Prudent Investment Research Articles

Information and performance optimization: a study of Indian IPOs during 2005-2012

PurposeThe purpose of this paper is to focus on examining the first day returns of initial public offerings (IPOs) and the role of information on their performance. The study tries to optimize the returns of the new issues during 2005-2012 with risk as a constraint.Design/methodology/approachThe initial returns are measured through the market-adjusted excess return and the risk associated with the new issue is measured through underwriters’ reputation. The returns have been optimized through a mixed integer linear problem using the Maple software.FindingsThe previous studies show that various informational variables affect the listing day returns significantly. The results of the present study indicate that the mean of initial returns for IPOs during 2005-2012 is 18.03 and the mean risk for these issues is 0.46. The findings also suggest that the optimal returns are obtained in the pre-recession era (2005-2008) and the value for the same is 50.02 percent.Originality/valueThe current study contributes in the investment decisions for global investors as every investor wants to maximize his/her returns. The optimal returns with risk as a constraint will help the investors in improving their investment decision as a prudent investor does not aim solely at maximizing the expected return of an investment but is also interested in optimizing with the minimization of risk.

Dynamic linkages between gold and equity prices: Evidence from Indian financial services and information technology companies

We use multivariate GARCH models to analyze dynamic linkages between gold and equity price. A $1 long position in the NIFTY Financial Services index or in the NIFTY Information Technology index can be hedged for 12 cents and 5 cents, respectively, with a corresponding short position in spot gold. Moreover, spot gold expressed in rupees is a stronger equity hedge than spot gold expressed in dollars. Gold also acts as a safe haven asset during the Global Financial Crisis period. Crisis or not a prudent investor should allocate around 30% of her investable assets in gold within a gold/stock portfolio.

Student Experience of E-Learning Tools in HE: An Integrated Learning Framework

Over the last decade the adoption of a Virtual Learning Environment (VLE), at University, has become an accepted norm of support for student learning. However, despite the major investment in VLE’s there is a major disparity between what universities are offering, on their online platforms, and how this material and activities are being utilised by students. This research provides empirical evidence of the passive use, both by tutors and students, of the VLE. The literature provides evidence of the inertia that still exists, within Higher Education (HE), among tutors, to fully embrace the spectrum of VLE engagement tools. The lack of transition, among many tutors, to utilise the VLE as a pedagogical engagement tool continues to impact the expectations of fee paying students in the UK, who no longer expect that a Socratic dialogue will suffice to catalyse their intellectual curiosity. Today’s generation of students have been exposed to a plethora of technologies that facilitates the acquisition of instant information and often through a multitude of sensory (visual, audio) formats. Furthermore, with the growth of Massive Open Online Courses (MOOCS) that are freely available to students the expectations, of HE students, from universities is becoming more demanding. In light of this competitive virtual learning landscape the authors propose a learning framework. To enable universities to create a unique and effective learning experience, for their students, through prudent investment in VLE tools and a complimentary learning environments. Resulting in deeper learning and informed students prepared for seminars.

Dividend Policy and Shareholders’ Value: Evidence from Listed Companies in Ghana

AbstractThis study examines the effect of dividend policy on shareholder value of listed companies in Ghana. It analyses the factors affecting dividend policy and how dividend policy affects shareholders’ value. Data from 2009 to 2014 financial reports of listed companies on the Ghana Stock Exchange were used. The data was analysed using pooled OLS panel regression. The findings reveal that ROE, firm age, tax, tangibility, GDP growth and interest rate are statistically significant in explaining dividend policy. The study suggests that firms consider the use of dividend yield as an appropriate measure when making choices in dividend policy. The study finds a positive relationship between dividend per share and shareholders’ value. More so, firms with higher dividend yield tend to reduce shareholders’ value, as confirmed by a negative and significant relationship between dividend yield and shareholders’ value. It concludes that dividend policy has a strong relationship with shareholders’ value. The study recommends that managers should embark on prudent investment activities that would generate higher returns (both dividend and capital gains) to shareholders in order to increase shareholder value.

