Sector Equity Research Articles

Public Sector Disinvestment in India

This study examines the stock market performance of Indian state-owned public sector units (PSUs), which were privatized through initial public offerings (IPOs) and further public offerings (FPOs). The analysis of stock price reaction is conducted for different event dates related to these offerings, that is, public notice date (PND), issue announcement date (IAD), price band/actual issue date (PAD), and the offer price date (OFD). The study also compares the price reaction for IPO and FPO issues. Furthermore, as the public sector equity offerings are generally sold at a discount, we also empirically analyze the degree of underpricing of such offerings. The study uses event methodology for 18 PSUs that made FPOs between 2002 and early 2013. The results report positive abnormal returns (ARs) (i.e., excess returns over and above the expected returns) after the primary offerings (IPO) of the equity. Furthermore, it was observed that in the case of first-stage further offerings (FPO-1), positive ARs are observed prior to the public notification of such offering followed by negative price reaction until the date declaration of offer price. For second-stage further public offerings (FPO-2), negative ARs (i.e., when actual returns are less than expected returns) after the public notification continue even after the date of stock offering. The price discounts on PSU issues exhibit a declining trend from IPO to successive stages of FPOs. Based on the empirical analysis, we recommend that the disinvestment should be spread over three stages of offerings, that is, primary issue (IPO), first-stage further offerings (FPO-1), and second-stage further offerings (FPO-2). In addition, selection of investment bankers and market timing needs special consideration. Furthermore, the regulatory surveillance needs to be strengthened to check the presence of ARs even before the event dates.

Expensive Goods, Inexpensive Equities: An Explanation of “IPO Hot Time” from Market Condition Perspective

Expensive Goods, Inexpensive Equities: An Explanation of “IPO Hot Time” from Market Condition Perspective Xiaomin Guo Abstract Hot initial public offering (IPO) time is commonly defined as the time period during which the degree of issuance underpricing is higher or number of issuance is large. Such definition generates the dilemma of why private firms are willing to leave money on the table. This paper identifies the hot and cold IPO time using synchronous macroeconomic and financial market conditions and provides a new explanation for this dilemma. I find that the hot time of IPO is positively affected by business cycle and systematic risk expectation; however, the idiosyncratic risk carried by equity sector is not influential to the IPO return expectation. The degree of IPO discount is related to the market condition closer than to the firm fundamental values and operating risk. These findings are consistent with the empirical evidence of firms’ willingness to discount issuance during expansionary business cycles, regardless of the reduction of funds raised and the higher leverage risk. Full Text: PDF DOI: 10.15640/jibe.v2n3a3

A Comparative Study of Selected Public & Private Sector Equity Diversified Mutual Fund Schemes in India

This study is an effort to analyze the performance of selected Equity Diversified schemes with a view to see its impact on investor’s decision making. In this study 18 Equity Diversified Mutual Funds schemes are taken as sample and the selection of schemes was on the basis of Corpus size and Returns of last 5 years. The risk free rate taken is 5.5%. In order to give an increased return in domestic savings of investors and improvement in allocation of investment in different sectors, the need and scope for mutual fund as an investment option has increased immensely. Investment in Mutual fund is restricted to Tier 1 and Tier 2 cities whereas the rural and semi urban communities. One of the reasons behind it is lack of awareness in rural and semi urban areas. There is, therefore, a strong need for improving the awareness. The Private Sector Mutual Funds have recorded much better performance as compared to the Public sector Mutual Funds mainly due to better Funds allocation, better Management and efficient performance of Portfolio Manager. This result was arrived at after calculating and comparing the Sharpe, Treynor, beta and Jensen ratio.

A crise financeira de 2008: os discursos e as estratégias do governo e dos fundos de pensão

Dans cet article, on examine la crise commencee en 2008. Sous l'inspiration des travaux de Lebaron (2010; 2011) et Grun (2010), on essaie de saisir la dimension cognitive de la crise, a travers les discours produits (et reproduits) par des membres du gouvernement engages dans le controle de la crise et du secteur des fonds de pension, ainsi que de leurs strategies effectives. La methode couvre l'analyse de documents produits par le secteur des fonds de pension et par le gouvernement Lula pendant l'annee 2008, ainsi que les retombees des discours et des strategies menees. Le texte montre la construction d'un discours soulignant l'importance de la regulation par l'Etat (par opposition au discours de l'autoregulation du marche) et la participation centrale des fonds de pension pendant le processus, puisque ceux-ci avaient abandonne en partie les titres publics et migre vers l'investissement productif, allies au secteur de private equity, surtout en ce qui concerne le financement des chantiers du Programme d'Acceleration de la Croissance.

