Number Of Portfolios Research Articles

Zoom in on momentum

Portfolios sorted by momentum show stronger return monotonicity than those formed using other anomalies. Compared with other strategies, the performance of such a momentum strategy improves monotonically with the number of portfolios. These improvements are significant beyond the influences of the usual pricing factors. Momentum factors based on more portfolios span those based on fewer portfolios, whereas the opposite effects do not hold. The evidence reported in this study suggests that a momentum factor formed on more than 10 portfolios sharpens the factor and its stylized facts.

Bounds in Tree-Based Approaches to Generate Project Portfolios in the Presence of Interactions

Portfolio decision models have become an important branch of decision analysis. Portfolio problems are inherently complex, because of the combinatorial explosion in the number of portfolios that can be constructed even from a small number of items. To efficiently construct a set of portfolios that provide good performance in multiple criteria, methods that guide the search process are needed. Such methods require the calculation of bounds to estimate the performance of portfolios that can be obtained from a given partial portfolio. The calculation of such bounds is particularly difficult if interactions between items in the portfolio are possible. In the paper, the authors introduce a method to represent such interactions and develop various bounds that can be used in the presence of interactions. These methods are then tested in a computational study, where they show that the bounds they propose frequently provide a good approximation of actual outcomes, and also analyze specific properties of the problem that influence the approximation quality of the proposed bounds.

Resampled Efficient Frontier Integration for MOEAs.

Mean-variance portfolio optimization is subject to estimation errors for asset returns and covariances. The search for robust solutions has been traditionally tackled using resampling strategies that offer alternatives to reference sets of returns or risk aversion parameters, which are subsequently combined. The issue with the standard method of averaging the composition of the portfolios for the same risk aversion is that, under real-world conditions, the approach might result in unfeasible solutions. In case the efficient frontiers for the different scenarios are identified using multiobjective evolutionary algorithms, it is often the case that the approach to averaging the portfolio composition cannot be used, due to differences in the number of portfolios or their spacing along the Pareto front. In this study, we introduce three alternatives to solving this problem, making resampling with standard multiobjective evolutionary algorithms under real-world constraints possible. The robustness of these approaches is experimentally tested on 15 years of market data.

How Risk Profiles of Investors Affect Robo-Advised Portfolios

Automated financial advising (robo-advising) has become an established practice in wealth management, yet very few studies have looked at the cross-section of the robo-advisors and the factors explaining the persistent variability in their portfolio allocation recommendations. Using a sample of 53 advising platforms from the US and Germany, we show that the underlying algorithms manage to identify different risk profiles, although substantial variability is evident even within the same investor types' groups. The robo-advisor expertise in a particular asset class seems to play a significant role, as does the geographical location, while the breadth of the offered investment choice (number of portfolios) across the robo-advisors under study does not seem to have an effect.

MODEL PENGEMBANGAN DAN PEMANFAATAN WAKAF TUNAI UNTUK PENDIDIKAN TINGGI (STUDI KASUS WAKAF AMERTA AIRLANGGA)

ABSTRACTThe The increasingly difficult economic conditions require educational institutions at the tertiary level to develop a model for collecting funds from the community, one of which is through cash waqf. Airlangga University already has a model of developing and utilizing campus-based cash waqf. So with this waqf solution the community can be helped especially by students to continue their education. From here the authors are encouraged to conduct research on "Models of Development and Utilization of Cash Waqf for Higher Education (Case Study of Waqf Amerta Airlangga.".With the formulation of the problem: first, How to use cash waqf for higher education in Amerta Airlangga Waqf. Second, how to model the development of cash waqf in Amerta Airlangga. The method of this study used qualitative-descriptive because the data was qualitative, the data was not quantitative which used statistic. Practically, the data collection used three methods, they were: interview, observation, and documentation.Based on the results of research in Waqf Amerta Airlangga, it is known that the Community donated funds to the Waqf Amerta Airlangga through PUSPAS which is divided into two types, namely non-endowment social donations and endowment donations. Then some of the non-waqf funds were directly put into social donation accounts which could be directly utilized for the Airlangga University PUSPAS program, by 85%. While the other 15% is for the operations of PUSPAS Airlangga University. The Waqf Fund through the Amerta Endowments program will be managed separately for the fund as an investment in a number of portfolios. Key Words : Development and Utilization Model, Cash Waqf, Higher Education

