Net Investment Research Articles

Global Economic Crisis and Indian Economy: An Empirical Analysis of Role of FIIs Investment Behaviour

This paper seeks to examine as to what extent the India's increasing dependency on FIIs has transferred the economic shocks to the national economy. The selected time period is from April 2006 to Oct 2013. The time period includes the pre-crisis period, crisis period and post crisis period. The empirical analysis, which includes trend analysis as well as regression analysis, suggests that there is significant impact of the FIIs investment on Indian stock market as well as on exchange rate. It was external sector which caused heavy effect of the recent global financial crisis on the Indian economy. The higher selling of securities by FIIs caused rupee depreciation due to higher demand for dollar. An important implication of the finding is that the selling practices of securities are important variable in itself instead of the volume of the net investment. When the sale is high, no matter that purchase is also high, there happens crash in the stock market which shows the investors’ attitude towards the future risk.

Business Valuation: Standard Approaches and Applications

This note provides an introduction to the standard approaches used to value businesses from the perspective of the investor (e.g., discounted cash flow, market multiples). Each approach is illustrated with a specific practical application. The note provides an in-depth example of discounted cash flow valuation of a firm including cash flow forecasting, terminal value estimation, and cost of capital determination. To focus the analysis, the note does not treat the specific complexities associated with M&A analysis. Excerpt UVA-F-1684 Rev. Apr. 27, 2018 Business Valuation: Standard Approaches and Applications Determining the value of a business is critical to many important managerial decisions. Because the future of any enterprise is uncertain, business valuations are rarely identical across analysts. Moreover, because of the complicated nature of assessing a business value, methods vary. In this note we review standard approaches to valuing businesses from the perspective of the investor and practical applications of each. Although we do not treat the specific complexities associated with combining businesses, such as in M&A analysis, we provide tools that are foundational to such analysis. Basic Frameworks To set an investor-based framework for our discussion of business valuation, Figure 1 presents what might be called an investor's balance sheet. This balance sheet for a business is somewhat different from the standard total asset format published in company financial statements in that it focuses on the net assets or total capital invested in the business by debt and equity investors. On the left side, net assets are divided into two categories. Net working capital captures the net investment in liquid operating assets—current assets less non-interest-bearing current liabilities. Net fixed assets captures the net investment in long-term assets such as property, plant, and equipment. The sum of these two categories is termed net assets. . . .

Economic growth model with constant pace and dynamic memory

The article discusses a generalization of model of economic growth with constant pace, which takes into account the effects of dynamic memory. Memory means that endogenous or exogenous variable at a given time depends not only on their value at that time, but also on their values at previous times. To describe the dynamic memory we use derivatives of non-integer orders. We obtain the solutions of fractional differential equations with derivatives of non-integral order, which describe the dynamics of the output caused by the changes of the net investments and effects of power-law fading memory.

Manufacturing Skill‐biased Wage Inequality, Natural Resources and Institutions

AbstractWe use an extensive dataset on occupational wages to measure the manufacturing skill premium and assess, for the first time, the influence of natural resources and institutional quality—in addition to traditional drivers—for advanced and less‐advanced countries and the full sample. The new findings, regarding 21 countries between 1988 and 2008 in the main panel estimations, suggest the premium of advanced countries rises with tertiary enrollment, net foreign direct investment (FDI) and institutional quality, and falls with centralized wage negotiations and geographically diffuse natural resource activities, mainly re‐exportation related. In less‐advanced countries, the premium rises with net FDI, scale effects, centralized wage negotiations and geographically concentrated natural resource activities (absorbing scarce skilled workers), and falls with trade, diffuse natural resource exploration (using mainly unskilled workers) and high‐technology exports, as emerging national low‐end technology industrial exporters may lower skill pay compared with foreign industrial exporters. In the full sample, the premium rises with scale effects, trade, institutional quality and concentrated natural resources, and falls with the relative skilled‐labor supply, centralized wage negotiations and diffuse natural resources. The results account for a wider diversity of situations compared with the previous studies.

