Classes Of Investors Research Articles

The Extent to Which Professional Advice Can Reduce the Disposition Effect: An Emerging Market Study

This study tests for the disposition effect in South Africa across two classes of non-professional investors: those acting in their own capacity and those acting with the assistance of professional investment advisors. The trade history of 4,840 investor accounts from a South African stockbroker was analysed over the 5-year period from October 2008 to October 2013. The results showed that individual investors in South Africa exhibit the disposition effect. However, investors acting with the assistance of professional advisors show the effect to a lesser extent which was found to be rationally justifiable on the grounds of portfolio rebalancing. JEL Classification: G11, G14, G40, G41

Do Investors Still Gravitate to Preferred Habitats on the US Treasury Yield Curve?

The purpose of this study is to test the preferred habitat theory non-econometrically using interviews with the help of a questionnaire for self-guidance on a group of focused investors. Frequencies and simple percentages were used to analyze data. Though many generations of post-World War II economics and finance students were taught that the nature of the liabilities on the balance sheet and the desire to avoid mismatches against assets caused particular classes of investors to gravitate to a preferred habitat on the yield curve, our study based on the responses to questionnaires by a group of U.S. based bond traders and risk analysts shows that more than half of the respondents have no preference as to where on the curve they trade, whether the trade is on behalf of their customers or for the house, and that their arbitrage strategies are driven by opportunities for profit.

Can Ownership Restrictions Enhance Security Value? Evidence from a Natural Experiment

This paper examines the role of ownership restrictions in raising capital from niche clienteles. Extant literature suggests that limiting availability of securities to only certain classes of investors constricts demand, and hence decreases prices. We argue that ownership restrictions can have positive implications for prices when viewed in the overall context of security design. We provide empirical evidence through an in-depth analysis of a natural experiment: multiple events of capital raising by an emerging market company with ownership restrictions, namely $4.2 billion and $5.5 billion of bonds offered by India's largest bank, State Bank of India exclusively to Indians living abroad at approximately 150 basis points below comparable benchmarks leading to a bottom line savings of $1.08 billion. This is an intriguing issue because it raises the question, how can an emerging market issuer with junk bond ratings obtain such yields? We argue that ownership restrictions can lead to value enhancement as well as value transfer from holders of other securities. Ownership restrictions can enhance value by circumventing the deadweight costs of prolonged negotiations, particularly when a security is restricted to a homogenous clientele that values the underlying collateral higher than other investors. Restricting the ownership further ensures that investment is limited to a homogenous class of investors that the issuer cares about. It thus serves as a precommitment to ensuring an efficient ex-post renegotiation in the potential default states, resulting in a lower ex-ante offering yield (and a higher offer price). This can result in an implicit seniority of holders of these restricted bonds vis-a-vis holders of unrestricted bonds. We empirically test and find support for both value enhancement as well as for value transfer from ownership restrictions. In particular, we find evidence of a transfer of wealth from existing holders of foreign currency denominated bonds of other Indian firms. However, the implicit seniority accounts for some but not all the difference in yields suggesting that ownership restrictions also enhance value through other avenues such as higher collateral valuation and lower renegotiation costs. Overall, our results suggest that firms with niche clienteles can benefit from designing securities with ownership restrictions, by offering new securities exclusively to investors who value them the most.

The Continuing Relevance of the Marxist Tradition for Transcending Capitalism

No idea is more closely associated with Marx than the claim that the intrinsic, contradictory dynamics of capitalism ultimately lead to its self-destruction while simultaneously creating conditions favourable for a revolutionary rupture needed to create an emancipatory alternative in which the control by the capitalist class of investments and production is displaced by radical economic democracy. Marx’s formulation of a theory of transcending capitalism is unsatisfactory for two main reasons: 1) the dynamics of capitalism may generate great harms, but they do not inherently make capitalism unsustainable nor do they generate the structural foundations of a collective actor with a capacity to overthrow capitalism; 2) the vision of a system-level rupture with capitalism is not a plausible strategy replacing capitalism by a democratic-egalitarian economic system. Nevertheless, there are four central propositions anchored in the Marxist tradition that remain essential for understanding the possibility of transcending capitalism: 1. Capitalism obstructs the realization of conditions for human flourishing. 2. Another world is possible. 3. Capitalism’s dynamics are intrinsically contradictory. 4. Emancipatory transformation requires popular mobilization and struggle. These four propositions can underwrite a strategic vision of eroding the dominance of capitalism by building democratic-egalitarian economic relations within the contradictory spaces of capitalism.

