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This paper aims to explore the trade-off between liquidity, risk and return under sectoral diversification across distinct economic settings and investment strategies.

A novel multi-objective portfolio model is proposed to assess investment decisions under sectoral diversification, where the objective functions and constraints are interval-valued. The objective functions used are risk minimization (through the semi-absolute deviation measure of risk), maximization of liquidity (using turnover as a proxy) and the maximization of logarithmic return. Besides coherence constraints (imposing that the sum of the percentages of investment assigned to each stock should be equal to 100%), constraints regarding the maximum proportion of capital that can be invested (ensuring a minimum level of diversification) and cardinality constraints (to account for transaction costs) are also imposed.

Besides the trade-off between return and risk, the study findings highlight a trade-off between liquidity and return and a positive relationship between risk and liquidity. Under an economic crisis scenario, the trade-off between return and liquidity is reduced. With the economic recovery, the levels of risk increase when contrasted with the setting of the economic crisis. The highest liquidity levels are reached with the economic boom, whereas the highest returns are obtained with the economic recession.

This paper suggests a new modeling approach for assessing the trade-offs between liquidity, risk and return under different scenarios and investment strategies. A new interactive procedure inspired on the reference point approach is also proposed to obtain possibly efficient portfolios according to the investor's preferences. Regarding previous approaches suggested in the literature, this new procedure allows obtaining both supported and unsupported efficient solutions when cardinality constraints are included.

The purpose of this paper is to explore the relationship between bank regulatory capital and liquidity creation in banks of BIRCS countries.

Data from all publicly listed banks of BRICS nations for the period 2003-2014 have been collected and analyzed. Two-stage least-squares regression has been used to control endogeneity. The econometric model includes different control variables that have been selected based on the extant literature.

Increase in bank capital negatively affects bank liquidity creation which implies that “financial fragility-crowding out” hypothesis holds for banks of BRICS countries.

This study provides the evidence of the inverse relationship between bank regulatory capital and liquidity creation from emerging economies. The findings show that there is a trade-off between curtailing bank risk taking and liquidity creation. Therefore, the regulators must formulate policies to strike a balance between the two.

An appropriate space allocation among different residence types gives higher profitability and liquidity for cash flow management in real estate projects for developers. Thereby, a balance between debt and equity should be kept for capital formation in developers where high level of cost, profit and risk exists. The purpose of this paper is to provide cash flow optimization under debt and equity financing while providing an appropriate space allocation of residence types via synchronous consideration of profitability and liquidity.

A novel optimization methodology that includes project financing, optimization and experimental design modules is proposed. The first module, project financing, considers the flexibility of utilizing one or both of debt financing and equity financing when making capital. The optimization module addresses space allocation among different residence types for a construction while maximizing profitability and liquidity using two mixed-integer linear programming models in a pre-emptive manner. The experimental design module assesses the effects of decisive parameters within the methodology via multivariate analysis of variance (MANOVA).

The proposed methodology is applied to a real-life residential project in Istanbul. The optimization module yielded 42.5% profitability via the first linear programming model and 2.2% trade-off between liquidity and profitability while minimizing the payback period by the second linear programming model. Meanwhile, MANOVA results showed that profit per square meter and sale rate trends are the most prominent factors considering their significant effects on net present value and payback period.

To the best knowledge of the author, related papers focused only on profitability under equity financing. Liquidity (as an objective) and equity financing (as a financing method) have not been handled. Hence, this paper not only performs profitability and liquidity-oriented cash flow optimization under debt and equity financing but also optimizes space allocation of residences for the first time.

The purpose of this paper is to propose a new dynamic margin setting method for margin buying in China and evaluate the validity of its performance with the current margin system adopted by stock exchanges in extreme episodes.

This paper adopts the dynamic conceptual model of Huang et al. (2012) (which is based on Figlewski (1984)) but incorporates Markov chain to describe the data generation process of stock price changes. By applying the model to margin buying contracts for the period of March 16, 2018, to May 2, 2018 (baseline study) and June 15, 2015, to July 27, 2015 (robustness test), the model’s superiority to the current margin system adopted by stock exchanges is also tested.

The paper has several important findings. First, the margins derived by this system vary with market conditions, rising (declining) when stock prices go down (up), and are generally lower than the requirements imposed by stock exchanges. Second, this margin system induces lower overall percentage of costs than that adopted by stock exchanges. Third, parameter estimation plays an important role on shaping empirical results.

The primary limitation of this paper lies in the fact that it does not solve the issue of determining optimal parameters of the Markov chain model. On the implication of findings, policy-makers and regulators on supervising margin buying activities may need a tune-up on the current margin system which features static margin requirements. Dynamic margins that incorporate market factors are virtually useful to balance the trade-off between liquidity and prudence.

To the best of the authors’ knowledge, this study is the first of its kind to develop a dynamic margin setting method for margin buying in China, aiming to balance the trade-off between liquidity and prudence. It not only takes into account the uniqueness of Chinese markets but also allows for time variations in both initial and maintenance margins.

The present study aims to investigate the impact of liquidity management on profitability of Indian Fast-Moving Consumer Goods (FMCG) firms, as well as the relationship among them, using econometric models.

Liquidity indices like current ratio, liquid ratio, absolute liquid ratio and cash conversion cycle are taken as explanatory variables, whereas age of creditors, age of debtors, age of inventory, sales and inter-temporal growth in sales are taken as control variables. Profitability is measured in terms of return on investment. The sample size is restricted to 18 Indian FMCG firms, and the secondary data for analysis are retrieved from Prowess Database of Centre for Monitoring Indian Economy for 10-year period from 2001-2002 to 2010-2011. Apart from using descriptive statistics and Pearson’s correlation analysis, panel data regression analysis like fixed-effects model and random effects model are used in the study. Hausman test is also used to make a choice between these two models.

