<Emphasis Type="Italic">Shariah</Emphasis>-compliant equities: Empirical evaluation of performance in the European market during credit crunch

Islamic finance is based on the Islamic Jurisprudence as prescribed by the Shariah, and has witnessed significant growth and development in the recent decades. During the period of economic slowdown and following the financial crisis during FY 2007–2009, it was claimed that Islamic financial system seemed to be better in coping with economic slowdowns than conventional financial systems. The article analyses whether the same holds true for Shariah-compliant equities in the market, that is, whether Shariah-compliant equities perform better in the market as compared to the general market. Three portfolios are constructed based on the constituents of S&P Europe 350 to represent the overall market, the market without the financial firms and the market of Shariah-compliant equities. It is found that the portfolio of Shariah-compliant equities outperforms the other two portfolios in all aspects of analysis. However, it slightly underperforms the market portfolio when there is an upward growth trend in the economy. The findings of this article are very relevant for policymakers, investors and fund managers to determine policy matters, deciding on investment and marketing strategy for Islamic capital market products.     

Quadratic minimization with portfolio and intertemporal wealth constraints

We address a problem of stochastic optimal control motivated by portfolio optimization in mathematical finance, the goal of which is to minimize the expected value of a general quadratic loss function of the wealth at close of trade when there is a specified convex constraint on the portfolio, together with a specified almost-sure lower-bound on intertemporal wealth over the full trading interval. A precursor to the present work, by Heunis (Ann Financ 11:243–282, 2015), addressed the simpler problem of minimizing a general quadratic loss function with a convex portfolio constraint and a stipulated almost-sure lower-bound on the wealth only at close of trade. In the parlance of optimal control the problem that we shall address here exhibits the combination of a control constraint (i.e. the portfolio constraint) together with an almost-sure intertemporal state constraint (on the wealth over the full trading interval). Optimal control problems with this combination of constraints are well known to be quite challenging even in the deterministic case, and of course become still more so when one deals with these same constraints in a stochastic setting. We nevertheless find that an ingenious variational approach of Rockafellar (Conjugate duality and optimization, CBMS-NSF series no. 16, SIAM, 1974), which played a key role in the precursor work noted above, is fully equal to the challenges posed by this problem, and leads naturally to an appropriate vector space of dual variables, together with a dual functional on the space of dual variables, such that the dual problem of maximizing the dual functional is guaranteed to have a solution (or Lagrange multiplier) when the problem constraints satisfy a simple and natural Slater condition. We then establish necessary and sufficient conditions for the optimality of a candidate wealth process in terms of the Lagrange multiplier, and use these conditions to construct an optimal portfolio.     

Quadratic minimization with portfolio and terminal wealth constraints

We address a problem of stochastic optimal control drawn from the area of mathematical finance. The goal is to minimize the expected value of a general quadratic loss function of the wealth at close of trade when there is a specified convex constraint on the portfolio over the trading interval, together with a specified almost-sure lower-bound on the wealth at close of trade. We use a variational approach of Rockafellar which leads naturally to an appropriate vector space of dual variables, a dual functional on the space of dual variables such that the dual problem of maximizing the dual functional is guaranteed to have a solution (i.e. a Lagrange multiplier) when a simple and natural Slater condition holds for the terminal wealth constraint, and obtain necessary and sufficient conditions for optimality of a candidate wealth process. The dual variables are pairs, each comprising an Itô process paired with a member of the adjoint of the space of essentially bounded random variables measurable with respect to the event \(\sigma \)-algebra at close of trade. The necessary and sufficient conditions are used to construct an optimal portfolio in terms of the Lagrange multiplier. The dual problem simplifies to maximization of a concave function over the real line when the portfolio is unconstrained but the terminal wealth constraint is maintained.     

Not everybody wants to save the world

A consumer lens is used to examine investing behavior in this study. The study focuses on the importance given by investors to their economic and social investing goals (SIG). This approach redirects managerial attention from the investment to the investor and investing goals. The study finds that differences in environmental attitude, social investing efficacy, materialism, religiosity and protected values can explain disparities in investing goals. The findings suggest a segmentation approach based on differences in antecedent effects and economic and SIG.     

