Equity Positions Research Articles

The Impact of the COVID-19 Confinement on the Financial Behavior of Individual Investors

This article explores the impact of the COVID-19 lockdown in Belgium on the financial behavior of individual investors. Specifically, the article is the first to examine whether exceptional market circumstances have induced individual investors to increase their equity positions. Using a proprietary database of almost 6,5 million individual investor transactions, this article shows that most individuals used a contrarian strategy thereby buying shares when stock prices are falling. Especially investors between 18 and 35 years old and those being less experienced are found to increase their equity positions compared to other age and experience categories. Male investors seem to dominate equity markets in Belgium, even during the COVID-19 confinement period, and they increased their equity positions more in comparison to women. The patterns documented in this article are robust for the shares being constituents of the main Belgian equity index (i.e. Bel 20), for all listed shares on Euronext Brussels, and for small caps.

Chinese Exchange Rate Policy: Lessons for Global Investors

Chinese currency policy has had a strong impact on the value of investors’ portfolios in recent years. On August 11, 2015, the People’s Bank of China announced a new exchange rate policy where the RMB central parity rate against the USD would be determined each morning by the previous day’s closing rate, market demand and supply, and valuations of other currencies. This new policy suggests an implementable investment strategy for trading the CNH. In this paper we create a forecasting model based on information regarding the central parity rate, implied volatilities and other control variables which correctly predicts the direction of change on about 60 percent of days. The exchange rate forecast is then used to manage the global investor’s problem of mitigating the currency risk inherent in Chinese equity positions. All currency hedging strategies are shown to add value to the equity portfolio. A dynamic currency overlay strategy, where the forecasting model is used as a trading signal to take long and short positions in CNH, performs particularly well.

Randomness, serendipity, and luck in petroleum exploration

Petroleum explorers commonly acknowledge the contribution of luck in exploration outcomes. Our survey of 237 current industry practitioners revealed that 90% of them believe that luck affects the outcome of exploration projects. However, luck has never been quantified before as a factor in petroleum exploration, and therefore, it remains an abstract concept that is not deeply considered by geoscientists and exploration managers. Luck clearly exists in petroleum exploration, because it contributed to many serendipitously discovered plays and pools. Luck is also a factor in the relative performance of different exploration companies. Looking at companies exploring on the Norwegian Continental Shelf in 1966–2005, we concluded that differences in success rates of individual companies are essentially random. Using a global data set of 3258 conventional exploration wells in which 733 companies took 8096 equity positions in 2008–2017, we calculated that the proportion of variance in geological success rates among the companies is 39% attributable to luck (25% for commercial success), the rest being related to skill. In frontier plays, luck contribution to the variation in geological and commercial success rates between different companies is 100%. The factor of luck is relatively less in emerging (67% for geological success), maturing (38%), and mature (29%) plays. Recognizing that luck is a part of the exploration success equation has numerous implications for exploration strategies, investors, companies, managers, and individual explorers. The factor of luck can be reduced only through a sustainable long-term exploration program with numerous independent wells. Explorers should focus on developing their prediction skills rather than obsess about the binary outcomes of each well.

Equity Contracts and Incentive Design in Start-Up Teams

Entrepreneurial teams assign equity positions in their start-ups using a term sheet that details equity splits and the conditions for being granted those splits. The design of equity split agreements has attracted considerable attention in the entrepreneurial community, with no convergence on a single preferred contract form. This paper experimentally examines the effectiveness of different contractual arrangements, focusing in particular on the effects of contract form and contracting timing on founder effort and on the value of the venture. Our results suggest that performance improves with the incentive strength of the contract, but they question the conventional logic that this effect is causal. Instead, we suggest a novel causal sequence. Rather than the contract form being the primitive and the behavior the derived consequence, our results suggest the reverse. The differences in contract performance are driven primarily by the sorting of high contributors into nonequal contracts and of low contributors into equal contracts; that is, equal contracts are bad for team performance not because of their incentive strength but because of the founder types that adopt them. Taken together, these results suggest that both investors and founders should pay as much (or more) attention to personality type as they do to contract form. This paper was accepted by Serguei Netessine, operations management.

