Investment Benchmark Research Articles

PERBANDINGAN FUZZY TIME SERIES MARKOV CHAIN DAN FUZZY TIME SERIES CHENG

Investing is a hot and fast-growing topic right now. Stock.investing.is one of the most popular investments by the public. The JCI is an index that measures the performance of all stocks listed on the IDX. The closing price of the stock is published daily and can be used by investors as an investment benchmark. The occurrence of stock price fluctuations entails a high risk of loss. Predicting stock prices is one way to avoid this risk. Fuzzy time series is a time series model that can be used to minimize the risk of future occurrences. Time parameter data is not stationary, so this research uses fuzzy time series with Markov chains and Cheng's method to determine the JCI completion dates from January 2018 to June 2022. Calculating the accuracy level of the two method approaches using symmetric Mean Absolute Percentage Error (sMAPE), the sMAPE value obtained in the Fuzzy Time Series Markov Chain method is 2.11% and the Fuzzy Time Series Cheng method is 2.98%. The conclusion is that of the two methods the Markov Chain has a smaller value and can be said to be a better method compared to the Cheng method.

Deferred maintenance of physical infrastructure and its association to hospital profitability in Washington State

PurposeThe aim of this study is to understand health-care facilities’ practice of deferring maintenance and to identify the relationship between deferred maintenance and hospital profitability.Design/methodology/approachFinancial statements from hospitals in Washington State were analyzed. Differences in building and equipment values were compared to the capital renewal investment benchmark. Then, linear regression analysis was conducted to identify correlations between deferring or sustaining maintenance and a hospital’s profitability.FindingsThe majority of hospitals in Washington State practice deferred maintenance, investing less in annual facility capital renewal than benchmark amounts. Hospitals in deferred and sustained maintenance states do not significantly differ in terms of facility size and plant operating expenses but there is a statistically significant difference in profit margins. Furthermore, a linear relationship exists between the level of investment in facility renewal and overall hospital expenses, revenue and profit.Practical implicationsThe findings of this research can be used to support fiscal policies related to maintaining aging health-care facility infrastructure. The findings can also be used to overcome barriers to securing capital budgets that are sufficient to optimize the safety and performance of the built environment.Originality/valueHospitals in a state of deferred maintenance return higher profits than do hospitals in a state of sustained maintenance. Nevertheless, hospital spending on deferred maintenance backlog reduction generates a positive return on investment. While hospitals may achieve higher returns, in the short term, by spending less on facility capital renewal and focusing instead on higher-revenue-generating opportunities, additional research in necessary to understand the long-term costs of deferring facility infrastructure repairs and replacement.

The equally weighted portfolio still remains a challenging benchmark

This research replicates the paper “Optimal Versus Naive Diversification: How Inefficient is the 1/N Portfolio Strategy?”, DeMiguel et al. (2009b). Similar to the referring paper, working in the mean–variance context, we compare the out-of-sample performance of the same investment strategies on the basis of standard metrics (Sharpe ratio, certainty equivalent and turnover). We consider proportional transaction costs and estimation rolling windows of limited length. Our study updates the original paper for many interesting aspects. First, to exclude that the empirical evidence of DeMiguel et al. (2009b), whose data stopped in 2004, could depend on very specific market behavior, we use an updated version of the original databases that contains the returns of the last 20 years. Recent data are characterized by a few severe systemic events, the 2008 global financial crisis and the shock related to the pandemic, and a generally higher level of price volatility than the previous periods. In our opinion, this variation in the market’s conditions makes the replication very interesting. Second, we introduce the Equally Risk Contribution (ERC) portfolio within the allocation strategies under comparison. This allocation rule is strictly related to the mean–variance approach when the variance is used as the referring risk measure and it constitutes a very interesting alternative investment benchmark. Moreover, using real data, we study whether a variation of the holding period or the length of the estimation window can modify the performance of all the strategies under comparison. Our findings confirm the results of DeMiguel et al. (2009b), i.e. that the equally weighted portfolio still remains a challenging benchmark to beat. Nevertheless, we find a few significant differences: the number of strategies that outperform naive diversification is larger due to the increased market volatility; limiting the impact of transaction costs by investing in a portfolio with a stable allocation as the ERC, or modifying the lengths of the estimation window and the holding period, is not sufficient to beat naive diversification systematically.

