Risk Investment Research Articles

THE INFLUENCE OF OVERCONFIDENCE, REGRET AVERSION, LOSS AVERSION, AND HERDING BEHAVIOR ON INVESTMENT DECISION IN THE CAPITAL MARKET WITH THE MODERATING ROLE OF RISK PERCEPTION IN GENERATION Z STUDENTS

Behavioral finance arises as a result of inefficient markets. Behavioral finance leads more to the irrational behavior of investors towards their decisions. This study aims to determine and empirically prove the influence of Overconfidence, regret aversion, loss aversion, and herding behavior on investment decisions. An investor's risk perception as an analysis carries a logical rationale for how investors choose when they are faced with multiple investment choices. I used a questionnaire-based survey method to collect sample data of 120 respondents. research analysis method using Partial Least Square. According to the research conducted, the results of Overconfidence have a significant positive effect, while Regret Aversion, Loss Aversion, Herding behavior, risk perception of overconfidence, regret aversion, loss aversion and herding behavior on risk decisions have a non-significant effect.

Does Climate Change Constitute a Financial Risk to Foreign Direct Investment? An Empirical Analysis on 200 Countries from 1970 to 2020

Abstract In this paper, we study the role of climate change as a financial risk for foreign investors. Multinational enterprises seek to internationalize where financial risk is at the minimum level, including the climate change risk on profitability and productivity. Thereby, we conducted an empirical analysis of the effect of climate change on inward foreign direct investment (FDI) net inflows using data from 200 countries and times series from 1970 to 2020 and employing two categories of climate change indicators: Climatology and climate-related natural hazards. Using the estimation methods of fully modified ordinary least squares and robust weighted least squares, we concluded that the rise of climatology indicators (mean annual temperature and precipitations) negatively impacts inward FDI. Second, we conclude that most climate-related natural hazards (coastal/rural/urban floods, landslides, and cyclones) deter FDI while extreme heat and wildfires show no significant effect. In addition, the results show that the negative impact of climate change is more severe when the host economy depends on agricultural activities and there is no significant investment in research and development as compared with countries that depend on service and manufacturing activities and are more innovative and invest in technology infrastructure. Furthermore, we conclude that poorer host countries experience more severe effects of climate change on FDI than rich countries in terms of GDP per capita. Significance Statement The purpose of the paper is to investigate the effect of climate change on inflows of cross-border capital in 200 countries. In other words, we see if rising temperature and natural hazards related to climate change affect the decision of firms to invest in a given country. The results show that global warming and unstable meteorological indicators deter firms from investing abroad. Equally, natural hazards linked to climate change (coastal/rural/urban floods, landslides, and cyclones) constitute an investment risk. The finding suggests that the deterring effects of climate change are less severe when a given country depends less on agriculture and more on industrial sectors and when that country is more developed and technologically advanced.

Volatilnost bitkoina i rizičnost finansijskog portfolija

The main goal of this research is to evaluate the returns and risks of the following types of assets: Bitcoin, EUR Stoxx 50, gold, bonds: government bonds ICE Bof A 1-10 Year excluding Italy and Greece and the corporate bond index ICEB of A 1-10 Year AA. The paper tested a total of ten portfolios according to different scenarios for digital and financial assets. Also, in the paper, greater measures of risk and return were calculated with the aim of forming an optimal portfolio with minimal risk. The results of this research revealed that the correlation between Bitcoin and other forms of financial assets is generally low and negative, which can be a good instrument for portfolio diversification, and positively affect portfolio performance. Also, the results of this study showed that in terms of volatility and return measure of a total of ten portfolios, the second portfolio (whose structure consists of Bitcoin, Euro Stoxx 50, gold, government bonds ICE Bof A 1-10 Year - excluding Italy and Greece and the corporate index bond ICEBof A 1-10 Year AA) is the most optimal portfolio. The findings of this research can serve in risk and loss assessments of portfolio managers, investors, and regulators.

