Income Portfolios Research Articles

A building block approach to retirement income design

Abstract This paper addresses the retirement income planning problem from the perspective of the four main building blocks of retirement income: state pension, mortality credits, investment strategies, and drawdown schedules. We detail how these building blocks interact to form a retiree's overall retirement income portfolio, and what trade-offs and interactions must be considered. We find that while access to each building block increases the retiree's certainty equivalent consumption, the most substantial contributor to this increase is from utilization of the mortality credit building block (i.e., annuities).

Filled and Killed: Forecast and Realized Trading Costs across Horizons from Global Equity and Fixed Income Portfolio Trades

Filled and Killed: Forecast and Realized Trading Costs across Horizons from Global Equity and Fixed Income Portfolio Trades

Evaluating the Efficacy of Social Innovation Programming at Advancing Rural Development in the Context of Exogenous Shocks

In this paper, we design and deploy an experimental approach to evaluate the efficacy of a social innovation initiative implemented in rural communities situated in the highlands of Peru, which confronted the challenges posed by the COVID-19 pandemic in the midst of its implementation. Using three rounds of information collected before, during, and after participation, we examine the efficacy of the social innovation economic development approach at increasing household livelihoods. We present robust, statistically significant improvements in household economic well-being, food security satisfaction, and community outlook for participating households compared to non-participating households following program engagement. The results presented in this study suggest that the social innovation program facilitated a notable restructuring of the portfolio of household income and livelihood activities towards more lucrative and value-added pursuits. This transition manifested in increased involvement in entrepreneurial ventures and specialized labor associated with both agricultural and non-agricultural sectors while distancing from traditional agricultural and livestock-related endeavors. The income gains stemming from self-employment activities and wage labor outweigh the losses incurred from reduced agricultural and livestock earnings. Furthermore, our analysis underscores the resilience of innovative income-generating pathways in the face of the COVID-19 pandemic, outperforming traditional agrarian value chains. These findings highlight the efficacy of social innovation programming in facilitating economic development and also shed light on sustainable strategies for economic resilience amidst unforeseen challenges such as the recent global health crisis.

Mobile phones, income diversification, and poverty reduction in rural Bangladesh

AbstractThe widespread adoption of mobile phones (MPs) presents the possibility of creating employment and self‐employment opportunities. Although several studies have documented the impact of MPs on income, the link between MP ownership and poverty reduction channeled by income diversification has not been fully explored. This paper aims to examine this relationship using nationally representative panel data and fixed effect models to account for confounding factors and unobserved heterogeneity. Results indicate that MP ownership is associated with increased income diversification, particularly through on‐farm and off‐farm self‐employment, as well as non‐earned income. This relationship is more pronounced in households with lower levels of education and deprived areas. In addition, owning a MP is also found to decrease poverty via income diversification. Therefore, policies aimed at enhancing access to mobile technologies could create a resilient income portfolio by decreasing transaction costs and improving market efficiency, ultimately mitigating poverty in rural regions.

Filled and Killed: Forecast and Realized Trading Costs Across Horizons from Global Equity and Fixed Income Portfolio Trades

Filled and Killed: Forecast and Realized Trading Costs Across Horizons from Global Equity and Fixed Income Portfolio Trades

Can farmers with higher capabilities fend off falling into future Poverty? Empirical evidence from a tribal region in eastern India

The United Nations Sustainable Development Goals (SDGs) 1 (no poverty), targets those individuals who are below the poverty line and those who are vulnerable to falling below the poverty line (VtP). Farmers are more VtP due to limited resilience capacity against the covariate and idiosyncratic shocks. However, literature on farmers’ VtP and their capabilities to mitigate the adverse effects of shocks is relatively scant. Thus, this study aims to examine if higher capabilities lead to less VtP. Using a survey dataset from 222 farm households in rural eastern India, this study first estimated VtP by employing the Feasible Generalized Least Squares (FGLS) approach. Secondly, it used a counting approach and Propensity Score Matching (PSM) method to examine the relationship between the capabilities of households and their VtP. The FGLS results show that about 50% of households are VtP, which exceeds the actual poverty rate of about 36%. The counting approach results show that households with higher capabilities are less VtP. The PSM results indicate that a household’s VtP is reduced by 27–37% for those with higher capabilities. Thus, the policy targeting the household below poverty line and also VtP would significantly reduce poverty and contribute to achieving SDG1. This would involve identifying and targeting households most in need of assistance such as households with low income, lack of education, and limited access to resources. This study also suggests increasing the resilience capabilities of households by providing job skill training, diversifying income portfolios, insurance coverage, and social safety nets.

