Investment Performance Of Portfolios Research Articles

Financial market frictions and portfolio investment performance in Nigeria

In reallocating resources from the fund surplus unit to the fund deficit unit, financial markets face some interference which is referred to as financial market frictions. The study examines the micro and macro aspects of the effects of financial markets frictions on portfolio investments decisions and performance of financial market participants (individual firms and the entire economy). The study employs secondary data collected from firms annual reports and accounts and the World Bank data bank for national economic data. The firm level data covers a period of five years while the macro level data covers a period of seven (11) years. The study used EView 8.0 for generating the estimation results for the study. The study uses panel least square and two stage least square estimation techniques for the analysis of the data and to test the hypotheses. The study find, amongst other findings, that financial markets frictions and changes in financial market frictions across specific financial markets significantly affect investor’s portfolio decision and performance at the firm level and national economies. The study concludes that financial market frictions affect both portfolio investment decisions and portfolio investment performance in all financial markets and that exchange rate cheanges and changes in other financial markets frictions result in significant changes in investor’s decisions and performance across the globe. The study also concludes that the portfolio constituent of an investor changes with regards to changes in financial frictions. That portfolio investment decisions in all financial markets are significantly influenced by financial markets frictions at varying degrees and magnitudes and that these frictions changes frequently in financial markets. The study recommends, amongst other recommendations, that investors should give considerable attention to minimizing varied financial markets frictions that affect their investment decisions and the performance of their investment portfolio.

Improving portfolio investment performance with distance‐based portfolio‐combining algorithms

AbstractWe propose distance‐based portfolio‐combining algorithms to improve out‐of‐sample performance in the presence of estimation errors. Our algorithms use approaches similar to the shrinkage method but with a different weighting scheme: the Euclidean distance. The Euclidean distance of a portfolio is its 2‐norm distance to the in‐sample tangency portfolio. These algorithms aim to construct a portfolio with a small Euclidean distance by making a convex combination of any number of portfolios. We propose three distance‐based portfolio‐combining algorithms: a distance‐based portfolio combination, a distance‐based asset combination, and a distance‐based asset combination with systematic errors (DAc‐S). Each algorithm consists of two steps. First, we predict the Euclidean distance of each portfolio using time‐series forecasting methods. Second, we increase (decrease) the combination level of a portfolio whose predicted Euclidean distance is small (large). We use 11 empirical data sets, and the numerical results show that our proposed algorithms significantly improve the Sharpe ratio with reasonably low portfolio turnovers. This outperformance stems from successfully decreasing the Euclidean distance. Most important, the DAc‐S achieves a significantly high Sharpe ratio and the smallest Euclidean distance.

High-dimensional Cross-market Dependence Modeling and Portfolio Forecasting by Copula Variational LSTM

In the increasingly connected world, many systems are more or less coupled with each other in various ways. A typical example is the cross-market portfolio management, where the products of heterogeneous markets are selected and configured for investment. In such cross-market problems, one market is coupled with and influenced by others, and the financial variables of a market are coupled over time. This work makes the first attempt to model both the observations-based and latent dependence degrees and structures of highdimensional financial variables in cross-market portfolios by integrating variational recurrent neural networks. It integrates the distribution-based sequential modeling of multivariate time series and the regular vine copula-based dependence structures for modeling variable dependencies. Our method addresses the needs and gaps of modeling non-normal and long-range distributional interactions across market variables. We verify the model in terms of both technical significance and portfolio investment performance against benchmarks including linear models, stochastic volatility models, deep neural networks, and variational recurrent networks for portfolio forecasting.

