Return Expectations Research Articles

A Tree Augmented Naïve Bayes-based methodology for classifying cryptocurrency trends

As the popularity of blockchain technology and investor confidence in Bitcoin (BTC) increased in recent years, many individuals started making BTC and other cryptocurrency investments, in expectation of high returns. However, as recent market movements have shown, the lack of regulation and oversight makes it difficult to guard against high volatility and potentially significant losses in this sector. In this study, we propose a data-driven Tree Augmented Naïve (TAN) Bayes methodology that can be used for identifying the most important factors (as well as their conditional, interdependent relationships) influencing BTC price movements. As the model is parsimonious without sacrificing accuracy, sensitivity, and specificity—as evident from the average accuracy value—the proposed methodology can be used in practice for making short-term investment decisions.

Skewness expectations and portfolio choice

Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We elicit detailed return expectations for a broad index fund and a single stock in a representative sample of the Dutch population. The data show substantial heterogeneity in individuals’ skewness expectations of which only very little is captured by sociodemographics. Across assets, most respondents expect a higher variance and skewness for the individual stock compared to the index fund. Portfolio allocations increase with the skewness of respondents’ return expectations for the respective asset, controlling for other moments of a respondent’s expectations.

Portfolio Tilts Using Views on Macroeconomic Regimes

Long-term investors tilt their portfolios given their views on the evolving investment landscape. In the literature, portfolio tilting is often implemented with methodologies that use investors’ views on point estimates of conditional assets’ expected returns. These conditional return expectations are notoriously difficult to estimate, and using them often results in unstable portfolio weights when existing methodologies are applied. We avoid such shortcomings by providing a methodology that incorporates views on the likelihood of economic regimes (e.g., growth and inflation surprises) instead. Using data on equities, bonds, and commodities, we show—both in simulation and empirically—that our approach generates stable portfolio weights and outperformance that is minimally affected by forecast errors.

How do Chinese people evaluate "Tang-Ping" (lying flat) and effort-making: The moderation effect of return expectation.

"Tang-Ping" (TP), referring to "lying flat" literally, has been a buzzword in China web media since 2021. As the opponent of effort-making (EM) behaviors which have both instrumental and purpose values in Confucian culture, TP has a negative moral implication in China and has been criticized by the state-owned media. Meanwhile, the meaning of TP also contains a negative form of resistance toward social and organizational inequality, which may be acceptable under unfair circumstances. This study employed the imagined-scenario method to investigate the public's moral evaluations of TP and EM behaviors under conditions of different return expectations. An online questionnaire with 2 (TP vs. EM) by 2 (low vs. high return expectation) between-participants designed scenarios were employed, along with the measurements of obligation belief of effort (OBE) and improvement belief of effort (IBE) scales (N = 210). The results found that (1) TP behaviors were evaluated as morally wrong in general, while EM behaviors were morally right; (2) the return expectation of the scenario moderated the behavior type's effect on moral evaluation, that EM behaviors were evaluated positively regardless of return expectation, while TP behaviors became acceptable with a neutral score under the low return expectation; (3) both OBE and IBE correlated positively with evaluations of EM while negatively with evaluations of TP. The theoretical and practical implications were discussed.

Bitcoin in a Multi-Asset Portfolio

Investors looking to integrate digital assets into a traditional, diversified multi-asset portfolio need to formulate appropriate risk and return assumptions for them. Using the case of bitcoin, we argue that due to the short duration of available returns and the extreme volatility of the asset, historical returns are an unreliable basis for directly formulating forward return expectations. We also show that bitcoin’s return characteristics require an emphasis on such portfolio construction considerations as rebalancing frequency that are often peripheral in traditional asset allocation studies. We then demonstrate an allocation approach that addresses these concerns. The main idea is to extract required return thresholds for a small bitcoin investment (1% or 5%) that need to be underwritten by the investor, rather than relying on explicit return expectations as the input. We show that these return thresholds are surprisingly low, illustrating that the broader multi-asset portfolio perspective is critical when making investment decisions regarding high-volatility assets like bitcoin.

