Equity Index Research Articles

Construction and Hedging of Equity Index Options Portfolios

Construction and Hedging of Equity Index Options Portfolios

Are emerging Islamic equity markets immune from contagion effects during the COVID-19 pandemic crisis? Evidence from the higher-order comoment-based contagion tests

In this paper, we investigate the possible contagion effects of the COVID-19 pandemic on twenty-four emerging Islamic equity markets. To test for contagion, we use statistical tests based on changes in correlation and higher-order comoments. We also split the full sample into three sub-periods while identifying two phases of the COVID-19 crisis. Our main empirical findings indicate significant evidence of contagion during the two COVID-19 phases, especially through the coskewness, cokurtosis, and covolatility channels. Interestingly, we find that most emerging Islamic equity markets are not immune from the contagious effects of the COVID-19 pandemic. Furthermore, we draw on six behavioural indicators and construct a new index entitled ‘Feverish sentiment’ to examine the causal relationships between investor sentiment and emerging Islamic equity index returns during the COVID-19 pandemic. Using both traditional and frequency-domain Granger causality tests, we find significant causal linkages between investor sentiment and some emerging Islamic equity markets in low, medium, and high frequencies. In particular, the results highlight an increase in the predictive power of investor sentiment during the second phase of the COVID-19 pandemic.

A SIGNAL FOR HEALTH EQUITY: DIFFERENCES IN WHOLE HEALTH AND SOCIAL NEEDS AMONG MEDICARE ADVANTAGE SUBPOPULATIONS

Abstract CMS’ 2024 Medicare Advantage (MA) Final Rule introduced the health equity index (HEI) to encourage plans to advance equity and improve outcomes for enrollees with social risk factors. Enrollees of focus include those receiving a low-income subsidy, dually eligible for Medicare and Medicaid, and/or having a disability. These populations historically have higher unmet social needs and poorer health outcomes. The purpose of this epidemiological study was to compare self-reported whole health and social needs among MA subpopulations. Analysis included 28,588 MA members who were screened for a companion care program (January–June 2023). Questionnaire included a social needs screener, UCLA-3 Loneliness Scale, and CDC’s Healthy Days Measure. To compare across metrics/domains (mental health, physical health, whole health, social support, loneliness), data was normalized 0 to 100 where higher scores represent better outcomes. Among the cohort, average age was 72, 31% male, and 37 states represented. Subpopulations included 70% traditional MA (TMA), 13% dual-eligible (DE), 17% people with disabilities (PWD), < 1% veterans (V). Average outcomes reported by subpopulations were (TMA; DE; PWD; V): number of unmet social needs (1.6; 2.3; 2.6; 1.4); social support score (63; 54; 53; 70); mental health score (74; 63; 59; 73); physical health score (57; 50; 48; 52); whole health score (65; 56; 53; 65). People with disabilities reported the lowest scores and indicate an important subpopulation in need. Meeting the HEI, and ultimately improving outcomes for some of the most historically marginalized members, will require an individualized and holistic approach to health and social care.

Examining holistic developmental strengths and needs of multilingual kindergartners using the Early Development Instrument

Using an asset-based framework, this study examines the holistic developmental health outcomes of young English Learners (ELs) in the United States using the Early Development Instrument (EDI), stratified by first language and neighborhood risk measured by the National Neighborhood Equity Index (NNEI). Drawing from data spanning 154 school districts across 11 states and the District of Columbia from 2016 to 2020 (n = 192,892 kindergartners), the analyses encompassed descriptive statistics, Pearson Chi-square tests, and logistic regression models. The results highlight that EL kindergartners were more likely to be On Track in the social competence (OR = 1.17; 95 % CI = 1.13, 1.20), emotional maturity (OR = 1.26; 95 % CI = 1.22, 1.30), and physical health and well-being (OR = 1.47; 95 % CI = 1.43,1.51) domains compared to non-EL kindergartners. Yet, in the communication skills and general knowledge (OR = 0.75; CI = 0.72, 0.77) and language and cognitive development (OR = 0.72; CI = 0.70, 0.74) domains, EL kindergartners were less likely to be On Track compared to non-EL kindergartners. Notably, Korean- and Mandarin-speaking kindergartners showed the highest rates of being On Track across all EDI domains. Additionally, EL kindergartners in less challenged neighborhoods were surprisingly less likely to be On Track compared to those in more adverse neighborhoods across all developmental domains. Implications of these findings, which shed light on distinctive strengths and needs, are discussed.

