Wealth Portfolio Research Articles

The risk and return of impact investing funds

We provide the first analysis of the risk exposure and risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a dataset of impact fund cash flows and exploit distortions in VC performance measures to characterize risk profiles. Impact funds have a lower market β than comparable private market strategies. Accounting for β, impact funds underperform the public market, though not necessarily more so than comparable strategies. We consider alternative pricing models, accounting for sustainability and emerging markets risk. We show investors’ wealth portfolios and taste change the perceived financial merit of impact investing.

End of Life Wealth Portfolios in the Netherlands in 1921: The Memories Database

Abstract This article introduces a newly constructed database: the Memories 1921 Dataset. The database is a representative sample drawn from the Tafel v-bis Dataset and consists of complete inheritance taxation records for 2,321 individuals who died in 1921. To increase the amount of information about these individuals, the authors connected the Memories 1921 Dataset to the original Tafel v-bis Dataset. This added information about the name, birthplace, place of residence, age, marital status, and profession of the deceased to his or her wealth portfolio. The database is open access and available via the Social Sciences and Digital Humanities Archive (sodha).

The wealth creator and family business: a perspective article

PurposeThe principal objective of this study is to identify and recommend auspicious research directions within the field of family business research, with a specific focus on the wealth creator. In conjunction with these research trajectories, the paper also aims to elucidate the potential implications of cultivating these lines of inquiry on the existing family business literature.Design/methodology/approachThis perspective paper adopts a comprehensive approach to examine the multifaceted role of the wealth creator in the context of family businesses. It reviews the last decades of research that resulted in the identification of this role within family business and proposes future research avenues to further address their characterization and importance.FindingsInvestigating the wealth creator's attributes can provide insights into their role, the importance of timely identification and its preparatory elements. Furthermore, this exploration can shed light on the dynamics of inter-family relationships within family businesses and enrich the literature on power transition and continuity in family enterprises. Additionally, the maturation of the wealth creator concept may significantly impact the management of wealth portfolios, facilitating smoother wealth transfer, strategic portfolio management and the preservation of multi-generational wealth.Originality/valueThis research offers a diverse understanding of the role of the wealth creator in family businesses. The findings also enhance the comprehension of family business dynamics, enriching the literature on succession. Lastly, the offered research avenues contribute to addressing the challenges of sustaining family wealth and ensuring the continuity of family businesses across generations.

Tourism and Environment: Ecology, Management, Economics, Climate, Health, and Politics

We review research on tourism and the environment using a temporal framework, distinct from previous reviews. We identify six main phases, all still active, but with different histories. Initially, tourism was treated as a low-impact component of transport and urban accommodation, and the focus was on recreation, ecology and visitor management in parks. Interest then turned to environmental management and corporate social responsibility: wastes, resources, and ecolabels. The third phase analysed positive economic contributions to conservation by a small number of tourism enterprises, principally through private reserves and park funding. The fourth focussed on climate change and carbon offsets, and the fifth on mental health and human capital. The sixth and newest phase is political. Tourism developers, industry associations, and lobbyists have stepped up their longstanding efforts to gain control of parks and protected areas, in order to profit from preferential access to public resources. These efforts now include international instruments as well as policies, practices, and legislation in individual countries. Tourism has become a catspaw for a new form of land grab by private wealth portfolios for high-value nature property. We draw attention to tourism development land grabs in public protected areas as a key priority for urgent research.

Fair crack of the whip? The distribution of augmented wealth in Australia from 2002 to 2018

The omission of pension wealth potentially distorts the international comparison of wealth distributions. Private pension wealth is often included in households’ wealth portfolios, while public pension claims are not. Augmented wealth, the sum of net worth and pension wealth, resolves this limitation by including the present value of social security pension wealth. This article provides a detailed analysis of augmented wealth in Australia between 2002 and 2018, capturing the establishment of the compulsory private pension scheme, Superannuation, which was introduced in 1992. Augmented wealth is slightly less equally distributed in Australia than in Germany or Switzerland but more equal than in the United States. The article also explores the relationship between Superannuation dissaving rates and the means-tested public pension scheme, Age Pension, and its distributional implications.

