Investment Perspective Research Articles

Hedging the Brazilian stock index in the era of low interest rates: What has changed?

In this paper we analyze the ability of different asset classes to hedge the Brazilian stock index in periods of high and low interest rates in the Brazilian economy, using two multivariate GARCH models. Our analysis includes two categories of assets: those traded in domestic currency and those traded in U.S. dollars. From the perspective of a local investor, we find that the exchange rate (R$/US$) and gold are the assets least correlated with equities. From the standpoint of a foreign investor, commodity index and fixed-income assets are the most useful. These results prevail in the low- and high-interest-rate periods. Moreover, in the period of low interest rates, the standard deviation of the estimated conditional correlation time series decreases, suggesting that in this period investors are more confident about macroeconomic policies.

The performance of social responsible investing from retail investors' perspective: international evidence

AbstractThis paper investigates the performance of socially responsible investment (SRI) portfolios compared to conventional investments. Adopting a retail investor's perspective, we provide evidence of SRI financial performance at the worldwide level as well as at the regional level, for five regions (North America, Europe except UK, UK, Pacific region and emerging markets). Our results show that the performance of global SRI portfolios is higher than conventional investments. Moreover, we observe differences in the financial performance of regional SRI portfolios in the overall period and, in particular, in bear markets. These results suggest that country‐specific factors may affect the relationship between corporate social and financial performance.

The Persistence of Fee Dispersion among Mutual Funds*

Abstract Previous work shows large differences in fees for S&P 500 index funds and other funds and suggests that investors suffer wealth losses investing in high-fee funds when similar low-fee funds are available. In contrast, the neoclassical model of mutual funds (Berk and van Binsbergen, 2015, J. Financ. Econ., 118, 1–20) argues that percentage fees are irrelevant, as fund size will adjust in equilibrium such that net alphas are equal to zero. We show that fees matter from an investor perspective. We document (i) a strong negative association between net-of-fee fund performance and fees in a sample of all US and international equity funds, (ii) economically large, robust, persistent, and pervasive fee dispersion in the mutual fund industry, and (iii) important economic effects for investors. During the sample period, the mutual fund industry has generated a total value lost (i.e., a negative net value added) of 125 billion USD, coming predominantly from high-fee funds.

Benefits and costs of a utility-ownership business model for residential rooftop solar photovoltaics

The rapid growth of rooftop solar photovoltaic systems can pose a number of financial challenges for electric utility shareholders and their customers. One potential pathway to resolving these perceived challenges involves allowing utilities to own and operate rooftop solar systems. However, the financial benefits and costs of this business model are not well understood. Here we model the financial performance of a large-scale utility-owned residential rooftop solar programme. Over a 20 yr period, the programme increases shareholder earnings by 2–5% relative to a no-solar scenario, compared to a 2% earnings loss when an equivalent amount of rooftop solar is instead owned by non-utility parties. Such a programme could therefore be attractive from the perspective of utility investors. The impacts on utility customers, however, are more mixed, with average bills of non-solar customers increasing by 1–3% compared to the no-solar scenario, similar to the 2% increase under traditional, non-utility-ownership structures. Utility ownership of rooftop solar can potentially align utility financial interests with solar photovoltaic uptake, but the economic implications are not well understood. Now, G. Barbose and A. Satchwell evaluate the potential benefits of this model for utility shareholders and customers and show viability.

Assessment of financial risk in the design and scheduling of multipurpose plants under demand uncertainty

ABSTRACT Industrial companies are seeking for highly flexible strategic and operational solutions to face the requirements of current dynamic markets. The aim of this work is to provide a decision support assessment for the design and scheduling of a multipurpose plant under demand uncertainty, allowing the assessment of alternative risk profile solutions. A general two-stage mixed-integer linear programming (MILP) model is proposed with the goal to maximise the annualised profit of the plant operation under a set of scenarios while minimising the associated financial risk. Considering the long-term investment perspective, the Conditional Value at Risk (CVaR) measure is used to evaluate the likelihood that a specific loss or gain will exceed a certain value at risk. A bi-objective model is formulated using the augmented ε-constraint method to generate an approximation to the Pareto-optimal curve, illustrating the trade-offs between plant profit (with the corresponding design and scheduling decisions) and the associated financial risk. Addressing a set of propositions regarding a case-study, the conclusions highlight the advantages of the risk measure integration in support of the decision-making process, discussing the managerial insights in the assessment of diverse financial outcomes for the solution optimisation.

