Global Asset Research Articles

Is an equally weighted global investment portfolio the outperformer?

The paper builds, in the first part, a benchmark index based on the optimal mix of indices for the global asset classes of equity, fixed-income securities, real estate, commodities, and currencies including cryptocurrencies so as to maximize the ex-post Sharpe ratio. The objective of the first part is to help investors across the globe compare portfolio performance with a uniform benchmark. In the second part, a comparison of portfolio performances is based on five methods of portfolio construction viz; 1) historical returns and variance matrix used along with Markowitz model to discover optimal weights for portfolio components, 2) modification to this approach by using autoregressive integrated moving average (ARIMA) based predicted returns in place of historical returns, 3) global minimum volatility (GMV) portfolio, 4) global market weight portfolio and 5) equal weight portfolio. The objective in the second part is to explore an easy-to-use and at the same time conceptually sound method to build portfolios for any investor worldwide even if such an investor does not have access to or does not wish to rely upon the views and opinions of investment experts. The ex-post performance of portfolios based on these five methods is compared with the ex-post performance of 207 global active and passive funds. This comparison suggests that an equal-weighted portfolio with periodical rebalancing gives the best Sharpe ratio for a global investor.

The impact of global economic policy uncertainty on portfolio optimization: A Black–Litterman approach

This paper investigates the asymmetric impact of global economic policy uncertainty (GEPU) on global asset allocation. We employ the Double Asymmetric GARCH-MIDAS (DAGM) model to examine the asymmetric effect of GEPU shocks on long-term volatilities of global equities, bonds, commodities, clean energy and Bitcoin. The GEPU-based volatility is used as a proxy for the uncertainty of the investor’s views in the Black-Litterman (BL) framework. Empirical results show that the BL model with GEPU-based views yields higher out-of-sample risk-adjusted returns than other traditional benchmarks in most cases. The findings suggest that investors should consider the influence of GEPU when making portfolio decisions.

Co‐movement among oil, stock, bond, and housing markets: An analysis of U.S., Asian, and European economies

AbstractThis study explores the co‐movement among oil and the stock, bond, and housing markets of the U.S. and major developed countries across Europe and Asia. The results indicate that oil is long‐run integrated with each asset class, and that the extent of convergence has increased after the onset of the 2007–2009 global financial crisis (GFC). Moreover, oil contributes most heavily toward the common trends, implying that oil is the “leader” sector that drives each asset class toward long‐run equilibrium relationships. Short‐run analyses indicate that oil shocks induce a negative response in stock and housing returns and a positive reaction in bond returns, showing a tendency to become more intense and persistent after the GFC. When oil shocks are disentangled, the results indicate that supply and demand have heterogeneous effects on the three global asset classes. Over the long‐run, demand shocks make the most significant contribution to the common trends and “lead” the other asset classes, whereas supply shocks have either a negligible or a weaker impact. Over the short‐run, demand shocks positively impact the stock and housing markets and negatively impact bonds, while supply shocks induce negative and weaker impacts on all three asset classes.

The Impact of Advanced Economy Monetary Policy on Gold Price Dynamics in India

Gold remains a dynamic investment tool in many economies and is considered a safe- haven during times of crises. The sheer size of the US economy and hence any monetary policy decisions have implications for the global economy and global assets. Since commodities are priced in the US dollar, transmission of shocks to asset prices is bound to happen as investors rebalance portfolio. Now, the direction of movement in gold prices depends on other factors as well. Against this backdrop, we examine the impact of US monetary policy on gold prices in India and try to examine how monetary policy announcements during the pandemic by the Fed has influenced domestic gold prices. Further, we investigate the determinants of domestic gold prices using an ARDL model and find that prices have moved closely with global economic policy uncertainty, thereby demonstrating its safe haven feature and have risen with domestic CPI inflation, thus proving to be an inflation hedge. Thus, the study is expected to upgrade the understanding on the behaviour of investors towards gold, and information processing under uncertainty. JEL Classification: G10, G15.

Britain and Europe's Gifted Children in the Quests for Democracy, Welfare and Productivity, 1970–1990

Policy, voluntary, psychological and educational interest in gifted children emerged across Europe in the early twentieth century but surged dramatically in the 1970s and 1980s. This article explores the transnational voluntary circles hoping that gifted youth would bring peace and liberal democracy across Europe in these years. It analyses, also, how such work came into conflict with the expectations of conservative press in Britain: that gifted children would in fact bolster national economic progress. Critically, the article demonstrates that parents and children, drawing on professional and cultural capital, resisted ideas of gifted youth as global assets. Interest in giftedness revealed the growing ‘agency’ of articulate, affluent, middle-class families within the contexts of individualism and neoliberalism, but also its limits. Further, we can and must centre the experiences of young people in our scholarship, to truly understand how ‘agency’ operates within families and beyond.

