Risk Investment Research Articles

ІНВЕСТИЦІЙНА ПРИВАБЛИВІСТЬ УКРАЇНИ: ОСНОВНІ ТЕНДЕНЦІЇ, ПРОБЛЕМИ ТА КЛЮЧОВІ ВЕКТОРИ ВИРІШЕННЯ

The article examines the essence of the concept of "investment attractiveness" and defines the main prerequisites for attracting funds to the economy of Ukraine. In essence, the country's investment attractiveness is a characteristic that reflects the profitability or disadvantage of investing money in the country. Attention is focused on the results of the influence of economic, social and geopolitical factors on the country's investment attractiveness. Key factors of Ukraine's investment attractiveness are highlighted.
 The authors analyzed the size of direct foreign investments in Ukraine during 2018–2022. The list of the main investor countries in Ukraine in 2021 is given. The most attractive industries for foreign investment in Ukraine have been analyzed. The investment attractiveness index of Ukraine was evaluated during 2018-2022.
 We believe that one of the prerequisites for the stable economic development of the country and its regions is the formation and maintenance of a favorable investment image in the minds of potential investors. The defining task of state policy in the field of investment activity is the formation of a favorable investment climate and the reduction of investment risk for foreign investors.
 The main problems of the development of investment activities in Ukraine are outlined. Russia's full-scale military aggression against Ukraine continues to lead the list of factors that have a negative impact on the investment climate, attacks on the Ukrainian energy system are in second place, and corruption is in third place. Among the few positive changes, the business leaders highly rated granting Ukraine the status of a candidate for EU accession, the cancellation of customs duties and quotas for Ukrainian exports and "transport visa-free" from the EU.
 The authors provide strategic guidelines for the formation of a positive investment climate in Ukraine and analyze the causes of an unfavorable investment climate. Ways to increase investment attractiveness in Ukraine are proposed.
 We believe that investment attractiveness is a complex multifaceted economic category and reflects the complexity of the macroeconomic space from the point of view of the existing investment climate, the state and level of development of the relevant investment infrastructure. Effective implementation of investment activities is the foundation for the development of the economy of Ukraine, accelerates its integration into the European socio-economic space.

Risk Analysis of Investment Costs in PPP Projects Using Monte Carlo Simulation

Infrastructure project investment is a substantial urgency in line with the vision of President Jokowi’s administration of developing infrastructure in Indonesia. The Government and Private Sector partnership (PPP) becomes feasible alternative to cover the financial deficit in the provision of infrastructure. The South Jakarta-Cikampek II Toll Road Project has been determined to be operated under the PPP scheme. The identification, allocation, and appropriate risk mitigation of the projects are the important success keys to provide clarity and benefits for among the parties. The purpose of this study is to analyze 27 risk variables from PT PII guidelines qualitatively and quantitatively with probabilistic principles using Monte Carlo simulations, by then accurately to estimate the values of the effect of each risk on the project investment value. The research was carried out by collecting project data, identifying risk variables, questionnaires to experts, risk quantification, Monte Carlo simulation, calculating the effect and value of risk, as well as analysis of risk allocation and mitigation based on the Pareto Principle. The study shows that of 26 influential risk categories and one (1) risk does not affect the investment component of the project. There are 12 Risks could be allocated to the Government and 14 Risks could be allocated to Private Sector. The total value of the amount of risk cost is Rp16,424,331,645,796 (21% of total risk investment value). Based on Pareto, 30% risk categories (equal to 8 risks) are the dominant factors of which equal to 70% of the total value of risk. Hence the mitigation may focus to reduce the dominant factors to lower risk by then decrease the value of risk Rp9,885,627,136,618 that equal to 60% become Rp6.538.704.509.178 (equal to 40% of risk value).

An extended MABAC method based on prospect theory with unknown weight information under Fermatean fuzzy environment for risk investment assessment in B&R.

