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Article
Publication date: 23 January 2024

Hugo Alvarez-Perez, Regina Diaz-Crespo and Luis Gutierrez-Fernandez

This study aims to examine the performance of environmental, social and governance (ESG) equity indices in Latin America (LA), evaluating their risk-return characteristics in…

Abstract

Purpose

This study aims to examine the performance of environmental, social and governance (ESG) equity indices in Latin America (LA), evaluating their risk-return characteristics in comparison to conventional benchmark indices.

Design/methodology/approach

Using a quantitative empirical approach, the authors analyze ESG equity indices from Brazil, Mexico, Chile, Peru and Colombia, employing metrics such as Sharpe, Sortino and Omega ratios to measure risk-adjusted returns. Regression analysis is employed to assess the replicability of ESG indices by benchmark indices. Monte Carlo simulations are conducted to explore the potential increase in risk-adjusted returns when ESG equity indices are incorporated into portfolios.

Findings

The study addresses critical questions for investors: Can ESG indices outperform their benchmarks? Can these ESG indices be replicated by benchmark counterparts? Do ESG equity indices enhance portfolio diversification? The findings reveal that investing in ESG indices has the potential to enhance risk-adjusted returns and portfolio diversification.

Research limitations/implications

While this study focuses on various LA economies, it’s important to note variations in currency and volatility.

Practical implications

For investors in LA, this study highlights the importance of considering ESG indices as part of their investment strategies. While not all ESG indices outperform conventional ones, some may improve diversification and risk-adjusted performance. Investors should carefully assess market-specific conditions and national factors when making investment decisions.

Originality/value

The primary contribution of this study is its focus on LA countries in the examination of diverse portfolios. The research provides valuable insights into the performance of ESG indices in this region compared to conventional benchmark indices. This approach addresses an important gap in the existing literature and offers a more comprehensive perspective on ESG investing and portfolio diversification.

Propósito

Se examina el rendimiento de los índices-ESG en América Latina (AL), evaluando sus características de riesgo y retorno en comparación con los índices convencionales.

Diseño/metodología/enfoque:

Utilizando un enfoque cuantitativo, analizamos los índices-ESG de Brasil, México, Chile, Perú y Colombia, empleando ratios de Sharpe, Sortino y Omega para medir los rendimientos ajustados al riesgo. Se utiliza análisis de regresión para evaluar la replicabilidad de los índices-ESG por parte de los índices de referencia. Se realizan simulaciones de Monte-Carlo para explorar el aumento en los rendimientos ajustados al riesgo cuando se incorporan los índices-ESG en las carteras.

Hallazgos:

El estudio aborda preguntas críticas: ¿Pueden los índices-ESG superar a sus índices de referencia? ¿Pueden estos índices-ESG ser replicados por sus contrapartes de referencia? ¿Mejoran los índices-ESG la diversificación de las carteras? Los hallazgos revelan que la inversión en índices-ESG tiene el potential de mejorar los rendimientos y la diversificación de las carteras de inversión.

Limitaciones/implicaciones de la investigación –

Aunque este estudio se centra en diversas economías de AL, es importante tener en cuenta variaciones en moneda y volatilidad.

Originalidad/valor:

La principal contribución de este estudio radica en su enfoque en países de AL en el examen de carteras diversas; ofrece valiosos conocimientos sobre el rendimiento de los índices-ESG en esta región en comparación con los índices convencionales.

Open Access
Article
Publication date: 8 February 2024

Peter Ngozi Amah

A stylized fact in finance literature is the belief in positive relationship between ex ante return and risk. Hence, a rational investor, by utility preference axiom can only…

Abstract

Purpose

A stylized fact in finance literature is the belief in positive relationship between ex ante return and risk. Hence, a rational investor, by utility preference axiom can only consider committing fund in asset which promises commensurate higher return for higher risk. Questions have been asked as to whether this holds true across securities, sectors and markets. Empirical evidence appears less convincing, especially in developing markets. Accordingly, the author investigates the nature of reward for taking risk in the Nigerian Capital Market within the context of individual assets and markets.

Design/methodology/approach

The author employed ex post design to collect weekly stock prices of firms listed on the Premium Board of Nigerian Stock Exchange for period 2014–2022 to attempt to answer research questions. Data were analyzed using a unique M Vec TGarch-in-Mean model considered to be robust in handling many assets, and hence portfolio management.

Findings

The study found that idea of risk-expected return trade-off is perhaps more general than as depicted by traditional finance literature. The regression revealed that conditional variance and covariance risks reveal minimal or no differences in sign and sizes of coefficients. However, standard errors were also found to be large suggesting somewhat inconclusive evidence of existence of defined incentive structure for taking additional risk in the market.

