total weighted score (based on three components) to individuals and then assigning them to one of four Quality Categories (QCs), used to derive Average Quality Scores (AQS). This paper evaluates the properties of these metrics and argues that QC thresholds influence the final distribution of scores. The paper also demonstrates that the derivation of AQSs depends on the weights assigned to each QC and the distribution of portfolios. The method used to determine raw scores also has an independent effect on the distribution of scores. The paper compares how research rankings of New Zealand universities would vary if alternative summary measures, based on the total weighted scores rather than QCs, were used to evaluate performance.

Extreme Portfolio Loss Correlations in Credit Risk

The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We analytically calculate the multivariate joint loss distribution of several credit portfolios on a non-stationary market. To take fluctuating asset correlations into account we use an random matrix approach which preserves, as a much appreciated side effect, analytical tractability and drastically reduces the number of parameters. We show that for two disjoint credit portfolios diversification does not work in a correlated market. Additionally we find large concurrent portfolio losses to be rather likely. We show that significant correlations of the losses emerge not only for large portfolios with thousands of credit contracts but also for small portfolios consisting of a few credit contracts only. Furthermore we include subordination levels, which were established in collateralized debt obligations to protect the more senior tranches from high losses. We analytically corroborate the observation that an extreme loss of the subordinated creditor is likely to also yield a large loss of the senior creditor.

The holders and issuers of international portfolio securities

Research on the geographical distribution of international portfolios has mainly focused on data aggregated to the country level. We exploit newly-available data that disaggregates the holders and issuers of international securities along sectoral lines. We find that patterns evident in the aggregate data do not uniformly apply across the various holding and issuing sectors, such that a full understanding of cross-border portfolio positions requires granular-level analysis.

Dependence calibration and portfolio fit with factor-based subordinators

The paper explores the properties of a class of multivariate Lévy processes used for asset returns. We focus on describing both linear and non-linear dependence in an economic sensible and empirically appropriate way. The processes are subordinated Brownian motions. The subordinator has a common and an idiosyncratic component, to reflect the properties of trade, which it represents. A calibration to a portfolio of 10 US stock indices returns over the period 2009–2013 shows that the hyperbolic specification has a very good fit to marginal distributions, to the overall correlation matrix and to the return distribution of both long-only and long-short random portfolios, which also incorporate non-linear dependence. Their tail behaviour is also well captured by the variance gamma specification. The main message is not only the goodness of fit, but also the flexibility in capturing dependence and the ease of calibration on large sets of returns.

Factors Loadings as Proxies for Equity Characteristics, Round 3

I provide a comprehensive analysis that indicates characteristic-based factor loadings provide reasonable proxies for equity fundamentals. My methodology relies on the equilibrium relationships between cross-sectional expected return regressions and time-series empirical asset pricing models. I compare the performance of portfolios formed by observed equity fundamentals and pre-formation factor loadings. My analysis shows that the portfolios formed by book-to-market factor loadings closely matches the empirical return distribution of portfolios formed by the book-to-market characteristic. However, for market equity, gross-profitability, and investment, only the top performing portfolios are well approximated by factor loadings. My results are enhanced when conducting the same analyses on portfolios of equities, meant to reduce estimation risk. Finally, a portfolio formed from aggregating the signals from multiple pre-formation factor loadings beat an equally-weighed benchmark by nearly 400 basis points a year, and earned a Sharpe ratio that was 20% larger.

The distribution of individual cabinet positions in coalition governments: A sequential approach.

Multiparty government in parliamentary democracies entails bargaining over the payoffs of government participation, in particular the allocation of cabinet positions. While most of the literature deals with the numerical distribution of cabinet seats among government parties, this article explores the distribution of individual portfolios. It argues that coalition negotiations are sequential choice processes that begin with the allocation of those portfolios most important to the bargaining parties. This induces conditionality in the bargaining process as choices of individual cabinet positions are not independent of each other. Linking this sequential logic with party preferences for individual cabinet positions, the authors of the article study the allocation of individual portfolios for 146 coalition governments in Western and Central Eastern Europe. The results suggest that a sequential logic in the bargaining process results in better predictions than assuming mutual independence in the distribution of individual portfolios.

왜정규 위험요인 기반 포트폴리오 위험측도에 대한 안장점근사

본 논문에서는 금융분야에서 사용되고 있는 포트폴리오 위험측도인 VaR (value at risk)와 ES (expected shortfall)의 측정 방법으로 안장점근사의 적용 방법을 제시하였다. 본 연구의 특징은 금융자료에 대하여 정규분포를 가정하지 않고, 치우침을 가정한 왜정규분포를 가정하여 왜정규분포를 따르는 위험요인으로 구성된 선형 포트폴리오 위험측도에 대해 안장점근사를 실시하였다. 또한 모의실험을 통해 위험측도의 안장점근사의 정도가 매우 우수함을 확인하였다. We considered saddlepoint approximations to VaR (value at risk) and ES (expected shortfall) which frequently encountered in finance and insurance as the measures of risk management. In this paper we supposed univariate and multivariate skew-normal distributions, instead of traditional normal class distributions, as underlying distribution of linear portfolios. Simulation results are provided and showed the suggested saddlepoint approximations are very accurate than normal approximations.

Bayesian Value at Risk Metric for Equity Portfolios

We develop a Bayesian framework for estimating high quantiles of the relative return loss distribution of equity portfolios. This framework allows for the incorporation of both quantitative data via a parametric model for the loss distribution as well as qualitative information, specified independent of the data, by the choice of a prior distribution over the model parameters. We apply these methods in the case of one and two dimensional models to estimate distribution parameters and associated error bounds from which 99% VaR values are estimated. Finally, we systematically apply our framework to four test portfolios, compute summary statistics related to model performance, and report the results.