The Quest for a European Safe Asset—A Comparative Legal Analysis of Sovereign Bond-Backed Securities, E-Bonds, Purple Bonds, and Coronabonds

The European sovereign debt crisis and, more recently, the COVID-19 pandemic have revealed the European Economic and Monetary Union’s fragility, which essentially emanates from the inherent tension between a single monetary policy and decentralized fiscal policies. To cushion economic and financial shocks and sever the sovereign-bank doom loop, different proposals to create a common public debt security have been put forward, although none of them has so far seen the light of day. Building on pertinent economic and finance scholarship, this article reviews four promising safe asset proposals from a legal perspective: Sovereign bond-backed securities (SBBS), E-bonds, Purple bonds, and Coronabonds. Rather than focusing on their feasibility under EU law or national constitutional law, this article compares the proposals from an investor perspective against the backdrop of the following formal and functional legal characteristics that render assets ‘safe’: governing law, dispute settlement forum, investor protection, and investor representation in sovereign debt restructurings. Against this backdrop, targeted recommendations on critical design elements of safe assets, with the aim of reconciling the economic policy objectives with the pertinent legal constraints, are advanced.

Knowledge-driven business model innovation through the introduction of equity investment: evidence from China’s primary market

Purpose This study aims to explore the role of equity investment in knowledge-driven business model innovation (BMI) in context of open modes according to the evidence from China’s primary market. Design/methodology/approach Based on the database of China’s private market and data set of news clouds, the statistic approach is applied to explore and explain whether equity investment promotes knowledge-driven BMI. Machine learning method is also used to prove and predict the performance of such open innovation. Findings The results of logistic regression show that explanatory variables are significant, providing evidence that knowledge management (KM) promotes BMI through equity investment. By further using back propagation neural network, the classification learning algorithm estimates the possibility of BMI, which can be regarded as a score to quantify the performance of knowledge-driven BMI Research limitations/implications The quality of secondhand big data is not very ideal, and future empirical studies should use first-hand survey data. Practical implications This study provides new insights into the link between KM and BMI by highlighting the important roles of external investments in open modes. Social implications From the perspective of investment, the findings of this study suggest the importance for stakeholders to share knowledge and strategies for entrepreneurs to manage innovation. Originality/value The concepts and indicators related to business models are difficult to quantify currently, while this study provides feasible and practical methods to estimate knowledge-driven BMI with secondhand data from the primary market. The mechanism of knowledge and innovation bridged by the experience from investors is introduced and analyzed.

Heterogeneous beliefs and idiosyncratic volatility puzzle: evidence from China

PurposeThe purpose of our study is to explore the “idiosyncratic volatility puzzle” in Chinese stock market from the perspective of investors' heterogeneous beliefs. To delve into the relationship between idiosyncratic volatility and investors' heterogeneous beliefs, and uncover the ability of heterogeneous beliefs, as well as to explain the “idiosyncratic volatility puzzle”, we construct our study as follows.Design/methodology/approachOur study adopts the unexpected trading volume as proxies of heterogeneity, the residual of Fama–French three-factor model as proxies of idiosyncratic volatility. Portfolio strategies and Fama–MacBeth regression are used to investigate the relationship between the two proxies and stock returns in Chinese A-share market.FindingsInvestors' heterogeneous beliefs, as an intermediary variable, are positively correlated with idiosyncratic volatility. Meanwhile, it could better demonstrate the negative correlation between the idiosyncratic volatility and future stock returns. It is one of the economic mechanisms linking idiosyncratic volatility to subsequent stock returns, which can account for 11.28% of the puzzle.Originality/valueThe findings indicate that idiosyncratic volatility is significantly and positively correlated with heterogeneous beliefs and that heterogeneous beliefs are effective intervening variables to explain the “idiosyncratic volatility puzzle”.

