Bond Investors Research Articles

Investment Decisions and Financial Performance of Insurance Companies in Kenya.

The financial performance of insurance firms in Kenya has been fluctuating, influenced by investment decisions, regulatory frameworks, and economic conditions. This study examines the relationship between investment decisions and financial performance among insurance companies in Kenya, focusing on government securities, corporate bonds, stocks, and real estate. A cross-sectional research design was adopted, targeting all 56 insurance and reinsurance firms registered with the Insurance Regulatory Authority of Kenya. The study utilized secondary data, analyzed through descriptive and inferential statistics, including ANOVA, multiple regression analysis, and Pearson correlation. Findings indicate that investment in government securities exhibits a strong positive correlation with return on assets (ROA), providing stable but limited capital growth. Corporate bonds demonstrate a moderate positive correlation with ROA, suggesting that firms benefit from long-term bond investments. Stock investments contribute to improved financial performance, albeit with a weaker correlation than government securities. Real estate investments show a weak relationship with ROA, implying limited direct impact on profitability despite long-term financial security benefits. The study concludes that strategic investment diversification can enhance financial performance, but insurance firms must carefully balance risk and return. It is recommended that insurers adopt a mixed investment strategy prioritizing government securities and corporate bonds for stability, while selectively investing in stocks and real estate for growth. Future research should explore the impact of macroeconomic factors and emerging investment instruments, such as digital assets and green bonds, on the financial performance of insurance firms.

Decoding Green Bonds for Sustainable Development: A Hybrid Review and Research Agenda

ABSTRACTThe green bond market and related scholarly research have grown exponentially recently. However, the literature remains scattered. This study addresses the gap by analyzing 744 Scopus‐indexed journal articles using a mix of bibliometric and content analyses to unveil trends, current dynamics, and knowledge structures. The bibliometric analysis shows dynamic transformation and differential development among clusters. It indicates the following three prominent research themes: (a) reducing carbon emissions, (b) premium and financing, and (c) connectedness and portfolio risk effects. From policymakers' perspective, the content analysis reveals positive linkages and channels between green bonds and the environment. Pertinent to issuers and investors, estimates of green bond premiums vary by time, context, and methodology. Future scholarly research should focus on causality, regional variations, and the role of policy design in the impact of green finance. Researchers must further investigate the motives of green bond investors and issuers.

Comparative Analysis of Returns on the Capital Market Versus the Real Estate Market in Romania

The study provides an overview of the profitability-risk relationship in Romania's capital market and real estate market. It is relevant for a specific segment of individuals and businesses, both domestic and foreign, as well as decision-makers shaping the country's economic strategy. Understanding the advantages and disadvantages of the two markets helps stakeholders make informed decisions about investing their available funds and comprehend the financing mechanisms. Protecting those with liquidity through investments in bonds, stocks, real estate funds, residential, or commercial properties is increasingly significant in the current economic context, both domestically and internationally.

Investment portfolio management to meet or beat earnings expectations

AbstractInsurers can boost their earnings by accruing interest income from their corporate bond investments. We document that insurers have higher corporate bond investments as well as less equity and cash holdings, when their parents meet or just beat analysts’ quarterly earnings forecasts, compared to when their parents miss or comfortably beat the forecasts. The investment in corporate bonds to boost earnings is more pronounced when bond offerings provide more opportunities for accruing interest income, when the parent’s corporate governance is weaker, when the parent’s managers have more equity incentives, when insurers face more competition, when other earnings management techniques are used, or when the insurance segment is more important to the parent. Finally, insurers suspected of helping their parents meet or beat earnings benchmarks experience worse investment performance in subsequent years, presumably because, by investing more in corporate bonds, the insurers forgo investment opportunities with higher longer-term returns.