DEVELOPMENT AND PERFORMANCE OF THE PUBLIC REAL ESTATE INVESTMENT SECTOR IN FINLAND

The article studies the development of the public real estate equity sector. The paper describes and analyses the legislative development regarding the sector and the vehicles provided. It discusses the past development of public commercial real estate equity investments in Finland and their role as a market participant. In addition, the paper analyses the historical performance of the sector.

How Persistent is Private Equity Performance? Evidence from Deal-Level Data

The persistence of returns is a critical issue for investors in their choice of private equity managers. In this paper we analyse buyout performance persistence in new ways, using a unique database containing cash-flow data on 13,523 portfolio company investments by 865 buyout funds. We focus on unique realized deals and find that persistence of fund managers has substantially declined as the private equity sector has matured and become more competitive. Private equity has, therefore, largely conformed to the pattern found in most other asset classes in which past performance is a poor predictor of the future.

Stability of Equity and Debt Betas and the 2008-2009 Crisis

We study the behavior of betas going in and out of the 2008-2009 crisis for a broad range of equity and debt sectors. We find that most betas have reverted back to their precrisis levels, which demonstrates the general stability of long-run betas. One notable exception is the high-yield debt sector, which saw betas increase from 0.17 pre-crisis to 0.41 during the crisis and after. This appears to indicate that investors now demand much higher compensation for bearing the risk of below investment-grade debt. In addition, we find betas of the other debt sectors were generally negative regardless of the sample period. These results for debt betas contradict the common assumption used in estimating the cost of capital that debt betas equal zero or are positive.

Nonparametric correlation models for portfolio allocation

This article proposes time-varying nonparametric and semiparametric estimators of the conditional cross-correlation matrix in the context of portfolio allocation. Simulations results show that the nonparametric and semiparametric models are best in DGPs with substantial variability or structural breaks in correlations. Only when correlations are constant does the parametric DCC model deliver the best outcome. The methodologies are illustrated by evaluating two interesting portfolios. The first portfolio consists of the equity sector SPDRs and the S&P 500, while the second one contains major currencies. Results show the nonparametric model generally dominates the others when evaluating in-sample. However, the semiparametric model is best for out-of-sample analysis.

Sectoral equity returns and portfolio diversification opportunities across the GCC region

We examine the spillover effects of local and global shocks on Gulf Cooperation Council (GCC)-wide sector equity returns. We find the GCC-wide sector returns have asynchronous responses to global and regional shocks. Although the effects of these shocks differ in magnitude across individual GCC-wide sector returns, there is evidence that the GCC-wide sector equity markets are mostly driven by their own volatilities. For the basic materials, telecom and utility sectors, the effects of regional and global shocks are lower in magnitude in comparison to the rest of the GCC-wide sector indices. Applying a time-varying spillover model, we also indicate that the effect of global shocks on the volatility of GCC sector returns has been decreasing, whereas regional shocks have been affecting the sector indices with a positive and significant trend. We also document that portfolios diversified across GCC-wide sectors perform better than portfolios diversified across GCC national equity markets. To some extent, portfolios diversified with a mix of GCC-wide sector and national equities produce higher returns than portfolios made up of pure GCC national equity indices or GCC-wide sector indices.

Oil price volatility and the dynamic systematic risk in Kuwait's equity sector portfolio using the Kalman filter approach

The paper investigates the impact of oil price volatility on the dynamics of systematic risk in eight equity sectors for Kuwait. To achieve this goal, it uses the Kalman filter approach to estimate the time-variant systematic risk in those sectors. This approach enables us to study the dynamicity of systematic risk of a portfolio comprised of those sectors during the period 2000-2012. Additionally, the Kalman filter approach estimates the relative importance of the trend the random walk and cycle components of the sectors 'Betas'. The estimated time-variant coefficients (Alpha and Beta) allow for the estimation of the impact of oil price volatility and the financial crises on the systematic risk of the sectors over time.

