International stock portfolio returns are affected by exchange rate fluctuations. So, by reducing exposure to adverse exchange rate movements, portfolio returns may be improved. This study proposes an innovative international diversification strategy which restricts investments to countries whose currencies are not anticipated to depreciate according to deviations from purchasing power parity (PPP) accumulated over a five-year period. Using quarterly data from 1991 to 2006, performance of this strategy is examined for a number of investment horizons from the perspectives of eight developed countries with free-floating currencies. Depending on country perspectives, average returns realized by the proposed selective diversification strategy were 1.50 to 8.27 percent higher than those from the no-selection passive diversification strategy, a result which persisted after adjusting for risk. A portfolio return decomposition analysis shows that a major part of the strategy's excess return came from its superior currency-selection ability.
{"title":"Partial Diversification May Enhance International Portfolio Return","authors":"Mei Qiu, John F. Pinfold, L. Rose","doi":"10.2139/ssrn.958646","DOIUrl":"https://doi.org/10.2139/ssrn.958646","url":null,"abstract":"International stock portfolio returns are affected by exchange rate fluctuations. So, by reducing exposure to adverse exchange rate movements, portfolio returns may be improved. This study proposes an innovative international diversification strategy which restricts investments to countries whose currencies are not anticipated to depreciate according to deviations from purchasing power parity (PPP) accumulated over a five-year period. Using quarterly data from 1991 to 2006, performance of this strategy is examined for a number of investment horizons from the perspectives of eight developed countries with free-floating currencies. Depending on country perspectives, average returns realized by the proposed selective diversification strategy were 1.50 to 8.27 percent higher than those from the no-selection passive diversification strategy, a result which persisted after adjusting for risk. A portfolio return decomposition analysis shows that a major part of the strategy's excess return came from its superior currency-selection ability.","PeriodicalId":375570,"journal":{"name":"Diversification Strategy & Policy eJournal","volume":"269 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116053533","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The poor performance of traditional asset classes in recent years has driven the search for greater investment into alternative asset classes. The desire to reap higher risk adjusted returns from diversification into assets which offer low and even negative correlation with equities and bonds are extremely desirable. There has been a huge growth in the traditional alternative investments: commodity and hedge fund investments. A number of funds specialising in Art have recently emerged, which also appear to offer a highly beneficial diversification strategy with extremely low correlation with traditional asset classes. But it is important for investors to understand the risk and return characteristics of this new 'alternative' asset class. In this paper we take a closer look at Art as an alternative asset, and look specifically at how this new alternative asset is expected to perform during bear markets, in times when benefits to diversification are most needed.
{"title":"Art as an Alternative Asset Class","authors":"R. Pownall","doi":"10.2139/ssrn.675643","DOIUrl":"https://doi.org/10.2139/ssrn.675643","url":null,"abstract":"The poor performance of traditional asset classes in recent years has driven the search for greater investment into alternative asset classes. The desire to reap higher risk adjusted returns from diversification into assets which offer low and even negative correlation with equities and bonds are extremely desirable. There has been a huge growth in the traditional alternative investments: commodity and hedge fund investments. A number of funds specialising in Art have recently emerged, which also appear to offer a highly beneficial diversification strategy with extremely low correlation with traditional asset classes. But it is important for investors to understand the risk and return characteristics of this new 'alternative' asset class. In this paper we take a closer look at Art as an alternative asset, and look specifically at how this new alternative asset is expected to perform during bear markets, in times when benefits to diversification are most needed.","PeriodicalId":375570,"journal":{"name":"Diversification Strategy & Policy eJournal","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116890983","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
S. Claessens, Joseph P. H. Fan, Simeon Djankov, Larry H. P. Lang
The East Asian financial crisis has been attributed in part to the corporate diversification associated with the misallocation of capital investment toward less profitable and more risky business segments. Much anecdotal evidence to support this view has surfaced since the crisis but there was little discussion of it before the crisis. Quite the contrary: The rapid expansion of East Asian firms by entering new business segments was viewed as contributing to the East Asian miracle. The authors examine the efficiency of investment by diversified corporations in nine East Asian countries, using unique panel data from more than 10,000 corporations for the pre-crisis period, 1991-96. They: 1) Document the degree of diversification in the corporate sector in Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand, countries that have achieved enviable rates of economic growth over the past three decades. 2) Distinguished between vertical and complementary diversification and study the differences across nine countries. 3) Investigate whether diversification in East Asian has hurt economic efficiency. Their study tests the learning-by-doing and misallocation-of-capital hypotheses related to the types and degrees of diversification in East Asian countries. Firms in Indonesia, Korea, Taiwan, and Thailand appear to have suffered significant negative effects of vertical integration on short-term performance; the same countries gained significant short-term benefits from complementary expansion. The results suggests that the misallocation-of-capital hypothesis is appropriate for Korea and Malaysia; the learning-by-doing hypothesis for Indonesia, Taiwan, and Thailand. Firms in more developed countries succeed in vertically integrating and improve both short-term profitability and market valuation. Firms in more developed countries are ultimately more likely to benefit from such diversification (learn faster, to improve their performance). And diversification by firms in less developed countries is subject to more misallocation of capital.
