Investment Uncertainty Research Articles

An uncertainty theory based tri-objective behavioral portfolio selection model with loss aversion and reference level using a modified evolutionary root system growth algorithm

The outbreak of uncertain events, e.g., financial crisis, regional conflict and abrupt contagion, has a significant impact on residents’ income. Hence, the wealth management and portfolio selection become more and more important. In addition, the behavioral finance believes that decision-making process of the investors not only depend on utility maximization, but also on who to compare with. It differs from the traditional finance based on rational cognitive acquiring and decision-making of agents, in this paper, we consider both investment uncertainty and investment utility with reference level for portfolio selection. First, we introduce the uncertainty theory and loss aversion utility with reference level based on behavioral finance. Then we study an uncertain multi-period portfolio selection problem. Moreover, we formulate an uncertain behavioral portfolio selection model with three objective functions for which we propose an equivalent program consisting of a main model and two auxiliary models for tri-objective optimization model. Thereafter, we use a modified evolutionary root system growth algorithm to solve the transformed models. Finally, a numerical simulation allows to show the practicability of proposed models and validity of modified algorithm.

Real Options Volatility Surface for Valuing Renewable Energy Projects

Real Options Volatility Surface for Valuing Renewable Energy Projects

Overseas background of executive and enterprises’ outward foreign direct investment: multi-level moderating model and heterogeneity research

ABSTRACT With the increasing uncertainty in trade, investment, and geopolitical aspects, considerable attention is paid to whether and how executives’ overseas backgrounds affect enterprises’ outward foreign direct investment (OFDI). This article is based on the data of Chinese listed companies from 2000 to 2020, and empirical analysis reveals that executive overseas background positively impacts enterprises’ OFDI. Analysis of the moderating effect shows that the executive pay gap and corporate cultural diversity play an inverted U-shape moderating role in the influence of executive overseas background on OFDI. The industrial agglomeration level positively moderates the influence of executive overseas background on OFDI. Mechanism analysis shows that the overseas background of executives can play a role through innovation-driven, digital transformation and utilizing the location advantage of the host country. The results also show that the effect of executives’ overseas backgrounds is significantly affected by the heterogeneity of OFDI and the heterogeneity of executives’ overseas backgrounds. The conclusion of this study substantiates the pivotal role of executives’ overseas backgrounds in propelling the OFDI activities of Chinese enterprises. It also provides empirical support for the policy of talent introduction and opening-up.

Data–driven analysis of Romania's renewable energy landscape and investment uncertainties

In recent years, there has been a significant transformation in the energy sector in the European Union as a whole. The shift towards producing renewable energy has had a significant impact on the economic development of most countries, requiring substantial investments through public procurement. This study aims to analyse the evolution of the energy sector in Romania from an economic perspective by using a data-driven approach. The data used in this research is collected from publicly available sources and pertains to energy production and public acquisitions in Romania, carried out through the Electronic Public Procurement System. By using a mixed approach, combining documentary analysis, literature review, and predictive modelling, the study reveals a shift towards more sustainable energy options. There is a significant decrease in the production of thermal power and an increase in solar and wind power. The findings provide an overview and potential scenario of Romania's electricity production levels in 2023, shedding light on the relative uncertainties associated with such a transition. The findings also suggest a clear and growing commitment in Romania towards the adoption of alternative energy sources, as reflected in the trends of public procurement. These procurement trends offer a valuable perspective on policy-making, investment planning, and progress monitoring in Romania's energy transition. Despite the inherent uncertainties in such a transition, the study demonstrates Romania's potential in terms of diverse sources for electricity production as well as the role of public procurement in achieving energy transformation.

Power Production, Inter- and Intra-Array Wake Losses from the U.S. East Coast Offshore Wind Energy Lease Areas