Optimizing Portfolio Management using Mean-Variance Optimization in Python

Portfolio management refers to the process of managing a collection of investments, known as a portfolio, intending to achieve optimal risk-adjusted returns. Portfolio management involves selecting the appropriate mix of investments to achieve a specific financial objective, such as capital appreciation, income generation, or risk reduction. A portfolio manager is responsible for constructing and maintaining a portfolio that aligns with the investor's financial goals, risk tolerance, and investment preferences. This involves conducting research and analysis to identify investment opportunities, evaluating the risk-return tradeoffs of different assets, and monitoring the performance of the portfolio over time.Portfolio management offers several advantages to investors. One of the primary advantages of portfolio management is diversification. By investing in a range of assets such as stocks, bonds, and alternative investments, investors can spread their risk and reduce the impact of any single asset or sector on their overall portfolio performance. Diversification can help investors achieve a more stable return on investment over the long term (Investopedia, 2021). Portfolio management helps investors manage risk by balancing their exposure to different asset classes and sectors. By constructing a well-diversified portfolio, investors can reduce the risk of losses due to market volatility, economic downturns, and other external factors. Portfolio managers can also use risk management tools such as stop-loss orders and options to protect against downside risk (Investopedia, 2021). Portfolio management also offers investors the flexibility to adjust their investment strategies according to their changing needs and objectives. Investors can change their asset allocation, rebalance their portfolios, and adjust their risk profiles to suit their individual preferences and circumstances. Portfolio managers can also respond quickly to changes in market conditions and adjust their investment strategies accordingly (Investopedia, 2021). Portfolio management offers investors access to professional expertise and experience. Portfolio managers have a deep understanding of financial markets, investment strategies, and risk management techniques. They can provide investors with personalized investment advice, identify potential risks and opportunities, and help them achieve their long-term financial goals (Investopedia, 2021).

Single event transition risk: A measure for long term carbon exposure

Although there is a growing consensus that a low-carbon transition will be necessary to mitigate accelerated climate change, the magnitude of transition risk for investors is difficult to measure exactly. Investors are therefore constrained by the unavailability of suitable measures to quantify the magnitude of the risk and are forced to use the likes of absolute emissions data or ESG scores in order to manage their portfolios. In this article, we define the Single Event Transition Risk (SETR) and illustrate how it can be used to approximate the magnitude of the total exposure of the price of a share to the low-carbon transition. We also discuss potential applications of the single event framework and the SETR as a risk measure and discuss future direction on how this can be extended to a system with multiple transition events.•The Single Event Transition Framework is formalized and the Single Event Transition Risk is defined.•The Single Event Transition Risk is calculated in terms of the measured carbon transition risk premium, under different assumptions.

Impact of financial communication practices on investors’ risk perception and decision making

Impact of financial communication practices on investors’ risk perception and decision making

Risk-On Risk-Off: A Multifaceted Approach to Measuring Global Investor Risk Aversion

Risk-On Risk-Off: A Multifaceted Approach to Measuring Global Investor Risk Aversion

Abstract C093: Historical redlining is associated with breast cancer subtype, stage at diagnosis and mortality