The Effect of Return on Equity (ROE) and Earning per Share (EPS) on Stock Prices In Indonesia Stock Exchange 2015-2018

This study aims to analyze the source of a company's profitability by choosing two main factors namely, Return on Equity (ROE) and Earning per Share (EPS) as the strength and resilience of companies engaged in food and beverage listed on the Indonesia Stock Exchange. This study uses time series data from 2015 to 2018. The dependent variable is the stock price. Meanwhile the independent variables are Return on Equity (ROE) and Earning per Share (EPS). The determination of the sample uses positive sampling, the sampling technique uses two special criteria from researchers. The first criterion, only food and beverage companies that publish financial statements in full during the period 2015 to 2018, and the second criterion, food and beverage companies that have financial statement data in accordance with the studied variables, namely Return on Equity (ROE) and Earning per Share (EPS). Samples that meet the criteria are 11 registered food and beverage companies on the Indonesia Stock Exchange for the period 2015 to 2018. Data analysis techniques using multiple linear regression with the help of the SPSS program.The findings show that Return on Equity (ROE) has a positive and significant impact on stock prices, while Earning per Share (EPS) has an impact negative and significant to stock prices. This finding confirms that strength the profitability of a company through Return on Equity (ROE) affects the stock prices of food and beverage companies in Indonesia. Therefore, it is important to maintain the company's profitability through Return on Equity (ROE) from the investor's perspective, not from the company's view. Meanwhile, interesting findings from a company's profitability through Earning per Share (EPS) do not affect the stock prices of food and beverage companies in Indonesia. Because earnings per share or earning per share (EPS) is obtained from the perspective of the company's financial statements where there are differences in the size and size of the company's expenses other than earning per share (EPS) can turn out to be high if the number of shares outstanding is reduced.
 Keywords: Profitability, Return on Equity (ROE), Earnings per Share (EPS), Stock Prices, Indonesia stock exchange (IDX)

Country Risk: Determinants, Measures and Implications – The 2020 Edition

As companies and investors globalize, we are increasingly faced with estimation questions about the risk associated with this globalization. When investors invest in China Mobile, Infosys or Vale, they may be rewarded with higher returns, but they are also exposed to additional risk. When Siemens and Apple push for growth in Asia and Latin America, they clearly are exposed to the political and economic turmoil that often characterize these markets. In practical terms, how, if at all, should we adjust for this additional risk? We will begin the paper with an overview of overall country risk, its sources and measures. We will continue with a discussion of sovereign default risk and examine sovereign ratings and credit default swaps (CDS) as measures of that risk. We will extend that discussion to look at country risk from the perspective of equity investors, by looking at equity risk premiums for different countries and consequences for valuation. In the fourth section, we argue that a company’s exposure to country risk should not be determined by where it is incorporated and traded. By that measure, neither Coca Cola nor Nestle are exposed to country risk. Exposure to country risk should come from a company’s operations, making country risk a critical component of the valuation of almost every large multinational corporation. In the final section, we will also look at how to move across currencies in valuation and capital budgeting, and how to avoid mismatching errors.

The (changing) consideration of social investment in the design of welfare benefits: The case of poverty relief in Austria

AbstractThe social investment perspective has become a prominent topic in both social policy discussions and theoretical considerations regarding welfare state change. Empirical evidence on how this perspective has affected welfare state provision is much scarcer—and sometimes contradictory. This article aims to assess whether welfare state benefits increasingly have incorporated elements of social investment, and what has triggered the reforms made to the benefits. To achieve these aims, we examined two poverty relief benefits in Austria, namely, unemployment assistance and social assistance. We scrutinized changes made to these benefits from 2000 onwards. To identify their (potentially changing) contributions towards social investment, we applied a framework that considers the economic aims of the paradigm (while neglecting other aims). According to this framework, a social investment benefit intends to improve the human capital of its recipients, enhance their employability, and/or enhance their employment integration. The findings suggest that the three elements of social investment were particularly relevant in reforming social assistance. However, the changes implemented were incoherent and do not support the hypothesis of an ever‐increasing significance of social investment. The main triggers for reform were the political ideologies of (changing) governments. These ideologies determined the direction of changes made to both social assistance and unemployment assistance. If social investment thus ought to be more than just a theoretical concept or a nonbinding policy recommendation, modifications made to welfare state benefits would need to follow a more coherent path. Regarding poor relief benefits, Austria has not pursued such a track (yet).

