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Article
Publication date: 8 July 2021

Khaliq Lubza Nihar and Kameshwar Rao Venkata Surya Modekurti

This paper aims to undertake a comprehensive comparative analysis of Sharīʿah-compliant equity investments (SCEIs) and their non-Sharīʿah counterparts, in India…

Abstract

Purpose

This paper aims to undertake a comprehensive comparative analysis of Sharīʿah-compliant equity investments (SCEIs) and their non-Sharīʿah counterparts, in India, conditioning for investment horizon and market volatility. Indirectly, it also investigates for time varying performance of SCEIs, and explicitly analyses the unsystematic risk and related adequacy of returns.

Design/methodology/approach

Testing for statistical significance of differences in risks and returns; analysing portfolio performance using conventional metrics, information ratio, and Jensen's Alpha; Estimating returns due to stock selection and market timing using Fama’s Net Selectivity and Treynor and Mazuy’s Models.

Findings

SCEIs in India do not significantly differ in their total risks and returns compared to their conventional counterparts. While their risk is lower in the monthly and quarterly investment horizons, their Jensen’s Alphas are positive only in the annual investment horizons. These findings hold, when market volatility is low. Market timing wipes out the superior returns that exist due to stock selection in SCEIs.

Research limitations/implications

Being Sharīʿah-compliant is beneficial only in longer investment horizons. Asset selection, not co-movement with the market, is key to excess returns to compensate for risks due to inadequate diversification. However, only cautious market timing can conserve them.

Practical implications

Though investors are not better-off in choosing ethical investments, they are not worse-off either. Being Sharīʿah-compliant is rewarding during less volatile markets.

Originality/value

This paper extends international literature on SCEIs, with evidence on the impact of investment horizon and market volatility on their returns and risks. Further, this paper is also a comprehensive analysis of Indian SCEIs, broadening the empirical evidence on a significant, non-Islamic and emerging market.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 5
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 21 September 2010

Ping He and Xiaoqing Hu

Individuals tend to simplify a complex portfolio decision problem into several manageable dimensions, each of which can frame their perception of risk.We check this view…

Abstract

Individuals tend to simplify a complex portfolio decision problem into several manageable dimensions, each of which can frame their perception of risk.We check this view by studying the effect of investment horizons on households’ portfolio decisions. Using the Survey of Consumer Finances (SCF) data, we find that households allocate more of their wealth in stocks if they report longer planning horizons. The existence of foreseeable expenditure significantly changes the dependence of risky stock investment on the planning horizon.We decompose the reported planning horizon into an objective part and a subjective mental accounting part, and find that the mental accounting part has a greater effect on household portfolio choice. This is consistent with the argument that individuals make investment decisions based on the horizon at which the risk is perceived rather than the horizon at which the investment reward or cash is needed.

Details

Review of Behavioural Finance, vol. 2 no. 2
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 10 April 2017

Kenneth Yung, Diane DeQing Li and Yi Jian

The purpose of this paper is to examine the effects of managerial decision horizon (MDH) on real estate investment trust (REIT) behavior and performance.

Abstract

Purpose

The purpose of this paper is to examine the effects of managerial decision horizon (MDH) on real estate investment trust (REIT) behavior and performance.

Design/methodology/approach

In this study, the authors expand the number of proxies and measure managerial horizon by CEO age, CEO tenure, cash compensation relative to total compensation, and the amount of vested equity-based compensation to total compensation. To avoid potential measurement error, the authors compute the average ranking score of the four individual measures to determine the overall MDH of a CEO. Cross-sectional time series regressions are then performed on the effects of CEO MDH on REIT policies and performance. The authors also examine if the effect of myopic MDH can be mitigated by good corporate governance. For robustness purpose, the authors also compare the effects of age-related MDH and compensation-related MDH.

Findings

The results show that REITs managed by CEOs with short MDHs have lower levels of asset growth and a lower standard deviation of return on assets. These REITs also have lower debt levels, lower dividend payouts, and hold more cash. The results suggest that short-horizon CEOs have incentives to lower investment risk, default risk, and liquidity risk at the firm level in order to protect personal benefits. CEOs with a short horizon also have a negative impact on REIT performance. The results also show that CEO compensation-related horizon problems are mitigated by corporate governance, but CEO age-related horizon problems are significant and persistent. The results suggest that age-related behavioral biases of the CEO are important determinants of corporate decisions.

Practical implications

The results of this study suggest that the managerial behavioral biases should be considered in understanding firm behavior.