Which green is more equitable? A study of urban green space equity based on morphological spatial patterns

Urban green space (UGS) is an important factor in sustainable urban development. However, cities often experience unequal access to UGSs during the process of development, due to factors such as shrinkage and spreading. Many cities worldwide are facing urban shrinkage, which may lead to the deterioration of urban spatial environments and aggravation of inequities. In addition, due to urban land and financial constraints, it is not possible to maintain UGS equity by simply increasing the number of UGSs. Therefore, it is necessary to explore what defines a reasonable UGS structure from an equity perspective to support sustainable urban development. In this study, the UGS equity index of Yokosuka City was measured using the Gini coefficient. Morphological spatial pattern analysis (MSPA) was used to understand the morphological structure of UGSs in different regions and to transform them into potential structural classes. Finally, a UGS equity prediction model was constructed by ridge regression to provide a UGS morphological structure that is conducive to equitable UGS development. The main results indicate that 1) UGS inequity exists in Yokosuka; 2) no relationship was found between population decline and UGS inequity in Yokosuka; 3) UGS distribution is more equitable in towns with higher land values and population aging; 4) Islet, edge, loop, and branch components play an important role in the equitable development of UGS, and their corresponding potential UGS morphology is fragmentation, complexity, internal connectivity, and partial connectivity, respectively. This study further improves the analytical framework for describing the morphological structure of UGSs based on MSPA from a morphological perspective and provides a spatial morphological strategy to support the equitable development of UGSs.

Price Discovery and Market Efficiency in India's Financial Futures Market within the Derivatives Landscape: An Empirical Analysis

This study offers a robust, long-term analysis of price discovery and the persisting lead-lag relationship between India’s equity futures and spot markets. Utilising monthly data from April 2005 to December 2022, it filters transient noise typically associated with high-frequency data. Information Share and Common Factor Weight methodologies within the Vector Error Correction (VEC) framework consistently reveal the dominance of futures markets in the price discovery process. The insights remain consistent across three distinct periods spanning the global financial crisis and the COVID-19 pandemic. The volatility dynamics and asymmetry effects in the Indian equity futures and spot markets using the Vector Error Correction - Exponential General Autoregressive Conditional Heteroskedastic (VEC-EGARCH) approach uncover notable asymmetry effects, signifying a strong market sensitivity to negative news. This highlights the necessity for comprehensive risk management strategies and stringent regulatory supervision, especially in light of the significant growth and systemic risks in the Indian derivatives market.

A high-frequency data dive into SVB collapse

We revisit the collapse of Silicon Valley Bank (SVB) and examine its impact on the connectedness of major equity indices worldwide. Using high frequency data, we demonstrate that the USA transmits return spillovers to financial markets, especially in developing economies. The findings of our dynamic analysis indicate an increase in overall interconnectedness among financial markets following the collapse. However, this impact is short-lived. We also show that shortly after the collapse of SVB, the hedge ratios of the USA vs. other financial markets have been altered as did the corresponding optimal weights, requiring immediate portfolio rebalancing.

Quantile connectedness of oil price shocks with socially responsible investments

We use a new method to disentangle various sources of oil price shocks and find how these sources are connected to major global environmental, social, and governance (ESG) equity indices under extreme market movements using daily data from October 2007 to March 2022. Our quantile-based connectedness analysis shows that return connectedness considerably amplifies with the size of the shock for both positive and negative shocks, indicating that oil shocks spread more intensely during extreme market movements. We also find that oil shocks originating from unexpected variation in demand and risk substantially contribute to the variation in the ESG returns while supply shocks have relatively little effect when estimated at the median level but the contribution of all different types of shocks remain extremely high when analyzed at the tails. Our results indicate that socially responsible investments are prone to contagion and thus offer limited portfolio diversification benefits under extreme market movements. One clear implication of our study is that investors need to carefully design their risk management and diversification strategies to account for not only the source of the oil shocks but also the magnitude of the oil shock on their green equity investments. We also show that total dynamic connectedness significantly increased during the global financial crisis, European debt crisis, the Brexit episode and the recent COVID-19 outbreak.

Do Asian Islamic Equities Offer Diversification Benefits in Cryptocurrency Portfolio in Times of Increased Uncertainty?

This study explores whether Islamic equities offer portfolio diversification benefits to cryptocurrency investors. It employs the Continuous Wavelet Transform model to examine the nature of coherence between major cryptocurrency asset classes and major Asian Islamic equity markets on different investment horizons. We consider a range of Islamic equity indices for multiple countries and a basket of three prominent cryptocurrencies: Bitcoin, Ethereum and Ripple. Findings suggest that Asian Islamic equities offer portfolio diversification opportunities. Our findings also imply that Asian Islamic equities are not efficient and are prone to short-term speculative activities.

