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1 – 10 of over 26000Khaliq 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, conditioning for…
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.
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Hilal Anwar Butt, Mohsin Sadaqat and Muhammad Tahir
The main purpose of this study is to enunciate the underlying factors that enhance the performance of scaled momentum strategies.
Abstract
Purpose
The main purpose of this study is to enunciate the underlying factors that enhance the performance of scaled momentum strategies.
Design/methodology/approach
In previous studies, the negative relationship between the lagged volatility and future return of momentum strategy is exploited to manage the risk. But this negative relationship only holds when volatility is higher, further the volatility is shown to be persistent. The implication of these two characteristics is important and this paper highlights that.
Findings
The higher performance of the scaled momentum strategies for the US market is linked with the length of the investment horizon. The traditional asset pricing models fail to explain this relationship. However, the authors find that the excess variance loaded on the long side of these strategies is one important explanation of this horizon bound performance of these strategies.
Practical implications
This study highlights that the volatility scaled momentum strategy has higher gains as the investment horizon increases. Therefore, it is an advisable investment strategy for the pension fund industry.
Originality/value
Momentum strategy is unique as it fulfils two criteria of performance enhancement through volatility scaling, such as, the persistent in volatility and its negative relationship with the returns. However, the impact on the performance of the negative relationship between volatility and return that only exist in highest volatility related states is not discussed. The authors have shown that this aspect of volatility and return relationship of the momentum strategy has an important bearing on the performance of the volatility scaled momentum strategies.
Highlights of the Paper
This study finds that the Sharpe ratios and the alphas of the volatility scaled strategies increase as the investment horizon increases.
This is because the volatility series are highly persistent and the negative predictive relationship between the volatility and future momentum returns only exist when the volatility is higher. The impact of these two characteristics of the volatility series on the performance of the scaled momentum strategies is not discussed in the literature.
We find that the scaled strategies invest more/less when the volatility of the momentum strategy is lower/higher. By investing less when volatility is higher, the scaled strategies avoid momentum crashes and lessens the contribution of the variance from the short side in the overall variance of these strategies.
It is further shown that the higher performance of the volatility scaled strategies, at each investment related horizon can be explained by the higher variance loaded on the long side of such strategies in comparison to the traditional momentum strategy.
This study finds that the Sharpe ratios and the alphas of the volatility scaled strategies increase as the investment horizon increases.
This is because the volatility series are highly persistent and the negative predictive relationship between the volatility and future momentum returns only exist when the volatility is higher. The impact of these two characteristics of the volatility series on the performance of the scaled momentum strategies is not discussed in the literature.
We find that the scaled strategies invest more/less when the volatility of the momentum strategy is lower/higher. By investing less when volatility is higher, the scaled strategies avoid momentum crashes and lessens the contribution of the variance from the short side in the overall variance of these strategies.
It is further shown that the higher performance of the volatility scaled strategies, at each investment related horizon can be explained by the higher variance loaded on the long side of such strategies in comparison to the traditional momentum strategy.
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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 by…
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.
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Abongeh A. Tunyi, Geofry Areneke, Tanveer Hussain and Jacob Agyemang
This study proposes a novel measure for management’s horizon (short-termism or myopia vs long-termism or hyperopia) derived from easily obtainable firm-level accounting and stock…
Abstract
Purpose
This study proposes a novel measure for management’s horizon (short-termism or myopia vs long-termism or hyperopia) derived from easily obtainable firm-level accounting and stock market performance data. The authors use the measure to explore the impact of managements’ horizon on firms’ investment efficiency.
Design/methodology/approach
The authors rely on two commonly used but uncorrelated measures of management performance: accounting performance (return on capital employed, ROCE) and stock market performance (average abnormal return, AAR). The authors combine these measures to develop a multidimensional framework for performance, which classifies firms into four groups: efficient (high accounting and high market performance), poor (low accounting and low market performance), myopic (high accounting and low market performance) and hyperopic (low accounting and high market performance). The authors validate this framework and deploy it to explore the relationship between horizon and firms’ investment efficiency.
Findings
In validation tests, the authors show that management myopia (hyperopia) explains firms’ decision to cut (grow) research and development investments. Further, as expected, myopic (hyperopic) firms are associated with significantly more (less) accrual and real earnings management. The empirical tests on the link between horizon and investment efficiency suggest that myopic managers cut new investments while their hyperopic counterparts grow the same. Ultimately, the authors find that myopia (hyperopia) exacerbates(mitigates) the over-investment of free cash flow problem.
Originality/value
The authors introduce a framework for assessing management’s horizon using easily obtainable measures of performance. The framework explains inconsistencies in prior empirical research using different measures of performance (accounting versus market). The authors demonstrate its utility by showing that the measure explains decisions around research and development investment, earnings management and firm investments.
