Indirect Investment Research Articles

Study on the Effect of Taxation on Investment in Funds with Indirect Investment Structure : Evidence from Korean Market

This study investigates whether the temporary tax exemption for overseas equity funds with indirect investment structure under the Korean tax law affects fund investors’ investment decision-making. We analyzes changes in cash flow to overseas equity funds with indirect structure at the time of enforcement and expiration of RSTA 2016 by comparing them with cash flow to domestic equity funds and cash flow to overseas equity funds with direct structure, respectively. The empirical analyses confirm that net cash flows to overseas equity funds with indirect structure are higher than domestic equity funds with the enforcement of the tax exemption rule. The fund investors attempted to reduce their tax burden by investing the tax-favored funds compared with the tax-unfavored funds after the enforcement of the rule. With respect to the test of comparison of cash flows to funds with direct and indirect structures with the enforcement, additional cash flows have been determined to come to overseas equity funds with direct than indirect structure. The fund investors probably preferred the funds with direct than indirect structure as tax uncertainties exist in the calculation of non-taxable income to be distributed to fund with indirect structure. We have limited test results around the sunset of the tax exemption. We attribute the limited results to the investment capping rule and the seasonal effect. This study contributes to the extremely limited literature that explores the fund structure affecting the fund investors’ decision-making from a tax perspective.

Equilibrium audit strategies against tax treaty shopping

AbstractThis paper examines game‐theoretic models of tax treaty shopping. An investor can choose a direct or indirect investment route across countries to minimize tax. A tax agency can audit the investor. The audit is costly but it can give additional revenue to the tax agency. In simultaneous‐move games, regardless of whether incomplete information exists and whether a home country allows foreign tax credits, there are mixed‐strategy equilibria where the investor may choose tax‐minimizing indirect routes and the tax agency may audit the investor. This equilibrium random audit strategy helps the tax agency raise revenue and reduce treaty shopping. Comparative statics yields an implication consistent with empirical evidence. However, if the home country has a foreign tax credit system with a high tax rate, or if the tax agency observes the investor's action in a sequential‐move game, the investor always chooses the direct route, and no treaty shopping occurs in equilibrium.

Study of the Portfolio Sensitivity of Combined Assets of Real Estate Indirect Investment Products

Background/Objectives: This study constructed combined REITs and real estate funds in traditional portfolios and analyzed the inclusion ratio of efficient real estate indirect investment products through sensitivity analysis of profits and risks by input ratio.
 Methods/Statistical analysis: To measure the rate of profits and risks of the composite asset portfolio, Minimum Variance Portfolio and Optimal Risky Portfolio were drawn through mean-variance and sensitivity analysis was conducted on changes in the rates of risks and profits by the increase of the weight of real estate indirect investment products. Concrete variables consisted of KRX BOND, KOSPI, and Office (Seoul) Price Index; REITs TRUS Y7 in operation was used as the products; and real estate funds were set by combining HanwhaLasal Global Real Estate Funds.

Corporate Investment in Abstract Art – A Market Study

In this article, we will apply the idea of a systemic approach to the art market and identify the potential dangers associated with artworks. Considering the topic of returns, the author separates the economic and aesthetic returns on art. In addition, the methods for calculating the economic returns on art have been examined. The many forms of financial risk that might occur while purchasing artwork are examined in detail. Investments in works of art often have poor liquidity since it is very difficult to convert the asset into cash. Investments with a third party often have more liquidity. In contrast to the shorter time horizon of indirect investments, such as those in stocks, direct investments in works of art should be seen as long-term investments. In contrast to other types of direct investments, those in works of art do not guarantee a steady return. Investments in artworks, although not directly yielding interest like investments in stocks and bonds, may nonetheless be stable (e.g. dividends). Particularly securities investments and indirect investment in works of art seem to be characterised by financial motives. The importance of non-monetary objectives decreases.

Fund Flows as Country Allocator

In this article, the authors find significant positive returns over a forward one-month holding period for strategies that buy in countries that have attracted indirect investment via equity fund flows and sell in countries that have not. They find that the profitability of these strategies is independent of the momentum effect as well as the size effect.

