Investment Attitudes Research Articles

Balancing low-carbon power dispatching strategy for wind power integrated system

With the introduction of carbon trading in wind power integrated system, decision-makers may face more contradictions, such as economy and environment, objectivity and subjectivity, certainty and uncertainty. In order to balance these contradictions, this paper presents an economic emission dispatch model focusing on carbon price and wind power uncertainty simultaneously. Specifically factors for eliminating adverse effects of wind power uncertainty in both economic and environmental respects are particularly considered, decision-makers’ subjective investment attitudes towards wind power development could be quantitatively depicted according to carbon price. The simulation results eventually demonstrate that increasing the penalty coefficient core reflects decision-makers’ more radical investment attitudes, while improving the reserve coefficient core embodies more conservative investment attitudes; increasing carbon price will generally encourage decision-makers to explore more wind power, and to restrict thermal power; the more radical attitudes decision-makers hold, scheduling outputs the more sensitive with carbon price, and the faster wind power advance. Taking into full account carbon price and wind power uncertainty, the proposed model is beneficial to exploring a more balanced low-carbon power dispatching strategy for wind power integrated system.

Zainteresowanie oraz opłacalność oszczędzania na emeryturę w III filarze

Interest and profitability of saving for retirement in the Third PillarThe problem presented in the research paper is the issue of retirement savings efficiency in the Third Pillar of social insurance in Poland. The object of accomplished analysis, which constitutes grounds for inference was “the number of accounts in the Third Pillar and the value of accumulated funds”, which allowed defining “interest and attractiveness of the use of financial products offered by the Third Pillar” and “profitability of saving in the Third Pillar”. The results of the research, which determine present interest in saving in the Third Pillar confirm that additional forms of pension security have not reached the desired by the government level of development. Market growth will not occur unless there are financial incentives. Common concerns rouse the role of the state in the Third Pillar, and especially the possibility of taking over accumulated savings by government, as was done with savings accumulated in the Second Pillar OFE. In this situation, choosing a product of the Third Pillar is aless meaningful issue. It is more important to regularly save money in order to be able to gain from the so called ‘compound interest’, also choosing the right investment strategy and attitude towards risk.

Perception of intentionality in investor attitudes towards financial risks

Traditionally, financial market participation has been treated as analogous to playing games of chance with a physical device such as roulette. Here, we propose that humans treat financial markets as intentional agents, with own beliefs and aspirations. As a result, the capacity to infer the intentions of others, Theory of Mind, explains behaviour. As evidence, we appeal to results from recent studies of: (i) forecasting in the presence of insiders, (ii) trading in markets with bubbles, and (iii) financial contagion. Intensity of, and skill in, Theory of Mind explains heterogeneity, not only in choices but also in neural activation.

Market Price of Longevity Risk for a Multi-Cohort Mortality Model with Application to Longevity Bond Option Pricing

The pricing of longevity-linked securities depends not only on the stochastic uncertainty of the underlying risk factors, but also the attitude of investors towards those factors. In this research, we investigate how to estimate the market risk premium of longevity risk using investable retirement indexes, incorporating uncertain real interest rates using an affine dynamic Nelson-Siegel model. A multi-cohort aggregate, or systematic, continuous time affine mortality model is used where each risk factor is assigned a market price of mortality risk. To calibrate the market price of longevity risk, a common practice is to make use of market prices, such as longevity-linked securities and longevity indices. We use the BlackRock CoRI Retirement Indexes, which provides a daily level of estimated cost of lifetime retirement income for 20 cohorts in the U.S. Although investment in the index directly is not possible, individuals can invest in funds that track the index. For these 20 cohorts, we assume risk premiums for the common factors are the same across cohorts, but the risk premium of the factors for a specific cohort is allowed to take different values for different cohorts. The market prices of longevity risk are then calibrated by matching the risk-neutral model prices with BlackRock CoRI index values. Closed-form expressions and prices for European options on longevity zero-coupon bonds are derived using the model and compared to prices for standard options on zero coupon bonds. The impact of uncertain mortality on long term option prices is quantified and discussed.

Enhancing Financial Literacy – Experiment Results

The goal of the paper is to assess whether a short course in financial education has a positive impact on subjective and objective assessments of financial knowledge. We present the results of a financial literacy experiment conducted at the University of Szczecin in 2016. The experiment was the outcome of international cooperation with Italian researchers, which allowed us to compare results obtained in Italy and in Poland. It was conducted with the methodology proposed by the Italian team. The experiment covered three topics: basic interest compounding, inflation and risk diversification. Based on a sample of university students, we provide evidence that, in Poland too, a small-scale training intervention has both a statistically and economically significant effect on subjective assessments of financial knowledge and on objective assessments of investment attitudes.

