Risk Of Investment Portfolio Research Articles

The Application of VaR Model in Open Fund Risk Management

In modern society, facing a wide range of investment risks, the VaR model, as one of the most advanced risk management theories in the world, has been adopted by fund managers as a simple and scientifically effective risk management method. This article discusses the necessity of risk management for stock investment portfolio assets managed by fund managers, and elaborates on the efficiency and applicability of VaR model in stock investment portfolio risk management.

Development of a new asset liability Management model with liquidity and inflation risks based on the Lower Partial Moment

Inflation and liquidity risks are two significant risks with which pension fund managers must contend. This study develops a new multi-period Asset Liability Management model to address these challenges. The model objective function minimizes both risks simultaneously. The Lower Partial Moment measure is used to minimize investment portfolio risk and a CVaR constraint is employed to avoid loss. A hybrid ARIMA-GARCH model is developed to generate scenarios regarding a case study from Iran. To do so, four different investment cases out of seven stocks from the stock market, one bond, three foreign currencies (Dollar, Euro, and Yen) and gold are considered. Findings affirm model efficacy and the model suggests that a portfolio of all four assets is the best investment strategy.

Optimizing a portfolio of agri-environmental investments

Purpose. The purpose of the article is to substantiate theoretical-and-methodological provisions for building investment portfolios in agribusiness by the criterion of minimizing environmental risk of selected investment-financing strategies.
 Methodology / approach. In the article, on the basis of the dialectical method of cognition, the following methods were used: abstract-logical – in the systematization of scientific papers on the problem of diversification and optimization of the agricultural investment portfolio; system analysis and comparison – in the study of portfolio theories and concepts; computational and constructive – in the analysis of environmental-and-economic factors of the profitability of agricultural land use; economic-and-mathematical modeling – in the process of modeling the optimal portfolio of agri-environmental investments by the criterion of minimizing the risk of a particular investor, caused by the action of soil degradation factor in Sumy region. The materials of the Main Department of Statistics in Sumy region and the Sumy regional branch of the Institute of Soil Protection of Ukraine have formed the informational basis of the research.
 Results. The optimization of the agri-environmental investment portfolio is due to the modification of the approach by the American Economist H. Markowitz “risk-return analysis” and its adaptation to the conditions of real investment. The paper uses a conservative approach to investment, which involves the construction of portfolios on the criterion of minimizing investment risk due to the influence of soil degradation for a particular investor. This factor requires the determination of the investor’s environmentally related risk, which manifests itself in the following directions: a) a decrease in crop yield due to the action of the factor of high soil pH; b) a decrease in the sales price for crop products because of contamination with heavy metals; c) an increase in the cost of agricultural production in deteriorated ecological conditions. Evaluation of agribusiness investment attractiveness on environmental-and-economic grounds provides for the consideration of the above areas from the standpoint of state, banking, foreign investment and self-investment. Assessment of investment quality identification is performed on the basis of calculation of the investor’s income elasticities to environmental risks on the example of Sumy region, which provides investment rationality decisions in the field of agricultural land use, considering environmental factors. It is substantiated that the highest investment quality is characterized by the bank’s investment financing strategy.
 Originality / scientific novelty. The methodological approach to the definition of investor’s environmental risk in agricultural land use is improved. It is calculated considering the influence of factors of environmental destruction of land and soil resources (soil pH, pollution with heavy metals, etc.) on sources of profit, as well as with the definition of returns on investment resources (crop yield, ecological sales price, and income). The system of environmental-and-economic indicators in the formation of the investment portfolio is substantiated, including the following: the structure of investments, which is developed considering the influence of the environmental factor; portfolio investment risk due to environmental factors; and the investment portfolio yield adjusted for the level of environmental risk which provides an assessment of the investment attractiveness of agricultural land use on an environmental-economic basis. A methodical approach to substantiate investment decisions in the agriculture of the Sumy region is proposed, which along with considering the environmental factor, is in calculating the elasticities of investor’s income to the environmental-and-economic risks, which increase the correctness of financial decision-making.
 Practical value / implications. Theoretical-and-methodological provisions and conclusions obtained in the study can be used to justify the direction of investment capital in the field of agricultural land use, considering the level of environmental-and-economic constraints.