Contested femininity: strategies of resistance and reproduction across adolescence in northern Uganda

Adolescent girls and young women have recently gained a central position in gender equality and development. However, little research investigates female experiences of the complex dynamics of both change and resistance to change in gender norms and structures. Drawing on the work of Bourdieu, Connell and Schippers to analyse longitudinal in-depth interviews, this paper explores how girls in northern Uganda learn, challenge and (re)produce patriarchal structures throughout the life-course and across social fields. It highlights the costs, consequences and benefits at stake in expressing hegemonic femininity and expands understanding of how adolescent girls and young women actively strategise to protect their wellbeing and create space for contestation. Findings call for greater attention to the coexistence of resistance to, and reproduction of, gender orders, and offer opportunities for additional research for theory building and programme implementation.

The diminishing hedging role of crude oil: Evidence from time varying financialization

Using daily data from 1999 to 2019, we document a diminishing hedging role that crude oil plays for the stock market as a result of growing financialization. With interest rates driven near zero after the crisis of 2007-2009 and the extreme volatility of oil prices, vector autoregressions (VARs) suggest larger roles of oil prices in explaining stock returns during the 2007-2009 crisis and afterwards. We also find increased co-movement between stock and oil during the post-crisis period. Our results indicate that more short positions in crude oil are required to hedge long positions in equity markets during the post-crisis period, i.e., it costs more to use crude oil investments as a hedging tool compared to pre-crisis period. Therefore, investors holding a mixed portfolio of stocks and oil enjoy lower diversification benefits.

Are family firms more optimistic than non-family firms?

PurposeThe purpose of this study is to investigate how family ownership affects the disclosure tone of firm earnings press releases.Design/methodology/approachFollowing prior literature, this study defines family firms as those in which members of the founding families continue to hold positions in top management, to sit on the board or to be blockholders. The disclosure tone of earnings press releases is measured by the level of optimism in firms’ earnings announcements using Loughran and McDonald’s (2011) word classifications. Multivariate analysis is performed to examine the impact of family ownership on firms’ disclosure tone. Additional analysis includes controlling for different firm-level characteristics and using alternative measures of disclosure tone.FindingsThis study documents that the disclosure tone of earnings announcements is more optimistic for family firms than for non-family firms. The result implies that family owners’ large undiversified equity position in their business results in strong incentives for them to issue more positive earnings announcements to maintain high stock performance. Further analysis reveals that the results are mainly driven by family firms with founder CEOs. The results are robust to controls for corporate governance characteristics and to alternative measures of corporate disclosure tone.Originality/valueThe findings of this study contribute to the literature that examines factors associated with the determinants of the tone in firms’ earnings announcements. In addition, this study adds to the extant literature on family firms by providing useful insight into the influence of family control on corporate voluntary disclosure.

Institutional Ownership Decomposition and Stock Market Returns

Evidence presented in Dasgupta et al. (2011) indicates that financial institutions can be net buyers or sellers of a stock over consecutive quarters, implying the existence of trends in a stock’s institutional ownership. I investigate the relation between institutional ownership and returns after controlling for trends by decomposing a stock’s institutional ownership into level, slope, and residual components. I find that the level, slope, and residual components have, respectively, positive but relatively weak, strongly positive, and strongly negative relations with returns. These relations are strongest within arbitrage-constrained stocks and are the result of financial institutions investing and actively managing their equity positions based on differences and changes in underlying firm fundamentals.

