Time-consistent investment and reinsurance strategies for insurers under multi-period mean-variance formulation with generalized correlated returns

The existing literature on investment and reinsurance is limited to the study of continuous-time problems, while discrete-time problems are always ignored by researchers. In this study, we first discuss a multi-period investment and reinsurance optimization problem under the classical mean-variance framework. When the asset returns with a serially correlated structure, the time-consistent investment and reinsurance strategies are acquired via backward induction. In addition, we propose an alternative time-consistent mean-variance optimization model that contrasts with the classical mean-variance model, and the corresponding optimal strategy and value function are also derived. We find that the investment and reinsurance strategies are both independent of the current wealth for the above two optimization problems, which coincides with the conclusion presented in the continuous-time problems. Most importantly, the above investment strategies with serially correlated structures are both conditional mean-based strategies, rather than unconditional ones. Finally, we compare the investment and reinsurance strategies suggested above based on the simulation approach, to shed light on which investment-reinsurance strategies are more suitable for insurers.     

Do alternative energy markets provide optimal alternative investment opportunities?

This paper investigates diversification opportunities for investors among different alternative energy markets. We sample six alternative energy markets namely World, Developed, Emerging, EU, BRIC and G7 with daily data ranging from January 2006 to December 2017. For estimations, we use wavelet multiple correlation and wavelet multiple cross correlation proposed by Polanco-Martínez and Fernández-Macho (2014) to find pairwise correlation at different investment horizons. Our work contributes in measuring integration level among alternative regional energy markets across different investment horizons. Our results highlight that World, Developed, Emerging, EU markets offer maximum diversification when included with either Emerging or BRIC energy markets in a portfolio. Furthermore, diversification benefits are more prominent under intra-week to monthly investment horizons for all portfolio combinations. We also rank different pairs of alternative markets based on their integration level which carry important implications for portfolio diversification and risk management.     

Demographics and the long-horizon returns of dividend-yield strategies

This paper investigates the relationship between demographic changes and the long-run returns of dividend-yield investment strategies. We hypothesise that in a world where components of wealth are mentally treated as being non-fungible, the preference for high dividend-paying stocks by older investors means that the excess returns of high dividend-yielding stocks, relative to other stocks, should be positively related to demographic clientele variation. In particular, we find that, consistent with the behavioural life-cycle hypothesis, long-run returns of dividend-yield investment strategies are positively driven by changes in the proportion of the older population. Our results are robust when controlled for the Fama–French factors, inflation rate, consumption growth rate, interest rates, tax clienteles, time trend and alternative definitions of both dividend-yield strategies and demographic variation.     

COMPARISON OF MODEL AVERAGING TECHNIQUES: ASSESSING GROWTH DETERMINANTS

This paper investigates the replicability of three important studies on growth theory uncertainty that employed Bayesian model averaging tools. We compare these results with estimates obtained using alternative, recently developed model averaging techniques. Overall, we successfully replicate all three studies, find that the sign and magnitude of these new estimates are reasonably close to those produced via traditional Bayesian methods and deploy a novel strategy to implement one of the new averaging estimators. Copyright © 2012 John Wiley & Sons, Ltd.     

多重视角下公司治理水平对企业绩效的影响分析——来自房地产上市公司的证据

以2000—2012年房地产上市公司为样本,从微观视角分析股权结构、董事会治理、高管激励对企业绩效的影响,发现房地产上市公司治理对企业绩效的影响整体上显著;采用因子分析法构造公司治理综合排名指标G1和企业绩效综合排名指标JX,从宏观视角审视公司治理与企业绩效之间的关系,发现房地产上市公司治理综合排名提高会导致企业绩效显著上升。     

Optimal time-consistent reinsurance and investment strategies for a jump–diffusion financial market without cash