COMPARISON AND PERFORMANCE EVALUATION OF IDFC MUTUAL FUNDS: PREMIER SECTOR EQUITY PLAN A & STRATEGIC SECTOR 50-50 PLAN A (GROWTH OPTION)

Liberalization and private participation in the Indian mutual fund industry has thrown the challenge and concern to survive and retain investor confidence for fund managers. For small investors who do not have the time or the expertise to take direct investment decision in equities successfully, the alternative is to invest in mutual funds. The performance of the mutual fund products become more complex in context of accommodating both return and risk measurements while giving due importance to investment objectives. An attempt has been made to study the performance of selected schemes of mutual funds sponsored by IDFC, Premier Sector Equity Plan A & Strategic Sector 50–50 Plan A based on risk-return relationship models and measures. The analysis has been made on the basis of, coefficient of determination, Sharpe ratio, Treynor ratio and Jensen Alpha Fama's Measure and M2.

Oil prices, tourism income and economic growth: A structural VAR approach for European Mediterranean countries

In this study, a structural VAR model is employed to investigate the relationship among oil price shocks, tourism variables and economic indicators in four European Mediterranean countries. In contrast with the current tourism literature, we distinguish between three oil price shocks, namely, supply-side, aggregate demand and oil specific demand shocks. Overall, our results indicate that oil specific demand shocks contemporaneously affect inflation and the tourism sector equity index, whereas these shocks do not seem to have any lagged effects. By contrast, aggregate demand oil price shocks exercise a lagged effect, either directly or indirectly, to tourism generated income and economic growth. The paper does not provide any evidence that supply-side shocks trigger any responses from the remaining variables. Results are important for tourism agents and policy makers, should they need to create hedging strategies against future oil price movements or plan for economic policy developments.

Indexy finančního stresu pro Českou republiku a Maďarsko

Financial stress indexes provide a new tool for regulatory and public institutions, which participate in the supervision of financial markets and in the monitoring of the development of risk in financial markets. Our paper introduced a number of methods of building the financial stress index for the Czech Republic and Hungary. We have developed our indices based on the variables representing the level of financial stress by the movement of market prices of assets, which provides a higher frequency to the measurement of financial stress in the main sectors of financial system, ie. banking, money market, currency, fixed income and equity sectors. We have than evaluated our indices by the effectiveness to identify periods of increased financial stress based on the deviation by one standard deviation of the value of the index from the median value. Comparing periods identified with this method with historical periods of increased financial stress, we came to the conclusion that my financial stress index for each country successfully identifies the development and level of stress in financial system.

Causality-in-variance and causality-in-mean between the Greek sovereign bond yields and Southern European banking sector equity returns

This paper adopts the robust cross-correlation function methodology developed by Hong (J Econom 103:183–224, 2001) in order to test for volatility and mean spillovers between Greek long-term government bond yields and the banking sector stock returns of four Southern European countries, namely Greece, Portugal, Italy, and Spain. Its primary focus is on investigating the potential impacts of the recent European sovereign debt crisis. While most previous studies have focused on within-country causalities, we rather assess cross-country transmission effects. The presented results provide evidence of bidirectional volatility spillovers between Greek long-term interest rates and the banking sector equities of Portugal, Italy, and Spain that emerged during the European sovereign debt crisis. We also find significant unidirectional causality-in-mean from bank stock returns in Greece to Greek long-term bond yields during the crisis period as well as significant causality at the mean level from the bank equity returns in Portugal, Italy, and Spain to Greek bond yields.

Equity and CDS Sector Indices: Dynamic Models and Risk Hedging

The recent financial crisis had a substantial impact on equity and bond markets, as well as on the performances of managed portfolios which have been hit by the decrease of both indices. Nevertheless, the availability of indices monitoring the equity market volatility, the VIX index, credit markets default risk, and CDS indices, allows for the construction of hedging strategies. In this paper, we take the point of view of an equity investor who wants to hedge the equity risk by taking positions either on the VIX index or on CDS indices. In deriving the hedge ratios, we consider the joint dynamic of variables taking into account mean relations, variance spillovers, and asymmetry, as well as correlation changes over time. Our analysis is based on sectorial indices and shows the advantages of hedging and the impact of a model specification.