Local Economy and Forest-based Livelihood in Gandhamardan Region of Western Odisha

Natural forests play a key role in maintaining the planet’s ecosystems and are also crucial to rural livelihoods, particularly in less developed nations. Indigenous groups still need access to contemporary conveniences and possibilities for employment in remote parts of less developed nations. As a result, the use of forests significantly contributes to household subsistence and income. The economic impact of forest resources on the millions of rural households close to forests has recently been the research focus. This study aims to quantify the distributional influence of forest revenue on economic inequality among rural families in the Gandhamardan Hill area of the Balangir and Bargarh districts of Odisha. It also sought to ascertain absolute and relative forest income. The primary data or information were gathered by utilizing focus groups, direct interviews, structured household-level surveys, and key informant interviews. The results showed that 61.9% of the households in the sample engaged in activities related to the forest. Most of the local population participates in agriculture and forestry as the main source of livelihood. After agriculture revenue, forest income represented the second-most significant income portfolio. The income share for bushmeat was larger than the income share for other forest products. The economic disparity among the studied families was reduced by forest income. Therefore, restricting forest access would negatively affect rural people’s welfare and widen economic gaps. The knowledge from the current study is crucial for creating sustainable forest management policies and strategies that will preserve and increase the economic value of using forests without jeopardizing biodiversity preservation.

Can small-scale farming systems serve as an economic engine in the former homelands of South Africa?

Small-scale farming plays a critical role in the food security of Africa. An analysis of households in two former homelands provided critical insights into the future of small-scale farming in South Africa. From a survey of 132 households, 57 from Emmaus in the uKhahlamba local municipality in KwaZulu Natal Province and 75 from Thaba Nchu in the Mangaung Metropolitan municipality of the Free State province, indicators of food and nutrition security, income, and the relative contributions of on-farm versus off-farm sources to household welfare were calculated to determine if small-scale farming could drive the economy of these areas. Results revealed stark differences at household and regional levels and were attributed to the importance of crops vs. livestock toward household welfare and the proximity of the regions to urban centers. This was demonstrated by more reliance on arable farming in Emmaus, unlike Thaba Nchu, where a nearby city allowed diversification of income portfolios. In both regions, labor constraints outweighed land limitations. It is, therefore, unlikely that increasing arable land of small-scale farmers alone will stimulate arable farming. On-farm production and consumption did not guarantee nutrition and food security. Currently, small-scale farming did not serve as an engine for economic growth in the communities and formed a small part of the income of most households. However, sustainable intensification of farm production is a plausible pathway for the small number of households for whom farming forms an important part of their income. These households have the potential to engage in more commercial activities if farming and policies can be aligned. A critical knowledge gap is how, under what context, and which forms of agricultural interventions may complement rural development efforts and contribute to the rural economy.

Who are the Poor Farm households' in Nigeria and is this Population Changing Over Time?

ABSTRACT: Reducing poverty in developing economies is a major challenge faced by the development stakeholders. Although poverty is a worldwide phenomenon, it has been observed that Nigeria is one of the countries that is worst hit by the poverty with biting effects more on the rural dwellers where the bulk of the population lives. Using the nationally representative household survey panel data by the World Bank/National Bureau of Statistics, from the 2012 to 2016 period to provide answers to what are the household demographic, farm, and geospatial characteristics that drive the likelihood of farm households entering, exiting, and re-entering poverty using the costs of basic needs approach as a marker of poverty. Four poverty levels were used in analyzing the household survey data. The two waves of poverty mobility in Nigeria approximately revealed 51.2 percent of poor farm households' in wave 1, and 42 percent in wave 2 were at risk of spending their entire lives in poverty. The probability of existing and entering two-year poverty mobility which started at 25 percent rose to 45 percent for four-year poverty mobility indicating that over time more farm households, have experienced changes in the status of their consumption expenditure relative to the poverty line. Close to households who begin poor, those who moved out of poverty in any of the other years had better endowments in terms of land and livestock ownership, urban residence, and involvement in non-farm income portfolios. It is concluded that older heads, higher educational attainment, engagement in crop/livestock production, and non-farm livelihood activities, strongly reduce the likelihood of farm households' poverty entry. Therefore, policy strategies aimed at dealing with poverty mobility should be heterogeneous across the poor farm households. Also, as the chronically poor lack physical assets and earning endowments, policy efforts should focus on education or other forms of skills acquisition programs in order to raise their livelihood portfolios and boost their earning capacity.

