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11 – 20 of over 145000Considers the role of property in a multi‐asset portfolio andhighlights the need for property to be subject to the same analyticalframework as other assets in the portfolio…
Abstract
Considers the role of property in a multi‐asset portfolio and highlights the need for property to be subject to the same analytical framework as other assets in the portfolio. Discusses the principles of portfolio construction, consisting of development of economic scenarios; forecasts of return on asset classes; asset allocation and portfolio construction; and stock selection. Sets out a strategic framework for the construction of a property portfolio, which involves an explicit consideration of risk and return relative to an appropriate benchmark. States that both the structure and stock of the fund need to be considered. Suggests that most of the published work on the subject is seriously flawed by inadequate data.
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It is conventional to assume that property investments in the UK are priced on the basis that investors require a total return approximately 2 per cent above the current…
Abstract
It is conventional to assume that property investments in the UK are priced on the basis that investors require a total return approximately 2 per cent above the current redemption yield on long dated gilts. Some yield premium seems intuitively appropriate due to certain apparent disadvantages of property relative to gilts, eg higher risk, poorer liquidity and greater transfer and management costs. However, the purpose of this paper is to illustrate that such apparent demerits are largely illusory, and to promote the view that investors in growth freeholds need require no yield premium, and indeed may justifiably accept a discount on yields available from long dated gilts valued around par.
S. YE and R.K.L. TIONG
Government support plays an important part in risk‐return trade‐off of participants in privately financed infrastructure projects. Depending on the level of government support…
Abstract
Government support plays an important part in risk‐return trade‐off of participants in privately financed infrastructure projects. Depending on the level of government support, risk‐return trade‐off of the private sponsor varies from project to project. Case studies on two of China's build‐operate‐transfer (BOT) power projects that were developed at different time periods illustrate that government support has a significant effect on both risk and return of the private sponsor. It is hoped that such understanding would help the private sponsor strike a desirable risk‐return trade‐off in structuring a BOT deal.
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Priit Sander and Margus Kõomägi
The paper aims to investigate the views of Estonian private equity and venture capitalists about the valuation of high‐growth companies and compare these with theoretical…
Abstract
Purpose
The paper aims to investigate the views of Estonian private equity and venture capitalists about the valuation of high‐growth companies and compare these with theoretical recommendations found in corporate finance and venture capital literature.
Design/methodology/approach
The analysis was carried out by using the case study methodology. Structured interviews were conducted in order to present the material for analysis. The dominant model of the case study analysis is exploratory, using an explanation‐building and pattern‐matching technique.
Findings
Main findings of the empirical study show that Estonian private equity and venture capitalists make the valuation somewhat differently compared to Western European and American ones. Some findings do not confirm the suggestions made by scientists.
Research limitations/implications
Some of the required data were considered to be a business secret. The research could be extended to a broader sample.
Practical implications
The findings can be used by the managers of private equity and venture capital funds for choosing appropriate cost of capital and valuation model for venture capital projects.
Originality/value
The paper is the first empirical paper, investigating how Estonian private equity and venture capitalists make the valuation of target companies.
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Modern financial theory has changed our way of thinking about numerous issues on the practical side of finance, many of which were previously regarded as the sacrosanct domain of…
Abstract
Modern financial theory has changed our way of thinking about numerous issues on the practical side of finance, many of which were previously regarded as the sacrosanct domain of experts, steeped in jargon and knowledge, and beyond the ken of that ordinary mortal, the layman. The main contribution of the new theories has been in practically helping us go about investing in shares, usually shares in publicly quoted companies. Thus it helps the external investor in the market in deciding in which share to invest, depending upon his own attitudes towards risk and return.
Dirk Schiereck and Julian Trillig
The purpose of this paper is to determine the impact of political risk on the German solar energy industry. The authors analyze the period from 2006 to mid-2011, when the…
Abstract
Purpose
The purpose of this paper is to determine the impact of political risk on the German solar energy industry. The authors analyze the period from 2006 to mid-2011, when the technological development of this sector was remarkable while the whole industry is depending on political support and subsidies.
Design/methodology/approach
The authors apply an EGARCH model assessing potential changes in conditional volatility response of solar industry stock returns following political risk events.
Findings
The results document major changes in political support of the solar industry drive capital market risk. Whereby favorable political news significantly decrease volatility response and unfavorable political news do not affect volatility response. Moreover, the authors find that the volatility response varies with the exposure to political risk. Companies with higher exposure to political risk show more significant volatility response.
Practical implications
Political risk affects the cost of capital of companies in this sector. Thus, managers are able to time equity measures in a way that they can determine periods when the investor's required return is low due to a reduced risk premium. The authors suggest risk reducing public policy facilitates investments in those industries and thus fosters the development and diffusion of immature technologies.
Originality/value
The paper helps policy makers, managers, and investors to assess the impact of political risk on the overall risk of the German solar energy sector and in a broader view of immature or high-tech industries that depend crucially on governmental support.
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Ronald C. Anderson, Steven S. Byers and John C. Groth
Examines how individual projects will affect the organization’s stated desire to “add value” by its operations, particularly how the market will judge each project on this basis…
Abstract
Examines how individual projects will affect the organization’s stated desire to “add value” by its operations, particularly how the market will judge each project on this basis. Considers rates of return, risk and cost of capital. Provides practical guidance for managers seeking to establish the cost of capital for a number of different types of project. Also provides special guidelines useful in the analysis of cost reduction projects.
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I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to…
Abstract
I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.
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Timothy B. Folta and Jonathan P. O’Brien
We examine a central tenet of real option theory – whether real options influence managerial thresholds for investment. In contrast to prior studies that have focused on whether…
Abstract
We examine a central tenet of real option theory – whether real options influence managerial thresholds for investment. In contrast to prior studies that have focused on whether real options influence discrete investment decisions, our focus is on empirically isolating real options’ effects on thresholds. In particular, we examine the real options inherent in acquisition decisions. Our model posits that there are good reasons why we might expect there to be information asymmetry around the value of real options. Accordingly, if managers have unique information about growth options we might expect to observe them lowering their thresholds, perhaps to the point where they are willing to accept negative market returns. We further expect that the degree of information asymmetry for firm-specific growth options should be higher than for industry-specific growth options. Finally, we believe that managerial thresholds will be more prone to influence from growth options than deferment options. While thresholds are unobservable, we are able to isolate the effects of real options on acquisition thresholds by borrowing a method used originally in labor economics to isolate the determinants of reservation wages. Using a sample of over 28,000 acquisitions in the U.S., we find strong support for the model. These findings suggest that firms with low thresholds may choose to acquire despite comparatively low expected performance.