Fund Risk Research Articles

Fund performance and social responsibility: New evidence using social active share and social tracking error

Using a sample of 2,516 U.S. mutual funds over the 2010–2017 period, we examine the effects of socially responsible investing (SRI) on mutual fund performance. We use two proxies for deviations from SRI: social active share (SAS), and social tracking error (STE). Respectively, they capture the differences in holdings and returns between a fund and a socially responsible index, the MSCI KLD 400. In univariate analyses, the SAS results align with more socially responsible funds outperforming less socially responsible funds, while the STE results provide mixed evidence. In multivariate analyses, both SAS and STE show that more socially responsible funds outperform their less socially responsible peers. We also find that socially responsible funds exhibit lower risk. Taken together, our results provide evidence that SRI does not damage fund performance but can reduce fund risk.

A Particle Swarm Optimization Copula-Based Approach with Application to Cryptocurrency Portfolio Optimisation

Blockchain and cryptocurrency are gradually going mainstream with new cryptocurrencies introduced every single day. The speculative nature of these digital assets expose their prices to large fluctuations. Trading these crypto-assets necessitate an adequate understanding of this emerging market as well as adequate tools to model the market risk and efficient allocation of funds. This may assist crypto investors in taking advantage of the highly volatile aspects of these assets. The portfolio consider in this study consists of six cryptocurrencies: four traditional cryptocurrencies (BTC, ETH, BNB and XRP) and two stablecoins (USDT and USDC). We examine the copula particle swarm optimization (CPSO) portfolio strategy against three other portfolio strategies, namely, the global minimum variance (GMV), the most diversified portfolio (MDP) and the minimum tail dependent (MTD). CPSO appears to be a promising strategy during extreme market conditions while GMV seem favorable during normal market conditions. Most importantly, hedge and safe-havens ability of the two stablecoins is clearly exhibited with CPSO, while their diversification property is inhibited.

Bank Specific Risks and Financial Stability Nexus: Evidence From Pakistan.

This article investigates the nexus between bank-specific risks and the financial stability of the banks for a panel data set of 15 scheduled banks in Pakistan over a 12-year period from 2009 to 2020. Using the fixed-effect model, the study result shows that bank-specific risks, i.e., credit risk and liquidity risk are detrimental to bank stability, whereas funding risk has no significant impact on bank stability. Besides these, bank size has also a negative impact on bank stability, whereas the return on assets (ROA) revealed a positive influence. To ensure stability, bank management should establish policies that confirm secure loan granting and timely reimbursement from customers to minimize the credit risk. Besides this, management should keenly observe the liquidity position and should also effectively mobilize the customer deposits to attain financial stability.

Research on Strengthening Internal Control and Preventing Fund Risk in Public Institutions

Research on Strengthening Internal Control and Preventing Fund Risk in Public Institutions

Low-carbon technology service mode with revenue-sharing contract considering advance funding risk.

This study aims to effectively reduce carbon emissions by selecting the low-carbon technology service emission reduction modes. This paper constructs a revenue-sharing contract model based on game theory. The purpose of this paper is to analyze the choice of carbon emission reduction strategies for carbon emission-dependent manufacturers and low-carbon technology service providers with advance funding risk aversion. This study analyzes the effects on the optimal decision-making and profits of both parties of the degree of risk aversion and the investment cost coefficient of carbon emissions reduction for service providers, and initial carbon emissions of manufacturers. The optimal carbon emissions reduction strategy of manufacturers and service providers with numerical analysis is obtained, and the revenue-sharing contract coordination is realized. Finally, the validity of the contract is verified by simulation analysis. The results show that manufacturers and service providers can only achieve optimal cooperation for emission reduction within a certain range of parameters. With different investment cost coefficients of carbon emissions reduction and with different initial carbon emissions, manufacturers will adjust the fixed emissions reduction fee and the revenue-sharing coefficient to encourage service providers to offer the optimal carbon emissions reduction rate. This study enriches theoretical research on low-carbon service chains. It also provides important practical evidence to help manufacturers and service providers choose optimal strategies for coordinating revenue-sharing contracts.

Risk And Return Analysis of Mutual Funds with Reference to Banks

Risk And Return Analysis of Mutual Funds with Reference to Banks

Key investor information disclosure regulation and retail mutual fund flows in the Finnish market

PurposeIn the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor Information Document (UCITS KIID) for investors. This papers uses archival data from the Finnish mutual fund market to test how the regulation's information disclosure requirements concerning past performance, risk and fund fees are associated with mutual fund flows.Design/methodology/approachThe study uses archival data on the mutual funds market in Finland to test how the regulation relating to retail investors' information requirements is associated with mutual fund flows.FindingsOur findings suggest that the UCITS KIID predicts retail investors' fund flows. While past performance is associated with fund flows throughout the observation period, retail investors appear to have become more sensitive to fund fees and invest in less risky funds following the adoption of the UCITS IV period.Practical implicationsInformation relating to fund fees and risk appears to be relevant to retail investors, which should be acknowledged in future iterations of short-form disclosure and in mutual fund marketing.Originality/valueThis paper is the first to assess the significance of KIID in actual market environment.