This paper considers an optimal reinsurance and investment strategies for an insurer under mean–variance criterion within a game theoretic framework. Specially, it is assumed that the surplus process is governed by a Cramér–Lundberg model, and apart from purchasing reinsurance, the insurer is allowed to invest in a financial market with multiple assets that all can be risky, whose price processes are modeled by the jump–diffusion process. Due to the market without cash, the method of separating the variables is not viable any more. We turn to an alternative approach to solve the extended Hamilton–Jacobi–Bellman equation, and closed-form expressions of the optimal strategies and value function are not only derived but also proved to be uniqueness. Moreover, some special cases of our model are provided and several numerical analyses for our results are presented as well. Under this criterion, different from existing literature, we find that (i) the value function is not linear but quadratic with respect to the current wealth; (ii) the optimal reinsurance and investment strategies depend on the wealth process; (iii) the parameters of risky assets(insurance market) have impacts on the optimal reinsurance(investment) policy; (iv) the safety loading of the insurer affects the optimal strategies.     

The financial investment decision of non-financial firms in China

This paper constructs a portfolio model to analyze the determinants of the financial investment decision of non-financial firms in China. Unlike the literature assuming that financial investments are riskless, our model allows risks in both fixed and financial investments. We show that this extension provides an analytically similar but economically different model from the literature. In particular, it is relative risk and risk-adjusted return gap, not pure risk and simple return gap that enter into firms’ financial investment decision model. Using firm-level panel data of 1902 firms listed in Chinese stock market over the period from 2006 to 2016 with semi-annual frequency, we find that the ratio of fixed investment risk over total risk dominates financial investment decisions of non-financial firms. However, rates of risk-adjusted return gap between financial and fixed investments play no role in Chinese firms’ financial investment decisions, which is in stark contrast to the results using a model assuming riskless financial investments. The baseline findings are robust to alternative measures of financialization and investment risk and different firm sizes, ownership structures and time periods.     

Relative Value Relevance of Alternative Accounting Treatments for Unrealized Gains: Implications for the IASB

We investigate the relative value relevance of the alternative accounting methods for unrealized gains on investment properties in New Zealand (NZ). Using both the Likelihood‐ratio test and the F‐test, we find that, while preferred by the NZ standard setter, recognition of unrealized gains in the income statement is not superior to (or significantly different from) recognition of unrealized gains in revaluation reserve in terms of their value relevance. The results are robust to the different research methods we used. Our results have implications for the International Accounting Standards Board in terms of: (i) recognizing changes in fair values of investment properties in the income statement under the revised IAS 40: Investment Property in countries where “realization” refers to net income available for distribution; (ii) its intent to issue a standard on a single statement of comprehensive income; and (iii) its initiative to reduce or eliminate alternative accounting treatments for similar fact situations in its standards.     

How tournament incentives affect asset markets: A comparison between winner-take-all tournaments and elimination contests

We investigate the impact of investment managers׳ tournament incentives on investment strategies and market efficiency, distinguishing between winner-take-all tournaments (WTA), where a minority wins, and elimination contests (EC), where a majority wins. Theoretically, we show that investment managers play heterogeneous strategies in WTA and homogeneous strategies in EC, and markets are more prone to mispricing in WTA than in EC. Experimentally, we find that investment managers play more heterogeneous strategies in WTA than in EC, but this does not trigger significant differences in prices. Moreover, prices in WTA and EC do not differ significantly from markets composed of linearly incentivized subjects.     

A specific-factors view on outsourcing

A distinctive feature of the present wave of economic globalization is that the principle of world-wide arbitrage is increasingly applied to individual components of value-added chains, rather than final goods. The result is a phenomenon called outsourcing, or international fragmentation. Economists have investigated this phenomenon with a focus on welfare and factor-price effects, mainly using Heckscher-Ohlin-type trade models. Existing studies emphasize a positive welfare effect of international fragmentation, but reveal ambiguous effects on factor prices. This paper first reviews the existing literature, identifying the crucial modeling differences that drive the various results. It then presents an alternative view on international fragmentation based on the specific-factors model. The analysis explicitly deals with the cost of international fragmentation, emphasizing that there will typically be a fixed-cost element, with important consequences for the welfare effect of outsourcing. Moreover, the paper highlights a crucial distinction between outsourcing with and without foreign direct investment. With foreign direct investment, outsourcing of a single fragment is sufficient to drive the domestic wage rate to the foreign level, adjusted for the cost of fragmentation. This holds irrespective of the factor-intensity ranking of fragments. If outsourcing takes place without foreign direct investment, then the factor-intensity ranking matters. Domestic labor loses if a labor-intensive fragments moves “offshore”, and vice versa. In both cases, international fragmentation may cause a welfare loss, if the cost of fragmentation includes a fixed element.     

