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Book part
Publication date: 30 September 2014

Karina Doorley and Eva Sierminska

Using harmonized wealth data and a novel decomposition approach in this literature, we show that cohort effects exist in the income profiles of asset and debt portfolios…

Abstract

Using harmonized wealth data and a novel decomposition approach in this literature, we show that cohort effects exist in the income profiles of asset and debt portfolios for a sample of European countries, the United States, and Canada. We find that the association between household wealth portfolios at the intensive margin (the level of assets) and household characteristics is different from that found at the extensive margin (the decision to own). Characteristics explain most of the cross-country differences in asset and debt levels, except for housing wealth, which displays large unexplained differences for both the under-50 and over-50 populations. However, there are cohort differences in the drivers of wealth levels. We observe that younger households’ levels of wealth, given participation, may be more responsive to the institutional setting than mature households. Our findings have important implications, indicating a scope for policies which can promote or redirect investment in housing for both cohorts and which promote optimal portfolio allocation for mature households.

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Economic Well-Being and Inequality: Papers from the Fifth ECINEQ Meeting
Type: Book
ISBN: 978-1-78350-556-2

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Article
Publication date: 29 May 2018

Doron Nisani

The purpose of this paper is to increase the accuracy of the efficient portfolios frontier and the capital market line using the Riskiness Index.

Abstract

Purpose

The purpose of this paper is to increase the accuracy of the efficient portfolios frontier and the capital market line using the Riskiness Index.

Design/methodology/approach

This paper will develop the mean-riskiness model for portfolio selection using the Riskiness Index.

Findings

This paper’s main result is establishing a mean-riskiness efficient set of portfolios. In addition, the paper presents two applications for the mean-riskiness portfolio management method: one that is based on the multi-normal distribution (which is identical to the MV model optimal portfolio) and one that is based on the multi-normal inverse Gaussian distribution (which increases the portfolio’s accuracy, as it includes the a-symmetry and tail-heaviness features in addition to the scale and diversification features of the MV model).

Research limitations/implications

The Riskiness Index is not a coherent measurement of financial risk, and the mean-riskiness model application is based on a high-order approximation to the portfolio’s rate of return distribution.

Originality/value

The mean-riskiness model increases portfolio management accuracy using the Riskiness Index. As the approximation order increases, the portfolio’s accuracy increases as well. This result can lead to a more efficient asset allocation in the capital markets.

Details

Studies in Economics and Finance, vol. 35 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 22 February 2011

Cláudio de Araújo Wanderley, John Cullen and Mathew Tsamenyi

The paper seeks to examine the evolution of regulatory accounting within the context of the Brazilian electricity sector reforms. The paper traces the process of the…

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Abstract

Purpose

The paper seeks to examine the evolution of regulatory accounting within the context of the Brazilian electricity sector reforms. The paper traces the process of the reforms and the development of the regulatory accounting system.

Design/methodology/approach

The paper is based on data collected from various documents including those published by the regulator (such as laws, resolutions and technical notes), as well as information from distribution companies and other government agencies.

Findings

It is found that regulatory accounting played different roles under the different electricity sector reforms implemented in Brazil. For example, regulatory accounting was minimally used during the first reform, and this brought a range of problems of implementation and consolidation of the electricity sector model. However, regulatory accounting played an essential role in the regulatory framework under the second reform, and this in part contributed to addressing some of the problems of the sector.

Originality/value

This is the first study that describes and explains the Brazilian electricity sector reforms by analysing the so‐called core issues in regulatory accounting and tariff review process. The paper contributes to the literature by providing a broader picture of the interconnection between regulatory accounting and the regulator's objectives.

Details

Journal of Accounting in Emerging Economies, vol. 1 no. 1
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 17 August 2015

Pankaj Sinha and Shalini Agnihotri

This paper aims to investigate the effect of non-normality in returns and market capitalization of stock portfolios and stock indices on value at risk and conditional VaR…

Abstract

Purpose

This paper aims to investigate the effect of non-normality in returns and market capitalization of stock portfolios and stock indices on value at risk and conditional VaR estimation. It is a well-documented fact that returns of stocks and stock indices are not normally distributed, as Indian financial markets are more prone to shocks caused by regulatory changes, exchange rate fluctuations, financial instability, political uncertainty and inadequate economic reforms. Further, the relationship of liquidity represented by volume traded of stocks and the market risk calculated by VaR of the firms is studied.