Abstract Background: Structurally racist policies have an important impact on health. The etiologic basis of racial disparities in aggressive forms of breast cancer is not well understood. Few studies have investigated the impact of structural racism as a potential driver of etiologic heterogeneity. We sought to estimate the effect of historic redlining on the development of aggressive subtypes and late-stage disease, and examine its role in breast cancer mortality. Methods: Using the Georgia Cancer Registry, we identified 921 non-Hispanic White (NHW) and 878 non-Hispanic Black (NHB) women residing in a Georgia Home Owners' Loan Corporation (HOLC) graded area with a first primary invasive breast cancer diagnosis in 2010–2017. Historic redlining scores for 2010 census tracts were calculated according to the proportion of HOLC grades within the tract. Historic redlining scores were examined continuously and dichotomized at <2.5, which represents areas that were historically considered low for investment risk (Green/“Best” or Blue/“Still Desirable”), vs. ≥2.5, which represents areas that were considered to be high risk (Yellow/“Definitely Declining” or Red/“Hazardous”). We used age-adjusted logistic regression to calculate case-only odds ratios (ORs) and 95% confidence intervals (CIs) associating historically high-risk redlined areas to a diagnosis of Luminal B, HER2, or Triple-Negative breast cancer (TNBC) compared with Luminal A tumors and a diagnosis of Stage II, III, or Stage IV breast cancer compared with Stage I disease. Additionally, we used Cox proportional hazards regression to calculate age-adjusted hazard ratios (HRs) and 95% CIs to associate historically high-risk areas with breast cancer mortality, overall and within each race strata. Results: Overall, 81% of NHB and 19% of NHW women lived in historically redlined census tracts. Women living in redlined areas were diagnosed with more aggressive subtypes (TNBC and HER2) and later stage (Stage III and IV) breast cancers. Compared with Luminal A breast cancer, the ORs for living in historically high-risk vs. low risk investment areas were 2.05 (95%CI=1.44, 2.93) for TNBC and1.49 (95%CI=0.89, 2.48) for HER2 disease. Compared with Stage I breast cancers, the ORs for historically high-risk vs. low risk investment areas were 1.85(95%CI=1.30, 2.63) for Stage III and 2.00 (95%CI=1.32, 3.02) for Stage IV breast cancer. Residing in historically high-risk census tracts was associated with a 1.68-fold increase in breast cancer mortality (95% CI=1.23, 2.30), after adjusting for age. The association was most pronounced among NHW women living in redlined census tracts (HR=1.36; 95%CI=0.99, 1.87); a near-null association was observed among NHB women (HR=0.97; 95% CI=0.78, 1.20). Conclusions: Historic redlining scores were associated with the diagnosis of more aggressive forms of breast cancer and breast cancer mortality. Historic place-based measures of structural racist policies have modern-day implications on health outcomes and may underpin reported disparities in aggressive or advanced tumor types. Citation Format: Jasmine M. Miller-Kleinhenz, Maret L. Maliniak, Micah J. Streiff, Leah Moubadder, Lauren E. Barber, Rebecca Nash, Lindsay J. Collin, Jeffrey M. Switchenko, Kevin C. Ward, Lauren E. McCullough. Historical redlining is associated with breast cancer subtype, stage at diagnosis and mortality [abstract]. In: Proceedings of the 15th AACR Conference on the Science of Cancer Health Disparities in Racial/Ethnic Minorities and the Medically Underserved; 2022 Sep 16-19; Philadelphia, PA. Philadelphia (PA): AACR; Cancer Epidemiol Biomarkers Prev 2022;31(1 Suppl):Abstract nr C093.

Risk investment heuristics: applied systemic review

Risk investment heuristics: applied systemic review

Risk Investment Heuristics: Applied Systemic Review

Risk Investment Heuristics: Applied Systemic Review

Investigation of the Effect of Investor Risk Appetite Index and Macroeconomic Indicators on the BIST-100 Index

In this study, the relationship between Borsa Istanbul 100 Index (BIST-100), Investor Risk Appetite Index (RISE), and macroeconomic indicators are tried to be determined using Autoregressive Distributed Lag (ARDL) Bounds Testing Approach with monthly data covering the periods 01/2011-08/2022. Inflation and interest rate are used as macroeconomic indicators. By taking into account the unit root test results related to the stationary conditions of the series, an econometric model is founded in which the BIST-100 was selected as a dependent variable, and a cointegration relationship was determined. In addition, the parameters of the models were estimated and evaluated. In the long and shortterm forecast results, it was determined that the BIST-100 index is positively related to inflation and the RISE index, and negatively related to the interest rate.

