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Article

Deepak Jadhav and T.V. Ramanathan

An investor is expected to analyze the market risk while investing in equity stocks. This is because the investor has to choose a portfolio which maximizes the return with…

Abstract

Purpose

An investor is expected to analyze the market risk while investing in equity stocks. This is because the investor has to choose a portfolio which maximizes the return with a minimum risk. The mean-variance approach by Markowitz (1952) is a dominant method of portfolio optimization, which uses variance as a risk measure. The purpose of this paper is to replace this risk measure with modified expected shortfall, defined by Jadhav et al. (2013).

Design/methodology/approach

Modified expected shortfall introduced by Jadhav et al. (2013) is found to be a coherent risk measure under univariate and multivariate elliptical distributions. This paper presents an approach of portfolio optimization based on mean-modified expected shortfall for the elliptical family of distributions.

Findings

It is proved that the modified expected shortfall of a portfolio can be represented in the form of expected return and standard deviation of the portfolio return and modified expected shortfall of standard elliptical distribution. The authors also establish that the optimum portfolio through mean-modified expected shortfall approach exists and is located within the efficient frontier of the mean-variance portfolio. The results have been empirically illustrated using returns from stocks listed in National Stock Exchange of India, Shanghai Stock Exchange of China, London Stock Exchange of the UK and New York Stock Exchange of the USA for the period February 2005-June 2018. The results are found to be consistent across all the four stock markets.

Originality/value

The mean-modified expected shortfall portfolio approach presented in this paper is new and is a natural extension of the Markowitz’s mean-variance and mean-expected shortfall portfolio optimization discussed by Deng et al. (2009).

Details

Studies in Economics and Finance, vol. 36 no. 3
Type: Research Article
ISSN: 1086-7376

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Article

Jochen Wirtz and Anna S. Mattila

Research in economics, finance and decision science has shown that consumers are familiar with unit‐to‐unit variability, and in the context of services it has been…

Abstract

Research in economics, finance and decision science has shown that consumers are familiar with unit‐to‐unit variability, and in the context of services it has been demonstrated that consumers often anticipate and perceive performance heterogeneity. However, satisfaction models to date have failed to explicitly treat expectations as distributions. In this study, expectations were modeled along two dimensions – mean and variance of expected performance – which were manipulated together with actual performance in a true experimental design. The findings indicate that the expected variance in performance had an impact on perceived disconfirmation. Specifically, at low levels of incongruity (i.e. small absolute performance deviations from the expected mean), a high expected variance in performance reduced the level of perceived disconfirmation. Conversely, at high levels of incongruity (large absolute performance deviations from expectations), the expected variance in performance exerted minimal influence over perceived disconfirmation. These findings are reconciled and discussed using the zones of indifference and tolerance, and assimilation processes.

Details

International Journal of Service Industry Management, vol. 12 no. 4
Type: Research Article
ISSN: 0956-4233

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Book part

Massimo Guidolin

I review the burgeoning literature on applications of Markov regime switching models in empirical finance. In particular, distinct attention is devoted to the ability of…

Abstract

I review the burgeoning literature on applications of Markov regime switching models in empirical finance. In particular, distinct attention is devoted to the ability of Markov Switching models to fit the data, filter unknown regimes and states on the basis of the data, to allow a powerful tool to test hypotheses formulated in light of financial theories, and to their forecasting performance with reference to both point and density predictions. The review covers papers concerning a multiplicity of sub-fields in financial economics, ranging from empirical analyses of stock returns, the term structure of default-free interest rates, the dynamics of exchange rates, as well as the joint process of stock and bond returns.

Details

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

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Article

Robert A. Gordon

Means, medians and SD for available socio‐economic status (SES) black‐white differences are here substituted for those of IQ in a between‐groups model published by the…

Abstract

Means, medians and SD for available socio‐economic status (SES) black‐white differences are here substituted for those of IQ in a between‐groups model published by the author over a decade ago. The goodness of fit of the SES variables used is compared with that for the earlier IQ data. Even when SES variables are relatively successful this can be viewed as additional evidence of the importance of IQ differences to black‐white differences in delinquency.

Details

International Journal of Sociology and Social Policy, vol. 7 no. 3
Type: Research Article
ISSN: 0144-333X

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Abstract

Details

Fundamentals of Transportation and Traffic Operations
Type: Book
ISBN: 978-0-08-042785-0

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Book part

Enrique Carreras-Romero, Ana Carreras-Franco and Ángel Alloza-Losada

Economic globalization is leading large companies to focus on international strategic management. Nowadays, the assets referred to as “corporate intangibles,” such as…

Abstract

Economic globalization is leading large companies to focus on international strategic management. Nowadays, the assets referred to as “corporate intangibles,” such as corporate reputation, are becoming increasingly important because they are considered a key factor for the viability of an organization, and companies therefore need to incorporate them into their scorecards for management. The problem is that their measurement is subjective and latent. These two characteristics impede direct international comparison and require demonstrating the accuracy of comparison via a minimum of two tests – construct equivalence and metric equivalence. As regards corporate reputation, construct equivalence was verified by Naomi Gardberg (2006). However, the subsequent studies did not address metric equivalence. Based on the results of a survey provided by the Reputation Institute (n = 5,950, 50 firms evaluated in 17 countries in the Americas, Europe, Asia and Australia), the degree of RepTrak metric equivalence has been tested, using two different methodologies, multigroup analysis (structural equation model), and a new technique from 2016, the Measurement Invariance of Composite Model procedure from the Partial Least Square Path Modeling family. As one would expect from other cross-cultural studies, reputation metrics do not meet the full metric equivalence, which is why they require standardization processes to ensure international comparability. Both methodologies have identified the same correction parameters, which have allowed validation of the mean and variance of response style by country.