The Use of Valuation Models by UK Investment Analysts

This paper examines the use of valuation models by UK investment analysts. The study is based on, first, semi-structured interviews with 35 sell-side analysts from 10 leading investment banks and with 7 buy-side analysts from 3 asset management firms and, second, content analysis based on 98 equity research reports for FTSE-100 companies covered by the sell-side interviewees. We observe that analysts perceive the discounted cash flow (DCF) (and to some extent ‘sophisticated’ models in general) to have become significantly more important than prior survey evidence suggests, although we also find the (somewhat paradoxical) continued importance of ‘unsophisticated’ valuation multiples, notably the price/earnings ratio (PE). We find perceived limitations in the technical applicability of the DCF, which cause analysts to rely in practice upon valuation multiples and subjective judgement of whether the market price ‘feels right’. We also find that contextual factors, notably the analysts' need for their research to be credible to buy-side clients, cause the use of subjective, unsophisticated methods of valuation to be played down. Given the inherent flexibility of the DCF model, coupled with its ostensible credibility, it becomes the natural vehicle for conveying the analyst's research, even though it is very rarely relied upon to determine target prices and investment recommendations. We conclude that, while the literature has focused on the technical merits of alternative valuation models, analysts' actual usage of valuation models also requires an understanding of social and economic context and motivations.     

Financial development and economic growth in Vietnam

By making use of a panel dataset that covers 61 provinces of Vietnam over the period 1997 to 2006, this paper examines the link between financial development and economic growth. Our analysis, which is based on endogenous growth theory, reveals that financial development has contributed to economic growth in Vietnam. We find that high ratio of credit to Gross Provincial Product (GPP) has accelerated economic growth in Vietnam. We also found a strong positive link between financial development and economic growth when alternative measures of financial development were used. The impact of foreign direct investment on economic growth will be stronger if more resources are invested in financial market development.     

Creditor rights,financial health,and corporate investment efficiency

This paper analyzes the influence of creditor rights on investment efficiency and how firms’ financial health shapes this influence. Using time-series changes within a country and cross-country variations in creditor rights, I find that stronger protection of creditors improves investment efficiency in healthy firms but worsens it in distressed firms. The impact on investment efficiency operates more through changes in overinvestment than in underinvestment. Alternative proxies for creditor rights control for both contractual and enforcement rights. The results are robust to alternative model specifications and to controls for omitted variables.     

Investment and share prices: fundamental versus speculative components

This paper uses quarterly U.S. data from 1953(6) to 2000(6) to investigate the effects of share-price changes on investment. We focus on the distinction between speculative and fundamental components of share-price movements and we contribute to the literature by evaluating four alternative methods of decomposing share-price movements into these two components. The four methods are: (1) a decomposition based on regressing share returns on a set of variables designed to capture fundamentals; (2) the use of the price-earnings ratio; (3) the use of the dividend yield and (4) a structural vector-autoregressive model based on the dividend-discount equation. We find that, no matter what the method of decomposition is, shocks to both fundamental and speculative components have positive effects on investment and that, in contrast to the earlier literature, the effect of the speculative shock is at least as large as that of a shock to fundamentals.     

