2,683 research outputs found
An equity wealth preservation strategy: Following the macro trend
Financial crisis have happened in the past and will continue to do so in the future. In the most recent 2008 crisis, global equities (as measured by the MSCI ACWI index) lost a staggering 54.2% in USD, on the year. During those periods wealth preservation becomes at the top of most investorâs concerns. The purpose of this paper is to develop a strategy that protects the investment during bear markets and significant market corrections, generates capital appreciation, and that can support Millennium BCPâs Wealth Management Unit on their asset allocation procedures. This strategy extends the Dual Momentum approach introduced by Gary Antonacci (2014) in two ways. First, the investable set of securities in the equities space increases from two to four. Besides the US it will comprise the Japanese, European (excl. UK) and EM equity indices. Secondly, it adds a volatility filter as well as three indicators related to the business cycle and the state of the economy, which are relevant to decide on the strategyâs exposure to equities. Overall the results attest the resiliency of the strategy before, during and after historical financial crashes, as it drastically reduces the downside exposure and consistently outperforms the benchmark index by providing higher mean returns with lower variance
Systemic risk in the financial sector; a review and synthesis
In a financial crisis, an initial shock gets amplified while it propagates to other financial intermediaries, ultimately disrupting the financial sector. We review the literature on such amplification mechanisms, which create externalities from risk taking. We distinguish between two classes of mechanisms: contagion within the financial sector and pro-cyclical connection between the financial sector and the real economy. Regulation can diminish systemic risk by reducing these externalities. However, regulation of systemic risk faces several problems. First, systemic risk and its costs are difficult to quantify. Second, banks have strong incentives to evade regulation meant to reduce systemic risk. Third, regulators are prone to forbearance. Finally, the inability of governments to commit not to bail out systemic institutions creates moral hazard and reduces the marketâs incentive to price systemic risk. Strengthening market discipline can play an important role in addressing these problems, because it reduces the scope for regulatory forbearance, does not rely on complex information requirements, and is difficult to manipulate.
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Demographics and financial asset prices in the major industrial economies
This paper explores the relationship between demographics and aggregate financial asset prices in 7
OECD countries over the past 50 years. Unlike most extant work it adopts an international as well as
US focus, and also includes non-demographic variables usually considered to influence asset prices in
the econometric specification. Furthermore, we examine effects on bond yields as well as share prices.
The results indicate a significant link between panel, international and US demographics on the one
hand, and real stock prices and real bond yields on the other. The international results are of particular
interest given their robustness and the logic of international financial integration. Generally, an
increase in the fraction of middle-aged people (aged 40-64) tends to boost real asset prices. A
corollary is that a decline in this cohort in coming decades will tend to weaken them. More tentative
results including estimated effects of the over-65 cohort in the US suggest a more severe downturn is
possible, thus underlining the potential market risks associated with sole reliance on fully funded
pension schemes
What Determines Australia's Foreign Equity Investment?
In light of the recent changes to superannuation policy in Australia, the corresponding heightened exposure to equity markets has highlighted the importance of portfolio diversification as a means to reduce income risk. The International Capital Asset Pricing Model of Sharpe (1964) and Lintner (1965) suggests that in order to obtain maximum gains from diversification, investors hold too little wealth in foreign assets. This large discrepancy between theory and data is known as the home income bias puzzle and still remains robust despite the recent liberalisation of financial markets and removals of direct barriers to investment. This thesis empirically investigates the distribution of Australian holdings of foreign equities and considers the determinants of equity home bias for a sample of 25 countries. The IMF's high quality Coordinated Portfolio Investment Survey (CPIS) dataset is appropriate for this purpose and is utilised over the period 2001 to 2005. The key findings are that indirect barriers to international investment and information costs are important factors behind international investment patterns and the home bias puzzle.Discipline of Economic
What Determines Australia's Foreign Equity Investment?