FORMATION AND OPTIMIZATION OF VARIOUS PORTFOLIOS MODELS ON THE VaR INDICATOR BASIS

This article describes a formation of various portfolios models based on H. Markovitz portfolio theory. The portfolios which can include instruments with fixed profitability and common stock are considered. As a risk measure VaR indicator is used. In the research historical data on the stock prices included in the Dow30 market index were used. The profitability of all shares was analyzed in the period from 01.09.2015 to 01.09.2016 on one day basis. Companies included in the surveyed portfolios were selected using factor analysis method. They are considered as a portfolio consisting of a uniform distribution of shares and optimization portfolios. In these optimization models maximization of portfolio efficiency at the set risk level and risk minimization at the set level of efficiency can act as criterion functions. In some optimization tasks efficiencies of risky assets are calculated considering market changes. For portfolios of different profitability, the optimal curves "Profitability-Risk" are constructed. Comparison of the results is providing. Portfolios consisting of shares of various companies are explored. Depending on the investor's attitude to risk, appropriate portfolios can be chosen. Numerical results of effective assets distribution within the portfolio for various optimization problems statements are shown.

Production, Capacity, and Liquidity of a Self-Financed Firm

We develop and analyze a dynamic stochastic model of a self-financed firm that optimizes its expected present value of dividends, profits, or a mixture of both. Each period the firm chooses how much to produce, to invest in capacity expansion, to distribute as a dividend, and to retain as liquidity subject to constraints from existing capacity and capital. Product-market prices and yields of capacity-enhancing investments are Markov-modulated. We show that linearity assumptions regarding investment yield and production cost imply that the value function has an affine structure. This leads to a complete characterization of an optimal policy and a linear program that exorcises the curse of dimensionality. We clarify the linkage between capacity and capital in a dynamic framework and provide real option interpretations. We prove that profit maximization induces a more aggressive investment attitude than does maximization of dividends.

Multiscale synchrony behaviors of paired financial time series by 3D multi-continuum percolation

Multiscale synchrony behaviors and nonlinear dynamics of paired financial time series are investigated, in an attempt to study the cross correlation relationships between two stock markets. A random stock price model is developed by a new system called three-dimensional (3D) multi-continuum percolation system, which is utilized to imitate the formation mechanism of price dynamics and explain the nonlinear behaviors found in financial time series. We assume that the price fluctuations are caused by the spread of investment information. The cluster of 3D multi-continuum percolation represents the cluster of investors who share the same investment attitude. In this paper, we focus on the paired return series, the paired volatility series, and the paired intrinsic mode functions which are decomposed by empirical mode decomposition. A new cross recurrence quantification analysis is put forward, combining with multiscale cross-sample entropy, to investigate the multiscale synchrony of these paired series from the proposed model. The corresponding research is also carried out for two China stock markets as comparison.

Pemikiran Universalisme Islam Nurcholish Madjid dan Relevansinya Terhadap Penyelenggaraan Pendidikan Multikultural

Indonesia has one of the world’s cultural diversity. Indonesia’s diversity like a double-edged knife. Besides as excellence, diversity leads to many conflicts. To prevent such conflicts occur, the necessary awareness of multicultural effective if implanted through education. Moreover, religion also has an important role in keeping the peace. Islamic religion has a concept of Islam Rahmatan li al-’âlamîn, the universal teachings of Islam which teaches followers to live peacefully side by side and keep the peace. Universal Islam is most often expressed by Nurcholish Madjid. Islamic universalism in view Nurcholish Madjid have the same ‘spirit’ with multicultural education as follows; (A) Award in diversity, manifested in; first, the diversity of languages. Secondly, respect for the diversity of religions and beliefs. Third, respect for ethnic diversity, can be realized through a narrative that multiethnic, analogy, and excursions. (B) Social Justice, embodied in education and justice and equal rights to education. (C) Wisdom-Based Local Culture. The implication can be realized in various forms, first, in the form of the use of instructional media puppet show, angklung or ludruk. Second, in the curriculum, such as local content batik expertise, integration with subjects and extrabased local culture. (D) Investment attitude of ‘Islam’ as a basis for multicultural behavior. An important point which has apparently not yet been applied at planting multicultural attitude is consciousness ‘Islam’ (with ‘i’ minor) in individual behavior. attitude of ‘Islam’ which means Nurcholish means submission and surrender to God will bring the man no longer be the most righteous judge in the world, and appreciate diversity as a sunnatullah. Keywords: Nurcholish Madjid, Islamic universalism, Multicultural Education