The Influence of Small and Medium Enterprise Actors’ Knowledge About Sharia’ Banking Towards Their Interest to Use Musyarakah Financing Product

Micro Small and Medium Enterprises (SME) has an important and strategic role in national scale of economic growth. The development of SME itself often times faces various dilemmas such as budgeting problem that lacks of capital either by numbers or sources. Meanwhile, SME is a great potential market for financial service industry especially bank to distribute financing. Sharia banking has budgeting core product in the form of profit sharing developed in the funding product called musyarakah. One of fundamental factor to attract the interest of SME agent to use the musyarakah funding is to impart the knowledge concerning sharia banking. This research is conducted to observe the effect of SME agents’ sharia Banking Knowledge toward their interest of choosing musyarakah as financing product. The independent variable of this research is knowledge that consists of Islamic work ethic in sharia banking knowledge, operational principle in sharia banking knowledge, knowledge of products in sharia banking, knowledge of profit sharing in sharia banking, risk of funding in sharia banking knowledge while the dependent variable is the interest to use musyarakah as financing product. The sampling technique used in this research is purposive sampling. The data collection uses questionnaire with 254 respondens of total sample who are SME who are enlisted in subdistricts in Yogyakarta. The data analysis applies descriptive and multiple linear regression analysis. The result of this research indicates: knowledge of products in sharia banking significantly affects the interest to use musyarakah as financing product, knowledge of Islamic work ethic in sharia banking, knowledge of profit sharing in sharia banking , knowledge of financing risk in sharia banking affect insignificantly toward the interest to choose musyarakah as financing product.

Hungarian forint FX swap spreads during and beyond crisis times

Incentivised by a wide range of research discussing mispricing in USD related swap markets, the paper aims at discovering the factors contributing to the deviation of the 3-month FX swap points in the EURHUF and USDHUF market from their CIP based values primarily between the period January 2008 and December 2018 and with an extension to the end of 2021 using daily and monthly Bloomberg quotes. The period examined can be divided into three plus one subperiods as concerns FX swap spreads, largely determined by the effects of the global financial crisis and the volume of FX loans. Apart from the most important classes of variables explaining FX swap spreads, counterparty, funding and market liquidity risk indicators, the literature identifies, policy variables were also involved in the analysis. During and in the aftermath of the 2008 global financial crisis, the MNB applied various kinds of FX swap tenders to ease FX liquidity tensions in the Hungarian interbank market, and continued providing such operations even after the conversion of household FX loans to domestic currency. The results of VARX estimations suggest that indicators of market and liquidity tension, counterparty risk mostly positively contributed to the widening of FX swap spreads, in addition, policy intervention had a spread dampening impact throughout most of the period. The paper confirms that central bank FX swap market participation can mitigate mispricing especially in turbulent times.

Asset Allocation Policy Analysis, Share Selection, and Level of Mutual Fund Risk in Indonesia

This research aims to analyze the performance of equity mutual funds in Indonesia by observing their asset allocation policy, stock selection, and risk level. This research uses pooled data, the data choosing with purposive sampling. Data availability at: www.portalreksadana.com, www.bi.go.id,www.lps.go.id, and www.finance.yahoo.com. The sample consists of 63 items of equity mutual funds since January 2017 until December 2019. The hypothesis of this research are examined using the multiple regression. The result of this research shows that equity mutual funds performance is affected by asset allocation policy, stock selection, and risk level. It indicates that mutual funds performance is determined by those activities of investment managers and market return conditions

Leading Gains and Funding Risk in Baltic Housing Markets

This paper analyzes lending gains and funding risk in the Baltic housing markets. Transition economies are exposed to both cycles and structural shifts, relating housing market fundamentals to a more diversified set of processes than in mature economies. Still, as housing is a nontradable good, transition allows for high rates of appreciation. When house price growth exceeds the mortgage rate, there are lending gains from mortgage-financed housing. As higher leverage increases funding risk, a challenge emerges for transition economies, which are in a monetary union with mature economies. Asymmetric shocks to housing markets may threaten financial stability as the monetary policy does not respond to country-specific house price bubbles. In addition to a discussion on asymmetric shocks and the role of housing, the paper offers an illustration of the lending gain and the funding risk that housing markets in transition economies may entail. The paper simulates the return to housing equity across the Baltic states over the period 2010-2020. While a strong housing market has provided Estonian households with the highest price gains, both Latvian and Lithuanian households have taken advantage of the deepening monetary integration towards the end of the period. Still, the more volatile housing markets in the two southernmost Baltic states make leverage set its mark on the risk-return profile.