A Study on the Household´s Asset Management & Investment behavior Characteristics

The purpose of this study is to explore household´s asset management and investment behavior characteristics. The analysis is done based on 3,761 significant research materials gathered from the ‘2017 Household Financial Welfare investigation’. As of methodology, this research uses SPSS 22.0 along with analytic techniques, such as implementation of basic statistical analyses and multinomial logistic regressions. This study figured out different choices of real estate investment, financial assets investment and debt redemption caused by household´s asset management and investment behavior characteristics. Following are the summarized results this: First, it was found that the people who tend to invest their spare money in financial assets were either young or unmarried. Second, it was found that the people who tend to invest in real estate had purpose of seeking retirement measures or purchasing homes. Third, it was found that the people who are owned houses but had debts or no assets tend to use extra funds in repaying debts. This study suggests that it is necessary to manage assets reflecting psychological factors, activate real estate indirect investment products, develop various alternative investment products, manage debt by adjusting borrowing structure, and change asset structure. Also this study is meaningful in that it implies the diversity of research in the real estate studies by reflecting and analyzing the psychological factors of the household, and that it confirms the need for the policy authorities to support with micro-perspective policy and tax redemption.

세제혜택 펀드를 이용한 교차보조 행위는 존재하는가?(Do Asset Management Companies Conduct Cross Subsidization Using Tax Exempt Funds?)

Korean Abstract: 여러 펀드를 동시에 운용하는 자산운용사는 펀드 간 교차보조(cross subsidization) 행위를 통해 수익률을 왜곡시킬 가능성이 존재한다. 특히 세제혜택 펀드(연금저축, 장기주택마련, 퇴직연금)는 운용성과에 대한 투자자들의 민감도가 낮고 상품 간 이동이 어렵기 때문에 교차보조에 이용될 확률이 높다. 이렇게 자산운용사의 교차보조 행위가 운용성과에 부정적으로 작용하고 간접투자시장 활성화를 제한하고 있음에도 불구하고, 관련 연구는 아직까지 매우 부족하다. 이에 본 연구는 국내 주식형 펀드를 대상으로 동일 자산운용사 내의 세제혜택 펀드와 비세제혜택 펀드 사이에 (1) 교차보조 행위가 발생하는지, (2) 유의한 운용성과의 차이가 발생하는지, 그리고 (3) 교차보조 행위가 강하게 발생하는 시기가 존재하는지를 실증 분석하였다. 분석 결과, 세제혜택 펀드 중 연금저축펀드의 운용성과가 동일 자산운용사 내의 비세제혜택 펀드에 비해 유의하게 낮고 이러한 성과 차이가 특정 시점(3분기 말)에 강하게 발생함을 확인하였다. 본 연구는 자산운용사의 교차보조 행위를 실증 분석함으로써 일임자산평가의 당위성을 강조하고, 세제혜택 펀드를 이용한 구체적인 교차보조 행위 경로를 처음으로 밝힌 것에 의의가 있다고 하겠다. 추후 자산운용사의 인센티브 구조나 모니터링 체계 정보가 추가된다면 교차보조 발생 이유에 대해 더욱 세밀한 분석이 가능할 것으로 기대된다. English Abstract: Asset management companies that operate multiple funds at the same time have the potential to distort profitability through cross subsidization of funds. In particular, tax exempt funds (personal pension, pension savings, house purchasing, and retirement) are more likely to be used for cross subsidization because investors' sensitivity to operability is low and goods movements are difficult. Although the cross subsidization of asset management companies negatively affects the performance and limits the growth of the indirect investment market, the related research is still insufficient. The purpose of this study is to investigate whether there are (1) cross subsidizing activities, (2) significant differences in fund performance, and (3) strong cross subsidy behavior between tax exempt funds and the others. And whether there is a period of occurrence. As a result, we found that the performance of the pension savings (including private pension) fund among the taxable benefit funds is significantly lower than that of the non - taxable benefit fund in the same asset management company. This study emphasizes the necessity of asset valuation by empirically analyzing cross subsidization of asset management companies and it is meaningful that it is the first time to disclose specific cross subsidy action path using tax exempt fund.

Determinants of foreign direct and indirect investments from the institutional perspective