The assessment of investment risk for the countries along the route in Belt and Road (B&R) can be deemed as a multiple criteria group decision making (MCGDM) issue since multiple investment options based on diverse criterions are assessment by experts. Pondering that the complexity and uncertainty of the assessment setting and the cognition fuzziness and psychological behavior of experts bring challenges to risk assessment, this paper designed an integrated MCGDM risk investment evaluation framework by synthesizing MABAC method and prospect theory under Fermatean fuzzy setting. Firstly, a Fermatean fuzzy interactive distance measure is presented to ascertain the weight of evaluation experts and criterions. Next, some Fermatean fuzzy Frank aggregation operators based upon the proposed Frank operations are developed to fuse Fermatean fuzzy information efficiently. In addition, an innovative evaluation framework for risk investment is designed based on improved prospect theory MABAC and CRITIC approaches. Conclusively, an empirical concerning risk investment issues in B&R is employed to confirm the applicability and feasibility of the constructed evaluation framework, involving the simulation experiments on sensitivity analysis and contrast studies. The assessment information provided by investors using the linguistic assessment terms based upon their cognition ability of them. These outcomes obtained by the propounded method and comparison analysis further emphasize the validity and salient merits of the propounded framework and provide several auxiliary suggestions for investors.

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.

To Examine the Impact of Investment Strategy and Patterns among Young People with Reference to Mumbai City

The purpose of this research is to investigate the numerous elements that lead to investment among the investors. Investment is a type of activity that people who have to save engage in, in which investments are made from their savings, or in other words, people invest their savings. There are numerous investment alternatives accessible, including bank, gold, real estate, post services, mutual funds, and many others. This study looks at the savings and investment habits of a group of college students in Mumbai (ages 17 to 25) who have recently started working. The study also looks into the youth's basic financial literacy, including how they educate themselves and how they view risk, returns, and various investment modes, as well as what factors influence them. A survey method was used to acquire primary data. During the data collection process, both qualitative and quantitative information was gathered. The engine of growth is expected to be driven by this young workforce. Investment is commonly understood in economics to refer to the formation of capital. As a result, the development of physical assets is significant when considering investment from a pure economics standpoint. However, the focus of this research is on what is known as financial investment, which is defined as investment in shares and securities with the primary goal of earning income rather than increasing production. As a result, the terms savings and investment have a closer connotation than they have in the past.

The Dynamics of Risk: Implications for Asset Allocation Strategies

Investors should have a sharper focus on the time dimension of risk and correlation metrics for the largest asset classes of equity and debt. We explore the dynamics of risk for large cap US equities and 60/40 stock/bond allocations over the decades and show that risk has fluctuated significantly. This implies that investors who have set risk preferences need to adapt their asset allocation strategies to these variations in risk and correlation. We show that strategies that utilize downside protection with equity index put options, specifically buffer protection strategy indexes, exhibit similar levels of risk reduction as 60/40 balanced portfolio strategies but have more variable beta exposure. Going forward, investors can benefit from incorporating dynamic risk and correlation forecasts into their asset allocation process and looking beyond fixed income diversification for risk management. Downside protection and other risk modification strategies within the equity bucket can be effective tools to better align the portfolio risk with investor risk targets.

The Dynamics of Risk: Implications for Asset Allocation Strategies

Investors should have a sharper focus on the time dimension of risk and correlation metrics for the largest asset classes of equity and debt. We explore the dynamics of risk for large cap US equities and 60/40 stock/bond allocations over the decades and show that risk has fluctuated significantly. This implies that investors who have set risk preferences need to adapt their asset allocation strategies to these variations in risk and correlation. We show that strategies that utilize downside protection with equity index put options, specifically buffer protection strategy indexes, exhibit similar levels of risk reduction as 60/40 balanced portfolio strategies but have more variable beta exposure. Going forward, investors can benefit from incorporating dynamic risk and correlation forecasts into their asset allocation process and looking beyond fixed income diversification for risk management. Downside protection and other risk modification strategies within the equity bucket can be effective tools to better align the portfolio risk with investor risk targets.