Climate scenario analysis for pension schemes: a UK case study

Abstract This paper demonstrates how climate scenario analysis can be used for forward-looking assessment of the risks and opportunities for financial institutions, using a case study for a UK defined benefit pension scheme. It uses a top-down modelling tool developed by Ortec Finance in partnership with Cambridge Econometrics to explore the possible impacts of three plausible (not extreme) climate pathways of the scheme’s assets and liabilities. It finds that the funding risks are greater under all three climate pathways than under the climate-uninformed base scenario. In the absence of changes to the investment strategy or recovery plan, the time taken to reach full funding is increased by three to nine years. Given that most models currently used by actuaries do not make explicit adjustments for climate change, these modelled results suggest it is quite likely that pension schemes are systematically underestimating the funding risks they face.

Hedge fund family ties

• Hedge fund managers connected through shared employment histories hold and trade more of the same stocks than unconnected managers. • A long-short portfolio of connected-unconnected overlapped trades generates 3.6% of annual alpha. • Results are greater between fund-pairs with stronger social connections and longer relationships. • Shock based tests confirm social channels lead to the main findings, supporting models of manager coordination. • Employment linked hedge funds increase unconditional return correlation but protect against severe drawdown risk. Using a novel dataset, I show that hedge fund managers connected through shared employment histories hold and trade more of the same stocks than unconnected managers. A long-short portfolio of connected-unconnected overlapped trades generates 3.6% of annual alpha. Results are greater between fund-pairs with stronger social connections and longer relationships implying a socially reinforcing channel is responsible. Shock based tests confirm social channels lead to the main findings, supporting models of manager coordination. The findings identify common sources of risk and return for employment-linked hedge funds, except during severe drawdowns when common holdings are protected from fire sales.

Monetary Policy and the Run Risk of Loan Funds

Monetary Policy and the Run Risk of Loan Funds

Sustainable Financing Model considering Project Risk

Implementing various projects in each country leads to the development of that country. The necessity of implementing any project is to finance that project through different methods. In this regard, the cost of financing projects, determining the amount of financing from each technique, and the risk of financing projects are among the things that have caused problems for managers and decision makers. This study presents a new sustainable financing model for international projects in Iran. The main objectives are to minimize the financing cost and risk of funding the projects. Based on the proposed conceptual model based on fuzzy hierarchy analysis, it was observed that Iran’s economic conditions, with a weight coefficient of 0.34, have the highest risk in financing projects. Therefore, a two‐objective model was designed by determining the weighting coefficients to reduce costs and financing risks. Additionally, the epsilon constraint methods and NSGA II algorithm were used. Comparative results between the two algorithms show that financing projects must be changed to reduce the risk of sustainable financing of international projects, which can lead to an increase in the total cost of financing projects. On the other hand, it was observed that the NSGA II algorithm obtained 32 efficient answers (a combination of how projects are financed). Each of the received answers has advantages over the other solutions obtained. The epsilon constraint method also brought 11 efficient answers, demonstrating that the domestic capital market can provide 54.89% of the deficit budget of the country’s international projects. Furthermore, 44.81% of the project deficit budget can be financed from a foreign bank loan source, and only 0.2% of the budget can be funded through the company’s internal resources.

Be nice to the air: Severe haze pollution and mutual fund risk

Be nice to the air: Severe haze pollution and mutual fund risk

Economic Policy Uncertainty and Mutual Fund Risk Shifting

Economic Policy Uncertainty and Mutual Fund Risk Shifting

The Real Effects of Mutual Fund Risk Taking

The Real Effects of Mutual Fund Risk Taking

Research on Value at Risk of Lombarda China Medical Health Fund Based on Monte Carlo Simulation

Since its official launch on August 17, 2016, Lombarda China Medical Health Fund has mainly focused on the potential leaders of medical services. It has performed very well in the medical-theme funds. Thus, it has become a signature product in the field. However, with the acceleration of the process of centralized pharmaceutical purchase in the second half of 2021, the relevant top holdings of the fund continued to slump, resulting in the continuous decline of its revenue. This paper selects the top ten holdings of Lombarda China Medical Health Fund as the representative portfolio, estimating its VaR (Value at Risk) using Monte Carlo Simulation method to provide investors with quantifiable fund risk information so that they can choose a more appropriate investment scheme.

Bank Funding Risk, Reference Rates, and Credit Supply

Bank Funding Risk, Reference Rates, and Credit Supply