Perspective Of Institutional Investors Research Articles

Political uncertainty and institutional herding

Political uncertainty represents a key determinant of corporate investment decisions. In this paper, we study the relation between political uncertainty and investment from the perspective of institutional investors. Using U.S. equity holdings data from 13F filings, we find that institutional investors herd during politically uncertain times. This trading behavior is stronger when U.S. presidents are unpopular, due to their proclivity for controversial policies, and among riskier stocks. We also find that this mechanism, despite generating some excess trading, helps incorporate a risk premium into stock prices. Overall, the findings unveil a new channel through which political uncertainty affects financial markets.

Revisiting the nexus between corporate social responsibility and corporate value: Evidence from China

AbstractPurposeUnder the concept of sustainable development guided by ‘carbon peak’ and ‘carbon neutral’, corporate social responsibility (CSR) performance has become the focus of attention in all sectors of society. With the gradual deepening of China's ‘new economic normal’ development, firms face increasing environmental uncertainty in the market. This study aims to embed CSR, financial flexibility (FF), institutional investors (INST), and corporate value into the same theoretical framework and conduct heterogeneity analysis on the nature of property rights, heavily polluting industries, and marketisation level.Design/Methodology/ApproachBased upon the observation data of listed firms in Shanghai and Shenzhen A‐shares in China from 2011 to 2021, this study uses Stata software for data processing, analysis, and two‐stage least‐squares (2SLS) models to solve endogenous problems.FindingsThe research results show that improving CSR performance increases corporate value, while INST and FF moderate the relationship between them. Further heterogeneity analysis found that the nature of property rights, heavily polluting industries, and marketisation level have different impacts on these moderating effects. This result provides ideas for clarifying the economic impact of enhancing the firms' CSR performance in the current era.Originality/ValueFirst, from the standpoint of CSR performance, it enhances the literature on the key corporate values in China. Second, from the perspective of corporate value, it has enriched the CSR literature and provided a new perspective for further clarifying the significance of improving the CSR performance of firms at this stage. Third, from the perspective of INST and FF, this research examines the moderating mechanism of CSR performance on corporate value. Hence, it provides a reference for further improving the efficiency of resource allocation in the capital markets.

IPO underpricing from the institutional investor perspective: evidence from emerging markets

This paper examines IPO underpricing from the institutional investor perspective in emerging markets. Observing market adjusted returns for several countries, industries, and years, results show evidence that the underpricing phenomenon is present across all emerging markets, averaging at 30.29% on the first trading day, and 27.98% for the first trading month. Underpricing particularly stands out in China, for the Basic Materials industry, during the 2007/2008 financial crisis period, increases with higher levels of property rights protection and decreases in countries with relatively more freedom from corruption. Underpricing is positively related to a country’s legal framework and negatively related to the number of IPOs.

A six-factor asset pricing model of China's stock market from the perspective of institutional investors' dominance

PurposeChina's stock market, which serves as an example of emerging markets, is steadily maturing in the context of globalization. In order to analyze the pricing mechanism of China's stock market, this paper builds a six-factor model to address the market features that are structurally efficient but not entirely efficient.Design/methodology/approachThis study updates the Fama–French factor model's construction process to account for the unique features of China's stock market before creating a model that incorporates size, volume, value, profitability, and profit-income factors based on institutional investors' trading behavior and research preferences. The SWS three-tier sector stock index's monthly and quarterly data for the years 2016–2021 are used as samples for this study.FindingsThe results imply that China's stock market is structurally efficient and exhibits high levels of rationality in the region dominated by institutional investors. Specifically, big-size and high-volume portfolios that perform well in terms of liquidity can receive trading premiums. Growth-style sectors prevail at present, and investing in sectors with strong profitability and reliable financial reporting data can produce better returns.Practical implicationsThe research on China's stock market can be extended to improve the understanding of the development process of similar emerging markets, thereby promoting their improvement. To enhance the development of emerging markets, the regulators should attach great importance to the role of local institutional investors in driving the market to maturity. It is crucial to adopt a structured approach to examine the market pricing mechanism throughout the middle stage of the transition from developing to mature markets.Originality/valueThis study offers a structured viewpoint on asset pricing in growing emerging markets by combining the multi-factor pricing model approach with behavioral finance theories.

Navigating the factor zoo around the world: an institutional investor perspective

The literature on cross-sectional stock return predictability has documented over 450 factors. We take the perspective of an institutional investor and navigate this zoo of factors by focusing on the evidence relevant to the practicalities of factor-based investment strategies. Establishing a sound theoretical rationale is key to identifying “true” factors, and we emphasize the need to recognize data-mining concerns that may cast doubt on the relevance of many factors. From a practical investment perspective, much of the factor evidence documented by academics may be more apparent than real. The performance of many factors is dependent on the inclusion of small- and micro-cap stocks in academic studies, although such stocks would likely be excluded from the real investment universe due to illiquidity and transaction costs. Nevertheless, a parsimonious set of factors emerges in equities and other asset classes, including currencies, fixed income, and commodities. These factors can serve as meaningful ingredients to factor-based portfolio construction.