Details

Global Aspects of Reputation and Strategic Management
Type: Book
ISBN: 978-1-78754-314-0

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Article

Giulio Palomba and Luca Riccetti

This paper aims to perform an analytical analysis on portfolio allocation when a tracking error volatility (TEV) constraint holds, drawing specific attention to the…

Abstract

Purpose

This paper aims to perform an analytical analysis on portfolio allocation when a tracking error volatility (TEV) constraint holds, drawing specific attention to the portfolio efficiency issue. Indeed, it is well known that investors can assign part of their funds to asset managers who are given the task of beating a benchmark portfolio. However, the risk management office often imposes a TEV constraint to the asset managers’ activity to maintain the portfolio risk near to the risk of the benchmark. This situation could lead asset managers to select non efficient portfolios in the total return and absolute risk perspective. However, the risk management office can impose further constraints, such as on maximum variance or maximum value at risk (VaR) to maintain the overall portfolio risk under control.

Design/methodology/approach

First the authors define the TEV constrained-efficient frontier (ECTF), a set of TEV constrained portfolios that are meanvariance efficient. Second, they define two new portfolio frontiers analyzing how the imposition of a maximum variance or maximum VaR restriction can reduce the ECTF. Third, they investigate the feasibility of such portfolio frontiers and their relationships.

Findings

The authors find that variance or VaR constraint can force asset managers to pursue portfolio efficiency.

Originality/value

This is a practically important issue given that asset managers often receive a constraint on TEV from the risk management office, but the risk management office does not ask them to minimize the TEV as often assumed in the optimizations performed in the literature on this topic.

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Article

Haibo Li, Jun Chen and Yuzhong Xiao

There are process uncertainties and material property variations during laminated steel sheet forming, and those fluctuations may result in non-reliable forming quality…

Abstract

Purpose

There are process uncertainties and material property variations during laminated steel sheet forming, and those fluctuations may result in non-reliable forming quality issues such as fracture and delamination. Additionally, the optimization of sheet forming process is a typical multi-objective optimization problem. The target is to find a multi-objective design optimization and improve the process design reliability for laminated sheet metal forming. The paper aims to discuss these issues.

Design/methodology/approach

Desirability function approach is adopted to conduct deterministic multi-objective optimization, and response surface is used as meta-model. Reliability analysis is conducted to evaluate the robustness of the multi-objective design optimization. The proposed method is implemented in a step-bottom square cup drawing process. First, forming process parameters and three noise factors are assumed as probability variables to conduct reliability assessment of the laminated steel sheet forming process using Monte Carlo simulation. Next, only two forming process parameters, blank holding force and frictional coefficient, are considered as probability variables to investigate the influence of the forming parameter deviation on the variance of the response using the first-order second-moment method.

Findings

The results indicate that multi-objective design optimization using desirability function method has high efficiency, and an optimized robust design can be obtained after reliability assessment.

Originality/value

The proposed design procedure has potential as a simple and practical approach in the laminated steel sheet forming process.

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Article

Brian Hillier and M.V. Ibrahimo

Generalizes existing models of credit markets under asymmetricinformation. The general model accommodates the adverse selectionarguments of Stiglitz and Weiss and the…

Abstract

Generalizes existing models of credit markets under asymmetric information. The general model accommodates the adverse selection arguments of Stiglitz and Weiss and the favourable selection arguments of de Meza and Webb, and contains their models as special cases. Market equilibrium may exhibit credit rationing, while aggregate investment may be above or below the first‐best level. A novel issue presented is that inefficiencies may involve not merely the volume of investment but also its composition.

Details

Journal of Economic Studies, vol. 19 no. 3
Type: Research Article
ISSN: 0144-3585

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Article

Brian Buhr

Markowitz’s meanvariance approach is used to identify the returns to vertical investment in the pork industry. In addition to previous efforts, this paper considers not…

Abstract

Markowitz’s meanvariance approach is used to identify the returns to vertical investment in the pork industry. In addition to previous efforts, this paper considers not only returns to stock ownership, but uses operating return on investment in pork slaughter and hog production to evaluate the impacts of vertical investment within the industry segment. Results suggest there are indeed diversification incentives for vertical investment in the pork industry. However, results do differ for vertical direct investment versus investment through stock ownership.

Details

Agricultural Finance Review, vol. 62 no. 2
Type: Research Article
ISSN: 0002-1466

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