Portfolio Management Decisions Research Articles

Size and Value Premium in Karachi Stock Exchange

Investment decisions are based on the rational return expectations and investors require returns that are aligned with their risk and utility. This phenomenon has been extensively discussed in the financial theory as well as practice and the first known theory of asset pricing leads back to as early as Bachelier (1900). The current study evaluates the performance of Fama and French Three Factor model in Karachi Stock Exchange (KSE). It employs a multivariate regression approach after sorting six portfolios on size and bookto market. The constituent stocks were selected to represent each and every sector of KSE. Daily returns were employed for a period of five years starting from January 2003 to December 2007. The six month Pakistan’s T Bill yield was used as proxy for risk free rate to determine excess returns. The excess returns for each portfolio were regressed on market, size and value factors. The results were encouraging for the three factor model. The three factor model was able to explain the variations in returns for most of the portfolios and the results remain consistent when the sample was reduced to control for the size effect. Our findings are consistent with most of the studies that suggested the validity of three factor model in emerging markets. These findings havesubstantial implications for fund managers, analysts and investors. The results suggest that size and value premium must be incorporated for asset valuations and portfolio management decisions.

A posited fuzzy-evolutionary computational model to minimise the tracking error of an option-replicating portfolio

In this paper, we build on an earlier work using a haploid genetic algorithm (hGA) model that demonstrated the evolutionary optimality of the Black–Scholes options pricing functional form. We adopt the same hGA model in a similar problem context and posit adding on a fuzzy logic controller to come up with a practically usable portfolio management decision support tool that could minimise the cumulative hedging error. As the optimality constraints are dependent on abruptly changing and often ambiguous market conditions, it provides a fertile ground for applying such fuzzy optimisation.

Exploring new product portfolio management decisions: The role of managers' dispositional traits

Product strategy links to new product development (NPD) through new product portfolio management (NPPM). This dynamic decision process addresses the strategy implementation questions of identifying which new product ideas to pursue and their relative priorities. Despite the importance of NPPM in implementing product strategy, firms exhibit substantial performance-affecting differences. We investigate one potential source for such differences by examining the impact of managers' dispositional factors as a possible explanation. Using a case study research method, we examine differences in NPPM strategies and managers' revealed dispositional traits across three divisions of a single conglomerate firm operating in different business-to-business markets. Based on our analysis, we offer propositions relating managers' dispositions to NPPM strategy: analytic cognitive style is associated with balance, ambiguity tolerance is associated with strategic fit, and leadership style is associated with the relative weights applied to each dimension.

Jumps and Betas: A New Framework for Disentangling and Estimating Systematic Risks

We provide a new theoretical framework for disentangling and estimating sensitivity towards systematic diffusive and jump risks in the context of factor pricing models. Our estimates of the sensitivities towards systematic risks, or betas, are based on the notion of increasingly finer sampled returns over fixed time intervals. In addition to establishing consistency of our estimators, we also derive Central Limit Theorems characterizing their asymptotic distributions. In an empirical application of the new procedures using high-frequency data for forty individual stocks and an aggregate market portfolio, we find the estimated diffusive and jump betas with respect to the market to be quite different for many of the stocks. Our findings have direct and important implications for empirical asset pricing finance and practical portfolio and risk management decisions.

Value‐at‐risk concept by Swiss private banks

PurposeThe purpose of this paper is to consider the problem of using the Value‐at‐Risk (VaR) technique and examine its practical implementation by Swiss Private Banks.Design/methodology/approachThe paper is based on a survey originally undertaken in 2003 and updated in 2005. The research results provide details on how asset and portfolio managers understand and apply VaR methodology in their daily business.FindingsFrom the banks' perspectives, VaR has both positive and negative points. It is like a common denominator for various risks. The reason is that VaR is used by portfolio managers as comparable risk measurement across different asset classes and business lines.Originality/valueThis analysis shows how banks can implement VaR concept more effectively through its practical implementation areas in: portfolio management decisions and asset allocation; the “what‐if” modeling of candidate traders; and measuring and monitoring market risk.