Discussion of “CEO discretionary power, unconstrained stock ownership, and stock trading: Theory and evidence”

Hong (2023) provides both an analytical model and empirical archival evidence to explain why CEOs hold vested own-firm shares when doing so comes at the cost of reduced CEO portfolio wealth diversification. I discuss Hong (2023) in terms of the intuition provided by its analytical model and the inferences one can draw from its empirical results. Moreover, I briefly discuss (the lack of) multi-methods research in accounting and consider how accounting scholars can add insight to the cross-disciplinary literature on executive power and contracting.

Wealth Stratification and the Insurance Function of Wealth

This thematic issue examines the insurance function as a mechanism to underlie wealth effects on various outcomes. The articles in this issue shed an innovative light on the insurance function of wealth concerning a range of topics relevant to social stratification and social policy researchers. This editorial provides an overview of the contributions of this thematic issue and highlights some gaps and remaining open questions. Altogether, the contributions suggest that wealth can provide insurance against adverse life events in various contexts. However, this insurance effect depends on welfare state characteristics, wealth portfolios, and the way families handle their wealth.

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.

Multiobjective Model Predictive Control for portfolio optimization with cardinality constraint

Model Predictive Control has been shown to be adequate to solve portfolio optimization problems because of its ability to perform the dynamic readjustment of the portfolio considering the market expectations. To consider both wealth and risk and real issues imposed by the financial market, this work proposes a Multiobjective Model Predictive Control strategy with cardinality constraints, besides transaction costs, self-financing, and upper and lower limits. The objective functions are the expected portfolio wealth and the expected Variance and Conditional Value at Risk as the portfolio risk measures. The optimization is performed by a multiobjective genetic algorithm, with operators proposed to control the number of assets in each portfolio and respect the prediction horizon perspective. Finally, an insightful case study is designed using the Brazilian Stock Exchange data in 2019 and 2020. An in-sample analysis explores the relationship between prediction horizon length, cardinality, optimal portfolio composition, risk-free asset, and objective functions on performance. An out-of-sample analysis considers the cumulative wealth, Sharpe ratio, maximum Drawdown, and the monthly accumulated return. Numerical experiments indicate that the proposed strategy outperforms the myopic portfolio selection, beats the primary Brazilian benchmark, a modified Markowitz model, and some top Brazilian investment funds even in crisis times like during the COVID-19 pandemic.

Financial Risk-Taking and the Gender Wage Gap

Could differences in risk attitudes explain parts of the gender wage gap? We present estimates on the association between labor market outcomes and financial risk-taking using individual level administrative data on individual wealth portfolios and wage rates from year 2000, when high-quality wealth data were available in Sweden. The individual’s share of risky to total financial assets is significantly and positively associated with the wage rate. However, it turns out that our risk measure explains only a small part of the observed gender difference in wages.

The impact of the public pension system on wealth inequality. The distribution of augmented wealth in Poland

ABSTRACT Public pension wealth is an important component of a household’s wealth portfolio. However, due to data scarcity, it is usually omitted in the research on household wealth. The literature on augmented wealth is limited to developed economies. We use a novel data source to estimate the distribution of public pension wealth and augmented wealth in Poland. We assess the impact of education-related mortality differential on the value of public pension wealth. Our research sample includes pensioners and workers near retirement. Therefore, we measure the impact of public pension wealth on wealth distribution among those who already profit from their public pension wealth, or will profit from it soon. Moreover, the value of their public pension wealth is stable and robust, while the value of public pension entitlements of the working-age population may change rapidly due to pension system reforms. The public pension system significantly decreases wealth inequality. The Gini index equals 0.5007 for private wealth distribution and 0.3472 for augmented wealth distribution. Decomposition techniques confirm an equalizing impact of public pension wealth on the pension system. The impact of education-related mortality differential on the value of public pension wealth exists at the individual level, but it diminishes at the household level.

Wealth Flow Model: Online Portfolio Selection Based on Learning Wealth Flow Matrices

This article proposes a deep learning solution to the online portfolio selection problem based on learning a latent structure directly from a price time series. It introduces a novel wealth flow matrix for representing a latent structure that has special regular conditions to encode the knowledge about the relative strengths of assets in portfolios. Therefore, a wealth flow model (WFM) is proposed to learn wealth flow matrices and maximize portfolio wealth simultaneously. Compared with existing approaches, our work has several distinctive benefits: (1) the learning of wealth flow matrices makes our model more generalizable than models that only predict wealth proportion vectors, and (2) the exploitation of wealth flow matrices and the exploration of wealth growth are integrated into our deep reinforcement algorithm for the WFM. These benefits, in combination, lead to a highly-effective approach for generating reasonable investment behavior, including short-term trend following, the following of a few losers, no self-investment, and sparse portfolios. Extensive experiments on five benchmark datasets from real-world stock markets confirm the theoretical advantage of the WFM, which achieves the Pareto improvements in terms of multiple performance indicators and the steady growth of wealth over the state-of-the-art algorithms.