Football stocks: a new asset class attractive to institutional investors? Empirical results and impulses for researching investor motivations beyond return

PurposeThe aims of the research are twofold: (1) exploring whether football club stocks can be considered an asset class of their own; (2) investigating whether football stocks enable well-diversified investors to achieve more efficient risk-return combinations.Design/methodology/approachUsing efficient frontier optimization, a base portfolio, with standard stocks and bonds, and a corresponding enhanced portfolio, which includes football stocks in the investment opportunity set, are defined. This procedure is applied to four portfolio composition rules. Pairwise comparisons of portfolio Sharpe ratios include a test for statistical significance.FindingsThe results indicate a low correlation of football stocks and standard stocks; thus, football stocks could be considered an asset class of their own. Nevertheless, the addition of football stocks to a well-diversified portfolio does not improve its risk-return efficiency because the weak performance of football stocks eliminates their advantage of low correlation.Research limitations/implicationsThis study contributes to the evidence that investments in football are different from ‘ordinary’ investments and need further research, particularly into market participants and their investment motives.Practical implicationsFootball stocks are not attractive to pure financial investors. Thus, football clubs need to know more about which side benefits are appreciated by which kind of investor and how much it costs to produce these side benefits.Originality/valueTo the best of authors’ knowledge, this is the first study to analyse the risk-return efficiency of football stocks from the perspective of a pure financial investor, i.e. an investor in football stocks who does not earn side benefits, such as strategic investors or fan investors.

Ecological implication of offshored economic activities in Turkey: foreign direct investment perspective.

Turkish place in industrial activities is strategic, and its involvement in oil and gas importation because of high energy utilization in manufacturing sector is susceptible to high emission. For this, it is required that the economy be researched towards its involvement in both emission inducement and abatement globally. The author adopts ecological footprint and offshored economic activities as proxies to both environment and foreign direct investment (FDI) in ascertainment of Turkish involvement in global emission and decarbonization. Structural break analysis, autoregressive distributed lag-bound testing, and Granger causality were utilized for the effective analysis of the offshore implication of environmental performance in Turkey. The author's findings are as follows: a positive relationship between economic performance (GDP per capita) and ecological footprint, hence giving credence to growth-induced pollution. Also, a positive relationship is established among foreign offshored economic activities (FDI), energy use, and ecological footprint which shows that both energy use and foreign offshored economic activities are positively related to the ecology which established unfavorable impact on the environment. This supports the pollution haven hypothesis (PHH) which is among the theoretical backgrounds of this study. Among the findings established in this study is from Granger causality method which supports the pollution haven hypothesis. They are as follows: a feedback causal transmission between FDI and the ecological footprint, and a one-way causal relationship passing from energy use to ecological footprint. With these findings, it can be said that the environmental implication of foreign offshored economic activities in Turkey is unfavorable. Policy implication of Turkey should be towards moderation of economic growth and the activities of foreign investors for sustainable energy, environment, and growth. Graphical abstract A display of the author's findings which are as follows: a positive relationship between economic performance (GDP per capita) and ecological footprint. Also, a positive relationship is established among foreign offshored economic activities (FDI), energy use, and ecological footprint which shows that both energy use and foreign offshored economic activities are positively related to the ecology (this relationship is shown on the graph with red colored arrows moving from independent variables to the dependent variable). From Granger causality method, the author found a feedback causal transmission between FDI and the ecological footprint, and a one-way causal relationship passing from energy use to ecological footprint (this relationship is shown with blue arrows showing either two-way transmission for the case of FDI and ecology or one-way transmission for the case of energy use to ecology).

Do Markets Value ESG Risks in Sovereign Credit Curves?

This paper investigates the role of countries' environmental, social and governance (ESG) performance in sovereign CDS markets. Based on data for 60 countries from 2007 to 2017, we find that countries with superior ESG performance do not only show lower credit default swap (CDS) spreads, they also exhibit flatter CDS implied credit curves. This implies a risk mitigation effect of ESG which is even more pronounced in the long term than in the short term. These results remain robust with regard to various economic and financial control variables as well as credit ratings, implying that CDS markets incorporate ESG information differently than credit rating agencies. From an investor's perspective, we find that considering ESG does not involve sacrificing returns. Indeed, investors can potentially benefit from ESG differences between countries with similar credit ratings.

Identifying the Influencing Factors on Investors’ Investment Behavior: An Empirical Study Focusing on the Chinese P2P Lending Market

Our study explores the factors influencing investors’ behavior in the peer-to-peer (P2P) lending market in China, and the relationships among them from the perspective of investors. The primary component analysis method was used to divide the P2P lending platforms into five categories. Then, a structural equation model was applied to analyze the interrelationship. Our results show that more exceptional operating ability, profitability, and security of the platform help to improve investor’s investment behavior. Operation ability is the most significant influencing factor, which also influences other factors to different degrees. After the analysis of the results, we found that the security degree of P2P lending platforms in China differs, and the risk due to the lack of bank depository for platforms is the most serious. In terms of the background, investors are less interested in the state-owned platforms compared to the bank- or listed-company-owned platforms, although the background strength of the state-owned platforms is more powerful.