A holistic risk management framework for renewable energy investments

Private investments are critical enablers to achieving energy access for over 770 million people worldwide. Despite decreasing capital costs, investments in renewable energy (RE) projects in developing countries are low due to unattractive risk-return profiles. Through understanding key risks drivers and their interactions, actionable insights can be drawn to mitigate investment risks, making energy more accessible.This paper reviews RE risks and methods used for risk assessment and mitigation for developed and developing countries with a focus on Sub-Saharan Africa countries (SSA). The review finds that while risk analysis and evaluation mainly employed semi-quantitative multicriteria decision analysis (MCDA) and system dynamics (SD) methods for developing countries, qualitative methods were used to identify mitigations. The methods assessed technical and economic risks at a minimum, while MCDA and SD methods can assess social, political, and policy risks. The efficacies of mitigations were tested using SD and quantitative methods such as agent-based modelling and Monte Carlo simulation.The paper further introduces a ‘holistic multi-dimensional investor risk management framework’ which can be used to identify actions to improve investment risks in a structured manner. The framework addresses four fundamental limitations observed in the existing literature, recognising that RE risks are complex and involve multidisciplinary perspectives having interactions and feedbacks with other risks, actors, and their actions.This review provides a valuable reference to investors, policymakers, and researchers, providing a catalogue of risks, methods deployed in literature, including a framework to identify impactful actions to improve risk levels.

The diversification benefits and policy risks of accessing China’s stock market

China’s stock market (the “A share market”) has a lower correlation with the global market and is less affected by international financial contagions than any other major economy. The inclusion of mainland China stocks into an international portfolio increases its Sharpe ratio. However, we find that Chinese stocks providing the most diversification benefits also carry the most policy risk for international investors. Holding Chinese stocks listed in Hong Kong does not reap the same diversification benefits. While global market integration and the increase in foreign ownership can diminish diversification benefits, mainland China stocks still provide valuable diversification opportunities for international investors up till the most recent time in late 2010s.

The diversification benefits of cryptocurrency asset categories and estimation risk: pre and post Covid-19

We examine the diversification benefits of cryptocurrency asset categories. To mitigate the effects of estimation risk, we employ the Bayes-Stein model with no short-selling and variance-based constraints. We estimate the inputs using lasso regression and elastic net regression, employing the shrunk Wishart stochastic volatility model and Gaussian random projection. We consider nine cryptocurrency asset categories, and find that all but two provide significant out-of-sample diversification benefits. The lower is investor risk aversion, the more beneficial are cryptocurrencies as portfolio diversifiers. During uncertain economic environments, such as the post-Covid-19 period, cryptocurrencies provide the same diversification benefits as in more stable environments. Our results are robust to different portfolio benchmarks, regression technique, transaction cost, portfolio constraints, higher moments and Black–Litterman models.

Unifying the budget accounts in accordance with the financial accounting system and their compatibility with international accounting standards

International accounting standards improve comparability between companies, thereby reducing investor risk and facilitating cross-border financing and investment. It also reduces the cost of preparing consolidated financial statements for multinational companies. Thus, this work reviewed 15 articles among different countries about the role of IAS in unifying budget accounts with accordance with financial accounting system. The findings reveal that most of the reviewed articles recommend that IAS can play a significant role on the mentioned mission. Although, the existing IAS still need to improvement and changes based on the accounting development.

The Capitalization Effect of Imputation Credits on Expected Stock Returns

This paper develops an equilibrium model featuring heterogeneity in investor risk tolerance across different risk sources. Using Australian data, it confirms the theoretical predictions of the model by showing that a higher imputation credit yield in one year leads to a lower stock return in the next year. This negative relationship between imputation credit yield and stock return is weaker for stocks with higher idiosyncratic risk, larger size, and higher trading turnover. Our theoretical and empirical evidence favours the aggregation approach in explaining the capitalization effect of imputation credits over the marginal investor approach.

Role of Subsurface Geo-Energy Pilot and Demonstration Sites in Delivering Net Zero

