Search results

Few countries have sufficiently long and detailed returns data for real estate to permit sophisticated analysis. This paper aims to examine the potential diversification of private real estate investments using returns data for major regional centres in Ireland and the UK.

Optimal real estate‐only portfolios are constructed using total returns, income returns and appreciation returns for office and retail real estate in ten cities within Ireland and the UK. The analysis uses IPD data for the period 1984 to 2002. Total return, income return and appreciation returns are treated as separate asset streams in the modelling of portfolios.

The results show different risk levels; in particular the income stream carries low risk, whereas the capital appreciation element is much more volatile and risky. Optimal portfolios, office or retail, whether income, appreciation or total returns, indicate that provincial markets perform well and are capable of pushing London out of the optimised portfolios.

Limitations stem from the optimal portfolios being based on return series without a consideration of market depth. Future research will seek to construct weighted portfolios.

The paper constructs optimal portfolios for three scenarios: low return; medium return; and high return across sectors, return streams and major regional centres in Ireland and the UK. The results show that regional centres perform well and can exclude London real estate from optimal portfolios.

This paper seeks to address the question of consistency, regarding the allocation of real estate in the mixed‐asset portfolio.

To address the question of consistency the allocation of real estate in the mixed‐asset portfolio was calculated over different holding periods varying from five to 25 years. For each portfolio and holding period, the percentage of portfolios with real estate was computed, as was the average real estate allocation in the optimum solution. Then, the risk and return differences between the two efficient frontiers, with and without real estate, were calculated to estimate real estate's marginal impact on portfolio performance.

First, the results suggest strongly that real estate has possessed the attribute of consistency in optimised portfolios. Second, the benefits from including real estate in the mixed‐asset portfolio tend to increase as the investment horizon is extended. Third, the position of real estate changes across the efficient frontier from its return enhancing ability to its risk‐reducing facility. Finally, the results show that the gain in return from adding real estate to the mixed‐asset portfolio is typically less compared with the reduction in portfolio risk.

The results highlight a number of issues in relation to the role of direct real estate within a mixed‐asset framework. In particular, the rationale behind the inclusion of real estate in the mixed‐asset portfolio depends on the length of the holding period of the investor and their position on the efficient frontier.

The study examines the attractiveness of direct real estate in the context of mixed‐asset portfolio.

Though stock portfolio return autocorrelation is well documented in the literature, its cause is still not clearly understood. Presently, evidence of private information induced stock return autocorrelation is still very limited. The difficulty in obtaining foreign country information by small investors makes the private information of institutional investors in the ADR (American Depository Receipt) market more significant and influential. As such, the ADR market provides a favorable environment for testing the effect of private information on return autocorrelation. The purpose of this paper is to address this issue.

In this paper, ADRs are sorted annually into three groups based on market equity capitalization. Within each capitalization group, ADRs are further sorted into three groups based on the fraction of shares held by institutional investors. Each ADR is assigned to one of the nine groups and group membership is rebalanced each year. The return autocorrelation of individual ADR securities and ADR portfolios for each group are then calculated.

The results demonstrate that ADR individual stock and portfolio daily return autocorrelations are positively related to institutional ownership. It is also found that other explanations, such as non‐synchronous trading, bid‐ask spread and volatility of ADR, cannot explain the positive relation between daily return autocorrelations and institutional ownership of ADR.

Since ADR market is more suitable than other markets for testing the role of private information, stronger and clearer results are got accordingly. This paper suggests that trading strategy based on private information of institutional investors can lead to stock return autocorrelation in ADR daily returns.

Reviews the previous research on the management of portfolio investment and compares the performance of a typical small investor’s portfolio of nine popular stocks (optimized portfolio) with a value‐weighted portfolio (VW), using 1992‐1997 US data. Explains how the portfolios were derived on a rolling basis from the previous 30 months’ data, using four risk levels for the optimized portfolios (OPs). Shows that as risk aversion increases for OPs, minimum returns tend to decrease but average returns increase; but that VW provides superior returns with less volatility. Considers the underlying reasons for the results, concludes that diversification is important even when small numbers of stocks are involved; and suggests some avenues for further research.