Originality/value

This is the first study that examines the effects of MDH on REIT behavior and performance. The unique regulatory environment of REITs makes them less susceptible to agency problems of free cash flow and thus provides a clearer picture of the effect of MDH. Prior studies focus on the effect of managerial horizon on firm investment activity, this study expands the scope to examine the effects on investment and financial policies. In addition, this study adds to the literature by showing that the effect of age-related horizon problems may not be mitigated by good corporate governance.

Details

Review of Behavioral Finance, vol. 9 no. 1
Type: Research Article
ISSN: 1940-5979

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Book part
Publication date: 1 January 2014

Moren Levesque, Phillip Phan, Steven Raymar and Maya Waisman

We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory…

Abstract

We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon problem), R&D projects have very long time horizons (the project horizon problem), the firm’s financial health is deteriorating (the cover-up problem), ownership structure is heavily weighted toward insider owners (minority owner oppression problem), and when the threat of hostile takeover increases (the entrenchment problem). We setup a dynamic simulation model in which rational CEOs maximize the total value of their bonus compensation over their tenure. Our findings related to the five circumstances are consistent with the extant literature. However, we found an unexpected stable, nonlinear (inverted U-shaped) relationship between CEO tenure and R&D investment. We discuss the theoretical implications of our model and offer suggestions for future research.

Details

Corporate Governance in the US and Global Settings
Type: Book
ISBN: 978-1-78441-292-0

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Article
Publication date: 6 June 2016

Anindya Chakrabarty, Rameshwar Dubey and Anupam De

This paper aims to propose an innovative approach to risk measurement for the abolition of selection bias arising from the specious selection of different horizons for…

Abstract

Purpose

This paper aims to propose an innovative approach to risk measurement for the abolition of selection bias arising from the specious selection of different horizons for investment and risk computation of equity-linked-saving schemes (ELSS).

Design/methodology/approach

ELSS has a lock-in period of three years, but shorter horizons’ (daily/weekly/monthly) return data are preferred, in practice, for risk computation. This results in horizon mismatch. This paper studies the consequences of this mismatch and provides a noble solution to diminish its effect on investors’ decision-making. To accomplish this objective, the paper uses an innovative methodology, maximal overlap discrete wavelet transformation, to segregate the price movements across different horizons. Risk across all horizons is measured using Cornish-Fisher expected shortfall and Cornish-Fisher value-at-risk methods.

Findings

The degree of consistency of risk-based rankings across horizons is examined by means of the Spearman and Kendall’s rank correlation tests. The risk-based ranking of ELSS is found to vary significantly with the change in investor’s horizon. Precisely, the rankings formulated using daily net asset values are significantly different from the rankings developed using fluctuations over longer horizons (two-four and four-eight years).

Originality/value

This finding indicates that the ranking exercise may mislead investors if horizon correction is not done while developing such rankings.

Details

International Journal of Innovation Science, vol. 8 no. 2
Type: Research Article
ISSN: 1757-2223

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Article
Publication date: 1 September 2006

Stephen Lee

The usefulness of ex‐post data as a proxy for ex‐ante returns in the portfolio problem rests on the stability of the co‐movement between returns. Yet despite its…

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744

Abstract

Purpose

The usefulness of ex‐post data as a proxy for ex‐ante returns in the portfolio problem rests on the stability of the co‐movement between returns. Yet despite its importance, this issue has not received sufficient examination in the financial literature, particularly in the direct real estate market. This study aims to address this issue.

Design/methodology/approach

To examine the temporal stability of covariance and correlation matrices and individual correlation coefficients this paper uses the Box M tests and the methodology of Shaked using monthly real estate data in the UK over the period 1987 to 2002 and four investment horizons.

Findings

The Box M tests reveal that the covariance and correlation matrices both display temporal instability. This suggests that the returns between real estate returns are unstable over time and so provide poor estimates in the ex‐ante modelling process. The analysis also indicates that the covariance matrices are less stable than the corresponding correlation matrices. Nonetheless, when we tested the stability of individual correlation coefficients using the methodology of Shaked we find that stability increases consistently and substantially with the lengthening of the investment horizon and holding period.

Practical implications

Thus, for all practical purposes the pair‐wise correlation between real estate returns can be considered nearly stationary in the long run. This implies that investors can use ex‐post data as a proxy for ex‐ante data in portfolio models especially if longer investment horizons are used to estimate the parameters.

Originality/value

This study is the first to examine temporal co‐movements between UK real estate returns in a portfolio context over different investment horizons.