Conciseness, Financial Disclosure, and Market Reaction: A Textual Analysis of Annual Reports in Listed Chinese Companies

The purpose of this study was to examine the relationship between the conciseness and complexity of financial disclosures and market reactions, using the annual reports of Chinese-listed B-share companies over the period 2006–2018. We employed a set of statistical methods that were derived from other fields, such as computational and event studies, in order to derive the English annual reports of Chinese-listed companies, as well as to obtain other key financial indicators from the CSMAR database. Markets react significantly to increased report length, which means that managers that present poor returns with manipulated financial reports could be hiding poor returns. Additionally, the findings of this study are robust to additional tests that use alternative proxies. Furthermore, the results of this paper reinforce the hypothesis that the readability of financial reports affects financial market response. The results indicate that more complex financial reports are correlated with lower current returns, and negatively affect the expectations of future returns. For the purposes of avoiding the effects of the coronavirus pandemic on the results, we utilized data up to 2018. In light of this circumstance, we recommend that future research be conducted that compares results from before and after the coronavirus pandemic. The findings of our study have important implications for regulators, managers, and investors. Investors should obtain relevant information through annual reports; therefore, the importance of style is less relevant. Managers should be encouraged to write their annual reports more concisely. This study concluded that these reports are significant outputs of firms, and are widely read by investors. The study also provides empirical evidence of market reactions that are associated with readability and earnings, as well as with surprise earnings; thus, the complexity of annual reports provided by a variety of investors, using computational and event analysis, should be reduced.

A Holistic Approach to Creating High Income Portfolios That Are Risk–Return Efficient and Tax Aware

Retirees and other investors may prefer to use dividends from equities and interest from fixed income to fund their spending needs. This mental accounting phenomenon of spending the portfolio’s income without drawing down the invested principal makes them seek high income–producing asset classes. These investors, either directly or via advisors, adopt static high income portfolios as an investment strategy, often ignoring risk–return efficiency and tax efficiency principles. In this article, the authors introduce a methodology to systematically construct high income portfolios through an expected utility of wealth maximization approach while allowing for the incorporation of an investor’s income preferences. However, because asset return expectations are conditional on asset valuations, the authors find that popular static high income portfolios that are created on an ad hoc basis—by substituting broad market exposure with high-yielding assets—by design are not optimal. More importantly, the authors find that high income portfolios are tax inefficient when it comes to high tax bracket investors, making their use only appropriate when taxes are not a primary concern—for example, for low- to moderate-income investors or in a tax-deferred account.

Effect of earnings generation and retention capacity on the financial performance of Deposit Money Banks in Nigeria

This study evaluates the generation and retention capacities of financial earnings of Deposit Money Banks (DMBs) in Nigeria. There has been a widening gap between earnings generated and portion of the earnings retained thereof vis-a-vis the annual financial profits disclosures by DMBs, hence this study examines whether Earnings Generation Capacities (EGC) and Earnings Retention Capacities (ERC) of DMBs optimize their annual financial profit disclosures. This study adopts the ex post facto research design using secondary data from annual reports of seven DMBs from 2015 to 2020. Panel Regression Technique aided by E-View 9.0 statistical software was used for analyses. The results show that EGC and ERC have significant positive and negative effects respectively on the profitability of DMBs in Nigeria. This implies that assets of the DMBs are underutilized and cost management strategies under-optimized thereby undermining the achievement of optimal earnings generation and retention capabilities. The study recommends that DMBs need to improve on their asset utilization strategies and also adopt efficient in-house cost curtailment initiatives on Procurement and Equipment Asset Maintenance Costs (PEAMC) to enable DMBs to boost profitability, and strengthen going concern to meet shareholders’ return expectations.

Controlling Conditional Expectations by Zero-Determinant Strategies

Zero-determinant strategies are memory-one strategies in repeated games which unilaterally enforce linear relations between expected payoffs of players. Recently, the concept of zero-determinant strategies was extended to the class of memory-n strategies with nge 1, which enables more complicated control of payoffs by one player. However, what we can do by memory-n zero-determinant strategies is still not clear. Here, we show that memory-n zero-determinant strategies in repeated games can be used to control conditional expectations of payoffs. Equivalently, they can be used to control expected payoffs in biased ensembles, where a history of action profiles with large value of bias function is more weighted. Controlling conditional expectations of payoffs is useful for strengthening zero-determinant strategies, because players can choose conditions in such a way that only unfavorable action profiles to one player are contained in the conditions. We provide several examples of memory-n zero-determinant strategies in the repeated prisoner’s dilemma game. We also explain that a deformed version of zero-determinant strategies is easily extended to the memory-n case.

