19,574 research outputs found
Size and liquidity effects in Nigeria: an industrial sector study
This study estimates liquidity premiums using the recently developed Liu (2006) measure within a multifactor capital asset pricing model (CAPM) including size premiums and a time varying parameter model for the West African emerging market of Nigeria. The evidence suggests that liquidity factors are relevant only for financial and basic materials sector stocks while size factor is more generally relevant in explaining the cross section of stock returns in the Nigerian domestic equity market. Costs of equity estimates are high further underlining the limitations of this market as a capital-raising venue in contrast to the dominant banking sector
Hedging the exchange rate risk in international portfolio diversification : currency forwards versus currency options
As past research suggest, currency exposure risk is a main source of overall risk of international diversified portfolios. Thus, controlling the currency risk is an important instrument for controlling and improving investment performance of international investments. This study examines the effectiveness of controlling the currency risk for international diversified mixed asset portfolios via different hedge tools. Several hedging strategies, using currency forwards and currency options, were evaluated and compared with each other. Therefore, the stock and bond markets of the, United Kingdom, Germany, Japan, Switzerland, and the U.S, in the time period of January 1985 till December 2002, are considered. This is done form the point of view of a German investor. Due to highly skewed return distributions of options, the application of the traditional mean-variance framework for portfolio optimization is doubtful when options are considered. To account for this problem, a mean-LPM model is employed. Currency trends are also taken into account to check for the general dependence of time trends of currency movements and the relative potential gains of risk controlling strategies
Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy
Using a recently developed method of noise level estimation that makes use of
properties of the coarse grained-entropy we have analyzed the noise level for
the Dow Jones index and a few stocks from the New York Stock Exchange. We have
found that the noise level ranges from 40 to 80 percent of the signal variance.
The condition of a minimal noise level has been applied to construct optimal
portfolios from selected shares. We show that implementation of a corresponding
threshold investment strategy leads to positive returns for historical data.Comment: 6 pages, 1 figure, 1 table, Proceedings of the conference APFA4. See
http://www.chaosandnoise.or
Credit Risk Meets Random Matrices: Coping with Non-Stationary Asset Correlations
We review recent progress in modeling credit risk for correlated assets. We
start from the Merton model which default events and losses are derived from
the asset values at maturity. To estimate the time development of the asset
values, the stock prices are used whose correlations have a strong impact on
the loss distribution, particularly on its tails. These correlations are
non-stationary which also influences the tails. We account for the asset
fluctuations by averaging over an ensemble of random matrices that models the
truly existing set of measured correlation matrices. As a most welcome side
effect, this approach drastically reduces the parameter dependence of the loss
distribution, allowing us to obtain very explicit results which show
quantitatively that the heavy tails prevail over diversification benefits even
for small correlations. We calibrate our random matrix model with market data
and show how it is capable of grasping different market situations.
Furthermore, we present numerical simulations for concurrent portfolio risks,
i.e., for the joint probability densities of losses for two portfolios. For the
convenience of the reader, we give an introduction to the Wishart random matrix
model.Comment: Review of a new random matrix approach to credit ris
Risk evaluation with enhaced covariance matrix
We propose a route for the evaluation of risk based on a transformation of
the covariance matrix. The approach uses a `potential' or `objective' function.
This allows us to rescale data from different assets (or sources) such that
each data set then has similar statistical properties in terms of their
probability distributions. The method is tested using historical data from both
the New York and Warsaw Stock Exchanges.Comment: see urbanowicz.org.p
The opportunity cost of negative screening in socially responsible investing
This paper investigates the impact of negative screening on the investment universe as well as on financial performance. We come up with a novel identification process and as such depart from mainstream socially responsible investing literature by concentrating on individual firmsâ conduct and by studying a much wider range of issues. Firstly, we study the size and financial performance of fourteen potentially controversial issues: abortion, adult entertainment, alcohol, animal testing, contraceptives, controversial weapons, fur, gambling, genetic engineering, meat, nuclear power, pork, (embryonic) stem cells, and tobacco. We investigate an international sample of more than 1,600 stocks for more than twenty years. We then analyze the impact of applying negative screens to a market portfolio. Our findings suggest that the choice for negative screening strategies does matter for the size of the investment universe as well as for risk-adjusted return performance. Investing in controversial stocks in many cases results in additional risk-adjusted returns, whereas excluding them may reduce financial performance. These findings suggest that there are opportunity costs to negative screening.Publisher PDFPeer reviewe
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