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Eun Jung Lee, Sungmin Kim and Yongwon Jang
This paper examines whether long-term foreign investors may force firms to use a costly dividend to mitigate inefficient managerial behavior. The authors also hypothesize that the…
Abstract
This paper examines whether long-term foreign investors may force firms to use a costly dividend to mitigate inefficient managerial behavior. The authors also hypothesize that the relation between foreign investment horizons and payout policy depends upon the extent of the corporate governance. The authors find that firms held by long-term foreign investors make dividend more often in the subsequent years. The authors also find that foreign investors with long-term investments do not cause firms to pay dividends when firms have strong corporate governance. It suggests that long-term foreign investors serve as a substitute for strong corporate governance with respect to controlling agency conflicts.
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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.
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Zulfiqar Ali Imran and Muhammad Ahad
This study aims to compare the safe-haven properties of different asset markets such as gold, dollar, oil and disaggregated real estate sector (house, plot and residential…
Abstract
Purpose
This study aims to compare the safe-haven properties of different asset markets such as gold, dollar, oil and disaggregated real estate sector (house, plot and residential) against equity returns in Pakistan over the monthly period of January 2011–December 2020.
Design/methodology/approach
The authors use wavelet coherence to encapsulate the overall dependence and correlation of asset classes. Further, the authors also study the potential of diversification at the tail of returns distribution by applying the wavelet value-at-risk (VaR) framework.
Findings
The results of wavelet coherence show that the dependence is weaker (stronger) in the short (long)-term investment horizon. Moreover, the findings of wavelet VaR reveal that the degree of co-movement between gold and equity returns greatly affects the portfolio risk followed by residential property and oil.
Practical implications
The findings are beneficial for the individual investor, fund managers and financial advisors looking for the optimal portfolio combination that hedges the excessive negative movements in equity returns subject to the heterogeneity in the investment horizon.
Originality/value
This is a primary effort to estimate safe-haven investments opportunities at a large spectrum, including disaggregated real estate sector against stock returns in Pakistan. Moreover, this study uses wavelet coherence and wavelet VaR which have an advantage over traditional analysis for diversification.
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Chae-Lin Lim, Woo-Jin Jung, Yea Eun Kim, Chanyoung Eom and Sang-Yong Tom Lee
This research investigates the differential impact of information technology (IT) investments based on their features, such as investment in data management capability, security…
Abstract
Purpose
This research investigates the differential impact of information technology (IT) investments based on their features, such as investment in data management capability, security improvement, IT outsourcing or new IT infrastructure. The Long-Horizon Event Study (LHES) is essential for providing a more appropriate measure of the value of IT investments because firms' strategic decisions often set long-horizon and large-scale organizational goals, and there is inherent uncertainty regarding future cash flows resulting from these investments. Therefore, the authors aim to analyze how announcements of IT investments affect the firm's abnormal stock returns over the long term and to compare the differential impact of different features of IT investment.
Design/methodology/approach
The authors gathered IT investment announcements and stock data of listed firms in Korea between 2000 and 2018, and the monthly stock market returns over the 5 years after the announcements. To measure the differential impact of IT investments based on the investment features, the authors separate announcements data into five groups. A LHES is used to estimate the long-term effects of IT investment announcements.
Findings
The results indicate that announcements of IT investments had a long-term positive effect on firm performance. Additionally, the findings reveal differential effects of IT investments across industries and investment features. Notably, news of self-developed IT investments and IT investments in the manufacturing industry had significantly positive effects. However, contrary to common belief, announcements of investments in so-called essential IT areas such as data, security, or new IT infrastructure did not yield significant effects.
Originality/value
Although the need for LHES has been emphasized in information systems research, few follow-up studies have been conducted since Barua and Mani (2018). This is primarily due to the challenges associated with collecting large-scale abnormal stock returns data over a long horizon. This research represents the first LHES to investigate the differential impact of IT investments based on their features. By doing so, this study can provide valuable insights for decision-makers within firms, helping them understand the time horizon of market outcomes of IT investments based on their features. Furthermore, this work extends the scope of LHES to comprehend the differential impacts of investment features. For instance, managers need to grasp that so-called essential IT investments, such as data management, security enhancements or new IT infrastructure, may not necessarily generate long-term market value.
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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, myopia is…
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.
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Mohammad Tariqul Islam Khan, Siow-Hooi Tan, Lee-Lee Chong and Gerald Guan Gan Goh
This study examines how the importance of external investment environment factors affects stock market perception, and how stock market perception affects stock investments after…
Abstract
Purpose
This study examines how the importance of external investment environment factors affects stock market perception, and how stock market perception affects stock investments after stock market crash witnessed by individual investors in one of the emerging stock markets.
Design/methodology/approach
A cross-sectional survey was administrated among 223 individual investors who experienced stock market crash in 2010–2011 in Bangladesh, and the proposed model was tested by the partial least squares-structural equation modeling PLS-SEM model.
Findings
Findings show that the importance of Bangladesh's stock market performance, government policy, economic issues and neighboring country's stock market performance have effects on investors' stock market perception. This perception, in turn, decreases monthly stock trading and short-term investment horizon. The findings further show the mediating effect of stock market perception.
Practical implications
Investors need to carefully consider the external investment environment when they form their stock market perception, as this perception drives stock investments. Analogously, regulators should ensure releasing timely and updated statistics on external investment factors.
Originality/value
Addressing those investors who encountered stock market crash, a set of external investment environment issues, stock market perception and stock investments are new in the literature.
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