The Role of Savings and Income Diversification in Households’ Resilience Strategies: Evidence from Rural Vietnam

Understanding households’ resilience-building strategies is vital for the domains of humanitarian assistance, economic development, and poverty reduction, especially in the places where are vulnerable to shocks. In this study, we offer the first trial that takes into account the correlation between households’ risk attitude and their resilience-building strategies, namely savings as an absorptive capacity and income diversification as an adaptive capacity. We examine the effects of these resilience strategies on reducing the impacts of shocks and poverty. We use a panel data of 1227 identical households for Vietnam in two waves of the Thailand–Vietnam Socio-Economic Panel project to investigate the above issues. We address the endogenous problems of households’ risk attitude, savings, and income diversification. Our results show that more risk-averse households tend to save more and diversify their income portfolios. These precautionary strategies to build up their resilience capacity help prevent them from reducing consumption caused by shocks and from falling into poverty in absolute, relative, and multidimensional measures. We suggest that rural development policies in developing countries should focus on facilitating more income generation and employment opportunities. Furthermore, the development of rural education and infrastructure for information and communication technology should be taken into account of designing poverty reduction programs.

Optimal energy portfolio method for regulable hydropower plants under the spot market

The energy allocation method for regulable hydropower plants under the spot market significantly impacts their income. The available studies generally draw on the Conditional Value-at-Risk (CVaR) approach, which typically assumes a fixed risk aversion coefficient for generators. This assumption is based on the assumption that the total energy the power plant can allocate is constant during the decision period. However, the amount of energy that the regulable hydropower plant can generate will be affected by inflow and water level during the decision period, and the assumption of the fixed risk aversion coefficient is only partially consistent with the actual decision behavior of the hydropower plant. In this regard, the time-varying relative risk aversion (TVRRA) based method is proposed for the energy allocation of regulable hydropower plants. That method takes the change value of the hydropower plant’s energy generation as the basis for adjusting the time-varying relative risk aversion coefficient to make the energy allocation results more consistent with the actual decision-making needs of the hydropower plant. A two-layer optimal method is proposed to obtain the income-maximizing energy portfolio based on regulable hydropower plants’ time-varying relative risk aversion coefficient. The inner point method solves the optimal energy portfolio of income and risk in the upper layer. The time-varying relative risk aversion coefficient in the lower layer accurately describes the dynamic risk preference of hydropower plants for each period. The results and comparison show that the proposed method increases the income of the energy portfolio by 31%, and water disposal of regulated hydropower plants is reduced by 2%. The energy portfolio optimization method for regulable hydropower plants proposed in this paper not only improves the economic income of hydropower plants but also improves the utilization rate of hydro energy resources and enhances the market competitiveness of regulable hydropower plants.

A “Quality” Quality Factor

This article examines the concept of quality as a factor commonly used in portfolio management. Although value and momentum are fairly well-established constructs, the third major factor in many models, quality, is not so well articulated. This research aggregates the most common components of quality into a parsimonious, well-defined factor (QAL) using the data reduction technique known as partial least square. The authors show that their factor has power independent of the other factors and significant return in excess of common risk models. Moreover, their QAL factor possesses favorable downside risk properties and works as a superior hedge during turbulent market performance periods, which they contend is the main feature one would expect of assets with high quality. Additionally, adding the authors’ QAL to an opportunity set consisting of other factors, as well as a traditional 60/40 equity/fixed income portfolio, increases the Sharpe ratio and improves downside protection simultaneously because of its diversifying effect.

