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Article
Publication date: 1 April 2006

William Forbes, Carel Huijgen and Auke Plantinga

This paper seeks to investigate the usefulness of analysts’ earnings forecast revisions in the allocation of funds to different industries and countries. In particular, it asks…

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Abstract

Purpose

This paper seeks to investigate the usefulness of analysts’ earnings forecast revisions in the allocation of funds to different industries and countries. In particular, it asks whether a post analyst revision announcement drift in prices can be exploited to guide an asset allocation strategy based on industry, or country, selection.

Design/methodology/approach

The methodolgy is to use monthly consensus I/B/E/S – First Call analysts’ earnings forecasts for companies listed on the main European stock markets over the period January 1987 to December 2001.

Findings

It is found that a significant post revision announcement effect for individual companies. However, the abnormal returns evaporate away as the research moves from an individual company level to an industry or country level. The paper provides two kinds of evidence which seem to cast doubt on the analysts’ ability to fully incorporate industry and country specific information into their forecasts: returns are driven more by common components than earnings forecast revisions, and company specific news reflected by the revision signal dominates industry or country news.

Originality/value

Locates the origin of stock price momentum strategies in news about earnings reflected in analysts’ forecasts revisions.

Details

Managerial Finance, vol. 32 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 16 May 2016

Christian Fieberg, Thorsten Poddig and Armin Varmaz

In capital markets, research risk factor loadings and characteristics are considered as opposing explanations for the cross-sectional dispersion in average stock returns. However…

Abstract

Purpose

In capital markets, research risk factor loadings and characteristics are considered as opposing explanations for the cross-sectional dispersion in average stock returns. However, there is little known about the performance an investor would obtain who believes either in the characteristics explanation (CB-investor) or in the risk factor loadings explanation (RB-investor). The purpose of this paper is to compare the performance of CB- and RB-investors.

Design/methodology/approach

To compare the competing strategies, the authors propose a simple new approach to equity portfolio optimization in the style of Brandt et al. (2009) by modeling the portfolio weight in each asset as a function of the asset's risk factor loadings or characteristics. The authors perform an empirical analysis on the German stock market, exploiting the risk factor loadings from the Carhart (1997) four-factor model and the respective characteristics size, book-to-market equity ratio and momentum.

Findings

The results show that investment strategies relying on characteristics (particularly on momentum) outperform risk-based investment strategies in horse races. These findings hold in- and out-of-sample. Furthermore, the characteristics-based investment strategies outperform a value-weighted market portfolio strategy in- and out-of-sample.

Originality/value

The authors introduce a portfolio optimization approach that enables investors to directly link portfolio decisions to the firm’s characteristics or risk factor loadings.

Details

The Journal of Risk Finance, vol. 17 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Abstract

Details

Investment Traps Exposed
Type: Book
ISBN: 978-1-78714-253-4

Article
Publication date: 13 February 2017

Paolo Zagaglia

The purpose of this paper is to study the scope for country diversification in international portfolios of mutual funds for the “core” EMU countries. The author uses a sample of…

Abstract

Purpose

The purpose of this paper is to study the scope for country diversification in international portfolios of mutual funds for the “core” EMU countries. The author uses a sample of daily returns for country indices of French, German and Italian funds to investigate the quest for international diversification. The author focuses on fixed-income mutual funds during the period of the financial market turmoil since 2007.

Design/methodology/approach

The author compute optimal portfolio allocations from both unconstrained and constrained mean-variance frameworks that take as input the out-of-sample forecasts for the conditional mean, volatility and correlation of country-level indices for funds returns. The author also applies a portfolio allocation model based on utility maximization with learning about the time-varying conditional moments. The author compares the out-of-sample forecasting performance of 12 multivariate volatility models.

Findings

The author finds that there is a “core” EMU country also for the mutual fund industry: optimal portfolios allocate the largest portfolio weight to German funds, with Italian funds assigned a lower weight in comparison to French funds. This result is remarkably robust across competing forecasting models and optimal allocation strategies. It is also consistent with the findings from a utility-maximization model that incorporates learning about time-varying conditional moments.

Originality/value

This is the first study on optimal country-level diversification for a mutual fund investor focused on European countries in the fixed-income space for the turmoil period. The author uses a large array of econometric models that captures the salient features of a period characterized by large changes in volatility and correlation, and compare the performance of different optimal asset allocation models.