The impact of a political shock on foreign exchange markets in a small and open economy: A dynamic modelling approach

Abstract This paper aims to analyse the dynamics of foreign exchange markets in a country facing political uncertainty that prompt capital outflow from the country1. The economic environment under investigation is characterized by dual foreign exchange markets: a formal or official market for foreign exchange with insufficient and volatile foreign exchange flows, and a strong and thriving informal market, with a higher exchange rate2. The findings in the paper indicate a necessary condition for stabilization of the exchange rate system and that is that the return on investment should exceed the depreciation rate of domestic currency in the formal foreign exchange market. This condition implies that the return on investment should at least compensate investors for the opportunity cost of holding domestic money in their private portfolio wealth. Our findings also indicate that stability of the foreign exchange rates is more difficult to achieve under insufficient official reserves as the recovery process from a shock becomes more costly in terms of time period needed for the adjustment process to complete. The dynamic path of the foreign exchange premium shows that under massive capital outflow caused by economic sanctions, the informal market exchange rate overshoots the equilibrium stationary exchange rate, and the size of such overshooting depends on the size of available foreign exchange reserves held by the central bank.

Optimal portfolio with power utility of absolute and relative wealth

Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing in the benchmark (including reinvested dividends). The classic Merton problem for portfolio optimization considers absolute portfolio wealth. We combine absolute and relative wealth in our new utility function. We also consider the case of multiple benchmarks. To both absolute and relative wealth, we apply power utility functions, possibly with different exponents. We obtain an explicit solution and compare it to the classic Merton solution. We apply our results to the Capital Asset Pricing Model setting.

The Wealth Inequality of Nations

Comparative research on income inequality has produced several frameworks to study the institutional determinants of income stratification. In contrast, no such framework and much less empirical evidence exist to explain cross-national differences in wealth inequality. This situation is particularly lamentable as cross-national patterns of inequality in wealth diverge sharply from those in income. We seek to pave the way for new explanations of cross-national differences in wealth inequality by tracing them to the influence of different wealth components. Drawing on the literatures on financialization and housing, we argue that housing equity should be the central building block of the comparative analysis of wealth inequality. Using harmonized data on 15 countries included in the Luxembourg Wealth Study (LWS), we demonstrate a lack of association between national levels of income and wealth inequality and concentration. Using decomposition approaches, we then estimate the degree to which national levels of wealth inequality and concentration relate to cross-national differences in wealth portfolios and the distribution of specific asset components. Considering the role of housing equity, financial assets, non-housing real assets, and non-housing debt, we show that cross-national variation in wealth inequality and concentration is centrally determined by the distribution of housing equity.

Using regime-switching models in Sharia-compliant stocks: performance assessment of investors with discriminated risk-appetite

Purpose The paper aims to assess the performance of investors that are discriminated based on their risk-appetite who intend to invest in listed Sharia-compliant (SC) stocks to maximize their portfolios’ wealth through two different models (i.e. regime-switching [RS] and non-RS). Design/methodology/approach Study period (i.e. November 18, 2015–May 31, 2019), well described in two distinct volatility-related bull-regime and bear-regime, is divided into in-sample and out-sample where Rs. 1.00 is invested on the out-sample start date. Each investor’s cumulated wealth forecasted through different models is checked daily throughout the out-sample period, and then, analyzed based on investors’ cumulated ending wealth, and Sharpe ratio (SR) is obtained through different models. Findings The ending wealth of risk-averse and risk-neutral investors obtained through RS-models increased 5.27 times while that of risk-taker investors increased 5.13 times. However, ending wealth obtained through non-RS models remained far low. The SR remained unchanged among investors. However, the SR of RS models (i.e. 1.0867) is higher than that of non-RS models (i.e. 0.8681). Overall, RS model-based investments outperformed in all categories of investors. Practical implications The study helps the investor during the process of portfolio diversification in their asset(s) selection and limited capital apportionment decisions. It also helps market regulators in formulating regulations and the policymakers in articulating/implementing policies that may protect the stakeholders form consequent disasters, particularly when market switches regimes. Originality/value The uniqueness stems from its focus on risk-appetite discriminated investors’ portfolio wealth maximization issue examined through technical analysis using two completely distinct models in the emerging market’s listed SC stocks.

