This article analyzes the relationship between cryptocurrencies and technology indices. The dataset includes eight different cryptocurrencies selected based on the traded volume and fifteen country technology indices. The analysis is carried out using multivariate regression of each of the cryptocurrencies vs. the technology indices, and Granger causality test. Results show that there exists a significant relationship between cryptocurrencies and different technology indices. We also show that the relationship fails between cryptocurrencies and technology indices if there is a complete ban on trading in cryptocurrencies in a country, and even if there is a partial ban, certainty of laws, integration, and acceptance of the cryptocurrency in the system plays a key role to establish relationship between cryptocurrencies and various technology indices. These findings provide an insight into the cryptocurrency regulations and trades undertaken by speculators.
{"title":"Cryptocurrencies and Technology Indices: A Relationship and Causality Analysis","authors":"A. Corelli, Jatin Malhotra","doi":"10.3905/jwm.2022.1.191","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.191","url":null,"abstract":"This article analyzes the relationship between cryptocurrencies and technology indices. The dataset includes eight different cryptocurrencies selected based on the traded volume and fifteen country technology indices. The analysis is carried out using multivariate regression of each of the cryptocurrencies vs. the technology indices, and Granger causality test. Results show that there exists a significant relationship between cryptocurrencies and different technology indices. We also show that the relationship fails between cryptocurrencies and technology indices if there is a complete ban on trading in cryptocurrencies in a country, and even if there is a partial ban, certainty of laws, integration, and acceptance of the cryptocurrency in the system plays a key role to establish relationship between cryptocurrencies and various technology indices. These findings provide an insight into the cryptocurrency regulations and trades undertaken by speculators.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"143 - 153"},"PeriodicalIF":0.0,"publicationDate":"2022-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43933940","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}
This article addresses the growing awareness that the most commonly used risk–reward metrics, such as the Sharpe ratio, are flawed. Including the winning returns as part of the risk and assuming that returns are normally distributed are two of the biggest flaws. These problems, and others, have motivated a search for alternatives. The authors analyze one prominent alternative risk metric, the Ulcer Index (UI). It does what a risk metric should do—measure the depth and duration of drawdowns. One criticism against it, however, is that it fails to adequately reflect the appropriate risk of the most severe drawdowns. One suggested response requires setting a hard boundary for drawdowns, beyond which they are weighted more severely. By contrast, the authors suggest that, even if appropriate, there is a more graceful solution, one that simply raises the power of UI beyond 2.0 to smoothly reflect the greater severity of drawdowns as they increase in size. How much beyond 2.0 is ultimately a decision for fund managers, but they suggest 2.6 as a balanced level that provides greater sensitivity to larger drawdowns without overweighting them—hence, UI 2.6.
{"title":"Ulcer Index 2.6: A Better Risk Measure?","authors":"Russ McBride, Alireza Dastan","doi":"10.3905/jwm.2022.1.190","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.190","url":null,"abstract":"This article addresses the growing awareness that the most commonly used risk–reward metrics, such as the Sharpe ratio, are flawed. Including the winning returns as part of the risk and assuming that returns are normally distributed are two of the biggest flaws. These problems, and others, have motivated a search for alternatives. The authors analyze one prominent alternative risk metric, the Ulcer Index (UI). It does what a risk metric should do—measure the depth and duration of drawdowns. One criticism against it, however, is that it fails to adequately reflect the appropriate risk of the most severe drawdowns. One suggested response requires setting a hard boundary for drawdowns, beyond which they are weighted more severely. By contrast, the authors suggest that, even if appropriate, there is a more graceful solution, one that simply raises the power of UI beyond 2.0 to smoothly reflect the greater severity of drawdowns as they increase in size. How much beyond 2.0 is ultimately a decision for fund managers, but they suggest 2.6 as a balanced level that provides greater sensitivity to larger drawdowns without overweighting them—hence, UI 2.6.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"59 - 71"},"PeriodicalIF":0.0,"publicationDate":"2022-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45078306","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}
Jacky Lin, Genevieve Selden, J. Shoven, Clemens Sialm
The Dow Jones Industrial Average (DJIA) has historically been the most recognized stock index in the United States. It has several unique features. It uses price weights, it ignores cash dividend payments, and it also treats stock dividends, rights issues, and other corporate actions inconsistently. We show that price indices that use alternative weighting methods and more systematic inclusion criteria perform similarly to the DJIA. However, ignoring cash and stock dividends underestimates the long-run returns earned by stock market investors dramatically. If the DJIA had consistently adjusted for dividends and other corporate actions since 1928, the index would have closed at 1,113,047 instead of 28,538 points at the end of 2019.