Investment Risk and Energy Security Assessment of European Union Countries Using Multicriteria Analysis

Investment opportunities are analyzed from the perspective of the variables that influence risk. The present study analyzes some energy characteristics using data from the Eurostat Data Browser. First, we identified a gap in energy research. Second, we proposed a multicriteria analysis using the analytic hierarchy process (AHP). An algorithm was developed to simulate how experts think to determine pairwise comparisons. A procedure identified the levels of importance of each criterion and alternative based on extracted data from the Eurostat website. The method was used to rate countries according to data regarding their energy policy results. The present study shows that applying the AHP method is possible without expert support and using data regarding the theme studied. The results show that Malta and Estonia are the most suitable countries to receive investments since they are presently at the top of the energy security ranking. The selected set of criteria seems to properly correspond with the assessment of the sector security as far as risk investment is concerned. The results of the current study may represent a base to support investment decision-making in the energy sector of EU countries.

Strenghtening Financial Technology Regulations through Securities Crowdfunding Service as Alternative Means to Indonesian MSEs Financing

Micro, Small and Medium Enterprises (MSMEs) hold a crucial role and contribution in supporting the national economy. However, access to sources of MSMEs financing for business development is often constrained by several factors, one of which is the result of an assessment that is deemed to have less bankability. A number of innovations were carried out to overcome this problem. One of which is the use of fintech through the development of Securities Crowdfunding services as an alternative financing for MSEs in Indonesia. This research uses a normative juridical method with a statutory and conceptual approach. The results of this study indicate that POJK No.57/POJK.04/2020 and its amendments have filled the legal void in the capital market in accommodating the provision of Securities Crowdfunding services. However, the regulation still contains loopholes, particularly in relation to the potential risk for investors in investing activities due to the information asymmetry between investors and issuers. Therefore, it is necessary to make a push in overcoming this problem with a new mechanism by using a confidentiality agreement which is bridged by the service provider to ensure the protection of interests of the parties.

Personality traits and investor risk behavior: moderating role of financial literacy

PurposeThe study aims to examine the relationship between personality traits and investor risk behavior of the individuals trading in stock markets. Furthermore, this study establishes the association of financial literacy on the relationship between personality traits and investor risk behavior.Design/methodology/approachThe authors analyze cross-sectional survey method data by using moderated multiple regression analysis, a standard method of determining the moderation effect. PROCESS Model method has been used in this study to check the robustness of the results.FindingsThe findings reveal that personality traits significantly influence investor risk behavior and financial literacy modifies the fundamental relationships between personality traits and investor risk behavior. The findings also conclude that behavioral impact was predetermined by individuals' genetic traits and is influenced by financial literacy.Research limitations/implicationsThe current study provides valuable insights for investors and adamant grounds for future research. The two-fold role of individuals' personalities in case of gains and losses can be of interest to the researchers in future.Practical implicationsInvestors currently facing the complex financial choices which are far beyond the day-to-day financial advice. This study guides rational investment behavior for portfolio managers and investors for advanced investment options.Social implicationsMost of the prior literature is based on developed markets, whereas the current study focuses on less literate society (i.e. Pakistan) to protect the investors from scams and fraud. The current study supports the vital role of investors in the socio-economic development of emerging markets.Originality/valueThe authors believe this study expands the boundaries of personality theories, especially in the context of risk behavior and financial literacy. The study also contributes to advancing the personality theory trimmed with financial literacy and investor behavior while making important theoretical inroads for future research.

Asset allocation strategy based on CRITIC method and BP neural network

Investment portfolio optimization has become more and more mature after more than 30 years of development in China's capital market. For ordinary investors, how to reasonably match holding assets to ensure a certain level of returns and reduce investment risks is an important issue. Using 100 securities in the China Securities Dividend Index as index samples, firstly, a BP neural network prediction model is established for prediction, then the CRITIC method is used to evaluate and score the 100 securities, and finally a multi-objective planning model is established for investment portfolio. The results show that: solving the optimal solution of the multi-objective programming model to obtain the investment portfolio and obtaining the investment portfolio strategy; using the appropriate prediction model, evaluation model and establishing the multi-objective programming model can not only reduce investment risk for ordinary investors, but also reduce investment risk. received a certain level of income.