Structuring fund for affordable housing investment in Malaysia: an exploratory research

Purpose The purpose of this study is to explore potential fund-raising option that can be developed to attract investment in affordable housing initiatives in Malaysia. In doing so, the study undertakes to discuss the viability of the property trust fund structure as an investment vehicle. Design/methodology/approach The study uses a qualitative design that involves the use of semi-structured questionnaires as a data collection strategy. A total number of ten experts were selected for the interview using critical case sampling scheme based on the purposive sampling strategy. Findings The study discovers that a dynamic fund structure – one that allows for the fund to evolve with changing circumstances and needs – can be adopted. This fund structure comprises a fund that can be initially established as a closed-ended fund. Then, with sufficient track record, the fund can be transformed into a public real estate investment trust, with the prospect of tapping into capital market via issuance of sukuk in the future. The fund can also adopt mezzanine structure of funding, which may reduce investors’ risks with minimal government intervention. Research limitations/implications The findings of this study illustrate the potential of fund-raising options from the perspective of institutional investors and regulators. Future research could explore government’s view and focus on the policy options. Practical implications The findings may provide valuable insight into alternative fund-raising options for affordable housing projects for policymakers and investment banks. Social implications The fund-raising options incorporate minimal government participation yet pose low risks to investors, creating a low-risk asset suitable for social investment. Originality/value This study outlines the mechanism to increase affordable housing supply in the market, by attracting institutional investors to invest in this dynamic fund structure initiative. As there are limited discussions on attracting funding for affordable housing developments, it is hoped that this paper will spark further debate and discussion among the academicians and policymakers.

Institutional investors' attention to environmental information, trading strategies, and market impacts: Evidence from China

AbstractUsing a large proprietary database of intraday high‐frequency trading, we investigate the trading strategies of institutional investors in dealing with the negative environmental event disclosure of listed companies and their impact on markets, aiming to reveal the mechanism of the lack of “green efficiency” in China's capital market from the perspective of institutional investors. The results show that institutional investors react to negative environmental events prior to the announcements, indicating premature information leakage in the market; in addition, their trading behaviors mitigate the immediate effect of negative environmental event announcements on stock price. After the event is disclosed, institutional investors engage in short‐term selling and long‐term buy and hold. This trading strategy undermines the irrational selling of individual investors in the event of disclosure, short‐term decline in stock price, and long‐term reversal of market overreaction. In a China context, institutional investors generally take environmental information into consideration. However, they fail to recognize the long‐term value effect of negative environmental events and instead cater to trading strategies towards market volatility.

Governing Blended Finance: An Institutional Investor Perspective

Financing from institutional investors will be critical to achieving the sustainable development goals (SDGs) and curbing climate change. However, these large investors have been largely absent from multilateral initiatives to mobilise private capital. Partly as a result, such initiatives have been unable to reach the scale required for development finance to go “from billions to trillions”. Successful mobilisation of private capital – including from institutional investors – has instead frequently taken place at the local level, by strategic investment funds and some green banks. This is likely due to advantages of being a local investor, including risk assessment, networks and “boots on the ground”, as well as the design of mandates, structure, governance, and staffing. At the same time, some institutional investors have been changing their modus operandi, from an intermediary to a collaborative model, and are re-localising their operations. The elimination of financial intermediaries with a short-term focus removes a bottleneck between two categories of long-term investors – institutional investors and multilateral finance institutions –, and opens new opportunities for collaboration. To take advantage of such opportunities, multilateral finance institutions will likely need to deepen their integration with the collaborative model and work closely with successful strategic investment funds and green banks.

Institutional perspectives of dividend policy in India

PurposeThis study aims to examine dividend policy from the perspective of institutional investors in India. It focuses on the level of importance these investors attach to the dividend policy of their investee firms, the level of influence they exercise in shaping such firms’ dividend policies and their reactions to changes in dividends. This study also reports how institutional investors view various explanations for paying dividends.Design/methodology/approachA mail survey provides a profile of respondents and their firms, as well as responses to 29 closed-ended questions involving various explanations for paying dividends and 22 closed-ended questions on various dividend issues.FindingsThe evidence shows that Indian institutional investors attach substantial importance to dividend policy and prefer high dividend payments. Their reactions to dividend changes are asymmetric. Taxes are a major driver for why they seek dividends, whereas liquidity needs to play little role in shaping their preferences. The two most commonly used methods of active monitoring are selling shares and communicating concerns to investee companies.Research limitations/implicationsThe number of responses limits the ability to test for statistically significant differences between the various competing hypotheses.Practical implicationsThe findings support multiple explanations for paying cash dividends and provide new evidence supporting the positive relation between inflation and dividend payments.Originality/valueThis study provides the first survey evidence on the views of institutional investors on dividend policy in India.