Interconnectedness dynamic spillover among US, Russian, and Ukrainian equity indices during the COVID-19 pandemic and the Russian–Ukrainian war

We examine the dynamics and spillover effects of interconnectedness among equity indices during the COVID-19 pandemic and the Russian–Ukrainian war. Using daily data from June 2010 to May 2023, we consider five major equity indices, namely, the Dow Jones Industrial Average (DJIA), National Association of Securities Dealers Automated Quotations (Nasdaq), Standard and Poor's 500 (S&P 500), PFTS (Ukraine), and Moscow Exchange (MOEX; Russia). The results demonstrate a 45 % level of the total connectedness index to explain the interconnectedness among these indices. The findings indicate that the DJIA, Nasdaq, Small Cap 100, and MOEX are net receivers of spillovers, whereas the S&P 500 and PFTS are significant net transmitters. Moreover, analysis of different periods, including before and during COVID-19 and before the Russian–U war, provides insights into the changing patterns of interconnectedness and spillover effects during these events. This study contributes to a better understanding of the interdependency and transmission mechanisms among equity markets and highlights the importance of considering external factors and geopolitical events in formulating risk management and investment strategies.

Connectedness and economic policy uncertainty spillovers to the ASEAN stock markets

Uncertainty regarding Chinese and American economic policies impacts major investable asset classes in politically contestable geographic regions such as Southeast Asia. Our objective is to examine the dependence structure of Chinese and American Economic Policy Uncertainty (EPU) and returns on six Association of Southeast Asian Nations (ASEAN) stock indices and to assess the impact of a significant statecraft consideration, the One Belt One Road (OBOR) Initiative, and an exogenous shock, the COVID-19 crisis, on the connectedness between EPU and ASEAN stock returns. We do so by employing novel connectedness and copula approaches. We find that American and Chinese EPU influence ASEAN equity indices differently across countries, with the connectedness of US EPU and ASEAN stock markets exceeding that of Chinese EPU post-2002. Further, we find that the introduction of the OBOR Initiative by China in 2013 coincided with a slight change in the dependence structure for several individual ASEAN stock indices, and show that the impact of the COVID-19 pandemic on the relationship between American and Chinese EPU and individual ASEAN stock index returns was not homogenous across countries. In doing so, we shed new light on the vulnerability of ASEAN member capital markets to statecraft considerations and exogenous shocks, as well as to economic policy decision-making in China and the United States.

Fossil Fuel-Based versus Electric Vehicles: A Volatility Spillover Perspective Regarding the Environment

Due to environmental concerns, electric vehicles (EVs) are gaining traction over fossil fuel-based vehicles. For electronic devices, including vehicles, copper is the key material used for building. This situation draws attention to the impact of copper prices, crude oil prices, and exchange rates on the economic viability of using EVs over fossil fuels. We use the volatility spillover effect (VSE) to determine the financial viability of these two types of vehicles in the context of environmental issues. Daily data on copper prices, crude oil, exchange rate, and the BSE100 ESG (“Bombay Stock Exchange 100 Environmental, Social and Governance”) index are taken from 1 November 2017 to 20 September 2022. Two popular multivariate GARCH (“Multivariate Generalized Autoregressive Conditional Heteroscedasticity”) family models, i.e., the BEKK (“Baba–Engle–Kraft–Kroner”)-GARCH (BG) and DCC (“Dynamic Conditional Correlation”)-GARCH (DG) models, are utilized to find volatility connections between these variables. These are appropriate GARCH models to observe the volatility dependence of one market on another market. It is found that there exist volatility effects of copper and exchange rate on the S&P BSE100 ESG Equity Index Price, which we will refer to here as ESG. However, crude oil is found to be insignificant for ESG. The novelty of this study is in the use of volatility spillover to determine economic viability. The volatility effects of copper prices are positive for ESG in the short run and negative for long-term volatility. The exchange rate has a positive volatility effect on ESG in the long run. Surprisingly, we find that EVs are technologically better than fossil fuel-based vehicles as a possible sustainable energy source. We observe studies that have raised similar concerns about EVs’ lack of business sense compared to fossil fuels. However, using VSE to explore financial viability offers a fresh perspective. Based on the findings of the current study, it is recommended that policymakers and researchers revisit their support for EVs as an alternate and sustainable source of energy.