{"title":"Deconstructing the Dow Jones Industrial Average","authors":"Jacky Lin, Genevieve Selden, J. Shoven, Clemens Sialm","doi":"10.3905/jwm.2022.1.188","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.188","url":null,"abstract":"The Dow Jones Industrial Average (DJIA) has historically been the most recognized stock index in the United States. It has several unique features. It uses price weights, it ignores cash dividend payments, and it also treats stock dividends, rights issues, and other corporate actions inconsistently. We show that price indices that use alternative weighting methods and more systematic inclusion criteria perform similarly to the DJIA. However, ignoring cash and stock dividends underestimates the long-run returns earned by stock market investors dramatically. If the DJIA had consistently adjusted for dividends and other corporate actions since 1928, the index would have closed at 1,113,047 instead of 28,538 points at the end of 2019.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"120 - 142"},"PeriodicalIF":0.0,"publicationDate":"2022-10-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48572847","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}
This article seeks to address the question of whether wealth management is an academic discipline and to encourage the wealth management practitioner community to appreciate their stake in the disciplinary advancement of wealth management as a field of study. This article relays the notion that at least some stakeholders in the wealth management community have concluded that the field of financial planning differs from wealth management. If the broader community agrees with this notion, the successes realized by the financial planning community in reaching disciplinary status cannot be attributed to wealth management as a field of study. With this limitation in mind, the article presents an assessment of the disciplinary status of wealth management by utilizing a six-characteristic framework. In this article, a conclusion is reached that wealth management has not achieved disciplinary status and recommendations are made with the aim of achieving such status.
{"title":"Wealth Management: Is It an Academic Discipline and Should Wealth Managers Care?","authors":"J. Hearl","doi":"10.3905/jwm.2022.1.187","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.187","url":null,"abstract":"This article seeks to address the question of whether wealth management is an academic discipline and to encourage the wealth management practitioner community to appreciate their stake in the disciplinary advancement of wealth management as a field of study. This article relays the notion that at least some stakeholders in the wealth management community have concluded that the field of financial planning differs from wealth management. If the broader community agrees with this notion, the successes realized by the financial planning community in reaching disciplinary status cannot be attributed to wealth management as a field of study. With this limitation in mind, the article presents an assessment of the disciplinary status of wealth management by utilizing a six-characteristic framework. In this article, a conclusion is reached that wealth management has not achieved disciplinary status and recommendations are made with the aim of achieving such status.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"172 - 187"},"PeriodicalIF":0.0,"publicationDate":"2022-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46517469","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 Markets in Financial Instruments Directive (MiFID) must protect retail investors and increase risk transparency. To disclose and mitigate investment risks effectively, banks use standardized risk profiles. Through a scenario-based case study, we demonstrate that based on future risk-adjusted returns and volatility, these risk profiles of pan-European private banks significantly differ. Even though MiFID is not subject to bandwidth restrictions, differences could interfere with risk transparency and lead to significant differences in future risk, return, and managed expectations of clients due to profile overlap. This article uses the risk profiles of twelve pan-European private banks. We found significant non-equality among three rebalancing strategies: buy-and-hold, yearly rebalancing, and bandwidth rebalancing. The impact of broader bandwidths in the rebalancing strategy results in a significantly higher risk and return for investors due to greater flexibility in equity weights. Consequently, this article presents inconsistencies in private banks’ risk profiles. Future regulations should address and reconstitute guidelines to mitigate risk discrepancies. The difference in risk and return within the pan-European private banks creates a lack of transparency and does not contribute to investor protection envisaged by MiFID.
