Long-term Investment Horizons Research Articles

Intangible Capital, Investor Structure and Stock Return from the Perspective of RBV

The current research suggests the presence of asset mispricing by indicating that stock prices may not necessarily reflect underlying fundamentals. Additionally, prior studies often underestimate the importance and overlook contributions from resources to the returns. In this article, we propose the effect of intangible assets into asset pricing in the context of varying investor sentiment and long-term investment horizon. Drawing from the recourse-based view of intangible assets within firms, we can better assess a firms growth and stock returns. We conclude that the Capital Asset Pricing Model (CAPM) should incorporate the influence of intangible assets. These assets can reduce operational risk, thus affecting idiosyncratic risk.

Optimism in Property Markets

House valuation involves forecasting household demand for a neighborhood, whereas commercial property valuation involves forecasting area economic activity. Yet, we show optimistic expectations for both. We investigate further possible disparities due to different cultures of home ownership, short, medium, and long-term investment horizons, and bullish or bearish trends. We use an experimental framework to demonstrate expectations are optimistic under all conditions. Buyers use trends to surmise future prices in bull markets, expect price increases in oscillating markets, and price reversals in bear markets, failing to anticipate price busts. Policy implications are important in preventing property boom- induced financial crises.

Cross-category connectedness between Shanghai crude oil futures and Chinese stock markets related to the Belt and Road Initiative

This paper aims at investigating the cross-category time-varying frequency connectedness between Shanghai crude oil futures (INE), the CSI Belt and Road theme index, and seven Chinese stock markets affiliated with the Belt and Road Initiative (BRI), namely infrastructure, high-speed railway, green electricity, communication, ferrous metals, agriculture, and new energy markets. Using the novel time-varying parameter VAR (TVP-VAR) frequency connectedness model, we identify how the connectedness between INE and BRI-related stocks varies between the short-term, and long-term investment horizons. Our empirical findings reveal that the connectedness between INE and BRI-related stocks significantly increases during extreme market movements and mainly occurs at shorter time horizons. On the other hand, both INE and BRENT serve as net shock receivers, exhibiting relatively limited connectedness to BRI-related stocks. Notably, the correlation between INE and BRI-related stocks is significantly stronger compared to that observed with BRENT. We also observe that the INE exhibits a relatively strong correlation with infrastructure and ferrous metals compared to other stock markets, displaying a discernible bidirectional spillover effect. Our results document some practical enlightenment for investors and policymakers with various time horizons.

ESG rating changes and portfolio returns: A wavelet analysis across market caps

This study implements advanced wavelet analysis to affirm a strong positive connectedness between E, S, and G pillar ratings and equity portfolio returns, particularly at low frequencies or long-term investment horizons. However, for E-pillar strategies, a transient negative "equity greenium" phase in 2019–2020 indicates that elevated E-ratings coincide with reduced financial performance. Bidirectional relationships challenge conventional ESG score notions, with weaker global ESG return connections, mid-cap portfolio exceptions (2015–2017), and short-term impacts on large caps (2019–2021). Inter-pillar connections, especially post-2015 E and S dynamics, unveil evolving complexities. Hierarchical connectedness patterns among portfolios underscore unique dynamics, emphasizing the multifaceted ESG landscape.

CEO International Experience in Advanced Market Economies and Firm Investment Horizon in a Transitioning Economy

AbstractBuilding on the literature on managerial myopia, we investigate how chief executive officers’ (CEOs) international experience in advanced market economies affects their firms' investment horizons in a transitioning economy. To overcome myopia, CEOs should possess the knowledge needed to manage current tasks, thereby freeing up cognitive resources for future considerations. In the context of our theorizing, we argue that international experience in advanced market economies equips CEOs with knowledge about how to deal with their current tasks of market-oriented adaptation in a transitioning economy, freeing up cognitive resources for considering longer-term investment horizons. Additionally, the effect of CEO international experience in advanced market economies on firm investment horizon is stronger under conditions that increase the cognitive burden on CEOs to perform market-oriented adaptation tasks – specifically, when there is a high scope of pro-market reform, high intensity of foreign competition, analyst coverage, and a high level of institutional ownership. Our estimation based on a matched sample of 204 Chinese CEOs during the period 2002–2019 supports the majority of our predictions. Our study contributes to research on firm investment horizon, CEO international experience, and transition economies.