THE ROLE OF RA COMMERCIAL BANKS IN ENSURING THE STABILITY OF PUBLIC FINANCES / ՀՀ ԱՌԵՎՏՐԱՅԻՆ ԲԱՆԿԵՐԻ ԴԵՐԸ ՀԱՆՐԱՅԻՆ ՖԻՆԱՆՍՆԵՐԻ ԿԱՅՈՒՆՈՒԹՅԱՆ ԱՊԱՀՈՎՄԱՆ ԳՈՐԾՈՒՄ

One of the main prerequisites for ensuring the economic security of any country is the presence of a sufficient level of stability of public finances, which implies stable economic growth, the necessary level of liquidity and solvency of the state, the optimal structure of expenditures from the state budget in the context of a continuous increase in the specific weight of capital expenditures, financing of current expenditures at the expense of own revenues, a manageable level of public debt, and maintenance of the "golden rule" of finances. It is clear that commercial banks have an irreplaceable contribution to ensuring the stability of public finances in the Republic of Armenia, which have sharply increased investments in RA treasury bonds in recent years, which implies that the Republic of Armenia has a financially stable and developed banking system that is in line with the challenges of the time, where the generated financial resources not only nourish the economy, but also create an opportunity for the state to solve short-term liquidity problems, thereby contributing to the continuous increase in the weight of domestic public debt in the structure of public debt.

Implementation Prospects of Investment Process For The Investors

The article covers the formation and development of the accumulative pension fund, its influence on the development of capital investment in production activities. Specific factors that can narrow the fund's participation in investment projects are given. Specific proposals are given to activate the investment of the fund's capital in the company's activities. This study explores the development and challenges of institutional investment processes in Uzbekistan, focusing on the accumulative pension fund (APF) as a key player in the country’s investment landscape. Utilizing both quantitative and qualitative research methodologies, data from official Uzbek databases were analyzed statistically. The results highlight significant limitations in the current investment climate, including underdeveloped financial infrastructure, narrow investment portfolios, and regulatory constraints on fund activities. Despite these challenges, the APF has the potential to catalyze market growth through strategic investments in securities and corporate bonds. The study concludes that creating a favorable investment environment, coupled with improved management practices and broader financial instruments, could transform institutional investors into vital contributors to Uzbekistan’s economic growth and industrial development

The Relationship Between Interest Rates, Financial Ratios, and Bond Ratings with Profitability as a Mediating Variables in Non-Financial Sector Companies in Indonesia

Abstract During the latest decades, regional creativity has often been considThis study seeks to investigate the relationship between interest rates, liquidity, and leverage to non-financial companies in Indonesia who have issued bond securities between 2018 and 2023 with profitability as an intervening variable. Panel data regression analysis and path analysis are used in the study to explore the connections between the variables, both directly and indirectly. According to the results, bond ratings are heavily affected by interest rates, but liquidity does not appear to play a major role. Moreover, leverage appears to have a positive effect on bond ratings. Moreover, profitability is significantly influenced by interest rates, while leverage has a detrimental effect on profitability. The study suggests that there is a slight influence of profitability on the connection between interest rates and bond ratings, but not for liquidity or leverage. Interest rates are found to have a significant positive effect on bond ratings, whereas liquidity and leverage have minor direct impacts. These findings contribute to investors in making bond investment decisions, as well as for companies in optimizing their capital structure to improve bond ratings. This study suggests further development by expanding the coverage of other industry sectors and adding variables such as corporate governance and macroeconomic indicators to increase external and internal validity.

Assessing the role of ESG evaluation in market risk management for sovereign bond investments

ABSTRACT With the growing emphasis on responsible investing, the role of environmental, social, and governance (ESG) factors in risk management has become significant, extending to the field of sovereign bonds. This study examines the role of ESG evaluations in the risk management of sovereign bond investments. Across fifty countries, including developed and emerging countries, our findings indicate that, even after controlling each country's yield levels and fiscal conditions, nations with lower ESG scores tend to face higher market risks, notably regarding tail risk measures. This pattern is especially pronounced in the bonds of emerging countries. The research highlights that ESG evaluation of sovereign bonds can provide insight into the likelihood of unforeseen events, such as political turmoil and natural disasters, often not reflected in sovereign bond yields.

