Financial Asset Allocation Research Articles

Research on the Contagious Effect of Firm Financialization

Considering the characteristics of China’s relational society, this paper analyzes why listed companies are keen on financial asset allocation from the perspective of relationship network, an informal institution. No matter from what angle to explore the deep-seated reasons why firms are keen on financial asset allocation, it is difficult for us to bypass two questions: One is why the phenomenon of firm financialization is so common; the other is why the degree of firm financialization is deepening day by day. We will analyze the relationship between the relationship network and the above problems from the following aspects, which is also the logical starting point of this paper: From the perspective of breadth, financialization belongs to the category of investment decision-making, including individual financialization (financialization of a single firm), local financialization (financialization of multiple firms in the same region or industry), and systemic financialization (financialization of firms in all regions or industries), which follows a diffusion path from individual, local, to systemic; from the depth, there are three levels of financialization, namely, low financialization, high financialization, and excessive financialization, which follows a development path from low, high, to excessive.This paper analyzes the contagion effect and economic consequences of firm financialization under the framework of board network. It is found that when embedded in the board network, the financialization of listed companies in China has a significant contagion effect. At the same time, the contagion effect is significantly heterogeneous due to the fact that the board network connects the registered place, industry and actual human type of the firm, and the economic policy uncertainty aggravates the contagion effect to a certain extent. Further research shows that the contagion effect of firm financialization embedded in the board network leads to the decline of industrial investment rate, while the improvement of corporate governance is difficult to effectively alleviate the inhibitory effect; at the same time, the contagion effect has an inverted U-shaped impact on firm value. The direct policy implication of this paper is that firms should treat the board network prudently, especially carefully learning and imitating the financial experience of connecting firms. At the same time, the regulatory authorities can start from the board network to solve the problem of “from real to virtual”.The contribution of this paper is mainly reflected in the following aspects: On the one hand, the existing research mainly analyzes the influencing factors and economic consequences of firm financialization from the perspective of individual, but does not take into account the informal system. We try to analyze the interaction between firms in financialization from the perspective of relationship network, so as to enrich the existing theoretical research. On the other hand, this paper finds that the contagion effect of firm financialization caused by the board network has aggravated the decline of industrial investment rate, which provides new evidence for further evaluating the value of board network.

Financial literacy and asset allocation among retired residents: evidence from China

Using microdata from China Family Panel Studies (CFPS), this article studies the financial literacy of retired Chinese residents and their asset allocation. This study found that despite numerous related economic decisions made over their lifetimes, the financial literacy of retired Chinese residents is still at a very low level. No matter whether in urban or rural, a large proportion of retired residents are financially illiterate. At the same time, the financial literacy level has a significant impact on the asset allocation of retired residents, and retired residents with low financial literacy levels have a low degree of diversification in asset allocation. Considering that China’s average life expectancy has reached 77 years, retired residents will face various financial decisions for a long time to come, relevant policies should be devoted to improving the financial literacy of retired residents, which will help improve their economic and financial safety and enhance their financial welfare.

Financial Literacy, Internet Dependency, and Internet Finance

Does the digital transformation of financial services make the financial system more inclusive? Utilizing the China Household Finance Survey (CHFS) data, this study explores the impact of financial literacy and the degree of Internet dependency on household financial asset allocation. The study finds that Internet finance mainly attracts investors with a lower financial sophistication, a stark contrast to my finding concerning participation in the traditional financial market. This result suggests that Internet finance can fill the funding gaps where investors traditionally face high participation costs and, thus, improve financial inclusion. Moreover, I show that one's degree of Internet dependency is positively associated with the participation in Internet finance, indicating that local Internet infrastructure can be an essential prerequisite for an economy to promote financial inclusion through the Internet finance. Meanwhile, a digital transformation of an economy may potentially result in an over-allocation of capital to risky assets, provided that Internet finance is often associated with high 'long tail' risks. My conclusion remains robust to investigating 'exclusive' participation in each financial asset class and using alternative measures of Internet dependency and financial literacy.