Design/methodology/approach

In this paper, VaR is estimated by fitting empirical distribution of returns, parametric method and by using GARCH(1,1) with Student’s t innovation method.

Findings

It is observed that both the stocks, stock indices and their residuals exhibit non-normality; therefore, conventional methods of VaR calculation are not accurate in real word situation. It is observed that parametric method of VaR calculation is underestimating VaR and CVaR but, VaR estimated by fitting empirical distribution of return and finding out 1-a percentile is giving better results as non-normality in returns is considered. The distributions fitted by the return series are following Logistic, Weibull and Laplace. It is also observed that VaR violations are increasing with decreasing market capitalization. Therefore, we can say that market capitalization also affects accurate VaR calculation. Further, the relationship of liquidity represented by volume traded of stocks and the market risk calculated by VaR of the firms is studied. It is observed that the decrease in liquidity increases the value at risk of the firms.

Research limitations/implications

This methodology can further be extended to other assets’ VaR calculation like foreign exchange rates, commodities and bank loan portfolios, etc.

Practical implications

This finding can help risk managers and mutual fund managers (as they have portfolios of different assets size) in estimating VaR of portfolios with non-normal returns and different market capitalization with precision. VaR is used as tool in setting trading limits at trading desks. Therefore, if VaR is calculated which takes into account non-normality of underlying distribution of return then trading limits can be set with precision. Hence, both risk management and risk measurement through VaR can be enhanced if VaR is calculated with accuracy.

Originality/value

This paper is considering the joint issue of non-normality in returns and effect of market capitalization in VaR estimation.

Details

Journal of Indian Business Research, vol. 7 no. 3
Type: Research Article
ISSN: 1755-4195

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Article
Publication date: 28 March 2018

Xiaoping Li and Chunyang Zhou

The purpose of this paper is to solve the optimal dynamic portfolio problem under the double-exponential jump diffusion (DEJD) distribution, which can allow the asset

Abstract

Purpose

The purpose of this paper is to solve the optimal dynamic portfolio problem under the double-exponential jump diffusion (DEJD) distribution, which can allow the asset returns to jump asymmetrically.

Design/methodology/approach

The authors solve the problem by solving the HJB equation. Meanwhile, in the presence of jump component in the asset returns, the investor may suffer a large loss due to high leveraged position, so the authors impose the short-sale and borrowing constraints when solving the optimization problem.

Findings

The authors provide sufficient conditions such that the optimal solution exists and show theoretically that the optimal risky asset weight is an increasing function of jump-up probability and average jump-up size and a decreasing function of average jump-down size.

Research limitations/implications

In this study, the authors assume that the jump-up and jump-down intensities are constant. In the future, the authors will relax the assumption and allows the jump intensities to be time varying.

Practical implications

Empirical studies based on Chinese Shanghai stock index data show that the jump distribution of Shanghai index returns is asymmetric, and the DEJD model can fit the data better than the log-normal jump-diffusion model. The numerical results are consistent with the theoretical prediction, and the authors find that the less risk-averse investor will suffer more economic cost if ignoring asymmetric jump distribution.

Originality/value

This study first examines how asymmetric jumps affect the investor’s portfolio allocation.

Details

China Finance Review International, vol. 8 no. 4
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 14 November 2016

Nazrul Hazizi Noordin, Muhammad Issyam Ismail, Muhammad Abd Hadi Abd Rahman, Siti Nurah Haron and Adam Abdullah

This paper aims to re-evaluate and thus recommends possible ways in improving the current practice of hibah trust in Malaysia.

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2440

Abstract

Purpose

This paper aims to re-evaluate and thus recommends possible ways in improving the current practice of hibah trust in Malaysia.

Design/methodology/approach

This study conducts a thorough and critical review on relevant literature on Islamic wealth management and estate distribution. Besides, the current practice and application of hibah trust by the Malaysian trustee companies such as Amanah Raya Berhad and As-Salihin Trustee Berhad is analyzed based on information gathered from their publications and direct consultation.