A Derivative is a Risk Hedging Tool from Investor Perspective

Derivatives products provide certain important economic benefits such as risk management or redistribution of risk away from risk-averse investors towards those more willing and able to bear the risk. Derivatives also help price discovery, i.e., the process of determining the price level for any asset based on supply and demand. These functions of derivatives help inefficient capital allocation in the economy; at the same time, their misuse also poses a threat to the stability of the financial sector and the overall economy. In the mid-1990s, India started reviving the exchangetraded commodity derivatives market. It introduced a variety of instruments in the foreign exchange derivatives market, while exchange-traded financial derivatives were introduced in 2001. Given India’s experience in informal derivatives trading, the exchange-traded derivatives were quick to pick up substantial volumes. This paper presents the concept of derivative and types of derivative products and how the investor perceives the derivative instrument as a risk-hedging tool in shivamooga city. The study is selected 70 respondents and used percentage analysis. The result obtained from the study reveals that the investor prefers a derivative is a risk-hedging tool.

Screening of foreign investment in the context of Turkmenistan’s FDI (Foreign Direct Investment) regime

Since the fall of the USSR, Turkmenistan has made some progress in the development of its national economy and its ability to attract foreign investment. Although Turkmenistan is considered an attractive destination due to its rich natural resources, the country’s FDI regime, including its admission procedures, lacks transparency and predictability. From the perspective of foreign investors, the host state’s FDI regime plays a crucial role. Without considering a host state’s FDI regime, foreign investors may be at risk of losing their investment due to lack of transparency or an unpredictable legal environment. Requirements related to the admission of foreign investment may differ between countries. Unlike most countries, which usually limit the scope of admission requirements (national security concerns), Turkmenistan’s FDI regime imposes stricter requirements on foreign investors during the entry process. It is understandable that Turkmenistan may expect to maximize the benefit of foreign investment while minimizing its negative effects on the national economy. However, a lack of clear and transparent admission requirements leaves a large amount of discretion with various administrative bodies. This makes admission requirements unpredictable and dissuades foreign investors from investing in the host country. This article scrutinizes the admission requirements related to foreign investment in the entry stage in the Turkmenistan FDI regime.

Institutional investors and post-ICO performance: an empirical analysis of investor returns in initial coin offerings (ICOs)

We examine the role of institutional investors in initial coin offerings (ICOs). Taking a financial investor's perspective, we assess the determinants of post-ICO performance via buy-and-hold abnormal returns (BHAR) in a sample of 565 ICO ventures. Conceptually, we argue that institutional investors' superior screening (selection effect) and coaching abilities (treatment effect) enable them to partly overcome the information asymmetry of the ICO context and extract informational rents from their ICO investments. We find that institutional investor backing is indeed associated with higher post-ICO performance. Disentangling selection and treatment effects econometrically, we find that both of these effects explain the positive impact institutional investors have on post-ICO performance. Overall, our results highlight the importance of institutional investors in the ICO context.

Environmental decentralization, environmental protection investment, and green technology innovation.

The reform of environmental management systems is key to improving environmental pollution treatment and green technology innovation. Based on panel data on 30 provincial administrative regions in China for 2008 to 2016, this paper analyzes the impacts of environmental decentralization and environmental protection investment on green technology innovation. It is first found that environmental decentralization promotes green technology innovation after inhibition. Similar effects are found for environmental administrative decentralization, environmental monitoring decentralization, and environmental supervision decentralization. Second, in the long run, environmental decentralization in developed and low-emission regions is more conducive to green technology innovation. Third, environmental pollution treatment investment has a significant inhibiting effect on green technology innovation under high levels of environmental decentralization, and the inhibiting effects of industrial pollution source treatment investment and "three simultaneous" construction project investments are particularly obvious. This paper explores green technology innovation as the goal of environmental decentralization, which is the driving force behind pollution control. From the perspective of environmental protection investment, the paper further analyzes the impact of environmental decentralization on green technology innovation. The study has important reference value for determining reasonable levels of environmental decentralization among different levels of governance and in formulating differentiated strategies of environmental decentralization.

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.