Effect of strategic management accounting techniques on market share changes in firms in Tehran Stock Exchange market

Increasing market share is one of the main challenges of organizations nowadays, in order to guarantee profitability and survival of the organization. Market share index in an indicator of success/failure. The aim of the present study is to investigate the effect of strategic management accounting techniques effect on market share changes in Tehran stock market companies. This is a descriptive research in which information are in collected via secondary data and inspecting financial statements. The purpose is to investigate the relationship between variables of the study and then find their correlation. Results of the study suggested that market added value, net present value, profitability index and investment return rate are among those accounting strategic techniques that have significant effect on markets market share, but economical added valued doesn’t have a significant effect on markets share changes. Keywords: market added value (MAV), economic value added, net present value, profitability index, investment return rate, market share changes. JEL Classification: G14, G30, M31, M41

Return and Liquidity Relationships on Market and Accounting Levels in Brazil

ABSTRACT This article discusses profitability-liquidity relationships on accounting and market levels for 872 shares of publicly-traded Brazilian companies, observed between 1994 and 2013. On the market level, the assumption is that share liquidity is able to reduce some of the risks incurred by investors, making them more willing to pay a higher price for liquid shares, which would lower expected market returns. On the accounting level, the basic hypothesis argues that a firm's holding more liquid assets is related to a conservative investment policy, possibly reducing accounting returns for shareholders. Under the assumption of financial constraint, however, more accounting liquidity would allow positive net present value investments to be carried out, increasing future accounting returns, which would positively affect market liquidity and share prices in an efficient market, resulting in a lower market risk/expected return premium. Under the assumption of no financial constraint, however, more accounting liquidity would only represent a carry cost, compromising future accounting returns, which would adversely affect market liquidity and share prices and result in a higher market risk/expected return premium. Among the hypotheses, the presence of a negative market liquidity premium was verified in Brazil, with shares that traded more exhibiting a higher expected market return. On the margins of the major theories on the subject, only two negative relationships between excess accounting liquidity and market liquidity and accounting return, supporting the carry cost assumption for financially unconstrained firms, were verified. In terms of this paper's contributions, there is the analysis, unprecedented in Brazil as far as is known, of the relationship between liquidity and return on market and accounting levels, considering the financial constraint hypothesis to which the firms are subject.

All's Well that Ends Well? Resolving Iceland's Failed Banks

Iceland's capital controls were imposed in October 2008 in order to prevent massive capital flight and a complete collapse of the exchange rate. The controls have not been lifted yet; until recently this was primarily because of the risk of large outflows of domestic holdings of the failed Icelandic banks. As argued in a precursor to this paper (Baldursson and Portes, 2014), significant restructuring of domestic holdings of foreign creditors of the banks was required before the controls can be lifted. Such a restructuring was finally accomplished in January 2016 and gradual lifting of the capital controls now appears to be within reach. Broadly in line with the recommendations of Baldursson and Portes (2014), the resolution involved a voluntary - in much the same sense as the Greek debt restructuring was voluntary - restructuring of the banks' debt, under which most of the Icelandic krona assets of the banks were relinquished to the state or tied up in Iceland. Resolution of the old banks will cut Iceland's public debt, but it will still be substantially higher than before the crisis. The net international investment position of Iceland is, however, stronger than it has been in decades.

THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND PROFITABILITY: EVIDENCE FROM THE CZECH AGRIC AND FOREST INDUSTRY