Livelihood Diversification and Household Vulnerability to Climate Shocks in Rural Kenya

This study tests the hypothesis that livelihood diversification mitigates vulnerability to climate shocks among rural households in Kenya. The study is based on two waves of nationally-representative household survey data collected in 2005/06 and 2015/16. A measure of livelihood diversification in the sampled households was computed using Simpson Diversity Index. Comparison of means and correlation analysis was used to test the study’s hypothesis on a sample of 8,483 and 12,217 rural households in 2005/06 and 2015/16 respectively. Consistent with the study’s hypothesis, results indicate lower mean values of livelihood diversification indices for rural households that reported loss in welfare due to climate shocks compared to those that reported no adverse effects in both 2005/06 and 2015/16. Correlation analysis results indicate an inverse relationship between livelihood diversification and vulnerability to climate shocks for all sampled households. Distinctive and nuanced differences in results were found when analysis was disaggregated along income classes and agro-ecological zones. Sensitivity analysis confirmed robustness of the results. Based on these results, it is recommended that rural households be supported to pursue a diverse portfolio of income generating activities and assets in order to build resilience against climate shocks.

Drivers of income diversification among rural households in the Ethiopian central highlands

AbstractAs in most developing countries, farm households in Ethiopia are often engaged in several income diversification activities to mitigate several risks and uncertainties faced by agriculture and address poverty and food insecurity. The benefits of income diversification have been widely documented in the literature. However, little econometric evidence exists on the drivers of income diversification among farm households in Ethiopia. The paper addresses this information gap by investigating the drivers of choice decisions and intensity of income diversification among farm households using data collected from a sample of 385 randomly selected households from the Ethiopian central highlands. Unlike previous studies, our multivariate probit model results show that the choice decision of farm households is significantly interrelated and drivers had heterogeneous effects on the choice decision of households. The findings revealed that age, education, livestock, land, food shortage, agricultural commercialization cluster (ACC), investment in sustainable farming practices, rainfall, and maximum temperature significantly impacted the choice of income diversification. The fractional response logit model results revealed that age, livestock, food shortage, joint household decision‐making, ACC, income, rainfall, and study site significantly impacted the intensity of income diversification. The descriptive results revealed that most farmers (67%) tend to have a more diversified portfolio of income including off‐farm, forest, non‐farm, livestock, crop, and other sources, and the intensity of diversification ranges between 0 and 0.76. The study also finds the presence of both synergies and trade‐offs in different types of diversification. We suggest that there is an urgent need to improve the ways of income diversification among farm households to both the sustainability of small farms and ensure food security.

Affine Term Structure Models: Applications in Portfolio Optimization and Change Point Detection

Affine term structure models are widely used for studying the relationship between yields on assets of different maturities. However, it can be a helpful tool for the construction of fixed-income portfolios. The monitoring of these bond portfolios is of great importance for the investor. The purpose of this work is twofold. Firstly, we construct and optimize fixed-income portfolios using Markowitz’s portfolio approach to a multifactor Gaussian affine term structure model (ATSM) under no-arbitrage conditions estimated with the minimum chi square estimation method. The fixed-income portfolios based on the term structure model are compared with some benchmark portfolio strategies, and our findings show that our proposed approach performs well under the risk–return tradeoff. Secondly, we propose control chart procedures for monitoring the optimal weights of government bond portfolios in order to detect possible changes. The results indicate that control chart procedures can be useful in the detection of changes in the optimal asset allocation of fixed income portfolios.

A Holistic Approach to Creating High Income Portfolios That Are Risk–Return Efficient and Tax Aware

Retirees and other investors may prefer to use dividends from equities and interest from fixed income to fund their spending needs. This mental accounting phenomenon of spending the portfolio’s income without drawing down the invested principal makes them seek high income–producing asset classes. These investors, either directly or via advisors, adopt static high income portfolios as an investment strategy, often ignoring risk–return efficiency and tax efficiency principles. In this article, the authors introduce a methodology to systematically construct high income portfolios through an expected utility of wealth maximization approach while allowing for the incorporation of an investor’s income preferences. However, because asset return expectations are conditional on asset valuations, the authors find that popular static high income portfolios that are created on an ad hoc basis—by substituting broad market exposure with high-yielding assets—by design are not optimal. More importantly, the authors find that high income portfolios are tax inefficient when it comes to high tax bracket investors, making their use only appropriate when taxes are not a primary concern—for example, for low- to moderate-income investors or in a tax-deferred account.

