Investor Welfare Research Articles

Home Bias: Debiasing Techniques From Financial Planners’ Perspectives

Financial planning literature has called for further efforts into understanding investor psychology. Financial planners have the capacity to enhance investor welfare through mitigation of behavioral biases. Thus, the perspectives of financial planners are an important voice in behavioral finance research. Research suggests that home bias remains prevalent and problematic. This research applies a qualitative, thematic analysis approach to understand how home bias has been practically managed by professional financial advisors, with data collected from financial planners in South Africa. Results suggest that strategies such as investing time in educating the client and using probing questions to nudge the client in the right direction were effective. Irrespective of the bias mitigation approach adopted, a strong relationship of trust is foundational to any debiasing activity.

High-Turnover vs. Low-Turnover Mutual Funds: A Comparative Analysis of Value Addition Over Different Horizons

This qualitative literature review examines the comparative analysis of value addition between high-turnover and low-turnover mutual funds across different investment horizons. Through an extensive review of recent studies, the review identifies key performance metrics, market dynamics, and investor preferences associated with each strategy. High-turnover funds demonstrate superior short-term performance metrics, driven by active management strategies aimed at capitalizing on market inefficiencies and rapid information incorporation. In contrast, low-turnover funds offer stable long-term returns with lower transaction costs and reduced volatility over extended horizons. The review also explores the implications of turnover rates on market efficiency, investor welfare, and regulatory considerations. Limitations include variations in data availability, methodological approaches, and the dynamic nature of financial markets. Future research directions emphasize standardized methodologies, global market analysis, and the long-term impact of regulatory reforms on fund management practices and investor outcomes.

Sustainable investing with ESG ambiguous information

This study introduces a novel model that incorporates ambiguous ESG information into the asset pricing framework, examining its impact on the optimal demand, equilibrium expected excess return, and welfare of an investor. Our analysis reveals that an investor’s response to insights into ESG performance significantly depends on the nature of the information received. When confronted with negative ESG information and lower excess return, the investor opts for high-precision information, resulting in a lower optimal asset demand with a steeper growth slope in demand. Conversely, with higher excess return, the investor chooses low-precision information, leading to a higher optimal asset demand with a gentler slope of demand growth. Furthermore, we identify a unique “ESG excess return region” where the investor’s optimal demand remains unchanged despite ambiguous ESG information. Moreover, the study finds that asset yield a higher equilibrium expected excess return with high-precision ESG signals than with low-precision signals when the ESG information is negative. Lastly, the research explores investor welfare, indicating that the welfare under positive information is significantly higher than under negative information. This study sheds light on the subtle strategies that an investor employs when facing uncertainties related to ESG information.

Financial Behavior in Personal Investment: Influence of Psychological Factors on Investment Decision

In the ever-evolving realm of financial markets, understanding the underlying psychological dynamics shaping investor behavior is paramount. Financial behavior refers to the choices and actions people make when managing their own cash across a range of investment vehicles, including stocks, bonds, mutual funds, and real estate. It includes components that are vital in determining the results of investments, including risk tolerance, investment objectives, decision biases, emotions, and financial literacy. Achieving long-term investment success and financial security requires an understanding of and ability to control one's own financial behavior. An extensive research model has been painstakingly built to clarify the complex connections between these psychological variables and the process of making investing decisions. This study examines the impact of three psychological aspects on investment decisions made by 220 investors who trade on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE): information asymmetry, problem framing, and risk propensity. Effective investing strategies necessitate an awareness of the interplay between psychological biases and cognitive processes, as these aspects influence personal investment decisions. By using a quantitative research methodology, information was gathered by sending surveys to investors who were actively trading stocks on the BSE and NSE platforms. Regression analysis and correlation studies are two statistical analytic approaches that were used to investigate the connections between investing decisions and psychological aspects. The study's conclusions add to the corpus of knowledge by illuminating the complex dynamics of financial decision-making and the part played by psychological variables. Furthermore, the knowledge gained from this study has important ramifications for financial advisors, investors, and legislators that aim to improve investor welfare and encourage well-informed stock market decision-making.

Robo advisors and access to wealth management

We investigate how access to robo-advisors impacts the financial investment and welfare of less-wealthy investors. We leverage a quasi-experiment where a major U.S. robo-advisor significantly expands access by reducing its account minimum, increasing participation by middle-class investors but not the poor. A benchmark model calibrated to portfolio-level data rationalizes this increase: middle-class investors want sophisticated investing but cannot achieve it themselves. Their welfare rises moderately, driven by advanced features like multi-dimensional glide-paths and additional priced risk factors. Middle-age investors gain three times more than millennials. Our results reveal novel margins of demand for robo-advisors, helping explain their sustained growth.