To outperform: Sell-in-May enhanced with bond investments

This research investigates the Halloween Effect across global equity markets utilizing exchange-traded funds (ETFs) as the instrument. The study reveals three primary findings. Firstly, it confirms the presence of the Halloween Effect in global equity ETFs over a span of two decades, indicating stronger returns during the winter months. Secondly, the analysis expands to include liquid treasury bond ETFs, revealing no significant seasonal effect and suggesting alternative summer investment avenues. Thirdly, a sell-in-May strategy, incorporating both equity and bond ETFs, is backtested, demonstrating its ability to outperform traditional buy-and-hold strategies in terms of returns and risk over the past twenty years. Particularly noteworthy is the observation that long-term bond ETFs exhibit higher returns during the summer period, while short-term bond ETFs offer relatively safer options. These findings contribute to a more comprehensive understanding of seasonal investing strategies, offering valuable insights for investors seeking to outperform traditional approaches.

Investment Portfolio Allocation and Insurance Solvency: New Evidence from Insurance Groups in the Era of Solvency II

This study examines the effect of the investment portfolio structure on insurers’ solvency, as measured by the Solvency Capital Requirement ratio. An empirical sample of 88 EU-based insurance groups was analyzed to provide robust evidence of the portfolio’s impact on the Solvency Capital Requirement ratio from 2016 to 2022. Linear regression and supervised machine learning models, particularly extra trees regression, were used to predict the solvency ratios, with the latter outperforming the former. The investigation was supplemented with panel data analysis. Firm-specific factors, including, unit-linked and index-linked liabilities, firm size, investments in property, collective undertakings, bonds and equities, and the ratio of government bonds to corporate bonds and country-specific factors, such as life and non-life market concentration, domestic bond market development, private debt development, household spending, banking concentration, non-performing loans, and CO2 emissions, were found to have an important effect on insurers’ solvency ratios. The novelty of this research lies in the investigation of the connection of solvency ratios with variables that prior studies have not yet explored, such as portfolio asset allocation, the life and non-life insurance market concentration, and unit-linked and index-linked products, via the employment of a battery of traditional and machine enhanced methods. Furthermore, it identifies the relation of solvency ratios with bond market development and investments in collective undertakings. Finally, it addresses the substantial solvency risks posed by the high banking sector concentration to insurers under Solvency II.

Spillover Effects of the SEC's Regulatory Oversight on Private Debt Contracting: Evidence from Cross‐listed Foreign Firms

ABSTRACTWe examine the effect of the Securities and Exchange Commission's (SEC) regulatory oversight on private debt contracting outcomes, using the signing of the multilateral memorandum of understanding (MMoU) as a natural experiment. The MMoU enables the SEC to take stricter punitive actions against wealth expropriation by cross‐listed firms’ insiders and enforce better compliance with applicable rules and regulations. We find that enhanced SEC oversight in the post‐MMoU regime lowers loan spreads by 36 basis points, thus saving an average cross‐listed firm approximately $9 million in direct loan costs over the life of a bank loan. Cross‐sectional analyses show that the effect is more pronounced for borrowers from countries with weaker institutions, borrowers with greater accounting discretion, and for loans arranged by top lenders or loans not secured by collateral. Conversely, the effect is less pronounced for borrowers who use IFRS or when the SEC faces greater budgetary constraints. Enhanced SEC oversight also leads to an increase in loan maturity and a decrease in financial covenants. Our evidence suggests that while the SEC's primary mandate is to protect public equity and bond investors, its supervision yields substantial borrowing cost savings and more lenient nonprice loan terms in the private debt markets as well.