What Happens in China Does Not Stay in China

Spillovers from China to global financial markets have been found to be small owing to China's limited integration in the global financial system. In this paper, however, we provide evidence that China constitutes an important driver of the global financial cycle. We argue that because of China's importance for global consumption, stronger Chinese growth raises global growth prospects, inducing an increase in global risk sentiment and an expansion in global asset prices and global credit. Two contributions are key to this finding: (1) We construct a measure of China's credit impulse to identify Chinese policy-induced demand shocks. Our approach takes advantage of the fact that a primary tool of China's stabilization policy-encompassing monetary, fiscal, and regulatory policies-is controlling the amount of credit in the economy. Without China's credit impulse, it is difficult to discern global financial spillovers; (2) We estimate an alternative measure of Chinese GDP growth that captures its business cycle given data concerns about the smoothness of official GDP data. Without China's alternative GDP measure, it is difficult to attribute any global cycle movements to economic developments in China.

Ownership and corporate governance across institutional contexts

AbstractResearch Question/IssueThe purpose of this special issue (SI) is to encourage research examining the effect of different ownership types in and from different countries on corporate governance and objectives.Research Findings/InsightsThe articles included in this SI provide novel insights as to the influence of different types of owners, including states and sovereign wealth funds, families, and different types of institutional investors, as well as of other features of ownership structures, on various aspects of corporate governance, in a variety of institutional contexts.Theoretical/Academic ImplicationsAs companies face different institutional contexts when they operate internationally, and shareholders have become increasingly global, the resulting heterogeneity of shareholder types poses new challenges in our understanding of their behavior. This SI is a step in the direction of disentangling the complex implications of ownership for corporate governance across institutional contexts.Practitioner/Policy ImplicationsTogether with other owner types, the ever‐increasing $100 trillion global asset management industry representing 40% of global market capitalization (PwC, 2020) fuels corporate governance and performance pressures on portfolio companies. The articles included in the SI provide useful insights as to the new ownership landscape and its consequences for operating firms in different countries.

Enhanced Global Asset Pricing Factors

AbstractThis article constructs and examines enhanced global return factors. I focus on three different enhancement approaches. First, I incorporate information about the covariance structure in the cross-section of stock returns. Second, I employ volatility-reducing techniques in the time series. Third, I exploit diversification benefits. I form six categorical factors by aggregating information from 214 characteristics. Further, I diversify across factors. The enhancement mechanisms are largely successful and when jointly applied increase the optimal Sharpe ratio on average by a factor of 1.96 compared to the traditional factors. My results point to the importance of employing efficient factors in asset pricing studies.

Global Collective Dynamics of Financial Market Efficiency Using Attention Entropy with Hierarchical Clustering

The efficient market hypothesis (EMH) assumes that all available information in an efficient financial market is ideally fully reflected in the price of an asset. However, whether the reality that asset prices are not informational efficient is an opportunity for profit or a systemic risk of the financial system that needs to be corrected is still a ubiquitous concept, so many economic participants and research scholars have conducted related studies in order to understand the phenomenon of the financial market. This research employed attention entropy of the log-returns of 27 global assets to analyze the time-varying informational efficiency. International markets could be classified hierarchically into groups with similar long-term efficiency trends; however, at the same time, the ranks and clusters were found to remain stable only for a short period of time in terms of short-term efficiency. Therefore, a complex network representation analysis was performed to express whether the short-term efficiency patterns have interacted with each other over time as a coherent picture. It was confirmed that the network of 27 international markets was fully connected, strongly globalized and entangled. In addition, the complex network was composed of two modular structures grouped together with similar efficiency dynamics. As a result, although the informational efficiency of financial markets may be globalized to a high-efficiency state, it shows a collective dynamics pattern in which the global system may fall into risk due to the spread of systemic risk.

Book review of Harpaz, Yossi 2019. Citizenship 2.0: Dual Nationality as a Global Asset. Princeton and Oxford: Princeton University Press. 203 pp

Book review of Harpaz, Yossi 2019. Citizenship 2.0: Dual Nationality as a Global Asset. Princeton and Oxford: Princeton University Press. 203 pp

The role of investor attention in global asset price variation during the invasion of Ukraine

We study the impact of event-specific attention indices – based on Google Trends – in predictive price variation models before and during the Russian invasion of Ukraine in February 2022. We extend our analyses to the importance of geographical proximity and economic openness to Russia within 51 global equity markets. Our results demonstrate that 36 countries show significant attention to the conflict at the onset of and during the invasion, which helps predict volatility. We find that the impact of attention is more significant in countries with a higher degree of economic openness to Russia and those nearer to it.