{"title":"Inconsistent Risk Profiles within Pan-European Private Banks: Insufficient Transparency for Retail Investors","authors":"V. Geerts, Ronald Janssen, Tom Loonen","doi":"10.3905/jwm.2022.1.186","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.186","url":null,"abstract":"The Markets in Financial Instruments Directive (MiFID) must protect retail investors and increase risk transparency. To disclose and mitigate investment risks effectively, banks use standardized risk profiles. Through a scenario-based case study, we demonstrate that based on future risk-adjusted returns and volatility, these risk profiles of pan-European private banks significantly differ. Even though MiFID is not subject to bandwidth restrictions, differences could interfere with risk transparency and lead to significant differences in future risk, return, and managed expectations of clients due to profile overlap. This article uses the risk profiles of twelve pan-European private banks. We found significant non-equality among three rebalancing strategies: buy-and-hold, yearly rebalancing, and bandwidth rebalancing. The impact of broader bandwidths in the rebalancing strategy results in a significantly higher risk and return for investors due to greater flexibility in equity weights. Consequently, this article presents inconsistencies in private banks’ risk profiles. Future regulations should address and reconstitute guidelines to mitigate risk discrepancies. The difference in risk and return within the pan-European private banks creates a lack of transparency and does not contribute to investor protection envisaged by MiFID.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"91 - 103"},"PeriodicalIF":0.0,"publicationDate":"2022-10-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45063039","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 objectives of this article are to: 1) examine the short-term and long-term integration among the emerging markets and developed markets, and 2) evaluate the benefits of portfolio diversification for the investors of developed countries. Results of correlation and Granger causality found a lack of short-term integration among the markets. The co-integration test reveals a lack of long-term strong integration among the market returns and it also indicates the scope of portfolio diversification for investors. Investors involved with developed markets can have a better Sharpe ratio, higher returns, and lower risk through the diversification of their portfolio as compared to investing in just their home markets. Among all the diversification strategies, the maximum Sharpe ratio is the most rewarding strategy. Investors can enjoy gains in the risk-return tradeoff and in their wealth by diversifying their portfolios.
{"title":"Do BRICS Emerging Markets Offer Portfolio Diversification Benefits?—Implications for Developed Markets","authors":"Ritesh Patel","doi":"10.3905/jwm.2022.1.185","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.185","url":null,"abstract":"The objectives of this article are to: 1) examine the short-term and long-term integration among the emerging markets and developed markets, and 2) evaluate the benefits of portfolio diversification for the investors of developed countries. Results of correlation and Granger causality found a lack of short-term integration among the markets. The co-integration test reveals a lack of long-term strong integration among the market returns and it also indicates the scope of portfolio diversification for investors. Investors involved with developed markets can have a better Sharpe ratio, higher returns, and lower risk through the diversification of their portfolio as compared to investing in just their home markets. Among all the diversification strategies, the maximum Sharpe ratio is the most rewarding strategy. Investors can enjoy gains in the risk-return tradeoff and in their wealth by diversifying their portfolios.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"104 - 119"},"PeriodicalIF":0.0,"publicationDate":"2022-10-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46785529","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 study shows how index funds and exchange-traded funds (ETFs) can be used for tactical asset allocation by using a modified Kelly criterion. Index funds and ETFs are good for strategic asset allocation, but there is little room for tactical asset allocation. This study nevertheless demonstrates how to use index funds and ETFs to do tactical asset allocation. People who invest in index funds or ETFs can get better risk-adjusted returns on their money no matter what kind of risk they are willing to take. The study uses the Kelly criterion in the Indian context to find portfolios that have better risk-adjusted returns.
{"title":"Tactical Asset Allocation in Stock Indices: A Kelly Criterion–Based Approach","authors":"BESTA Hariprasad, Sony Thomas","doi":"10.3905/jwm.2022.1.184","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.184","url":null,"abstract":"The study shows how index funds and exchange-traded funds (ETFs) can be used for tactical asset allocation by using a modified Kelly criterion. Index funds and ETFs are good for strategic asset allocation, but there is little room for tactical asset allocation. This study nevertheless demonstrates how to use index funds and ETFs to do tactical asset allocation. People who invest in index funds or ETFs can get better risk-adjusted returns on their money no matter what kind of risk they are willing to take. The study uses the Kelly criterion in the Indian context to find portfolios that have better risk-adjusted returns.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"37 - 58"},"PeriodicalIF":0.0,"publicationDate":"2022-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44307105","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 link between the uncertainty of stock markets and the emotional stress of the COVID-19 pandemic has been studied by numerous researchers. For example, a few studies have provided mixed evidence about the behavioral responses of individual retail investors and their financial risk tolerance and stock trading. To the best of the authors’ knowledge, however, this study is the first to analyze the influence of the psychological aspects of the pandemic on these investors’ financial responses. A total of 396 investors from India participated in the study, and a mediational analysis was performed using AMOS to explore whether the perceived financial threat (PFT) was a linkage between personality traits (PTs), trading preferences, and risk tolerance during the pandemic. The results show that the PFT was a mediator between PTs and stock trading and between PTs and risk tolerance. Additionally, investors with various PTs had varying intensities of the PFT, which eventually impacted financial behavior in the form of trading and risk aversion.
