{"title":"Commentary: Thinking about climate risk as a supply-side shock","authors":"A. Hughes","doi":"10.1108/jrf-05-2022-240","DOIUrl":"https://doi.org/10.1108/jrf-05-2022-240","url":null,"abstract":"","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-04-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43706605","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 : 2022-03-28DOI: 10.1108/jrf-03-2021-0035
L. Tibiletti
PurposeThe paper proposes using modified duration in calculating the proper risk-adjusted discount rate (RADR) to account for downside risk scenarios in capital budgeting.Design/methodology/approachThe paper shows how to use modified duration to summarize in a single number the bidimensional information about the inflows and terms in which they are charged in the use of the RADR. If a short modified duration characterizes the project, that is, the most relevant inflows are charged in short times, then discounting at RADR has mild effects on net present value (NPV). Else, if a long modified duration characterizes the project, discounting at RADR may have severe effects on NPV. The study proves that RADR's effectiveness increases with the project's modified duration.FindingsThe study builds a bridge between the regular NPV method used in academia and the RADR method used in the managerial context by identifying the proper RADR that leads the same NPV risk-adjustments, whichever method is used by including modified duration into the analysis.Practical implicationsThe results show how to select the proper RADR by reducing the subjectivity and increasing financial precision based on modified duration, thus providing an alternative to the norm. Simulations are used to make sensitivity analysis more effective and spotlight the main drivers in the risk-adjustments providing robust results.Originality/valueThis paper fulfils the gap between the RADR method and the expected net present value method by providing simple relations between the characteristic parameters.
{"title":"One-size risk-adjusted discount rate does not fit all risky projects","authors":"L. Tibiletti","doi":"10.1108/jrf-03-2021-0035","DOIUrl":"https://doi.org/10.1108/jrf-03-2021-0035","url":null,"abstract":"PurposeThe paper proposes using modified duration in calculating the proper risk-adjusted discount rate (RADR) to account for downside risk scenarios in capital budgeting.Design/methodology/approachThe paper shows how to use modified duration to summarize in a single number the bidimensional information about the inflows and terms in which they are charged in the use of the RADR. If a short modified duration characterizes the project, that is, the most relevant inflows are charged in short times, then discounting at RADR has mild effects on net present value (NPV). Else, if a long modified duration characterizes the project, discounting at RADR may have severe effects on NPV. The study proves that RADR's effectiveness increases with the project's modified duration.FindingsThe study builds a bridge between the regular NPV method used in academia and the RADR method used in the managerial context by identifying the proper RADR that leads the same NPV risk-adjustments, whichever method is used by including modified duration into the analysis.Practical implicationsThe results show how to select the proper RADR by reducing the subjectivity and increasing financial precision based on modified duration, thus providing an alternative to the norm. Simulations are used to make sensitivity analysis more effective and spotlight the main drivers in the risk-adjustments providing robust results.Originality/valueThis paper fulfils the gap between the RADR method and the expected net present value method by providing simple relations between the characteristic parameters.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-03-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43278237","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 : 2022-02-25DOI: 10.1108/jrf-04-2021-0063
Dimitrios K. Panagiotou, Alkistis Tseriki
PurposeThe cross-quantilogram analysis is employed. The latter can assess the temporal association between two stationary time series at different parts of their joint distribution. Data are daily prices and trading volumes from the futures markets of five agricultural commodities, namely, corn, hard red wheat, oats, rice and soybeans.Design/methodology/approachThe objective to the present work is to investigate for directional predictability between returns and volume (and vice versa) in the futures markets of agricultural commodities.FindingsThe empirical results reveal evidence, weak as well as strong, that extreme low values of returns are likely to lead high levels of volume. There is also weak evidence that extreme low values of volume are likely to precede high values of returns, except for the futures markets of oats where there is very strong evidence that low values of volume are likely to lead high values of returns. For the commodity of soybeans, there is very strong evidence that extreme high levels of volume are likely to lead high values of returns, but they are very short lived.Research limitations/implicationsAgricultural futures have been recently characterized by increased volatility leading hedgers to be looking for diversification. The present findings suggest that when price crashes occur, investors who suffer losses wish to sell, increasing this way the trading activity. Concurrently, the results reveal that extreme low levels of trading volume might signal a possible price turn around for traders.Originality/valueThis is the first study that employs the quantilogram approach in order to investigate for potential predictability from returns to volume and from volume to returns, in the futures markets of agricultural commodities.