INTRODUCTION:The financial lifeline of any company depends on its ability to generate more money that it uses for operation, and labour cost over a relatively long period. Fixed and liquid assets also play an integral role in a company's survival provided there is a healthy balance between the two depending on the trade a company engages in (Paramasivan & Subramanian, 2009). Working capital refers to an organization's liquid assets and monies used to finance its short-term or current goals. It can also be described as a firm's net investment in assets that are necessary to support its daily activities. In general, a firm's working capital is derived from the difference between current liabilities and current assets.. That is, Net working capital is equal to current assets minus current liabilities. This study contributes to the theoretical knowledge by identifying how working capital management affect firm's profitability in the Czech Agric and Forest industry and how these firms can use working capital strategies to increase the firm's market value.LITERATURE REVIEW:Working capital continually takes different forms such as cash, inventories, and receivables depending on an organization's needs. The effective management of working capital is therefore imperative for any organization to maintain smooth operations throughout its operation cycle (Nobanee et al. 2011). Additionally, it helps in mitigating the cost of capital. The cost of capital refers to monetary resources used up while maintaining the working capital. Also, working capital management is crucial in maximizing the return on current investments. On the other hand, organizational performance refers to the metrics applied to find the amount of value the organization has achieved. This value pertains to parameters that include but not limited to strategic objectives, organizational structure, business performance measures, allocation of resources and processes, and reward structures (Lopez-Nicolas & Merono-Cerdan, 2011). Consequently, organizational performance is a culmination of different variables that have to align for the organization to achieve optimum performance.Similar to treasuries in the global economies, the Treasury in the Czech Republic deals with cash management issues. This includes management of debts, financing the corporation, control of foreign currency, maintaining healthy inter-bank relationships, and providing necessary support for all these functions (Polak & Kocurek 2007). Cash pooling and other global trends in banking have had a significant impact in the Czech Republic since the inception in the 21st century (Ambrisko, 2016). As companies, banks, and investors engaged in transaction-driven business models, institutional and cooperate investors were looked upon to provide financing for major corporate clients and industry players (Petrovic & Solingen, 2005). This financial situation coupled with other macro and micro-environmental factors have forced agricultural enterprises and forestry industry players to seek new approaches for increasing their competitiveness (Vavrina & Rutickova, 2012).Agricultural land in the Czech Republic, including forestland, accounts for more than half of the country's total acreage with an estimated 54% of the country's land under cultivation and forest cover (Ec.europa.eu, 2016). However, there has been a gradual decrease in agricultural land coverage owing to the struggling economy that has been gradually recovering since 1998, and 2008 economic depressions. The share in agriculture and forestry GDP has dropped to less than 4% translating to a drop in employment rates in the sector of the same magnitude (Ec.europa.eu, 2016).The agricultural and forestry industry in the Czech Republic is largely privatized and is dominated by very large-scale collective and state farms (Jarský & Pulkrab, 2013). This has given rise to three major forms of agriculture namely, transformed coops, stock and limited liability companies, and individual farms (Liska, 1992). …

Analisis Kinerja Keuangan Pada Klub Sepak Bola (Studi Kasus Pada Arsenal, Tottenham Hotspur dan Everton)

<em>Football is a popular sport that affect various aspects of life, one of which is the economy. In Europe, football has become an industry and the clubs most are already preparing financial statements. This study aims to analyze the financial performance of three football clubs that followed the Premier League as one of the best leagues in the world, Arsenal, Tottenham Hotspurs and Everton, for the period of 2007-2011. This study uses the technique of quantitative and qualitative descriptive analysis using 14 financial ratios relevant to the football club. Results showed in general Arsenal is a club that has the best financial performance in comparison Tottenham Hotspurs and Everton, in particular in such matters, income and liquidity. Tottenham Hotspurs have advantages in terms of net investment over player contracts and operating cash flow. While Everton in general have the worst financial performance in terms of operations and liquidity, but has a good asset turn over.</em>

Modelling factors of students’ work in Western Balkan countries

The positive side of employment during studies is the increase of net investments in human capital. The main objective of this paper is to discover factors influencing the work of students in Serbia, Bosnia and Herzegovina and Montenegro and to compare students’ employment in these three Western Balkan countries. Quantitative analysis based on binary logistic regression has been performed using datasets from fifth wave of EUROSTUDENT survey. The models were built on the basis of seven predictors which describe opportunity structure in higher education and socio-economic background of students. The entered set of predictors is significantly influencing the students’ employment during study terms. The significant predictor of working status in all three countries is the age of students. Additionally, the significant factor in Serbia is the level of studies, in Montenegro the level and field of studies, while in Bosnia and Herzegovina the educational level of parents.