There is an urgent need to develop accurate predictions of power production, wake losses and array–array interactions from multi-GW offshore wind farms in order to enable developments that maximize power benefits, minimize levelized cost of energy and reduce investment uncertainty. New, climatologically representative simulations with the Weather Research and Forecasting (WRF) model are presented and analyzed to address these research needs with a specific focus on offshore wind energy lease areas along the U.S. east coast. These, uniquely detailed, simulations are designed to quantify important sources of wake-loss projection uncertainty. They sample across different wind turbine deployment scenarios and thus span the range of plausible installed capacity densities (ICDs) and also include two wind farm parameterizations (WFPs; Fitch and explicit wake parameterization (EWP)) and consider the precise WRF model release used. System-wide mean capacity factors for ICDs of 3.5 to 6.0 MWkm−2 range from 39 to 45% based on output from Fitch and 50 to 55% from EWP. Wake losses are 27–37% (Fitch) and 11–19% (EWP). The discrepancy in CF and wake losses from the two WFPs derives from two linked effects. First, EWP generates a weaker ‘deep array effect’ within the largest wind farm cluster (area of 3675 km2), though both parameterizations indicate substantial within-array wake losses. If 15 MW wind turbines are deployed at an ICD of 6 MWkm−2 the most heavily waked wind turbines generate an average of only 32–35% of the power of those that experience the freestream (undisturbed) flow. Nevertheless, there is no evidence for saturation of the resource. The wind power density (electrical power generation per unit of surface area) increases with ICD and lies between 2 and 3 Wm−2. Second, EWP also systematically generates smaller whole wind farm wakes. Sampling across all offshore wind energy lease areas and the range of ICD considered, the whole wind farm wake extent for a velocity deficit of 5% is 1.18 to 1.38 times larger in simulations with Fitch. Over three-quarters of the variability in normalized wake extents is attributable to variations in freestream wind speeds, turbulent kinetic energy and boundary layer depth. These dependencies on meteorological parameters allow for the development of computationally efficient emulators of wake extents from Fitch and EWP.

The influence of trade war on the international economic system and its adjustment measures

This paper discusses the influence of trade war on the international economic system and the corresponding adjustment measures. First of all, the trade war has had a negative impact on global economic growth, investment flows, international trade patterns and financial market fluctuations. Secondly, the trade war has caused international investment problems, which has led to the adjustment of the supply chain of multinational companies and the increase of investment uncertainty. Then, the financial market fluctuated and the currency, stock and bond markets were disturbed. Finally, by strengthening international cooperation, promoting trade multilateralism, lowering trade barriers and paying attention to sustainable development, we can meet the challenges brought by trade wars and look forward to establishing a more stable and sustainable international economic system in the future.

Investment Uncertainties and Economic Growth in Sub-Saharan Africa

Abstract This study investigated the effect of uncertainties, segmented into macroeconomic and political components, on investment in sub-Saharan Africa, with thirty-one countries represented. The analyses were further nuanced to trace the investment-growth link within this set of countries. Two investment types—private and foreign direct—were covered in separate analyses. The sample of countries was chosen through stratified sampling to include oil-exporting, other resource-intensive, and nonresource-endowed countries. The Jorgenson investment model, which explicitly incorporates uncertainty into the investment decision-making process using adaptive and extrapolative approaches, was adopted for the study, and augmented with the partial adjustment model to address the assumption that the user cost of capital adjusts instantaneously. For the two investment types considered, the impartial contract and foreign investment model and the country risk and private investment model were adopted, respectively. The two-way system generalized method of moments technique was employed for estimation. The results showed that foreign direct investment (FDI) in oil-exporting and other resource-intensive countries was only sensitive to macroeconomic uncertainty, while FDI in nonresource-intensive countries was vulnerable to both macroeconomic and political uncertainties. This finding strengthens the belief that, regardless of political instability, natural resources are a major attraction for foreign investors in sub-Saharan Africa. Finally, the study revealed that private investment in the resource-intensive region was primarily affected by macroeconomic uncertainty, whereas its political vulnerability was mainly observed in the oil-exporting and nonresource-intensive regions. To mitigate investment uncertainties in sub-Saharan Africa, it is crucial to focus on minimizing the volatility of interconnected price variables, requiring collaborative efforts.

Brexit's ripple: Probing the impact on stock market liquidity

This paper examines the Brexit announcement's impact on market liquidity, highlighting its significant effect on UK and EU stocks listed on the NYSE. Regression results indicate that Brexit amplified uncertainty, leading to reduced liquidity, with UK stocks taking two days to recover compared to one day for EU stocks. This indicates greater investor uncertainty for UK stocks. Additionally, our study reveals that Brexit's impact extends globally, affecting US and non-US stocks, with US stocks being susceptible to close UK ties. These findings underscore Brexit's extensive influence on international financial markets.