Selecting Mutual Funds for Retirement Accounts (B)

Alice Monroe was an admissions officer at the Kellogg School of Management at Northwestern University. It was early January 2017 and Alice had enrolled in Northwestern's 403(b) retirement plan two months earlier. After spending a considerable amount of time examining the mutual funds available through the university's retirement plan, Alice had picked two to invest in: a large-cap equity growth fund and a mid-cap equity fund. (See the related case "Selecting Mutual Funds for Retirement Accounts (A).") Her initial allocations were 50% of her investment dollars in each fund. Upon further reflection, however, she realized these initial allocations were somewhat simplistic. She recalled, from an investments class she had taken at college, the topic of modern portfolio theory, which held that by adding more funds to her portfolio she might be able to achieve greater diversification and thereby reduce the overall risk of her portfolio and/or achieve a higher expected return. Alice now was considering adding an intermediate-term bond fund and a real estate fund to her retirement account. She hoped to use modern portfolio theory to prove that these new funds would indeed help her diversify her portfolio. If they did, she would also reassess her portfolio weights to determine the optimal allocation.

Retiring into a Desired Future Economy: Superannuationns Role in Building It

This paper discusses the regulatory frameworks of superannuation schemes from four jurisdictions; New Zealand, Australia, United Kingdom and United States. The regulatory infrastructures used by these four countries is broadly indicative of global trends in the superannuation regulation sphere. As such, all discussions in this paper can be applied to superannuation schemes throughout the world. It then analyses whether the regulations in place are sufficient to ensure that retail superannuation scheme providers exercise their discretion in investment in a manner consistent with the preferences and expectations of their scheme participants; the public. This issue arises because the treatment of superannuation funds in terms of investment strategies, policies and decisions effectively mirrors that of institutional schemes, whilst the class of investors are fundamentally different and therefore likely to have differing preferences and expectations. This paper looks to characteristics and factors present in superannuation scheme participants and concludes that neither regulation, nor industry practice are providing for the unique preferences and expectations of the public as scheme participants. Possible regulatory changes to facilitate this meeting of public needs is then discussed.

Stock Traders’ Order Aggressiveness and InvestmentPerformance on the Taiwan Stock Exchange

This paper examines the relationship between order aggressiveness and investment performance across investor classes on the Taiwan Stock Exchange. We combine intraday order-level data, transaction-level data, and display information to construct the daily volume-weighted order aggressiveness and investment performance for identified investor types. Empirical results find that professional institutions are more aggressive than individuals and other institutions, and institutional investors generally perform better than individuals. Evidence also suggests that mutual funds are the most active among all types of investors and out-perform the rest. Finally, these results are robust when we check for stock volatility, tick sizes, and market conditions. Key words: Investor types, microstructure, order size, order submission, trading behavior

Just Married: Clean Energy + Impact Investing

A positive matrimonial perspective can readily be applied as an analogy to the burgeoning union of Clean Energy + Impact Investing . While, separately, growing bodies of research exist on both industry segments, there is nothing in literature which provides a meaningful synergistic assessment of the two, or the new ‘impact’ class into which they fit. With this in mind, the objectives of this research article are to: (: 1) provide a practical overview of the impact investing industry; 2) summarize the clean energy industry; and 3) deliver a strategic assessment of the numerous synergies between the two segments and the resulting opportunities for dynamic mutual growth. Ultimately, it argues for the development of a related new alternative investment class — Clean Energy Impact Investing— that is designed to capitalize on this catalytic growth opportunity. The knowledge gaps identified within this analysis address critical issues that need to be addressed before the lofty potential of this union can be fully realized. Keywords: Clean Energy Impact Investing, Clean Energy, Impact Investing, Alternative Energy, Alternative Investing