PurposeAmid the rising concerns about the unbalanced globalization, there has been a renewed interest in examining the pattern of international trade and investment, especially between emerging and mature economies. In this study, the purpose of this paper is to examine the role of different institutional and market-related determinants in shaping the pattern and mode of foreign investments in emerging and developed markets.Design/methodology/approachThe empirical investigation is based on a balanced panel sample of 45 countries (28 developed countries and 17 emerging economies) over an 11-year period from 2002 to 2012. A series of multivariable regressions are conducted to evaluate both the trend and the mode of foreign investment with rigorous robustness checks.FindingsOverall, the authors find that market openness and capital market development are the main determinants of a country’s ability to attract foreign investment in developed countries, while the governance environment is the key consideration in emerging markets. Regarding the mode of foreign investment, the authors find that, in developed markets, foreign investors tend to choose direct investment in the countries with more open markets. In emerging markets, however, the choice between direct and indirect (portfolio) investments is mainly driven by arbitrage activities, where investors opt for portfolio investment when the stock market is undervalued.Practical implicationsFirst, the findings may aid foreign investors in their strategic choice between emerging vs mature markets based on the governance environment, market openness, capital market development and arbitrage opportunities. Second, the findings may be used to aid governments in prioritizing institutional improvement in market openness, stock market development and policies aimed at balancing different investment channels.Social implicationsThe study may enhance the social understanding on the current debate on the winners and losers of globalization. A main complaint from mature economies is that the emerging economies took their jobs away and, therefore, they should adopt protectionism (which implies closing their own markets) in order to preserve jobs. The study shows that such a reaction may not be in the best interests of the mature economies since they will be able to attract more foreign investment (which implies creating or at least keeping more jobs) if they make their markets more open.Originality/valueExisting studies on foreign investment have primarily focused on direct investment. The study examines both the direct and indirect investments and the way in which they affect the foreign investment markets in emerging and mature economies. From the institutional perspective, the authors show how the governance environment and market factors affect foreign investors’ strategic choice between direct and indirect investment, contingent upon the stage of a country’s economic and institutional development.

An evaluation of property markets in Southwestern Nigeria

PurposeStudies on the maturity status of Sub-Saharan African property markets are scanty. The absence of such studies appear to have made African property markets – such as the Nigerian market – unattractive to foreign investors who require market information to assess the viability of proposed investments. The purpose of this paper is to explore the maturity status of selected city property markets in Southwestern Nigeria (i.e. markets in the capital cities of Lagos, Ibadan and Osogbo), with a view to providing information for enhanced property investment in Africa.Design/methodology/approachThe study adopted and expanded on property market maturity paradigms suggested by Keogh and D’Arcy (1994), Akinbogun et al. (2014) and Jones Lang LaSalle (2014) to measure the maturity status of the property markets in the Nigerian cities. The study investigated the maturity of three markets in Nigeria by scoring the stated views of a range of stakeholders (estate surveyors and valuers, public land administrators and financiers represented by commercial banks) across a range of ten indicators. The responses were classified by means of a five-point classification scale which expanded on the initial four-point scale developed by Dugeri (2011).FindingsThe three property markets were found to exhibit varying maturity characteristics (with weighted mean scores of 3.07, 2.71 and 2.51, respectively), representing emerging and immature stages of evolution on the maturity path. These results suggest that there is a correlation between the tier of the market and the level of property market maturity.Practical implicationsThe study concluded that first- and second-tier city property markets have emerged sufficiently to the point where they may safely attract foreign direct and indirect investment from courageous foreign investors. However, the state governments and real estate professional regulatory bodies in the second and third markets need to undertake substantial remodeling of market structures to make them attractive to international investors.Originality/valueThe value of the paper is in providing much needed information for enhanced property investment in Africa.

Tax treaties and foreign direct investment: a network approach

Multinational investors often reduce tax on dividends by using indirect investment routes. This paper constructs a tax rate matrix to represent a real-world network of tax treaties between 70 countries and develops a computation algorithm to study the structure of tax-minimizing (direct or indirect) investment routes in the tax treaty network. The treaty shopping rate, defined as the difference between the foreign tax rates of the direct route and a tax-minimizing route, is about 3.66 percentage points on average. This paper also examines the relationship between FDI and the structure of tax-minimizing routes. Empirical results show that the existence of a tax-minimizing direct route is positively and significantly related to FDI. The inward FDI stock via a tax-minimizing direct route is about 2.14 times larger than the inward FDI stock via a direct route that is not tax-minimizing. By making a direct route tax-minimizing, countries can encourage FDI via the direct route and reduce treaty shopping.

PRESENT DAY CLASSIFICATION OF INVESTMENT ON RUSSIAN GOLD MARKET

The article provides findings of the research done on Russian gold market. Continuous growth in investment in gold was pointed out. The author puts forward the classification of investment by ‘investment object’, which includes two types of investment, i.e. direct and indirect. Direct investment consists of mutual and share capital, crediting and physical metal and indirect investment – portfolio and digital gold. Detail characteristics of all types of deals on precious metal market are provided. Ways of investing capital into new investment products are proposed. Advantages and disadvantages of each investment tools of the classification are shown. The article describes investment in gold-mining, bank, exchange and market sectors of the market and puts forward recommendations for investors concerning the choice of the most effective tools existing on the Russian market of precious metal.