Toward an Optimal Domestic Large-Cap Equity Index

Choosing a benchmark for domestic large-cap equities is critical for plan sponsors because benchmarks play an important role in implementation of the portfolio management decision. As the sole purpose of active management is to generate excess returns over the benchmark, it is important that an equity benchmark representing this asset class be efficient, so that any outperformance of an active manager can be considered an outcome of the manager9s skill. A more efficient benchmark for large-cap equity results in a historical average information ratio of zero for the universe of active managers. The key to generating alpha in this asset class then depends on one9s ability to identify skillful managers.

Dynamic portfolio management under competing representations

PurposeTo solve the multi‐period portfolio management problem under transactions costs.Design/methodology/approachWe apply a recently designed super genetic hybrid algorithm (SuperGHA) – an integrated optimisation system for simultaneous parametric search and non‐linear optimisation – to a recursive portfolio management decision support system (SHAREX). The parametric search machine is implemented as a genetic superstructure, producing tentative parameter vectors that control the ultimate optimisation process.FindingsSHAREX seems to outperform the buy and hold‐strategy on the Finnish stock market. The potential of a technical portfolio system is best exploitable under favorable market conditions.Originality/valueA number of robust engines for matrix algebra, mathematical programming and numerical calculus have been integrated with SuperGHA. The engines expand its scope as a general‐purpose algorithm for mathematical programming.

Determining the value of drug development candidates and technology platforms

This paper explains a comprehensive and systematic approach to evaluate drug development projects and technology platforms, using an augmented version of net present value (NPV). The benefits of financial models for value-driven project and portfolio management, licensing negotiations and investors' decisions are discussed.

Determining the value of drug development candidates and technology platforms

This paper explains a comprehensive and systematic approach to evaluate drug development projects and technology platforms, using an augmented version of net present value (NPV). The benefits of financial models for value-driven project and portfolio management, licensing negotiations and investors' decisions are discussed.

Audit Firm Portfolio Management Decisions

ABSTRACTWe examine client acceptance and client continuance decisions of a large audit firm to provide empirical evidence on the extent and nature of risk avoidance that the firm uses to purposefully manage its client portfolio. Our results support several key new inferences regarding audit firm portfolio management decisions. First, the results show that this firm is shedding the riskier clients in its portfolio, consistent with the risk avoidance theory of audit firm portfolio management. Second, the results show that the firm's newly accepted clients are less risky than its continuing clients. Although results of both the client continuance and client acceptance decisions imply a less risky portfolio emerging over time, there are greater differences in risk between continuing and discontinued clients than between continuing and newly accepted clients. Third, we find that audit risk factors are more important in audit firm portfolio management decisions than are financial risk factors. Finally, we find no evidence that audit pricing affects the client acceptance and continuance decisions of this firm, controlling for risk and other client characteristics.

Project and Portfolio Management Decisions: A Framework and Body of Knowledge Model for Cycle Research

Executive Summary. Investors and portfolio managers have recognized the critical importance of real estate cycles, their pervasive and dynamic impacts on investment returns and risks, and their strategic implications for project and portfolio decisions. Despite the extensive global interest in cycles that has developed over the past ten years, there is not a common body of knowledge that is recognized, nor is there a common terminology, theoretical framework and methodology for cycle research by academic and industry researchers. The purpose of this study is to provide a perspective on real estate cycles research; present a user-friendly research framework and classification model for this evolving literature, based on a grounded theory survey of cycle experts; classify existing real estate cycles literature according to this framework and model; provide a reference bibliography on cycles; and provide commentary on the gaps of knowledge on cycles, a proposed research agenda for the future, and a means of accessing better real estate cycle information and data throughout the world.

Separating the Impact of Portfolio Management Decisions

Separating the Impact of Portfolio Management Decisions

CAPM anomalies and the pricing of equity: evidence from the Hong Kong market

Using a sample of equity stocks traded on the Hong Kong stock market, this study examines empirically the independent and joint roles of the more commonly hypothesized variables in explaining cross-sectional variation in average returns over the period from January 1980 to December 1994. Evidence indicates that beta, book leverage, earnings-price ratio and dividend yield are not priced, whereas significant book-to-market equity, market leverage (absorbed by book-to-market equity), size, and share price effects are observed. The findings should prove valuable in portfolio management and corporate financial decisions.