Labor Matching and Equity Prices

This article examines the relation between labor matching and long-term equity returns. A long short portfolio of high minus low labor matching firms generates four-factor abnormal returns of 6.67% annually. The returns are 5.77% over industry- and 5.28% over characteristics-matched benchmarks. Our findings are robust after controlling for portfolio weights, factor models, number of portfolios, and exclusion of outliers. The higher matching firms also show greater positive surprises and positive returns following earnings announcements. A quasi-natural experiment in which state-wide labor matching was impeded following the adoption of inevitable disclosure doctrine shows firms headquartered in those states lost significant shareholder value.

What drives venture capital fund performance?

ABSTRACT This study analyses the determinants of the return on Korean venture capital (VC) funds in terms of fund management strategies. In particular, I adopt the quantile regression analysis to identify the heterogeneous effect of a strategy based on the performance level of a fund. As a result of the analysis, it has been shown that to achieve high performance, it is necessary to use instruments to deal with the uncertainty of investment targets and information asymmetry such as stepwise investment, use of conversion securities, syndication. In addition, for very high performance, it is necessary to focus on a certain industry and to include a few companies in the portfolio with large investment. As well, in order to achieve high returns, investing large amount in a small number of portfolios is confirmed to be valid strategy.

An alternative approach for portfolio performance evaluation: enabling fund evaluation relative to peer group via Malkiel’s monkey

ABSTRACTWe propose an implementable portfolio performance evaluation procedure that compares a portfolio with respect to the portfolios constructed by an infinite number of Malkiel’s blindfolded monkeys, or equivalently the whole enumeration of all possible portfolios. We argue that this approach exhibits two main advantages. First, it does not require any benchmark portfolios because a portfolio is being compared to an infinite number of portfolios. Second, it is market condition invariant. Since the market conditions are already reflected in the portfolio performances of an infinite blindfolded monkeys, our measure of portfolio performances is invariant to volatile market conditions.

Using Random Portfolios to Evaluate the Performance of the Ultimate Stock-Pickers Index

Measuring the effective skill of a professional money manager in generating yields has Always been a disputable matter in the fund management literature. This paper evaluates the performance of the Morningstar Ultimate Stock-Pickers index with portfolio opportunity distributions, i.e. the stocks most heavily bought by the top portfolio managers are compared with a number of portfolios that have zero skills. Randomly populated portfolios can provide a statistical test indicating that a particular trading strategy leads to better performances rather than merely being the result of luck. We show no superior stock picking skill of the industry’s brightest minds.