Volatility correlation structure, dynamic network and portfolio implications of Chinese stock market

This study combines complex networks and sliding window technology to construct a static and dynamic network of volatility of the stocks in CSI 300 index using the COVID-19 epidemic as an example to analyze the impact of public health emergencies on the correlation structure of stock volatility, as an extended application to mine low-risk stock portfolios that are more resistant to risks under the "mean-variance" framework. Research shows three implications. (i) During the outbreak period, the density of the stock market volatility network was significantly higher than before and after the outbreak, and the network structure was more intense during the outbreak period. The leading industries are the manufacturing and financial industries, and the source of market risk transmission comes from the key nodes of the two industries. (ii) The dynamic network shows that under the impact of the epidemic, the correlation structure of stock market volatility has undergone abrupt changes and the overall market risk is time-changing, which indicates that the sudden impact of degeneration breaks the original structure and triggers new information connections in the stock market. (iii) The degree of stock centrality affects investment portfolio returns, which means that core stock portfolios with greater network centrality during the relatively stable market period and the upward period perform better, and the peripheral stock portfolio has an advantage in the period when the market fluctuates due to sudden external shocks. Interestingly, peripheral stock portfolios with lower centrality are more resistant to risks under sudden shocks. The results of this paper can provide important enlightenment for stock market supervision and investment portfolio risk management.

Скользящая верификация модели «доходность-риск» фондового рынка США

This article addresses the development and testing of ‘Return-Risk’ model aimed at designing the investment strategies suitable for practical needs. The model rests on fundamental principles of portfolio analysis and incorporates the following properties: expected return and risk are derived from historical data while learning sample size and time span are set by practice requirements in such a way as to maintain efficiency and regular monitoring of investment portfolio. The model tested on independent material (data of 2017 were not used for the model) shows: the suggested method of moving verification results in higher forecast accuracy for return and risk of investment portfolio and, consequently, in higher quality of investment decisions. The model annual yeild in moving verification mode is 25%, whereas S&P500 index shows only 15% of the annual gain, i.e. the ‘Return-Risk’ model significantly beats the market. The win-loss ratio of deals (time spans) is 11:1.

Appraisal of Residential Real Estate Investment Diversification Prospects in South-South, Nigeria

The study examined the diversification prospects of residential real estate investments in South-South, Nigeria. Data on residential real estate investment returns were obtained from 132 Estate Surveying and Valuation firms practicing in the region. 132 copies of questionnaire were used to obtain the primary data. The study covered the period between 2005 and 2019. Pearson Correlation was used in analyzing the relationship between residential real estate returns by property types across the region. The result revealed that a portfolio can be well diversified by combination of 5-bedroom maisonettes in Uyo and 5-bedroom maisonettes in Port Harcourt into one portfolio as they have a negative correlation. Also investing in 5-bedroom maisonettes in Uyo and 3-bedroom bungalows in Port Harcourt can produce a well-diversified portfolio as they have a negative correlation. This supports the conclusion that diversification by property types across places is better than diversification by property types within a place. It was recommended that investors should consider investing in different classes of residential properties across the region. This will help reduce their investment portfolio risk while maximizing their portfolio returns. Keywords: Diversification, residential, real estate, investment, returns DOI: 10.7176/EJBM/13-24-09 Publication date: December 31 st 2021

PERHITUNGAN PORTOFOLIO OPTIMAL DENGAN METODE MEAN-SEMIVARIANCE DAN MEAN ABSOLUTE DEVIATION

Knowing and managing investment portfolio risk is the most important factor in growing and preserving capital. The purpose of this study is to determine the optimal portfolio using Mean-Semivariance and Mean Absolute Deviation methods. The Mean-Semivariance method is a method that uses semivariance-semicovariance as a measure of risk while the Mean Absolute Deviation method uses the absolute deviation between realized return and expected return as a measure of risk. This study uses stock index data of LQ45 period February 2017-July 2019. The results of this study are that the Mean Absolute Deviation method gives higher return and risk than the Mean-Semivariance method.

Association between investment risk tolerance and portfolio risk: The role of confidence level

Conventional theory holds that there is a positive relationship between investment risk tolerance and investment portfolio. However, people with varying levels of confidence levels would behave differently, with those having a higher level of confidence investing in more risky assets. This study analyzes the relationship between investment risk tolerance, confidence levels, and investment portfolio risk. This paper uses the level of confidence to measure the overestimation or underestimation of financial knowledge and contributes to the literature by demonstrating whether overconfidence or underconfidence of financial knowledge affects portfolio risk and whether it moderates the impact of investment risk tolerance on portfolio risk.