Stock market openness and audit fees: evidence from the inclusion of China A-shares in the MSCI emerging markets index

This study examines how China’s stock market openness affects audit fees. In May 2018, Morgan Stanley Capital International (MSCI) announced the first wave of listing of large-cap China A-shares in the MSCI Emerging Markets (EM) Index, which marked China’s grand entrance into the global investment benchmark, and sharply expanded its stock market investor base. Using a difference-in-differences approach, we find that audit fees for constituent stocks decrease after the index inclusion. Further analyses suggest that foreign investors can reduce the risk of expropriation by controlling shareholders and mitigate agency conflicts. Our results also show that the effect is more pronounced for firms with weaker internal controls, lower levels of domestic institutional ownership, and those located in less developed markets. Our findings highlight the monitoring effect of stock market openness in improving corporate governance and advance our understanding of the key drivers of audit fees in emerging markets.

РОЛЬ ESG-ІНВЕСТУВАННЯ В ЗАБЕЗПЕЧЕННІ ІНКЛЮЗИВНОГО РОЗВИТКУ ПІДПРИЄМСТВ, РЕГІОНІВ, ДЕРЖАВИ

The article presents the results of a study of the content of the concept of inclusive development of economic systems in modern conditions and outlines the priority areas of responsible financing as a mechanism for overcoming the current political challenges and post-war reconstruction of the Ukrainian state. The importance of the environmental, social and governance component (ESG factors) as investment benchmarks in the context of ensuring inclusive development and achieving sustainable development goals is proved. The evolution of methodological tools for assessing the effectiveness of social responsibility of business and ESG parameters is analysed. The article establishes that algorithms for effective comparison of ESG investment performance are currently available to investment investors, which allows them to qualitatively measure, evaluate and manage processes in the field of responsible entrepreneurship. The global trend towards the implementation of the ESG approach by key financial market institutions of the world is identified and the dynamics of growth in the number of ESG exchange-traded funds is summarised. The positive achievements and inhibiting factors on the way to scaling the ESG transition in the strategies of domestic companies are outlined. The current state of implementation of ESG factors in the Ukrainian business environment is determined. The discrepancy between declarative approaches to the development strategies of companies and the content of their non-financial reporting is revealed. The national portal is evaluated in the context of presenting and promoting key ESG aspects. The need to increase attention to ensuring inclusive development of the state and its economic systems within the framework of ESG strategies as one of the priority solutions in the context of post-war reconstruction of the country was identified. The practical impact of ESG investing on the inclusive development of systems of different levels – from corporate to macroeconomic – is diversified. The article emphasises the interconnection and interdependence of social values with fiduciary benefits, which makes it a priority to further search for incentives to attract business structures to socially responsible entrepreneurship at the state level.

Responsible investment benchmarks and information asymmetry in the ESG segment

A significant problem in achieving the Sustainable Development Goals (hereinafter referred to as the SDGs) is insufficient financial support. The size of the investment gap before the pandemic, according to UN estimates, was $3.3-$4.5 trillion per year. The pandemic has significantly exacerbated the already difficult situation with financing, and has also set back humanity in achieving a number of the SDGs. The list of potential sources of offsetting the financial gap includes new taxes on the wealthy and pollution, debt relief for low- and middle-income countries, elimination of tax loopholes, redirection of subsidies from environmentally destructive activities, etc. However, a more market-oriented and gentle solution to the problem, both globally and at the level of individual countries, is the use of responsible investment tools. After all, ESG indicators are taken into account by investors and financial institutions when making investment and lending decisions, as well as by counterparties and suppliers in the course of commercial activities. ESG indicators are information about the environmental, social and governance factors of a company that are key to measuring the sustainability and ethical impact of investments in a company and business. The successful implementation of responsible investment is hampered by the existence of information asymmetry, for example, in the form of ESG mimicry. It means the use of various techniques that indicate the company's involvement in ESG, which is not really true. The goal of this article is to analyze effective methods for reducing information asymmetry in the ESG segment. It is proved that the use of responsible investment benchmarks in the form of ESG ratings can reduce the level of information asymmetry and increase the efficiency of responsible investment. In addition, the paper proposes a five-phase process for creating an ESG rating, which summarizes the experience of the best international practices and allows for more relevant assessments of companies' ESG efforts.