Three Essays on Momentum Returns

This dissertation consists of three essays on momentum returns. The first essay is entitled ‘Momentum Returns, Market States and the Global Financial Crisis.’ This essay investigates the profitability of the momentum trading strategy in the stock exchanges of Shanghai, Shenzhen and Hong Kong over the period 1994 to 2010. My results show that there are significantly large momentum returns for Shanghai and Hong Kong but small and insignificant momentum returns for Shenzhen. Momentum returns remain almost the same for all datasets even after adjusting for the Fama-French risk factors. However, the momentum trading strategy generates negative returns for all markets during the Global financial crisis; it appears that the momentum trading strategy fails during a financial or stock market crisis and especially in the months when the market conditions improve. I find no significant relationship between momentum returns and market states, which contradicts the results of an earlier study conducted in the U.S. market. Instead of market state it appears that it is economic activity that explains momentum returns. In the second essay, entitled ‘Momentum Returns and Information Uncertainty’, I study the impact of information uncertainty on the profitability of the momentum trading strategy. Prior literature attributes returns of the momentum trading strategy to investor behavioural biases, such as under reaction to new information, and provides evidence that firms with higher information uncertainty earn lower future returns and higher momentum returns. This study investigates the relationship between information uncertainty, future returns and the momentum trading strategy in China over 1994 to 2010. Using age, volatility, volume and firm size as information uncertainty proxies, I find that firms with higher information uncertainty earn higher average returns over the succeeding 6-month period when information uncertainty is defined in terms of firm size and volume, consistent with the traditional risk based theories. However, firms with high information uncertainty earn lower returns if information uncertainty is defined in terms of firm age; however, firm age might not be an important factor in explaining future returns as the age difference among young and old firms is quite small and it might be the other firm-specific characteristics that drive lower future returns for the younger firms instead of their age. Therefore, my study rejects the findings of Jiang, Lee and Zhang (2005) that stocks with higher information uncertainty earn lower returns over the succeeding 6-month period. Using portfolio-level analysis and firm-level Fama and Macbeth regressions, I find that no robust significant relationship exists between information uncertainty and momentum returns. My findings suggest that it might be the activities of retail investors that drive momentum returns since China’s market is dominated by retail investors, whereas the momentum effect is weak among the U.S. stocks with higher institutional holdings.In the third and final essay, entitled ‘Momentum Returns, Long-Term Reversal and Idiosyncratic Volatility’, I study the impact of idiosyncratic volatility (IV) on the profitability of momentum and long-term reversal trading strategies in China over the period 1994 to 2010. The literature suggests that IV deters arbitrage, which results in higher momentum and reversal returns for stocks with high idiosyncratic volatility. However, my results indicate that the choice of the proxy used for IV, sorting method and number of portfolios (tercile versus quintile) play critical roles in determining the existence and significance of a relationship between IV and the profitability of momentum or reversal trading strategies. Both portfolio-level analysis and firm-level Fama and Macbeth regressions indicate that no robust relation exists between IV and momentum or reversal, which contradicts the results of earlier studies in the U.S. market. However, my findings suggest that reversal returns might be related to transaction costs since I find greater reversal returns among the stocks with high transaction costs. My findings also do not support the suggestion that momentum and reversal are part of same phenomenon.

Reducing Risk Rather than Trying to Beat the Market: A New Look at Optimal Portfolios under the Mean-Variance Model

While much of the equity investment management industry is focused on achieving returns superior to that of the overall market, widespread studies have shown that this is both difficult to do consistently and that the achievable gains have low economic significance (fund returns show low dispersion about the mean). In this investigation, we look at another aspect of “beating the market” – whether or not it is possible to achieve the same market gains, but with lower volatility. We first investigate the performance of portfolios formed from a number of weighting schemes, including commonly used weights as well as weights suggested by a risk-parity approach (as suggested by Asness, Frazzini, and Pedersen (2012)). We then look at the empirical performance of both unconstrained and long-only Global Minimum Variance Portfolios. Further, we develop an optimization algorithm to calculate low-volatility portfolios in an iterative fashion. Finally, as an extension, for a selection of portfolios that empirically dominate the market portfolio in a mean-variance sense (in a theoretical environment), we investigate their real-world performance taking into account various real-world frictions.We find that, in a frictionless environment, there are a number of portfolios formed from simple weighting schemes that show both higher mean return and lower volatility than the market portfolio in the test period (1930 to 2010). The optimization algorithm that is proposed is successful (empirically) in generating portfolios with much lower volatility than the initial portfolios it is given (with only a lesser decline in mean return). The real-world performance analysis accounting for market frictions suggests that, prior to 2002, high transaction costs prevent desirable properties of portfolios that dominate the market portfolio from being realized. However, lower trading costs (due to decimalization, etc.) since then allows the practical implementation of portfolios that achieve market returns with lower volatility.