REBUTTAL: The Market Portfolio Is Bigger Than You Think

The true opportunity set and hypothetical benchmark for investors is, and always has been, the aggregate portfolio of every asset in the world. This portfolio is very diverse and complex. To control risk and make the investor’s job more manageable, most of these assets have been excluded from institutional portfolios, which have instead focused on public equities and bonds. The endowment model opens up the investment process to the true opportunity set and makes it possible to earn returns from sources that have traditionally been closed to both institutional and individual investors. <b>TOPICS:</b>Portfolio theory, portfolio construction, foundations &amp; endowments, performance measurement <b>Key Findings</b> ▪ The true world market wealth portfolio is much larger than the total capitalization of public stock and bond markets. ▪ Active investors should consider the entire world market wealth portfolio, to the extent that it can be accessed, as their opportunity set. ▪ Alternative investments are not new and have been used by endowments and other investors over a long period of historical time.

Merton Investment Problems in Finance and Insurance for the Hawkes-Based Models

We show how to solve Merton optimal investment stochastic control problem for Hawkes-based models in finance and insurance (Propositions 1 and 2), i.e., for a wealth portfolio X(t) consisting of a bond and a stock price described by general compound Hawkes process (GCHP), and for a capital R(t) (risk process) of an insurance company with the amount of claims described by the risk model based on GCHP. The main approach in both cases is to use functional central limit theorem for the GCHP to approximate it with a diffusion process. Then we construct and solve Hamilton–Jacobi–Bellman (HJB) equation for the expected utility function. The novelty of the results consists of the new Hawkes-based models and in the new optimal investment results in finance and insurance for those models.

The Global Market Portfolio

Two years after the global capital stock report of Gadzinski, Schuller, and Vacchino (2018) and 36 years after the world market wealth portfolio of Ibbotson, Siegel, and Love (1985), investors still lack a global composite portfolio benchmark that includes a broad spectrum of assets with weights in line with a fair representation of the stock of capital for each asset class. Despite ample evidence of the substantial use of alternatives and real assets in institutional portfolios, the authors argue that existing academic and practitioner attempts are still unable to provide a satisfactory approximation of the “true” global market portfolio. The authors fill this gap and provide two benchmarks: one for retail investors constrained by liquidity needs and one for institutional investors with access to illiquid assets. <b>TOPICS:</b>Portfolio construction, real assets/alternative investments/private equity, global markets, performance measurement <b>Key Findings</b> ▪ The authors provide two global market portfolio benchmarks, for retail and institutional investors, based on a measurable global capital stock, which includes 87 existing indices within 11 asset classes. ▪ Their investable global market portfolio is built with ETFs only and is therefore transparent and systematic. The total return index realizes a compounded annual average return of 4.7%, with a standard deviation of 10.1% during the period 2005 Q1–2020 Q2. ▪ Their noninvestable global market portfolio realizes a compounded average return of 5.9%, with a standard deviation of 6.3% and a maximum cumulative drawdown of 20%. Thanks to a better allocation of resources toward real assets, diversification is then achieved and makes their total return index an efficient long-term portfolio benchmark.

Do Employee Share Owners Face Too Much Financial Risk?

A major theoretical objection against employee share ownership is that workers are exposed to excessive financial risk. Theory posits that 10 to 15% of a typical worker’s wealth portfolio can be prudently invested in employer stock. The authors analyze employee share ownership in US family portfolios using the 2004 to 2016 Survey of Consumer Finances. Overall, 15.3% of families with private-sector employees held employer stock in 2016, and one in six of these families exceeded the 15% threshold. Employee share ownership appears to generally add to, rather than substitute for, both pension and overall wealth. Employee share owners express higher risk tolerance and financial knowledge and greater understanding of the value of diversification. While financial risk does not appear to be a substantial problem for most employee share owners, a small minority may face excessive risk, and the authors suggest approaches to reduce such risk.