Analisis Perbandingan Kinerja Investasi Portofolio Pasar Modal Syariah Dengan Pasar Modal Konvensional (Studi Kasus Pada Jakarta Islamic Index dan IDX30)

Abstract— The general difference between conventional capital markets and Islamic capital markets can see in the instruments and transactio mechanism, while the difference of Sharia stock index value with conventional stock index value lies in the criteria of the issuer’s shares that must meet the basic principles of sharia. The aim of this research is 1) to know average difference of return between Jakarta Islamic Index (JII) with IDX30 in bullish and bearish period, 2) to know the difference of return between Jakarta Islamic Index (JII) with IDX30 in bullish and bearish period through Sharpe Index approach. The research type is explanatory research. This research use all of go public companies on Indonesia Stock Exchange (BEI) from 2014-2018. Sampling in this research use purposive sampling. The classic assumption test uses normality and homogeneity test. Data analysis method use independent sample T-test. The research result show that no average difference of return of portfolio investment performance in the 2014-2018 period between Jakarta Islamic Index (JII) with IDX30 in the bullish and bearish period. Portfolio investment performance in the 2014-2018 period show no average difference of return between Jakarta Islamic Index (JII) with IDX30 through Sharpe index approach in the bullish and bearish period. Keywords—: Islamic Capital Markets; Conventional Capital Markets; Jakarta Islamic Index; IDX30; Indonesia Stock Exchange.

The financial impact of fossil fuel divestment

ABSTRACT The fossil fuel divestment movement tries to increase awareness about the need for climate action and heralds divestment from fossil fuel producers as a means to combat climate change. Financial investors are increasingly showing interest in the non-financial impact of companies they invest in, i.e. responsible investing. However, they also want to be assured of sufficient returns and limited risks to support the living costs of their ultimate beneficiaries. In this context, we investigate the impact of divestment and the transition of the energy system on investment performance. We rely on an international sample of almost seven thousand companies and study a period of forty years. Further, we investigate scenarios with very different pathways to the transition of the energy system. We find that the investment performance of portfolios that exclude fossil fuel production companies does not significantly differ in terms of risk and return from unrestricted portfolios. This finding holds even under market conditions that would benefit the fossil fuel industry. We conclude that divesting from fossil fuel production does not result in financial harm to investors, even when fossil fuels continue to play a dominant role in the energy mix for some time. Key policy insights Financing the exploration and exploitation of fossil fuel resources is increasingly being regarded as controversial, leading to divestment from this industry. Fossil fuel divestment does not seem to significantly harm financial investors and is not at odds with the fiduciary duty of institutional investors. This paves the way for more extensive initiatives to promote fossil fuel divestment. A smooth energy transition will most likely erode the profitability of fossil fuel firms and their ability to invest. Therefore, governments cannot rely on the fossil fuel industry to finance the energy transition.

Divergent ESG Ratings

Responsible investors require data to underpin their stock and sector selections. Regardless of the rating agency, bond ratings for a particular issuer are broadly similar. This is not the case for ESG ratings. Companies with a high score from one rater often receive a middling or low score from another rater. This article examines the extent of, and reasons for, disagreement among the leading suppliers of ESG ratings. The weightings given to each pillar of an ESG rating also vary across agencies. Many asset managers contend that ESG ratings can help investors to select assets with superior financial prospects, and the authors therefore review the investment performance of portfolios and of indexes screened for their ESG credentials. In the authors’ opinion, ESG ratings, used in isolation, are unlikely to make a material contribution to portfolio returns. <b>TOPIC:</b>ESG investing <b>Key Findings</b> • Data are essential for making investment decisions, and most institutions rely wholly or partly on external providers of ESG data. However, there is minimal correlation between ESG ratings from alternative agencies. • This article explains why different raters’ appraisals diverge. The article also examines whether ESG is associated with subsequent fund or index outperformance. • Over the longest available period, ESG indexes did not outperform the “parent” index from which they are derived. Equally, however, for the two indexes that most closely represent what ESG investors actually do (FTSE4GOOD and MSCI-ESG) there is no evidence of underperformance.