An empirical research on the Non-Linear effect of financial asset allocation on the development of main business

With respect to the hot issue of “breaking away from entity economy, and transforming to virtual economy” in Chinese economy over the years, an empirical test is carried out in the paper considering the influence of financial asset allocation on the development of main business in entity enterprises by regarding A-share entity enterprises in Henan Province from 2009 to 2018 as the research samples. According to the research, entity enterprises in Henan Province are of huge differences in financial asset allocation and in general, the configuration level is not high, and the main business is facing lower operating incomes. From the perspective of different industries, financial asset allocation of enterprises in the manufacturing industry presents U-shaped relations with the development of main business, and when the level of financial asset allocation in enterprises reaches to 10.47%, incomes obtained by financial asset allocation can promote the development of main business, but the above effect isn’t obvious in other industries. The research conclusion made in the paper is that entity enterprises can benefit more by making reasonable investment decisions, improving the utilization rate of idle funds, perfecting the effectiveness of financial market, and depositing into financial institutions, and these effects can provide the major basis to realize “the mutual promotion of finance and industry”.

How Does Households' Wealth Affect Portfolio Choices?

Purpose: The aim of this paper is to identify the determinants of households’ preferences regarding financial asset allocation. It investigates the structures of households’ financial asset portfolios in 15 euro area countries. It assumes three risk classes and presents a comprehensive picture of an average portfolio at the domestic and euro area levels. Methodology: The research is based on the Eurosystem HFCS data. It applies the fractional multinomial logit model which allows analysing parallel movements in all shares of portfolio components resulting from the changes in households’ wealth. Findings: The results obtained allow drawing conclusions about the heterogeneity of households’ investment preferences on the financial markets across the euro area. However, in all analysed member countries, deposits can be perceived as a component of primary importance as well as a substitute to voluntary pension plans and whole life insurance contracts. The results from the fractional multinomial logit model lead to a general finding that wealthier households are more open to risk exposure than those less affluent. The most useful wealth measures regarding the aim of the study were net wealth, total financial assets, and annual gross incomes. Their adoption to the model allowed identifying the countries like France, Finland, or Italy where the effect of the deepening changes in portfolio structure caused by the continuous increase in households’ wealth was identified. Additionally, Austria, Finland, France, and Italy were recognised as the member states of the most significant differences in this regard between the most distant classes of households - the poorest and the most affluent. Practical implications: This study allows cross-country comparison of the investment preferences of the households characterised by similar financial standing. The results obtained are relevant to the discussion on households' portfolio choices, and growth potentials of the retail financial market in the euro area. Originality/Value: The main contribution of this study to the literature is the knowledge on how the differentiated wealth of the euro area households influences the risk profiles of their financial asset portfolios.

Corporate financial asset holdings under economic policy uncertainty: Precautionary saving or speculating?

Non-financial corporations invest heavily in financial assets nowadays, raising questions about the traditional boundaries of non-financial firms. We investigate how economic policy uncertainty affects firms’ holdings of non-currency financial assets and portfolios in China. We find that economic policy uncertainty has a negative effect on firms’ non-currency financial asset allocation, especially for less financially constrained firms. This result implies that other than precautionary saving, speculation is the underlying motive that drives firms to increase their non-currency financial asset holdings. Furthermore, economic policy uncertainty has a negative but weaker impact on financial asset holdings for firms in industries/regions with intensive competition.

Strategic Asset Allocation in Japan: An Empirical Evaluation

This research seeks to provide a comprehensive picture of lifetime asset allocation in Japan. We evaluate patterns in the level and composition of assets by household type, taking account of home ownership and household claims on social security as well as financial assets and pensions. The analysis relies on a micro-data taken from the RADAR survey fielded by Nikkei, for the year 2000. The RADAR data are the only publicly available dataset to record financial asset holdings in any detail, with which we calculate housing equity as well as other forms of wealth. We supplement this with external information on pension and social security entitlements. The resulting picture attests to the importance of housing and social security in the portfolios of households approaching retirement. As well, we compare asset allocation patterns between those who are worse vs. better off, better vs. worse educated, married couples vs others, and dualearner vs. single earner couples. Our econometric analysis of asset allocation choice reinforces priors regarding Japanese lifecycle asset allocation patterns: households do invest conservatively, other than their family home; they are risk-averse in their allocation of financial assets; and they appear to over-invest in housing and life insurance, two assets which enjoy preferential bequest tax treatment. We argue that institutional, historical, and policy influences explain much of observed Japanese preferences for safe financial assets, and we offer suggestions for mechanisms that could increase household diversification.

