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Given the rising need for measuring and controlling of financial risk as proposed in Basel II and Basel III Capital Adequacy Accords, trading risk assessment under illiquid market conditions plays an increasing role in banking and financial sectors, particularly in emerging financial markets. The purpose of this chapter is to investigate asset liquidity risk and to obtain a Liquidity-Adjusted Value at Risk (L-VaR) estimation for various equity portfolios. The assessment of L-VaR is performed by implementing three different asset liquidity models within a multivariate context along with GARCH-M method (to estimate expected returns and conditional volatility) and by applying meaningful financial and operational constraints. Using more than six years of daily return dataset of emerging Gulf Cooperation Council (GCC) stock markets, we find that under certain trading strategies, such as short selling of stocks, the sensitivity of L-VaR statistics are rather critical to the selected internal liquidity model in addition to the degree of correlation factors among trading assets. As such, the effects of extreme correlations (plus or minus unity) are crucial aspects to consider in selecting the most adequate internal liquidity model for economic capital allocation, especially under crisis condition and/or when correlations tend to switch sings. This chapter bridges the gap in risk management literatures by providing real-world asset allocation tactics that can be used for trading portfolios under adverse markets’ conditions. The approach to computing L-VaR has been arrived at through the application of three distinct liquidity models and the obtained results are used to draw conclusions about the relative liquidity of the diverse equity portfolios.

Portfolio selection has been extensively studied in field of business and economics. Many methods have been developed to construct a well-diversified portfolio that is expected to result in higher investment return with minimum risk. One of the most foundational works contributing to modern portfolio selection is the Markowitz mean variance optimization approach. The Markowitz approach heavily relies on past stock price performance, both in term of correlation structure and the return, to predict the future outcome. We constructed both Markowitz portfolio and the Fundamental Indexing portfolio independently, then using Buffet ratio to weight, combined both portfolio into a newly blended portfolio, test out-of-sample the new portfolio in term of return and then compare it to the Indonesian LQ45 benchmark index. The result shows that the new combined portfolio returns annually on average 43.89% higher than the benchmark index.

Firm’s operating contexts and asymmetric perspectives of success versus failure outcomes are two essential features typically absent in research on firms’ implemented strategies. The study here describes and provides examples of formal case-based models (i.e., constructing algorithms) of firms implemented strategies within several of 81 potential context (task environments) configurations – large vs small, service vs production orientation, low vs high competitive intensity, low vs high technological turbulence, and ambiguous settings for each. The study applies the tenets of complexity theory (e.g., equifinality, causal asymmetry, and single causal insufficiency). The study proposes a meso-theory and empirical testing position for solving “the crucial problem in strategic management” (Powell, Lovallo, & Fox, 2011, p. 1370) – firm heterogeneity – why firms adopt different strategies and structures, why heterogeneity persists, and why competitors perform differently. A workable solution is to identify/describe implemented executive capability strategies that identify firms in alternative specific task environments which are consistently accurate in predicting success (or failure) of all firms for specific implemented capabilities/context configuration. The study shows how researchers can perform “statistical sameness testing” and avoid the telling weaknesses and “corrupt practices” of symmetric tests such as multiple regression analysis (Hubbard, 2015) including null hypothesis significance testing. The study includes testing the research issues using survey responses of 405 CEO and chief marketing officers in 405 Hungarian firms. The study describes algorithms indicating success cases (firms) as well as failure cases via deductive, inductive, and abductive fuzzy-set logic of capabilities in context solutions.

This paper focuses on the impact of country and sector effects in Asia Pacific equity market returns. Our study concludes that Asia Pacific market returns are mainly driven by country effects. Accordingly, country diversification is the most useful tool for managing portfolio risk. Recent evidence from developed markets indicates that country effect is no longer dominant and that sector exposure is of increasing significance in managing portfolio risk. We observed the same phenomenon; the difference is that it happened after the crisis period, not during the period as observed in the previous study.

With the help of financial engineering – and equipped with the modern technique of risk management – securitisation was supposed to identify and evaluate risks and parcel them out to informed parties who could bear them. In hindsight, we can see that this somewhat simplistic thesis – espoused by market participants as well as the academic promoters of modern techniques of risk management – seemed to promise a great deal more than it could ultimately deliver. At this juncture, however, the danger of regulatory over-reaction – which might be throwing the baby (financial innovation) out with the bath-water (overlooking/under-pricing of risk) – is very real and (in my view) calls for policy measures of this sort should be resisted firmly not only by market participants but also by regulators. This is not to say that regulation should be seen as immune from responsibility in the unfolding of the current credit crisis (quite the opposite would more likely be closer to the truth). As we shall see below (Section “Financial Crisis and Credit Ratings Debacle in SF”), the best risk-management practices – and related tools available before the crisis – provided enough ammunition to caution against the uncertainty surrounding risk assessment for some categories of SF products. However, the increasing complexity embedded in an increasing number of deals did provide genuine new challenges even to best risk-management practices.