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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

Keywords

Article
Publication date: 19 January 2022

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

  1. This study finds that the Sharpe ratios and the alphas of the volatility scaled strategies increase as the investment horizon increases.

  2. 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.

  3. 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.

  4. 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.

Details

China Finance Review International, vol. 12 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

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

Keywords

Open Access
Article
Publication date: 20 June 2022

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…

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.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 30 no. 3
Type: Research Article
ISSN: 1229-988X

Keywords

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

Keywords

Article
Publication date: 4 February 2022

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…

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.

Details

International Journal of Housing Markets and Analysis, vol. 16 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

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

Keywords

Article
Publication date: 25 October 2021

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

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.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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

Keywords

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…

751

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

Keywords

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