Unveiling early childhood health inequities by age five through the national neighborhood equity index and the early development instrument

There is growing public urgency to close equity gaps in health and development by addressing inequities at multiple levels of children’s developmental ecosystems. Current measurement strategies obscure the dynamic structural and relational patterns of oppression, adversity, and disadvantage that children can experience in their local intimate developmental ecosystem, as well as the leverage points that are necessary to change them. The purpose of this study is to examine the relationship between a universally available measure of neighborhood socio-economic context, the National Neighborhood Equity Index (NNEI), and a population measure of early child development and well-being, the Early Development Instrument (EDI). Data from a convenience sample of 144,957 kindergarteners in neighborhoods across the US demonstrate that children living in neighborhoods with more equity barriers are more likely to be on vulnerable developmental trajectories than those who reside in neighborhoods without any equity barriers. A multi-dimensional measurement approach that incorporates both the EDI and the NNEI can be used to quantify ethnoracialized patterns of structural disadvantage during critical periods of health development. These measures can inform community action to intervene early in the lifecourse to optimize children’s health development trajectories at a population level.

The Treynor Ratio as a Risk-adjusted Return of Croatian Listed Firms

Motivated by the importance of determinants of firm performance, especially in terms of risk-adjusted performance that considers underlying risks, this paper explores the effects of firm-specific determinants on risk-adjusted returns such as the Treynor ratio. Specifically, the authors explore whether firm size, capital expenditures, capital intensity, equity ratio, leverage, profitability, listing age, and liquidity affect the performance of Croatian non-financial listed companies that form the CROBEXplus equity index in the period 2014 – 2021. Utilizing dynamic panel analysis, several key deterministic factors of risk-adjusted performance are identified including firm size, capital intensity, equity ratio, leverage, profitability, and listing age. In other words, larger firms tend to experience greater risk adjusted returns than their smaller counterparts as well as firms with higher equity ratios, i.e. those not overly indebted. Results also show that capital intensity, which is viewed as a source of entry barrier, is positively related to risk adjusted-performance which is also true for profitability. Furthermore, companies that have a longer presence in the market in terms of being listed on the stock exchange document enhanced risk-adjusted returns. These findings have significant policy and practical implications.

Abstract 18643: An Index to Measure Inequity-Health Equity Index for Guideline Directed Medical Therapy Among HFrEF

Background: Heart failure affects 6.2 million adults in the US with 50% five-year mortality. Effectiveness of guideline-directed medical therapy (GDMT), composed by four different medications, has been established to reduce morbidity and mortality for heart failure with reduction ejection fraction (HFrEF), and with strong incremental impact of number of GDMT medications. Despite immense positive evidence, < 5% of patients with HFrEF are on the appropriate target doses of all 4 GDMTs, and there is substantial disparity of GDMT use among race/ethnic groups or socio-economical levels. However, the study to quantify the inequity of GDMT prescription is lacking. Hypothesis: Significant inequity exists in the GDMT prescription among HFrEF. Aims: We derived a health equity index (HEI) for GDMT prescription for HFrEF patients to provide administrators with an assessment tool for evaluating disparity of GDMT use at a large healthcare system covering diverse geographic areas and population in northern California. Methods: HEI for GDMT (3+ GDMT medications) is estimated by ratio of observed-to-expected values. The number of expected patients with 3+ GDMT medication level was derived from a weighted average of subpopulation distribution of the 3+ GDMT prescription for each race/ethnicity and medium income race/medium income level within the population catchment area. Observed 3+ GDMT use was captured from the medication order data in the EHR. HEI > 1.0 represents existence of health inequity. We applied this method to the whole HFrEF population, and then to each of geographic area where the race/ethnicity and medium income level vary significantly. Results: Among 45,222 HFrEF patients 24.6% had 3+ GDMTs, varying from 19% to 29% in 6 geographic areas. The HEI for the whole HFrEF population was 1.33. Further analysis revealed that highest disparity occurred at East Bay area (Oakland area) (1.67), serving large proportion of non-Hispanic Black patient population, and lowest at Palo Alto area (1.27). Conclusion: HEI for GDMT reflects disparity in receiving adequate care for HFrEF population. Substantial disparity was observed in different geographic areas, implying the priority of delivering equitable care to HFrEF should start with the area with highest disparity.