The Carry Trade and Implied Moment Risk

The carry trade is a zero net investment strategy that borrows in low yielding currencies and subsequently invests in high yielding currencies. It has been identified as highly profitable FX strategy delivering significantly excess returns with high Sharpe ratios. This paper shows that these excess returns are especially compensation for bearing FX variance and negative skewness risk. Additionally, factor risks that affect foreign money changes, foreign inflation changes, as well as changes to a newly developed Carry Trade Activity Index and the VIX index, as a proxy for global risk aversion, make up the carry trade risk anatomy. These findings are not exclusively important for carry traders, but also contribute to the understanding of currency risk in the cross-section. This is directly linked to asset pricing tests from Lustig et al. (2011), which have shown that currency baskets sorted on their interest rate differentials are all exposed to carry trade returns as a risk factor. Furthermore, this paper finds evidence that a decreased level of funding liquidity potentially leads to carry trade unwindings, controlling for equity and FX implied variance and skewness effects, which supports the theoretical model of liquidity spirals developed by Brunnermeier and Pedersen (2009).

Do UK Retail Investors Buy at the Top and Sell at the Bottom?

In this paper we examine market level data on the net investment into broad categories of UK mutual funds (known as unit trusts) collated by the Investment Management Association (IMA). We use these data to calculate a measure known as the 'performance gap' that is used by both Friesen and Sapp (2007) and by Dichev and Yu (2009). Our data spans the period from 1992 to the end of 2009 and therefore represents a significant sample period over which to study this phenomenon. Our results are broadly in keeping with those of previous research in this area, which has been achieved using US mutual fund data. The UK data that we use here suggest that on average the investment timing decisions of retail investors with regard to equity mutual funds has cost them performance of just under 1.2% per year over the eighteen year period of our study.

Foreign Institutional Investment and Stock Market Returns in India: An Empirical Investigation

The Indian financial market has been an eye-catching investment destination for the investors all over the globe. The ever growing contribution of Foreign Institutional Investors (FIIs) surely complements the inland investment but they are extremely volatile compared to other forms of investment flows. Therefore it becomes very much central to have an extensive study on the interconnection between Indian stock market and FIIs investment behaviour. This study considers daily data from April 2001 to March 2015. To ascertain the linkage between FII investments and Stock market returns, the entire study period has been divided into six phases based on the stock market trends. The Correlation Analysis, Granger Causality Test, Variance Decomposition and Impulse Response Function are carried out to know the relationship between FIIs and Indian Stock Market returns. The result indicates that Indian stock market returns Granger cause net FII investments. Nifty returns define FII investments more in all the phases than FII investments defining Nifty returns. It is also observed that Nifty returns define FII investments highly during bear market period than the bull market period.

On the Dynamics of the Investment Income Balance

While the positive return differential of the United States has attracted a lot of attention in the literature, the factors underlying the dynamics of the investment income balance have so far not been systematically investigated. Here, we propose a novel decomposition framework that accounts for the changes in net investment income. This allows us to disentangle contributions of changes in yield level and yield spread from those of changes in stocks as well as composition and portfolio effects. The analysis contributes conceptually to the question of how investment income might facilitate international risk sharing. We apply our decomposition framework to a rich German dataset spanning 11 different investment classes and provide a forensic account of the increase in the German investment income balance between 1999 and 2014. Focusing exclusively on the aggregate development of external assets and liabilities falls short of explaining the growth in German net investment income and around 40% of the increase is explained by changes in yields. Furthermore, our results highlight the importance of considering the composition of external assets and liabilities as well as portfolio changes in order to understand the dynamics of the investment income balance.

Defects in foreign tax credit rules

This article identifies and discusses some defects and inconsistencies in the application of the foreign tax credit rules. A US taxpayer may have income from the USA and from foreign sources, but both are subject to US taxation. However, the US tax related to the foreign-sourced income is allowed to be offset by the foreign tax credit. The amount of foreign tax credit allowed depends on whether the foreign-sourced income is taxed at a regular rate or at a reduced rate. The latter involves the concept of 'rate differential portion'. This article explains the details and provides a formula. This article further introduces the newly enacted 'net investment income tax', and explores its impact on the determination of the foreign tax credit. In addition, this article reveals that, under current law, the application of the 'rate differential portion' is biased against those taxpayers who are in the lower-tax rate brackets. This article further points out that no foreign tax credit is allowed against the US 'net investment income tax' imposed on foreign-sourced income. It is possible this income will be subject to double taxation. This article also provides a comprehensive example and offers some tax planning strategies.

