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1 – 10 of 27Hussein Abdoh and Oscar Varela
This study aims to investigate the effect of product market competition on the exposure of firms’ returns to consumption fluctuations (C-CAPM beta).
Abstract
Purpose
This study aims to investigate the effect of product market competition on the exposure of firms’ returns to consumption fluctuations (C-CAPM beta).
Design/methodology/approach
The C-CAPM beta comes from a regression of a stock’s returns against consumption growth, with controls for the Fama–French three factors and momentum. The Herfindahl–Hirschman index of concentration measures competition, with other measures like deregulation and tariff reductions used for robustness tests. Industries are categorized using different SIC digits, with the NAICS measure used for robustness tests. The C-CAPM beta is regressed to competition, with appropriate control variables, to find its relationship.
Findings
Higher levels of competition reduces the C-CAPM beta. The results are consistently robust to different measures of product market competition and industry identification.
Practical implications
Product market competition influences the sensitivity of systematic risk, as measured by the C-CAPM beta, to consumption, such that higher levels of competition reduce systematic risk.
Originality/value
This research contributes to a literature that admittedly is still murky, as the relationship between competition and systematic risk is still unsettled. No study (to the authors’ knowledge) examines the effect of competition on firms’ exposure to consumption. This research adds to the literature on the role of competition in risk, specifically with respect to consumption.
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Peter J. Phillips, Michael Baczynski and John Teale
The purpose of this paper is to determine whether self‐managed superannuation fund (SMSF) trustees earn: the equity risk premium or any premium to the riskless rate of interest.
Abstract
Purpose
The purpose of this paper is to determine whether self‐managed superannuation fund (SMSF) trustees earn: the equity risk premium or any premium to the riskless rate of interest.
Design/methodology/approach
Using a sample of 100 SMSFs, the average annual returns since inception of the funds in the sample are compared with: the average annual equity risk premium since that time and the average yield of Commonwealth Government Securities since that time.
Findings
The investigation reveals: the SMSFs in the sample do not earn the equity risk premium and the SMSFs in the sample did not earn a premium to riskless rate of interest. This leads to the conclusion that the SMSFs have borne risk without commensurate reward. Research limitations/implications – The trustees' rationale for making particular investment decisions and the consistency of the portfolio structures with the risk profiles of the trustees are two areas that may be fruitfully explored in future research.
Practical implications
For SMSF trustees, a simple portfolio that divides assets between (unmanaged) index funds and risk‐free securities on the basis of trustees' risk aversion may generate better results than the existing portfolios. For policy makers, the relatively poor performance of SMSFs implies that the superannuation system as currently structured may not be generating returns that will maximize retirement incomes.
Originality/value
The paper provides the first comparison of SMSF returns with the equity risk premium and the riskless rate of interest measured at appropriate horizons.
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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 relationships…
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.
Savva Shanaev, Nikita Shimkus, Binam Ghimire and Satish Sharma
The purpose of this paper is to study LEGO sets as a potential alternative asset class. An exhaustive sample of 10,588 sets is used to generate inferences regarding long-term LEGO…
Abstract
Purpose
The purpose of this paper is to study LEGO sets as a potential alternative asset class. An exhaustive sample of 10,588 sets is used to generate inferences regarding long-term LEGO performance, its diversification benefits and return determinants.
Design/methodology/approach
LEGO set performance is studied in terms of equal- and value-weighted portfolios, sorts based on set characteristics and cross-sectional regressions.
Findings
Over 1966–2018, LEGO value-weighted index accounted for survivorship bias enjoys 1.20% inflation-adjusted return per annum, well below 5.54% for equities. However, the defensive properties of LEGO are considerable, as including 5%–25% of LEGO in a diversified portfolio is beneficial for investors with varying levels of risk aversion. LEGO secondary market is relatively internationalised, with investors from larger economies, countries with higher per capita incomes and less income inequality are shown to trade LEGO more actively.
Practical implications
LEGO investors derive non-pecuniary utility that is separable from their risk-return profile. LEGO is not exposed to any of the Fama-French factors, however, set-specific size and value effects are also well-pronounced on the LEGO market, with smaller sets and sets with lower price-to-piece ratio exhibiting higher yields. Older sets are also enjoying higher returns, demonstrating a liquidity effect.
Originality/value
This is the first study to investigate the investment properties of LEGO as an alternative asset class from micro- and macro-financial perspectives that overcomes many survivorship bias limitations prevalent in earlier research. LEGO trading is shown to be an important source of valuable data to enable original robustness checks for prominent theoretical concepts from asset pricing and behavioural finance literature.
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Dimitra Papadovasilaki, Federico Guerrero, James Sundali and Gregory Stone
– The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting.
Abstract
Purpose
The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting.
Design/methodology/approach
In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods.
Findings
The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom.
Originality/value
To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.