Corporate Financial Asset Holdings Under Economic Policy Uncertainty: Precautionary Saving or Speculating?

Nowadays, non-financial corporations invest heavily in financial assets, questioning the traditional boundaries of non-financial firms. We investigate how economic policy uncertainty affects firms’ holding of non-currency financial assets and portfolios of such assets in China. We find that economic policy uncertainty has a negative effect on firms’ non-currency financial asset allocation, and the effect is more pronounced for less financially constrained firms. This result implies that other than precautionary saving,speculation is the underlying motive that drives firms to increase their non-currency financial asset holdings. Further investigation shows that economic policy uncertainty has a negative but weaker impact on financial asset holdings for firms in industries with intensive competition. The results are robust to the use of a variety of specifications and estimation methods.

Altersvorsorge aus dem Baukasten: Försiktig, balenserad oder offensiv? Eine Analyse der Anlagestrategie, Finanzanlagenallokation und Vermögenswertveränderungen des schwedischen Prämienrentensystems

Zusammenfassung: Die Einführung einer kapitalgedeckten Komponente innerhalb der ersten Säule des schwedischen Rentensystems zielt darauf ab, Überrenditen für Prämiensparer zu generieren, Risiken zu diversifizieren und die individuelle Vermögensallokation der Beitragszahler zu optimieren. Im Lichte der Finanzkrise der vergangenen Dekade ist die langfristige Tragfähigkeit einer kapitalgedeckten Alterssicherung vermehrt Gegenstand politischer sowie regulatorischer Debatten. Folglich ist inter alia zu klären, inwieweit sich Verwerfungen auf den Finanzmärkten auf die Vermögenswertentwicklung im Prämienrentensystem jüngst auswirkten und welche systemimmanenten Mechanismen zur Volatilitätsreduktion existieren. In diesem Artikel wird daher die Anlagestrategie und Finanzanlagenallokation des siebenten schwedischen allgemeinen Pensionsfonds auf Grundlage der kürzlich modifizierten Regulatorik identifiziert und evaluiert. Sodann wird die Entwicklung der Nettorendite sowie der Transaktions- und Vermögensverwaltungskosten des staatlich verwalteten Aktien- und Anleihefonds analysiert und mit den entsprechenden Parametern des Prämienrentensystems verglichen, um die Anlageperformance einordnen und letztlich beurteilen zu können.

REIT Financing of Real Estate Development Projects in Nigeria: Why Not?

This study appraised the investment option of REITs directly financing real estate developments within the REIT investment guidelines in Nigeria. The focus is to grow the real estate sector of the emerging Nigeria REIT market, especially where there exists a low stock of real estate assets. Asset allocation strategy of the modern portfolio theory anchored on the Markowitz’s efficient frontier model was adopted taking into consideration the REIT regulations in Nigeria. The study found that Nigeria REIT can adapt real estate financing as an option of investment diversification because of the potential return benefit exhibited with an efficient REIT portfolio of 70% real estate acquisition, 20% construction finance and 10% financial deposit asset allocation strategy, yielding a return of 8%, which was 89% higher than the 4.23% maximum return of 100% asset in real estate alone. The study provides an insight into the developing Nigeria REIT market and recommends a review of REIT law to encourage REIT investment into direct construction financing in other to grow property stock in the emerging real estate markets to a sustainable level.