Investors’ expectation on rate of return and moral image of companies

Corporate Social Responsibility (CSR) has become a fad in different industries, especially the finance industry. It is time to explore the relationship between images of companies and investors’ attitude. The purpose of this paper is to reflect the relationship between moral and immoral images of companies in relation to investors’ expectations on the rate of return of companies. Newspaper cuttings and fact sheets of selected companies were provided to participants to study their perception on the moral/immoral images of companies and investment attitude with questionnaires verified participants’ involvement in reading materials provided. Quantitative analysis of the questionnaires showed that an immoral premium was found in the expected returns of the participants. After the investment attitudes were induced on the participants, the participants gave a higher expected return on the company with a poor moral image (M=0.91, SD=1.05) than a company with a good moral image (M=0.46, SD=0.44). Immoral premium found in the expected returns for both before and after the time that the investment attitudes were induced to the participants. This research is managerially and strategically relevant and topical about the suggestion of immoral premium. However, longitudinal and qualitative analysis from the finance and social perspectives are required to support findings of this study

International asset allocation optimization with fuzzy return

This paper investigates an international asset allocation problem in a fuzzy uncertain environment, where the risk attitudes of investors are taken into consideration. Since investors are usually risk aversion, we use the possibilistic risk premium index to measure their required compensation for implementing a venture investment in the paper. Then, we present a possibilistic international asset allocation optimization model with realistic constraints. The main features of the proposed model are that we represent investors’ risk preferences by the commonly-used hyperbolic absolute risk aversion (HARA) utility function, and incorporate some realistic constraints into the proposed model to simulate the transaction in the real world financial markets. To solve the proposed model, we design a time variant differential evolution with harmony search (TVDEHS) algorithm in the paper. Finally, we provide a numerical example to demonstrate the application of the proposed model and highlight the performance of the designed algorithm.

Production, Capacity, and Liquidity of a Financially Constrained Firm

This paper studies the optimal coordination of operational and financial decisions of a firm with restricted and costly access to capital markets. The firm dynamically manages its production capacity and cash reserve by making production, divestment, investment, dividend, and capital injection decisions each period. The paper characterizes the optimal policy and shows that it corresponds to the optimal exercising of the real options embedded in the capacity and cash. A distinguishing feature of these real options is that they are embedded in each other, reflecting the fact that in a dynamic setting, exercising a real option in capacity or cash generates additional capacity or cash, thus additional real options. As the capital market becomes less frictional, the values of the real options in capacity and cash increase, and the firm is more likely to raise capital but less likely to issue dividends to exploit the higher values of the real options. As the firm places more emphasis on maximizing the operating profit rather than the shareholder's value, the values of the real options in capacity increase, and the firm exhibits a more aggressive investment attitude.

Investment attitude and framing effects on risky decisions

Investment attitude and framing effects on risky decisions

Are the Risk Attitudes of Professional Investors Affected by Personal Catastrophic Experiences?

We adopt a novel empirical approach to show that the risk attitudes of professional investors are affected by their catastrophic experiences – even for catastrophes with no economic impact on these investors or their portfolio firms. We study the portfolio risk of U.S.-based mutual funds that invest outside the U.S. before and after fund managers personally experience severe natural disasters. Using differences-in-differences, we compare managers in disaster versus non-disaster counties matched on prior disaster probability and fund characteristics. We find that monthly fund return volatility decreases by roughly 60 bps in year 1 and the effect disappears by year 3. Systematic risk drives the results. Additional analyses rule out wealth effects (using disasters with no damages) and managerial agency, skill, and catering explanations.

A robust behavioral portfolio selection: model with investor attitudes and biases

This study develops a behavioral portfolio selection model that uses a robust estimator for expected returns in order to produce portfolios with less need to change over consecutive periods. We also consider investor attitudes toward risk through spectral risk measure as well as investor expectations on future returns by means of the Black–Litterman model, and finally, our model includes a varying risk aversion depending on investor behavioral biases and his latest realized return. In order to evaluate the proposed model and make comparisons possible, we conducted a survey on investor biases and attitudes along with market data of Tehran Stock Exchange. The results reveal that although our model is not mean–variance efficient, it recommends portfolios that are robust, well diversified, and have less utility loss compared to a famous behavioral portfolio model.