Inter linkages and co-integration between foreign institutional investments and nifty index

The objective of the paper is to study the cause and effect relationship between net investments made by foreign institutional investor's (FIIs) and nifty index return in India. This paper further aims to examine the long term association between the two in pre sub prime crisis and post sub prime crisis period. The cause and effect relationship has been investigated applying augmented Dickey Fuller (ADF) unit root test, Granger causality test, Johansen co-integration test and variance decomposition. The study shows that there is a moderate positive correlation between foreign institutional investment inflows and nifty index. There is an evidence of unidirectional causality between foreign institutional investment net inflows and nifty index return. There has been strong evidence of long run association during the total period as well as in pre and post sub prime crisis periods.

Rental housing for a French taxpayer: are there tax arbitrage opportunities in the USA?

ABSTRACTThe aim of this paper is to identify tax arbitrage opportunities in the field of rental housing in France and the USA. We conducted tax simulations for investments made in the USA or France. We compared total net rental incomes, capital gains and present investment values based on different tax regimes. Our results show that rental housing in the USA under the Effectively Connected Income classification serves as the best option, as it generates the highest present investment value. We performed several robustness exercises and we showed that our results are strengthened in cases of stronger price appreciation in the USA than in France and in cases of high landlord tax brackets.

Relative Valuations of Fixed Capital and Financial Assets in the United States

This paper examines the relative valuations for fixed capital and financial assets in the United States, illustrating the observed relationships from the valuations of assets on the real productive side of the economy to the financial valuations of equities and other financial assets, and also to private net worth. The analysis examines the various layers of the relationships of asset valuations relative to potential GDP for the private nonfinancial sectors of the U.S. economy, building up from the relative valuations for fixed capital assets (the capital stock), to the relative valuations for total nonfinancial assets (including land), and then to total assets (i.e., including financial assets). The low rate of net investment in recent years is also addressed, including examining the role of higher effective rates of depreciation. Comparisons are made for the observed relative valuations of corporate equities to Shiller’s CAPE and to a measure of Tobin’s q ratio. Relationships for the relative valuation of assets during business cycles are examined, including the observed lead times and threshold changes relative to business cycle peaks.

Valuation effect as a determinant of the international investment position in Central and Eastern European economies

The aim of this paper is to evaluate the significance of the valuation effect in determining the dynamics of the net international investment position of CEE economies. For this purpose an analysis of BoP and IIP time series for the four largest CEE economies (Poland, the Czech Republic, Hungary and Romania) for the years 2005-2013 was carried out. The exercise revealed that the valuation effect (VE) is, in the short run, the key determinant of net IIP changes (for most observed years). Nevertheless, in the long-run its influence decreases as valuation gains and losses tend to cancel each other out. As the VE is relatively volatile, it is important to analyse its dynamics over the mid and long-term when evaluating the IIP. The significance of the VE for determining net IIP dynamics turned out to be non-investment-type specific because valuations of both the short-term and long-term investments contributed in a large part to the change in the net IIP. Similarities in the dynamics of the VE in CEE countries prove that the VE depends to a large extent on the general price fluctuations in financial markets that nowadays exhibit strong correlations across countries.

The effectiveness of the structured deposit in the Polish capital market

The aim of the paper is to present the efficiency of the structured deposit depending on the achieved rate of return and attempt to answer the questions – whether structured deposits provide investors with satisfactory earnings and an investment in a structured product is effectively connected with a profit superior to traditional forms of accumulating capital. The Author further characterized the structured deposit. The study was conducted for the period 01.01.2000–31.12.2013. Then 690 structured deposits were completed and for each net investment income was designated. The rate of return of completed structured deposits was compared with an average annual interest rate on bank deposits for 12 months, and inflation.