Rethinking China's Capital Market and Financial Stability after the Global Financial Crisis: The Perspective of Institutional Investors

Rethinking China's Capital Market and Financial Stability after the Global Financial Crisis: The Perspective of Institutional Investors

Assessing energy rating premiums in the performance of green office buildings in Australia

Purpose– Green office buildings have recently taken on increased significance in institutional property portfolios in Australia and globally. The key issue from an institutional investor perspective is the assessment of whether green office buildings add value. Using an extensive portfolio of green office buildings, the purpose of this paper is to empirically assess the level of energy rating premiums in the property performance of green office buildings in Australia.Design/methodology/approach– Using a portfolio of over 200 green office buildings in Australia benchmarked against a comparable portfolio of non-green office buildings, the level of energy rating premiums in the property performance of green office buildings in Australia is empirically evaluated. Hedonic regression analysis is used to account for differences between specific office buildings and to explicitly identify the “pure” green effect in identifying the level of energy rating premiums in several commercial property performance characteristics (e.g. office value, rent).Findings– The empirical results show the added-value premium of the 5-star National Australian Built Environment Rating Scheme (NABERS) energy rating scheme and the Green Star scheme in the property performance of green office buildings in Australia, including office values and rents. Energy rating premiums for green office buildings are evident at the top energy ratings and energy rating discounts at the lower energy ratings. The added-value “top-end” premium of the 5-star vs 4-star NABERS energy rating category is clearly identified for the various property performance parameters, including office values and rents.Practical implications– This paper empirically determines the presence of energy rating premiums at the top energy ratings in the performance of green office buildings, as well as energy rating discounts at the lower energy ratings. This clearly highlights the added value dimension of energy efficiency in green office buildings and the need for the major office property investors to prioritise the highest energy rating to facilitate additional property performance premiums. This will also see green office buildings become the norm as the market benchmark rather than non-green office buildings.Social implications– This paper highlights energy performance premiums for green office buildings. This fits into the context of sustainability in the property industry and the broader aspects of corporate social responsibility in the property industry.Originality/value– This paper is the first published property research analysis on the detailed determination of energy rating premiums across the energy rating spectrum for green office buildings in Australia. Given the increased focus on energy efficiency and green office buildings, this research enables empirically validated and practical property investment decisions by office property investors regarding the importance of energy efficiency and green office buildings, and the priority to achieve the highest energy rating to maximise property performance premiums in office values and rents.

An Empirical Study: Heterogeneity of Institutional Investors and Large Shareholders’ Benefits Transportation

Subject: This paper researches how institutional investors influence the behavior of large shareholders’ benefits transportation from the typological perspective of institutional investors. The results show that active and passive institutional investors can effectively inhibit the benefits transportation of large shareholders; and as uncertain institutional investors, securities investment funds have no significant effect on large shareholders’ benefits transportation.

An institutional investor's perspective on oil and gas investment

From the perspective of an institutional oil and gas investor, investing is like creating a partnership. Given the long-term investment horizon, the focus is on creating value in the long run and on setting up the stage to withstand short-term volatility and uncertainty. A producer/developer is able to better focus on protecting its assets instead of managing the market’s expectations and quarterly earnings or KPIs. Also, projecting sub-surface performance is highly interpretive and adds another layer of risk to the already complex investment environment.

'Asian Private Equity – Will it Deliver on its Promise?' A Survey of Top LPs and GPs in Asian Private Equity

This report discusses Asian private equity 1, 2 as an asset class from an institutional investor perspective. It is based on surveys with leading limited partners (LPs) and general partners (GPs) in Asian private equity. The two INSEAD-AXA Private Equity Surveys were conducted from April to June 2010. The first part of our report offers an introduction to Asian private equity from an LP perspective, starting with a brief summary of its history, followed by a discussion of recent developments in the industry, including the increasing flow of funds into this asset class. The report then takes a brief look at historic returns and risk (as expressed in return variability) from a portfolio manager’s perspective. We highlight the high variance in returns across the asset class, which makes manager selection the critical element in a portfolio of Asian private equity funds. The core segment of the report focuses on a selected group of top LPs and their experience with Asian private equity. They have the resources, experience and brand names that allow them to select and (most importantly) access top managers, and hence are best positioned to generate above-average returns for meaningful allocations. Indeed their portfolios are expected to yield gross multiples of around two times invested capital, well above the industry average. We compare their actual returns with their return expectations, specifically the required risk premium over Western private equity, and discuss the performance drivers in their portfolios. To complement the responses from our selected LPs and to provide a balanced perspective, we extended our survey to a group of top GPs, proposed by our LPs. These represent to a large extent a shortlist of the LP’s portfolios and include some of the most respected names in the industry. As such, they outperform the industry average and LP portfolios as a whole. Finally, we asked both GPs and LPs about the overall outlook for the industry, and also asked our investors to share with us their portfolio allocation plans.