Originality/value

In terms of choice of methodology and outcomes, this research adds substantial value to body of knowledge. The adapted multivariate model used in this paper is a rare approach especially for management of portfolios in developing markets. Remarkably, the research found empirical evidence that positive risk-expected return trade-off, as known in mainstream literature, is not supported especially using a typical developing country data.

Details

IIMBG Journal of Sustainable Business and Innovation, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2976-8500

Keywords

Article
Publication date: 6 June 2008

Christos Floros

The paper aims to investigate the monthly and trading month effects in the stock market returns of the ASE using daily data before and after the crisis of 1999‐2001. In addition…

1914

Abstract

Purpose

The paper aims to investigate the monthly and trading month effects in the stock market returns of the ASE using daily data before and after the crisis of 1999‐2001. In addition, the study seeks to consider data from both periods of the ASE, before and after the upgrade of the market (May 2001).

Design/methodology/approach

This paper examines the calendar effects in the Greek stock market returns using an ordinary least squares (OLS) model. Daily closing prices of the General ASE Index, FTSE/ASE‐20 and FTSE/ASE Mid 40 are used to calculate daily returns. The time period includes data from 26 November 1996 to 12 July 2002 for General ASE Index, 23 September 1997‐30 August 2001 for FTSE/ASE‐20 and 8 December 1999‐30 August 2001 for FTSE/ASE Mid 40.

Findings

The results show that there is no January effect. In other words, daily returns are not higher in January than in any other month. Moreover, the results for the trading month effect show higher (but not significant) returns over the first fortnight of the month.

Practical implications

The results have important implications for both traders and investors. The findings are strongly recommended to financial managers dealing with Greek stock indices.

Originality/value

The contribution of this paper is to provide evidence using data before and after the financial crisis of 1999‐2001 in Greece.

Details

Managerial Finance, vol. 34 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 April 2004

Osamah M. Al‐Khazali

This paper investigates the generalized Fisher hypothesis for nine equity markets in the Asian countries. It states that the real rates of return on common stocks and the expected…

2280

Abstract

This paper investigates the generalized Fisher hypothesis for nine equity markets in the Asian countries. It states that the real rates of return on common stocks and the expected inflation rate are independent and that nominal stock returns vary in a one‐to‐one correspondence with the expected inflation rate. The regression results indicate that stock returns in general are negatively correlated to both expected and unexpected inflation, and that common stocks provide a poor hedge against inflation. However, the results of the VAR model indicate the lack of a unidirectional causality between stock returns and inflation. It also fails to find a consistent negative response neither of inflation to shocks in stock returns nor of stock returns to shocks in inflation in all countries. It appears that the generalized Fisher hypothesis in the Asian markets is as puzzling as in the developed markets.

Details

Journal of Economic Studies, vol. 31 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 January 2006

DeQing Diane Li and Kenneth Yung

Though stock portfolio return autocorrelation is well documented in the literature, its cause is still not clearly understood. Presently, evidence of private information induced…

1010

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

Review of Accounting and Finance, vol. 5 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 30 March 2012

Mansor H. Ibrahim

The purpose of this paper is to examine the relation between gold return and stock market return and whether its relation changes in times of consecutive negative market returns

5516

Abstract

Purpose

The purpose of this paper is to examine the relation between gold return and stock market return and whether its relation changes in times of consecutive negative market returns for an emerging market, Malaysia.

Design/methodology/approach

The paper applies the autoregressive distributed model to link gold returns to stock returns with TGARCH/EGARCH error specification using daily data from August 1, 2001 to March 31, 2010, a total of 2,261 observations.

Findings

A significant positive but low correlation is found between gold and once‐lagged stock returns. Moreover, consecutive negative market returns do not seem to intensify the co‐movement between the gold and stock markets as normally documented among national stock markets in times of financial turbulences. Indeed, there is some evidence that the gold market surges when faced with consecutive market declines.

Practical implications

Based on these results, there are potential benefits of gold investment during periods of stock market slumps. The findings should prove useful for designing financial investment portfolios.

Originality/value

The paper evaluates the role of gold from a domestic perspective, which should be more relevant to domestic investors in guarding against recurring heightened stock market risk.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 5 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 20 January 2012

Yuri Khoroshilov

Existing empirical studies that document momentum trading strategies do not provide any insight on how investors choose the time horizon that is used to compute the past stock…

1475

Abstract

Purpose

Existing empirical studies that document momentum trading strategies do not provide any insight on how investors choose the time horizon that is used to compute the past stock returns. Indeed, since past returns over overlapping time periods are positively correlated, it is hard to identify the exact historical time period on which investors base their trading strategies and to investigate whether such a period is unique. The purpose of this paper is to investigate this and reach some conclusions.