Selection of Short-term Investment Strategy-Judgment Based on Average Adhesion State

With the development and evolution of the futures market, the prosperity of a country's futures market is more and more important to the country's economic development. In China, the futures market development is not perfect, futures product structure still need to improve. Futures market, the existence of many speculators, futures laws and regulations imperfect, and the development of economic globalization, are the futures investment is facing many uncertain risks. In the choice of investment strategy, more and more investors to take prudent investment strategy, which, a large part of the investors tend to technical analysis. Through technical analysis, traders judge market trends and follow the cyclical changes in the trend to make stock and all financial derivatives trading decisions. In the technical analysis, the average system analysis is the most commonly used in practice is the highest accuracy of the analytical technology, this paper through the copper, rubber, sugar, cotton, zinc, several representative commodity futures to study, to verify the average bonding State of investment strategy choice. First, this paper determines the condition of the bonding state by calculating the distance of different mean points. Then, it is judged whether the reversal of the form is long or short by the comparison of the MA value of the different mean points. Finally, the factory strategy and the factory strategy are determined. And to take more and short after the operation of the proposed stop-loss strategy. The effect of these strategies is very significant, the sum of several commodity futures net profit of 113744.79 yuan, profit and loss ratio of 2.82.

Expert opinion on risks to the long-term viability of residential recycled water schemes: An Australian study

The water sector needs to make efficient and prudent investment decisions by carefully considering the long-term viability of water infrastructure projects. To support the assessment and planning of residential recycled water schemes in Australia, we have sought to clarify scheme objectives and to further define the array of critical risks that can impact the long-term viability of schemes. Building on historical information, we conducted a national survey which elicited responses from 88 Australian expert practitioners, of which 64% have over 10 years of industry experience and 42% have experience with more than five residential recycled water schemes. On the basis of expert opinion, residential recycled water schemes are considered to be highly relevant for diversifying and improving water supply security, reducing wastewater effluent discharge and pollutant load to waterways and contributing to sustainable urban development. At present however, the inability to demonstrate an incontestable business case is posing a significant risk to the long-term viability of residential recycled water schemes. Political, regulatory, organisational and financial factors were also rated as critical risks, in addition to community risk perception and fall in demand. The survey results shed further light on the regulatory environment of residential recycled water schemes, with regulatory participants rating the level and impact of risk factors higher than other survey participants in most cases. The research outcomes provide a comprehensive understanding of the critical risks to the long-term viability of residential recycled water schemes, thereby enabling the specification of targeted risk management measures at the assessment and planning stage of a scheme.

Characteristics of Long-run Return and Risk: A Unified Performance Metric

It is well documented in the literature that long-run asset prices do not follow a random walk, thus their returns are not independent and identically distributed (i.i.d.) over time. But how can this notion—long-run returns and volatilities being horizon dependent—be incorporated into formal pricing models? In this paper, we develop a unified risk-adjusted return metric that is applicable to both private assets and public securities. Since such metric is based on a pair of empirically determined return and risk characteristic lines that depict the horizon impact on return and volatility, our performance metric is rooted in empirical evidence rather than assumptions. The results suggest that long-run asset performance cannot be adequately measured by single-period return and volatility. Rather, prudent long-run investment decisions must include careful consideration of the anticipated holding period and a proper understanding of the long-run return and risk characteristics.

Dynamic Linkages between Gold and Equity Prices: Evidence from Indian Financial Services and Information Technology Companies

In this paper, we use multivariate GARCH models to analyze dynamic linkages between gold and equity price returns. We model dynamic conditional correlations and volatility spillovers between these assets. Our results indicate that spot gold can be an effective hedge against stock prices. A $1 long position in the NIFTY Financial Services index can be hedged for 12 cents with a short position in spot gold and a $1 long position in the NIFTY Information Technology index can be hedged for 5 cents with a short position in spot gold. Gold also seems to act as a safe haven asset during the Global Financial Crisis period between 2007 and 2009. Our results suggest that crisis or not a prudent investor should allocate around 30 per cent of her investible assets in gold within a gold/stock portfolio. Given that in India around 41% of the population is still without access to banking services and are hence deprived of interest-earning deposits, it is not very surprising to find gold’s optimal portfolio weight to be as high as 30 per cent.