Can Cryptocurrencies Provide Better Diversification Benefits? Evidence from the Indian Stock Market

Cryptocurrency has recently emerged as a financial asset among policymakers, investors and academics as a new alternative asset in the financial landscape. This research intends to empirically evaluate the safe haven, diversification and hedging potentials of digital currencies against the Indian equity market during different time frames. Four cryptocurrencies (Bitcoin, Ethereum, Binance Coin and Ripple) and Nifty 50 index data have been collected on a daily basis, from 26 July 2017 to 31 August 2023, for this purpose. Using wavelet-based methods, the study has discovered higher volatility in Nifty 50 and cryptocurrency prices during the crisis and stronger co-movement between pairs of equities and cryptocurrencies. Furthermore, the study finds that, under normal economic conditions, cryptocurrency can hedge the Indian stock market over short-term, medium-term and long-term investment horizons. However, investing in cryptocurrencies in the Indian stock portfolio for the short term does not give any safe haven or diversification advantages during times of economic crisis. Finally, we anticipate that the findings of our study will provide valuable insights into the potential usage of cryptocurrencies in the Indian stock market, both in stable and turbulent economic conditions. JEL Codes: G01, G41, N2, P34

The green, the dirty and the stable: Diversifying equity portfolios by adding tokens of different nature

In this study we propose to empirically assess the potential diversification benefits of three types of cryptocurrencies (traditional: Bitcoin, green: Cardano and stablecoins: Tether) by including them in equity-based asset allocation strategies. We build monthly rebalanced minimum VaR portfolios based on different wavelet scales or investment horizons. We use the ADCC-GARCH model to fit the dynamic dependence structure. We find that traditional and green cryptocurrencies provide diversification opportunities when considering portfolio strategies based on short-term investment horizons. We also demonstrate that stablecoins may play the role of safe haven assets for those portfolio strategies based on long-term investment horizons.

Gold and Bitcoin as Hedging Instruments for Equity Markets under Crisis

<p class="MsoNormal" style="margin-top: 6.0pt;"><span lang="EN-US" style="mso-bidi-font-size: 10.5pt; font-family: 'Cambria',serif; mso-fareast-font-family: 宋体; mso-bidi-font-family: 'Times New Roman';">Gold has been traditionally well recognized as a safe heaven for financial markets. Lately, Bitcoin has been gradually considered as a popular alternative. Since the outbreak of COVID-19 in early 2020, it has become even more necessary and critical to examine the diversification capability of them to hedge financial risks associated with an unexpected crisis comparable to the pandemic. This paper hence employs the wavelet analysis, complemented by the multivariate DCC-GARCH approach, to measure the coherence of the gold and Bitcoin prices with six representative stock market indices, three for developed economies and three for emerging economies, all of which are heavily affected by the pandemic. To have a more balanced and comprehensive analysis, two-year data are used, spanning from 12th April 2019 to 15th April 2021, which covers approximately one year before and one year after the announcement of the COVID-19 pandemic. The results suggest that the returns of both gold and Bitcoin are generally not strongly correlated with the market returns of all six indices, particularly for short-term investment horizons. That is, investors in all six indices can benefit through gold, as well as Bitcoin, in terms of hedging. Meanwhile, compared with Bitcoin, gold shows to be less correlated with the indices, particularly for long-term investment horizons. The findings hence suggest that gold and Bitcoin offer diversification benefits to investors in the market indices during a crisis such as the COVID-19 pandemic, especially for short-term investment horizons. The study also reminds policymakers thinking beyond the pandemic about the future of the earth, including air pollution and health, for sustainable development of the whole world.</span></p>

Family firms and product recalls: an event study for the US automobile industry

PurposeThis study explores whether the unique organizational form of family firms helps to mitigate the negative effects caused by the announcement of product recalls.Design/methodology/approachThe authors use an event study, for a sample of 2,576 product recalls in the United States (US) automobile industry, between January 2010 and June 2021.FindingsThe authors found that stock market's reaction to a product recall announcement is less negative for family firms. This superior performance is partially driven by the family firms' long-term investment horizons and higher strategic emphasis on product quality. However, the relationship between family ownership and cumulative abnormal returns around product recall announcements is nonlinear as the impact of family ownership starts by being positive but becomes negative for higher levels of family ownership. The authors also find that family firm's chief executive officer (CEO) and managerial ownership influence positively the stock market reaction to product recall announcements.Practical implicationsThis work has several implications for family firms' management as well as for investors and financial analysts. First, as higher managerial ownership is associated with a greater emphasis on product quality, decreasing stock market losses when a product recall occurs, family firms should consider increasing equity-based compensation. Second, as there seems to exist an optimal proportion of family ownership, family firms should consider the risks of increasing too much their ownership share. Third, investors and financial analysts can use the results in the study to help them in their investment and trading decisions in the stock market.Originality/valueThe authors extend the knowledge of product recalls by studying the under-researched role of the flexible, internally focused culture of family businesses on the stock market reaction to product recalls.

Dollar-Cost Average plan in EMU countries: could it be beneficial? What the data say.