{"title":"Directional predictability between trading volume and price returns in the agricultural futures markets: risk implications for traders","authors":"Dimitrios K. Panagiotou, Alkistis Tseriki","doi":"10.1108/jrf-04-2021-0063","DOIUrl":"https://doi.org/10.1108/jrf-04-2021-0063","url":null,"abstract":"PurposeThe cross-quantilogram analysis is employed. The latter can assess the temporal association between two stationary time series at different parts of their joint distribution. Data are daily prices and trading volumes from the futures markets of five agricultural commodities, namely, corn, hard red wheat, oats, rice and soybeans.Design/methodology/approachThe objective to the present work is to investigate for directional predictability between returns and volume (and vice versa) in the futures markets of agricultural commodities.FindingsThe empirical results reveal evidence, weak as well as strong, that extreme low values of returns are likely to lead high levels of volume. There is also weak evidence that extreme low values of volume are likely to precede high values of returns, except for the futures markets of oats where there is very strong evidence that low values of volume are likely to lead high values of returns. For the commodity of soybeans, there is very strong evidence that extreme high levels of volume are likely to lead high values of returns, but they are very short lived.Research limitations/implicationsAgricultural futures have been recently characterized by increased volatility leading hedgers to be looking for diversification. The present findings suggest that when price crashes occur, investors who suffer losses wish to sell, increasing this way the trading activity. Concurrently, the results reveal that extreme low levels of trading volume might signal a possible price turn around for traders.Originality/valueThis is the first study that employs the quantilogram approach in order to investigate for potential predictability from returns to volume and from volume to returns, in the futures markets of agricultural commodities.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44430908","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 : 2022-02-22DOI: 10.1108/jrf-06-2021-0103
Heike Bockius, Nadine Gatzert
PurposeThe purpose of this article is to investigate the impact of counterparty risk on the basis risk of industry loss warranties as well as on reinsurance with and without collateral under different dependence structures. The authors additionally compare the solvency and Sharpe ratio for different premium loadings and contract parameters.Design/methodology/approachThe authors propose a model framework extension to account for the counterparty risk of risk transfer arrangements. Copulas are used to also take into account non-linear dependencies between risk factors, and Monte Carlo simulation is employed to derive numerical results and to conduct sensitivity analyses.FindingsThe authors show that the impact of counterparty risk is particularly pronounced for higher degrees of dependencies and tail dependent losses, i.e. in cases of basis risk levels that appear low if counterparty risk is not considered. With respect to counterparty risk management, the authors find that already partial collateralization limits counterparty and basis risk to more acceptable levels.Practical implicationsThe study results are particularly relevant to practitioners, as insurers may not only underestimate the “true” basis risk of index-linked instruments, but also the effect of counterparty risk of reinsurance contracts along with the consequences for solvency and profitability.Originality/valueThe authors extend existing literature by allowing for the (partial) default of industry loss warranties and reinsurance under different dependence structures. Furthermore, the authors include profitability in addition to risk considerations. The interaction effects between counterparty risk and the basis risk of index-based alternative risk transfer instruments are largely unstudied, despite their considerable relevance in practice.