Robust dependence modeling for high-dimensional covariance matrices with financial applications

A very important problem in finance is the construction of portfolios of assets that balance risk and reward in an optimal way. A critical issue in portfolio development is how to address data outliers that reflect very unusual, generally non-recurring, market conditions. Should we allow these to have a significant impact on our estimation and portfolio construction process or should they be considered separately as evidence of a regime shift and/or be used to adjust baseline results? In financial asset allocation, a fundamental step is often a mean-variance optimization problem that makes use of the location vector and dispersion matrix of the financial assets. In this paper, we introduce a new high- dimensional covariance estimator that is much less sensitive to outliers compared to its classical counterparts. We then apply this estimator to the active asset allocation application, and show that our proposed new estimator delivers better results compared to many existing asset allocation methods. An important bonus is that on our examples, the method has a smaller proportion of stock weights greater than 10% and, in many cases, a higher alpha. Covariance estimation is more challenging than mean estimation and only locally and not globally optimal solutions are available. Our proposed new robust covariance estimator uses a regular vine dependence structure and only pairwise robust partial correlation estimators. The resulting robust covariance estimator delivers high performance for identifying outliers for large high dimensional datasets, has a high breakdown point, and is positive definite. When the full vine structure is not available, we propose using a minimal spanning tree algorithm to replace missing vine structure.

Future Orientation and Household Financial Asset Liquidity

This study explored one aspect of household financial resilience by analyzing factors related to financial asset liquidity. Given that assets are classified on the balance sheet according to when their economic benefits are expected in time, we extend the asset allocation literature by modeling the allocation of financial assets to cash as a function of intertemporal motivations (i.e., future orientation). A sample of respondents was extracted from De Nederlandsche Bank Household Survey. Fractional logistic regression was used to model the proportion of financial assets held in cash. Consistent with theoretical predictions, future orientation was negatively associated with the proportion of financial assets held in cash. Implications for practice are discussed.

House Demolition and Household Investment of Financial Risk Assets

Family finance is becoming the focus of people’s attention. Family financial market participation, family asset selection and influencing factors are core issues of family financial research center. Although compared with the past, the current rate of household participation in financial market in our country has been raised, from the current status of financial market, there are still some problems in the household investment of financial risk assets like the low proportion of investment and the low market participation rate. Therefore, under current background conditions that current financial market and financial product development in our country are still unable to meet the diverse and multilevel needs of families, this paper studies the investment of household financial assets, especially the investment of family financial risk assets. It is helpful to the design of new financial products, market orientation and target population setting as for the nation and enterprises, and then the optimization of the household financial asset portfolio. In recent years, with the improvement of the availability of micro-data, more and more scholars have paid their attention to the factors that affect the investment decision-making behavior of family financial risk assets. In this respect, some scholars have revealed the impacts of income, education level, health status, social insurance and social interaction through micro-empirical research. However, according to existing related research, few scholars pay attention to the influence and influence mechanism of money from different sources on the investment decision-making behavior of family financial risk assets. This paper seeks to fill up this gap and provides new micro-empirical evidence in this area. House demolition has always been a hot issue as for the public and the academic community. House demolition in China is usually accompanied by rich demolition compensation. From a perspective of mental account, demolition compensation and wage income earned by families through hard work are two types of money with different sources, that is, the first one belongs to windfall income, and the last one fixed income. Therefore, this paper chooses the impact of house demolition on investment decision-making behavior of family financial risk assets and its impact mechanism as the research topics. First of all, this paper distinguishes the family money sources based on house demolition. Next, on the basis of in-depth theoretical analysis, rigorous empirical research has been carried out to verify the impact of house demolition on the investment decision-making behavior of family financial risk assets and its impact mechanism, and then the impact of money from different sources on the investment decision-making behavior of family financial risk assets and its impact mechanism are revealed. The robust research results show that house demolition can significantly affect household financial risk asset investment, and this impact is reflected not only at the breadth level, but also at the depth level, that is, house demolition significantly increases the family financial risk asset investment willingness and investment proportion. The intrinsic reason lies in that the expected loss of wealth is a mediator, that is, house demolition through the expected loss of wealth affects the family financial risk assets investment. However, the mediating effect is moderated by social insurance, that is, social insurance strengthens the intermediary effect of the expected loss of wealth, and further the impact of house demolition on household financial risk asset investment. The above results also indirectly show that money from different sources has a significant impact on household financial risk asset investment decisions through the expected loss of wealth, and social insurance strengthens the impact. This paper reveals how money from different sources affects the allocation of financial assets in households for the first time. It provides a new insight for human economic behavior and results, which is a further advance of the existing research, and helps to deepen the understanding of household financial venture capital investment decisions, having a strong theoretical vanguard. At the same time, the discovery in this paper provides important reference value and guiding significance for formulating financial investment policies or market strategies, deepens financial system reform and promotes economic growth.