A Value at Risk Approach to Risk-Return Analysis

The author9s value at risk approach to risk-return analysis highlights the importance of dealing with net rather than gross exposures. A VaR approach can be used for investment, hedging, and general portfolio management decisions. It is particularly useful when making hedge decisions by helping to avoid a number of problems that can easily arise using the traditional approach to hedging.

The economic efficiency of the Credit Department of Farmers' Associations in Taiwan

The efficiency performance of the Credit Department of Farmers Associations (CDFAs) in Taiwan is examined using a nonparametric programming approach. The findings show that most CDFAs are highly scale efficient, but the performance on technical and allocative efficiencies is not satisfactory. ANOVA and χ2 tests are used to examine the impact of environmental factors measured by an urbanization index, while Tobit analysis is used to identify the association between the efficiency indices and the accounting-based financial performance ratios. While some of the statistical inferences are consistent with the stated hypothesis, others are not. This implies that the increased competition created by financial deregulation could improve CDFA performance through changes in portfolio management decision making. On the other hand, the risk-efficiency trade-off should be taken into consideration by regulatory agencies to monitor the performance of the CDFAs.

Characteristics of the savings-investment process in Nigeria

The characteristics of the demand and supply sides of the savings-investment process in Nigeria are analyzed. The study used primary data generated from two surveys. The first was administered to top executives of a purposive cluster of banks while the second was administered to a random sample of the organized private sector. Factors affecting bank portfolio management decisions under different regulatory regimes, perceived determinants of the transmission of savings to investment and the relative share of bank credit in the investment portfolios of firms are analyzed and discussed. Policy recommendations are offered.

The Asset-Liability Management Strategy System at Fannie Mae

Fannie Mae uses the asset-liability management strategy (ALMS) system to support portfolio management decisions regarding a large, highly leveraged portfolio of home mortgage assets. The ALMS system employs a combination of Monte Carlo security cash-flow simulation methods and options-based pricing methods to estimate a holding-period return distribution for each asset and liability considered in the portfolio optimization. It uses the return distributions to determine which portfolio composition maximizes the expected utility of return on portfolio equity. The return distribution calculations are distributed in parallel across a network of Unix workstations. We implemented this distributed computation fairly easily using commercially available client-server database-management software, transforming the feasibility prototype model into an interactive-interface, multi-user, distributed-processing application for use by Fannie Mae staff.

Decision Support and Expert Systems for Real Estate Investment Decisions: A Review

Decisions about investment in commercial real estate projects are influenced by many factors, both quantitative and qualitative. With the aid of computerized decision support and expert systems, investors and developers are applying increasingly sophisticated forms of analyses to project screening, portfolio management, and other high-level decisions related to real property assets. In this field, even small improvements in decision making can have major monetary impact. Although many off-the-shelf and custom-built systems have been developed, these computer technologies have yet to be fully exploited by the real estate investment industry.

Joint Effects of Interest Rate Deregulation and Capital Requirements on Optimal Bank Portfolio Adjustments

ABSTRACTThe 1980 Depository Institution Deregulation and Monetary Control Act (DIDMCA) mandates that Regulation Q be phased out by 1986. With deregulation of interest rate ceilings, the cost of raising capital funds for commercial banks would become more volatile and more closely related with interest rates in the money and capital markets. Thus, value‐maximizing bank managers would need to be concerned not only with the internal risk, but also with the external risk in bank portfolio management decisions. Based upon the cash flow version of the capital asset pricing model, this paper analyzes the joint impact of interest rate deregulation and capital requirements on the portfolio behavior of a banking firm.

Are There Commission Cost Side-Effects from Portfolio Management Decisions?

(1983). Are There Commission Cost Side-Effects from Portfolio Management Decisions? Financial Analysts Journal: Vol. 39, No. 4, pp. 52-59.