{"title":"The impact of counterparty risk on the basis risk of industry loss warranties and on (collateralized) reinsurance under (non-)linear dependence structures","authors":"Heike Bockius, Nadine Gatzert","doi":"10.1108/jrf-06-2021-0103","DOIUrl":"https://doi.org/10.1108/jrf-06-2021-0103","url":null,"abstract":"PurposeThe purpose of this article is to investigate the impact of counterparty risk on the basis risk of industry loss warranties as well as on reinsurance with and without collateral under different dependence structures. The authors additionally compare the solvency and Sharpe ratio for different premium loadings and contract parameters.Design/methodology/approachThe authors propose a model framework extension to account for the counterparty risk of risk transfer arrangements. Copulas are used to also take into account non-linear dependencies between risk factors, and Monte Carlo simulation is employed to derive numerical results and to conduct sensitivity analyses.FindingsThe authors show that the impact of counterparty risk is particularly pronounced for higher degrees of dependencies and tail dependent losses, i.e. in cases of basis risk levels that appear low if counterparty risk is not considered. With respect to counterparty risk management, the authors find that already partial collateralization limits counterparty and basis risk to more acceptable levels.Practical implicationsThe study results are particularly relevant to practitioners, as insurers may not only underestimate the “true” basis risk of index-linked instruments, but also the effect of counterparty risk of reinsurance contracts along with the consequences for solvency and profitability.Originality/valueThe authors extend existing literature by allowing for the (partial) default of industry loss warranties and reinsurance under different dependence structures. Furthermore, the authors include profitability in addition to risk considerations. The interaction effects between counterparty risk and the basis risk of index-based alternative risk transfer instruments are largely unstudied, despite their considerable relevance in practice.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-02-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49178622","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 : 2022-02-16DOI: 10.1108/jrf-11-2021-0186
C. Cao, Cho-Jieh Chen
PurposeThis paper examines the relation between political sentiment and future stock price crash risk.Design/methodology/approachThis study employs firm-level political sentiment from earnings conference calls. The empirical analysis applies panel regressions on 40,254 US firm-year observations between 2002 and 2020, controlling for various firm-specific determinants of crash risk and firm-, industry- as well as time-fixed effects.FindingsThe study identifies a negative association between both the level and the change of political sentiment and stock crash risk. Further analysis shows that the predictive power of political sentiment is independent of either non-political sentiment or political risk and remains consistently strong during periods of either high or low economic policy uncertainty. Moreover, the predictive effect of political sentiment is more pronounced for firms with high litigation risk.Research limitations/implicationsThe evidence highlights the important role of political sentiment in predicting stock crash risk. The results are consistent with the signaling hypothesis that managers tend to use their tone in conference calls to convey informative messages on firm outlooks.Practical implicationsThe study provides a recommendation on risk management: soft information such as political and non-political sentiment in earnings conference calls is useful in managing stock crash risk. The study findings also call for careful consideration of social costs, such as stock crash risk, associated with political policies. Ill-conceived policies may lead to market crashes, which can potentially outweigh the upsides of well-meaning political reforms.Originality/valueTo the authors best knowledge, this is the first study to identify the effect of time-varying firm-level political sentiment conveyed in conference calls on stock price crash.
{"title":"Political sentiment and stock crash risk","authors":"C. Cao, Cho-Jieh Chen","doi":"10.1108/jrf-11-2021-0186","DOIUrl":"https://doi.org/10.1108/jrf-11-2021-0186","url":null,"abstract":"PurposeThis paper examines the relation between political sentiment and future stock price crash risk.Design/methodology/approachThis study employs firm-level political sentiment from earnings conference calls. The empirical analysis applies panel regressions on 40,254 US firm-year observations between 2002 and 2020, controlling for various firm-specific determinants of crash risk and firm-, industry- as well as time-fixed effects.FindingsThe study identifies a negative association between both the level and the change of political sentiment and stock crash risk. Further analysis shows that the predictive power of political sentiment is independent of either non-political sentiment or political risk and remains consistently strong during periods of either high or low economic policy uncertainty. Moreover, the predictive effect of political sentiment is more pronounced for firms with high litigation risk.Research limitations/implicationsThe evidence highlights the important role of political sentiment in predicting stock crash risk. The results are consistent with the signaling hypothesis that managers tend to use their tone in conference calls to convey informative messages on firm outlooks.Practical implicationsThe study provides a recommendation on risk management: soft information such as political and non-political sentiment in earnings conference calls is useful in managing stock crash risk. The study findings also call for careful consideration of social costs, such as stock crash risk, associated with political policies. Ill-conceived policies may lead to market crashes, which can potentially outweigh the upsides of well-meaning political reforms.Originality/valueTo the authors best knowledge, this is the first study to identify the effect of time-varying firm-level political sentiment conveyed in conference calls on stock price crash.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45367648","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 : 2022-02-07DOI: 10.1108/jrf-11-2021-0179
Ahmed Ghorbel, Mohamed Fakhfekh, A. Jeribi, Amine Lahiani
PurposeThe paper analyzes downside and upside risk spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.Design/methodology/approachBy using VAR-ADCC models and conditional value at risk (CoVaR) techniques, downside and upside risk spillovers between stock markets of G7 countries and China are analyzed before and during the COVID-19 pandemic.FindingsThe results suggested existence of a significant and asymmetrical two-way risk transmission between majority of pair markets, but the degree of asymmetry differs according to the use of the entire cumulative distributions or distribution tails. Downside and upside risk spillovers are significantly larger before the COVID-19 pandemic in all cases except between CAC 40/DAX and S&P/SSE pairs.Originality/valueThe paper used CoVaR and delta-CoVaR to investigate the downside and upside spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.