Zero coupon yield curve dynamics in the Russian sovereign bond market

Yield curve is a graphical representation of a relationship between interest rates and maturity. Shape of yield curve often attracts attention of analysts, because it represents market implied expectation of future interest rate path. However, the analysis of the yield curve shape often lacks theoretical foundation. It is based either on review of term spreads or on a simple visual investigation. In this article we formally define the shape of the yield curve in terms of function invariants. We use Nelson–Siegel model as a backbone for our classification and show that there exists only six possible shapes of yield curve. They are: a normal upward slopping yield curve, inverted yield curve, humped upward slopping, dipped upward slopping, humped inverted and dipped inverted. We analyze dynamics of zero coupon yield curve in Russian market based on real historical data. We show that transition from an upward slopping curve to an inverted one was always preceded by a hump at mid-tem maturities, while the transition back was always done through the dip. This highlights the importance of mid-term rates in reshapening the curve. We explain this behavior by short end of the curve being linked to the key rate and thus being more sticky. The contribution of the paper is twofold. First, it provides a formal framework to analyze the shape of the yield curve. Second, it describes the patterns in dynamic of the ruble yield curve that can be useful for bond investors in the Russian market.

Analysis of Financial Fraud Based on the GONE TheoryA Case Study of Hangzhou Century Co., Ltd.

Convertible bonds allow creditors to convert their claims into company shares under certain conditions. Because of this debt-equity conversion feature, the issuance conditions, pricing and conversion value of convertible bonds are highly susceptible to financial information. Increasing the market value of a company's stock by exaggerating earnings or concealing debt may lead to convertible bond investment decisions based on misinformation, which in turn affects investors and the healthy operation of the market. Based on the GONE theory, this paper analyses the motivation of financial fraud in convertible bond documents and proposes corresponding preventive measures for its characteristics. Through the research and analysis of this type of financial forgery, the preventive governance of financial forgery can be further strengthened, which not only helps to protect the company's reputation and ensure the accuracy and reliability of the financial report, but also helps to attract and maintain the trust of investors, avoid possible legal risks and economic losses, and create a transparent and honest financial environment for the market to promote the efficiency of the market and the fair competition of enterprises.

The effect of bond ownership structure on ESG performance

We examine whether firms' ESG performance is influenced by bondholder preferences. We argue that insurance companies have unique incentives to monitor bond issuers' ESG performance because insurers face enhanced exposures to ESG shocks in their balance sheets and trading operations. Consistent with this argument, we find that firms with higher bond ownership by insurance companies are associated with higher future ESG ratings. To address potential identification concerns, we test changes in bond issuers' ESG ratings following the initial bond investment by insurance companies. We find that firms' ESG performance improves after insurance companies' initial bond investment. We also find that this improvement in ESG performance is concentrated in firms with greater reliance on bond financing and investment capital from insurance companies. Our study underscores the importance of bond ownership structure in influencing corporate ESG performance.

The advantages of CBOE credit VIXs for corporate bond investors in North America: A sectoral analysis

This paper examines the safe-haven role of the recently introduced CBOE credit VIXs for investment-grade and high-yield corporate bonds, at both aggregate and sectoral levels. Using a time-varying quantile-based framework and daily data from June 5, 2014 to December 10, 2023, the safe-haven role of credit VIX is confirmed irrespective of bond sector. The safe-haven property of credit VIX is pronounced for high-yield bonds which embed a high credit risk-premium. This result stands when taking into account interest rate volatility, as measured by the MOVE index. A time-varying analysis shows the persistence of credit VIX as a safe-haven for all bond sectors after the COVID-19 pandemic and during a high US interest-rate regime. Corporate bond investors and traders can use these findings to refine their investment and trading decisions and offset credit risk during both normal and turbulent periods.

Financial integration and hedging and safe haven properties of metals for sovereign bonds

Previous research has shown that industrial metals outperform gold and other precious metals in terms of hedging and safe haven properties for sovereign bond holdings. We argue that the strength of these properties depends on how much the sovereign bond is globally integrated. We therefore model the hedging and safe haven properties of metals for sovereign bonds as moderated by how much bond returns are globally integrated. Our evidence from the sovereign bonds of 24 countries shows that industrial metals provide a stronger hedge and safe haven when sovereigns are more integrated, whereas precious metals do not. The inflation and exchange rates also affect the hedging properties of metals, but bond integration has the strongest economic effect. This evidence helps explain why metals are excellent hedging or safe haven assets for some sovereign bond investors but not for others.