Regional dynamics of ownership structure and their impact on firm performance and firm valuation

PurposeThe purpose of this paper is to analyse the impact of ownership structure on firm valuation and performance across different geographical regions within mainland China.Design/methodology/approachThe authors classify China in six geographical regions and use cross-sectional data of companies with A-shares listed on domestic stock exchanges in China for the year-end 2015. Using data from CSMAR and Wind database, they use multivariate regression technique and analytically compare the consistency of relationship between operational variables of ownership structure with corporate performance and evaluation.FindingsThe authors find that institutional ownership and state ownership negatively affect market valuation throughout various geographical regions of China. Further, in East, Northwest, South Central and Southwestern parts of China, managerial ownership and concentration of shareholding among top ten shareholders positively influence return on equity (ROE). Interestingly, institutional shareholding negatively affects return on assets (ROA), while institutional ownership has a neutral effect on profitability margin in Northeast China. Although in northern part of China, this relationship is slightly positive. In East China region, state ownership and ownership concentration are directly proportional to profitability margin.Practical implicationsAs some of the findings exhibit weak state of market efficiency in some regions, the study may also be useful in identifying arbitrage opportunities across different regions. Moreover, this study suggests that regions with the same business environment and conditions anywhere around the globe invite same or similar ownership structure for better firm performance and valuation.Originality/valueThe study provides unique understanding of relationship between ownership structure, market valuation and firm performance in various parts of China and will be an addition to the relevant literature. Given a change in company’s ownership structure and considering its region of incorporation, this study will help investment analysts in assessing performance and market valuation of the firm. It will also assist several classes of investors, financial institutions and international businesses in making their investment decisions.

“Just Married”—Clean Energy and Impact Investing: A New ‘Impact Class’ and Catalyst for Mutual Growth

A positive matrimonial perspective can readily be applied as an analogy to the burgeoning union of Clean Energy + Impact Investing. While, separately, growing bodies of research exist on both industry segments, there is nothing in the literature that provides a meaningful synergistic assessment of the two, or the new ‘impact’ class into which they fit. With this in mind, the objectives of this article are to: (1) provide a practical overview of the impact investing industry, 2) summarize the clean energy industry, and 3) deliver a strategic assessment of the numerous synergies between the two segments and the resulting opportunities for dynamic mutual growth. Ultimately, the author argues for the development of a related new alternative investment class —Clean Energy Impact Investing—that is designed to capitalize on this catalytic growth opportunity. This analysis identifies knowledge gaps and critical issues that need to be addressed before the lofty potential of this union can be fully realized.

Momentum and Reversal in Financial Markets with Persistent Heterogeneity

This paper investigates whether short-term momentum and long-term reversal may emerge from the wealth reallocation process taking place in speculative markets. We assume that there are two classes of investors who trade long-lived assets by holding constantly rebalanced portfolios based on their beliefs. Provided beliefs, and thus portfolios, are sufficiently diversified, all investors survive in the long-run and, due to waves of mispricing, the resulting equilibrium returns exhibit long-term reversal. If, moreover, asset dividends are positively correlated, investors’ profitable trades become positively correlated too, thus generating short-term momentum in equilibrium returns. We use the model to replicate the performance of the Winners and Losers portfolios highlighted by the empirical literature and to provide insights on how to improve upon them. Finally, we show that dividend positive autocorrelation is positively related to momentum and negatively related to reversal while diversity of beliefs is positively related to both momentum and reversal.

Imputation Credits and Trading Around Ex-Dividend Day: New Evidence in Australia

This study examines the ex-day trading behaviour using daily ownership records aggregated by investor class under the novel environment of Australia. Domestic shareholders who have a strong preference for imputation credits capture franking credits by buying fully-franked stocks cum-dividend and selling them ex-dividend; the opposite is true for foreign shareholders. Dividend yield is the determinant factor of the choice of stock for the transfer of franking credits whereas risks and transaction costs are less relevant. We do not attribute our results to ex-day trading, arguing that, due to the 45-day holding period requirement, ownership transfer should take place at a longer horizon. Furthermore, domestic institutions act as liquidity providers to foreign investors and domestic individuals, who tend to initiate trading before the stock goes ex-dividend.