Herbivore species coexistence in changing rangeland ecosystems: First high resolution national open-source and open-access ensemble models for Iceland

Rangeland ecosystems are changing worldwide with the abandonment of extensive pastoralism practices and greater interest for species coexistence. However, the lack of compiled data on current changes in the abundance and distribution of herbivores challenges rangeland management decisions. Here we gathered and made available for the first time the most extensive set of occurrence data for rangeland herbivores in Iceland in an Open Access framework for transparent and repeatable science-based decisions. We mapped fine scale species distribution overlap to identify areas at risk for wildlife-livestock conflict and overgrazing. Nationwide and long term (1861–2021) occurrence data from 8 independent datasets were used alongside 11 predictor raster layers (“Big Data”) to data mine and map the distribution of the domestic sheep (Ovis aries), feral reindeer (Rangifer tarandus tarandus), pink-footed geese (Anser brachyrhynchus), and rock ptarmigan (Lagopus muta islandorum) over the country during the summer. Using algorithms of Maxent in R, RandomForest, TreeNet (stochastic gradient boosting) and MARS (Splines) in Minitab-SPM 8.3, we computed 1 km pixel predictions from machine learning-based ensemble models. Our high-resolution models were tested with alternative datasets, and Area Under the Curve (AUC) values that indicated good (reindeer: 0.8817 and rock ptarmigan: 0.8844) to high model accuracy (sheep: 0.9708 and pink-footed goose: 0.9143). Whenever possible, source data and models are made available online and described with ISO-compliant metadata. Our results illustrate that sheep and pink-footed geese have the greatest overlap in distribution with potential implication for wildlife-livestock conflicts and continued ecosystem degradation even under diminishing livestock abundance at higher elevation. These nationwide models and data are a global asset and a first step in making available the best data for science-based sustainable decision-making about national herbivores affecting species coexistence and environmental management.

Research on the Relationship Between Financial Crisis and Global Asset Prices

This paper studies the relationship between the financial crisis and global asset prices. The research angle of this paper is different from the previous literature. It not only examines the decline in the global asset price level after the financial crisis, but also finds that before the financial crisis is often accompanied by a huge increase in asset prices. Therefore, it is not difficult to find that there is a relatively complex interaction between the asset prices index and financial crisis. Changes in asset prices is not only be used as early warning indicators of financial crises, but also portray the negative impact of financial crises on the economy and finance. The research results show that before the financial crisis, the global asset price factor is increase by up to 28%, and after the financial crisis, it is decrease by 120%. The research in this paper provides a good reference for how to prevent global financial risks, avoid and quantify the impact.

Can ESG-Responsible Investing Attract Sovereign Wealth Funds’ Investments? Evidence From Chinese Listed Firms

Global sustainable development focuses on environmental, social, and corporate governance (ESG) responsible investment as a leading-edge topic in global asset management. Because of the long-term financial returns and positive social benefits of ESG-responsible investment, ESG factors have been introduced into the investment decision-making and risk management of Sovereign Wealth Funds (SWFs). Therefore, this study examines the effect of firms’ ESG-responsible investments on the investment scale of SWFs. We also examine the different influences of ESG factors in attracting SWFs’ investment, which is of some significance in discussing the investment preferences of SWFs. We find that ESG performance attracts SWFs’ investment by increasing ROA and reducing risk. The relationship between ESG and SWFs’ investments may help managers adopt appropriate strategies to attract SWFs investments and achieve coordinated development.

Does geopolitical risk matter for global asset returns? Evidence from quantile-on-quantile regression

We investigate the impact of geopolitical risk (GPR) generated by the Russian-Ukrainian conflict on European and Russian bonds, equity, and global commodity markets. We employ the GPR index and apply the quantile-on-quantile regression approach to the GRP index and financial asset returns. Our findings indicate that (i) most assets are in a mix of negative and positive relationship with GPR; (ii) GPR leads to changes in asset returns during normal market conditions; and (iii) the magnitude and direction of GPR's effect on asset returns depend on the type of market and market conditions.

COMMENTARY: Addressing Stewardship Misconceptions in Passive Investments: Can Indexes Enable Scale Engagement?

Passive investing and sustainability engagement were historically deemed at best challenging and at worst incompatible. Now, a growing realization acknowledges that combining index investing and sustainability engagement is not only possible but can reinforce and mobilize significant global assets under management to enable collaborative engagement. By linking engagement to transparent capital reallocation, passive investing has the potential to influence and achieve changes in corporate practices and strategies, which can produce real-world impacts. This article explores the evolution of environmental, social, and governance (ESG) engagement and passive investing and demonstrates that sustainability index design can lead to scalable, efficient, and impactful corporate engagement across entire markets. The use of such indexes to steer investment flows provides clear incentives for companies to improve sustainability performance and deliver the outcomes sought by both asset owners and society at large.