The effect of global crises on stock market correlations: Evidence from scalar regressions via functional data analysis

This paper presents a novel, mixed-frequency based regression approach, derived from functional data analysis (FDA), to analyze the effect of global crises on stock market correlations, using a long span of data, dating as far back as early 1800s, thus covering a wide range of global crises that have not yet been examined in the literature in this context. Focusing on the advanced nations in the G7 group, we observe heterogeneous effects of global crises on the convergence patterns across developed stock markets. While the post World War II period experienced a general rise in the level of correlations among developed stock market returns, we find that global crises in general have led to a stronger association of stock market returns in the US, UK and Canada, whereas the opposite holds when it comes to how European and Japanese stock markets co-move with the US. Overall, our results suggest that crises that are global in nature generally contribute to the convergence of global stock markets, while the effect largely depends on the context and nature of the crises that possibly drive the perception of risk and/or contagion in financial markets. From an investment perspective, our findings suggest that, in the wake of global crises, diversification benefits will be limited by moving funds across the US and UK stock markets whereas possible diversification benefits would have been possible during the crises-ridden period of the early twentieth century by holding positions in equities in the remaining G7 nations to supplement positions in the US. However, these diversification benefits seem to have frittered away in the post World War II period, highlighting the role of emerging markets and alternative assets to improve diversification benefits in the modern era.

Development and Evaluation of Predictive Models Designed to Drive an Intelligent Clinical Decision Support System for Optimizing Inpatient Glycemic Control

Background: Achieving glycemic control in critically ill patients is of paramount importance, and has been linked to reductions in mortality, ICU length of stay (LOS), and morbidities such as infection, regardless whether or not the patient has diabetes. The myriad of illnesses and patient conditions render maintenance of glycemic control very challenging in this setting. Methods: This study involved collection of continuous glucose monitoring (CGM) data, and other associated measures, from the electronic medical records of 127 patients for the first 72 hours of ICU admission at The Ohio State University Wexner Medical Center (OSWMC). Data collected was used to develop a neural network-based predictive models. Findings: The model was shown to be accurate in predicting glucose using patient data not leveraged for model training. Model error, expressed as mean absolute difference percent, was 10.6% and 15.9% with respect to interstitial and serum blood glucose values, respectively. Clarke Error Grid Analysis (CEGA) of model predictions with respect to the reference CGM and blood glucose measurements revealed that >99% of model predictions could be regarded as clinically acceptable. Interpretation: The noted clinical acceptability of these models illustrates their potential utility within a clinical decision support system to assist healthcare providers in the optimization of glycemic management in critical care patients. Funding Statement: This study was supported by a $98,366 grant provided by the State of Ohio's Third Frontier Program (Grant #TECG20140125) and $20,000 provided by the Department of Anesthesiology at OSUWMC. Declaration of Interests: Dr. Jaume has nothing to disclose. Mr. Owais has nothing to disclose. Dr. Papadimos has nothing to disclose. Dr. Tripathi has nothing to disclose. Dr. Mavarez Martinez has nothing to disclose. Dr. Cameron has received one initial payment from the University of Toledo that was due to an initial licensing fee paid by Analytic Diabetic Systems, Inc. as part of licensing the patents referenced above as part of potential future commercial product development of a clinical decision support system. Dr. Pappada reports grants and personal fees from Analytic Diabetic Systems, Inc., personal fees from University of Toledo, during the conduct of the study; In addition, Drs. Pappada and Cameron hold patents (U.S. Patent No. 8,762,306 B2 and U.S. Patent No. 9,076,107 B2) related to the GlyCU CDSS with royalties paid to the University of Toledo and Co-Inventors (Drs. Pappada and Cameron) from Analytic Diabetic Systems, Inc. Dr. Pappada is on the Board of Directors for Analytic Diabetic Systems, Inc. and is a Co-Founder of the company, and holds an equity position in the corporation. Ethics Approval Statement: The study protocol was approved by The Ohio State University Institutional Review Board. All patients or their next of kin (if the patient had lost decision-making capacity) provided written informed consent.