An Empirical Study to Find Out the Best Performing Equity Mutual Fund Portfolio During the Current Global Recession, Constructed from Selected Companies Listed on The National Stock Exchange of India Limited

The course of time which engulfs the drafting of this applied thesis is indeed not a cheerful phase. The unstoppable Indian economy riding at the back of record highest economical growth has finally encountered a slowdown and the results are inevitable. Increased job searches, mounting loan loads, shrinking salary, swollen loan defaults, shooting inflation are the factors of so called 'worst global recession since the Great Depression'. The current precariousness of Global financial market has raised several questions in the minds of people. Insecurity of living and safety of resources has suddenly become the center stage agenda in everyone’s life.Collapse of world’s biggest financial organizations has brought a rage across the world. There are still no concrete indicators to highlight when this carnage on the stock market would end. Indian property market’s euphoria has been severely smashed and the investor’s concerns have reached sky high. Indian stock market has witnessed a crash by almost 50 percent when Wall Street monsters sold off their investment in the country. The crisis had badly smashed the entire economy and no industry or sector had been left untouched be it manufacturing, retail, media, tourism, telecommunication of finances. This global crisis requires a global solution to prevent this economic catastrophe. The crying need of an hour has become to address the predicament of an investor. Current state of affairs has shattered an investor’s belief on one hand while also instigates an investor to save for the rainy days.A challenge thus aggravates an investor to determine the most suitable investment alternative. The time has arrived to not just depend on theories but also to find practical and attainable solutions. This applied thesis addresses the same question and is buoyant to benefit its readers. The study draws attention to Mutual Fund and its appropriateness in today’s investor’s requirements.Mutual fund can be broadly defined as a trust which pools funds of various investors aiming a common financial goal. Mutual fund is like a blind man’s stick which acts as the right support for an investor aiming for good returns with average risk capacity. Hence this is the most pertinent investment preference for an investor seeking diversification, risk hedge, professional management at affordable cost. Indian Mutual Funds are governed and regulated by Securities and Exchange Board of India (SEBI) Mutual Fund regulation 1996.Presently there are many schemes of mutual funds serving an array of investors and their varying needs. However the epicenter of the research is based on equity or growth schemes of mutual funds. This particular scheme invest only in equity socks of various companies and offers promising and lucrative returns to its investors specially aggressive investors who have huge risk caliber and entice for returns.Current research paper attempts to construct and evaluate portfolios constructed out of selected companies with the endeavor to find out the best performing pure equity mutual fund portfolio. It enveloped the period for 24 months from April 2007 to March 2009. The chosen time period covers the recessionary phase of the global economy and also its impact. An album of 11 companies is prepared and the best portfolio constructed out of the same has been discovered.Chapter one introduces and briefs the background of the research paper to its readers. Understanding of market dynamics was also essential to digest the unfavorable risk and return results of all the constructed portfolios. Efficient Market Hypothesis was executed which efficiently brought out the efficiency of Indian stock Market over the study period. The picture of Indian stock market being painted by this hypothesis provided substance and pedestal to conclude the research further.Researcher concluded portfolio number seven as the winner amongst the group beating the close runner up portfolio number nine marginally. Portfolio seven comprised of stocks of five leading companies in respective industries namely Infosys Technologies Ltd, Bharat Heavy Electricals Ltd (BHEL), Housing Development Finance Corporation Ltd (HDFC), Bharti Airtel Ltd and Reliance Industries Ltd.