Strong Increases in Downside Risk Aversion

A ranking of risk preferences is of economic interest insofar as it leads to unambiguous comparative statics predictions, and for this to be the case, the ranking must be a strict partial ordering. The ranking by greater risk aversion meets this demand at the second order, and yields a variety of well-known predictions concerning the effect of greater risk aversion on demands for insurance and risky assets, among many other applications. There has been less success at the third order, where ranking preferences by aversion to downside risk has not produced a strict partial ordering. The problem is that account has not been taken of the fact that an increase in downside risk aversion must induce changes in risk aversion as well. We propose a definition of stronger downside risk aversion that does yield a strict partial ordering by requiring a nested increase in both second- and third-order risk aversion, so that v is more strongly downside risk averse than u if v is more risk averse and more downside risk averse than u. We demonstrate that v being more strongly downside risk averse than u is characterized by v never liking any change in the probability distribution for y that induces a third-order stochastic dominance deterioration in the distribution for u(y). We apply the definition to obtain intuitive comparative statics predictions in the precautionary saving problem, and relate the definition to alternatives proposed in the literature.     

The efficiency of IPO issuing mechanisms and market conditions: evidence in China

This study conducts a comparison analysis on the efficiency of bookbuilding and secondary market proportional offering (hereafter, SMP offering) in the China stock market. SMP offering as described in this paper is not a follow-on offering, but an initial offering applicable to investors in the secondary market. Specifically, as a unique type of fixed price offering, SMP offering only allows the existing investors who are holding shares (of any listed firms) in the secondary market to subscribe to IPO shares. The amount of IPO shares available to be subscribed by the existing investors is proportional to market value of shares held by them in the secondary market. We find some interesting evidence showing that, compared with bookbuilding, SMP offering is more efficient for pricing IPOs, particularly, in a volatile market. SMP offering leads to lower underpricing and lower cross-sectional variation of short-run returns of IPOs. Also, SMP offering is better able to counteract adverse market conditions in the form of low market return and/or high market volatility. Our results are robust to various alternative tests, e.g., the Heckman (Econometrica 47:153–161, 1979) two-stage procedure and an out-of-sample test, after controlling for the problem of endogeneity and for the influence of the exchange of listing, respectively.     

Land as Production Input and Collateral: Land Investment by Japanese Firms

Is the collateral role an empirically important determinant of investment in land? We study what has determined the land investment by Japanese firms since the 1990s, after the collapse of the asset-price bubble. With a large panel data set, we estimate nonlinear land-investment functions and calculate q for land assets. The estimates confirm the dual roles of land assets: production inputs and collateral. Firms sold land assets in response to the decline in their sales and the deterioration in financial conditions. Partial q for land assets was generally below one during the period.     

Enhancement of value investing strategies based on financial statement variables: the German evidence

This paper examines the added-value of combining traditional valuation ratios with each other as well as with some financial statement variables in the German stock markets during the 2000–2015 period. The results show that combination pays off and, moreover, that the benefits of combination are greater in Germany than in most other developed stock markets. Particularly, we find strong evidence of the added-value of using Piotroski’s F-score as a supplementary selection criterion for value stocks as well as for low-accrual stocks. Our results show further that the F-score also boosts the efficacy of other valuation ratios besides the book-to-price ratio. In addition, the inclusion of F-score besides a relative value measure tends to increase the average market equity of portfolio firms. The decomposition of the full-sample-period performance into separate bull- and bear-period performance shows clearly that the better performance of F-score-boosted portfolios is mostly attributable to their outperformance during bearish periods, even though on average, they also generate higher bull-period returns than the comparable value portfolios formed without F-score. The use of F-score as a supplementary criterion also increases the proportion of stocks that earn above-market-average returns during the subsequent holding period. For the first time in the financial literature, we also document a strong relationship between high F-score stocks and momentum stocks.     

Small-time ruin for a financial process modulated by a Harris recurrent Markov chain

We consider a nonstandard ruin problem where: (i) the increments of the process are heavy-tailed and Markov-dependent, modulated by a general Harris recurrent Markov chain; (ii) ruin occurs when a positive boundary is attained within a sufficiently small time. Our main result provides sharp asymptotics for the small-time probability of ruin, viz., P(sup? _{n≤δ u} S _n ≥u), where {S _n } denotes the discrete partial sums of the process and δ∈(0,1/μ), where μ is the mean drift. We apply our results to obtain risk estimates which quantify, e.g., repetitive operational risk losses or the extremal behavior for a GARCH(1,1) process.     