Findings

Based on the comparison made between hibah trust and its conventional counterpart, living trust, this study found that that the hibah trust product mirrors the conventional living trust, which provides a high degree of freedom to the benefactor to decide on the distribution of his wealth without taking into consideration the interest of the eligible heirs under farai’d. Nevertheless, it is undeniable that the practice of hibah trust would be able to expedite the lengthy and complex procedures of inheritance, reduce administrative costs and avoid legal impediments and inheritance tax.

Practical implications

This paper proposes a comprehensive framework for an improved asset distribution under hibah trust within the Malaysian Islamic wealth management industry by highlighting the significance of fara’id and wasiyyah rules. This proposed framework of hibah trust would become a useful reference for the policy makers in designing a dedicated regulation or legal provisions in the established laws that will govern the practice of hibah trust in Malaysia.

Originality/value

The novelty of this paper lies in highlighting the importance of adhering to the law of Islamic inheritance rules as ordained by Allah s.w.t in structuring contemporary Islamic estate planning instruments such as hibah trust, which is not evident in the current practice.

Details

Humanomics, vol. 32 no. 4
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 1 May 1980

David Ray, John Gattorna and Mike Allen

Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of these…

Abstract

Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of these—DISTRIBUTION. The particular focus is on reviewing current practice in distribution costing and on attempting to push the frontiers back a little by suggesting some new approaches to overcome previously defined shortcomings.

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International Journal of Physical Distribution & Materials Management, vol. 10 no. 5/6
Type: Research Article
ISSN: 0269-8218

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Book part
Publication date: 1 January 2008

Veni Arakelian and Efthymios G. Tsionas

In this paper we take up Bayesian inference for the consumption capital asset pricing model. The model has several econometric complications. First, it implies exact…

Abstract

In this paper we take up Bayesian inference for the consumption capital asset pricing model. The model has several econometric complications. First, it implies exact relationships between asset returns and the endowment growth rate that will be rejected by all possible realizations. Second, it was thought before that it is not possible to express asset returns in closed form. We show that Labadie's (1989) solution procedure can be applied to obtain asset returns in closed form and, therefore, it is possible to give an econometric interpretation in terms of traditional measurement error models. We apply the Bayesian inference procedures to the Mehra and Prescott (1985) dataset, we provide posterior distributions of structural parameters and posterior predictive asset return distributions, and we use these distributions to assess the existence of asset returns puzzles. The approach developed here, can be used in sampling theory and Bayesian frameworks alike. In fact, in a sampling-theory context, maximum likelihood can be used in a straightforward manner.

Details

Bayesian Econometrics
Type: Book
ISBN: 978-1-84855-308-8

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Article
Publication date: 1 February 2001

J.V. ANDERSEN and D. SORNETTE

In the real world, the variance of portfolio returns provides only a limited quantification of incurred risks, as the distributions of returns have “fat tails” and the…

Abstract

In the real world, the variance of portfolio returns provides only a limited quantification of incurred risks, as the distributions of returns have “fat tails” and the dependence between assets are only imperfectly accounted for by the correlation matrix. Value‐at‐risk and other measures of risks have been developed to account for the larger moves allowed by non‐Gaussian distributions. In this article, the authors distinguish “small” risks from “large” risks, in order to suggest an alternative approach to portfolio optimization that simultaneously increases portfolio returns while minimizing the risk of low frequency, high severity events. This approach treats the variance or second‐order cumulant as a measure of “small” risks. In contrast, higher even‐order cumulants, starting with the fourth‐order cumulant, quantify the “large” risks. The authors employ these estimates of portfolio cumulants based on fat‐tailed distributions to rebalance portfolio exposures to mitigate large risks.

Details

The Journal of Risk Finance, vol. 2 no. 3
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 March 1976

David Ray

Business Risk Business risk is the risk, facing the investor, that a company's management will be able to generate sufficient net operating profit, after tax and before…

Abstract

Business Risk Business risk is the risk, facing the investor, that a company's management will be able to generate sufficient net operating profit, after tax and before payment of fixed interest. The bottom line profit, i.e. net of interest, takes into account financial risk as well; however here we are not concerned with the financial gearing of the company, but solely in assessing business risk.

Details

International Journal of Physical Distribution, vol. 6 no. 5
Type: Research Article
ISSN: 0020-7527

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