Role of Institutional Shareholders in Malawi - Case Study for TNM Limited

The Role of Institutional Shareholders in Corporate Governance is quite controversial. There however appear to be a global consensus that Institutional Shareholders have ability to promote corporate governance in companies they have invested in, because of the following; (1) they normally have larger block of shares and therefore directors are more amenable to their demands; (2) they are likely to enjoy economies of scales in obtaining pertinent information from the number of portfolios they hold substantial shares and therefore significantly reduce the costs of obtaining information; and (3) institutional investors attract indirect monitoring as more analysts are attracted to evaluate firms which attract institutional shareholders and therefore able to indirectly access expert input. Institutional shareholders in Malawi comprise of pension funds, insurance companies, banks, specialised institutional investors and various financial institutions. Their role in matters of corporate governance in Malawi is likely to increase because of the enactment of Financial Services Act 2010 as well as Pension Act 2011. The results of this independent study however demonstrates that Institutional Shareholders of TNM Limited have demonstrated little effort to undertake corporate governance issues of the company primarily because of vested interest in insider deals which can yield more income when compared to dividend. There is a conflict of interest to monitor the actions of the board of directors as the directors are directed by the institutional shareholders to undertake specific transactions. Hence directors cannot be accountable to the institutional shareholders. The resultant could be lower dividends for the non-controlling (minority) interests who will find it not worthwhile to buy or hold on to TNM Shares because of low returns. The Malawi Stock Market is likely to be illiquid due to low interest from the general public to undertake calculated risk on the TNM Shares. This is likely to have spillage effect on all other shares traded on the Malawi Stock Exchange if similar trend is observed. The Institute of Directors in Malawi and National Corporate Governance Review Committee should undertake an exercise of coming up with the code specific to the institutional shareholders in Malawi to address the current weaknesses.

Momentum in the Colombian Stock Market

ABSTRACT This article analyzes performance of momentum portfolios under different settings and in terms of raw and risk-adjusted returns after the local stock exchanges in Colombia merged in 2001. We found little evidence of significant momentum returns in the post-merger period. Zero risk-adjusted returns remained after estimating two pricing models. Similar results held in a pre-financial crisis period, considering a higher data frequency or a different number of portfolios. We attribute our findings to increased access to issuers and investors and greater information dissemination in the post-merger period, which overall have made profiting from studying historical price patterns more difficult.

Implementation of European Language Portfolio in Lithuania: Problems and Implications

The European Language Portfolio (ELP) has been one of the biggest language education projects of the last decade in Europe. Lithuania has invested considerable finances and effort to exploit the benefits of the ELP. There have been a number of Portfolios designed for the Lithuanian system of education followed by piloting projects and seminars for language teachers run on a large scale at all levels of education. However, the implementation of the ELP in Lithuania seems to be very slow. The article looks into the reasons for the reluctance of language teachers to employ the ELP in the classroom practice and the possible ways of promoting the ELP implementation. The role of school authorities is emphasized and some possible solutions for stimulating stake holders’ interest in the ELP suggested.

The Power of Two-Pass OLSs Test of the CAPM: A Simulation Analysis of the CSE

Inconclusive evidence for the CAPM is due to one or both of two reasons. First, the theory does not exist in the real world, second, the testing methods use to test the CAPM are incapable of detecting it. This study isolates the second reason by developing an artificial market in which the CAPM is true. The parameter values of the simulated market (market excess return, etc.) are extracted from Colombo Stock Exchange (CSE) to exemplify the Sri Lankan context. Then, the two-pass OLS regression test is applied to the simulated market which holds the CAPM and ascertains whether the test is capable of detecting the CAPM. The simulation extends to study how the power changes in response to two power determinants with conflicting roles, the standard deviation of market risk premium and the number of portfolios formed in the test. The sensitivity of power curve in response to changes in the standard deviation of market risk premium is nonlinear and peaks and troughs are observable on it. Thus it is not a continuously decreasing function as indicate by previous research. Thus, the paper demonstrates importance of having considerable standard deviation of market risk premium to detect the CAPM when it exists. Therefore, the test perform very poorly at low standard deviation of market risk premium as opposed to common understanding that the standard deviation of market risk premium only affects negatively on the power of two-pass OLS regression test of the CAPM. Further, it is revealed in the simulation that the number of portfolios formed in the test has no major impact on the power, doubting usefulness of forming portfolios. Further, our results show that the chance of detecting the CAPM by the two-pass OLS regression approach (power of the test) is less than 10%.