This study examines a real case scenario using real data under the assumption of a long-term investment horizon. We examine the Dollar Cost Average, Cost Average Plan (CAP) in our case, and attempt to ascertain whether it could prove beneficial for an investor that does not have a significant amount of money to invest when the plan begins. We compare the outcome of the CAP with the alternative scenario of investing a monthly amount in a deposits account, which is in real terms the most comparable plan to the CAP. Using data from January, 2003 to November, 2021 from a wide range of ten (10) European Monetary Union countries, we compare the empirical evidence of these results and we reach the conclusions that CAP outperforms the seasonal bank deposits plan. Moreover, we compare these strategies with the Buy-and-Hold (BnH) strategy, as most studies do, and we conclude that CAP is more beneficial for highly volatile and less uptrend markets than a BnH strategy.
 
 
 
 Jel Classifications: G1; G11; N2
 Keywords: Dollar Cost Averaging; Investment Strategies; Investment Decisions; Investment Plans.
 
 

Common institutional ownership and investment efficiency: Empirical evidence from China

Common institutional ownership has become a significant form of shareholding in the capital market. Using panel data on 2395 listed companies in China from 2007 to 2020, we examine the investment efficiency of this ownership practice on microcorporate investment behavior. The estimates indicate that common institutional ownership has a significant positive relationship with corporate investment efficiency by reducing overinvestment. Further institutional heterogeneity analysis reveals that enterprises have independent and long-term investment horizon of common institutional investors, and the positive effect of common institutional ownership on enterprises’ investment efficiency is stronger. The empirical results are validated by a series of robustness tests. This study provides empirical support for the performance of common institutional ownership participating in corporate governance and optimizing investment decisions.

Dynamic time-frequency connectedness between European emissions trading system and sustainability markets

This paper examines the time-frequency spillovers and connectedness network between European ETS and the sustainability markets. Empirically, we rely on the Baruník and Křehlík (2018) Diebold and Yilmaz (2012) spillover index to measure the time-varying spillovers, directional spillover, net directional spillover and connectedness network in the short-term and long-term investment horizons. Our findings suggest higher overall interconnectedness between the carbon price returns and sustainability indices, with a total spillover index of 69.75%. More specifically, the magnitude of spillovers is substantially higher in the short term than in the long terms. Moreover, European, France, and Germany sustainability indices exhibit the properties of the largest transmitter of spillover of returns towards the system whereas carbon prices are the lowest contributor to transmitting the spillovers towards the system. In the connectedness network, ETS offers a good investment opportunity with Belgium and Finland sustainability indices due to the lower level of returns connectedness. Finally, ETS provides the portfolio risk reduction in the short-term and long-term investment horizons.

Volatility transmission from critical minerals prices to green investments

Green investments offer a promising market-based approach to combating global climate change, yet they are susceptible to risk transmission from various assets. While existing literature has primarily focused on the volatility implications among green investments, traditional stock returns, energy, and precious metals markets, it has overlooked the potential for volatility transmission from critical minerals markets to green investments. This is because the clean production process involves both eco-friendly stock and mineral markets, so fluctuations in mineral prices can result in volatility spillover to green investments. In this study, we examine the volatility transmission from critical mineral prices (such as copper, nickel, and lead) to green bonds and green equities in a global context. Using cross-quantilogram and cross-quantile spectrum analysis, we analyse daily data from October 31, 2014, to October 5, 2022, taking into account short-, medium-, and long-term investment horizons. Our findings indicate strong short- and long-term connections between green financial and mineral markets during market booms and busts. Conversely, under normal market conditions, both markets tend to behave independently. Our results provide valuable insights for green project managers, investors, and policymakers, highlighting the efficiency of green investments in achieving environmental goals.

Learning risk preferences from investment portfolios using inverse optimization

The level of risk an investor can endure, known as risk-preference, is a subjective choice that is tightly related to psychology and behavioral science in decision making. This paper presents a novel approach of measuring risk preference from existing portfolios using inverse optimization on mean–variance portfolio allocation framework. Our approach allows the learner to continuously estimate real-time risk preferences using concurrent observed portfolios and market price data. We demonstrate our methods on robotic investment portfolios and real market data that consists of 20 years of asset pricing and 10 years of mutual fund portfolio holdings. Moreover, the quantified risk preference parameters are validated with two well-known risk measurements currently applied in the field. The proposed methods could lead to practical and fruitful innovations in automated/personalized portfolio management, such as Robo-advising, to augment financial advisors’ decision intelligence in a long-term investment horizon.