COVID‐19 Induced Income Loss among Migrant Workers: Evidence from Eight Villages of Bihar

The COVID‐19 crisis re‐shaped many livelihood options and placed significant burdens on those with precarious incomes exacerbating persisting vulnerabilities, especially among a large section of the migrant population. This group faced a dual threat – both to their livelihood and health. To understand the consequences of this pandemic on the income of the migrant population, a household level survey was conducted in the state of Bihar, India, which is one of the highest migrant‐sending states. We examine the role of differences in the socio‐economic status of migrants and their households in determining the extent of vulnerability caused by the COVID‐19 crisis. Vulnerability is proxied by the income lost by migrants during the lockdown. The results suggest that households with diversified income portfolio, larger landholdings, and those receiving government benefits suffered significantly lower income loss whereas, larger household size and greater distance from town tended to escalate income loss. Additionally, private salaried workers faced higher income loss and an increment in years of education lowers the losses significantly. It is observed that individual‐level characteristics also played a significant role in determining economic loss due to the lockdown. Our findings suggest a binding necessity to actively shape policies considering the financial insecurity of vulnerable migrants at their destination and the household members at the origin.

The Long Term Comovement Between Sukuk And Conventional Fixed Income Markets

Sukuk markets have made significant progress both in terms of market volumes and international awareness in recent years. These financial products are specially designed for investors who avoid interest gain. On the other hand, it is an ongoing issue in the literature whether these markets are a useful alternative for conventional fixed income investors as well. Our main purpose is to explore sukuk market as an investment alternative for conventional fixed income market investors' points of view. Since the integration of assets is one of the key criteria for portfolio investments, this study investigated the long-term comovements between sukuk and other fixed-income indexes via Johansen and Engle-Granger cointegration technique. To proxy international fixed income portfolio, international bond indexes which are prepared by FTSE (Financial Times Stock Exchange Group) are employed. Besides, the vector error correction model is also applied to deepen the results. According to the findings, there is a limited causality in the long run between sukuk markets and conventional bond markets. This can make international sukuk assets highly beneficial diversification alternative to conventional bond portfolios. The study aims to contribute to the literature by examining the benefits of sukuk markets as an investment alternative to conventional, wide-range fixed income markets.

Faktor Kemudahterancaman Multidimensi bagi Kumpulan B40 di Wilayah Kelantan Selatan

Vulnerability means a sense of insecurity resulting from exposure to the threat of the effects of social and environmental changes. The inability to adapt to such changes puts external environmental pressures and uncertain risks on households and communities. The purpose of this study is to identify the multidimensional vulnerability factors of B40 households in the southern region of Kelantan. The respondents consist of 385 heads of B40 households. Data collection was conducted face-to-face through questionnaires. Data were analysed using exploratory factor analysis. The results of the study found that B40 households face multidimensional vulnerability in terms of economic, social/physical and environmental vulnerabilities. The three components of economic vulnerability factors are (1) job and source of income loss, (2) rising prices and production costs, and (3) lack of capital and marketing. Meanwhile, social/physical and environmental vulnerabilities are explained by one component factor only. In conclusion, B40 households in the southern region of Kelantan need to diversify their income portfolio and not rely on one source of income only. They also need to take precautions against seasonal and environmental changes that will threaten and affect their daily activities. This study can be expanded by using other multidimensional aspects of vulnerability, such as health, market, politics, demographics and agricultural vulnerabilities. The study may also involve M40 and T20 households as respondents for future studies.

Sources of Income Inequality among Rural Farm Households in North Western Himalayas

Study assesses the inequality arising from variations of economic opportunities across different agro-climatic zones of Himachal Pradesh. The poor in the state tends to diversify their income portfolio towards wages and salaries. Income from wages and salaries is most equally distributed, yet it contributes maximum (43.63%) in total inequality. The high Gini correlation of wages and salaries with total income (R =0.597), showing that households which are above in the total income stratum derive more income from wages and salaries activities, also k contributed its share (43.63%) in total inequality. Wages and salaries and livestock inequalities are increasing in its effect; other factors remaining constant. One per cent increase in income from wages and salaries and livestock, increased total inequality by 0.115 and 0.140 per cent. The income from agriculture and livestock tend to significantly reduce income inequality in the state. However, agriculture is the major income source across all Zones showed a wide disparity among the share of other sources in the total income. Income of households was more unevenly distributed in the Zone-II, and Gini index for the Zone-II (G =0.231) was higher than that of the Zone-IV, Zone-III and Zone-I of k the state. The result of the Theil index emphasized within group inequality was the key contributor to overall disparity across agro-climatic zones. Therefore, Policy intervention at zonal level would be imperative for correcting spatial imbalances in income distribution among agricultural households of Himachal Pradesh, and would cover the way for their comprehensive and more unbiased development.