Cash Transfers, International Finance and Neoliberal Debt Relations: The Case of Post‐apartheid South Africa

ABSTRACTThis article situates South Africa's cash transfer programme within the country's financialized neoliberal regime. The adoption of economic liberalization by the African National Congress in the aftermath of the democratic transition has raised the profile of international investors in the domestic bond market. It is argued that this development, in the context of rising public debt and stagnating economic growth, has facilitated the financialization of the post‐apartheid state and has linked the sustainability of fiscal policy, and hence state‐led redistributive measures, to deepening debt relations with global asset managers. Additionally, a cluster of orthodox economic measures, such as inflation targeting and reserve accumulation, have served to thwart the potential for industrial upgrading. Moreover, it is posited that financial liberalization has further strengthened the influence of the Treasury over heterodox bureaucratic centres such as the Department of Trade and Industry, thereby serving to lock in the post‐transition neoliberal programme. Finally, the article argues that the integration of cash transfer recipients into the circuits of debt and finance is an outgrowth of the limitations of the social welfare programme and the broader financialization of the state. Overall, the analysis offered here serves as a counter‐argument to the notion that South Africa's cash transfer programme could offer a progressive alternative to market orthodoxy.

The Impact of Sukuk Structures on Sukuk Ratings and Yields

Sukuk has been developed into a global asset class, supporting development with the participation of a wide range of issuers and investors irrespective of demographic continents. Sukuk structuring is not only related to regulations imposed by the regulators but also has high consideration on rating and yield performance. This study aims to examine the effect of the Sukuk structures on Sukuk rating and yield in Bursa Malaysia (Malaysian Stock Exchange) listed companies during the term of 2008–2013. This study uses the ordinal logit regression model (OLRM) to investigate the effect of Sukuk structures on the rating, and the ordinary least-square (OLS) to investigate the effect of Sukuk structures on the yield. The result demonstrates two opposite directions after controlling for firm characteristics. While Sukuk rating is negatively related to Sukuk structures, Sukuk yield shows a positive direction with Sukuk structures. This study evidently shows that the selection of Sukuk structure is among the important factors for Sukuk yield performance, in addition to fulfilling the regulatory requirements on Sukuk structuring. The selection of the best structure can achieve the issuance and investment objectives. This study was limited to the study of the relationship between Sukuk structure on Sukuk ratings and yield using the aggregate data of Malaysian public listed companies that issued Sukuk during the period of 2008 to 2013. The study provides new insights into the issue of how the Sukuk structure influences the Sukuk rating and yield. The findings of this study contribute to the existing literature on the determinants of Sukuk ratings and yields.

Global Assets Mitigate Global Inflation

This article finds that 26 global assets mitigate global inflation. Fractional polynomial regressions return sizable goodness-of-fit R2s for these assets, along with high mitigating Pearson correlations between these assets and global inflation. It is hoped that future fractional polynomial regressions will reveal other global assets that also mitigate global inflation. In view of Russia's invasion of the Ukraine, which preempted American President Biden's State of the Union address (Aljazeera, March 1 2022), and the trade war between the United States and China, the United Nations has now stepped in to protect it's member states from the interest-rate and inflationarity effects wrought by these three super powers.

The Future of Nature Conservation in Amazonia: Evidence From Transboundary Protected Areas

Biological diversity has been recognized as a global asset that is key to the well-being and survival of present and future generations. In response to massive destruction of the world’s ecosystems, the international community has agreed on several initiatives, most importantly, the Convention on Biological Diversity (CBD) in 1992, which is the basis of the Strategic Plan for Biodiversity 2011–2020, and the 20 Aichi Biodiversity Targets. A central instrument of these initiative are protected areas. The nine Amazonian countries alone, have designated 390 million hectares of protected forest areas, some of which are under very heavy pressure. As explicitly stated in Aichi Targets 11, 17, and 18, the effective governance and management of these protected areas requires the active participation of indigenous and other local resource user groups and respect for their traditional knowledge and customary practices. This manuscript analyzes to what extent and in which way these targets have been achieved by analyzing three transboundary protected areas in Brazil, Peru, and Bolivia constituted of five national parks. The analysis shows that important progress has been made in terms of the local participation and the generation and sharing of economic benefits, mostly due to the engagement of non-governmental organization (NGOs) funded from overseas development assistance (ODA) sources. However, many of the established mechanisms show major shortcomings, such as power imbalances, lack of legitimacy of decision-makers, unclear responsibilities, unresolved logistical challenges, and the lack of financial support. In addition, the functionality of local governance structures is severely threatened by the vagaries of national policies that often put biodiversity conservation and economic development at loggerheads. In order to ensure the functionality of protected areas in the Amazon region, binding and sufficient commitments by national governments are needed for genuine and effective local governance.