{"title":"Diversification and Efficiency of Investment of East Asian Corporations","authors":"S. Claessens, Joseph P. H. Fan, Simeon Djankov, Larry H. P. Lang","doi":"10.2139/ssrn.147467","DOIUrl":"https://doi.org/10.2139/ssrn.147467","url":null,"abstract":"The East Asian financial crisis has been attributed in part to the corporate diversification associated with the misallocation of capital investment toward less profitable and more risky business segments. Much anecdotal evidence to support this view has surfaced since the crisis but there was little discussion of it before the crisis. Quite the contrary: The rapid expansion of East Asian firms by entering new business segments was viewed as contributing to the East Asian miracle. The authors examine the efficiency of investment by diversified corporations in nine East Asian countries, using unique panel data from more than 10,000 corporations for the pre-crisis period, 1991-96. They: 1) Document the degree of diversification in the corporate sector in Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand, countries that have achieved enviable rates of economic growth over the past three decades. 2) Distinguished between vertical and complementary diversification and study the differences across nine countries. 3) Investigate whether diversification in East Asian has hurt economic efficiency. Their study tests the learning-by-doing and misallocation-of-capital hypotheses related to the types and degrees of diversification in East Asian countries. Firms in Indonesia, Korea, Taiwan, and Thailand appear to have suffered significant negative effects of vertical integration on short-term performance; the same countries gained significant short-term benefits from complementary expansion. The results suggests that the misallocation-of-capital hypothesis is appropriate for Korea and Malaysia; the learning-by-doing hypothesis for Indonesia, Taiwan, and Thailand. Firms in more developed countries succeed in vertically integrating and improve both short-term profitability and market valuation. Firms in more developed countries are ultimately more likely to benefit from such diversification (learn faster, to improve their performance). And diversification by firms in less developed countries is subject to more misallocation of capital.","PeriodicalId":375570,"journal":{"name":"Diversification Strategy & Policy eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129339506","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Through dozens of studies, economists have accumulated considerable evidence and knowledge on the effects of the takeover market. Most of the earlier work is well summarized elsewhere (Jensen and Ruback (1983); Jensen (1984); Jarrell, Brickley and Netter (1988)). Here, I focus on current aspects of the controversy. In brief, the previous work tells us the following: Takeovers benefit shareholders of target companies. Premiums in hostile offers historically exceed 30 percent on average, and in recent times have averaged about 50 percent. Acquiring-firm shareholders on average earn about 4 percent in hostile takeovers and roughly zero in mergers, although these returns seem to have declined from past levels. Takeovers do not waste credit or resources. Instead, they generate substantial gains: historically, 8 percent of the total value of both companies. Actions by managers that eliminate or prevent offers or mergers are most suspect as harmful to shareholders. Golden parachutes for top-level managers do not, on average, harm shareholders. The activities of takeover specialists (such as Icahn, Posner, Steinberg, and Pickens) benefit shareholders on average. Merger and acquisition activity has not increased industrial concentration. Over 1200 divestitures valued at $59.9 billion occurred in 1986, also a record level (Grimm, 1986). Takeover gains do not come from the creation of monopoly power. Although measurement problems make it difficult to estimate the returns to bidders as precisely as the returns to targets, it appears the bargaining power of target managers, coupled with competition among potential acquirers, grants a large share of the acquisition benefits to selling shareholders. In addition, federal and state regulation of tender offers appears to have strengthened the hand of target firms; premiums received by target-firm shareholders increased substantially after introduction of such regulation.