Primena standarda u bilansiranju hartija od vrednosti u javnom sektoru

State activities, as well as the activities of public sector entities and entities, are presented and noted in their individual and consolidated financial statements. In the public sector, the financial statements provide information on the sources, allocation and use of financial assets, or public revenues, while also providing the opportunity to observe the deliberate spending of these financial resources in accordance with regulated law and budget requirements. The level of implementation of IPSAS in the Republic of Serbia, within the public sector, is emphasized through research in the work, as well as the development and goals of establishing accounting regulations. The adoption of the IPSAS standard has allowed a higher degree of responsibility for mutually dependent and involved public sector actors, as well as state and entity governments with public revenue, better transparency, greater credibility, and overall better governance and planning, as well as faster and more rational management of programs, as and the universality of financial statements at the international level, for the purpose of better understanding and use of the information provided therein.

Tax Efficiency of Minority Investment Portfolios

In this study we use the 2010-2013 Survey of Consumer Finances to analyze the allocation and location of financial assets in categorizing the tax-efficiency of investment portfolios by race/ethnicity. We find that Blacks and Hispanics tend to be more tax-efficient since they invest largely through tax-deferred accounts. We also find that minority households that own taxable accounts have less than 10% the average dollar amount in those accounts than held by White households. This information is important for educators, counselors and planners since minority households may have less liquid and more conservative portfolios affecting their overall financial well-being.

The Implications of the China Risk-Oriented Solvency System on the Life Insurance Market

The China Risk-Oriented Solvency System (C-ROSS) was fully implemented in 2016. We analyse the effects of C-ROSS on the financial position, product mix and asset allocation of life insurers in the Chinese insurance market. Based on a data set of 66 life insurers, we find that the solvency position of life insurers specialising in writing long-term traditional life products with heavy protection elements improves under C-ROSS, but that the insurers are more vulnerable to decreases in interest rates. In contrast, the solvency position of life insurers specialising in writing short-term endowments and high cash value products deteriorates. C-ROSS also incentivises life insurers to consider asset–liability duration matching, accounting classification of fixed-income assets and underlying risks of equity investments when formulating their investment strategies. Life insurers may find it difficult to manage interest rate risk under C-ROSS due to the lack of available long-term bonds in the Chinese financial market. A stock market boom has a slightly negative effect on life insurers’ solvency ratios, and most life insurers can survive a severe market crash due to the pro-cyclical component embedded in the minimum capital requirements.

(The Relationship between Self-Construal and Financial Asset Allocation)

Korean Abstract: 금융소비자들이 자산관리를 함에 있어서 자산배분에 관한 의사결정은 금융소비자들의 복리를 결정하는 중요한 요인 중 하나라고 할 수 있다. 금융소비자들의 자산배분과 관련된 기존 연구들은 사회 및 인구통계학적 요인, 사회문화적 요인, 심리적 요인을 중심으로 이루어져 온 반면 본 연구는 불확실성 회피 성향 및 성과물 평가와 관련된 금융소비자들의 자기해석(self-construal)이 금융상품 간 자산배분에 어떻게 영향을 미치는지를 살펴보았다. 연구 방법으로는 대학생들을 대상으로 실험 설문 방식을 활용하였고, 자산배분 대상은 확정이자형 금융상품과 투자형 금융상품으로 구분하였으며, 계층적 회귀분석 방법을 활용하여 자기해석에 따라 저축상품과 투자형 상품에 어떻게 자산배분을 하는지를 살펴보았다. 대학생들을 대상으로 실시한 본 연구에서 발견된 사항을 요약해 보면 독립적 자기해석을 하는 사람에 비해 상호의존적 자기해석을 하는 사람의 경우 저축상품에 대한 자산배분 비중이 높은 경향이 있는 반면 상호의존적 자기해석을 하는 사람에 비해 독립적 자기해석을 하는 사람의 경우 투자형 상품에 대한 자산배분 비중이 높은 경향이 있음을 발견하였다는 점이다. 이상에서 발견된 사항과 관련된 이론적 및 실무적 시사점을 금융마케팅, 금융소비자행동, 금융 정책적 관점에서 기술하여 놓았다. English Abstract: For financial consumers, decision making regarding asset allocation plays an important role in financial consumers' well-being. While prior research on asset allocation with respect to financial products focused on socio-demographic, socio-cultural, or psychological factors, this study investigates the influence of financial consumers' self-construal on asset allocation among a given set of financial products. Financial products were divided into two types: saving product and investment products. Experimental study was conducted and the resulting data was analyzed using hierarchical regression. The findings are summarized as follows: self-construal impacts asset allocation. More specifically, the stronger the interdependent self-construal participants held, compared to independent self-construal participants, the more assets allocated to saving product. In contrast, the stronger the independent self-construal participants held, compared to interdependent self-construal participants, the more assets allocated to investment products. Theoretical and practical implications were described in perspective of financial marketing, financial consumer behavior and financial policy.