Design/methodology/approach

In this paper the author uses experimental setting to analyze how investors choose which of the past returns to use as a basis for their trading strategies and whether this choice depends on their investment horizon. The advantage of this experimental setting over the existing empirical research is the ability to control for the investment horizon of the subjects and the ability to provide the subjects with a hand‐picked set of stocks with uncorrelated past returns over overlapping time periods. In the study subjects were asked to make short‐term investment decisions based on historical short‐term realized returns over two time intervals of different lengths. In each treatment the subjects were divided into two groups based on the lengths of their investment horizons, which were set to match the lengths of time intervals used to compute the historical returns.

Findings

It was found that subjects followed momentum trading strategies based on both historical returns provided to them and paid more attention to the historical returns over the shorter time period. In addition, some evidence was found that subjects with longer investment horizons rely less on momentum strategies.

Originality/value

A wide sample was used to create an original set of observations and conclusions.

Details

Journal of Economic Studies, vol. 39 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 10 July 2009

David Higgins and Boon Ng

This paper aims to gain exposure to Australian real estate investment trusts (A‐REITs). Many institutional investors make use of securitised property funds as they employ…

1203

Abstract

Purpose

This paper aims to gain exposure to Australian real estate investment trusts (A‐REITs). Many institutional investors make use of securitised property funds as they employ experienced property professionals with specialist knowledge of underlying property fundamentals, direct property markets and the 30‐plus A‐REITs. As securitised property funds operate in a competitive environment, investment performance benchmarks are important.

Design/methodology/approach

To add to the familiar risk and return benchmarks, the risk adjusted performance (RAP) measure first outlined by Modigliani and Modigliani provides an additional and valuable return measure to a definite level of risk. This research selected 16 wholesale securitised property funds each with seven years of continuous quarterly total return data.

Findings

Overall a large proportion of the selected funds (14 out of 16), on average, outperformed the market benchmark return (14.53 per cent) with the worst fund marginally under‐performing the index by 0.54 per cent. In contrast, the annualised RAP measure highlighted the differences in the securitised property fund returns for a given level of risk, with a wide 12.90‐16.66 per cent range. To achieve this uniform level of risk, five securities property funds had to replace up to 21 per cent of their property portfolio with a risk‐free asset (90 day bank bills). The RAP measure also decomposes the excess returns above the benchmark. In this instance, the securitised property funds outperformance was from a mixture of active portfolio selection and simply taking on additional risk exposure.

Originality/value

The research demonstrated the benefits of analysing securitised property funds beyond the standard return and risk measures. The RAP approach provides a measure of return for a definite level of risk with the benchmark excess attributed to portfolio selection and additional risk. This performance information can provide valuable additional information for an astute investor.

Details

Journal of Property Investment & Finance, vol. 27 no. 4
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 December 2004

Philip Booth and George Matysiak

Examines the impact of using “unsmoothing” techniques on real estate data to take pension‐plan asset‐allocation decisions. It is generally believed that valuation‐based real…

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Abstract

Examines the impact of using “unsmoothing” techniques on real estate data to take pension‐plan asset‐allocation decisions. It is generally believed that valuation‐based real estate indices give rise to returns figures which are “smoothed” versions of the underlying transaction prices. Unsmoothing techniques can be used to develop real estate return data series that are believed to be a more accurate representation of underlying transaction prices. If this is done, the resulting data reveal greater volatility of real estate returns. When such data are applied to portfolio selection models, they often reveal a reduced allocation to real estate in efficient portfolios. Looks at the impact of unsmoothing data when taking pension‐plan asset‐allocation decisions. Finds here that the unsmoothed data are more closely correlated with pension plan liabilities. As a result, efficient pension plan portfolios sometimes contain more real estate, rather than less. In general, there is little change in the efficient real estate allocation. These results are very important. They reveal that so‐called “valuation smoothing” may distort property investment decisions less than is commonly thought.

Details

Journal of Property Investment & Finance, vol. 22 no. 6
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 March 1989

Nanda Nanthakumaran

Examines the problem of multiple solutions in relation to the useof the internal rates of return (IRR) as a decision‐making criterion.Attempts to show that positive multiple IRRs…

Abstract

Examines the problem of multiple solutions in relation to the use of the internal rates of return (IRR) as a decision‐making criterion. Attempts to show that positive multiple IRRs occur only in a limited number of cases and in such cases the IRR is not the appropriate measure of return. Argues instead that the true rate of return for such projects is shown to be dependent on the cost of capital. Suggests two methods to deal with this problem: the extended yield method and the return on invested capital method.

Details

Journal of Valuation, vol. 7 no. 3
Type: Research Article
ISSN: 0263-7480

Keywords

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