In light of the recent changes to superannuation policy in Australia, the corresponding heightened exposure to equity markets has highlighted the importance of portfolio diversification as a means to reduce income risk. The International Capital Asset Pricing Model of Sharpe (1964) and Lintner (1965) suggests that in order to obtain maximum gains from diversification, investors hold too little wealth in foreign assets. This large discrepancy between theory and data is known as the home income bias puzzle and still remains robust despite the recent liberalisation of financial markets and removals of direct barriers to investment. This thesis empirically investigates the distribution of Australian holdings of foreign equities and considers the determinants of equity home bias for a sample of 25 countries. The IMF's high quality Coordinated Portfolio Investment Survey (CPIS) dataset is appropriate for this purpose and is utilised over the period 2001 to 2005. The key findings are that indirect barriers to international investment and information costs are important factors behind international investment patterns and the home bias puzzle.Discipline of Economic
Microgrids & District Energy: Pathways To Sustainable Urban Development
A microgrid is an energy system specifically designed to meet some of the energy needs of a group of buildings, a campus, or an entire community. It can include local facilities that generate electricity, heating, and/or cooling; store energy; distribute the energy generated; and manage energy consumption intelligently and in real time. Microgrids enable economies of scale that facilitate local production of energy in ways that can advance cost reduction, sustainability, economic development, and resilience goals. As they often involve multiple stakeholders, and may encompass numerous distinct property boundaries, municipal involvement is often a key factor for successful implementation.
This report provides an introduction to microgrid concepts, identifies the benefits and most common road blocks to implementation, and discusses proactive steps municipalities can take to advance economically viable and environmentally superior microgrids. It also offers advocacy suggestions for municipal leaders and officials to pursue at the state and regional level. The contents are targeted to municipal government staff but anyone looking for introductory material on microgrids should find it useful
Crown Financial Asset Management: Objectives and Practice
This paper analyses key issues that may be relevant to setting the Crown's overall objectives and practices for financial asset and liability management. It examines implications of the nature of the Crown's balance sheet for asset and liability management and investigates the appropriate approach of the Crown towards managing risk (concluding that a risk averse approach is warranted). The issue of centralisation versus decentralisation of Crown asset and liability management is analysed both from a portfolio management perspective and from an organisational design perspective. Insights from private sector financial conglomerates are also incorporated. The paper concludes that individual Crown financial entities should each continue to be responsible for setting their own strategic asset allocation, after taking into account the nature of their liabilities. A central Crown body should, however, monitor and aggregate information from each of these entities and be delegated the responsibility and power to manage risks to the overall Crown balance sheet.Crown balance sheet; Public debt management
Portfolio insurance strategies: friend or foe?
Degree of Doctor of Philosophy in Management.This work focus on a specific protective investment strategy developed in the foundations of options theory. Although individual investor's risk profile has evolved to accommodate remuneration on risks taken, still averse invertors tend to appreciate the rallies of risk markets when relatively protected from downward movements.
One of the strategies addressing this conundrum was developed in the 1980s and evolved from inclusion of options. In fact portfolio insurance strategies are important financial solutions sold to institutional and individual investors, that protect against downside risk while maintaining some upside valuation potential. The way these strategies are engineered has been criticized, and some analysts point them as one of the causes for increasing market volatility in depressed markets. In spite of the negative opinion, and the difficulties to explain their solid market share, investors keep on buying portfolio insurance.