Investor Uncertainty and Voluntary Disclosure

Investor Uncertainty and Voluntary Disclosure

The Effect of Legal Uncertainties on the Pharmaceutical Industry

The pharmaceutical industry operates under stringent legal frameworks that are subject to frequent changes and interpretations, creating a landscape riddled with uncertainties. These uncertainties can impede strategic decision-making, regulatory compliance, and stakeholder engagement. This study aims to elucidate the effects of legal uncertainties on the operational, strategic, and interpersonal facets of the pharmaceutical industry, offering insights into how companies navigate these challenges. A qualitative research design was utilized, involving semi-structured interviews with 28 professionals from various sectors of the pharmaceutical industry, including regulatory affairs, R&D, legal, and corporate governance. Theoretical saturation was achieved to ensure comprehensive coverage of the topic. Data were analyzed using NVivo software to perform thematic analysis, allowing for the identification and exploration of recurring themes and concepts within the collected data. The analysis revealed three main themes: Regulatory Compliance Challenges, Strategic Decision-Making, and Stakeholder Perceptions and Reactions. Regulatory Compliance Challenges included subthemes such as Licensing Processes, Legal Risk Management, and Impact on R&D. Strategic Decision-Making covered Market Entry Strategies, Product Life Cycle Management, Investment Uncertainty, and Corporate Governance. Stakeholder Perceptions and Reactions encompassed Industry Reputation, Regulatory Relationships, and Employee Impact. Each category was populated with specific concepts illustrating the pervasive and varied impact of legal uncertainties. Legal uncertainties significantly influence various dimensions of the pharmaceutical industry. Effective navigation of these uncertainties requires robust compliance structures, proactive strategic planning, and vigilant management of stakeholder relationships. By understanding and addressing these challenges, pharmaceutical companies can enhance their resilience against legal risks and better support their operational and strategic objectives.

The JOBS Act and IPO underpricing

In the realm of Initial Public Offerings (IPOs), the initial day stock price return, known as underpricing, poses a considerable financial burden on capital issuers. This study scrutinizes two hypotheses regarding IPO underpricing: the general information asymmetry theory, positing that ‘underpricing’ compensates for investor uncertainty about firm quality, and the practical underwriter-institutional investor collusion, potentially explaining the recent upswing in underpricing.Our findings indicate that the JOBS Act contributes to an increase in overall IPO underpricing post its 2012 enactment, aligning with the traditional adverse selection phenomenon. Notably, empirical analysis reveals a corresponding upsurge in underpricing tied to the increasing proportional shares of institutional investors in the post-Act period, supporting the collusion hypothesis. In summary, this paper underscores a notable side effect of the JOBS Act, revealing a pronounced increase in underpricing for issuers and subsequently enhancing the attractiveness of the underwriting business.

ІНВЕСТИЦІЙНА НЕВИЗНАЧЕНІСТЬ: ВИКЛИКИ ТА МОЖЛИВОСТІ ДЛЯ УКРАЇНИ

The article highlights the problems of attracting foreign direct investment in the conditions of war and the postwar period, which should be defined for the country as a period of investment uncertainty. It was emphasized that for Ukraine, which actively attracts investments from abroad, such a situation leads to the loss of opportunities for economic development and deterioration of competitiveness and can also affect the general decrease in the rate of economic growth. The volume of investment in the national economy before the war had unstable dynamics, but with the beginning of the war, the fall in investment became critical. It was noted that political instability, economic turbulence, changes in government policy, geopolitical conflicts, technological changes, or natural disasters are among the causes of investment uncertainty. It was pointed out that the result of investment uncertainty may be the delay or rejection of the implementation of investment projects. It was determined that to overcome uncertainty in the investment sphere, it is necessary to develop effective strategies for attracting investments, which is currently the most difficult task. Most of the countries that are large exporters of foreign direct investments, such as the USA, Germany, Great Britain, Japan, and others, have already aided Ukraine since the beginning of the war, so further attracting investments and their involvement in the restoration of the national economy in the post-war period will be problematic. It was emphasized that when building investment strategies, the principal things are: understanding modern investment trends (for Ukraine, in this context, it is possible to attract investments per the implementation of the Sustainable Development Goals); ensuring effective management of investment risks (insurance of direct foreign investment during wartime is especially relevant); transparency of government policy and regulatory measures, as well as the creation of a favorable business environment that will form the basis of investment stability and reliability

The Effects of Trade Related Sanctions on Russia on Kazakhstan’s International Trade in Goods