The Impact of Foreign Indirect Investment in the Primary Market, Evidence on Amman Stock Exchange

The Impact of Foreign Indirect Investment in the Primary Market, Evidence on Amman Stock Exchange

Stock Market Valuation, Foreign Investment, and Cross-Country Arbitrage

This study investigates the role of stock market valuation and cross-country arbitrage in shaping foreign direct and indirect investments, contingent upon a country's stage of development. This paper is built upon the mispricing-driven foreign investment hypotheses developed by Baker, Foley, and Wurgler (2009). Interesting findings emerge when developed and emerging markets are considered separately. Empirical evidence indicates that the use of relatively cheap financial capital for foreign investment is prominent among developed countries, but not so in emerging markets. This is largely due to the extremely low level of foreign investment outflows in emerging markets and the inability of unsophisticated emerging market managers to successfully time the market. Further investigation shows that host-country stock market valuation is an important determinant of the mode of foreign investment; investors tend to choose indirect or portfolio investment, as opposed to direct investment, when the stock market is perceived to be undervalued. This is especially the case in emerging markets, where there is more room for misvaluation and potential arbitrage. These findings suggest that the unique institutional features of the markets involved play an important role in shaping foreign investment and cross-country arbitrage.

Unspoken Truths: The Hidden Logic of Decision 2/15

The context within which Opinion 2/15 falls is the legitimacy crisis of ISDS and its particular threat to the autonomy of domestic legal and judicial institutions. While, on the face of it, the ECJ seems to have escaped the risks of weighing into the ISDS-legitimacy debate (for now), Opinion 2/15 nonetheless seems to have given Brussels a tremendous opportunity to achieve rapidly-comprehensive new era trade and investment agreements, bypassing hold out problems, at the small price (if indeed it is a price) of dropping ISDS and portfolio investment (indirect investment). Given today’s global political economy, it would be surprising if this opportunity were not seized. My contribution seeks to weigh in on the debate as to what results emanate from Opinion 2/15, by ‘reading between the lines’. In doing so, I come to the conclusion that further changes to the European Union’s involvement in the international investment regime are to be expected going forward, not least because of the recently-requested opinion by Belgium on the Canada-EU Free Trade Agreement.

Navigating the Turbulent Economic Waters of the 2007 Great Recession and the Crash of the Housing Market

What triggered the crash of the U.S. housing market? This analysis looks at the economic and industry forces that led to an economic downturn that put as many as half of all U.S. residential builders out of business. Since the Great Depression, the U.S. housing market has significantly influenced economic production and employment levels. Direct and indirect investments in the housing industry, along with the induced economic activities such as real estate transactions and construction as well as other factors, accounted for an estimated 15-20% of GDP during boom years (CBPP, 2012). The burst of the $8 trillion housing bubble in 2007 and the subsequent collapse of the financial markets in 2008 created massive disarray in homebuilding (Bivens, 2011). As many as 50% of homebuilders closed their doors, either voluntarily or through bankruptcy filings (Quint, 2015). Concurrently, from 2006 through 2012, the Great Recession resulted in the loss of over $7 trillion of home equity (Gould Ellen, 2012). Over 24 percent of home mortgages went “underwater” with balances exceeding home values (Carter & Gottschalck, n.d.). For some homeowners, the unfortunate thought of losing their homes through foreclosure and incurring disruption to family life became a reality. The stress from threats of the loss of a home, unemployment, and depletion of savings exacted a great toll on many. Not since the Great Depression has the U.S. economy faced forces so devastating to the housing market and personal wealth.

Do Foreign Investors Outperform Chinese Counterparts in Their Indirect Investments in Chinese IPO Firms?: With a Focus on Exporting Activities

This paper examines the effects of foreign indirect investment (FII), particularly focusing on exporting activities, on the stock market performances of Chinese firms, using data of 1,341 firms that went public on the Shanghai and Shenzhen Stock Exchanges from 2003 to 2015. We find that the initial returns are lower, when compared by the five-year cumulative abnormal returns (CARs) for firms with foreign investments, than those with Chinese investments prior to IPOs, that returns are lower for the initial and one-year CARs, while the returns for longer-run CARs are higher for firms with pre-IPO exports, and that firms with post-IPO foreign investments show much lower returns for three-year and five-year CARs than those invested by Chinese investors only, that the joint effect of pre-IPO and post-IPO foreign investments and export activities are negative for one- and three-year CARs and that, while exports and foreign indirect investments show significantly lower initial returns, their long-term joint effects are more negative, possibly due to the negative effect of exports in the short-run. The results support the asymmetric information theory, positively for firms with foreign investors in the market before listing and negatively for those with Chinese investors only, particularly for the firms with exports.