Portfolio Optimization in Jump Model under Inefficiencies in the Market

This paper evaluates the use of modeling approach that depends on Levy jump model to predict investors wealth under inefficiencies in the market, in terms of mispricing and asymmetric information where the traded stock or risky asset price is considered to be as a function of a Levy jump process (i.e. the driving Levy process has Brownian component) by specifying the asset price process in the large filtration of informed investor. Then we obtain its dynamics for uninformed investor using the Hitsuda representation of Gaussian processes assuming there are two distinct classes of rational investors. In this setting assuming power utility functions, the optimal portfolios, maximum expected power utilities and asymptotic utilities for investors from the terminal wealth are derived by the methods of optimization and stochastic calculus.

Tip of the Iceberg? The Level of Blame and Disclosure Propensity

We hypothesize that firms are less likely to disclose information regarding a material negative economic event for which the firm is likely to be blamed than for a negative economic event for which the firm is likely to be perceived as blameless. We identify 383 material negative economic events (casualty accidents, oil spills, catastrophes, investor class action lawsuits) and find thatfirms are approximately four times less likely to disclose information following a negative blamed event than for a negative blameless event. Consistent with the assertion underlying our hypothesisthat disclosure of a blamed event increases the firm’s reputation and litigation risks, we find that firms that disclose after a blamed event, but not a blameless event, experience greater reputation and litigation costs than firms that do not disclose. We also find that blame attribution provides incremental information over manager career concerns in the disclosure decision. These findings suggest that an event-specific factor—blame attribution—affects firms’ propensity to provide disclosures about material negative economic events.

The impact of global risk on the performance of socially responsible and conventional stock indices

Research background: In the last decades social responsible investment has evolved into an important and influential investment class. What supports then the development of SRI? The neoclassical approach suggests that the attractiveness of investment should result from the risk-return relationship that is satisfying for the investor. However, the performance analysis of SRI vs. conventional investment, conducted in numerous research papers, often delivers contradictory conclusions. If financial factors could not explain the phenomenon of SRI, nonfinancial factors may have played a decisive role in the formation of modern SRI market.
 Purpose of the article: The purpose of this paper is to analyze financial investment perfor-mance of socially responsible vs. respective conventional indices in the periods of high, low and unidentified global risk. Therefore, a following research hypothesis was verified: SR indices perform financially better in high-risk periods than in low-risk periods. This hypoth-esis is justified by the assumption that, when selecting SRI, investors go by a longer invest-ment horizon than they do when selecting other investments, not subject to such verification.
 Methods: Among SR indices, we chose three to compare them with their conventional counterparts: DJSI US vs. DJITR (USA), DJSI Korea vs. KOSPI (South Korea) and Respect Index vs. WIG20TR (Poland). The VIX index was used as the global measure of risk aver-sion. To measure the relative performance of SR and conventional indices in different risk periods, we applied risk-adjusted performance measures, including RSD, Sharpe and Treynor ratios, traditional and asymmetrical CAPM.
 Findings & Value added: The research shows that conventional and socially responsible indices do not differ statistically in terms of risk and return irrespective of global risk. Our research confirms that the rising, socially responsible, investment market cannot be analyzed only through the prism of simplified rational choices. Additionally, it should be analyzed in terms of moral philosophy and behavioral economics, including the psycho-social features of investors.

Assessing the willingness of non-members to invest in new financial products in agricultural producer cooperatives: A choice experiment

The sourcing of outside investment capital from non-members has motivated the emergence of innovative cooperative structures, but the literature on these new organizational forms omits the perspective of an outside investor. This paper reports a study that applied a choice experiment method in a novel setting to increase understanding of the preferences of investors in agricultural firms. A large questionnaire dataset consisting of 845 financially literate subjects enabled testing of the form in which residual and control rights provide incentives for non-producer investors to invest in agricultural firms. The choice experiment data were analyzed using a latent class model. The results demonstrate that the subjects were interested in the currently hypothetical, new types of investment instruments in agricultural producer cooperatives. Three investor classes were distinguished based on the preferences: return-seeking, ownership-oriented and risk-averse investors. Who controls the firm appears to be irrelevant concerning willingness to invest, while the rural ties of the respondent are positively related to the preference for voting rights.