Haiti Global Risk Analysis: AgBiome Case Study

In recent years, Haiti’s 11 million people have experienced a multitude of devastating crises. Since the onset of the Covid-19 pandemic in 2020, the nation has seen its legislative bodies collapse, former President Jovenel Moïse fatally assassinated in his home, and a major earthquake on August 14, 2021 devastate its infrastructure. Gang violence has exacerbated inequalities between the political elite and the poor and places innocent civilians at considerable risk. Most recently, Haiti’s political situation has significantly deteriorated, as powerful gang alliances move towards the capital city of Port-au-Prince and seek to occupy the region. The highly unstable, corrupt government is becoming increasingly vulnerable to gang control, creating a key political risk for both citizens and outside investors. The effects of violence and lawlessness translate into dangerous social risks, as certain demographic groups are frequent victims of assault and violence and the overall humanitarian crisis continues to worsen. For Haiti specifically, its political and social risks warrant the greatest attention in 2022 and beyond.

A Bayesian analysis based on multivariate stochastic volatility model: evidence from green stocks.

Green stocks are companies environmental protective and friendly. We test Green stock index in Shanghai Stock Exchange and China Securities Index as safe-havens for global investors. Suitable multivariate-SV model and Bayesian method are used to estimate the spillover effect between different assets among local and global markets. We choose multivariate volatility model because it can efficiently simulate the spillover effect by using machine learning MCMC method. The results show that the Environmental Protection Index (EPI) of Shanghai Stock Exchange (SSE) and China Securities Index (CSI) have no significant volatility spillover from Shanghai Stock index, S &P index, gold price, oil future prices of USA and China. During COVID-19 pandemic, we find Green stock index is a suitable safe-haven with low volatility spillover. Green stock indexes has a strongly one-way spillover to the crude oil future price. Environmentally friendly investor can use diversity green assets to provide a low risk investment portfolio in EPI stock market. The DCGCt-MSV model using machine learning of MCMC method is accurate and outperform others in Bayes parameter estimation.

The impact of fractional trading on risk aversion for non-professional investors

We study the impact of fractional trading (FT) on non-professional investors' decision-making under uncertainty. Using the expected utility framework, we show that with the recent easiness to trade in stock markets and with the option to buy or sell a fraction of a share of a stock or ETF (exchange-traded fund), the risk appetite of non-professional investors might have gone up, increasing market participation and demand for stocks. Furthermore, we show that this change in the non-professional investor's risk aversion behavior varies by household income levels. Based on constructed probabilities, we estimate that approximately 83 billion dollars have been newly invested in stock market post-FT. Our results suggest that easy access to trade stocks and FT allows households with lower discretionary income a new tool to diversify their portfolio and participate in the stock markets by investing in different stocks and ETFs while at the same time having a significant impact on the stocks' price levels and price dynamics observed in the markets.

Does fear spur default risk?

While a large body of research documents various firm characteristics and market conditions that drive corporate default, whether risk aversion matters for default risk remains largely under-investigated. A challenge for prior studies that aim to examine the impact of fear on default risk is that investor risk aversion is not an exogenous variable or the presence of omitted variables that drive both risk aversion and default risk. To address endogeneity concerns, we use the 9/11 terrorist attacks, the largest mega-terrorist event, as an exogenous shock to the investor's risk aversion. Our findings show the significantly increased default risks at both market and firm levels following the 9/11 attacks. Terrorism causes an increase in market-wide default risk for firms located in the attacked states and other states. Our findings are consistent with the notion that terrorist attacks increase investors' risk aversion, which triggers an increase in asset volatility, leading to increased default risk.

Investor heterogeneity and negative skewness in stock returns: Evidence from institutional investors

We examine the relation between the probability of future stock price crash and investors’ investment horizons. Using negative skewness as a proxy for firm-specific crash risk, we document a positive association between institutional ownership and stock price crash risk. The relation is, however, driven by short-term institutional investors, while the presence of long-term institutional investors has a negative effect on stock price crash risk. In addition, we find that the presence of short-term institutional investors induces corporate risk-taking behavior. Our results are robust to alternative model specifications, endogeneity concerns, and different measures of crash risk and proxies of investors’ horizons.