Properties of Portfolio-Based Estimates of Market Risk Premia

We use simulation to assess the performance of conventional financial econometric methods in recovering accurate estimates of market risk premia. In this study, we focus particular attention on the properties of standard cross-sectional risk premium estimation methods using portfolios and make several contributions. First, we confirm a general finding reported elsewhere that standard cross-sectional regression methods can produce accurate point estimates of market risk premia under ideal conditions, but they typically have very large standard errors. Our simulations show that existing standard error adjustments generally have limited practical importance. We propose a bootstrap approach and show that it can produce suitable standard errors. Second, when the market index is misspecified, we demonstrate that the biases in market risk premium estimates can be huge, even when the market proxy is highly correlated with the true market portfolio. We show that the pure cross-sectional method, in which in-sample mean excess returns are regressed against in-sample portfolio betas, is generally superior to the Fama-MacBeth method in estimating market risk premia with the least bias. We also demonstrate that the optimal number of portfolios to use in cross-sectional regressions depends critically on the estimation method, the accuracy of the market proxy, and whether the aim is to compute the best point estimate of the market risk premium or the standard error of the estimate. Finally, as an alternative to the cross-sectional method, we find that the mean of an excess index return provides a more efficient estimate of the market risk premium compared with a cross-sectional estimate, but only when the market index employed for both closely approximates the true market portfolio.

Expected returns and economic risk in Canadian financial markets

This article estimates a linear factor model that links asset return fluctuations to: time-varying expected returns, to economic factors innovations and to a residual idiosyncratic risk. It considers bond returns together with returns on a number of portfolio of assets, grouped by sectors, traded on the Toronto Stock Exchange. The first part of the article identifies the number of latent variables necessary to explain the behaviour of these asset returns and concludes that two latent variables are needed. The second stage uses proxies for the underlying economic factors (state variables) and exploits the restrictions of the model to estimate conditional betas.

Equilibria in Weighted Voting Games with Sidepayments

Coalition formation is modeled as a cooperative games. Each party enters the game endowed with a weight that is a function of the proportion of the votes the party obtained in the elections, and an ideal policy position. Payoffs to parties are a function of the distance of the government's policy position from the party's ideal point, and the number of portfolios that the party receives in the coalition. The game analyzed is a variation on the `divide the dollar' problem. Unlike the divide the dollar game, however, ideological payoffs are also introduced into the analysis. It turns out that the ideological concerns of parties `induce' a core in the `divide the dollar' problem that would, otherwise, have a generally empty core. A comprehensive analysis of the new core concept, the `IVCORE', follows.

Economic forces and seasonality in secirity returns

This article finds strong seasonal behavior in the innovations for three Canadian macroeconomic variables (industrial production, unexpected inflation and GDP). An APT model is estimated as a restricted nonlinear multivariate regression system using seven macroeconomic variables, various residual market factor (RMF) proxies, and the returns on fifty size related portfolios of equities that traded on the Toronto Stock Exchange (TSE). As in Chen, Roll and Ross (1986), five macrofactors (lagged industrial production, lagged GDP, term structure, unexpected inflation, and risk premium) have significantly priced risk premia. The risk premia are insignificant for RMF based on two value weighted indices, and marginally significant (0.10 level) for the RMF based on an equally weighted index, which is somewhat consistent with McElroy and Burmeister (1988) and Brown and Otsuki (1989). The significance of the RMF risk premium appears not to be robust to whether portfolios or individual securities are used in the estimations. The significance of the estimated risk premia for the macrofactors also appear not to be robust to the number of portfolios (equations) used in the estimations. Unlike the risk premia estimates for the RMF, those for the other macrofactors are generally unaffected by the inclusion of a January dummy. This implies that the January seasonal remains a market phenomenon that requires further study.