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We form portfolios based on return and liquidity and examine the effects of liquidity and other risk factors on asset pricing in the Chinese stock market. Our results show that the past loser-and-illiquid stock portfolios tend to outperform the past winner-and-liquid stock portfolios in the 1–12 months holding period. The excess return is significantly associated with the market-wide liquidity factor even when we control the three Fama-French and momentum factors. Cross-sectionally, the liquidity beta significantly affects the excess return even with control of other risk betas and other traditional liquidity proxies.

In this study, the authors propose a VaR method for evaluating the market risk of investing in the stock portfolio of Pension Institutions. The data used for this research is hypothetical data, including the exposure or the amount of value invested by Pension Institutions in their stock portfolio. With the VaR – Monte Carlo simulation, the authors know the loss level will occur when the Indonesian economy or market conditions deteriorate. The lost value amount is determined in the Rupiah value, according to the confidence level or the desired percentile level. The results revealed that at the 5% (99.95%) percentile level of confidence, a pension fund with an investment value of IDR 4,070,000,000 would suffer a loss of IDR 1,110,000,000. While at the 1% (99.995%), the loss rate will be of IDR 1,480,000,000. The conclusion is that the results of this study are useful for Pension Institutions in managing their asset portfolios with the VaR model.

This chapter focuses on testing optimal capital structure theory: The role of intervening variable debt to equity ratio (DER) on the influence of the financial performance, Ownership Structure of Independent Board of Commissioners (IBCO), Audit Committee (ACO), and Institutional Ownership on Firm Value. The research design was explanatory research using path analysis. Using purposive sampling, 61 manufacturing companies, observation period from 2014 to 2018 with 286 N samples. The research novelty empirically can prove the role of intervening variable DER on the effect of return on assets (ROA) on firm value and shows the market response to the ROA is fully reflected by DER, indicating the existence of an optimal capital structure. The role of DER on the effect of ROE and IBCO on firm value is a partial mediation with the inverse direction. This phenomenon shows that the mechanism of forming a balance between the responses of investors and creditors relates to debt financing.

This chapter introduces empirical studies of firm performance and related risk outcomes conducted in the management and finance fields presenting underlying theoretical rationales as they have evolved over time. Early finance studies of market-based returns predominantly found positively skewed return distributions that conform to assumptions about higher returns associated with more risky investments. Subsequent studies found that performance outcomes measured as accounting-based financial returns generally display left-skewed distributions that reflect negative risk-return relationships. This artifact was first observed by Bowman (1980), thus often referred to as the “Bowman paradox” because it contravened the conventional assumptions in finance. The management studies have largely confirmed the inverse risk-return observations but often following rather confined research streams. A contingency perspective inspired by prospect theory and behavioral rationales have investigated the lagged effects of performance on risk outcomes and vice versa. Another stream has focused on the spurious relationships between negatively skewed performance distributions and the inverse risk-return associations. A third approach considered the performance and risk outcomes as deriving from the firms responding in distinct ways to exogenous changes. These studies reach comparable results but underpinned by very different rationales. The finance studies observe deviations from the pure doctrine of positive risk-return associations embedded in the widely adopted capital asset pricing model (CAPM) and note deficiencies with alternative interpretations that even question the validity of CAPM. A more recent strain of studies in behavioral finance observes how many (even professional) investment managers have biases that lead to inverse relationships between perceived risk and return outcomes. While these diverse fields of study have different starting points, they uncover an increasing number of interesting commonalities that can inspire the ongoing search for explanations to observed left-skewed financial returns and negative risk-return correlations across firms.