The study results reveal a strong negative relationship between the measures of liquidity management and firms’ profitability, but firms’ size has a strong positive affiliation with profitability.

The study has been constrained by the sample size and the nature of the data, which could have well affected the results.

This study has identified critical management practices which are expected to help out finance managers and practitioners in recognizing vital areas for improving the financial performance of their firm’s operation.

The paper investigates whether stock liquidity of firms is valued by lending banks revealing that firms with higher liquidity in the capital market pay lower spreads for the loans they obtain. This relationship is causal as evidenced by using the decimalization of tick size as an exogenous shock-to-stock liquidity in a difference-in-differences setting. Reduction in financial constraint and improvement in corporate governance induced by higher stock liquidity are potential mechanisms through which liquidity impacts loan spreads. These higher liquidity firms also receive less stringent nonprice loan terms, for example, longer loan maturity and less required collateral.

Initial public offerings (IPOs) underpricing is a world-wide phenomenon in the stock market. It is generally explained with asymmetric information and risk. The purpose of this paper is to complement these traditional explanations with a theory where investors also worry about the after-market illiquidity that may result from asymmetric information after the IPO.

The model blends such liquidity concerns with adverse selection and risk as motives for underpricing and liquidity. The model's predictions are supported by evidence for 798 French IPOs realized between 1995 and 2008. Using various measures of liquidity, the author finds that expected after-market liquidity and liquidity risk are important determinants of IPO underpricing.

The author finds evidence that less liquid the aftermarket is expected to be, and the less predictable its liquidity, the larger will be the IPO underpricing.

The study provides empirical evidence that shares outstanding and author IPO characteristics play a vital role on post-IPO liquidity. According to the results obtained, three IPO characteristics, that is, relative size, blockholder and underpricing of offering have an explanatory for the liquidity and trading activity of the shares outstanding. It should be noted that this explanatory power is much greater before isolating the market effect. Nevertheless, given the evidence to show that these operations are executed during upmarket periods when trading volume is high, the non-exclusion of the market effect may attribute these variables with more explanatory power than they actually possess. Be that as it may, even after eliminating the market effect, their explanatory capacity is still considerable.

The author has found that underpricing is negatively related to the breadth of shareholders but positively related to institutional shareholders after the IPO. When a company is underpriced, it is likely, on average, to have a higher breadth of shareholder base and lower concentration of large outside investors.

This paper discusses dynamic financial approaches to solvency analysis in non‐life insurance companies by explaining cash flow simulation models which are based on the planning of their typical cash inflows and outflows. Posits that these models take into account patterns of loss reserve run‐offs and asset cash flows by implementing several hypotheses that also include expectations about external economic conditions such as inflation rates and interest rates. Acknowledges the cash inflows and outflows have been planned over a period of time to evaluate how positive net cash flow (liquidity) leads to the increase in assets over liabilities (solvency).

The purpose of this paper is to empirically assess the impact of the principle of profit- and loss-sharing (PLS) on the exposure to liquidity risk of Islamic banks in Gulf Corporation Council (GCC) countries. The Islamic bank activity is distinguished by a PLS principle, which is likely to involve specificities in the bank liquidity issue.

This paper investigates the determinants of Islamic bank liquidity over the period 2005–2016 using a panel of 23 Islamic banks in GCC. The system of generalized method of moment estimators is applied.

The findings reveal that while profit-sharing investment accounts (PSIAs) are inversely proportional to Islamic bank liquidity, the PLS investment does not seem to act as a determinant of the bank liquidity. The fact that PSIAs are globally short-run accounts, but finance long-run projects leads to a substantial maturity mismatches, which limits the availability of liquidity buffer and exacerbates the bank’s exposure to liquidity risk. Moreover, capital adequacy ratio has significant and positive association with bank liquidity, as a strong capital ratio helps to strengthen the liquidity control. However, return on assets has a negative significant impact on bank liquidity. For instance, if the bank holds more cash, it deprives itself from placing funds and earning returns, which causes its profitability to decline.

This paper gives further insights to better improve the liquidity risk management in a context of scarcity of Shariah-compliant instruments. Islamic bank needs to determine the PLS purpose and goals to be consistent with the “bank’s financing policy” and convince its depositors to use their deposits for medium and long-run investments.

Unlike previous empirical research, this investigation tries to better grasp the Islamic bank liquidity issue by focusing on the PLS impact on liquidity risk. It aims to fill in the gap in the empirical literature on this topic.

We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary market because the advent of public trading conveys hitherto private information and thereby mitigates adverse selection. The going‐public firm underprices the new issue to compensate uninformed subscribers for this added secondary market adverse selection risk. We test this market liquidity‐based explanation by investigating the ex‐post consequences of ownership structure choice on the initial pricing and the secondary market liquidity of a sample of initial public offerings on the New York Stock Exchange (NYSE). Consistent with our argument, we find that initial underpricing varies directly with the ex post trading costs in the secondary market. Further, initial underpricing is related positively to the concentration of institutional shareholdings and negatively to the proportional equity ownership retained by the founding shareholders. Finally, the secondary market illiquidity of new issues is positively related to institutional ownership concentration and negatively to ownership retention and underwriter reputation. Thus, the evidence based on our NYSE sample supports the view that the entrepreneurs' choice of ownership structure affects both the initial pricing and the subsequent market liquidity of new issues.