The Prudent Investor Rule and Market Risk: An Empirical Analysis

The prudent investor rule, enacted in every state over the last 30 years, is the centerpiece of trust investment law. Repudiating the prior law's emphasis on avoiding risk, the rule reorients trust investment toward risk management in accordance with modern portfolio theory. The rule directs a trustee to implement an overall investment strategy having risk and return objectives reasonably suited to the trust. Using data from reports of bank trust holdings and fiduciary income tax returns, we examine asset allocation and management of market risk before and after the reform. First, we find that the reform increased stockholdings, but not among banks with average trust account sizes below the 25th percentile. This result is consistent with sensitivity in asset allocation to trust risk tolerance. Second, we present evidence consistent with increased portfolio rebalancing after the reform. We conclude that the move toward additional stockholdings was correlated with trust risk tolerance, and that the increased market risk exposure from additional stockholdings was more actively managed.

Investing in Sports Stocks: A Case of Sportfolio Management Inc.

Jordan Bourne is the Chief Executive Officer (CEO) of Sportfolio Management Inc. (SMI), a small hedge fund operating out of Boston, Mass. SMI provides prudent and profitable investment management services to clients through active investment in publicly traded companies operating in sport-related business endeavors. By employing both “long” and “short” investment management strategies, Bourne’s objective is to achieve a positive rate of return in the Sportfolio for her valued clients. Assistance from the firm’s Investment Analysts is vital to meet this objective.

“For Where Your Septic Tank is, There Your Heart Will Be Also”: Enterprise Cascadia and the Hood Canal Septic Loan Program

Jan Markham's team was currently considering Enterprise Cascadia as a potential awardee for her foundation's Community Investment Excellence Awards program. The program had been established to recognize and aid in the growth of community development financial institutions that achieved excellence in each of six areas: vision, use of funds, leadership, innovation, financial strength and performance, and impact and policy. Markham's task was to determine if Enterprise Cascadia met these requirements and if it would be a prudent investment for her foundation. Excerpt UVA-ENT-0180 Feb. 10, 2012 “FOR WHERE YOUR SEPTIC TANK IS, THERE YOUR HEART WILL BE ALSO”: ENTERPRISE CASCADIA AND THE HOOD CANAL SEPTIC LOAN PROGRAM Jan Markham made her way along the winding roads back to the Portland airport. The majestic trees emerging from the roadside mists intruded upon her thoughts as she reviewed her meetings with Enterprise Cascadia (EC). After two days of presentations and site visits in rural Oregon and Washington, she was headed home to decide with her foundation's Program-Related Investments (PRI) team whether the James A. Stonefield Foundation would be investing in EC, and if so, how the investment would be structured. Markham knew the team would likely accept her recommendation, so responsibility for the eventual decision lay with her. Markham set the rental car's cruise control and began to review the facts. Markham's team was currently considering EC as a potential awardee for the foundation's Community Investment Excellence Awards program. The program had been established to recognize and aid in the growth of community development financial institutions (CDFIs) that achieved excellence in each of six areas: vision, use of funds, leadership, innovation, financial strength and performance, and impact and policy (see Exhibit 1). Markham's task was to determine if EC met these requirements and if it would be a prudent investment for the Stonefield Foundation. The project that had captured the foundation's attention was EC's Hood Canal Regional Septic Loan Program, the result of a unique blending of public and private interests and resources. The loan program provided consumer loans for upgrading septic systems at income-adjusted (low) interest rates, and the loans were intended to benefit the homeowner, the local environment, and the local economy, which had strong ties to the health of waterways. After three years of service in the Hood Canal region of Washington, EC was seeking capital to expand the program beyond its current three-county footprint. In addition to determining whether the award's criteria were met, Markham needed to evaluate whether the firm was prepared to make the necessary financing, implementation, and managerial changes to fit a different market. . . .