{"title":"Extreme dependence and risk spillover across G7 and China stock markets before and during the COVID-19 period","authors":"Ahmed Ghorbel, Mohamed Fakhfekh, A. Jeribi, Amine Lahiani","doi":"10.1108/jrf-11-2021-0179","DOIUrl":"https://doi.org/10.1108/jrf-11-2021-0179","url":null,"abstract":"PurposeThe paper analyzes downside and upside risk spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.Design/methodology/approachBy using VAR-ADCC models and conditional value at risk (CoVaR) techniques, downside and upside risk spillovers between stock markets of G7 countries and China are analyzed before and during the COVID-19 pandemic.FindingsThe results suggested existence of a significant and asymmetrical two-way risk transmission between majority of pair markets, but the degree of asymmetry differs according to the use of the entire cumulative distributions or distribution tails. Downside and upside risk spillovers are significantly larger before the COVID-19 pandemic in all cases except between CAC 40/DAX and S&P/SSE pairs.Originality/valueThe paper used CoVaR and delta-CoVaR to investigate the downside and upside spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43502091","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 : 2022-01-25DOI: 10.1108/jrf-04-2021-0058
Aniel Nieves-González, Javier Rodríguez, José C. Vega Vilca
PurposeThis study examines the tracking error (TE) of a sample of sector exchange traded funds (ETFs) using spectral techniques.Design/methodology/approachTE is examined by computing its power spectrum using the wavelet transform. The wavelet transform maps the TE time series from the time domain to the time–frequency domain. Albeit the wavelet transform is a more complicated mathematical tool compared with the Fourier transform, it also has important advantages such as that it allows to analyze non-stationary data and to detect transient behavior.FindingsResults show that changes in the TE of a sample of sector ETFs are captured by the wavelet transform. Moreover, the authors also find that the wavelet coherence function can be used as a measure of TE in the time–frequency domain.Originality/valueThe study shows that the wavelet coherence function can be used as a reliable measure of TE.
{"title":"Wavelet power spectrum analysis of ETF’s tracking error","authors":"Aniel Nieves-González, Javier Rodríguez, José C. Vega Vilca","doi":"10.1108/jrf-04-2021-0058","DOIUrl":"https://doi.org/10.1108/jrf-04-2021-0058","url":null,"abstract":"PurposeThis study examines the tracking error (TE) of a sample of sector exchange traded funds (ETFs) using spectral techniques.Design/methodology/approachTE is examined by computing its power spectrum using the wavelet transform. The wavelet transform maps the TE time series from the time domain to the time–frequency domain. Albeit the wavelet transform is a more complicated mathematical tool compared with the Fourier transform, it also has important advantages such as that it allows to analyze non-stationary data and to detect transient behavior.FindingsResults show that changes in the TE of a sample of sector ETFs are captured by the wavelet transform. Moreover, the authors also find that the wavelet coherence function can be used as a measure of TE in the time–frequency domain.Originality/valueThe study shows that the wavelet coherence function can be used as a reliable measure of TE.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-01-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48159759","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 : 2022-01-14DOI: 10.1108/jrf-09-2021-0158
Sitara Karim, M. Naeem, Nawazish Mirza, Jéssica Paule-Vianez
PurposeThis study quantified the hedge and safe haven features of bond markets for multiple cryptocurrency indices from June 2014 to April 2021 to highlight whether bond markets offer hedging facilities to uncertainty indices of cryptocurrencies.Design/methodology/approachThe authors employed the methodology of Baur and McDermott (2010) and AGDCC-GARCH model to measure the hedge and safe-haven characteristics of three bond markets (BBGT, SPGB and SKUK) for three uncertainty indexes of cryptocurrencies (UCRPR, UCRPO and ICEA).FindingsThe authors find that bond markets are neither hedge nor safe havens except for SKUK which is a safe haven investment for cryptocurrency indices and offers substantial diversification during the periods of economic fragility. In addition, the hedge effectiveness of SPGB outperforms other bonds during crisis periods and provides sufficient diversification potential for cryptocurrency indices.Practical implicationsThe findings are important for policymakers, regulatory bodies, financial firms and investors in assessing hedge and safe haven characteristics of bond markets against cryptocurrency indices.Originality/valueEmploying the novel methodology of AGDCC-GARCH with three different bond markets and three uncertainty indices of cryptocurrencies, the current study adds to the existing strand of literature in terms of quantifying hedge and safe-haven attributes of bond markets for cryptocurrency uncertainty indexes.