The impact of different sentiment in investment decisions: evidence from China’s stock markets IPOs

In this study, we used data on China’s initial public offerings (IPOs), market volatility and macro environment before and after two stock crashes during 2006–2016 to investigate how different investor sentiment affects IPO first-day flipping. The empirical results show that the expected returns of allocated investors are affected by sentiment, with allocated investors having higher psychological expectations of future returns during an optimistic bull market and their optimism discouraging first-day flipping, while higher risk-free interest rate levels and rising broad market indices also discourage first-day flipping and tend to sell in the future. The pessimistic bear market during which allocated investors have lower psychological expectations of future returns, their pessimism will promote first-day flipping, and the increase in the risk-free rate level will also promote first-day flipping, which is the opposite of the optimistic bull market, indicating that their risk aversion has increased and they tend to sell on the same day. We also found an anomaly that the greater the decline in the broad market index during a pessimistic bear market, the more inclined the allocated investors are to sell in the future when the broad market index rises in an attempt to gain higher returns. These findings help explain and understand the impact of market and macro index fluctuations on investor behavior under different investor sentiments.

Bowing to Five Pecks of Rice? The Impact of Profit Expectancy on Artistic Creativity

Do independent and amateur producers in cultural industries curtail their creativity when they have higher expectations of economic returns? Previous studies on the “creative/commerce” pair of the cultural industries did not provide a clear answer. This paper tries to answer this question by studying the case of Chinesemusic.com, a music streaming platform that launched a monetization program, allowing musicians to directly profit from their songs on the platform. I collect 16,320 songs from the platform released before and after the launch of the monetization program and, using computational tools developed in the field of Music Information Retrieval, I propose a novel approach to measure the creativity of the songs based on their sound. The results suggest that whilst more independent and amateur musicians were attracted by the monetization program, their songs became less and less creative afterward with a more significant shift among the former. The findings indicate that independent and amateur producers will proactively make compromises in their creative activities when they are given resources for a more promising career in the business.

Incentive Effects of Subjective Allocations of Rewards and Penalties

We examine the incentive effects of subjectivity in allocating tournament-based rewards and punishments. We use data from a company where reward and punishment decisions are based on a combination of objective metrics and subjective performance assessments. Rankings based on the objective metrics and the ultimate payoff allocations are disclosed to all members of the organization. This information allows employees to observe whether and how managers subjectively override the objective rankings. Consistent with expectancy theory, we predict and find that subjective rewards and punishments manifesting as favorable (unfavorable) deviations from formula-based payoff expectations are associated with subsequent performance improvements (declines). These performance responses are incremental to the effects of receiving a reward or punishment per se. Our results suggest that managers can benefit from using subjective rewards, but using subjective punishments can be very costly in the absence of sufficiently strong ex ante incentive effects associated with the prospect of subjective penalties. Our findings contribute to the literature on subjectivity in performance evaluations and have important practical implications for designing incentive systems. This paper was accepted by Brian Bushee, accounting. Funding: The authors appreciate the Harvard Business School for financial support during the development of this study. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2022.4501 .

Cost for implementation of grape crop in the north catarinens plane and return prospects: comparing espaldeira and manger system

The present study analyzes the production costs and the expectations of return on investment and the risks associated with the cultivation of grapes comparing two driving systems, cultivated in the region of the North Plateau of Santa Catarina, the espalier system with an approximate production of 800 boxes of 10 kg per hectare of Niagara Branca or Niagara Rosada grapes, and the manger system with an approximate production of 2000 boxes of 10 kg per hectare of the same type of grape. Both with five-year production cycles. This is an applied research in terms of its nature, descriptive in terms of its objective and a case study in terms of the strategy for approaching the problem. The information and data collected through documental research and semi-structured interviews were systematized in a cash flow projected in the respective terms, from an AMR of 6% pa. The Multi-Index Methodology was used to analyze the return and risks involved. From the results found, Monte Carlo simulation was used, through the Crystal Ball software, which point out that the average NPV of the 700m³/ st / ha option for 14 years exceeds the 420 m³ / st / option by R$16,869.00. for 7 years, the same occurring with IRR/average at 4.76% and ROIA/average at 3.46%. Although the results of the two varieties studied can be considered satisfactory, showing that the choice of one option over the other will depend on the opportunity presented in relation to reapplication of the gain, the values found show that the grape cultivation strategy by the manger driving presents a higher return to the investor.