What Does Equity Sector Orderflow Tell Us about the Economy?

What Does Equity Sector Orderflow Tell Us about the Economy?

Researching Public Pension Plans

Over the past two decades public pension plans have garnered major headlines due to large investment losses. With increased attention on pension fund investments, information professionals must be able to help researchers find public pension data on asset values, asset allocations, and investment performance. This article will help researchers understand the types of data available to analyze pension fund investment returns and asset allocations, to compare changes in sector allocations and equity holdings, and to assess changes in pension investment performance relative to key benchmarks. Additionally, this article will provide information for obtaining current and historical investment returns and holdings.

Private Equity and the Concept of Brittle Trust

This paper focuses on private equity in the UK and is set in the context of debates about transformations in the City of London. The article focuses on a particular concept of trust as expressed by senior members of the private equity sector. The argument developed is based on interviews with five senior founding partners of private equity firms who talked to us about their background and education, their understanding of how private equity worked and the basis for successful money making and their relationships with those inside and outside the organization. All interviewees strongly asserted the need for absolute trust between senior partners as an essential condition for the successful operation of their business. At the same time, their description of trust in this context was that while it is deep, it is also easily broken, and that once broken, the breach cannot be forgiven. We call this ‘brittle trust’: asserted to be simultaneously strong while extremely fragile. The paper argues, drawing on Diego Gambetta's work on the Sicilian Mafia, that this concept of ‘trust’ reflects a particular understanding of the practice of private equity as a high risk, tough and unforgiving business that nevertheless requires high standards of personal integrity. The study allows us to understand something more about the social ideals that were built into this financial sector by its founders, which we argue formed a crucial part of the transformation of the financial sector.

Beta-Arbitrage Strategies: When Do They Work, and Why?

Contrary to what traditional asset pricing would imply, a strategy that bets against beta, by going long in low beta stocks and short in high beta stocks, tends to outperform the market. We consider a market in which diversity is maintained, i.e. no single stock can dominate the entire market, and we show that beta-arbitrage strategies mechanically out-perform the market portfolio. We provide empirical support to our explanation on equity country indices, equity sectors, individual stocks, and stock portfolios. Finally, we show how to construct optimal beta- arbitrage strategies that maximize the expected return relative to a given benchmark.

Inflation Risk Hedging Strategy for Equities using Commodity Futures

The paper attempts to provide a possible hedging strategy against reduction in equity valuations due to inflation, using commodity futures. Commodity futures for four commodities namely pepper, steel, wheat and mustard seed are used along with sector equity indices of National Stock Exchange (NSE), India to determine plausible benefits of hedging equity risks with commodity futures. The effectiveness of the hedged portfolios is tested using standard statistical methods. The risk and return of a portfolio hedged with commodity future is compared with an equity only portfolio. The work thus provides an alternative hedging strategy against inflation for investors with primary investments in equities. Inflation has often been described as a necessary 'evil' counterpart of economic growth, as it helps in fuelling development in one hand, while eating into the profits and margins of companies on the other. The overall impact of inflation on a company's operations has been studied by academicians, stating how a positive impact on revenue is offset by increase in operating costs (1) - (5). Moreover, a rise in inflation has been shown to adversely affect a company's equity valuation in the short term, thereby increasing the downside risk for investor (6). Commodity prices have also been shown to be a leading indicator of inflation (7). In recent times, due to complex inter-linkages, inflation may be affected by numerous factors. Spike in crude prices in oil markets translates into price rise across sectors in India, depending on government policies. Grain storage issues and rainfall also strongly affect the food inflation. But, the strong relation between commodity prices and inflation cannot be ignored. Moreover, the development of commodity derivatives market in India offers an important investment opportunity. In an inflationary environment, the rise in price of commodities may be used to offset the fall in short-term equity valuations. Hence, commodities and its derivatives may provide a possible hedge against loss in value of assets due to inflation. Such a hedged portfolio would be useful for investors with high equity investments in an inflationary economy. Possibility and effectiveness of including commodities in a portfolio has been examined in this paper. The paper creates a portfolio of equities and commodity derivatives, and tests the efficacy of such a portfolio against loss in value using statistical analysis.