Measuring Financial Advice: Aligning Client Elicited and Revealed Risk

Financial advisors use questionnaires and discussions with clients to determine a suitable portfolio of assets that will allow clients to reach their investment objectives. Financial institutions assign risk ratings to each security they offer, and those ratings are used to guide clients and advisors to choose an investment portfolio risk that suits their stated risk tolerance. This paper compares client Know Your Client (KYC) profile risk allocations to their investment portfolio risk selections using a value-at-risk discrepancy methodology. Value-at-risk is used to measure elicited and revealed risk to show whether clients are over-risked or under-risked, changes in KYC risk lead to changes in portfolio configuration, and cash flow affects a client's portfolio risk. We demonstrate the effectiveness of value-at-risk at measuring clients' elicited and revealed risk on a dataset provided by a private Canadian financial dealership of over 50,000 accounts for over 27,000 clients and 300 advisors. By measuring both elicited and revealed risk using the same measure, we can determine how well a client's portfolio aligns with their stated goals. We believe that using value-at-risk to measure client risk provides valuable insight to advisors to ensure that their practice is KYC compliant, to better tailor their client portfolios to stated goals, communicate advice to clients to either align their portfolios to stated goals or refresh their goals, and to monitor changes to the clients' risk positions across their practice.

Gap Analysis Sectoral Shares Index during the Covid-19 Pandemic on the Indonesia Stock Exchange

The investment risk during the Covid-19 pandemic is difficult to calculate due to increasing uncertainty. The research presents a model that can be used in mitigating short-term investment risk during the Covid-19 Pandemic on the capital market with sectoral gap return base on the difference price between the highest position and the lowest position. The gap may indicate volatility, volume inequality, price abnormalities, directional anomaly, and transaction conspiracy. This paper focused on how to manage portfolio investment risk based on short-term risk mitigation base on gap Analysis of sectoral return compare to Composite Index. The aim to be achieved was to minimize the risk of short-term portfolio investment at the start of the short-term Pandemic in Januari 2020 to August 2020. The specific target to be achieved in this study is to present a model that can increase the yield of short-term investments in the Indonesia Stock Exchange with low level of risk. The object of this research was sectoral idex of stock price whose price movements are in the opposite direction to the composite stock price index. The result of this research shown that the highest gap was basic Industry sector 54,50%. Meanwhile, the lowest gap was consumer sector 22,35%. The highest the gap the bigger the risk.Keywords: Mitigation Model, Investment Risk, Stock Portfolio, Covid-19

Balkan Stock Exchanges – Consideration of the Length of the Estimation Window in Similar Markets

Purpose: We study if capital markets in the Balkan are closely and positively related in terms of rate of return, risk, efficiency, and maximum cumulative loss in relation to different lengths of the estimation window. Design/Methodology/Approach: The research was carried out for the period from 01/01/2017 to 31/12/2019 using portfolio analysis. It was divided into an estimation window (01/01/2019 to 31/12/2019) and another with observations from the remaining days. The results were compared with a naive strategy. Four-element portfolios, consisting of three investments in companies from a given stock exchange and one investment in gold as a haven, were created. After determining all possible combinations of portfolios for each stock exchange and for all lengths of estimation window, the obtained results for rate of return, risk, efficiency, for each length of estimation window were averaged and were subjected to correlation analysis. Findings: In Balkan capital markets, a change in the length of the estimation window (optimal length 120 observations) had the same impact on the results for investment portfolio risk, efficiency, and maximum cumulative loss, but not for the rate of return. Practical Implications: An investor from one of the Balkan countries using a strategy based on portfolio theory would not be able to gain a competitive advantage over another investor from this region if he built a portfolio based on the same number of observations from the past. The investor should construct an investment portfolio based on historical data from the previous six months. Longer estimation periods are not recommended, as the results for the studied portfolio were worse than a naive strategy. Originality/Value: The study concentrates on the unique region of Europe, which was the subject of system transformation latest therefore it should not be compared directly to the current achievements in the stock changes which tradition of operation is longer.