Tests of investor learning models using earnings innovations and implied volatilities

This paper investigates alternative models of learning to explain changes in uncertainty surrounding earnings innovations. As a proxy for investor uncertainty, we use model-free implied volatilities; as a proxy for earnings innovations, representing signals of firm performance likely to drive investor perceptions of uncertainty, we use quarterly unexpected earnings benchmarked to the consensus forecast. We document that uncertainty declines on average after the release of quarterly earnings announcements and this decline is attenuated by the magnitude of the earnings innovation. This latter result is consistent with models that incorporate signal magnitude as a factor driving changes in uncertainty. Most important, we document that signals deviating sufficiently from expectations lead to net increases in uncertainty. Critically, this result suggests that models allowing for posterior variance to be greater than prior variance even after signal revelation [e.g., regime shifts in Pastor and Veronesi (Annu Rev Financ Econ 1:361–381, 2009)] better describe how investors incorporate new information.     

Prognose des Abwicklungsergebnisses mittels Chain-Ladder-Verfahren für abhängige Run-Off-Portfolios

In the present paper we analyse how the estimators from Merz u. Wüthrich (2007) could be generalised to the case of N correlated run-off triangles. The simultaneous view on N correlated subportfolios is motivated by the fact, that in practice a run-off portfolio often has to be divided in subportfolios, so that the homogeneity assumption of the claims reserving method on each subportfolio is satisfied. We derive an explicit formula for the process-variance, the estimation-error and the prediction error made by the forecast for the claims development result with the Chain-Ladder method. We illustrate the results by an example.     

The impact of the institutional environment on the value relevance of fair values

Most prior studies attribute valuation discounts on certain fair valued assets to measurement error or bias. We argue that institutional differences across countries (e.g., information environment or market sophistication) affect investors’ ability to process and impound fair value information in their valuation. We predict that the impact of the institutional environment on value relevance is particularly pronounced for reported fair values of assets designated at fair value through profit or loss (hereafter, “FVO assets”), for which investor experience is lowest and complexity is highest. Using a global sample of IFRS banks, we find that FVO assets are generally less value relevant than held-for-trading assets (HFT) and available-for-sale assets (AFS). By partitioning countries into market- and bank-based economies to proxy for institutional differences, we find that the valuation discount on FVO assets is more pronounced in bank-based economies. Additional tests suggest that this valuation discount is attenuated by a richer firm-level information environment and the presence of institutional investors with fair value experience.     

Minimal Hellinger martingale measures of order <Emphasis Type="Italic">q</Emphasis>

This paper proposes an extension of the minimal Hellinger martingale measure (MHM hereafter) concept to any order q≠1 and to the general semimartingale framework. This extension allows us to provide a unified formulation for many optimal martingale measures, including the minimal martingale measure of Föllmer and Schweizer (here q=2). Under some mild conditions of integrability and the absence of arbitrage, we show the existence of the MHM measure of order q and describe it explicitly in terms of pointwise equations in ? ^d . Applications to the maximization of expected power utility at stopping times are given. We prove that, for an agent to be indifferent with respect to the liquidation time of her assets (which is the market’s exit time, supposed to be a stopping time, not any general random time), she is forced to consider a habit formation utility function instead of the original utility, or equivalently she is forced to consider a time-separable preference with a stochastic discount factor.     

Online banking services: a meta-analytic review and assessment of the impact of antecedents and consequents on satisfaction

This paper provides a meta-analysis of the generalizations in the relationships between the antecedents and consequents of satisfaction with online banking services. In total, 118 observations were analysed, with a sample of 49,607 respondents in 39 published articles from studies indexed in ten databases (Jstor, Emerald, PsycINFO, Taylor & Francis, Elsevier Science Direct, Scopus, ProQuest, SciELO, Google Scholar and EBSCO). Specifically, for the data analysis, we used the correlation coefficient r (plus χ², f test, t test, z test and β values). The results showed that constructs related to uncertainty, as evoked by online devices, system performance, quality of device content and online banking device structures, are significant and positive antecedents of consumer satisfaction. We also found that satisfaction with online banking services promotes trust and loyalty. Finally, we also detected that the relationship between reliability, satisfaction and service quality is stronger among Western banking consumers.     

Do Stars Shine? Comparing the Performance Persistence of Star Sell-Side Analysts Listed by Institutional Investor,the Wall Street Journal,and StarMine

We investigate the profitability persistence of the investment recommendations from analysts listed in four different star rankings, Institutional Investor magazine, StarMine’s “Top Earnings Estimators” and “Top Stock Pickers”, and The Wall Street Journal, and show the predictive power of each evaluation methodology. We found that only Buy and Strong Buy recommendations from the entire group of Star analysts outperform those of the Non-Stars in the year after election, while Sell and Strong Sell recommendations performed as those of the Non-Stars. We document that the highest average monthly abnormal return of holding a long-short portfolio, 0.97 %, is obtained by following the recommendations of the group of star sell-side analysts rated by StarMine’s “Top Earnings Estimators” during the period from 2003 to 2014. Since earnings are one of the main drivers of stock prices, the results obtained are in line with the notion that focusing on superior earnings forecasts is one of the top requirements for successful stock picks.     