The Dark Side of Circuit Breakers

ABSTRACTMarket‐wide circuit breakers are trading halts aimed at stabilizing the market during dramatic price declines. Using an intertemporal equilibrium model, we show that a circuit breaker significantly alters market dynamics and affects investor welfare. As the market approaches the circuit breaker, price volatility rises drastically, accelerating the chance of triggering the circuit breaker—the so‐called “magnet effect,” returns exhibit increasing negative skewness, and trading activity spikes up. Our empirical analysis supports the model's predictions. Circuit breakers can affect overall welfare negatively or positively, depending on the relative significance of investors' trading motives for risk sharing versus irrational speculation.

Pengaruh Pertumbuhan Laba, Leverage, Profitabiilitas, Likuiditas Terhadap Kebijakan Dividen

Dividend policy is a measure of the stability of a company's stock management by determining the proportion of dividends that balances the growth of the company and the welfare of investors. The purpose of this study is to determine the impact of earnings growth, leverage,profitability,liquidity on dividend policy. This study uses data on the financial reports of manufacturing.companies in the food and beverage subsector from 2019-2022. In this study, the sample was selected using purposive sampling techniques and criteria to obtain 48 data from 14 companies. The.method used in this study consists of several linear regression techniques to analyze the relationship between independent and dependent variables. The results of this study show that the variable earnings growth has a significant negative impact on the dividend policy, the variable leverage (DER) has no effect on the dividend policy, and the variable profitability (NPM) has a significant negative impact on the dividend policy has been shown to have a significant positive impact on Impact on dividend policy and liquidity variable (CR) has no effect on dividend.policy The level of a company's ability to pay dividends is an investment signal for investors. Therefore, companies need to maintain their ability to generate profits and manage leverage. Failure to manage this will have a negative impact on the company itself, reducing its ability to pay dividends. Investors also need to be more careful, such as observing company signals, before investing in a company.

The Influence of Good Corporate Governance, CEO Tenure, and Corporate Financial Performance on Company Value

Firm value is very important in an organization because it is related to the welfare of investors. The higher the company value causes the company to have a superior image and the value of the resources claimed by the company can be an impression of the company's value. But in society, there are phenomena and tendencies of individual behavior in choosing to invest. This study aims to determine the effect of good corporate governance, CEO tenure, and company financial performance on firm value. This type of research is quantitative research. This study uses secondary data from the Indonesia Stock Exchange. The population in this study are transportation sector companies listed on the Indonesia Stock Exchange in 2016-2020, totaling 8 companies. The sampling technique uses a side purposive technique. The dependent variable in this study is firm value as measured by Tobins'q. The independent variables in this study are good corporate governance which is proxied by the audit committee, company secretary, and remuneration committee, CEO tenure, and the company's financial performance which is proxied by ROA. The results of this study indicate that (1) the corporate secretary affects firm value; (2) the audit committee affects firm value; (3) the remuneration committee has an effect on firm value; (4) CEO tenure has an influence on firm value; and (5) ROA affects company value in various industrial sub-sectors listed on the IDX in 2016-2020. The results of this study expect that investors should always pay attention to internal and external elements in organizational valuation, namely the earth, social and financial benefits, which these three things must be balanced.

A dynamic partial equilibrium model of capital gains taxation

We analyze a multi-period model of capital gains taxation with endogenous prices. Relative to an economy without taxation, a capital gains tax tends to lower prices and increase returns. Abstracting from tax redistribution policies, we find that a taxable investor's welfare falls, a nontaxable investor's welfare rises, and, depending on the tax rate, social welfare may either rise or fall. The taxable investor's tax-timing option increases social welfare but may either increase or decrease tax revenue. Tax rebates for capital losses have little effect on welfare or tax revenue. Implications for empirical asset pricing are identified.

Return On Asset, Return On Equity, And Net Profit Margin: Influence Stock Price

The company has a goal to fulfill the welfare of investors. Company performance is one of the considerations for potential investors before making investment decisions, because the higher the value of a company, the higher its share price. This study aims to analyze the effect of ROA, ROE, and NPM on stock prices. The analytical method uses panel data regression with a quantitative data approach. This study consists of several test analyses; descriptive testing, classical assumption testing, model selection testing, and hypothesis testing. The findings of this study indicate that ROA, ROE, and NPM simultaneously show a 16% effect on stock prices and partially ROA, ROE, and NPM are significant factors that influence stock prices. The implication is that a company that has a rate of return on assets, a rate of return through capital and liability management, and a high level of income contributes to an increase in profits thereby increasing stock prices.