The environmental consequences of domestic and foreign investment: Evidence from China

Fixed asset investment (FAI) and foreign indirect investment (FDI) have important influences on economic development and environmental quality. Because environmental performance is related with economic development, FAI and FDI may affect environment indirectly through their impacts on economic growth. In this study, the direct and indirect effects of both FAI and FDI on China's environmental quality are distinguished and separately estimated for the first time with a carefully designed framework of a two-equation model. Because most economic activities and environmental pollutions occur in the urban areas, a panel data of 112 Chinese cities for the period 2002–2015 is utilized. Several spatial factors are also introduced to control for the potential spatial correlations in economic development and pollutant emissions. The estimation results indicate that there exist apparent differences in the environmental effects of FAI and FDI. The direct effects of FAI on SO2 emissions are significant positive and dominate the negative indirect effects. By contrast, the direct, indirect and total effects of FDI on pollutant emissions are all negative. Therefore, overall speaking, well designed and targeted policies should be formulated to reduce the negative environmental impacts of FAI and to increase the positive influences of FDI on environment.

Foreign investment in Indonesia The Legal Aspects under the New Indonesian Investment Law

Indonesia plays an important role in the ASEAN region as well as in the global community, therefore investment policy become one of the major concern to government. To meet and accomodate the business enviroment both domestic and overseas that need capital investment, thus to develop the economic growth and build a suistainable economic stability in the region as well as for the people of Indonesia, it is neccessary to stipulate the inevestment law that provide all the need . Therefore the government has replaced the old law with the new Investment Law, the law No 25 of 2007. The Law provides the basic principle of legal certainty, non discrimination and same treatment for investors both domestic and overseas. The principles of opennes, accountability, togetherness and the concept of repatriation support the friendly investment atmosphere in Indonesia. As well as the supportive fasilities and easy procedure for investors to invest and build business in Indonesia. One of important issues regarding to Investment law is to increase the direct investment, instead of indirect investment that its contribution has a difference impact to the real sectors and economic growth.The question is the law and supportive law accomodatively provides the need of investment enviroment, knowing the economic growth has been influenced by the era of globalization and in fact Indonesia has signed and ratified international agreement as well. This writing will give a slighty persfective according to Indonesian Investment law and other supportive law, both national and international . Keywords: Law, Investment, Government Regulation, Principles, international law

Bezpośrednie i pośrednie inwestycje w metale szlachetne

The paper presents a direct and indirect investment in precious metals and relations between financial assets market and precious metals market. The research in precious metals market was carried in the period 2010–2016. This market offers a wide range of instruments. An indirect investment dominates a direct investment in precious metals. This article is limited only to analysis of precious metals funds. This article presents instruments available to individual clients. Investors could improve portfolio performance considerably by adding a significant exposure to the precious metals market.

How real estate became ‘just another asset class’: the financialization of the investment strategies of Dutch institutional investors

ABSTRACTThe managers of a growing wall of money are continuously searching for investment opportunities. The financialization literature describes how this mobile capital puts pressure on commodities, debt, public services and economic activities to transform into investable, tradable, financial products. Regarding real estate, these investigations show how opaque, local, non-standardized goods, highly depending on both local legislation and developments, have been transformed into liquid, globally traded financial assets. By analysing the real estate investment strategies of Dutch institutional investors since the 1980s, this paper shows how a quantitative framework increasingly provides the basis for institutional investors’ real estate investment strategies. Direct ownership of properties has been exchanged into shares of properties, that is, fictitious capital, creating an impetus for ‘objectified numbers’ to measure the performance of these indirect investments. As knowledge about real estate has been outsourced, Dutch institutional investors now perceive real estate increasingly as ‘just another asset class’, thereby increasing leverage and volatility. This paper not only shows how finance ‘financialized’ itself by adopting a quantitative investment perspective, but it also offers an empirical account on how investment properties are transformed into financial assets that put pressure on state agencies to mobilize urban planning to deliver more of such assets.