Risk-free Return Research Articles

Financial Management Risk and Legal Risks Analysis: Take Pfizer as an Example

With the continuous growth of the global biotechnology and vaccine industry, more and more companies are joining in. Risk assessment in the field of biopharmaceuticals has drawn the attention of the whole society. There are lots of factors such as market competition, government intervention, cost increases, product safety, and breaking laws and rules, resulting in an increase in the company's financial risk. Facing these challenges, this research is based on overall analysis and searching for company data, by adopting the company's financial risk management calculation method to compare the selected companies, such as market risk-return rate, market risk-free return rate, weighted average capital cost, and so on. This research has found that Pfizer has a higher risk compared to other companies but the challenges and opportunities coexist by raising legal awareness, improving management measures, and other means to reduce risks. Its future development prospects are still considerable. The following is a multidimensional financial risk analysis of Pfizer Company.

VALUATION OF CONTRACT DEMAND VOLUME OF NEW GENERATION PRODUCT (NGP) CAVITY FILTER CIGARETTE PROJECT USING INCOME APPROACH IN CIGARETTE FILTER COMPANY (PT CFC)

PT CFC, a cigarette filter manufacturer, sells the latest patent productcapsule cavity sensation filter to MNC Korea's cigarette factory. MNC delivered latestview forecast demand contract, of 356.75 million cigarette filters in totals, periodJanuary 2023 to July 2024, which to be marketed in Asia and the Commonwealth ofIndependent State (CIS) countries. Hence, to decide the feasibility of the project,requires research and analysis whether the project is profitable or detrimental.Objective of this research are to assist PT CFC in taking decision of those aboveproject, by using 2 approach methods, 1). Project Management, aiming to get an initialoutlay . 2). Financial Valuation through income approaches (Initial Outlay, cash flow,terminal cash flow, working capital, PP, IRR and NPV). From the research study, theInitial Outlay it cost GBP 1,552,410 which generating from project managementthrough LM (logic Model), WBS (work Breakdown Structure) and AP (ActivityPlan)). Annual cash flow will be minus at the 1year of project started, by GBP 185K, but in the 2nd year positive of GBP 832K, overall project during contractdemand period will positive of GBP 647K and terminal cash flow at the end of theproject delivered GBP 1.471K. By using CAPM method PT CFC required return18.01%, contribute from risk free return 3,509%, beta coefficient 1.27, and anannualized return 15%. Capital structure, planned and decided to using 100% equity,which resulting of WACC 18.01%. According to above data, financial valuation couldbe define, the Payback Period achieved 1.2 years. Internal Rate of Return counted350% higher compare to WACC 18.01%. Net present value positive of GBP 1.739K.Hence refers to valuation parameter above concluded that, the project investment wasfeasible and can be continued into project execution.

A viability index for comparing the binominal return-risk of solar radiation

An insufficient amount of solar resource collected and the variability of this resource can compromise the viability of solar plant projects. For this reason, feasibility studies are usually accompanied by seasonal radiation data, which provides evidence of changes throughout the year. However, there is not a single index to quantify at the same time both elements - the amount available and the variability of the resource - which would provide a measure of the viability in a certain place to set up a solar plant. In this work, a new viability index based on the Gini coefficient (VIG) is proposed and its value is estimated for a wide region of the planet. The VIG calculates the binomial return-risk represented by the average-variance relationship. It clearly improves the results for high latitudes provided by the Sharpe index, which describes the ratio between the difference of the average return and a risk-free return and the risk in general. Finally, the article considers the storage option, drawing the value of the risk improvement index (RI) from the temporal series of the cumulated direct-normal irradiance (DNI) and an ample spectrum of constant demands. RI shows the risk improvement associated to storage of solar energy.

Using financial modeling to trade-off between financial strategies

This research aims to examine the trade-off between strategies to cope with financial failure because Iraqi banks suffer from a high level of risk. Some of these banks work more with return on investment compared to risk-free return, while others are able to achieve a higher return for the same period. In this situation, there is a need for a trade-off between the elected strategies as expressed in the following research question: How can financial strategies be traded-off to cope with financial failure? The research hypothesis is: “The trade-off between financial strategies to cope with financial failure can be achieved by using financial modeling.” For the purpose of this research, the merger and acquisition strategies were used. Data was collected from the financial reports of 13 banks (covering the period of 2011–2020). Eight banks were selected and examined for their lowest and highest return on assets (ROAs). Four recorded low ROAs and the remaining four recorded high ROAs. Then, one bank was selected from each group, of which respective strategies were compared covering the period from 2016 to 2021. The financial modeling using the Excel program showed that the Eps of merger strategy is higher than the Eps of acquisition.

A STUDY ON INVESTORS PERCEPTION TOWARDS MUTUAL FUND WITH REFERENCE TO DK DISTRICT, KARNATAKA

Mutual fund represents a vehicle for collective investment. When we are participate in a mutual fund scheme Till 1986, the Unit Trust of India was the only mutual fund in India. Since then, public sector banks and insurance companies have been allowed to set up subsidiaries to undertake mutual fund business. In 1992, the mutual hand industry was opened to the private sector, and a number of private sector mutual funds have been set up. Investment risks such as trading volume, settlement risk, liquidity risk, default risk, and principal loss risk are present when purchasing mutual fund units. The goal of investing is to generate a steady, risk-free return. There are several investment options available in our nation, ranging from shares and debentures to insurance coverage. Mutual funds are a new kind of investing that has a lot of potential because they offer diverse investing options, regular returns, and low risk. It is, however, incredibly ignorant of the people who live in our nation. Many have been compelled to refrain from such forms of investing or even choose not to because of their lack of understanding of the subject. The purpose of this study is to examine the degree of knowledge that Indian investors have regarding mutual funds and to suggest more effective ways to increase that knowledge. KEYWORDS: Mutual fund, satisfaction, investment, investment schemes, investor awareness and factors influencing choice of investment

Capital Asset Pricing Model (CAPM) Works in the Stock Market of Bangladesh: Empirical Evidence from Sector-Wise Index of Chittagong Stock Exchange (CSE)

The present study examines the Capital Asset Pricing Model (CAPM) in Chittagong Stock Exchange (CSE) with special orientation to 10 different sector indexes. They are such as Banking sector index, Energy sector index, Ceramic sector index, Food sector index, General Insurance sector index, Life Insurance sector index, Cement sector index, Leasing and Finance sector index, Textile sector index, ICT sector index of Chittagong Stock Exchange (CSE). Data were gathered from the Chittagong Stock Exchange (CSE) website (www.cse.combd) for the time frame of July 2016 to June 2019. From Bangladesh’s central bank website (www.centralbank.combd), the risk-free return (Rf) has been gathered. The study uses year-end closing price and dividend for 92 listed companies. The expected return is measured through Capital Asset Pricing Model (CAPM), which is developed by William Sharpe (1964). For analysis the data, Mean, percentage, ANOVA, ‘t’ test are used as statistical tools. Descriptive and Regression analysis have been done to find the results. The study is only confined to CSE. So, there is an avenue for further researchers to add Dhaka Stock Exchange (DSE) in their research project. This approach is applicable to both investors and issuers when exchanging shares of securities on the stock market. The study concludes that the CAPM is not applicable to the 10 distinct sector indices of the CSE because, at a typical level of risk, the gap between expected and actual returns is quite large. Hence, CAPM was tested separately for each year of the five years period and the results in the mentioned tables did not support the CAPM applicability.

Intelligent option portfolio model with perspective of shadow price and risk-free profit

Since Markowitz proposed modern portfolio theory, portfolio optimization has been being a classic topic in financial engineering. Although it is generally accepted that options help to improve the market, there is still an improvement for the portrayal of their unique properties in portfolio problems. In this paper, an intelligent option portfolio model is developed that allows selling options contracts to earn option fees and considers the high leverage of options in the market. Deep learning methods are used to predict the forward price of the underlying asset, making the model smarter. It can find an optimal option portfolio that maximizes the final wealth among the call and put options with multiple strike prices. We use the duality theory to analyze the marginal contribution of initial assets, risk tolerance limit, and portfolio leverage limit for the final wealth. The leverage limit of the option portfolio has a significant impact on the return. To satisfy the investors with different risk preferences, we also give the conditions for the option portfolio to gain a risk-free return and replace the Conditional Value-at-Risk. Numerical experiments demonstrate that the intelligent option portfolio model obtains a satisfactory out-of-sample return, which is significantly positively correlated with the volatility of the underlying asset and negatively correlated with the forecast error of the forward price. The risk- free option model is effective in achieving the goal of no drawdown and gaining satisfactory returns. Investors can adjust the balance point between returns and risks according to their risk preference.

The Investment Decisions in the Fish, Meat and Poultry Industries Using the Capital Asset Pricing Model (CAPM) Method: Period 2022

This journal discusses the investment decisions in the Fish, Meat, & Poultry Industries Using the Capital Asset Pricing Model (CAPM) Method. This study uses a quantitative descriptive research method using a sample of 10 stocks from companies in the Fish, Meat, & Poultry sector that are listed on the Indonesia Stock Exchange continuously in the 2022 period. This study aims to see which companies will provide the highest returns that can exceed risk-free returns among companies in the fish, meat, & poultry sector in Indonesia and only stocks that have a return value more than the CAPM return will recommended for investors investing. The results of this study is from 10 company, there are only 2 companies in the Fish, Meat, & Poultry Industries in Indonesia which has efficient shares, namely Charoen Pokphand Indonesia Tbk and Morenzo Abadi Perkasa Tbk because they have a stock return value that is greater than the CAPM return value.Keywords: Capital Asset Pricing Model (CAPM), Investment Decisions, Industries

Evaluation of The Determinants of Domestic Bonds in Ghana

The study sought to examine the determinants domestic bonds in Ghana using secondary data. The researcher used the Government of Ghana bonds issued in 2013 to 2017 and has not matured by 31st December 2019. A sample of 6 Government of Ghana bonds which have been on the secondary market for at least two years with a tenor of at least three years was used by the researcher. Based on the stationary and the existence on cointegration vectors, the study investigated long and short run effects using ARDL (1,0,1,1,1,1) and ARDL (1,2,2,2,2,2) Error Correction Models respectively. The E-Views version 11 was used to conduct the analysis. It was found that GDP had a long run insignificant positive effect on Ghana Government Bond Prices, but a short run significant positive effect on Ghana Government Bond Prices. The second major finding was that Exchange Rate had a significant positive effect on Ghana Government Bond Prices in the long run, but this significant effect was negative in the short run. Thirdly, it was revealed that inflation had a significant negative effect on Ghana Government Bond Prices both in the long and short run. Risk Free Rate of Return had a significant negative effect in the long run but had insignificant effect in the short run. Monetary Policy Rate had significant positive effects in the long and short run. It was concluded that increases in Exchange Rate, Gross Domestic Products and monetary policy led to corresponding increases in the prices of government bonds while increases in Inflation, and Risk Free Rate of Return led to a decrease in the prices of Government bonds. In the short run, an increase in Exchange Rate and Inflation leads to a decrease in bond prices while an increase GDP, Risk Free Rate of Return and Monetary Policy Rate leads to a corresponding increase in bond prices. It is recommended that investors consider inflation, GDP, exchange rate, Risk Free Return and Monetary Policy, among other factors, when making decisions on the position to take in a bond as it determines bond prices. Policymakers should aim at working to achieving low inflation and exchange rate figures as that will increase bond prices and make it more attractive to foreign investors. It is also important that policy makers understand and manage effectively risk free bonds and the monetary policy as they have significant effects on the prices of government bonds.

A Study of Investment Awareness and Preference of Individuals Toward Various Mutual Fund Schemes with Reference to Islampur City

Mutual fund is an investment option which includes bonds, stock or securities used by the professional money managers. Investment is done for earning the regular and risk free returns from investment. In our country number of investment options are available, they are ranging from insurance policies to stocks. The study aims at finding the awareness of individuals towards mutual fund and preferences toward it. In our study it is found that the more number of respondents are aware about mutual fund. Investors purchase funds from brokers and asset management companies in large numbers. The majority of respondents are satisfied with mutual fund investment

A Study of Investment Awareness and Preference of Individuals Toward Various Mutual Fund Schemes with Reference to Islampur City

Mutual fund is an investment option which includes bonds, stock or securities used by the professional money managers. Investment is done for earning the regular and risk free returns from investment. In our country number of investment options are available, they are ranging from insurance policies to stocks. The study aims at finding the awareness of individuals towards mutual fund and preferences toward it. In our study it is found that the more number of respondents are aware about mutual fund. Investors purchase funds from brokers and asset management companies in large numbers. The majority of respondents are satisfied with mutual fund investment

Green transition, investment horizon, and dynamic portfolio decisions

This paper analyzes the implications of investors’ short-term oriented asset holding and portfolio decisions (or short-termism), and its consequences on green investments. We adopt a dynamic portfolio model, which contrary to conventional static mean-variance models, allows us to study optimal portfolios for different decision horizons. Our baseline model contains two assets, one asset with fluctuating returns and another asset with a constant risk-free return. The asset with fluctuating returns can arise from fossil-fuel based sectors or from clean energy related sectors. We consider different drivers of short-termism: the discount rate, the nature of discounting (exponential vs. hyperbolic), and the decision horizon of investors itself. We study first the implications of these determinants of short-termism on the portfolio wealth dynamics of the baseline model. We find that portfolio wealth declines faster with a higher discount rate, with hyperbolic discounting, and with shorter decision horizon. We extend our model to include a portfolio of two assets with fluctuating returns. For both model variants, we explore the cases where innovation efforts are spent on fossil fuel or clean energy sources. Detailing dynamic portfolio decisions in such a way may allow us for better pathways to empirical tests and may provide guidance to some online financial decision making.

FORMATION OF OPTIMAL STOCK PORTFOLIO USING THE SINGLE INDEX MODEL IN THE COVID-19 PANDEMIC

This study examines and analyzes how the impact of Covid-19 on the formation of an optimal portfolio using the Single Index Model and measuring optimal portfolio performance using the Sharpe index, Treynor index and Jensen index. The sample data in this study uses stocks listed on the Indonesia Stock Exchange, especially those listed on the LQ45 Index, MNC36 Index, IDX30 Index and Bisnis27 Index from March 1, 2020 to May 31, 2022. The purpose of this study is to analyze the optimal portfolio composition, analyze portfolio returns and risks. optimally, as well as analyzing the performance of stock portfolios formed during the Covid-19 pandemic. The results of the study show that the optimal portfolio formed in the LQ45 index is 20 stocks, the MNC36 index is 12, the IDX30 index is 11 shares, the Bisnis27 index is 14 shares. The optimal portfolios that are formed all produce an expected portfolio return that is greater than the level of risk, and the expected return of the portfolio is higher than the markets expected return and also higher than the risk-free return. The results of the analysis of portfolio performance calculations for each LQ45 Index, MNC36 Index, IDX30 Index and Bisnis27 Index show that the most optimal stock portfolio performance during the Covid-19 pandemic is the portfolio formed from LQ45 index shares, this index means that it is good and deserves to be investment options for investors. Evaluation of the optimal portfolio formed results in realized returns greater than expected returns and also greater than risk-free returns. This study shows that the formation of an optimal portfolio using the Single Index Model provides positive results during the Covid-19 era. KEYWORDS: single index model, portfolio formation, optimal portfolio, portfolio evaluation, Covid-19

Expected Stock Returns When Interest Rates Are Low

The equity risk premium is generally considered to be a reward that investors earn on top of the prevailing risk-free return, implying that, all else equal, total expected stock returns should increase with the level of the risk-free return. We examine whether this notion is true using long-term historical data. Our statistical tests strongly reject the hypothesis that a higher risk-free return implies higher total average stock returns. Instead, expected stock returns appear to be unrelated (or perhaps even inversely related) to the level of the risk-free return. Thus, the equity risk premium tends to be higher when the risk-free return is low and vice versa. This result appears to stem from the operating performance of firms. Our findings challenge the conventional wisdom about expected stock returns and have important implications for asset allocation decisions, in particular when risk-free rates are at extreme levels.

Single Index Model: An Implication on Bankex Stocks

The objective of the study is to find out whether the Bankex stocks (17 bank stocks) are undervalued or overvalued with respect to the current Sensex high levels using Single Index Model. It also aims at finding out the future expectations from these stocks. In the financial economics literature, it is generally assumed that risk-averse investors expect higher returns for investing in relatively riskier assets and therefore, the risk premium represents the compensation to the investor for assuming risk. The non-zero risk premiums are not only directly unobservable but also vary substantially over time. Apart from the 'animal spirits' driving investor exuberance, short-term volatility in risk premiums could result from shifts in inflation expectations, monetary policy shocks, changes in market perceptions relating to the underlying 'fundamentals', all of which cause frequent corrections in expectations about future cash flows. The relationship between premiums or excess returns, representing the excess of expected returns over risk free returns and risk, measured by the volatility of market prices of assets is an intensely debated theme in the literature. In particular, the focus of empirical investigation has been on the dynamics of the risk-return relationship in equity markets. This paper undertakes an empirical verification of the rational markets excess returns and stock excess return based on Single Index Model.

Building an efficient portfolio by using the weighted moving average in the light of the global pandemic (COVID19) (An applied study in the Iraq stock market)

The research aims to study how to build an efficient portfolio by using the weighted moving average in the light of the global pandemic and compare it with the efficient portfolio for the previous period before the global pandemic. The rapid spread of Corona virus (COVID-19) is having major impacts on the financial markets around the world. However, the global pandemic caused a great risk, which led the investors to suffer huge losses in a very short period of time, in addition, to the global Covid-19 pandemic, the economic recession and the drop in oil prices led to a drop in the share prices of companies, as well as most of the companies listed in the Iraq Stock Market (Iraq Stock Exchange), trading in their shares decreased after the appearance of the first case in Iraq in 25/2/2019. The weighted moving average is one of the technical analysis tools, and this technical and mathematical tool has been used to build a portfolio consists of (24 companies). The first ten companies that have the highest weighted moving average have been selected and the research period is divided into the period before the global pandemic which started from 25/2/2019 to 24/2/2020 and the concurrent period of the global pandemic from 25/2/2020 to 2/24/2021 and the researcher used the statistical program [Microsoft Excel 10]. It has been concluded from the research that the Sharpe ratio for the technical portfolio for the concurrent period of the global pandemic was higher than the Sharpe ratio for the previous technical portfolio before the global pandemic, although the Sharpe ratio for both portfolios is negative, meaning that the returns of the portfolio are less than the risk-free return, but the Sharpe ratio for the technical portfolio for the concurrent period is better than the technical portfolio for the previous period, which confirms that the decrease in the number of trading sessions and the volume of trading have affected the performance of the investment portfolio, the smaller the number of trading volume, the better the performance of the portfolio. The researcher recommends with using other technical and mathematical tools to build an efficient investment portfolio in the light of the global pandemic.