The impact of relative wealth concerns on wealth gap and welfare in a noisy rational expectations economy

We employ a noisy rational expectations equilibrium model to investigate the influence of relative wealth concerns on wealth gap and welfare. Our analysis reveals that the impact is sensitive to the exogeneity or endogeneity of information. When information is exogenous, the average wealth gap between high-precision and low-precision investors is either decreasing or, initially decreases and eventually increases in the degree of relative wealth concerns. Moreover, we identify two or three potential patterns regarding the monotonicity pattern of the welfare of low-precision and high-precision investors. However, when information becomes endogenous, the average wealth gap and welfare decrease.

Dividend Policy: Analyzed from Stock Prices and Firm Size in Indonesia's Manufacturing Sector

The purpose of this study was to examine the effect of stock prices and firm size on dividend policy in manufacturing companies in Indonesia. In this quantitative researchinferential statistical analysis was used to test hypotheses. Based on certain criterias, purposive sampling technique was used. The data were taken from the company’s financial statements from 2018 to 2021. The data were analyzed using multiple regression analysis in order to test the research model and the influence between variables. The results showed that the stock price and firm size on dividend policy is a fit research model. Stock prices had a positive effect on dividend policy, whereas firm size had a negative effect on dividend policy. Stock prices had a significant effect on dividend policy,while firm size had a significant effect on dividend policy. The findings in this study showed that the assets of manufacturing companies in Indonesia during 2018 to 2021 experienced fluctuations, this will directly affect the welfare of investors. The importance of this research is to jointly maintain the existence of all manufacturing companies in Indonesia because companies engaged in the manufacturing sector are very influential in the economic sector.
 Keywords: company size, dividend policy, manufacturing sector company, stock price

The Impact of Carbon And Energy Prices on The Return of Energy Sector Stock in Selected Asia-Pacific Countires

The stock market is very important in the country's economy, namely as a source of corporate funding and especially in investments that have the aim of increasing the welfare of investors and companies. The purpose of this study is to analyze the effect of the rate of return on carbon costs, Brent crude oil, palm oil, interest rates, and exchange rates on the rate of return on energy stock prices in Asia-Pacific countries from 1st January 2016 to end of December 2021. In this study, the phenomena were explored utilizing quantitative approaches to collect data and test previously determined hypotheses. The panel data model is used, as well as the VECM (Vector Error Correlation Model) test. The results show that the influence of CO2 return on energy sector returns is negative in the short term but positive in the long term. Return on energy industry and return on Brent oil have both short-term and long-term unfavorable effects. The return of the use of palm oil has an advantageous long-term and short-term impact on the energy industry's return. The exchange rate has only a short-term negative relationship with the return of energy. Lastly, there is no long-term or short-term correlation between interest rates and the return on energy. The implication of this result is that industries must switch to using environmentally friendly devices and governments must declare regulations to emitters producers.

The Endowment Model and Modern Portfolio Theory

We develop a dynamic portfolio choice model with illiquid alternative assets to analyze the “endowment model,” widely adopted by institutional investors, such as pension funds, university endowments, and sovereign wealth funds. In the model, the alternative asset has a lockup but can be liquidated at any time by paying a proportional cost. We model how investors can engage in liquidity diversification by investing in multiple illiquid alternative assets with staggered lockup expirations and show that doing so increases alternatives allocations and investor welfare. We show how illiquidity from lockups interacts with illiquidity from secondary market transaction costs resulting in endogenous and time-varying rebalancing boundaries. We extend the model to allow crisis states and show that increased illiquidity during crises causes holdings to deviate significantly from target allocations. This paper was accepted by Bruno Biais, finance. Funding: S. G. Dimmock gratefully acknowledges financial support from the Singapore Ministry of Education [Grant R-315-000-133-133]. N. Wang gratefully acknowledges support from CKGSB Research Institute. J. Yang gratefully acknowledges the support from the National Natural Science Foundation of China [Grants 71772112, 71972122, and 72072108], Innovative Research Team of Shanghai University of Finance and Economics [Grant 2016110241], and Shuguang Program of Shanghai Education Development Foundation and Shanghai Municipal Education Commission. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2023.4759 .