Risk Management Approach and Banks’ Portfolio Investment Performance in Nigeria

The study examined risk management approach and banks’ portfolio investment performance in Nigeria. The study hypothesized that there is no relationship between risk management and banks’ portfolio investment performance in Nigeria. Employing secondary data based on a 5 year annual reports and financial statements of accounts of 10 Deposit Money Banks (DMBs) in Nigeria and using the Generalized Method of Moment (GMM), the result shows a negative but significant relationship between risk management and banks’ portfolio investment performance measured by Return on Asset (ROA) while the explanatory variables were measured by credit risk (CRD) doubtful and non performing loans (NPLS), liquidity risk (LQR) measured by current ratio and market risk (MKR) measured by interest rate. In the light of the foregoing findings and using the result of the t-statistic, the study rejects the null hypothesis and concludes that a significant relationship exists between risk management approach and banks’ portfolio investment performance and thus recommends the need for banks to practise prudential risks management approach as risk management is critical in the banking sector in order to improve on their portfolio investment performance so as to protect not just both the stakeholders and shareholders’ interest but also the national economic growth and general macroeconomic stability and business development. Keywords: Banking Sector, Financial Statement, Portfolio Performance, Risk Management. DOI : 10.7176/RJFA/10-6-10 Publication date :March 31 st 2019

A risk index to model uncertain portfolio investment with options

This paper models the portfolio investment performance with options by using a risk index, which is defined as the average loss below the risk-free interest rate. Using a risk-free interest rate as the uniform reference rate for all portfolios, the risk index offers an easier-to-compare loss value than the value-at-risk return, where portfolio specific references are used to calculate the average losses. Besides, uncertainty theory is used in the paper to derive the portfolio decision when stock prices are subject to experts' estimations. By analytical computation and empirical analysis, we find that portfolios considering options generate better return than the ones without options. The empirical analysis reveals that the options can effectively hedge the risk, and the call option with a higher exercise price offers higher return per unit of option premium. Furthermore, our proposed model produces higher expected return in most cases than the model where the risk is measured by the chance of the total return failing to reach the threshold level of return.

PORTFOLIO SELECTION USING NEW FACTORS BASED ON FIRM CHARACTERISTICS

In this paper, we apply a new factor model to portfolio-selection problems and compare its portfolio investment performance with those of other popular portfolio-selection methods. The new factors are formed from a well-characterized subset of the asset universe based on firm characteristics and exhibit better asset-pricing performance than popular extant asset-pricing factors. The performance comparison shows that the new factors exhibit better portfolio investment performance than alternative methods for various test portfolios and various periods.

Portfolio Investment Performance Analysis Based on Style Investing

Portfolio Investment Performance Analysis Based on Style Investing

Foreign portfolio investment performance and investor's trading patterns: empirical study in Indonesian government bonds market

There is a dispute on whether foreign investors are superior compared to the domestic investors. Many economists suggest that foreign investors may have had more advantages due to significant amount of investment, experience and expertise. On the other hand, domestic investors may have a short-lived information advantage. Following the work of Kamesaka et al. (2003), this paper is purposed to uncover the trading patterns of foreign investors and the other domestic investor groups, as well as to measure their performance in Indonesian government bonds market. The study suggests that foreign investors were not always profited. Nevertheless, cumulatively, they enjoyed the highest return in Indonesian Government bond market. In addition, there is indication that foreign investors have become market followers instead of initiators in the market.

Analyzing Valuation Measures: A PerformanceHorse Race over the Past 40 Years

In this article, the authors compare the investment performance of portfolios sorted on different valuation measures. They find that EBITDA/TEV has been the best performing metric, historically, and outperforms many investor favorites, such as price-to-earnings ratio, free cash flow to total enterprise value, and book-to-market ratio. The authors also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. They find that in contrast to prior empirical work, long-term ratios add little investment value over standard one-year valuation metrics.

Analyzing Valuation Measures: A Performance Horse-Race Over the Past 40 Years

We compare the investment performance of portfolios sorted on different valuation measures. EBITDA/TEV has historically been the best performing metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics.