Traditional Asset Research Articles

Common investor coverage and excess return comovement: Evidence from Seeking Alpha

Investors often cover a limited number of stocks, leading to a certain level of correlation in their information sets. Despite its importance, the role of this correlation in determining the return comovement between stock pairs has been less explored. In this study, we introduce a novel measure of common investor coverage, calculated using the number of co-commentators normalized by the geometric average number of commentators for each stock pair on Seeking Alpha. This measure aims to capture the underlying correlation in investors’ information sets. Our findings reveal a positive relationship between common investor coverage and excess comovement, which cannot be explained by traditional asset pricing models. Moreover, we observe a stronger relationship between common investor coverage and excess return comovement for stocks favored by retail investors, particularly after the implementation of the reward policy in 2011. This suggests that retail investors may play a crucial role in driving this relationship.

An Empirical Analysis of the Performance of Luxury Watch Portfolios among High-Net-Worth Individuals in India During the COVID-19 Pandemic

This study empirically evaluates luxury watches owned by high-net-worth individuals (HNIs) in India as unconventional alternative assets providing diversifying benefits. During the COVID-19 pandemic, the major stock exchanges in India, NSE and BSE, faced negative returns and high volatility, igniting numerous conservative investors to divest from traditional investments and retain alternative assets, such as luxury watches, due to their low correlation to financial markets. Owing to supply chain disruptions and demand forces, the overall secondary watch market prices surged throughout this period, creating high economic value for investors. Through hypothesis testing and attribution analysis, this paper evaluates the performance of watch portfolios owned by 57 HNIs, comprising of 464 watches, to investigate whether luxury watches are viable investments during economic downturns within the domain of alternative investments. Hence, this study employs suitable attribution tools such as Sharpe ratio, M2 Alpha, Treynor Measure and Jensen’s Alpha to understand the strength of their performance. Using academic literature, market data and primary data, this study found that luxury watches provided substantial portfolio diversification benefits and outperformed traditional assets like the NIFTY50 and gold in terms both nominal and risk adjusted returns during the pandemic. Brands such as Patek Philippe, Rolex, and Audemars Piguet achieved the highest performance, as Patek Philippe demonstrated superior risk-return trade-offs. Despite challenges such as valuation complexities and liquidity constraints, luxury watches provided remarkable upside potential, benefiting from a high retention rate due to their unique emotional features. Ultimately, the findings suggest that luxury watches can be viable alternative investments considering that 65% of these HNIs viewed their watch purchases as investment opportunities.

Gold Price Inflation and Its Implications for Financial Markets: Strategies for Mitigation

Abstract: Gold prices are among the most important indicators in the global financial market. The international gold price has continued to rise in recent years, repeatedly setting new records, accompanied by a boom in gold consumption and investment. The rapid rise in gold prices is due to a combination of factors. Supply and demand, economic conditions, and geopolitical events can lead to price fluctuations. Among them, economic conditions depend on monetary policy, inflation expectations, and market volatility, which may affect the trend of gold prices. The rise in gold prices has exacerbated market volatility and put higher demands on risk management for financial institutions. At the same time, the rise in gold prices has also affected the entire financial industry and changed traditional asset allocation strategies. This article examines the influence of increasing gold prices on the financial market and proposes potential preventive measures or solutions through a survey of literatures, theoretical analysis and logical reasoning. At the same time, this can help financial traders plan their funds reasonably, reduce the impact of inflation and currency devaluation, and better cope with changes in international trade and exchange rates, thus allowing the financial market to operate better.

Decoding Market Efficiency: A Multifractal Approach to Financial Market Dynamics

Financial markets were traditionally analyzed using the Efficient Market Hypothesis (EMH), which argued that asset prices fully reflected all available information. This led to the belief that price movements were random, making it impossible to consistently outperform the market. However, emerging research had highlighted that markets could exhibit multifractality, where inefficiencies existed across different time scales, challenging the traditional EMH framework. Our study built on these insights by investigating the market efficiency of several asset classes, including stock market indices, cryptocurrencies (Bitcoin, Ethereum, USDT, and Binance), commodities (gold and crude oil), fixed income (U.S. 10-Year & 30-Year Treasury Bonds), and foreign exchange (EUR/USD & GBP/USD). Utilizing the Multifractal Detrended Fluctuation Analysis (MFDFA) method, we analyzed the multifractal properties and efficiency of each asset class. The results revealed that traditional assets exhibited monofractality, adhering more closely to the EMH. In contrast, cryptocurrencies displayed significant inefficiencies, likely due to their volatility, market structure, and susceptibility to external shocks. The findings provided valuable insights into portfolio diversification and risk management, suggesting that inefficiencies in certain asset classes might present both opportunities and risks for investors.

Sentiment and Stock Characteristics: Comprehensive Study of Individual Investor Influence on Returns, Volatility, and Trading Volumes

Abstract Background Traditional asset pricing models face challenges from financial anomalies, prompting exploration through behavioural finance theory. This study analyses the nuanced relationship between individual investor sentiment and key stock market variables. Objectives To assess the impact of individual investor sentiment on stock returns, volatilities, and trading volumes using the American Association of Individual Investors (AAII) sentiment index. Methods/Approach Using regression models, we examine the relationship between individual investor sentiment and various stock characteristics across 480 components of the Standard & Poor's 500 index. Results We find a positive relationship between the AAII sentiment index and stock returns and a negative relationship with volatility and trading volume. Conclusions Our study contributes to understanding the intricate role of individual investor sentiment in financial markets.

CBDCs, regulated stablecoins and tokenized traditional assets under the Basel Committee rules on cryptoassets

Purpose This paper examines the impact of Central Bank Digital Currencies (CBDCs), regulated stablecoins and tokenized traditional assets on the cryptocurrency market, following the guidelines set by the Basel Committee. This study aims to analyze the implications for secure storage, cross-border transfers and necessary investments. Design/methodology/approach The paper uses a policy analysis approach to assess the potential effects of the Basel Committee’s regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It explores their impact on the cryptoasset market, strategies of central and commercial banks, payment systems and risk management. Findings The adoption of CBDCs, regulated stablecoins and tokenized traditional assets is expected to grow rapidly in the coming years. It raises concerns about secure storage, cross-border transfers and required investments. Central banks are likely to introduce CBDCs and authorize stablecoin issuance, aiming for efficient monetary policies and risk management. Basel III regulations may lead to asset tokenization by banks, reducing asset size and increasing fee-based income. Originality/value This paper provides insights into the potential impact of the Basel Committee's regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It contributes to the understanding of the evolving cryptoasset market and the strategies of central and commercial banks in adopting these technologies. The findings offer valuable information for policymakers, regulators and market participants in navigating the changing landscape of digital assets.

Intelligent Asset Allocation Portfolio Division and Recommendation

With the continuous development of financial markets, intelligent asset allocation has become a topic of great concern in the investment field. However, traditional asset allocation methods often face difficulties in grasping the relationship between diversity, risk and return, which limits its application in complex market environments. To solve this problem, this study introduces deep learning and knowledge graphs and proposes an intelligent asset allocation model. Our model makes full use of the advantages of the Knowledge Graph Embedding Model (KGE), LSTM, and Genetic Algorithm (GA) to build a multi-level and multi-dimensional asset allocation model. KGE helps capture the complex relationships between different assets, LSTM is used to learn key patterns of historical portfolio performance, and GA finds the optimal asset allocation combination by simulating natural selection and genetic mechanisms. Experimental findings indicate that our model has demonstrated substantial improvements across various performance metrics and outperforms conventional approaches.

A Study of Hierarchical Risk Parity in Portfolio Construction

<p style="text-align: justify;"><span style="font-family: 'times new roman', times, serif; font-size: 14pt;">The construction and optimization of a portfolio is a complex process that has been a historically active research area in finance. For portfolios with highly correlated assets, the performance of traditional risk-based asset allocations methods such as the mean-variance (MV) model is limited when numerous assets are correlated. A novel clustering-based asset allocation method, called Hierarchical Risk Parity (HRP), provides an opportunity to mitigate these limitations in portfolio construction. HRP utilizes the hierarchical relationships between the covariance of assets in a portfolio to determine weight distributions, eliminating the need for the inversion of the covariance matrix that is required by most traditional risk-based asset allocation methods. This research examines the viability of Hierarchical Risk Parity (HRP) method in portfolio construction of a US equity portfolio and compares the performances of HRP to traditional asset allocation methods exemplified by the mean-variance (MV) method. The results of this research show that the performance of the HRP method is comparable to the performance of the MV method. Given these findings, HRP provides an advantageous approach for portfolio construction in practical scenarios where correlated assets are present in the portfolios.</span></p>

DEALING WITH CRYPTOCURRENCIES AND THEIR PERSPECTIVE IN THE FUTURE

The advent of cryptocurrencies has revolutionized the financial landscape, offering a new and innovative way for individuals to invest and manage their wealth. Investing in cryptocurrencies, such as Bitcoin, Ethereum, and others, has numerous advantages that make it an attractive option for those seeking to diversify their portfolios. One of the primary benefits of investing in cryptocurrencies is their potential for high returns. As the popularity and adoption of cryptocurrencies continue to grow, their value can fluctuate significantly, providing investors with substantial profits. Additionally, cryptocurrencies offer a level of liquidity and accessibility that is unmatched by traditional assets, allowing investors to buy and sell quickly and easily. This article aims to explore the advantages of investing in cryptocurrencies and their perspective in the future. We will examine the benefits of diversifying investment portfolios with cryptocurrencies, the potential for high returns, and the potential risks involved. Furthermore, we will discuss the current state of the market and the future prospects of cryptocurrencies.

Sustainable development and investor confidence: The safe‐haven appeal of green‐bond issuing firms

AbstractThis study investigates the performance of a green‐linked portfolio as a safe haven and hedge against traditional assets during periods of market turmoil, such as the COVID‐19 pandemic and the Russia‐Ukraine war. Utilizing a dynamic conditional correlation (DCC)‐generalized autoregressive conditional heteroscedasticity (GARCH) approach, the study analyzes the portfolio's correlations with global asse like SENSEX 30, BSE ESG 100, Gold, S&P Green Bond Index, and US 10‐year Treasury bonds, demonstrating its stability. Our findings demonstrate that the green‐linked portfolio outperforms both individual stocks and major indices as well as traditional safe havens like gold and US Treasury bonds. The portfolio exhibits superior risk‐adjusted returns and lower volatility, particularly during crisis periods. The portfolio's strong positive correlation with the S&P Green Bond Index highlights its alignment with the broader green market. Interestingly, with a 95% hedge effectiveness, it emerged as a viable safe haven investment, surpassing gold in stability during market uncertainties. Further, forecast matrix results and VAR analysis confirm the portfolio's potential as a diversifier and safe haven asset, characterized by significant positive returns. Additionally, the SAP‐LAP framework provides clarity to stakeholders on safe‐haven options within green markets. Moreover, while green bond markets are more mature in developed economies, our results suggest that green‐linked investments in emerging markets, such as India, offer a promising avenue for investors seeking both financial returns and environmental impact. Overall, the study provides empirical evidence supporting the inclusion of green‐linked assets in diversified portfolios to enhance risk management and capture long‐term growth opportunities.

An Empirical Research on the Performance of Asset Pricing Models in the Chinese A-Share Market

Asset pricing remains a cornerstone of financial field, providing a framework to understand the anticipated returns of asset portfolios and individual assets. Its widespread application spans academic discourse and practical financial methodologies. This study conducts an empirical analysis of the Chinese A-share Market, utilizing transaction data from the A-share market spanning from 1994 to 2024. It examines the applicability of the traditional asset pricing models within the Chinese stock market. Through classic regression analyses of the CAPM, the Fama and French three-factor model (FF3), the Fama and French five-factor model (FF5), this study verifies that the FF5 provides a superior explanation of stock expectations for the A-share market during this period compared to other traditional asset pricing models. The conclusions of this study indicate that, among the CAPM, FF3, and FF5 models, the number of parameters taken into account by the model and its capacity to explain asset returns are positively correlated.

Harmony in diversity: Exploring connectedness and portfolio strategies among crude oil, gold, traditional and sustainable index

The research investigates dynamic connectedness and portfolio strategies among crude oil, gold, global traditional (DJGI) and sustainable (DJSI) indices. The time-varying parameter vector autoregression (TVP-VAR) findings reveal that the average total connectedness among the assets is 33.03%, with the total dynamic connectedness index exhibiting a notable surge during two crises and one stability period. The upsurge exhibited a predominant prevalence of short-run connectedness during crisis periods, notably amidst the COVID-19 pandemic and the Russia-Ukraine war. Conversely, the last and first quarters of 2017 and 2018 manifested as periods of stability, wherein long-term interconnectedness prevailed. Crude oil and gold emerge as the primary recipients of systemic shocks, while traditional and sustainable stock indices act as net transmitters of shocks. The BEKK and DCC GARCH models indicate short- and long-run persistence among the assets. Further, the study calculated hedge ratios and portfolio weights. Our empirical findings indicate that gold serves as a cost-effective hedging asset. Investors should invest more in the traditional stock index than in gold and crude oil to form an optimal portfolio. Notably, the global sustainable index offers results similar to those of the traditional index. Investors in the sustainable index would invest a similar amount for diversification and hedging with other traditional assets as they would for the traditional index.

Relationship between Bitcoin and the stock market – can bitcoin serve as a safe haven for investors?

Aim: As a new asset class, Bitcoin and other cryptocurren-cies can be interesting for investors in the context of return stabilization, especially in times of crisis. We aimed to anal-yse whether Bitcoin can serve as a safe haven for investors in times of crisis.Methods: The data covers the period from September 17, 2014, to April 29, 2021, with 382 observations. Yahoo! Finance served as the source for the Bitcoin prices and Investing.com for the values of the Standard & Poor’s 500 (S&P500) Index. We used the maximum likelihood method to estimate the dynamic conditional correlation model.Results: Due to the high volatility during the analysed peri-od, Bitcoin achieved a higher risk-adjusted return compared to the S&P500 Index. The DCC model showed a positive cor-relation between the returns of the S&P500 and Bitcoin during the analysed period.Conclusions: Our results suggest that Bitcoin may not serve as a safe haven for investors in times of crisis. However, its role in this context should be further evaluated by examin-ing its relationship with other traditional asset classes (gold, commodities) and other types of cryptocurrencies such as stablecoins.

The Left-tail Risk and the Cross-section of Stock Returns: Evidence from China

As a matter of fact, left-tail risk is a common risk in stock market. This study examines the linear correlation considering Value-at-Risk (VaR) and future stock returns within context of the Chinese main board stocks, particularly during periods marked by significant left-tail risk. Processing data from March 2014 to March 2024, this study concentrate to daily and monthly cross-section returns, along with other financial statistics. A suitable Fama-Macbeth regression using in this paper to exam the significance of left-tail risk. The key focus is to investigate the effect of VaR concerning future stock returns under downside market conditions, as indicated by the recent 23% drop in China’s benchmark CSI 300 index. The regression analysis indicates a significant negative correlation between VaR and future stock returns, suggesting that higher potential losses as indicated by VaR correspond with lower future returns. This outcome is contrary to traditional asset pricing theories which posit a positive risk-return relationship. The findings will attract attention of investors to consider extreme risk management of public stocks and contributes to the ongoing discussion on risk assessment in financial markets by highlighting the importance of integrating robust risk management tools like VaR in investment strategies, especially in volatile markets.

Hotspot analysis for integrated multi-infrastructure asset management.

Urban infrastructure, important for societal functioning, faces challenges from aging assets and increasing service demands. Traditional asset management practices, often conducted in silos, fail to address the interconnected nature of these systems, leading to inefficiencies and heightened system failure risks. This article combines the spatial and temporal aspects of sewer, water, and road networks to facilitate integrated interventions and enable informed decision-making among diverse stakeholders. The outcome of this research is the creation of interactive hotspot maps on a unified platform, highlighting potential areas for integrated intervention across different infrastructures. To enhance the potential for collaboration in integrated interventions, flexibility in intervention planning was incorporated. With increased flexibility in intervention decisions, the potential for collaboration also increased. For the case study, introducing a 5-year intervention flexibility increased the number of collaborative projects between sewer, water, and roads from 0 to 18. The maps can also indicate areas where the application of trenchless technologies are justifiable. Other important information on asset characteristics for the decision-makers, including age, inspection, deterioration, and other relevant spatial and temporal details can also be obtained from the maps. The presented methodology and findings provide practical solution for utilities to manage urban infrastructure networks more efficiently.

Cryptocurrency and Its Role in Portfolio Diversification

Purpose: This study sought to explore cryptocurrency and its role in portfolio diversification. Methodology: The study adopted a desktop research methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library. Findings: The findings reveal that there exists a contextual and methodological gap relating to cryptocurrency and its role in portfolio diversification. Preliminary empirical review revealed that incorporating cryptocurrencies into investment portfolios offered promising diversification benefits due to their low correlation with traditional assets, despite their high volatility and regulatory uncertainties. It highlighted the significant risk management challenges posed by cryptocurrencies' extreme price fluctuations and the evolving regulatory landscape. The study emphasized the importance of careful, limited allocation to cryptocurrencies, robust risk management practices, and continuous market monitoring. Ultimately, it suggested that cryptocurrencies could enhance portfolio performance when strategically used alongside traditional diversification methods. Unique Contribution to Theory, Practice and Policy: The Modern Portfolio Theory, Efficient Market Hypothesis and Behavioural Finance Theory may be used to anchor future studies on portfolio diversification. The study recommended a cautious yet strategic inclusion of cryptocurrencies in investment portfolios to enhance diversification, emphasizing the importance of ongoing research, robust risk management, and proactive monitoring due to their high volatility and regulatory uncertainties. It called for clear and consistent regulatory frameworks to protect investors while fostering market growth, and highlighted the need for collaboration between academia, industry, and regulatory bodies to improve financial literacy and market stability. These recommendations aimed to contribute to theoretical, practical, and policy aspects of cryptocurrency investments.

Unpacking the financial attributes of blue-chip non-fungible tokens (NFTs) against traditional and digital assets

PurposeThis study aims to identify the financial attributes of non-fungible tokens (NFTs) as safe havens, hedges or diversifiers against traditional (stock indices, foreign exchange, gold and government bonds) and digital (Bitcoin and Ethereum) assets.Design/methodology/approachThe quantile via moments was utilized, and the data spanned from 20 September 2021 to 31 January 2022. The authors incorporated feasible generalized least squares (FGLS) and difference-generalized method of moments (diff-GMM) as the robustness check.FindingsOverall, NFTs offer strongly safe havens, hedging and diversifier attributes against cryptocurrencies, while weak properties for traditional assets. The specific findings are: (1) Bored Ape Yacht Club (BAYC) serves as a strong hedge for Bitcoin during market rise; (2) Mutant Ape Yacht Club (MAYC) serves as a strong safe haven against Bitcoin during market bull; (3) Crypto punk (CP) provides strong safe havens properties for gold during market turmoil while serving as a strong hedge against gold and Bitcoin on average and (4) the three blue-chip NFTs are powered by Ethereum blockchain, thus serving as a diversifier against Ethereum.Practical implicationsBitcoin investors are suggested to include NFTs in their investment portfolio to mitigate the losses when Bitcoin falls. Meanwhile, the inclusion of crypto punk is advised for risk-averse investors who invest in gold. NFTs are powered by the Ethereum blockchain, indicating co-movement among them and thus, serve as diversifiers. Policymakers and regulators are suggested to watch closely over NFTs' great development and restructure the existing policies and thus, stabilization of asset markets can be achieved.Originality/valueThe originality aspects are: (1) focusing on the three blue-chip NFTs (i.e. BAYC, MAYC and CP) that are categorized as the largest NFTs by floor market capitalization; (2) testing the NFT attributes (safe havens, hedges or diversifiers) against traditional and digital assets, a.k.a., cryptocurrencies and (3) panel setting on 14 countries with the highest NFT users.

Hedging Using Digital Currencies Against Inflation Risks In Light Of The Globalization Of Economic Activity: A Theoretical Study

This theoretical study explores the potential of digital currencies as a hedging tool against inflation risks in the context of globalized economic activity. With the increasing interconnectedness of economies and the volatility of traditional currencies, investors and businesses are seeking alternative ways to protect their wealth from the eroding effects of inflation. Digital currencies, with their unique characteristics such as decentralization and limited supply, have emerged as a potential solution. This research investigates the theoretical underpinnings of using digital currencies for inflation hedging, analyzing their correlation with traditional assets and their performance during periods of high inflation. By examining the factors influencing the effectiveness of digital currencies as a hedge, this study aims to provide insights for investors and policymakers seeking to navigate the complexities of the global economic landscape. Keywords: digital currencies, inflation hedging, globalization, economic activity, theoretical study

Әртүрлі оқиғалардың криптовалюта құнына әсерін талдау

The relevance of the research topic is due to the fact that many crypto investors are attracted by the high liquidity of cryptocurrencies, low transaction costs and ease of transactions via the Internet. In contrast from Fiat currencies, corporate stocks, and bonds, cryptocurrencies do not have an underlying value. demand therefore market cost to a greater extent depends on how wellknown and popular this cryptocurrency is. Also, the price of cryptocurrencies is influenced by market sentiment, namely the thoughts, feelings and emotions of investors regarding the asset. With the help of traditional asset valuation models, it is impossible to qualitatively explain the latest changes in the price of cryptocurrencies. However, some financial models point to that cryptocurrency is currently overvalued. Apparently, the hypothesis of financial instability is better than any of the verified economic theories suitable to explain recent changesin prices of cryptoassets. The theory suggests that because the cryptocurrency market is moving against the macroeconomic fundamentals of the economy, emotions are a major factor. determining demand on a given market. In this article, the authors examined the influence of behavioral financial factors on investment decisions in the cryptocurrency market. Multiple regression analysis was used to examine this effect. The purpose of the article is to study the development of cryptocurrency in Kazakhstan and assess the impact of events on the value of cryptocurrency. Based on this goal, the authors put forward the following tasks: to analyze and evaluate the use of cryptocurrencies in the modern economy; explore the features of cryptocurrency pricing.

Information spillover among cryptocurrency and traditional financial assets: Evidence from complex networks

This study aims to investigate the information spillover among four traditional financial assets (i.e., crude oil, gold, stock, and U.S. dollar) and nine main cryptocurrencies (i.e., Bitcoin, Cardano, Dai, Ripple, Dogecoin, Ethereum, Ethereum Classic, Monero, and Tether), by constructing entropy-based information spillover network and information integration network from both static and dynamic perspectives. The empirical results show that the information spillover among these assets is time-varying, experiencing an obvious increase trend after the COVID-19. As a whole, traditional financial assets mainly play the role of net information transmitter while cryptocurrencies mainly play the role of net information recipient. Tether and Dai are the two main visual coins that can transmit net information flow to traditional assets, while gold and stock are the two main traditional assets that transmit net information flow to cryptocurrencies. Tether and U.S. dollar are the central nodes that link traditional financial assets and cryptocurrencies together.