As these strategies are reactive to risky assets price movements we review the impact of portfolio insurance strategies on stability of financial markets. In particular, we go from the crisis of October 1987 to some of the current resurgence od protective views on recent equity market rallies. The objective of this thesis is three-fold: have a transversal approach to portfolio insurance strategies using currrent tools and assess the fitting of these financial solutions to individual investors; contribute to the literature on portfolio insurance, specially, on the discussion on the values derived from protective strategies; finally, taking account new business platforms, discuss how new digital tools for investments may enhance capacibilities for profiling individual risks and set strategies that are proper per each investor. The work points to some features that may define the characteristics of individual investors' risk profile with the product definition for portfolio strategies. In particular we set the common approach for different utility functions and evaluate how these strategies respond to investors' risk and return requirements. We find no relevant results under Expected Utility Theory (EUT) to explain why individuals invest in portfolio insurance. In this thesis we support the use of behavioural finance to explain the popularity of portfolio insurance investments. In order to clarify their popularity, we compare investors' decision using two distinct frameworks: the EUT and behavioural approach based on the prospect and cumulative prospect theory. We rely on Monte Carlo simulation techniques to compare portfolio insurance investment strategies against uninsured basic benchmark strategies. Our comparative analysis us to conclude that cumulative prospect theory may be a viable framework to explain the popularity of (at least some) portfolio insurance investments. The results point the best choices to be the naive portfolio insurance strategies instead of the complex products. Ultimately we take a view on the digital marketplace for portfolio management in particularwhen using robo-advisors. There is a growing number of automatic platforms that define investors risk profile using a set of questions on psychological and behaviour features. Based on these characteristics, robo-advisors propose asset allocation into portfolios that tend to address investors aspirations within their risk profile. However, we found that even using some questions on downside risks - which tend to be responded by portfolio insurance strategies - there is a biased approach on the sample of robo-advisors in our study that may hide future mismatching from individual investors aspirations and deliverables from these platforms. A cross sectional analysis for the same risk type investor end up with different risk reward patterns from the sample of robo-advisors. There is, therefore, a potential long term mismatch between risks and risk tolerance levels that investors think they are bearing. This opens the space to review how the regulation is actually addressing mis-selling and effective risk profiling on individuals. In this case we point out the need for guidelines on policy issues regarding robo-advisor.Este trabalho centra-se nas estratĂ©gias de proteção baseadas nos fundamentos da teoria das opçÔes. Apesar da avaliação do perfil de risco dos investidores individuais ter vindo a evoluir no sentido de incorporar o conceito de remuneração pelo risco tomado, continuam a existir evidĂȘncias que apontam para os investidores avessos ao risco apreciarem o movimento de valorização dos ativos em risco, desde que beneficiem de uma proteção relativamento a situaçÔes de perda. Uma das estratĂ©gias de investimento que permite responder a este desafio foi desenvolvida nos anos 80 a partir da evolução da teoria das opçÔes. De facto, as estratĂ©gias de "portfĂłlio insurance" sĂŁo soluçÔes relevantes, tanto para investidores institucionais como individuais, para a proteção de carteiras em situação de perdas nos mercados de ativos de risco mas que permitem, simultaneamente, beneficiar do potencial de valorização nos movimentos de subida de preços. A forma como estas estratĂ©gias tĂȘm sido desenvolvidas Ă© alvo de crĂticas, tendo alguns analistas apontado estas estratĂ©gias como uma das causas de maior volatilidade nos mercados em situaçÔes de quedas nos preços. No entanto, os investidores continuam a alocar os seus recursos a soluçÔes de "portfolio insurance" apesar destas avaliaçÔes negativas.
Dado que estas estratĂ©gias sĂŁo reativas quando ocorrem movimentos nos preços, neste trabalho efectuamos uma revisĂŁo dos impactos das estratĂ©gias de portfolio insurance na estabilidade dos mercados financeiros. Em particular, revimos a crise de Outubro de 1987 e damos nota sobre alguns dos movimentos mais recentes relativamente ao ressurgimento das estratĂ©gias de proteção face aos Ășltimos movimentos de subida dos preços do mercado acionista. SĂąo trĂȘs os objetivos desta Tese: estabelecer uma abordagem transversal Ă s estratĂ©gias " portfolio insurance" utilizando as tĂ©cnicas disponĂveis para avaliar a adequação destas soluçÔes aos investidores individuais; contribuir para a literatura, em particular para a avaliação do valor obtido pelos investidores em "portfolio insurance"; finalmente, tendo em conta a evolução das novas plataformas digitais de gestĂŁo de ativos com base em "robo-advisors", discutir como se pode incrementar a capacidade de desenhar perfis de risco e nĂveis de tolerĂąncia adequados a cada investidor. No Ăąmbito do trabalho avaliamos algumas das caracterĂsticas que permitem, de alguma forma, avaliar a adequação das soluçÔes de "portfolio insurance" ao perfil de risco dos investidores individuais. A metodologia que utilizamos baseia-se na abordage, da Teoria da Utilidade Esperada, com diversas funçÔes e parĂąmetros, de forma a analisar a resposta em termos de utilidade face a diversos cenĂĄrios de risco e retorno. Os resultados obtidos nesta abordagem nĂŁo permitem uma explicação suficientemente robusta para justificar o investimento dos investidores indivuduais nestas soluçÔes.