Due Diligence on Alternative Investments: An Institutional Investor's Perspective

This research paper focuses on due diligence on alternative investments, specifically hedge funds and private equity funds, from the perspective of institutional investors. It summarizes findings in some of the important research publications on the subject, showing highlights from industry surveys conducted among top managers of alternative investments and top institutions that invest in alternatives, and then presents the findings from a series of interviews conducted with investment officers of several pension funds and endowments. The paper subsequently makes recommendations on improvement opportunities in the field of due diligence. This work intends to enable high-level knowledge sharing among institutional investors and may also be useful for investment managers and third-party consultants. The complicated nature of due diligence and the requirement of more transparency in investment process came to the fore. Other issues that emerged in this study are the importance of people or management due diligence, difficulty in valuations of alternative investments, differences and similarities between hedge fund due diligence and private equity fund due diligence, manager access vs. manager selection issues, significance of compensation in limited partner teams, and liquidity problems.

Identifying impediments to SRI in Europe: a review of the practitioner and academic literature

For more than 15 years, the investment community and the academic community have written extensively on socially responsible investment (SRI). Despite the abundance of SRI thought, the adoption of SRI practices among institutional investors is a comparative rarity. This paper endeavours to achieve two goals. First, by integrating the practitioner and academic literature on the topic, the paper attempts to identify the many impediments to SRI in Europe from an institutional investor's perspective. Second, the paper proposes a unitary framework to conceptually organize the impediments to SRI by using insights from different relevant research perspectives: behavioural finance, organizational behaviour, institutional theory, economic sociology, management science and finance. The paper concludes by presenting the main shortcomings within both the academic and the practitioner literature on SRI and by providing conceptual and methodological recommendations for further research.

Pay without Performance: The Institutional Shareholder Perspective

This paper is based on the author's comments at the Columbia University Symposium on Bebchuk and Fried's Pay without Performance: The Unfulfilled Promise of Executive Compensation. The paper discusses the book and the problems of executive compensation from the perspective of institutional investors.

Meeting objectives and resisting conventions

Purpose – This paper seeks to unravel some of the challenges associated with responsible investment from the institutional investor's perspective, focusing on how dominant conventions influence investor behavior and their ability to invest responsibly.Design/methodology/approach – The research draws from three longitudinal case studies that were carried out on UK institutions that have adopted a responsible investment policy.Findings – Evidence of behavioral obstacles to responsible investing were found, including short‐termism, gravitation towards defensible decisions and reluctance to integrate corporate responsibility factors into the core investment process. Based on the case study evidence these appear to be driven by the influence of prevailing dominant conventions, reinforced by institutional herding tendencies.Research limitations/implications – The paper introduces some preliminary thoughts as to how conventions might be resisted and changed over time through the institutional herding mechanism. ...

Owner‐occupied housing and household asset allocation

This second of two related papers in this Journal, reviews empirical evidence available from the literature on the problem of household's optimal portfolio when owner‐occupied housing is included in the list of available assets, namely the risk‐return performance of residential investment, and its usefulness in efficient mixed‐asset portfolios. The risk‐return characteristics of the housing asset is highly dependent on the type of perspective under analysis (household or institutional investor's perspective) and therefore, the two housing investment approaches could lead to different conclusions about the role of housing investment in an portfolio context. The consumption demand for housing together with the markets imperfections place serious constraint on the household's portfolio problem.

The Strategic Management of Open‐ended Property Funds

German open‐ended property fund shows that a strategic management of property investment is indispensable. Suggests that it is possible and fruitful to adapt the instruments for strategic management used by industrial companies to fit the needs of property companies (such as the five‐forces model and the value chain developed by Porter, the strategic portfolio analysis developed by McKinsey, etc.). In the long‐term perspective of institutional investors, dynamic factors such as use, flexibility, productivity and competitive advantages play a much more important role. These thoughts have led to the need to build an operational model for the analysis and “strategic” valuation of property portfolios. This kind of portfolio approach emerges as an effective and flexible instrument for identifying and visualizing strategic development potentials and problem configurations within the assets of open‐ended property funds and other institutional investors.