Using brand identity to build brand equity: A comparison between the South African and Dutch business-to-business architectural industry

Background: Existing research in the B2B field focuses on relationship marketing and not the importance of building brand equity. By focusing efforts on building brand equity B2B service firms have the opportunity to develop a long-term competitive advantage. Objective: This study explores how Dutch and South African business-to-business architectural firms compare in their development of brand equity and use of brand identity dimensions. These groups were selected because one (Dutch) holds a favourable brand equity position, while the other (South African) is perceived less favourably. Providing a direct comparison allows the South African business-to-business architectural industry to obtain knowledge and be in a better position to develop their brand equity and identity. Method: The research was qualitative in nature, where 13 semi-structured interviews were conducted with participants. These respondents were senior partners or marketing specialists in architectural firms in South Africa and the Netherlands. Results: Differences were observed in the approach to the building blocks of brand equity. South African participants were more focused on internal measures (i.e. personal credibility, previous projects) influencing judgement, while Dutch respondents focused on external measures (i.e. awards, competitions). Dutch individuals developed partnership solutions with their communities, whereas their South African counterparts were reluctant to do so. Differences in the utilisation of brand identity dimensions were also observed among these dimensions: employee and client focus, brand personality, corporate visual identity and consistent communication. Conclusion: This article provides a direct comparison of brand equity positions showing how those with less favourable brand equity positions can improve their positions.

The impact of hedging on life insurance companies

This paper examines the effects of hedging in the asymmetric profit and loss distribution mechanisms caused by the complex regulatory framework of the German life insurance business. It studies the effects of applying a hedging strategy to the equity positions in the firm’s asset portfolio from two perspectives: the shareholder perspective and the perspective of the insured. It also addresses the possible trade-off between these interests of the two. The analysis is conducted through a stochastic simulation with 10,000 capital market scenarios. The used asset-liability-management-software is widely used in the insurance sector. This approach allows for a realistic representation of a model company with its performance and management key figures in accordance with the German GAAP. In addition, it creates the possibility of a detailed analysis of the tails of result distributions, which are of particular interest when assessing the effects of hedging.

Risk shifting consequences depending on manager characteristics

This paper investigates the performance consequences of the risk shifting behavior shown by domestic equity mutual funds through the analysis of monthly portfolio holdings. The objective of this paper is to assess the implications of risk shifting for mutual fund investors. Specifically, we study the performance consequences of different mechanisms of risk shifting, such as the change in the composition between equity and cash holdings and the change of the systematic or idiosyncratic risk within the equity positions. We find that funds that increase their risk level obtain significantly better performance than funds with stable or reduced risk levels. This finding is robust when controlling for fund characteristics such as past performance and fund size. Additionally, we examine whether the performance consequences of risk shifting depends on fund manager characteristics and find that manager gender, education and level of specialization are revealed as important variables to differentiate the performance consequences of risk shifting.

Current account adjustment and retained earnings

This paper develops a formal strategy to calculate current accounts with retained earnings (RE) on equity investment and analyzes their adjustment during the global financial crisis. RE are the part of companies’ profits which is reinvested and not distributed to shareholders as dividends. International statistical standards treat RE on foreign direct investment and RE on portfolio investment differently: while the former enter the current and financial account, the latter do not. We show that this differential treatment strongly affects current accounts of several advanced economies, frequently referred to as financial centers, with large positions in equity (portfolio) investment. Our empirical analysis finds that the differential treatment of RE alters the interpretation of current account adjustment for the global financial crisis.

