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This case is taught in Darden's Investments elective but could be used in introductory Finance classes to explore the concept of diversification of investments or in a portfolio management course as a means to explore optimal portfolio allocation. It is accompanied by several teaching tools including a teaching note for instructors, student and instructor spreadsheets, student and instructor videos, and a PowerPoint deck for class debrief. The case would work well in a module sequenced between CornerStone Partners (UVA-F-1677) used before and Pravda Asset Management (UVA-F-1602) used after.

The global head of investment research at the World Gold Council (WGC) has finished his presentation “The Strategic Case for Gold as an Asset Class” at the 2012 Bloomberg Precious Metals Conference in New York. As a result of the market collapse in 2008 and the ongoing euro-area crisis, investors worldwide have safety and security on their minds, and many in the room were wondering whether gold would provide capital preservation and improve the overall risk-return tradeoff of their portfolios. At the same time, the sustained run-up in the price of gold since 2001 that was mentioned in the presentation was a cause for concern. Was gold the safe haven that it had proved to be in 2008 and 2009, or was it an asset class at the peak of a bubble? The investment case for gold deserved closer examination.

After the collapse of the Bretton Woods fixed exchange rate system in 1971, countries moved towards floating exchange rates, and the expectation was that the requirement for foreign reserves would decrease. However, central banks currently hold more foreign exchange reserves to enhance the credibility of exchange rate policies. The demand for gold, which was the main reserve asset prior the collapse of the Bretton Woods system, has increased as a reserve asset once again following the global financial crisis (GFC) of 2008, given gold’s characteristics as a safe haven asset and a store of value. This study aims to analyse official reserves of four countries, namely, Malaysia, Turkey, KSA and Pakistan. The Black–Litterman model was used to build a new strategic portfolio with optimal allocation to gold. This study shows that all countries under the analyses should increase their gold holdings to preserve the value of the portfolio during times of financial turmoil.

The Black–Litterman model has been used to build a new strategic portfolio with optimal allocation to gold. The study shows that all countries in our analyses suggested increasing their gold holdings to preserve the value of the portfolio during times of financial turmoil.

The study found that countries under the analyses, namely, Turkey, Malaysia, KSA and Pakistan, suggested increasing their official gold holding given the outstanding performance of gold during the GFC.

Research can be further extended by including few more countries from Organisation of Islamic Cooperation such as Qatar and Indonesia.

Emerging economies such as China, India and Russia started to sharply increase their official gold holdings in the aftermath of the GFC. According to recent statistics, central banks of China and Russia have been adding to their gold reserves. Of note, only in few European countries and in the USA, is the share of gold in foreign reserves more than 50%. In the rest of the world, this figure is about 3-5%. The paper elaborates the aforementioned subject and suggests the strategic weight of gold reserve for each country under analysis.

This study aims to provide empirical evidence on the return and volatility spillover effects between Southeast Asian stock markets, bitcoin and gold in the periods before and during the COVID-19 pandemic. The interdependence among different asset classes, the two leading stock markets in Southeast Asia (Singapore and Thailand), bitcoin and gold, is analyzed for diversification opportunities.

The vector autoregressive-Baba, Engle, Kraft, and Kroner-generalized autoregressive conditional heteroskedasticity model is used to capture the return and volatility spillover effects between different financial assets. The data cover the period from October 2013 to May 2021. The full period is divided into two sub-sample periods, the pre-pandemic period and the during-pandemic period, to examine whether the financial turbulence caused by COVID-19 affects the interconnectedness between the assets.

The stocks in Southeast Asia, bitcoin and gold become more interdependent during the pandemic. During turbulent times, the contagion effect is inevitable regardless of region and asset class. Furthermore, bitcoin does not provide protection for investors in Southeast Asia. The pricing mechanism and technology behind bitcoin are different from common stocks, yet the results indicate the co-movement of bitcoin and the Singaporean and Thai stocks during the crisis. Finally, risk-averse investors should ensure that gold constitutes a significant proportion of their portfolio, approximately 40%–55%. This strategy provides the most effective hedge against risk.

The mean return and volatility spillover is analyzed between bitcoin, gold and two preeminent stock markets in Southeast Asia. Most prior studies test the spillover effect between the same asset classes such as equities in different regions or different commodities, currencies and cryptocurrencies. Moreover, the time-series data are divided into two groups based on the structural break caused by the COVID-19 pandemic. The findings of this study offer practical implications for risk management and portfolio diversification. Diversification opportunities are becoming scarce as different financial assets witness increasing integration.

The purpose of this study is to provide a new way to optimize a portfolio and to show that combining the Hurst exponent and wavelet analysis may help to increase portfolio returns.

The authors use the Hurst exponent and wavelet analysis to study the long-term dependencies between sovereign bonds and sectoral indices of India. The authors further construct and evaluate the performance of three portfolios constructed on the basis of Hurst standard deviation (SD) – global minimum variance (GMV), most diversified portfolio (MDP) and equal risk contribution (ERC).

The authors find that an ERC portfolio generates positive superior return as compared other two. Since our sample includes periods of two crisis – post-2007 financial crisis and the ongoing pandemic, this study reveals that combining government bond with equities and gold provides a higher returns when the portfolios are constructed using the risk exposures of each asset in the overall portfolio risk.

The findings provide guidance to portfolio managers by helping them to select assets using the Hurst approach and wavelet analysis thereby increasing the portfolio returns.

In this study, the authors use a combination of Hurst exponent and wavelet analysis to understand the long-term dependencies among various assets and provide a new methodology to optimize a portfolio. As far as the authors’ knowledge, no study in the past has attempted to provide a joint framework for portfolio optimization and therefore this study is the first to apply this methodology.

This study aims to propose the idea of which macro-factors and how the macro-factors impact on the gold price.