Details

Journal of Property Investment & Finance, vol. 24 no. 5
Type: Research Article
ISSN: 1463-578X

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Book part
Publication date: 30 November 2011

Massimo Guidolin

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models…

Abstract

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

Details

Missing Data Methods: Time-Series Methods and Applications
Type: Book
ISBN: 978-1-78052-526-6

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Article
Publication date: 10 July 2007

Pin‐Huang Chou, Wen‐Shen Li, S. Ghon Rhee and Jane‐Sue Wang

The main purpose of this study is to examine whether macroeconomic variables could subsume the size and book‐to‐market (BM) anomalies for longer‐return intervals using…

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1554

Abstract

Purpose

The main purpose of this study is to examine whether macroeconomic variables could subsume the size and book‐to‐market (BM) anomalies for longer‐return intervals using Tokyo Stock Exchange‐listed stocks.

Design/methodology/approach

The Fama‐MacBeth cross‐sectional regressions of various models over time‐intervals ranging from one month to one year are performed.

Findings

The empirical results show that most macroeconomic variables explain short‐term returns within six months, with the industrial production as the only variable that persistently explains returns of all horizons ranging from one month to one year. Firm size does bear significant risk premium, but its significance diminishes for return‐intervals beyond three months when macroeconomic variables are included in the regression. BM is the only variable that significantly accounts for the cross‐section of stock returns for all horizons, regardless of the inclusion of macroeconomic variables.

Research limitations/implications

These empirical findings suggest that stock returns are determined by both rational factors such as macroeconomic variables and behavioral factors such as BM.

Practical implications

The findings suggest that potential trading strategies indeed can be formed to exploit the persistent predictability, especially the BM regularity.

Originality/value

This paper is the first study that examines the competing explanatory power of various asset‐pricing models over different investment horizons.

Details

Managerial Finance, vol. 33 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 16 April 2018

Jesper Normann Asmussen, Jesper Kristensen, Kenn Steger-Jensen and Brian Vejrum Wæhrens

Significant transitions in firms (e.g. outsourcing) may impact the relative importance of production and inventory assets, affecting the hierarchical separation of…

Abstract

Purpose

Significant transitions in firms (e.g. outsourcing) may impact the relative importance of production and inventory assets, affecting the hierarchical separation of planning decisions. The purpose of this paper is to contribute to planning literature by investigating how the production system and the planning environment influence the performance difference between hierarchical and monolithic planning. Further, it seeks to reduce the prevailing theory-practice gap in tactical planning.

Design/methodology/approach

Through an action research study, a monolithic model integrating tactical production planning decisions, subject to upstream supply chain constraints, with strategic investments decisions was developed, tested and implemented in a global OEM. Using the developed model and a measure of the capital cost of production assets relative to the cost of holding inventory, it is numerically examined how the production system and planning environment influence the performance of hierarchical and monolithic planning.

Findings

The research demonstrates the potential of integrating decisions and reveals significant performance differences between hierarchical and monolithic planning for firms with low capital cost relative to inventory holding cost.

Research limitations/implications

The findings suggest a fit between planning processes, the production system and planning environment. Future research should empirically validate the findings and propositions.

Originality/value

The paper combine capital investments and production planning decisions, which usually transpire at different hierarchical levels and on different time-horizons, and investigates the consequences of hierarchical separation through a real-life validated case and numerical analysis.

Details

International Journal of Physical Distribution & Logistics Management, vol. 48 no. 5
Type: Research Article
ISSN: 0960-0035

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Article
Publication date: 1 January 2007

Carol Matheson Connell

The article looks at how companies pursuing a three‐horizon growth strategy weathered the last economic downturn and what became of their growth initiatives.

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3808

Abstract

Purpose

The article looks at how companies pursuing a three‐horizon growth strategy weathered the last economic downturn and what became of their growth initiatives.

Design/methodology/approach

The paper examines the financial performance and continued investment of three growing companies from 1996‐2004: Bombardier (Canada), Hutchison Whampoa (Hong Kong/China) and Disney (US).

Findings

The Bombardier, Disney and Hutchison Whampoa cases teach a powerful lesson about the importance of using investment in growth to manage uncertainty and limit downside risk.

Research limitations/implications

While the focus of this article is on three companies only, the financial performances of a dozen other growing firms are examined over the same period for purposes of comparison.

Practical implications

Following the last downturn, companies sought to preserve the core and outsource non‐critical functions to reduce the cost of business. Some chose to sideline growth initiatives during this period. This article analyzes the outcomes for three companies that continued to invest in growth during and after this period.

Originality/value

This article addresses a series of questions. Is a three‐horizon growth strategy sustainable in a downturn? Have companies that pursued a three‐horizon strategy actually grown? Do they continue to finance the growth of horizon two and horizon three businesses? Have any viable options matured?

Details

Business Strategy Series, vol. 8 no. 1
Type: Research Article
ISSN: 1751-5637

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