A Network Framework of Investigating Systemic Risk in Zonal Energy Markets

Deregulation of energy markets has led to increase volatilities in energy prices. Cost of investments are therefore quite huge for market participants, and thus require prudent investment decisions. This paper therefore employs the recently proposed state of the art network modelling techniques known as the Bayesian graphical vector autoregressive (BG–VAR) model to examine the complex network dynamics in zonal power market movements. In addition, it accommodates the statistical and computational challenges associated with inference of interdependence (or temporal dependence) from observed multivariate time series. Our findings show the relevance of this methodology in studying interconnectedness, extracting useful hidden spatial information. In particular, various network measures have been explored in view of systemic risk spread, which therefore provide a benchmark for proper energy risk management as well as ensuring energy supply reliability and security.

A Study of Banking Stocks in India to Develop a Model for Prudent Investment

Investments in stock markets are often volatile, uncertain, complex and ambiguous (VUCA). Can we overcome an investment decision impasse, by adopting suitable research in a particular industry with the probable risk and uncertainty embedded? This critical thinking has triggered the analysis described in this paper; the fast growing banking sector has been chosen for the study. The financial result published by the various banks up to the year ending December 2014 has been taken for our scrutiny. Furthermore, a sample of forty commercial banks listed in the schedule of Reserve Bank of India and listed with National Stock Exchange (NSE) has been taken for analysis. A non-linear portfolio optimization model has been developed that can be used by investors to park their surplus funds in Indian banking stock. This model variant allows selection of various financial ratios such as Net Interest Margin (NIM) and Non-Performing Assets (NPA) to serve as a proxy for the expected return. In addition, statistical comparisons between public sector banks and private sector banks have been conducted across important financial ratios. These tests show that private sector banks are more efficient than public sector banks when considering Return on Assets (ROA) and Net Interest Margin (NIM), but are comparable on Return on Equity (ROE).

Asset management, High Water Mark and flow of funds

We analyze the asset manager’s portfolio problem when he is remunerated through a High Water Mark incentive fee and a management fee, and the assets under management are characterized by in/outflow of funds as a function of the performance of the fund with respect to a benchmark. Once we solve numerically the investment problem, we show that the presence of a flow fund induces risk in excess in case of a High Water Mark defined on the pure performance of the fund. Instead a High Water Mark defined on the assets under management leads to a more prudent investment strategy.

Fiduciary Financial Advice to Retirement Savers: Don't Overlook the Prudent Investor Rule

Americans now hold trillions of dollars in individual retirement savings accounts, raising concerns about conflicts of interest among financial advisers who provide advice to retirement savers. Prompted by these concerns, in April 2016 the Department of Labor promulgated a rule that imposes on financial advisers to retirement savers “fiduciary” status under the Employee Retirement Income Security Act. The Department reasoned that the fiduciary duty of loyalty would protect retirement savers from conflicted investment advice. But in addition to a duty of loyalty, fiduciary status also imposes a duty of care. With respect to investment management, the fiduciary standard of care is governed by the “prudent investor rule,” which is grounded in modern portfolio theory and requires an overall investment strategy having risk and return objectives reasonably suited to the purpose of the investment account. This essay calls attention to the regulatory imposition of the prudent investor rule on financial advisers to retirement savers. The essay also canvasses the basic tenets of the prudent investor rule, highlighting its nature as principles-based rather than prescriptive, and the customary role of an investment policy statement in compliance by professional fiduciaries.