Cost-effective CO2 abatement in residential heating: A district-level analysis of heat pump deployment

Heat pumps are recognized for their potential to reduce CO2 emissions in residential heating, particularly when replacing traditional natural gas systems. Their performance can be enhanced when integrated into district-level energy management systems and demand response programs. However, the CO2 abatement cost, the expense of reducing emissions through the installation of heat pumps, has not yet been fully explored at the district level. This study reveals a substantial disparity in CO2 abatement costs between typical urban and rural districts, identifying the conditions that make heat pump deployment most cost-effective. Rural districts, with their higher heat demand, emerge as more suitable candidates for the electrification of the heat sector. The research also indicates that district demand-side management not only helps mitigate CO2 abatement costs but also reduces the negative impacts of a large number of heat pumps. Additionally, a lower emission intensity of electricity could lead to a 50% reduction in CO2 abatement costs. This research outlines a cost-effective approach to reducing emissions through the use of heat pumps, thereby setting a benchmark for district-level heat pump investments towards achieving low-carbon districts. The findings could provide valuable information that informs strategic decision-making on the replacement of conventional heating systems with heat pumps.

Across-time risk-aware strategies for outperforming a benchmark

We propose a novel objective function for constructing dynamic investment strategies with the goal of outperforming an investment benchmark at multiple points of evaluation during the investment time horizon. The proposed objective is intuitive, easy to parameterize, and directly targets a favorable tracking difference of the actively managed portfolio relative to the benchmark. Under stylized assumptions, we derive closed-form optimal investment strategies to guide the intuition in more realistic settings. In the case of discrete rebalancing with investment constraints, optimal strategies are obtained using a neural network-based numerical approach that does not rely on dynamic programming techniques. Compared to the targeting of a favorable tracking difference relative to the benchmark only at some fixed time horizon, our results show that the proposed objective offers a number of advantages: (i) The associated optimal strategies exhibit potentially more attractive asset allocation profiles, in that less extreme positions in individual assets are taken early in the investment time horizon, while achieving a similar terminal terminal wealth distribution. (ii) Across-time risk awareness leads to more robust performance and a higher probability of benchmark outperformance during the investment horizon in out-of-sample testing. The resulting strategies therefore exhibit desirable characteristics for active portfolio managers with periodic reporting requirements.

Sustainable investment – Exploring the linkage between alpha, ESG, and SDGs

AbstractEnvironmental, Social and Governance (ESG) investing has attracted much attention in asset management this past decade. Asset managers who consider ESG issues when making investment decisions potentially face a trade off with their fiduciary duty to attempt to outperform investment benchmarks (“generate alpha”). We first analyze the relationship between alpha generation and ESG metrics. However, because there are no well‐accepted ESG standards, we also measure the impact companies have on the U.N.'s Sustainable Development Goals (SDG's). Our research consists of three steps. First, we construct a sector‐neutral portfolio using MSCI ESG momentum scores from 2013 to 2018, and determine that it is feasible to generate positive alpha vis‐à‐vis the MSCI US index and other risk benchmarks. Second, we utilize structured and unstructured data to determine a company's net influence on the SDGs, which we call its SDG “footprint.” We show that an ESG momentum portfolio both outperforms the MSCI US index and has a relatively better SDG footprint than that of the index. Third, we establish a positive contemporaneous connection between the portfolio's ESG ratings momentum and its SDG footprint. Thus, a positive linkage exists between ESG, alpha, and the SDGs for our sample.

In Search of Paradigmatic Diversification in Academic Finance

Academic finance research is largely overshadowed by functionalist paradigm, and this limit positive contribution to knowledge. Hence, finance literature faces criticism, which highlights the justification of having a diversified philosophical stance. By investigating contemporary papers on investment benchmarks, sustainable finance and behavioural finance, we identify that modern finance researchers are rethinking about the research paradigm to bring paradigmatic diversification rather than being stagnant to positivism. Journal of Business Studies, Vol. XLII, No. 1, April 2021 Page 59-72

Efficient Market Managers

We examine the effect of the Efficient Market Hypothesis (EMH) on the investment behavior of mutual fund managers. We show that managers who are more likely to be exposed to the ideas of EMH throughout their higher education are more “passive” than their unexposed peers: they are more likely to manage index funds, and when managing active funds, they hold portfolios with larger numbers of stocks and deviate less from their investment benchmarks. Exposed managers, however, take more systematic risks. Although academic exposure to the EMH does not result in better performance, it helps professional investors generate capital inflows.