The aim of this study is to explore the effects of sanctions on the international trade of Kazakhstan using data from TradeMap database. The Russia-Ukraine conflict has brought instability to the broader Eurasian continent and significantly affected neighboring states. Kazakhstan and Russia share the second-longest international land border and both participate in the Eurasian Economic Union with a high level of economic integration. Given Kazakhstan's landlocked status, the country relies on Russian territory for its main export routes. Despite expectations of potential issues with oil and gas transportation for Kazakhstan due to sanctions on Russia, there was an increase in mineral exports from Kazakhstan in 2022, resulting in a positive trade balance. High energy prices and inflation in the EU at the start of the invasion led to the delay of oil and gas import bans by the bloc until late 2022. There is also evidence of sanction evasion by Kazakhstani companies, reflected in changes in the structure of exports to Russia. This has prompted visits by officials from sanctioning countries and increased monitoring. Overall, the conflict and subsequent comprehensive sanctions have created uncertainty for investors and require scenario-based long-term planning and additional compliance costs. It is recommended to improve awareness of local companies about the possibility of violating sanctions through corporate training and cooperation with business associations. This will help local businesses to prevent the risk of being subjected to secondary sanctions.

Perpanjangan dan Pembaruan Hak Atas Tanah Bagi Investor di Ibu Kota Nusantara

Indonesia is a developing country that is trying to carry out national development. National development in Indonesia is philosophically based on Pancasila and the 1945 Constitution of the Republic of Indonesia, as Pancasila is the way of life of the Indonesian nation. The essence of national development is to realize national goals, one of which concerns social welfare. Social welfare is closely related to economic development. The Indonesian nation is currently making efforts to accelerate economic development towards stability and economic growth by paying attention to aspects of economics overeignty. Efforts to accelerate economic development are achieved through investment by making maximum use of fertilization and utilization of domestic investment and foreign investment. In 2022, the Government of the Republic of Indonesia promulgated Law Number 3 of 2022 concerning the National Capital which regulates there location of the National Capital, one of which is due to the economic gap between Java and outside Java and there are studie swhich show that Jakarta is no longer able to carry out its role as the capital city. The Government of the Republic of Indonesia needs investors to support facilities and infrastructure in the new National Capital. The Minister of Agrarian Affairs and Spatial Planning or the National Land Agency emphasized that it would provide convenience for land matters, spatial planning and business licensing to attract investors to invest in the National Capital City. One way to facilitate this matter is bygranting land rights in the form of building user rights for 160 (one hundred and sixty) years to investors. The convenience provided seems to only prioritize the interests of investors and if it is realized it will create legal uncertainty for investors.

The valuation of real options for risky barrier to entry with hybrid stochastic and local volatility and stochastic investment costs

Real options are a type of investment choice that supports decision-makers in making better strategic management decisions while simultaneously reducing uncertainty in investments. This study presents a new model to help investors flexibly handle uncertain investment environments. First, we adopt a hybrid stochastic and local volatility model to efficiently describe the uncertain effects of the external environment on the project value in decision-making cases. Second, we set the investment cost (or sunk cost) as a geometric Brownian motion (GBM) to illustrate the opportunity costs that originating from discarding alternatives to invest in complex decision-making circumstances. We derive partial differential equations (PDEs) for the value of real options, and then use asymptotic analysis to obtain analytical solutions. Additionally, we analyze the price accuracy of the approximate formulas compared with that of the solutions obtained from a Monte Carlo simulation. Finally, we investigate the numerical effects of various parameters related to stochastic volatility on real options to observe their economic implications.

Exploring the general public's and experts' risk and benefit perceptions of cultured meat in Singapore: A mental models approach.

Despite the recent approval of cultured meat products in Singapore, the understanding of public perceptions towards this novel food technology remains limited. Utilizing attitude formation theory and the mental models approach, this study compares the mental models of the general public and experts regarding their risk and benefit perceptions of cultured meat. Through four online focus group discussions with 40 participants, we found convergences in the mental models of experts and the general public concerning perceived individual- and societal-level benefits of cultured meat (e.g., health benefits and food security) as well as their perceived individual-level risks of cultured meat (e.g., potential health issues and affordability). However, divergences in understanding societal-level risks were noted; the public expressed concerns about the challenges of cultured meat to religious and racial dietary customs, while experts highlighted potential investment uncertainties due to unclear consumer acceptance of cultured meat. Theoretical and practical implications are discussed.