ESG disclosure and investor welfare under asymmetric information and imperfect competition

ESG disclosure and investor welfare under asymmetric information and imperfect competition

Financial contracting as behavior towards risk: The corporate finance of business cycles

This paper describes the balance sheet adjustments of debt and equity financed firms over time in an economy subject to taste shocks. A model is developed that describes a representative firm with a stochastic diminishing returns technology and a set of financial contracts that resolve a conflict-of-interest problem between differentially risk-averse bondholders and stockholders. The contractual resolution of this conflict-of-interest problem between the two agents is shown to shape certain stylized facts of business cycles ignored in Keynesian and Classical models. Changes in investor risk aversion and equity valuations trigger real investment decisions that can cause business cycles. Bond covenants then have the firm adjusting its financing decisions so as to offset any risk-shifting associated with the investment decisions. Stockholders manage the asset side of the firm’s balance sheet while bondholders (regulators in the case of banks) manage the financing side. In this way the welfare of both investors is coalesced over the business cycle. A similar type of analysis accounts for the age distribution of workers, and the size distribution of firms over the business cycle. Evidence presented here and elsewhere fails to reject these predictions for the U.S. non-financial and financial corporate sectors.

ОСОБЛИВОСТІ ФОРМУВАННЯ КАПІТАЛУ ПІДПРИЄМСТВА

The article describes the peculiarities of the formation of the enterprise's capital. The author's definition of the capital of the enterprise is given. The main goal of the formation of the enterprise's capital is determined, which consists in optimizing its structure to ensure the enterprise's assets and their effective use. The main principles of capital formation of the enterprise were studied. Two groups of functions are distinguished, which are performed during the functioning of the enterprise's capital management system. Features of capital management are established, taking into account the industry specifics of the enterprise. A comprehensive analysis of the efficiency of the company's capital formation was carried out according to the parameters of its cost and the level of financial risk of «GREEN COOL» LLC in 2020–2022. which determines the growth of the welfare of investors and the owner of the enterprise. The cost of equity according to the indicator of its profitability increased from 8.01% to 9.17%, which indicates the ability of the enterprise to generate profit for the owners. The cost of loan capital had an upward trend, which indicates a lack of own financial resources in the enterprise's economic activity. The level of financial autonomy indicates the possibility of financing needs at the expense of own sources by 33%, therefore the composition and structure of the capital of the enterprise need to be revised. Directions for increasing the efficiency of the enterprise's capital functioning are given, taking into account effective management taking into account the riskiness and cost of capital, increasing profitability, as well as reinvesting free funds and retained earnings into the expansion of the enterprise's production capacity are relevant. To increase the efficiency of capital formation of «GREEN COOL» LLC, it is necessary to constantly monitor and analyze the main indicators of the company's activity, develop new strategies and change the capital structure, activating the investment attractiveness of the company under study to attract investmentresources.

The origin of LYONs: A case study in financial innovation

The origin of LYONs: A case study in financial innovation

Company Size and Intellectual Capital on Company Value in The Consumer Goods Industry Sector Listed on The Indonesia Stock Exchange

Firm value is an investor's perception of the company's success in improving the welfare of investors. The company's goal is to value the company with management that can be trusted by potential investors to invest in the company. High company value indicates investor confidence with increasing stock prices. This study aims to determine the effect of firm size and intellectual capital which includes Value added capital employed, Value added human capital, Structural Capital Value added on firm value. The research uses a quantitative method approach. The research sample used was 25 companies listed on the Indonesia Stock Exchange in 2018-2020 with a 3-year period of 75 samples. The research analysis method used is panel data regression using the Eviews 12 application. Based on the results of simultaneous testing, it is known that company size and intellectual capital include Value added capital employed, Value added human capital, Structural Capital Value added has an effect on firm value. Partially Value added capital employed (VACA) has a positive effect on firm value, firm size and value added human capital (VAHU), Structural Capital Value added (STVA) has no effect on firm value.
 

From Market Making to Matchmaking: Does Bank Regulation Harm Market Liquidity?

Abstract Postcrisis bank regulations raised market-making costs for bank-affiliated dealers. We show that this can, somewhat surprisingly, improve overall investor welfare and reduce average transaction costs despite the increased cost of immediacy. Bank dealers in OTC markets optimize between two parallel trading mechanisms: market making and matchmaking. Bank regulations that increase market-making costs change the market structure by intensifying competitive pressure from nonbank dealers and incentivizing bank dealers to shift their business activities toward matchmaking. Thus, postcrisis bank regulations have the (unintended) benefit of replacing costly bank balance sheets with a more efficient form of financial intermediation.