Emerging markets and portfolio foreign exchange risk: An empirical investigation using a value-at-risk decomposition technique

The correlation between a portfolio's equity and foreign exchange components plays a role in reducing foreign exchange exposure. Investors must account for this correlation when determining the extent of foreign exchange risk in emerging market equity portfolio investments. This study employs a VaR risk factor mapping technique, under the variance–covariance VaR approach, to decompose portfolio risk in Argentina, Brazil, China, India, Mexico and Russia. For comparison purposes, the same technique is used to decompose portfolio risk in the US. The study is conducted from the perspective of a European equity investor with a portfolio of equities in each country. By employing the VaR decomposition technique, the correlation between a portfolio's equity and foreign exchange components is taken into account and portfolio foreign exchange risk is extracted from portfolio systematic risk. Our results uniquely demonstrate significant variation in foreign exchange risk in emerging markets.     

Portfolio selection, diversification and fund-of-funds: a note

The present paper examines the performance and diversification properties of active Australian equity fund‐of‐funds (FoF). Simulation analysis is employed to examine portfolio performance as a function of the number of funds in the portfolio. The present paper finds that as the number of funds in an FoF portfolio increases, performance improves in a mean–variance setting; however, measures of skewness and kurtosis behave less favourably given an investor's preferences for the higher moments of the return distribution. The majority of diversification benefits are realized when a portfolio of approximately 6 active equity funds are included in the FoF portfolio.     

Consumer Support Networks: improving consumer advice in the UK

In 1999, Central Government launched an initiative to establish Consumer Support Networks (CSNs) throughout Scotland, England and Wales. The purpose of the networks is to improve access to high quality consumer advice services. Information and advice agencies will join together to provide expert, accurate and timely advice for consumers. By April 2002, 191 networks had been established covering in excess of 99% of the population. Only one local authority area in England has yet to establish a network. This paper reviews the development of consumer information and advice provision in the UK and considers the context for establishing CSNs. It also examines the need for consumer advice, the role of Central Government and the quality framework. Each CSN will conduct a gap analysis and assess the need for consumer advice in the local area. This will enable the network to develop a good understanding of consumers in the area and to take a more strategic approach in planning service developments to meet the identified needs. Consumer Support Networks aim to improve the provision of consumer information, education and advice. The literature suggests that consumers who are well educated regarding their rights are empowered through an increased ability to exercise them. Clearly branded advice services, marketed effectively to the public should result in higher levels of consumer awareness and, consequently, improve access to services. It is also expected that better flows of information between agencies will result in greater protection for consumers. Sharing ‘best practice’ nationwide should stimulate service improvements throughout.     

Attribution of investment performance: an analysis of Australian pooled superannuation funds*

This paper evaluates the market timing and security selection capabilities of Australian pooled superannuation funds over the eight‐year period from January 1991 to December 1998. Evaluation of both components of investment performance is surprisingly scarce in the Australian literature despite active investment managers engaging in both market timing and security selection. The paper also evaluates performance for the three largest asset classes within diversified superannuation funds and their contribution to overall portfolio return. The importance of an accurately specified market portfolio proxy in the measurement of investment performance is demonstrated. This paper employs performance benchmarks that account for the multi‐sector investment decisions of active investment managers in a manner that is consistent with their unique investment strategy. Consistent with U.S. literature, the empirical results indicate that Australian pooled superannuation funds do not exhibit significantly positive security selection or market timing skill.     

Cross‐region and cross‐sector asset allocation with regimes

Cross‐region and cross‐sector asset allocation decisions are one of the most fundamental issues in international equity portfolio management. Equity returns exhibit higher volatilities and correlations, and lower expected returns, in bear markets compared to bull markets. However, static mean–variance analysis fails to capture this salient feature of equity returns. We accommodate the nonlinearity of returns using a regime switching model across both regions and sectors. The regime‐dependent asset allocation potentially adds value to the traditional static mean–variance allocation. In addition, optimal allocation across sectors provide greater benefits compared to international diversification, which is characterized by higher returns, lower risks, lower correlations with the world market and a higher Sharpe ratio.     

Corporate Expenditure on Environmental Protection

We examine the determinants of firm’s current environmental expenditure and firm’s capital investment in equipment for pollution control in Irish manufacturing industries using a Heckman selection model. The main determinants for the two types of expenditure are similar: larger, exporting and energy-intensive firms are more likely to spend. Being subject to environmental regulation also has an effect. Once the decision to commit resources has been taken, larger, older, foreign-owned, exporting and energy-intensive firms incur higher environmental expenditure. For the amount of capital investment only firm size and age play a role. This suggests that the economic and regulatory incentives in place are such that it is the largest and most polluting firms that do most to reduce pollution.     

The effect of data availability in measuring fund managers’ after‐tax alphas

We examine potential sources of measurement error when evaluating the after‐tax performance of fund managers based on periodic snapshots of their holdings alone, compared with when daily transactions data are also available. To do this, we compare portfolio return estimates based on imputed trades from monthly, quarterly and semi‐annual snapshots with estimates that also incorporate daily trades for a sample of active institutional equity portfolios. This method allows us to directly measure the contribution of interim trading before tax, while more accurately estimating the tax effects associated with turnover through observing actual trade prices. Further, availability of both trade and holdings data permits the identification of how contributions and tax effects arise from income and capital gains sources, as well as how they vary across investment styles and market conditions.     

Racial discrimination in umpire voting: an (arguably) unexpected result

Using data from an official most valuable player award in professional sport, we test for the presence of discrimination by match officials (umpires), who are responsible for ranking the top three players within each match. These umpires are found to award significantly more votes to (and have a higher probability of voting for) players identified as (Australian) Indigenous, after controlling for within-match production. The result offers further evidence on racial discrimination, and runs counter to numerous analogous studies both in sport, as well as in labour and other socio-economic outcomes in general.     

Member commitment in an American union: the role of the grievance procedure

In recent years increased attention has been focused on the factors that influence member commitment to union. However, little attention has been paid to the role grievance procedures play in this commitment. Here the authors examine the relationship between member attitudes toward the grievance procedure and commitment to an American union.     

Institutional investment flows and the determinants of top fund manager turnover

This study examines how the termination of superannuation investment mandates contributes to the departure of top fund managers in companies delegated the portfolio management role. Terminations of superannuation plan mandates increase the probability of a fund company changing the responsible fund manager. Objective‐adjusted returns are also significant managerial turnover considerations. These results illustrate that significant losses of superannuation fund clients act as an external control mechanism in the investment management industry that complements internal managerial performance measures.