{"title":"Quantifying the hedge and safe-haven properties of bond markets for cryptocurrency indices","authors":"Sitara Karim, M. Naeem, Nawazish Mirza, Jéssica Paule-Vianez","doi":"10.1108/jrf-09-2021-0158","DOIUrl":"https://doi.org/10.1108/jrf-09-2021-0158","url":null,"abstract":"PurposeThis study quantified the hedge and safe haven features of bond markets for multiple cryptocurrency indices from June 2014 to April 2021 to highlight whether bond markets offer hedging facilities to uncertainty indices of cryptocurrencies.Design/methodology/approachThe authors employed the methodology of Baur and McDermott (2010) and AGDCC-GARCH model to measure the hedge and safe-haven characteristics of three bond markets (BBGT, SPGB and SKUK) for three uncertainty indexes of cryptocurrencies (UCRPR, UCRPO and ICEA).FindingsThe authors find that bond markets are neither hedge nor safe havens except for SKUK which is a safe haven investment for cryptocurrency indices and offers substantial diversification during the periods of economic fragility. In addition, the hedge effectiveness of SPGB outperforms other bonds during crisis periods and provides sufficient diversification potential for cryptocurrency indices.Practical implicationsThe findings are important for policymakers, regulatory bodies, financial firms and investors in assessing hedge and safe haven characteristics of bond markets against cryptocurrency indices.Originality/valueEmploying the novel methodology of AGDCC-GARCH with three different bond markets and three uncertainty indices of cryptocurrencies, the current study adds to the existing strand of literature in terms of quantifying hedge and safe-haven attributes of bond markets for cryptocurrency uncertainty indexes.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41473171","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 : 2022-01-10DOI: 10.1108/jrf-02-2021-0021
Anja Vinzelberg, B. Auer
PurposeMotivated by the recent theoretical rehabilitation of mean-variance analysis, the authors revisit the question of whether minimum variance (MinVar) or maximum Sharpe ratio (MaxSR) investment weights are preferable in practical portfolio formation.Design/methodology/approachThe authors answer this question with a focus on mainstream investors which can be modeled by a preference for simple portfolio optimization techniques, a tendency to cling to past asset characteristics and a strong interest in index products. Specifically, in a rolling-window approach, the study compares the out-of-sample performance of MinVar and MaxSR portfolios in two asset universes covering multiple asset classes (via investable indices and their subindices) and for two popular input estimation methods (full covariance and single-index model).FindingsThe authors find that, regardless of the setting, there is no statistically significant difference between MinVar and MaxSR portfolio performance. Thus, the choice of approach does not matter for mainstream investors. In addition, the analysis reveals that, contrary to previous research, using a single-index model does not necessarily improve out-of-sample Sharpe ratios.Originality/valueThe study is the first to provide an in-depth comparison of MinVar and MaxSR returns which considers (1) multiple asset classes, (2) a single-index model and (3) state-of-the-art bootstrap performance tests.