The Influence of Liquidity, Firm Size, Book to Market Equity, and Market Risk on The Required Rate of Return of the Companies Listed in Indonesia Stock Exchange (IDX) Period 2016-2019

The capital market is a platform for buying and selling securities, serving as an effective means to accelerate economic growth. It allows investors to make long-term investments by channeling public funds into productive sectors. When investing, investors consider two main factors: the required rate of return and risk. Rational investors seek information and perform various analyses to minimize investment uncertainty and risks. This study aims to determine the effect of liquidity, firm size, market-to-book equity, and market risk on the required return of shares. The data includes companies listed on the Indonesia Stock Exchange (IDX) from 2016 to 2019, with a total sample of 264 companies consistently listed on the IDX over four years, amounting to 1,056 data points. These companies were selected through purposive sampling. The hypothesis testing methods used include the t-test, F test, coefficient of determination, and multiple linear regression analysis. The results indicate that liquidity does not affect the required rate of return in both high and low liquidity groups. Firm size affects the required rate of return in the high liquidity group but not in the low liquidity group. Book-to-market equity does not affect the required rate of return in either group. Market risk affects the required rate of return in both high and low liquidity groups.

The uncertainty of RMB exchange rate expectation and foreign investment: Evidence from Cross-border M&As in China

This paper investigates the causal effect of the RMB exchange rate expectation uncertainty on corporate cross-border mergers and acquisitions (M&As) using China's A-share listed firms from 2005 to 2022. The results show that the increasing RMB exchange rate expectation uncertainty significantly promotes corporate cross-border M&As. A one-unit standard deviation of the RMB exchange rate expectation is associated with a 0.140-unit standard deviation increase in corporate cross-border M&As. The results are robust for replacing core variables, changing estimation methods, model setting, and addressing endogenous problems. The above effect is more pronounced for firms engaging in discontinuous M&As, partial M&As, higher operational and exchange risks, lower financing constraints, and firms located in Eastern regions. We also find that increased risk-taking capacity and greater market competition are essential channels through which RMB exchange rate expectation uncertainty promotes corporate cross-border M&As. This paper offers a fresh insight into the role of exchange rate expectations in promoting cross-border M&A activities and optimizing resource allocation in international markets.

Discovering Latent Macroeconomic Effects in Peer-to-Peer Lending Data

Peer-to-peer (P2P) lending is a fast growing financial technology (FinTech) trend that is displacing traditional retail banking. Studies on P2P lending have focused on predicting individual interest rates or default probabilities. However, the relationship between aggregated P2P interest rates and the general economy will be of interest to investors and borrowers as the P2P credit market matures. We show that the variation in P2P interest rates across grade types is determined by three macroeconomic latent factors formed by Canonical Correlation Analysis (CCA)—macro default, investor uncertainty, and the fundamental value of the market. However, the variation in P2P interest rates across term types cannot be explained by the general economy.

Impact of COVID‐19 on Indonesia stock portfolio allocation based on a technical & fundamental approach using a machine learning algorithm

Background: COVID-19 has had a negative impact on economic growth in Indonesia and affected the level of investment uncertainty in the Indonesian capital market. Leading stocks with large market capitalization and included in the LQ45 stock index on the Indonesia Stock Exchange (IDX) were also affected by the COVID-19 pandemic, which was corrected by -15% from the pre-pandemic period. This significant decline has a direct negative impact on capital market investors, so as to avoid the Black Swan event that occurred due to the recession, investors need to diversify their portfolios. Methods: Therefore, this study aims to assist investors in better portfolio diversification, especially in the face of the pandemic by using the clustering method. Clustering was carried out on 35 stocks that are members of LQ45 Index from January 1, 2019 to December 31, 2020 based on business fundamental and technical indicators stocks using the K-Means Clustering algorithm. Results: The clustering found that LQ45 stocks are grouped into 4 clusters, each of which have different unique characteristics. Furthermore, the results are used as a reference in stock portfolio allocation where the stocks which have the best sharpe ratio from each selected cluster will be selected to form a portfolio. Conclusion: Portfolio performance testing throughout the market period in 2021 show that formed portfolios are having excellent performance because it has a high positive return and looks much better compared to the LQ45 index as a macro evaluation. In addition, portfolios have also been well diversified, as evidenced by the low correlation value of its inter-stock correlation.