Enfoque de diversificación internacional y el riesgo en portafolio de inversiones

La investigación tuvo como objetivo principal demostrar el efecto de la Diversificación Internacional sobre el riesgo de Portafolio de Inversiones y tuvo como objetivos secundarios la obtención de una frontera eficiente para el análisis y el cotejo de opciones de inversión en diversos mercados internacionales. El presente trabajo fue una investigación no experimental, cuantitativa de corte transversal, descriptiva y explicativa que se fundamentó en la cuantificación de indicadores de activos financieros que cotizan en la Bolsa de Valores de Chile, Brasil, Estados Unidos, Suiza, España, Hungría, India y Japón en el periodo comprendido entre 2011-2019 para la formación de carteras de inversión. Para efectos de la presente investigación, se tomó como universo de referencia 40 acciones que cotizan en la Bolsa de Valores de Chile, Brasil, Estados Unidos, Suiza, España, Hungría, India y Japón. No obstante, tras un proceso de depuración basado en los niveles de correlación entre activos, quedaron 24 acciones, organizadas en 3 activos por cada mercado. Posteriormente, se obtuvieron la rentabilidad y la varianza aplicando el análisis de optimización de carteras. De esta manera, se obtuvieron las ocho fronteras eficientes para los ocho mercados internacionales. En la formación de portafolios de inversión, se aplicó la teoría de diversificación internacional, para ello se compararon niveles de rentabilidad ajustada con el riesgo de portafolios. Los resultados obtenidos permitieron identificar que la diversificación entre países representa una alternativa significativa para maximizar la rentabilidad. Además, representa una alternativa significativa para la reducción del riesgo de los portafolios de inversión. A través de un enfoque país, existen alternativas de diversificación debido al bajo nivel de correlación.

Uncertain and Dynamic Risk Contributions

Risk decomposition is a standard tool for analyzing investment portfolio risk. The portfolio is divided into notional parts—e.g., individual securities, holdings by sector or region, factor exposures—whose contributions to net risk are estimated and reported. Convention regards the inputs—portfolio weights and covariance—as fixed and known, but portfolio composition changes with price movement and estimates have errors. Since behavior only in the direction of net risk is counted, hedged effects are invisible regardless of size. What if numbers aren’t exact? Hedge instability manifests in proportion to underlying gross (not net) exposure, akin to leverage. For example, in a market-neutral portfolio, market is the largest risk in each side, conventionally uncounted since hedged, and extremely consequential under small deviations. To solve the problem, this paper models weights and parameters as uncertain. Evaluating a portfolio across the range of possibility measures risks better and surfaces latent fragility. No longer point-estimated, contributions are reported with a center and spread.

Robust Hybrid Optimization Method to Reduce Investment Portfolio Risk Using Fusion of Modern Portfolio Theory and Genetic Algorithm

Main objective of this study is to develop hybrid optimization method for reducing investment portfolio risk. The methods selected in this study are the combination of Modern Portfolio Theory (MPT) and genetic algorithm optimization approach. Three stocks from Malaysian Stock Exchange are selected in developing the investment portfolio namely Malayan Banking Berhad, Hap Seng Consolidated Berhad and Top Glove Corporation Berhad. Result indicates the modern portfolio theory can give optimal portfolio weightage with maximum return for tolerate level of investment risk. In addition, genetic algorithm enhanced the optimal searching method to find global minimum of investment risk. Result shows the minimum portfolio risk in objective function is 2.122118 with implementation genetic algorithm optimization. The optimal combination of portfolio investment is 32.24 % in asset A (Malayan Banking Berhad), 52.37 % in asset B (Hap Seng Consolidated Berhad), and 15.30 % in asset C (Top Gove Corporation Berhad). The important of this study is it will assist investor in making better decision to optimize their return for given level of investment risk. Furthermore, this hybrid method provides a better accuracy of prediction for return of investment and portfolio risk.

Investor's Behavior in Makassar Against Portfolio Investment Risk the Stock

The objective of this research is to know investor behavior toward investment risk in a stock portfolio by using demography approach. The type of this research is field research by using questionnaires to stock investors registered at a security company in the Makassar area. The result is investors' behavior in Makassar against investment risk is neutral to the risk of stocks being a portfolio.