Na tese Ă© desenvolvida uma anĂĄlise que suporta a abordagem das finanças comportamentais para a explicação da popularidade dos investimentos em estratĂ©gias de "portfolio insurance". Com efeito, baseamos a anĂĄlise na comparação das decisĂ”es dos investidores em enquadramentos distintos , i.e. teoria da utilidade e finanças comportamentais baseadas em "prospect theory" e "cumulative prospect theory". A partir de simulaçÔes de Monte Carlo comparamos o valor atribuĂdo pelos investidores num conjunto de estratĂ©gias "portfolio insurance" frequentemente disponibilizados no mercado com estratĂ©gias sem mecanismos de proteção. Os resultados desta anĂĄlise comparativa permitem concluir que a "cumulative prospect theory" pode ser um enquadramento viĂĄvel para explicar a popularidade de, pelo menos, algumas das estratĂ©gias de "portfolio insurance". Os resultados apontam para que de entre as estratĂ©gias de "portfolio insurance" as mais simples - do tipo naive - sejam preferidas, face a estratĂ©gias assentes em soluçÔes mais complexas.
Por Ășltimo, tendo presente a evolução digital que tem vindo a ser introduzida na gestĂŁo de investimentos para particulares, com especial incidĂȘncia nos designados "robo-advisors", abordamos a forma como estas plataformas determinam as estratĂ©gias de investimento. Existe um nĂșmero cada vez maior de plataformas que define o perfil dos investidores atravĂ©s de um questionĂĄrio com recolha de elementos psicolĂłgicos e comportamentais. Com base nas caracterĂsticas recolhidas a partir dessas questĂ”es, as plataformas de "robo-advisors" propĂ”es uma alocação a diversas classes de ativos que pretendem endereçar as aspiraçÔes dos investidores individuais de acordo com o seu perfil de risco. No entanto, na nossa anĂĄlise, verificamos que apesar da utilização de perguntas sobre situaçÔes de perda de valor nos ativos - cenĂĄrios a que as estratĂ©gias de "portfolio insurance" pretendem dar resposta - regista-se uma aborgadem enviesada na amostra de plataformas "robo-advisors" que podem, no futuro, potenciar divergĂȘncias entre as aspiraçÔes dos investidores e os resultados estimados a partir das alocaçÔes definidas pelas plataformas. Isto significa que podemos estar perante um "mismatch" no longo prazo entre os riscos e nĂveis de tolerĂąncia ao risco em que os investidores julgam que podem incorrer, face a questionĂĄrios recolhidos no processo de definição da sus estratĂ©gia de investimentos. Este facto abre espaço para a discussĂŁo sobre a forma como a regulamentação pretende gerir, em termos de orientaçÔes, os procedimentos de "mis-selling" e efetiva definição dos perfis de risco de vir a ser relevantes para orientaçÔes sobre polĂticas quanto ao risco, retorno e comportamento dos investidores individuais.N/
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An Assessment of PIER Electric Grid Research 2003-2014 White Paper
This white paper describes the circumstances in California around the turn of the 21st century that led the California Energy Commission (CEC) to direct additional Public Interest Energy Research funds to address critical electric grid issues, especially those arising from integrating high penetrations of variable renewable generation with the electric grid. It contains an assessment of the beneficial science and technology advances of the resultant portfolio of electric grid research projects administered under the direction of the CEC by a competitively selected contractor, the University of Californiaâs California Institute for Energy and the Environment, from 2003-2014
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