Impact of website characteristics on relationship quality: a comparison of banks financial cooperatives

This study seeks to investigate differences exhibited by bank customers and members of financial cooperatives respecting website characteristics (website design, convenience, information quality, ease of use and security/confidentiality) and their impact on online relationship quality (composed of trust, commitment and satisfaction). An online survey was conducted with 476 banking sector customers (banks and financial cooperatives), followed by a confirmatory factors analysis and multigroup analysis using EQS 6.2 software. Results evidence a significant difference in terms of website design and security/confidentiality. The impact of these variables on relationship quality proves significantly higher in the case of banks. This study submits that web strategies used by banks and financial cooperatives to develop online relationship quality may vary based on the type of organization.     

Erklärung der privaten Krankenversicherungsnachfrage anhand ökonomischer und psychologischer Einflussfaktoren

To be able to plan measures insales planning successfully, informations are necessary about the expected trend of demand in the future. In this respecttheoretical funded andempirical relevant correlations between exogenous influencing factors and the process of demand must be systematically explored. Consequently for the private health insurance aglobal model was developed, which is the basis for presenting exemplarily an approach of explanation for the health cost insurance. Via this approach theshort-term fluctuations in the trend of demand, which were noticed in the past, can be traced satisfactorily. In this context besideseconomical alsopsychological influences like attitudes and expectations must be explicitly integrated in the approach of explanation. Naturally also the effects ofsociopolitical events, which are relevant to demand, were included in the analysis, especially as the process of demand for private health insurance is substantially marked by sociopolitical legislation.     

The tactical and strategic value of hedge fund strategies: a cointegration approach

This paper analyzes long-term comovements between hedge fund strategies and traditional asset classes using multivariate cointegration methodology. Since cointegrated assets are tied together over the long run, a portfolio consisting of these assets will have lower long-term volatility. Thus, if the presence of cointegration lowers uncertainty, risk-averse investors should prefer assets that are cointegrated. Long-term (passive) investors can benefit from the knowledge of cointegrating relationships, while the built-in error correction mechanism allows active asset managers to anticipate short-run price movements. The empirical results indicate there is a long-run relationship between specific hedge fund strategies and traditional financial assets. Thus, the benefits of different hedge fund strategies are much less than suggested by correlation analysis and portfolio optimization. However, certain strategies combined with specific stock market segments offer portfolio managers adequate diversification potential, especially in the framework of tactical asset allocation.

Mobile banking innovators and early adopters: How they differ from other online users?

The rapid pace of technological development has created opportunities for financial service providers to offer their services via multiple electronic channels. The mobile phone is one of the most promising but so far marginally adopted channel for using financial services by consumers. Earlier literature on innovation adoption argued that those among the first to adopt new innovations possess unique characteristics compared to the majority of consumers. This paper aims to study how mobile banking innovators and early adopters differ from other users of online banking services. An internet survey was conducted among customers of a large Scandinavian bank in Finland yielding 2,675 responses. Logistic regression was used to identify variables differentiating between users of mobile banking and other online banking services. Somewhat contradictory to earlier findings the results indicate that only age (p<0.0005) and gender (p=0.010) differentiate these two groups of customers, while education (p=0.957), income (p=0.624), occupation (p=0.596) and size of the household (p=0.151) were found to be insignificant in differentiating the groups. The results offer service providers better knowledge of the typical mobile banking user thus adding value to their marketing actions in the field of electronic banking.     

Shadow prices,fractional Brownian motion,and portfolio optimisation under transaction costs

The present paper accomplishes a major step towards a reconciliation of two conflicting approaches in mathematical finance: on the one hand, the mainstream approach based on the notion of no arbitrage (Black, Merton & Scholes), and on the other hand, the consideration of non-semimartingale price processes, the archetype of which being fractional Brownian motion (Mandelbrot). Imposing (arbitrarily small) proportional transaction costs and considering logarithmic utility optimisers, we are able to show the existence of a semimartingale, frictionless shadow price process for an exponential fractional Brownian financial market.