Psychological and Behavioural Drivers of Short-Term Investment Intentions

Analysing the factors that influence the short-term investment intentions of investors is critical for investment institutions. If investment institutions are informed about these factors they can create a framework to more accurately profile their clients to provide clients with the desired liquidity, maturity dates and desired risk and return expectations. Risk tolerance is one of the elements that has been used over time to profile investors, however, this paper found that other factors should also be included. Therefore, this article aimed to determine what drives investors’ short-term investment intentions following a more sociological and behavioural approach by including investor personality traits, behavioural finance biases and investors’ risk tolerance behaviour. Secondary data was obtained from a private investment firm surveying private investors in South Africa. Male investors were also more likely to invest in the short-term compared to female investors. Several personality traits, risk tolerance and a single behavioural finance bias were found to influence investor intentions to invest in the short-term. It is therefore recommended to portfolio management companies that several sociological and behavioural variables do explain whether investors will be willing to invest in short-term or more long-term investment portfolios.

The Cost of Capital for Banks: Evidence from Analyst Earnings Forecasts

ABSTRACTWe extract cost of capital measures for banks using analyst earnings forecasts, which we show are unbiased. We find that the cost of equity and the cost of debt decrease in the Tier 1 ratio, whereas total cost of capital is uncorrelated with the Tier 1 ratio. These findings suggest that investors adjust their return expectations for banks in accordance with the Modigliani–Miller conservation‐of‐risk principle. Hence, increased capital requirements arenotmade socially costly based on a notion that market pricing violates risk conservation. Equity can nevertheless still be privately costly for banks because of reduced subsidies.

Influence of risk propensity, behavioural biases and demographic factors on equity investors' risk perception

PurposeInvestor risk perception is a personalized judgement on the uncertainty of returns pertaining to a financial instrument. This study identifies key psychological and demographic factors that influence risk perception. It also unravels the complex relationship between demographic attributes and investor's risk attitude towards equity investment.Design/methodology/approachExploratory factor analysis is used to identify factors that define investor risk perception. Multiple regression is used to assess the relationship between demographic traits and factor groups. Kruskal–Wallis test is used to ascertain whether the factors extracted differ across demographic categories. A risk perception framework based on these findings is developed to provide deeper insight.FindingsThere is evidence of the relationship and influence of demographic factors on risk propensity and behavioural bias. From this study, it is apparent that return expectation, time horizon and loss aversion, which define the risk propensity construct, vary significantly based on demographic traits. Familiarity, overconfidence, anchoring and experiential biases which define the behavioural bias construct differ across demographic categories. These factors influence the risk perception of an individual with respect to equity investments.Research limitations/implicationsThe reference for the framework of this study is limited as there has been no precedence of similar work in academia.Practical implicationsThis paper establishes that information seekers make rational decisions. The paper iterates the need for portfolio managers to develop and align investment strategies after evaluation of investors' risk by including these behavioural factors, this can particularly be advantageous during extreme volatility in markets that concedes the possibility of irrational decision making.Social implicationsThis study highlights that regulators need to acknowledge the investor's affective, cognitive and demographic impact on equity markets and align risk control measures that are conducive to market evolution. It also creates awareness among market participants that psychological factors and behavioural biases can have an impact on investment decisions.Originality/valueThis is the only study that looks at a three-dimensional perspective of the investor risk perception framework. The study presents the relationship between risk propensity, behavioural bias and demographic factors in the backdrop of “information” being the mediating variable. This paper covers five characteristics of risk propensity and eight behavioural biases, such a vast coverage has not been attempted within the academic realm earlier with the aforesaid perspective.

Forming ESG-Oriented Portfolios: A Popularity Approach

Key theories of financial economics seem to be at odds with one another and with observed personalized portfolios. The Popularity Asset Pricing Model serves as a unifying theory by allowing for both rational and irrational investors, individual risk and return expectations, a multitude of pecuniary and non-pecuniary characteristics to impact asset prices, and investors to derive utility from non-pecuniary characteristics. The authors develop a benchmark-relative fund-of-funds alpha-tracking error utility function that directly incorporates an investor’s non-pecuniary preferences, including environmental, social, and governance–oriented preferences. Maximizing the utility function leads to a personalized portfolio that tilt toward characteristics that the investor likes and away from characteristics the investor dislikes while maximizing alpha and minimizing tracking error.