Regulatory Capital and Portfolio Investments: Evidence from Life Insurance Companies

This paper examines how capital requirements affect life insurance companies' business growth and investment risk taking. I show through a simple model that capital requirements are negatively (positively) associated with life insurers' equilibrium business scale (average portfolio investment risk). Using staggered changes in U.S. state laws that enable life insurers to raise capital more easily, I find evidence consistent with the model's prediction: life insurers respond to these law changes by accelerating their insurance underwriting growth and reducing their allocation to risky investments on average. The effect is more pronounced for insurers that are less financially competitive.

The Third, System Stage of Corporate Governance: Why Institutional Investors Need to Move Beyond Modern Portfolio Theory

This paper focuses on underlying causes for the emerging systemic emphasis among major corporate governance institutional owners. It does this by building incorporating three stages of corporate governance: structure and process as governance (stage I), broadening to include E and S factors (stage II), and stage III, a system focus. By looking at system focus this paper breaks ground by arguing one must examine the role modern portfolio theory (MPT) in the investment processes and explore how MPT impacts corporate structure, behavior and governance. We focus on the dynamics of a portfolio, and of multiple portfolios (the market) becoming part of governance analysis and actions, challenging the idea that portfolio investment risk is limited to diversifying idiosyncratic risk through security selection assuming that will have no impact on beta. There are strong feedback loops between portfolio risk management, beta and systemic risk: they are conjoined.

OPTIMAL INVESTMENT STRATEGY WITH DIVIDEND PAYING AND PROPORTIONAL TRANSACTION COSTS

A Markowitz’s mean-variance investment strategy is studied in a market with a stock, a bond, dividend payment and proportional transaction costs. Two control variables, portfolio strategy and dividend are considered in this paper. The control variables are inherent with a finite time horizon. This paper aims at minimizing the investment portfolio risk and maximizing the dividend process of the investment over time subject to portfolio allocation strategy, expected net wealth and investment costs over time. The method of Lagrangian multiplier was adopted. As a result, the optimal portfolio and optimal dividend payment are obtained. We found that the optimal portfolio process depends on the optimal dividend payment over time. Also, obtained in this paper, is the optimal portfolio with no dividend payment. We found that for the investment to achieve high target, more of the fund should be invested in stock and low dividend should be declared. The region of boundedness for stock purchase and stock sale are established. We found that for the investment to break-even, the quantum amount of stock sold must be greater than the quantum amount of stock purchase over time. The efficient frontier of the investment strategy was also obtained.

Is it Worth Being Good? – The Efficiency and Risk of Socially Responsible Investing in Light of Various Empirical Studies

Abstract The paper discusses the issue of the effects of using SRI strategies on performance and risk of investment portfolios. During the research procedure, a number of goals were executed which is reflected by the article’s structure. In the first place, potential directions of the effects of using SRI strategies on portfolio parameters were indicated. Generally, these are hypotheses about 1) positive; 2) negative; 3) neutral impacts of SRI on investment portfolio parameters. Then the main streams in the research on SRI were identified. These streams are mainly based on: modern portfolio theory, the costs of an asset selection conception and the analysis of the correlation between CSR policy and company profitability. Moreover, the research stream which focuses on the relationship between the social responsibility of business and its competitive position was identified. The performed wide review of the literature raising the issues of performance and risk of SRI allows us to make an attempt to synthesize the results obtained by various authors. This synthesis is based on criteria such as: subjective scope, geographical span, methodology and findings of particular research. The main finding of the research is that despite many attempts in which various methods were used, so far there is no firm evidence to support or reject any of the above formulated hypotheses.

Selection of overseas oil and gas projects under low oil price

In order to actively resist the risk of falling oil prices, the international oil companies need to adjust the business strategy in time. Investment efficiency can be enhanced through effective allocation of funds. This work constructs a set of analytical ideas and methods for the re-optimization of the oil project portfolio under the constraints of budget and production capacity. Based on the quadratic programming model and the preference theory, the optimal portfolio decision is made. The case study concludes that the flexibility of contract terms improves the optimization efficiency, that is, reduces the portfolio investment risk, optimizes the budget allocation, and expands the range of alternative projects. In terms of decision-making, net present value should not be the only criterion for project selection. However, the portfolio optimization presented in this article, which considers the multiple constraints and inter-projects relationships, can achieve the compromise between risk and return.