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Nikolaos G. Theriou, Dimitrios I. Maditinos, Prodromos Chadzoglou and Vassilios Anggelidis
This paper explores the ability of the capital asset pricing model, as well as the firm specific factors, to explain the cross‐sectional relationship between average stock returns…
Abstract
This paper explores the ability of the capital asset pricing model, as well as the firm specific factors, to explain the cross‐sectional relationship between average stock returns and risk in Athens Stock Exchange (ASE). The objective of this study is to investigate the cross‐section of stock returns in the Greek stock market for the period from July 1993 to June 2001. A methodology similar to that of Fama and French (1992) is employed, by taking into account the constraints imposed by a smaller sample both in time and in terms of number of stocks. Our findings indicate that in the Greek stock market there is not a positive relation between risk, measured by β, and average returns. On the other hand, there is a “size effect” on the cross‐sectional variation in average stock returns.
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Khalid Almarri and Halim Boussabaine
The level at which risk is priced and the magnitude of risks transferred to the private sector will have a significant impact on the cost of the public–private partnership (PPP…
Abstract
Purpose
The level at which risk is priced and the magnitude of risks transferred to the private sector will have a significant impact on the cost of the public–private partnership (PPP) deals as well as on the value for money analysis and on the section of the optimum investment options. The price of risk associated with PPP schemes is complex, dynamic and continuous throughout the concession agreement. Risk allocation needs to be re-evaluated to ensure the optimum outcome of the PPP contract.
Design/methodology/approach
This paper provides a coherent theoretical framework for dealing with scenarios of potential gain and loss from retaining or transferring risks.
Findings
The outcome indicates that using the proposed framework will provide innovative ways of deriving risk prices in PPP projects using several risk determinants strategies.
Practical implications
In costing risks, analysts have to take into consideration the balance between the cost of risk transfer and the cost of losses if risk is retained.
Originality/value
This paper contributes to the PPP literature and practice by proposing a framework which is consistent with a risk allocation approach in PPP projects, where the key proposition is that risk pricing can overload project debt leading to loss of value.
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Alessandro Bucciol, Federico Guerrero and Dimitra Papadovasilaki
The purpose of this paper is to study the relationship between financial risk-taking and trait emotional intelligence (EI).
Abstract
Purpose
The purpose of this paper is to study the relationship between financial risk-taking and trait emotional intelligence (EI).
Design/methodology/approach
An incentivized online survey was conducted to collect the data, including measurements for cognitive ability and socio-demographic characteristics.
Findings
There is a positive correlation between trait EI and financial risk-taking that is at least as large as that between risk-taking and measures of cognitive control (CRT). Trait EI is a key determinant of risk-taking. However, not all components of trait EI play an identical role. In fact, we observe positive effects of well-being, mainly driven by males and sociability. Self-control seems to matter only for males.
Research implications/limitations
This study suffers from the bias of self-reported answers, a common limitation of all survey studies.
Practical implications
This evidence provides a noncognitive explanation for the typically observed heterogeneity of financial risk-taking, in addition to more established explanations linked to cognitive skills. Investor profiles should be also determined on their trait EI.
Social implications
Governments should start programs meant to improve the level of trait EI to ameliorate individual wealth outcomes. Female investors participation in the financial markets might increase by fostering their sociability.
Originality/value
The relationship between trait EI and each of its components with financial risk-taking is vastly unexplored, while it is the first time that gender effects are discussed in that set up.
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This paper aims to examine the relationship between the conditional variance of the factors from the Fama–French three‐factor model and macroeconomic risk, where macroeconomic…
Abstract
Purpose
This paper aims to examine the relationship between the conditional variance of the factors from the Fama–French three‐factor model and macroeconomic risk, where macroeconomic risk is proxied by the conditional variance for a default risk premium and real gross domestic product (GDP) growth.
Design/methodology/approach
A generalised autoregressive conditional heteroscedastic model is used to generate the conditional volatilities and bivariate Granger causality tests are used to examine the empirical relationship between the risk measures.
Findings
Past values of the conditional variance for a default risk premium have information that is precedent to the conditional volatility for value premium and the small stock risk premium, and the conditional variance for the market risk premium has information about the future volatility of macroeconomic risk, as proxied by the conditional variance for GDP growth.
Research limitations/implications
The implications are that conditional volatility associated with default is related to current and future volatility in value premium; however, volatility associated with the market risk premium appears to be a predictor of future macroeconomic risk. A caveat is that the results are dependent on the proxies used for macroeconomic risk and more refined measures of macroeconomic risk may yield different results.
Practical implications
This paper suggests that examination of the relationship between the volatility of macroeconomic factors and the explanatory factors in asset‐pricing models will help to further understanding of the relationship between risk and expected return.
Originality/value
This paper focuses directly on the links between risk associated with the Fama–French factors and macroeconomic risk. This added knowledge is beneficial to practitioners and academics whose interest lies in asset price modelling.
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