Mutual funds behavior and risk-adjusted performance in Nigeria

The paper investigates the behavior of mutual funds and their risk-adjusted performance in the financial markets of Nigeria between April 2016 and May 31, 2019, using descriptive statistics, as well as CAPM, Jensen’s alpha, and other risk-adjusted portfolio performance measures such as Sharpe and Treynor ratios, as well as Fama decomposition of return. The descriptive tests revealed that 80.77% of the funds were superior to market returns, while 13.46% were riskier. The market and the fund returns behaved abnormally with asymptotic and leptokurtic characteristics as their skewness and kurtosis varied from the normal requirements. Diagnostically, the normality test by Jacque-Berra showed that the return was not normally distributed at a 1% significance level. The market was more aggressive relative to the funds. The average risk-free rate was 6.75% above the market’s return. The risk-adjusted portfolio returns measured by Sharpe and Treynor ratios showed that 67.31% of the funds underperformed the market compared to 40.38% that outperformed the market using Jensen’s alpha. Fama decomposition of return revealed that the fund managers are risk-averse with 48% superior selection ability and rationally invested over 85% of investors’ funds in schemes with fixed income securities at a given risk-free return that cushioned the negative effects of the systematic and idiosyncratic risks and consequently threw the total returns into positive territories. Overall, the fund managers possessed 52% of inferior selection abilities that only earned 33% of superior risk-adjusted returns and hence, failed to achieve the desired diversification in the relevant period.

Pairs trading: is it applicable to exchange-traded funds?

Among the various statistical trading strategies, pairs trading has been widely employed as a market neutral strategy owing to its simple approach and ease of application. In this context, we develop a cointegration-based pairs trading framework with a set of pre-conditions for pair eligibility and apply it to different asset classes. The performance analysis of a portfolio of 45 pairs is considered for the period of January 2007 to January 2021, which covers the period of a full market cycle of adjacent bull and bear periods; it is studied and benchmarked against the S&P500 index, which is considered as a proxy for the general market. We find an average annual return of 15% with an average Sharpe ratio of 1.43 after considering the transaction costs; we observe that this performance does not vary significantly with a change in the transaction cost levels and does not pass below the risk-free return levels with changing market conditions. Further, the strategy is observed to perform better during bear market conditions. Considering the highly liquid trading environment of the strategy, our findings raise a call for a discussion on the semi-strong form market efficiency.

Risk-Return Analysis on Optimum Portfolio Selection of Islamic Stocks

<p><em>This study aims to determine the optimum portfolio category and analyze the risk-return on a formed portfolio. Data was taken from eighteen listed companies indexed by Jakarta Islamic Index during 2015-2018. Stock returns are calculated based on the closing price at the end of each month in the period. Sharia Certificate of Bank Indonesia is a proxy of risk-free return, while the market return is measured by the value of the Jakarta Islamic Index. Stocks are sorted by the value of excess return to beta (ERB) from highest to lowest, and to obtain optimal stock portfolio candidates, and the ERB value must be compared with the cut-off rate value. Seven issuers qualify for forming the optimum portfolio of shares. The results show that the optimum portfolio return is greater than the expected return and the expected risk-free return. When compared between individual stock returns and portfolio stock returns, some individual stocks provide higher returns than portfolio returns. However, the risk of individual shares was also higher than the risk of the portfolio. This finding proves that risk can be reduced optimally in Islamic stocks selection by forming an optimum portfolio.</em></p>

Study and Analysis of Optimal Portfolio of Investment in Banks

The current research aims to study and analyze the investment portfolio in banks and how to manage, study and analysis on the Iraqi banks period 2010-2018 to show the impact of the efficiency of the management of investment portfolio on the profitability of commercial banks listed on the Iraqi Stock Exchange. The study was conducted on all Iraqi commercial banks listed in the Iraqi financial market, where the researcher first calculated the 2012 index and the risk of the investment portfolio and the return of the investment portfolio, the banks, which represent the independent variable, return on investment and return on equity, and the risk-free return as control and subsidiary variables. A financial analysis aimed at identifying the effect of the efficiency of the management of the investment portfolio on the profitability of commercial banks. The results of the analysis were identical with the results of the statistical analysis, which was performed using the simple regression equation and multiple regression to identify the effect and correlation coefficient Pearson to identify the relationship between the independent variable and the dependent variable. The main results of the study were the absence of statistically significant impact on the level of risk-free return on The return on investment and the return on equity and the absence of statistically significant impact at the same level of return on the investment portfolio on both the return on investment and the return on equity and the exi