{"title":"A comparison of minimum variance and maximum Sharpe ratio portfolios for mainstream investors","authors":"Anja Vinzelberg, B. Auer","doi":"10.1108/jrf-02-2021-0021","DOIUrl":"https://doi.org/10.1108/jrf-02-2021-0021","url":null,"abstract":"PurposeMotivated by the recent theoretical rehabilitation of mean-variance analysis, the authors revisit the question of whether minimum variance (MinVar) or maximum Sharpe ratio (MaxSR) investment weights are preferable in practical portfolio formation.Design/methodology/approachThe authors answer this question with a focus on mainstream investors which can be modeled by a preference for simple portfolio optimization techniques, a tendency to cling to past asset characteristics and a strong interest in index products. Specifically, in a rolling-window approach, the study compares the out-of-sample performance of MinVar and MaxSR portfolios in two asset universes covering multiple asset classes (via investable indices and their subindices) and for two popular input estimation methods (full covariance and single-index model).FindingsThe authors find that, regardless of the setting, there is no statistically significant difference between MinVar and MaxSR portfolio performance. Thus, the choice of approach does not matter for mainstream investors. In addition, the analysis reveals that, contrary to previous research, using a single-index model does not necessarily improve out-of-sample Sharpe ratios.Originality/valueThe study is the first to provide an in-depth comparison of MinVar and MaxSR returns which considers (1) multiple asset classes, (2) a single-index model and (3) state-of-the-art bootstrap performance tests.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43667944","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 : 2022-01-04DOI: 10.1108/jrf-07-2020-0162
G. Dorfleitner, J. Grebler
PurposeThis paper aims to close gaps in the current literature according to whether there are differences regarding the relationship between corporate social performance (CSP) and systematic risk when diverse regions of the world are considered, and what the respective drivers for this relationship are. Furthermore, it tests the robustness to alternative measures for CSP and systematic risk.Design/methodology/approachThis study focuses on the impact of corporate social responsibility on systematic firm risk in an international sample. The authors measure CSP emerging from a company's social responsibility efforts by utilizing a CSP rating framework that covers a variety of dimensions. The instrumental variable approach is applied to mitigate endogeneity and identify causal relationships.FindingsThe impact of overall CSP on systematic risk is most distinct for North American firms and, in descending order, weaker in Europe, Asia–Pacific and Japan. Risk mitigation applies across all four regions. However, the magnitude of impact differs. While the most critical drivers in North America and Japan include product responsibility, Europe is affected most by the employees category and Asia–Pacific by environmental innovation.Practical implicationsThe findings help firms to control their cost of equity and investors may identify low-risk stocks by considering certain aspects of CSP.Originality/valueThis study distinguishes itself from previous literature addressing the connection between systematic risk and CSP by focusing on regional differences in an international sample, using the very transparent CSP measures of Asset4, identifying underlying impact drivers, and testing for robustness to alternative measures of systematic risk.
{"title":"Corporate social responsibility and systematic risk: international evidence","authors":"G. Dorfleitner, J. Grebler","doi":"10.1108/jrf-07-2020-0162","DOIUrl":"https://doi.org/10.1108/jrf-07-2020-0162","url":null,"abstract":"PurposeThis paper aims to close gaps in the current literature according to whether there are differences regarding the relationship between corporate social performance (CSP) and systematic risk when diverse regions of the world are considered, and what the respective drivers for this relationship are. Furthermore, it tests the robustness to alternative measures for CSP and systematic risk.Design/methodology/approachThis study focuses on the impact of corporate social responsibility on systematic firm risk in an international sample. The authors measure CSP emerging from a company's social responsibility efforts by utilizing a CSP rating framework that covers a variety of dimensions. The instrumental variable approach is applied to mitigate endogeneity and identify causal relationships.FindingsThe impact of overall CSP on systematic risk is most distinct for North American firms and, in descending order, weaker in Europe, Asia–Pacific and Japan. Risk mitigation applies across all four regions. However, the magnitude of impact differs. While the most critical drivers in North America and Japan include product responsibility, Europe is affected most by the employees category and Asia–Pacific by environmental innovation.Practical implicationsThe findings help firms to control their cost of equity and investors may identify low-risk stocks by considering certain aspects of CSP.Originality/valueThis study distinguishes itself from previous literature addressing the connection between systematic risk and CSP by focusing on regional differences in an international sample, using the very transparent CSP measures of Asset4, identifying underlying impact drivers, and testing for robustness to alternative measures of systematic risk.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":null,"pages":null},"PeriodicalIF":3.0,"publicationDate":"2022-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44998874","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}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：