Recent research suggests that the effects of climate change are already tangible, making the requirement for net zero more pressing than ever. New emissions targets have been announced in April 2021 by various governments, including by the United Kingdom, United States, and China, prior to the Conference of the Parties (COP26) in Glasgow. Part of the solution for net zero will be geo-energy technologies in the subsurface, these include: mine water geothermal, aquifer thermal energy storage (ATES), enhanced geothermal systems and other thermal storage options, compressed air energy storage (CAES), and carbon dioxide capture and storage (CCS) including bioenergy CCS (BECCS). Subsurface net zero technologies have been studied by geologists at laboratory scale and with models, but also require testing at greater-than laboratory scale and in representative conditions not reproducible in laboratories and models. Test, pilot and demonstration facilities aid rock characterisation process understanding and up-scaling, and thereby provide a bridge between laboratory testing and computer modelling and full-scale operation. Examples of test sites that have progressed technology development include the Otway International Test Centre (Australia, CCS) and the Äspö Hard Rock Laboratory (Sweden, geological radioactive waste disposal). These sites have provided scale up for key research questions allowing science issues of relevance to regulation, licencing and permitting to be examined at scale in controlled environments. Successful operations at such sites allow research to be seen at first hand to inform the public, regulators, supply chain companies and investors that such technologies can work safely and economically. A Geological Society conference on the “Role of subsurface research labs in delivering net zero” in February 2021 considered the value of test sites and gaps in their capability. Gaps were identified in two areas: 1) test facilities to aid the design of low cost, high resolution, unobtrusive seismic and other monitoring for a seismically noisy urban environment with a sensitive human population, for example for ATES in urban areas; and 2) a dedicated through-fault zone test site to understand fault transmissivity and reactivation. Conference participants also recommended investment and development in test sites, shared facilities and risk, joint strategies, data interoperability and international collaboration.

ESG performance scoring method to support responsible investments in port operations

ESG (environmental, social, and governance) is a concept that emerges as one of the modern methods of evaluating corporate risk for contemporary investors. Half of the assets in the European market are allocated through strategies that consider the ESG concept; approximately 30% in the American market. The topic is still at an early stage for advanced industries, with few articles proposing qualitative assessments of companies' ESG performance. The situation of the port industry is even worse, where no works that introduce the ESG concept in any port authority or terminals were found. Seaports represent 80% of all international trade and are essential to its primary hinterland. To fulfill this gap, this work proposes a method to quantify ESG performances of international ports. With a case study in three global hub ports selected by the similarities between its cargo and tonnage throughput and the importance of the primary hinterland – Santos, Bremen/ Bremerhaven, and Barcelona, it was found that their clusterization into grades based on ESG scores could support responsible investments in port operations, although its adoption faces challenges according to the country host development.

Risk perception and cost of capital in emerging market projects using dynamic conditional correlation model

PurposeCost estimation is a major concern while planning projects on public–private partnership (PPP) terms in developing countries. To bridge the gap of the right approximation of cost of capital, this study aims to sermon a significant role of investor’s risk perception as unsystematic risk in PPP-based energy projects.Design/methodology/approachTo investigate the effective mechanism of determining cost of capital and valuing the capital budgeting, a pure-play method has been acquired to measure systematic risk. In addition, dynamic conditional correlation (DCC) and generalized autoregressive conditional heteroscedasticity (GARCH) models have been applied to calculate weighted average cost of capital.FindingsInitially, a joint cost of capital of energy-related projects has been calculated using DCC-GARCH and pure-play method. Investors risk perception has been discussed through market point of view using country risk premium modeling. Latter yearly betas have been calculated using DCC signifying the final outcomes that applying a dynamic model can provide a better cost estimation in emerging economies.Practical implicationsThe findings are implicating that due to the involvement of international investors, domestic risk is linked with country risk. In such situations, market-related information is a key factor to find out the market performance, helping in the estimation of cost of capital through capital asset pricing model (CAPM). High dynamic nature of emerging economies causes an impediment in the estimation of cost of capital. Consequently, to calculate risk in dynamic markets, this study has acquired DCC model that can predict the value of beta factor.Originality/valueStudy contributes to the body of knowledge by addressing an important issue of investor’s risk perception and effective implication of CAPM using pure-play and DCC-GARCH when data is not promptly available in dynamic situations.