The (mis)alignment of health insurers' efficiency measures from different perspectives and Their (un)linkage with financial ratios and asset allocation

This research uses Data Envelopment Analysis (DEA) models to examine the alignment of health insurers’ efficiency measures from different perspectives. It also analyzes the linkage between efficiency measures and asset allocation, as well as traditional financial ratios including medical loss ratio (MLR). The DEA results indicate that the operating efficiency and the medical services efficiency are positively (but not highly) correlated with each other, and financial ratios are not effective indicators of the efficiency of health insurers. The composite efficiency is much higher than the operating or medical services efficiency. The correlation between the composite efficiency and the operating efficiency or the medical services efficiency is moderate. Neither the operating efficiency nor the medical services efficiency is an appropriate measure of the overall efficiency of health insurers. Therefore, innovative regulatory measures, such as a combination of efficiency measures and financial ratios, should be adopted to satisfy all the stakeholders. This research provides significant insights to policymakers, regulators, the health insurance industry and consumers.

Sortino Ratio Based Portfolio Optimization Considering EVs and Renewable Energy in Microgrid Power Market

Portfolio optimization in finance is the optimal allocation of financial assets in different stocks, mutual funds, bonds, etc. to maximize the returns with risk tolerance. Sortino ratio is a measure for calculating risk adjusted return of investment portfolios. Here, it is adapted for power portfolio optimization in microgrid where total load demand (including losses) is optimally distributed to different microsources so that profit per unit risk of aggregator is maximized. The diminishment in profit (from energy and reserve markets) with reference to a target profit, for different levels of uncertainties in renewable energy and electric vehicles (EVs), is consolidated to find an estimate of risk. The profit relating to deterministic forecasted data of renewable energy and pre-dispatch information from the EV parking lots is considered as the risk free target profit. The reserve market is balanced using demand response, grid power purchase, EV discharging, and other dispatchable energy sources to compensate possible discrepancy between scheduled and actual dispatch. Stochastic weight tradeoff particle swarm optimization (SWT-PSO) is used to maximize the Sortino ratio subjected to constraints of a modified backward--forward sweep (BFS) power flow problem. The results are found to be better in terms of reduced financial risk and increased robustness to uncertainties.

分数布朗运动环境下的资产配置策略多期收益保证价值的测算

本文考虑Hurst指数大于二分之一的分数布朗运动驱动的风险性资产价格过程，结合Wick-Ito积分和拟条件期望，讨论了分数布朗运动环境下结合CM策略和CPPI策略的多期收益保证价值，通过数值模拟，比较分析了多期保证期限、金融市场重要参数和资产配置策略参数对两策略下多期保证价值的影响。 In this paper, we consider that the price processes of risky assets are driven by fractional Brownian motion (1/2< H< 1). With the Wick-Ito integral and the quasi-conditional expectation, we compute the value of multi-period return guarantees under CM strategy and under CPPI strategy. Through the numerical simulation, the influence on the value of multi-period return guarantees under the two strategies is compared and analyzed, which is made by the periods of multi-period return guarantees and the important parameters of the financial market and asset allocation strategy.