Details

Managerial Finance, vol. 43 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 4 March 2008

Wan-Jiun Paul Chiou

This chapter investigates the relative magnitude of the benefits of global diversification from the viewpoint of domestic investors in various countries by forming time-rolling…

Abstract

This chapter investigates the relative magnitude of the benefits of global diversification from the viewpoint of domestic investors in various countries by forming time-rolling efficient frontiers. To enhance feasibility of asset allocation strategies, the constraints of short-sales and over-weighting investments are taken into account. The empirical results suggest that local investors in less developed countries, particularly in Latin America, East Asia, and Southern Europe, comparatively benefit more from global diversification. Investors in the countries of civic-law origin tend to benefit more from global investment than the ones in the common-law states. Although the global market has become more integrated over the past decades, diversification benefits for domestic investors declined but did not vanish. The results of this chapter are useful for asset management professionals to determine target markets to promote the sales of international funds.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-549-9

Abstract

Details

Investment Traps Exposed
Type: Book
ISBN: 978-1-78714-253-4

Article
Publication date: 1 July 2006

Kim Hin/David Ho, Seow Eng Ong and Tien Foo Sing

The purpose of this paper is to conceptualise a workable strategic asset allocation (SAA) model, given the data paucity problem, and involve an ex ante framework that is…

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Abstract

Purpose

The purpose of this paper is to conceptualise a workable strategic asset allocation (SAA) model, given the data paucity problem, and involve an ex ante framework that is distributional free.

Design/methodology/approach

The SAA model is developed within a semi‐quantitative and expert‐based framework – the analytic hierarchy process (AHP) – and not a purely time‐series one. It is developed on the basis of consensus by a group of real estate investment experts, who agree on a fixed investment time horizon so that the time factor is disregarded as a variant. The SAA becomes the interface around which a set of tactical bands is imposed, subject to the Markowitz mean‐variance optimisation, and utilizing the total‐return data set of the Jones Lang LaSalle Real Estate Intelligence Service‐Asia. The lower and upper limits of the tactical bands represent the cyclical attractiveness of the various Asian office markets as growth and value‐added markets

Findings

The SAA‐AHP model robustly reflects expert judgement among a cohesive group of real estate investment experts, with regard to a Pan‐Asia office market portfolio of eight major Asian cities. Through pair‐wise comparisons and subject to consistency checks in terms of the consistency ratio of <0.10, then the comparative expert assessment of the macro‐economic and the real estate specific factors driving individual Asian real estate markets, would be consistent (i.e. non conflicting). Then the total weighted evaluations of individual markets are derived and deployed as the SAA portfolio mix. This portfolio mix thus becomes the appropriate interface, around which the tactical asset allocation (TAA) is developed within defined tactical bands. These bands must be in line with the underlying Asian real estate market analysis and their cyclical positions. The TAA is obtained through the Markowitz mean‐variance portfolio optimisation, with the objective of locating the optimally efficient TAA on the Markowitz efficient frontier, under a maximising risk‐adjusted‐return Sharpe ratio.

Originality/value

The SAA‐AHP model is reliant on an ex ante assessment of alternative asset allocation strategies on the basis of expert judgement of the macroeconomic environment and the Asian office markets. It is an appropriate SAA alternative to one based on the typical economic‐sized indicators, for example, the urban GDP.

Details

Journal of Property Investment & Finance, vol. 24 no. 4
Type: Research Article
ISSN: 1463-578X

Keywords

Content available
Book part
Publication date: 16 April 2020

H. Kent Baker, John R. Nofsinger and Andrew C. Spieler

Abstract

Details

The Savvy Investor's Guide to Building Wealth Through Traditional Investments
Type: Book
ISBN: 978-1-83909-608-2

Article
Publication date: 1 January 2005

David Camilleri, Mohammad Iqbal Tahir and Samuel Wang

The purpose of this study is to provide further evidence on the importance of international diversification, and to determine the optimal allocation of assets in a portfolio…

Abstract

The purpose of this study is to provide further evidence on the importance of international diversification, and to determine the optimal allocation of assets in a portfolio comprising domestic (Australian) and international assets. The study focuses on stock index futures contracts in five countries ‐ Australia, USA, UK, Hong Kong and Japan. Daily data for the five selected contracts over the period from 1 January 1990 to 31 December 2000 is employed in the study. Consistent with previous studies, the results confirm the importance of international diversification and indicate that the portfolio risk is reduced considerably when more international assets are added sequentially to the portfolio. Empirical analysis also shows that the optimal asset allocation results in higher risk reduction and better returns when compared with an equally weighted portfolio.

Details

Asian Review of Accounting, vol. 13 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Abstract

Several popular and academic pieces of late have expressed concerns regarding the sustainability of public defined benefit pension funds. Since the onset of the Great Recession, concern has increased. In this paper recent arguments are analyzed in the context of three related data sets: panel data on public sector pensions spanning 2001-2009, historic asset return data, and business cycle data. Findings generally indicate that while public sector plans have suffered a difficult decade, current anxieties may be somewhat overwrought. Several remedial policies are investigated. Remedial policies, such as improving plan administration, altering portfolio allocations, and increasing both employee and employer contributions, are observed to be more promising than either freezing or closing the funds.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 25 no. 2
Type: Research Article
ISSN: 1096-3367

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