Optimizing disturbance management for wildlife protection: the enforcement allocation problem

Summary To ensure public compliance with regulations designed to protect wildlife, many protected areas need to be patrolled. However, there have been few attempts to determine how to deploy enforcement effort to get the best return on investment. This is particularly complex where repeated enforcement visits may result in diminishing returns on investment. Straightforward quantitative methods to solve such problems are not available to conservation practitioners. We use structured decision‐making to find the most cost‐effective allocation of patrol effort among sites with a limited budget. We use the case study of declining migratory shorebirds in Moreton Bay, Australia, to determine where and when Marine Park personnel could reduce disturbance using two different scenarios: (i) where a fixed subset of sites is chosen for management each year and (ii) where different sites are visited during each patrol. The goal is to maximize the number of undisturbed birds for a given budget. We discover that by prioritizing enforcement based on cost‐effectiveness, it is possible to avoid inefficient allocation of resources. Indeed, 90% of the maximum possible benefit can be achieved with only 25% of the total available budget. Visiting a range of enforcement sites at varying rates yields a greater return on investment than visiting only a fixed number of sites. Assuming an exponential reduction in disturbance from enforcement, the greatest benefit can be achieved by patrolling many sites a small number of times. Assuming a linear reduction in disturbance from enforcement, repeatedly patrolling a small number of sites where return on investment is high is best. If we only prioritize sites where wildlife is disturbed most often, or where abundance is greatest, we will not achieve an optimal solution. The choice of patrol location and frequency is not a trivial problem, and prudent investment can substantially improve conservation outcomes. Synthesis and applications. Our research demonstrates a straightforward objective method for allocating enforcement effort while accounting for diminishing returns on investment over multiple visits to the same sites. Our method is transferable to many other enforcement problems, and provides solutions that are cost‐effective and easily communicable to managers.

Quantification and Justification of Prudent Water Main Replacement Investment Levels

Quantification and Justification of Prudent Water Main Replacement Investment Levels

Fiduciary Financial Advisers and the Incoherence of a 'High-Quality Low-Fee' Safe Harbor

Americans now hold trillions of dollars in individual retirement savings accounts. Concerned about conflicts of interest among financial advisers who provide advice to retirement savers, the Department of Labor has proposed imposing fiduciary status and a "best interest" standard on such advisers. To ameliorate the resulting compliance costs, the DOL has also raised the possibility of a safe harbor for certain "high-quality low-fee investments." However, the notion of a "high-quality" investment is in irreconcilable tension with the highly individualized assessment of risk and return that is required by modern portfolio theory, the well-accepted concept from financial economics that has been codified in the "prudent investor rule" as the standard of care for fiduciary investment. This policy incoherence is worrisome because of the potential for the safe harbor to swallow the best interest standard.

Values and Value: University Endowments, Fiduciary Duties, and ESG Investing

The trustees managing university endowment funds must comply with fiduciary duties that require the trustees to act in the best interests of the university and to act as prudent investors when managing the funds. This article shows that these fiduciaries may adopt investment policies that consider material environmental, social, and governance (ESG) factors as part of an overall investment strategy. The article explains why older arguments that fiduciaries should avoid “social investing” are no longer relevant and how the prudent investor standard has evolved to include ESG investing. The article discusses the changes in socially responsible investing since the anti-apartheid era and reviews a significant number of empirical studies that show that ESG investing has had a neutral or positive effect on financial return. Based on the empirical work, evidence of the financial industry’s growing use of extra-financial factors in investment analysis, and recent guidance from the Department of Labor, the article concludes that a trustee responsible for a university endowment will not breach the duty of loyalty or the duty to act as a prudent investor by directing the endowment’s use of ESG investing as part of an overall financial investment strategy..

The Prudent Investor Rule and Market Risk: An Empirical Analysis

The prudent investor rule, enacted in every state over the last 30 years, is the centerpiece of trust investment law. Repudiating the prior law’s emphasis on avoiding risk, the rule reorients trust investment toward risk management in accordance with modern portfolio theory. The rule directs a trustee to implement an overall investment strategy having risk and return objectives reasonably suited to the trust. Using data from reports of bank trust holdings and fiduciary income tax returns, we examine asset allocation and management of market risk before and after the reform. First, we find that the reform increased stockholdings, but not among banks with average trust account sizes below the 25th percentile. This result is consistent with sensitivity in asset allocation to trust risk tolerance. Second, we present evidence consistent with increased portfolio rebalancing after the reform. We conclude that the move toward additional stockholdings was correlated with trust risk tolerance, and that the increased market risk exposure from additional stockholdings was more actively managed.