Do Investors’ Site Visits Improve Bond Market Pricing Efficiency? —An Empirical Study from the Secondary Bond Market

ABSTRACT Taking bonds issued by A-share companies listed on the Shenzhen Stock Exchange from 2014 to 2020 as a sample, this paper explores the effect of corporate site visits on bond trading spreads. The study finds that the more investors visit a given firm, the lower the trading spreads of bonds issued by that firm, and this phenomenon is more pronounced in companies with greater information asymmetry or agency conflicts. Further research shows that investors evaluate the financial status of the company more accurately through site visits and reduce irrational decisions caused by information uncertainty. Consequently, site visits reduce the financing gap caused by macroeconomic factors. The results show that personal communication between investors and listed companies could provide effective information for bond investors and reduce their information risk. This paper expands the existing research on issues related to secondary bond market pricing and investors’ site visits and provides important empirical evidence for regulators to use to further optimize the bond market disclosure system to reduce information asymmetry.

Assessing the impact of cleaner bonds on clean energy expenditure for sustainable economic recovery: A fuzzy analytical approach

This research evaluates the impact of investing in cleaner bonds on funding clean energy initiatives, pivotal for sustainable economic recovery. The study seeks to assess the efficacy of cleaner bonds in fostering environmentally friendly projects and propelling economic growth and applies fuzzy analytical hierarchy process to examine the findings. Findings suggest that cleaner bonds potentially increase clean energy expenditures by an average growth rate of 4.9 % per year, significantly enhancing economic resilience. Additionally, these bonds are shown to accelerate the revitalization of green economies by approximately 17 % annually. The research underscores the role of energy performance contracts as viable alternatives to conventional project financing, through the application of various modelling tools and fuzzy analyses. It also discusses the strategic allocation of public and private funds into cleaner bond investments to accelrate economic sustainability and energy conservation. This study highlights the essential nature of cleaner bonds for entities and environmental groups aiming to secure funding for long-term projects, stressing the importance of expanding the sustainable economy through green bond issuances for eco-friendly and energy-efficient developments. Furthermore, the research recommends implications for stakeholders to diligently consider the legal aspects associated with these investments.

China’s public long-term care insurance and risky asset allocation among elderly households

China’s elderly households are characterized by higher holdings of cash and cash equivalents and lower holdings of stocks and bonds in their financial portfolios. We utilize the public Long-term Care Insurance (LTCI) reform and data from the China Health and Retirement Longitudinal Study (CHARLS) to examine how LTCI coverage affects risky asset holdings among newly insured elderly households. Employing a difference-in-differences methodology, our findings reveal that LTCI significantly increases the share of risky assets in the financial portfolios of older families. The increased preference for risky assets may be a result of a weakening incentive for precautionary savings. Decomposing risky assets into bonds and stocks, we find that the increase in the share of risky assets following the LTCI pilot comes mainly from bond investments rather than stocks, which indicates that LTCI has a limited effect on risk asset holdings among the Chinese elderly. Our study contributes to understanding the economic impacts of China’s public LTCI by showing that LTCI may lead to changes in asset allocation strategies among elderly households.

The aftermath of covenant violations: Evidence from China's corporate debt securities

We document a sharp and persistent decline in bond issuances following covenant violations also called technical defaults. However, we find no evidence that firms’ investment and performance change after technical defaults. Furthermore, we document that most of the technical defaults are waived off by bondholders through the debenture holders’ meetings. Although covenants serve as tripwires for renegotiation between bond issuers and investors, control rights are rarely transferred from shareholders to bond investors following technical defaults.