Akibat Hukum terhadap Investor karena Adanya Penghapusan Pencatatan (Forced Delisting) Perusahaan Terbuka di Pasar Modal

The advancement of the technology era has made the Capital Market the most popular investment instrument today. The capital market is a high risk investment instrument due to the forced delisting of shares in the Capital Market. The purposes of this study are to reveal the regulation of forced delisting in the capital market and the legal consequences for investors due to forced delisting of public companies in the capital market. This research is a normative legal research with a statutory and conceptual approach. The sources of legal materials used are primary and secondary sources of legal materials which are collected using an inventory technique and then analyzed normatively in order to interpret the law (interpretation). Based on the results of the study, it is known that the regulation regarding delisting has been stated in the Capital Market Law and the Indonesian Stock Exchange regulations but there is no form of regulation that protects investors if the company experiences Forced Delisting. The legal consequences that are felt are the contamination of the company's reputation and the company's shares will lose interest, and for investors, investors will lose their investment.

THE EFFECT OF DEMOGRAPHIC CHARACTERISTICS ON RISK PERCEPTION AND INVESTMENT DECISION: AN EMPIRICAL STUDY IN VIETNAM

The purpose of this study is to investigate how demographic characteristics, such as gender, age, income, investing experience, education, marital status, and occupation, affect risk perception and investment decision by surveying of investors in Vietnam. The research also examines the relationship between risk perception and investment decision. This paper helps researchers have a clear understanding of how Vietnamese investors with different demographic profiles will invest their money and how the demographic characteristics will affect their risk perception. The research discovers that demographic factors such as age, income, occupation, and investing experience have significant effects on the risk perception of investors meanwhile income, gender, and investing experience are strongly related to investment decision. The analysis result also verifies that risk perception is associated with investment decision. The survey data were collected from 167 samples including students, company employees, or people who run their own business with the age of 18 to 45. It was conducted for general investors and had practical implications for mutual funds, financial advisors, and bankers.

From a Financial to an Entity Model of ESG

ESG investing evolved over time from the earlier concept of CSR. The process of evolution moved the focus from the external impact of corporate activities to the risk and return implications for financial investors of failing to address ESG issues in their portfolio selection and corporate engagement. The bridge between the two approaches was the framing of sustainability in the early part of the millennium as an overarching concept that could be mapped onto the supply of capital and the techniques employed by institutional investors. The financial model of ESG investing is now the standard approach around the world and is reflected in ESG ratings, codes, guidance and regulatory rules. It focuses on the role of capital and investors in driving change in sustainability practices and pays much less attention to the role of board decision-making and directors’ fiduciary duties. In this research, we trace the origins and trajectory of this change in emphasis from CSR to ESG and attempt to explain why it occurred. We identify shortcomings in the financial model of ESG investing and propose an alternative ‘entity’ model, which we argue would more effectively promote sustainability in the corporate sector around the world.

Do Options Belong in the Portfolios of Individual Investors?

The use of options by individual investors has grown dramatically in recent years. The authors evaluate several popular options strategies, including portfolio insurance, life cycle investing, buy-write, and single-stock call-buying, from the perspective of an individual investor. The authors suggest that Expected Utility is the most appropriate metric for such evaluation, as it accounts for both return <i>and</i> risk, and naturally handles non-linear payoffs. They assess the different options strategies under a range of assumptions of asset price behavior, investor risk appetite, and option market pricing relative to fair value. They find that for a representative investor the benefit of adding options to the portfolio is at best quite small, and most of this improvement also can be achieved through periodic portfolio rebalancing. However, the benefits of options can be greater for several special investor categories and in certain market environments. The authors also identify several popular uses of options that are likely to be quite harmful to investor welfare.

Lifetime consumption and investment with housing, deferred annuities and home equity release

We develop a life-cycle optimal investment and consumption model with deferred annuities, housing, mortgages and home equity release. The investor can hold cash, bonds, stocks, annuities and can invest in housing, through renting, purchasing, or a mix of both, with access to variable-rate mortgages. In retirement, the investor can access his housing equity through a form of home equity release called a home reversion contract. Transaction costs, taxes and management fees are explicitly included. The investor's risk preferences are represented by standard power utility derived from housing and non-housing consumption, both before and after retirement, and from bequest. We use multi-stage stochastic programming to solve the optimization problem numerically. Our results show that both non-housing and housing consumption may be higher in retirement when deferred annuities and home reversion are available than when they are absent. The bequest motive has little effect on home reversion and results in a small reduction in overall annuitization.