A Study on Impact of Big Five Personality on Investment Decisions of Mutual Fund Investors: Mediation by Risk

Mutual fund investment in India has gained significant popularity over the years as an avenue for individuals to participate in the capital markets. Understanding these psychological factors can help investors recognize and mitigate potential biases in their decision-making processes. Being aware of one’s personality, risk behavior, seeking diverse perspectives, and maintaining a long-term investment horizon can contribute to more rational and informed investment decisions. Additionally, seeking professional advice and engaging in continuous learning and self-reflection can further enhance investment decision-making abilities. Individual differences within each personality trait can significantly influence investment decisions. Additionally, other factors such as financial literacy, investment knowledge, and personal circumstances also play a role in shaping investment behavior and risk tolerance. This paper attempts to explore the nuanced relationships between personality traits, risk, and mutual fund investment decisions.

A Study on Impact of Big Five Personality on Investment Decisions of Mutual Fund Investors: Mediation by Risk

Mutual fund investment in India has gained significant popularity over the years as an avenue for individuals to participate in the capital markets. Understanding these psychological factors can help investors recognize and mitigate potential biases in their decision-making processes. Being aware of one’s personality, risk behavior, seeking diverse perspectives, and maintaining a long-term investment horizon can contribute to more rational and informed investment decisions. Additionally, seeking professional advice and engaging in continuous learning and self-reflection can further enhance investment decision-making abilities. Individual differences within each personality trait can significantly influence investment decisions. Additionally, other factors such as financial literacy, investment knowledge, and personal circumstances also play a role in shaping investment behavior and risk tolerance. This paper attempts to explore the nuanced relationships between personality traits, risk, and mutual fund investment decisions.

Firm-specific investor sentiment and stock price crash risk: The role of foreign investors in Korea’s stock market

Building on a prior study that documents that stock price crashes are positively associated with firm-specific investor sentiment (hereafter, the sentiment), this study further investigates the moderating effect of foreign investors on Korea’s stock market. This study hypothesizes that foreign investors as sophisticated participants are indifferent of the significant relationship between the sentiment and the stock price crashes. For firms listed on the KSE over the period of 2011–2019, the analysis findings show that the high stock crash risk attributable to the high sentiment is attenuated for firms with high foreign ownership. However, such moderating effect of foreign ownership disappears when taking foreign investment horizon into consideration. This implies that future stock crash risk reduction under the high sentiment is due to the corporate monitoring role of foreign investors, who are targeting a long-term investment horizon. This study adds to the literature on the role of foreign investors by suggesting that foreign investors act as a rigorous monitor helpful for managing stock price, rather than a price maker who is rational under the high sentiment.

Institutional investors’ corporate site visits and tax avoidance

ABSTRACT This study examines the association between institutional investors’ corporate site visits (CSVs) and the visited firms’ tax avoidance. This paper uses unique corporate site visit data from China to evidence that institutional investors’ CSVs reduce the visited firms’ tax avoidance. The primary economic channel is that dedicated institutional investors have a higher probability of visiting the corporate sites, and their long-term investment horizons discourage corporate tax avoidance. Another channel stems from the CSVs’ influence on the visited firms’ information environment and its monitoring mechanism for managers.

Альтернативные защитные инструменты российского валютного рынка в условиях высокой волатильности и санкций

Many economists name deflationary nature as one of the advantages of cryptocurrencies. In this regard, some cryptocurrencies are credited with the ability to protect capital from inflation of fiat currencies. However, this issue is debatable. In addition, the relevance of the topic under study is due to the need to create a digital means of payment for international settlements between Russia and its friendly countries. The purpose of this study is to analyze the possibility of using bitcoin and stablecoin as a protective anti-inflationary asset on long-term investment horizons and an international means of payment under sanctions, respectively. To achieve this goal, the author of the article considered the main approaches to determining the role of bitcoin and stablecoin in the economy and money circulation, identified the main threats associated with the legalization of these currencies. As a result of the study, a classification of stablecoins was presented in terms of the type of collateral and the main factors preventing the transformation of bitcoin into a protective asset were identified. At the end of the study, a conclusion was made about the potential use of bitcoin as a protective asset, and stablecoin as a means of international settlements.

Managing disclosure of political risk: The case of socially responsible firms

Based on agency theory, signaling theory, and moral capital theory, we examine whether and how corporate social responsibility (CSR) performance influences firms’ political risk disclosure. We also examine the impact of such disclosure on institutional ownership and financial analysts’ forecast dispersion and forecast error and whether the impact depends on CSR performance. We find that stronger CSR performers provide less disclosure of political risk than weaker CSR performers, suggesting that CSR performance is a substitute for political risk disclosure. We find that political risk disclosure is associated with lower percentage of ownership by institutional investors with long-term investment horizons and higher analyst forecast dispersion and forecast error. However, we find that CSR performance cancels out the negative impact of political risk disclosure on institutional ownership and analyst forecast dispersion/error, suggesting that institutional investors and financial analysts put less weight on such disclosure issued by more CSR-oriented firms.