Climate change risk: Challenge for corporate governance

The major research question of this paper is to analyze climate change risk as a challenge to corporate governance. Climate action failure was the environmental risk most frequently listed in the top ten country risks. It also becomes a major reason that many companies are taking their own initiatives on climate change action which poses an imminent challenge for corporate governance as boards of directors track and assess such initiatives by their own companies. Boards can play a key role in guiding their organizations into the next new normal in the wake of global pandemic, economic disruptions, and ongoing climate change problems. This paper identifies and studies the corporate governance risks and opportunities related to global climate change risk and provides recommendations to boards of directors. The major sections of this paper are global climate change risks, corporate climate change pledges, climate-related financial disclosures, major topics in the Global Climate Change report, whether companies are ready to manage major climate change risks and opportunities, climate-related investment benchmarks, and conclusions. Future research could investigate this climate change risk challenge with case studies or empirical studies.

Efficient Market Managers

We examine the effect of the Efficient Market Hypothesis (EMH) on the investment behavior of mutual fund managers. We show that managers who are more likely to be exposed to the ideas of EMH throughout their higher education are more “passive” than their unexposed peers: they are more likely to manage index funds, and when managing active funds, they hold portfolios with larger numbers of stocks and deviate less from their investment benchmarks. Exposed managers, however, take more systematic risks. Although academic exposure to the EMH does not result in better performance, it helps professional investors generate capital inflows.

Business as Usual?: The Limited Influence of Climate Change Disclosure and Fiduciary Duties on the Low-Carbon Investment Practices of Canada's Big 10 Public Pension Funds

Canada must achieve an estimated CAD 2.6 trillion in low-carbon investments by 2030 to meet its commitment under the Paris Agreement. To reach this investment benchmark, Canada must secure the financial support of its ten largest public pension funds. But low-carbon investing is not currently “business as usual” for the majority of these “Big 10” funds. The recently commissioned Expert Panel on Sustainable Finance (EPSF) recommends two regulatory changes to address this problem: (1) implementing the disclosure recommendations of the Task Force on Climate-Related Financial Disclosures; and (2) clarifying the relevance of climate change to the fiduciary duties pension funds owe to their beneficiaries. I argue that these recommendations will not guarantee that the Big 10 will meaningfully contribute capital towards Canada’s transition to a low-carbon, climate-resilient economy over the next decade. A disclosure regime is unlikely to incentivize the Big 10 to increase their domestic low-carbon investments. The Big 10’s independent governance structures would likely prevent plan beneficiaries, civil society and the courts from holding them accountable for poor low-carbon investment disclosure or practices. Any clarification to the fiduciary duty of prudence would simply require the Big 10 to consider low-carbon investment opportunities as part of their investment decision-making; the duty could still be fulfilled by adopting a range of investment strategies that do not directly support Canada’s transition. These insights have important implications for how Canada responds to the EPSF’s recommendations and for any future regulatory action to secure a sustainable economic future.

Behavioral stock portfolio optimization considering holding periods of B-stocks with short-selling

This study exploits the extra information provided by behavioral stocks (B-stocks) and proposes portfolio selection models that produce profitable portfolios which can outperform traditional investment benchmarks (market index, mutual funds, and exchange-traded funds). Using the embedded holding period (T-day) information of a B-stock, in order to maximize the expected effect (cumulative abnormal return CAR ≥ 1%), this study proposes a buy and hold strategy such that B-stocks are bought when their respective causes are spotted and held until their respective T-days are reached. In addition, in performing the back-tests the actual transaction costs are considered to represent more realistic investments. Short-selling is also considered to provide a more flexible investment such that some B-stocks are shorted when causes are spotted and wait until their respective T-days are reached to exploit the expected effect (CAR≤−1%). The resulting portfolios are then compared to traditional benchmarks. Overall, this study addresses three issues that were not addressed by previous works on B-stocks. These issues are: (1) having portfolios that are profitable even after all transactions costs are considered; (2) identifying short-sell B-stocks for consideration of short-selling in the portfolio selection; and (3) generating portfolios that outperform traditional investment benchmarks.