{"title":"The Free Cash Flow Theory of Takeovers: A Financial Perspective on Mergers and Acquisitions and the Economy","authors":"M. C. Jensen","doi":"10.2139/ssrn.350422","DOIUrl":"https://doi.org/10.2139/ssrn.350422","url":null,"abstract":"Through dozens of studies, economists have accumulated considerable evidence and knowledge on the effects of the takeover market. Most of the earlier work is well summarized elsewhere (Jensen and Ruback (1983); Jensen (1984); Jarrell, Brickley and Netter (1988)). Here, I focus on current aspects of the controversy. In brief, the previous work tells us the following: Takeovers benefit shareholders of target companies. Premiums in hostile offers historically exceed 30 percent on average, and in recent times have averaged about 50 percent. Acquiring-firm shareholders on average earn about 4 percent in hostile takeovers and roughly zero in mergers, although these returns seem to have declined from past levels. Takeovers do not waste credit or resources. Instead, they generate substantial gains: historically, 8 percent of the total value of both companies. Actions by managers that eliminate or prevent offers or mergers are most suspect as harmful to shareholders. Golden parachutes for top-level managers do not, on average, harm shareholders. The activities of takeover specialists (such as Icahn, Posner, Steinberg, and Pickens) benefit shareholders on average. Merger and acquisition activity has not increased industrial concentration. Over 1200 divestitures valued at $59.9 billion occurred in 1986, also a record level (Grimm, 1986). Takeover gains do not come from the creation of monopoly power. Although measurement problems make it difficult to estimate the returns to bidders as precisely as the returns to targets, it appears the bargaining power of target managers, coupled with competition among potential acquirers, grants a large share of the acquisition benefits to selling shareholders. In addition, federal and state regulation of tender offers appears to have strengthened the hand of target firms; premiums received by target-firm shareholders increased substantially after introduction of such regulation.","PeriodicalId":375570,"journal":{"name":"Diversification Strategy & Policy eJournal","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1987-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117002722","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Studying acquisitions in the US pharmaceutical industry, we first question how the alignment of acquirers’ innovation trajectories (as path-dependent or path-breaking change through the acquisition of targets with similar or distant innovations) with their own inventors’ pre-acquisition knowledge (as specialized or diversified) may influence these inventors’ post-acquisition productivity. We examine two characteristics of productivity – namely whether acquirers’ future innovations are indicative of knowledge deepening or broadening, as well as their impact. Second, we focus on both the acquirers’ and targets’ human capital (i.e., inventors’) knowledge resources, and study characteristics of who the knowledge is being acquired from at the target firm and who it is being absorbed or integrated by at the acquirer, and further how this alignment may also impact the acquirer’s inventors’ productivity.
{"title":"Firms’ Innovation Trajectories and Inventors’ Productivity in the Context of Acquisitions","authors":"Shinjinee Chattopadhyay, S. Karim","doi":"10.2139/ssrn.3912334","DOIUrl":"https://doi.org/10.2139/ssrn.3912334","url":null,"abstract":"Studying acquisitions in the US pharmaceutical industry, we first question how the alignment of acquirers’ innovation trajectories (as path-dependent or path-breaking change through the acquisition of targets with similar or distant innovations) with their own inventors’ pre-acquisition knowledge (as specialized or diversified) may influence these inventors’ post-acquisition productivity. We examine two characteristics of productivity – namely whether acquirers’ future innovations are indicative of knowledge deepening or broadening, as well as their impact. Second, we focus on both the acquirers’ and targets’ human capital (i.e., inventors’) knowledge resources, and study characteristics of who the knowledge is being acquired from at the target firm and who it is being absorbed or integrated by at the acquirer, and further how this alignment may also impact the acquirer’s inventors’ productivity.","PeriodicalId":375570,"journal":{"name":"Diversification Strategy & Policy eJournal","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130185423","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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