{"title":"Personality Effects on Financial Responses Caused by the Perceived Financial Threat during the COVID-19 Pandemic","authors":"Muskaan Arora, Renuka Sharma, K. Mehta","doi":"10.3905/jwm.2022.1.183","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.183","url":null,"abstract":"The link between the uncertainty of stock markets and the emotional stress of the COVID-19 pandemic has been studied by numerous researchers. For example, a few studies have provided mixed evidence about the behavioral responses of individual retail investors and their financial risk tolerance and stock trading. To the best of the authors’ knowledge, however, this study is the first to analyze the influence of the psychological aspects of the pandemic on these investors’ financial responses. A total of 396 investors from India participated in the study, and a mediational analysis was performed using AMOS to explore whether the perceived financial threat (PFT) was a linkage between personality traits (PTs), trading preferences, and risk tolerance during the pandemic. The results show that the PFT was a mediator between PTs and stock trading and between PTs and risk tolerance. Additionally, investors with various PTs had varying intensities of the PFT, which eventually impacted financial behavior in the form of trading and risk aversion.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"72 - 89"},"PeriodicalIF":0.0,"publicationDate":"2022-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42324602","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 current yield on the 10-year T-bond bottomed out at 49.9 bps in 2020 and has since risen to 316.7 bps, a 535% proportionate increase. Consequently, 7–10-year and 10–20-year US Treasuries delivered total returns of −15.0% and −27.7%, respectively. Institutional and retail investors are actively seeking bond substitutes in response to a fear that the US economy has embarked on a multidecade-long era defined by ever-increasing interest rates. Commercial real estate is the first bond substitute they are considering. Unfortunately, data since 1971 strongly support the conclusion that publicly traded real estate investment trusts (REITs) carry a positive interest rate loading of sufficient size that their use as a bond substitute is likely to make the situation worse. In contrast, data since 1977 support the conclusion that private direct ownership of institutional bricks and mortar carries no such interest rate factor loading. Carried to its logical conclusion, these observations suggest the exploration of something like a 130/30 portfolio (130% long the NFI-ODCE Index and 30% short the FTSE Nareit All REITs Index).
10年期国债的当前收益率在2020年跌至49.9个基点的底部，此后已升至316.7个基点，按比例增长535%。因此，7–10年期和10–20年期美国国债的总回报率分别为−15.0%和−27.7%。机构和散户投资者正在积极寻求债券替代品，以应对人们对美国经济已进入一个由不断上升的利率定义的长达数十年的时代的担忧。商业地产是他们考虑的第一个债券替代品。不幸的是，自1971年以来的数据有力地支持了这样一个结论，即公开交易的房地产投资信托基金（REITs）具有足够大的正利率负荷，将其用作债券替代品可能会使情况变得更糟。相比之下，自1977年以来的数据支持这样一个结论，即机构实体的私人直接所有权没有这样的利率因素负荷。根据其逻辑结论，这些观察结果表明，正在探索130/30投资组合（NFI-ODCE指数上涨130%，富时Nareit All REITs指数下跌30%）。
{"title":"Will Real Estate Fail When Interest Rates Rise?","authors":"Robt. M. Brown","doi":"10.3905/jwm.2022.1.182","DOIUrl":"https://doi.org/10.3905/jwm.2022.1.182","url":null,"abstract":"The current yield on the 10-year T-bond bottomed out at 49.9 bps in 2020 and has since risen to 316.7 bps, a 535% proportionate increase. Consequently, 7–10-year and 10–20-year US Treasuries delivered total returns of −15.0% and −27.7%, respectively. Institutional and retail investors are actively seeking bond substitutes in response to a fear that the US economy has embarked on a multidecade-long era defined by ever-increasing interest rates. Commercial real estate is the first bond substitute they are considering. Unfortunately, data since 1971 strongly support the conclusion that publicly traded real estate investment trusts (REITs) carry a positive interest rate loading of sufficient size that their use as a bond substitute is likely to make the situation worse. In contrast, data since 1977 support the conclusion that private direct ownership of institutional bricks and mortar carries no such interest rate factor loading. Carried to its logical conclusion, these observations suggest the exploration of something like a 130/30 portfolio (130% long the NFI-ODCE Index and 30% short the FTSE Nareit All REITs Index).","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"155 - 171"},"PeriodicalIF":0.0,"publicationDate":"2022-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46436374","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}
Pub Date : 2022-07-31DOI: 10.3905/jwm.2022.25.2.001
Jean L. P. Brunel, Paul Bouchey
{"title":"Editor’s Letter","authors":"Jean L. P. Brunel, Paul Bouchey","doi":"10.3905/jwm.2022.25.2.001","DOIUrl":"https://doi.org/10.3905/jwm.2022.25.2.001","url":null,"abstract":"","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"25 1","pages":"1 - 3"},"PeriodicalIF":0.0,"publicationDate":"2022-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41859120","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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