This issue of Managerial Finance is devoted to modern portfolio theory which has evolved since the pioneering work of Markowitz in 1952. Before the development of modern portfolio theory investors and their advisers used the “traditional approach” to investment management and portfolio selection.

Though of fairly recent origin, the capital‐asset pricing model (CAPM) is becoming a dominant influence in the analysis of financial and investment decisions. While continuing to undergo stringent theoretical and empirical examination, the demonstrable explanatory and predictive ability of the CAPM have led to its widespread recognition as the foundation of modern financial management. Though usually attributed to Sharpe, Lintner and Mossin, the origins of the CAPM can be traced back to the celebrated work of Harry Markowitz on portfolio selection.

We propose a risk factor for idiosyncratic entropy and explore the relationship between this factor and expected stock returns.

We estimate a cross-sectional model of expected entropy that uses several common risk factors to predict idiosyncratic entropy.

We find a negative relationship between expected idiosyncratic entropy and returns. Specifically, the Carhart alpha of a low expected entropy portfolio exceeds the alpha of a high expected entropy portfolio by −2.37% per month. We also find a negative and significant price of expected idiosyncratic entropy risk using the Fama-MacBeth cross-sectional regressions. Interestingly, expected entropy helps us explain the idiosyncratic volatility puzzle that stocks with high idiosyncratic volatility earn low expected returns.

We propose a risk factor of idiosyncratic entropy and explore the relationship between this factor and expected stock returns. Interestingly, expected entropy helps us explain the idiosyncratic volatility puzzle that stocks with high idiosyncratic volatility earn low expected returns.

Environmental, social, and governance (ESG) issues have recently received much attention. This research investigates the daily performance of socially responsible investment (SRI). To do that, the authors construct portfolios consisting of the SRI, non-SRI, and matched non-SRI. The portfolios can be compared with the market benchmark based on α adjusted asset pricing models. Due to using high-frequency data, the authors use ARCH/GARCH to deal with time-varying volatility. Moreover, the authors also utilized Fama–MacBeth pooled regression to confront the SRI stocks and the non-SRI counterpart. In sum, the findings of this study confirm the superior performance of the value-weighted (VW) SRI portfolio against the market. On a head-to-head basis, the SRI yields a higher return than the non-SRI. The results are robust in the quarterly analysis. It is essential for investors that put their money in socially responsible (SR) portfolios to either promote sustainable development or chase a return on it.

Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001 expanded 529 plan benefits to include tax-free distributions for qualified higher education expenses. However, regulators, the press, and fund advisors criticized the Section 529 college savings plan industry for inadequate and nonuniform disclosures of investor information, such as historical returns, fees, taxes, and underlying investments. We investigate consumers’ investment choices after a disclosure regime change in 2003 and find that after enhanced disclosures became widely available, investors selected fewer plans offered exclusively through brokers, increasingly chose portfolios based on past investment performance, but remained unresponsive to state tax benefit disclosures. We also analyze the plans’ performance and find evidence that 529 investors are constrained to invest in portfolios with high, return-eroding fees. Nearly 20 percent of the portfolios have a statistically significant negative alpha, the measure of risk-adjusted excess return, while less than 1 percent have a statistically significant positive alpha.

Purpose – Study the investment and risk management approach of sovereign wealth funds when national wealth including natural resources is accounted for rather than only financial asset.

Methodology/Approach – Using a range of widely used asset classes, we simulate sovereign wealth fund returns when considering only financial assets but also under varying levels of national wealth holdings in oil. We optimize two-asset financial portfolios and three-asset portfolios when including oil to maximize the risk-adjusted returns.

Findings – Sovereign wealth funds by failing to invest for the national wealth portfolio are overlooking a major source of volatility. To reduce the level of volatility associated with yearly national wealth returns, allocating a higher percentage of fixed assets to high-quality fixed income and low-risk equities will maximize the risk-adjusted returns of national wealth for sovereign wealth fund states.

Social implications – By focusing solely on the financial assets managed by sovereign wealth funds, states are exposing themselves to significant national wealth risk.

Originality/Value of the paper – This is the first work to estimate the impact on national wealth of oil-dependent states by failing to account for volatile commodity prices through the investment strategies of sovereign wealth funds.