ACL Surgery Necessity in Non-Acute Patients (ACL SNNAP): a statistical analysis plan for a randomised controlled trial

BackgroundRupture of the anterior cruciate ligament (ACL) is a common injury, primarily affecting young, active individuals. Despite surgical intervention being the more common treatment for patients suffering ACL ruptures, current management is based on limited and generally low-quality evidence. We describe a statistical analysis plan (SAP) for the ACL SNNAP randomised controlled trial, which aims to investigate the necessity of surgical management in patients with ACL injuries.Methods/designACL SNNAP is a pragmatic, multi-centre, superiority, parallel-group randomised controlled trial in participants with a symptomatic non-acute ACL deficient knee. Participants are allocated in a 1:1 ratio to either non-surgical management (rehabilitation) or surgical management (reconstruction) with the aim of assessing the efficacy and cost-effectiveness. The primary outcome of the study is the Knee Injury and Osteoarthritis Outcome Score (KOOS4) at 18 months post-randomisation. The KOOS4 score at 18 months will be evaluated using a linear regression model adjusting for recruitment centre and baseline KOOS4 scores, allowing for intra-centre correlation. A secondary analysis of the primary outcome will be carried out using an area under the curve (AUC) approach using treatment estimates obtained from a mixed model using baseline, 6 months, 12 months, and 18 months post-randomisation outcome data. Secondary outcomes will be measured at 18 months and will include return to activity/level of sport participation, intervention-related complications, the EQ-5D-5L questionnaire, all 5 individual subscales of the KOOS questionnaire, the ACL-QOL score, expectations of return to activity and cost-effectiveness of the interventions. Missing primary outcome data will be investigated through a sensitivity analysis. Full details of the planned methods for the statistical analysis of clinical outcomes are presented in this paper. The study protocol for the ACL SNNAP trial has been published previously.DiscussionThe methods of analysis for the ACL SNNAP trial have been described here to minimise the risk of data-driven results and reporting bias. Any deviations from the analysis methods described in this paper will be described in full and justified in the publications of the trial results.Trial registrationISRCTN ISRCTN10110685. Registered on 16 November 2016

Managing Pandora’s Box: Familial Expectations around the Return of (Future) Germline Results

Background Pediatric oncology patients are increasingly being offered germline testing to diagnose underlying cancer predispositions. Meanwhile, as understanding of variant pathogenicity evolves, planned reanalysis of genomic results has been suggested. Little is known regarding the types of genomic information that parents and their adolescent children with cancer prefer to receive at the time of testing or their expectations around the future return of genomic results. Methods Parents and adolescent children with cancer eligible for genomic testing for cancer predisposition were surveyed regarding their attitudes and expectations for receiving current and future germline results (ClinicalTrials.gov Identifier: NCT02530658). Results All parents (100%) desired to learn about results for treatable or preventable conditions, with 92.4% wanting results even when there is no treatment or prevention. Parents expressed less interest in receiving uncertain results for themselves (88.3%) than for their children (95.3%). Most parents (95.9%) and adolescents (87.9%) believed that providers have a responsibility to share new or updated germline results indefinitely or at any point during follow-up care. Fewer parents (67.5%) indicated that they would want results if their child was deceased: 10.3% would not want to be contacted, 19.3% were uncertain. Conclusions Expectations for return of new or updated genomic results are high among pediatric oncology families, although up to one third of parents have reservations about receiving such information in the event of their child’s death. These results underscore the importance of high-quality pre-and post-test counseling, conducted by individuals trained in consenting around genomic testing to elicit family preferences and align expectations around the return of germline results.

Teknik Analizin Popülaritesi, Hisse Senedi Piyasası Yatırımcıları Arasında Düşük Finansal Okuryazarlığın ve Aşırı Güvenin Bir Ürünü mü?

Individual investors’ overall return in stock markets decreases with the increase in trade frequency due to factors such as commission expenses, insider trading, spreads, and institutional investors’ high-frequency algorithms. In this study, the relationship between believing the technical analysis method and the financial literacy level, overconfidence, and high return expectations of investors have been analyzed with the use of survey data of 3,844 people. Although the efficiency of technical analysis and success in high-frequency trading depends on investor’s analytical skills, it is found that technical analysis and trading are very popular among people who have low financial literacy and irrational high return expectations.