Threshold effect in the relationship between investor sentiment and stock market returns: a PSTR specification

This article verifies whether the hypothesis of heterogeneous agent modelling and the behavioural heterogeneity framework can reproduce recent stylized facts regarding stock markets (e.g. the 1987 crash, internet bubble, and subprime crisis). To this end, we investigate the relationship between investor sentiment and stock market returns for the G7 countries from June 1987 to February 2014. We propose an empirical non-linear panel data specification based on the panel switching transition model to capture the investor sentiment-stock return relationship, while enabling investor sentiment to act asymmetrically, non-linearly, and time varyingly according to the market state and investor attitude towards risk. Our findings are twofold. First, we show that the hypotheses of efficiency, rationality, and representative agent do not hold in reproducing stock market dynamics. Second, investor sentiment affects stock returns significantly and non-linearly, but its effects vary with the market conditions. Indeed, the market appears predominated by fundamental investors in the first regime. In the second regime, investor sentiment effect is positively activated, increasing stock returns; however, when their overconfidence sentiment exceeds some threshold, this effect becomes inverse in the third regime for a high threshold level of market confidence and investor over-optimism.

Determinants of the long-term performance of initial public offerings (IPOs) in the port industry

Market players active in the port industry deploy a range of financial sources to meet the growing investment requirements in port infrastructure and to fund their (overseas) expansion strategies. Recent empirical evidence shows that equity capital markets are expected to extend their role in this regard.This paper deals with the long-term performance of IPOs in the seaport industry as a strategic financial dimension for determining the success/failure of the issuance. The study goes beyond general finance theories on IPO performance as it places institutional theory side by side with informational asymmetry theories and symmetric information theories to assess the determinants of long term IPOs’ success in the port domain.The paper presents an overarching conceptual framework for addressing IPO performance, thereby focusing on the explanatory power of “financial markets”, “institutional factors” and “industry specific variables”. An ordinary least squares (OLS) regression analysis is performed on a dataset of over 90 port-related IPOs to test the antecedents of the long-term performance of port-related IPOs.The performance of extant IPOs is expected to influence both the capacity of ports and terminal operating companies to gather additional financial resources from equity capital markets in the future, and the related cost of funding. In addition, it may shape the attitude of private investors toward this equity asset class.

Nonlinear complexity of random visibility graph and Lempel-Ziv on multitype range-intensity interacting financial dynamics

In an attempt to investigate the nonlinear complex evolution of financial dynamics, a new financial price model — the multitype range-intensity contact (MRIC) financial model, is developed based on the multitype range-intensity interacting contact system, in which the interaction and transmission of different types of investment attitudes in a stock market are simulated by viruses spreading. Two new random visibility graph (VG) based analyses and Lempel-Ziv complexity (LZC) are applied to study the complex behaviors of return time series and the corresponding random sorted series. The VG method is the complex network theory, and the LZC is a non-parametric measure of complexity reflecting the rate of new pattern generation of a series. In this work, the real stock market indices are considered to be comparatively studied with the simulation data of the proposed model. Further, the numerical empirical study shows the similar complexity behaviors between the model and the real markets, the research confirms that the financial model is reasonable to some extent.

Equity Risk Premium in ASEAN: Empirical Analysis on Its Puzzle and Impact of 2008 Financial Crisis

This paper aims to mainly investigate equity risk premium of the six major members of ASEAN countries such as Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam which have been chosen based on their stock market development and data availability. It has focused on the two main issues of the equity risk premium such as the intriguing issue on the existence of equity premium puzzle and the analysis on the impact of the 2008 financial crisis on the trend of the equity risk premium and their potential contribution on the risk aversion's attitude of the ASEAN investors. Three methods are utilized to test this phenomenon (1) basic model consumption of Mehra and Prescott (1985) and simplified model by Ni (2006); (2) calibration (Campbell, 2003) and (3) GMM estimation (Hansen, 1982). The calibration method results suggest that the puzzle exists in Indonesia.It has determined that the puzzle seems lying on the negative covariance between the consumption growth rate and the average real stock return. After applying GMM as method of the three sub-sample analyses for before, after and excluding 2008, it shows that financial crisis didn't affect much the value of risk aversion, but it cannot deny the fact that it has profound effect on the behavior of the equity risk premium. It can also be inferred that after crisis, ASEAN investors are likely tend to become more decreasing relative risk averse and prefer to have happiness tomorrow than today.

Time-varying risk aversion and return predictability

The risk aversion implied in option prices contains information about the attitude of investors toward risk and therefore its variation can capture the changes in risk premiums implicit in financial markets. In this paper, we propose a new method for estimating the variations of risk aversion and examine its predictability on future excess returns. Results for the S&P 500 index show that risk aversion has predictive power for future excess returns, even for short horizons that is, two- and four-week horizons and does not lose significance in the presence of conventional forecasting variables, including dividend yield, short rate, and variance risk premium. For robustness, we conduct an additional test on Sharpe ratio prediction and these results also support the predictability of time-varying risk aversion on future Shape ratio movements.