An EGARCH model is applied to test the volatility of gold price. A VAR method is applied to validate the idea by decomposing gold's value into three parts according to its features.

Three macro-factors have significant impact on the gold's price. The USDX index is negatively correlated with the gold price, while the CRB index and the US Treasury CDS spreads are positively correlated with the gold price. In particular, it is found that the one-lagged CRB index, one-lagged USDX index, and two-lagged US Treasury CDS spreads have significant impact on the gold price.

The findings in this study suggest a normal case of the gold price. However, in particular cases, new models or new parameters may need to be introduced.

This paper bridges the gap between theory and practice on the gold pricing model. The three-factor model can be used for trading in the field of gold investment.

This paper provides a composite idea for investors and researchers to study the gold price.

This paper aims to investigate private pension fund investor sentiment against fund performance and cost in an environment of frequent regulatory changes. The analyses are conducted in a low return, high-cost private pension fund market environment, which makes it easier to observe the relationship between investor sentiment to return and cost.

This paper conducts fixed effect, random effect and random effect within between effect panel data analyses of all Turkish private pension funds from 2011 to 2019. This paper conducts the analyses using aggregate data and subsets based on fund characteristics and pre-post regulation periods.

When regulations provide compensation and improve market efficiency in a pension fund market, investor focus shifted from performance to cost. Investors allocated assets with respect to return realization when adequately compensated for risk or had favorable cost contract clauses. Consequently, investors in pension funds with lower expected returns and no special fee reduction clauses tended to adopt the strategy of cost minimization.

The overlap of regulatory change periods could complicate the ability to distinguish the impact of any one specific change. The findings therefore cannot be generalized to differently structured markets.

Regulatory changes could lead to a switch of investor objectives. When regulatory changes compensate investors and increase market efficiency, investors objective could switch from performance to cost.

This study investigates investor sentiment in a relatively young private pension fund market, in which the relevant regulatory body ambitiously implements frequent changes in regulation. The selected market is unique in the sense that it has negative real returns and high costs, which make investor focus to return and cost more readily apparent.

This research aims to demonstrate portfolio modeling, which leads to Sharia compliance in encountering crises because of COVID-19. The authors proposed modifying the Black–Litterman (BL) model adapted to the Sharia principle. The implementation of BL on Shariah-compliant stock data with capital asset pricing model (CAPM) requires adjustment because of the interest rate in the calculation. Thus, the objective of this study is to develop and evaluate the modified BL for Shariah-compliant stock portfolios in the financial crisis caused by the COVID-19 pandemic.

The Sharia-compliant asset pricing model (SCAPM) with the inflation rate was regarded as the new starting point in the BL model. This proposed model was implemented in Indonesia using monthly returns from the Jakarta Islamic Index (JII) list collected from February 2014 to June 2019. Furthermore, the portfolio performance of BL-SCAPM was compared with two reference portfolios, the mean-variance method and BL-CAPM.

The result presents that the portfolio performance of BL-SCAPM outperformed the MV and BL-CAPM. The impact of the Sharpe ratio of BL-SCAPM was more significant than the reference portfolio. The equal benefit was procured from both portfolios in July and August 2019. After the COVID-19 outbreak was officially declared in January 2020, the performance of BL-SCAPM was still above the BL. Despite a decline in portfolio value before and during the outbreak, the reference portfolio losses were higher than those of BL-SCAPM. Hence, this study manifested that BL-SCAPM outperformed the reference portfolio.

The results illustrate the empirical study which can be implemented for the Shariah-compliant stock market in Indonesia. By evaluating portfolio value on the COVID crisis for long investment, replacing CAPM with SCAPM in the BL model can transform the asset proportion. It decreased the portfolio loss during the crisis. Future research can be developed more from the open problems in this implementation to deliver the portfolio model into the Shariah framework with varied SCAPM in BL.

The attention to BL studies on portfolio building with Sharia-compliant stocks is rarely focused on the Islamic perspective. Hence, the novelty of this research is the idea of modifying the BL model with a Shariah starting point. More generally, this research enriches Shariah financial literacy regarding the stock market and, specifically, its implementation in the Indonesian stock market.

In real estate industry, managers' choices in portfolio construction impact directly on the performance of real estate fund. Looking at the literature, real estate diversification criteria are related to tenants' characteristics, to endogenous and exogenous risk and to financial choices. The aim of the paper is to study the role of different risk profiles in the investment selection and in the construction of an efficient real estate portfolio.

The first step is to find out an investment selection model based on the main risk factors. The aim was to check the ability of qualitative criteria (tenant, exogenous, endogenous and financial risks) to identify ex ante the best investment opportunities. The observation of the portfolios' composition on the efficient frontier and the proximity of individual property to the efficient frontier point out which risk factors are more important. The second step is to define a model to construct a portfolio, with non correlated investments, based on the main risk factors. This ability was tested by comparing the classifications made according to quality criteria, which can potentially be used ex ante to construct a diversified portfolio, with the results of cluster analysis. The results from the cluster analysis, free from quality profiles, are therefore considered as the best diversification strategy.

The results stemming from the use of a real estate database supplied by Fimit SGR (Unicredit banking group) showed that an ex ante study of risk profiles can help to identify those investment opportunities which are more or less near to the efficient frontier, although there is no prevailing criterion to identify a portfolio able to maximise investment diversification benefits. To identify more efficient portfolio is necessary to define an evaluation approach that considers simultaneously different risk profiles of real estate investments.

The paper considers the Italian market, a young market for institutional real estate investments characterised by high growing opportunities. The value added of the paper is to study the relationship of different real estate specific risks considered in literature (tenant risk, endogenous and exogenous risk) and financing choices in order to define a more complete model to evaluate real estate portfolios.