Effect of Capitalizing Human Resource Cost on Corporate Profitability in Ondo State, Nigeria

The study examined the effects of conventional treatment of Human Asset on Net Profit; determined the effects of Human Resources Capitalization on firm’s net worth; determined the effect of Human Resources Capitalization on firms' share prices. The study adopted the survey research design and well-structured questionnaire was purposively distributed to 100 staffs of selected firms in the Central senatorial district of Ondo state. Data collected were presented and analysed using ANOVA and Regression. The study revealed that creating room for creative accounting, lack of accounting standard backing conventional treatment of human resources and Biasness in financial reporting are joint indicator of the effect of conventional treatment of Human Asset on Net Profit (R2= 0.577; P < 0.005). The study clearly shows that improving investors’ confidence (29.236; 145.171; 0.000), ease in assessing future potential earnings (29.042; 66.933; 0.000); Contribution to decision making process of capital formation (26.197; 100.249; 0.000); sustainable equity position (23.988; 137.766; 0.000); have significant effect on firm’s network. The study also shows that increase in the level of profitability (4.026; 6.789; 0.000), firm’s growth (23.430; 74.008; 0.000); increase in the size of a firm (11.087; 95.832; 0.000); have significantly affected the share price of a firm. It was concluded that increase in profitability, firm size and growth are some of the cogent effect of capitalization of human resources have an effect on the share price of a firm. The study recommends that professionals, regulators and preparers of financial statements should be enlightened in order to improve the reporting of human resources cost on the face of the financial statement.

The global influence of oil futures-prices on Dow Jones Islamic stock indexes

PurposeThe purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices.Design/methodology/approachIt aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model.FindingsThe main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil.Research limitations/implicationsThe paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices.Practical implicationsThe findings offer some highlights to researchers, portfolio managers and policymakers.Originality/valueThe paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.

Financial conditions and supply decisions when firms are risk averse

Extending earlier work by Greenwald and Stiglitz (Q J Econ 108:77–114, 1993) on the role of a firm’s equity position and bankruptcy costs in determining its production decision we show that, even if bankruptcy costs are ignored, a firm’s decision makers’ risk aversion, whether they are owner-entrepreneurs or hired managers, can give rise to the same results. What is more, we argue that, in the presence of risk aversion, increased variance of the output price affects a firm’s supply decision as the sum of an impact and an indirect effect. Under reasonable assumptions the impact effect prevails and then output decreases. We show this to hold for risk attitudes represented both by CARA and by CRRA utility functions. Finally, we explore the dynamics of the equity base. We provide examples in which the accumulation of net worth slows down as a consequence of an increase of risk.

Hedging With Volatility

A risk-averse investor with a long equity position is presumably interested in identifying a hedging strategy that protects the value of that investment. The common approach encompasses using either financial derivatives or holding assets (such as gold or Swiss francs) as portfolio hedges as they show negative correlation with equities. This paper proposes using volatility indexes as portfolio hedges instead; it shows that a volatility-based dynamic hedging strategy is the most effective at protecting the value of an equity investment.

Portfolio optimization with covered calls

Covered calls are traditionally formed as an overlay on an existing portfolio. Our analysis suggests that covered calls formed in two steps by first optimizing underlying equity positions and then selecting call overwriting weights are not risk-return optimal in general. We introduce an optimization framework which simultaneously selects underlying asset positions and call options to sell to form risk-return optimal covered call portfolios. Call option market prices form a critical part of the expected return and risk expressions. Variance of the return, semivariance of the return, and conditional value-at-risk are used as risk measures. The model was first tested by forming covered call portfolios composed of three indices and then by forming portfolios using 92 U.S. equities. We find that selling call options not only reduces risk, but when selected optimally can also benefit the expected return.

The Diminishing Hedging Role of Crude Oil: Evidence From Time Varying Financialization

Using daily data from 1999 to 2019, we document a diminishing hedging role that crude oil plays for the stock market as a result of growing financialization. With interest rates driven near zero after the crisis of 2007-2009 and the extreme volatility of oil prices, vector auto-regressions (VARs) suggest larger roles of oil prices in explaining stock returns during the 2007-2009 crisis and afterwards. We also find increased co-movement between stock-oil during post-crisis period. Our results indicate that more short positions in crude oil are required to hedge long positions in equity markets during post-crisis period, i.e., it cost more to use crude oil investments as a hedging tool lately compared to pre-crisis period. Therefore, investors holding a mixed portfolio of stocks and oil face less diversification.