How to combine two methods to restore populations cost effectively

AbstractEcosystems worldwide have become degraded due to global change, and therefore, restoration of these ecosystems is critical for the prolonged provision of ecosystem services. Specifically, major restoration efforts are directed toward the restoration of key species that provide important services and functions. There are often several alternative methods to restore a species population, such as the reintroduction of its individuals, improvement of its habitat quality, and removal of competing invasive species. However, these methods can be expensive, and hence, it is important to determine how to cost effectively combine them over time. In this paper, we use optimal control theory and we find a general rule of thumb for combining two restoration methods. The general rule, which applies to a wide variety of ecosystems, is that cost‐effective restoration entails one of the following two strategies: (1) using a single method until the system approaches a “restoration threshold” or (2) combining both methods to approach an “investment benchmark,” which is a certain configuration of the system that does not depend on the system's initial state. After either the restoration threshold or the investment benchmark has been approached, investment should stop and the system should be left to recover naturally. Therefore, finding the restoration threshold and the investment benchmark is key for guiding effective restoration, and we demonstrate a simple method for finding them.

Benchmarking Infrastructure Project Finance: Objectives, Roadmap, and Recent Progress

In this article, the authors examine the objectives, roadmap, and recent progress of academic research with respect to benchmarking the financial performance of privately held infrastructure debt or equity investment, with a focus on the recent development of a new framework to collect data and evaluate such assets. To determine a way forward, the authors start with the reasons that infrastructure investment benchmarks are in demand and list the key questions that such benchmarks should be expected to help answer. Unfortunately, these questions remain very difficult to answer today, for lack of relevant information. Hence, the authors propose a roadmap to develop a definition, valuation, data-collection, and portfolio-construction framework of privately held infrastructure debt and equity cash flows designed to answer these important questions. <b>TOPICS:</b>Other real assets, portfolio construction, security analysis and valuation, fixed income and structured finance

Understanding Oil Investing

The price of oil has fluctuated wildly in the last few years and has placed a spotlight on oil investing vehicles. Of particular interest has been the discrepancy between oil investing returns and the hypothetical returns to spot oil. We attempt to understand the source of that discrepancy by examining the behavior of oil investing returns over the last 20 years. We find that spot oil is not a realistic investable benchmark for oil investing and propose a better benchmark for oil investing that takes into account storage and insurance costs. Asset allocation studies that use spot oil are flawed and will give oil more importance than it should have relative to other commodities and other asset classes. We also find different strategies of rolling oil futures can have very different return and risk characteristics. The futures curve has transitioned over the last 20 years from backwardation to contango leading to a drag on oil investing relative to prior periods when backwardation was the norm and investors could benefit from the futures roll.We compare different oil investment vehicles and find that investment vehicles that purchase direct stakes in oil companies avoid the contango drag, but do not track oil well and assume other unwanted risks for oil investors. The greatest exposure to oil is achieved by investment vehicles that buy oil futures.

A Liquid and Investable Benchmark Index for the Commodity Trading Advisor and Managed Futures Industry

In 2014 and 2015, we surveyed investors and managers and asked the question, “Commodity trading advisors (CTAs)—How do they do it?” The survey responses allow us to explain the complexity of the CTA and managed futures industry with a simple, survey-led index model of trading global liquid markets with momentum indicators in a risk-weighted basket, managed to a target volatility and charging 2/20. This article first presents the survey results and the index construction. It then discusses how well the index represents the CTA industry. Finally, it discusses the benefits and application of the J8 CTA Index.

An Actual Position Benchmark for Mexican Pension Funds Performance

The present paper proposes the use of a life cycle investment benchmark (called actual position benchmark or APB) in the asset types allowed in the CONSAR rules for Mexican pension funds (Siefores). Its mean-variance efficiency is tested against the equally weighted, the minimum variance and max Sharpe ratio (MSR) portfolios with a daily backtest from April 2008 to April 2013 and a 10-year daily Monte Carlo simulation. The results suggest that even though the msr portfolio gives the highest accumulated return, the APB is an acceptable benchmark by its stable and statistically equal Sharpe ratio, its max drawdown behavior, and its statistically equal return against the former.