Cryptocurrency: A New Investment Opportunity?

Bitcoin was the first cryptocurrency to use blockchain and has been the market leader since the first bitcoin was mined in 2009. After the birth of Bitcoin with the genesis block, more than 1,000 altcoins and crypto-tokens have been created, with at least 919 trading actively on unregulated or registered exchanges. This entire class of cryptocurrencies and tokens has been classified by some tax authorities as having the same status as commodities. If cryptocurrency is viewed in the same class as commodities, how different is it in terms of its risk and return structure? This article sets out to help readers understand cryptocurrencies and to explore their risk and return characteristics using a portfolio of cryptocurrency represented by the Cryptocurrency Index (CRIX). Substantial discussions are centered on Bitcoin and its close variants. Some questions are raised about the potential of cryptocurrencies as an investment class. Results show that the return correlations between cryptocurrencies and traditional assets are low and that adding CRIX returns to a traditional asset portfolio improves risk–return performance. Sentiment analysis also indicates the CRIX has a relatively high Sharpe ratio. Although we should view the results with care, a new form of financing for cryptocurrency and blockchain start-ups is born. The disruption brought about by Bitcoin may be felt beyond payments through what is known as initial crypto-token offerings or initial token sales.

Retained Asset Accounts and Creditor Reactions to an A.M. Best Change

AbstractA variety of research has investigated the impact of rating changes on stakeholder and firm behavior. This article provides a unique setting to analyze the effect for both stock and mutual firms and with a class of nontraditional investors, owners of retained asset accounts (RAAs). These individuals become creditors of the insurer upon receipt of life insurance proceeds, which are held in the general accounts of the insurer. The funds receive limited guaranty fund and no Federal Deposit Insurance Corporation protection, thus subjecting the owner to the financial risk of the insurer. Some owners of RAAs may not understand the risk; thus, it is unclear if these owners act as other creditors to changes in the financial stability of the insurer. This provides a setting to analyze reaction to firm risk, as reflected in ratings changes, to stakeholders other than stockholders or customers. We find that RAA owners do act in a manner consistent with traditional investors. Specifically, we find that abnormal retention in the RAAs indicates significant declines in the level of accounts open and funds deposited in the year following a threshold downgrade (falling below an A–) of the A.M. Best rating.

The Kerner Commission and the Irony of Antiracist Politics

The Kerner Commission and the Irony of Antiracist Politics

Institutional Investors and firm characteristics: New evidence from India

PurposeThis paper examines dynamic preferences towards firm characteristics by domestic institutional investors (DIIs) and foreign institutional investors(FIIs) in Indian context and study temporal variation of the same across varying market swings. Design/Methodology/ApproachWe use quarterly institutional holding data of 1591 Indian firms between 2001 and 2015 (amounting to a total of 95460 firm-quarters) and apply a series of univariate and multivariate approaches to explore the issues mentioned above. Most related previous studies consider just one class of institutional investors like FIIs or DIIs. We augment that trend by including both DIIs and FIIs to accommodate the starkly varying nature of constraints and regulations within which FIIs and DIIs work in India. We substantiate our results from the main analysis through a series of robustness tests. FindingsOur principal findings show evidence of some common institutional preferences and dislikes as well as some noticeable differences. Common preferences are manifested towards firms with existing institutional investment, higher dividend-yield, more liquidity, higher earnings-margins, existing international exposure and longer survival history in industry. Common strong dislike is visible for high leverage and high price-book stocks and for stocks with high variability in earnings. Preferences seem to be varying across different classes of institutions w.r.t some firm attributes. FIIs exhibit preferences towards ‘index-stocks’ and large stocks while both these traits are not preferred by MFs and DIIs. There is also evidence of temporal variation of these patterns across bull and bear cycles. Originality/valueOverall, our results highlight both similarities and differences in institutional preferences for firm attributes in India. The findings of this study can be useful in identifying the key drivers of institutional investments and can help policy makers in emerging markets, and India in particular, in understanding, monitoring, directing and regulating institutional inflows.