Investment Behavior of Foreign Institutional Investors and Implied Volatility Dynamics: An Empirical Study on the Indian Equity Derivatives Market

The aim of this study is to examine the association between the capital flows of foreign institutional investors (FIIs) in the equity derivatives market in India and the implied volatility of options. Previous studies on FIIs and realized volatility in the equity market provide the basis for this study. Covering a period of ten years (2012–2021), this study established the importance of FII capital flows in explaining the implied volatility of options. The Granger causality test confirms the unidirectional flow of causality between FII and implied volatility (VIX) in the Indian stock market. The vector autoregression model developed in the study confirms the dynamic relationship between implied volatility and the investment behavior of foreign institutional investors (FIIs). The outcome of this study will help options traders to understand the mispricing of options because of FII’s buying pressure on implied volatility. The results will also help policymakers understand how institutional investors influence option pricing so that appropriate decisions can be made.

Dependency and causal relationship between ‘Bitcoin’ and financial asset classes: A Bayesian network approach

AbstractThis study employs the Bayesian Networks (BN) and the wavelet coherence approaches to invest the relationship between Bitcoin volatility and financial asset classes (MSCI world equity index, S&P Goldman Sachs Commodity Index [GSCI], US index and Investment Grade Corporate Bond Index ETF [PIMCO]) using daily data for the period from August 2011 to October 2021. The results show that the causal relationship between Bitcoin and other financial assets varies depending on the market states. During the low volatility periods, Bitcoin has a stronger impact on the GSCI, while during the stability periods, it has a direct effect on the US index and the MSCI world index. In contrast, during high volatility periods, Bitcoin has a direct impact on both the GSCI and PIMCO indices. The key findings enabled us to provide implications for US investors to promote asset allocation and risk management covering both Bitcoin and traditional financial markets. The results suggest that policymakers should watch Botcoin closely to preserve financial stability.

Data Mining in Indian Equity Markets: building low Risk, Market beating Portfolios

Over the last five decades, business academics have identified over 300 determinants that potentially influence stock returns. However, we still do not know whether all return determinants are equally important, or whether there is a smaller set of determinants that has a disproportionately larger influence on stock returns. Can mining historical data help us find this smaller set of return determinants that has a disproportionately higher influence on stock returns? Using historical data from the Indian market, we build a large database of investments with more than 74,000 investments spread over a period of 132 months. From this database, using “association rule mining” method, we are able to mine a strong set of “association rules” that point to a smaller set of “return determinants” that are seen more frequently in investments that beat index returns. From a pool of thirty-seven return determinants, using “association rule mining”, we were able to find out a small set of key return determinants that are seen most frequently in investments that beat index returns in India. Portfolios created from these “association rules” have a portfolio risk lower than the market risk and provide index-beating returns. “Out-of-sample” portfolios created using these association rules have portfolio “Beta” less than one and provide returns that beat the market returns by a significant margin for all holding periods in the Indian market. Through this paper, we demonstrate how portfolio managers can mine “association rules” and build portfolios without any limits on the number of factors that can be included in the screening process.

Enhancing portfolio resilience during crisis periods: Lessons from BRICS indices and multi asset strategies

This paper uses Markowitz’s mean-variance model to construct an investment portfolio incorporating multiple assets – BRICS equity indices, Gold, crude oil, bonds, and cryptocurrencies. The optimally created risky portfolios outperform alternative portfolio optimization methods – the naive portfolio and the equal risk contribution portfolio; and established indices – the S&P 500 and the MSCI Emerging Equity Index in terms of metrics – adjusted Sharpe ratio, modified Sharpe ratio, and the modified Value at Risk. The findings are validated across different periods, including the COVID-19 period and the Russian invasion of Ukraine, including various in and out of sample periods. The findings highlight the benefits of portfolio diversity, mainly using BRICS indices, Gold, and Brent Crude oil, and challenge the notion of limited diversification benefits in BRICS indices found in previous studies. This paper further suggests the potential of emerging market bonds ETF as a diversification option during turbulent economic periods and highlights the limitations of cryptocurrencies in optimizing multi asset portfolios. By adopting the recommended multi asset portfolios, investors can enhance their risk-return trade-offs and achieve superior performance compared to the S&P500 and MSCI emerging indices. Lastly, the paper recommends future research opportunities in measuring portfolio performance and hedging strategies considering risk-adjusted return measurements, transaction expenses, and dynamic rebalancing techniques.

THE PROBLEMS OF ATTRACTING VENTURE CAPITAL IN RA

The investment environment formed in RA is still not favorable for attracting foreign venture capital. An effective state policy is needed, mainly aimed not at the creation of new venture funds, but at improving the depth of the Capital Market, the most vulnerable and at the same time the most important indicator group in the "Venture Capital and Private Equity Index". The article analyzes the risks of venture capital formation and based on it, recommendations are made in the direction of measures contributing to the improvement of the investment environment in RA.