Market Risk Disclosures and Investment Efficiency: International Evidence from the Gulf Cooperation Council Financial Firms

This study examines the association between market risk disclosures (MRDs) and the investment efficiency of financial firms from six emerging markets in the Gulf Cooperation Council (GCC) region. Based on a sample of 553 firm‐year observations over the 2007–2011 period, we find that MRDs are significantly and negatively associated with both under‐investment and over‐investment and that this association is more pronounced for larger firms. We also find that the association between MRDs and under‐investment is moderated during periods of economic distress such as the Global Financial Crisis of 2008 and that the association between MRDs and over‐investment is magnified during periods of reduced financial distress. Our results are consistent with the idea that MRDs reduce information asymmetry, which ultimately improves investment efficiency. We contribute to the literature in an emerging market context by providing empirical evidence on the association between MRDs and investment efficiency across six emerging GCC capital markets. This study also fills a gap in the literature by providing evidence on the factors affecting the investment efficiency of financial firms.     

How do technological innovations affect corporate investment and hiring?

In this paper, we study the relation between technological advancement, and corporate investment and hiring. We build a corporate investment model with dynamic technology conditions, and we find the optimal investment and labor inputs increase in response to technological innovation shocks. Consistent with the model predictions, we empirically show that corporate investment and hiring increase following technological advancements, using various measures of technological innovation. Further, we find the effect is stronger for firms in more innovative industry, firms with higher capital intensity and firms with higher market-to-book ratio. Our findings provide evidence for the endogenous growth theory, i.e., firms with successful innovations tend to expand in capital investment and employment, suggesting technological innovations are, to some extent, Hicks-neutral.     

The Impact of Short‐ and Long‐run Exchange Rate Uncertainty on Investment: A Panel Study of Industrial Countries*

We examine the relationship between aggregate investment and exchange rate uncertainty in the G7, using panel estimation and decomposition of volatility derived from the components generalized autoregressive conditionally heteroscedastic (GARCH) model. Our dynamic panel approach takes account of potential cross‐sectional heterogeneity, which can lead to bias in estimation. We find that for a poolable subsample of European countries, it is the transitory and not the permanent component of volatility which adversely affects investment. To the extent that short‐run uncertainty in the CGARCH model characterizes higher frequency shocks generated by volatile short‐term capital flows, these are most deleterious for investment.     

Frequentist model averaging for multinomial and ordered logit models

Multinomial and ordered Logit models are quantitative techniques which are used in a range of disciplines nowadays. When applying these techniques, practitioners usually select a single model using either information-based criteria or pretesting. In this paper, we consider the alternative strategy of combining models rather than selecting a single model. Our strategy of weight choice for the candidate models is based on the minimization of a plug-in estimator of the asymptotic squared error risk of the model average estimator. Theoretical justifications of this model averaging strategy are provided, and a Monte Carlo study shows that the forecasts produced by the proposed strategy are often more accurate than those produced by other common model selection and model averaging strategies, especially when the regressors are only mildly to moderately correlated and the true model contains few zero coefficients. An empirical example based on credit rating data is used to illustrate the proposed method. To reduce the computational burden, we also consider a model screening step that eliminates some of the very poor models before averaging.     

International rankings of government performance and source credibility for citizens: experiments about e-government rankings in the UK and the Netherlands

International organizations are an alternative to national governments as a source of information for citizens about governments’ performance. Experiments about high UK e-government performance reported in an international ranking find a United Nations (UN) source increases citizens’ perceptions of the truthfulness of reported performance and increases perceived high performance compared to national government reporting identical information. The UN source also has higher perceived honesty, helpfulness and knowledgeability. A replication experiment in the Netherlands generalizes the finding about perceived higher truthfulness. International sources boost the credibility of information about high performance, improving citizens’ perceptions of national governments.     

Improving portfolio diversification: Identifying the right baskets for putting your eggs

We measure the economic value of diversification for international multiasset investment strategies. This study implements five existing diversification measures and proposes a novel measure of diversification, the unsystematic risk ratio (URR). Only the URR and the effective number of bets measures predict the future risk‐adjusted performance. These relations are robust to the choice of investment horizon and degree of relative risk aversion. The diversification benefits are larger for the frontier and emerging markets than for the developed markets, for multiasset strategies than for single asset class strategies, and for the pre‐crisis and post‐crisis periods than for the financial crisis period.