Academic literature on the topic 'Correlation; Volatility; Portfolio Diversification'
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Journal articles on the topic "Correlation; Volatility; Portfolio Diversification"
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Gualter, Couto, Pimentel Pedro, and Faria Ricardo. "CORRELATION OF THE PORTUGUESE STOCK MARKET WITH MAJOR GLOBAL CAPITAL MARKETS." International Journal of Research - Granthaalayah 5, no. 7 (2017): 92–109. https://doi.org/10.5281/zenodo.834578.
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In this paper, we will analyse the increase of correlations in the market during periods of crisis, given its importance to the management and optimization of the portfolio, and especially for risk diversification in portfolio management. An evaluation of the level of correlation between the stock markets is important for several reasons. First, it enables to evaluate changes in the patterns of correlation, and thus to make the proper adjustments in portfolios’ investment. Second, policy makers are also interested in these correlations because of its implications for the stability of the financial system. The correlation coefficients are biased measures of dependence when markets become more volatile. This paper explores the correlation of the Portuguese capital markets with the Asian, American, European and Latin American Spanish stock markets. To this end, we used the PSI-20 index, Nikkei 225, NASDAQ, S&P 500, Euronext 100 and Ibex-35. Our analysis results show that the correlation does exist as a phenomenon during financial crises (Bear Market), reducing the benefits of portfolio diversification when most needed. Moreover, we believe that correlations have increased between the markets in recent years.
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Mats, Vladyslav. "Hedge performance of different asset classes in varying economic conditions." Radioelectronic and Computer Systems 2024, no. 1 (2024): 217–34. http://dx.doi.org/10.32620/reks.2024.1.17.
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In the realm of long-term investment, strategic portfolio allocation is an essential tool, especially in relation to risk management and return optimisation. There are many ways to pursue optimal portfolio composition, and their effectiveness depends on many factors, including the investor’s goals, risk appetite, and investment horizon. One of the primary means of portfolio optimisation is diversification. The core idea of diversification is to maintain a diverse portfolio with weakly correlated assets that can vastly reduce portfolio exposure to different market stress factors. Diversification is a fundamental strategy in investment and portfolio management that is essential for mitigating risk and enhancing potential returns over the long term. By spreading investments across various asset classes, sectors, geographies, and investment styles, diversification helps reduce the volatility of the overall portfolio. The main subject of this study is the theoretical basis of portfolio diversification and the analysis of historical data to derive optimal strategies for using uncorrelated assets to improve portfolio performance. This paper examines the correlation dynamics between different asset classes, such as stocks, bonds, and alternative investments, and their response to changes in inflation, interest rates, and market volatility, and tests it with historical data to deduce the optimal strategies for using uncorrelated assets to improve portfolio performance. The findings of this study prove the variable relationship between asset classes under specific economic conditions. This study uses historical data to show how different asset classes can be optimally leveraged or adjusted to mitigate risks and capitalise on opportunities presented by shifting economic indicators. This reveals that the hedging benefits of equities, bonds, and gold depend greatly on interest rates, market volatility, and inflation. It also provides guidelines for investors on optimal portfolio allocation and risk management. In conclusion, dynamic portfolio management is an essential tool for reducing the portfolio’s overall volatility while maximising returns. The diversification performance of different financial asset classes depends on major economic indicators such as inflation, interest rates, and market volatility. Investors seeking to optimise their portfolios in anticipation of or in response to economic changes, aiming to maximise returns while controlling for risk, can leverage these results.
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Narayan, Seema. "The Influence of Domestic and Foreign Shocks on Portfolio Diversification Gains and the Associated Risks." Journal of Risk and Financial Management 12, no. 4 (2019): 160. http://dx.doi.org/10.3390/jrfm12040160.
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This paper evaluates the influence of foreign or domestic stock market return and return of volatility shocks on dynamic conditional correlations (DCCs) between international stock markets and correlation volatility, respectively. The correlations between markets have implications for the gains from portfolio diversification, while correlation volatilities can be seen as risks to portfolio diversification. Meanwhile, domestic shocks are sourced from the return and return volatility from 24 developed, emerging, and frontier stock markets. The US stock market is the source of foreign shocks. The domestic and foreign shocks are derived using market-based returns and under bearish market conditions. We estimate multivariate exponential generalized autoregressive conditional heteroskedasticity (E-GARCH) models using daily and monthly MSCI based stock price data of selected developed, emerging, and frontier markets over 1993:1–2014:1. Our key results are as follows. Domestic market shocks were significant drivers of gains from portfolio diversification most of the time, although the US market effects were relatively stronger. On the other hand, the US, in terms of the number of significant cases as well as the size effects of shocks, dominated as a determinant of correlation volatility (or risks to portfolio diversification). Further, under bear market conditions, adjustments in correlations and correlation volatilities are found to be mostly US-induced. Bearish shocks, rather than market return based shocks, show strong evidence of the leverage effect. Signs of persistence of shocks are mainly noticed under bearish conditions.
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Suryawati, Baiq Nurul, Laila Wardani, Muttaqillah Muttaqillah, and Iwan Kusmayadi. "OPTIMIZING PORTFOLIO RETURN WITH NAÏVE DIVERSIFICATION-BASED MODELLING." JMM UNRAM - MASTER OF MANAGEMENT JOURNAL 10, no. 1 (2021): 15. http://dx.doi.org/10.29303/jmm.v10i1.646.
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This study aims at applying naïve diversification-based modeling in formation of optimal portfolios and to test the superiority of these portfolios against its sectoral indexes. The population of this study are all companies listed on the Indonesia Stock Exchange which are grouped into 10 sectors, namely: Agriculture; Basic Industry; Consumer; Finance; Infrastructure; Manufacture; Mining; Miscelanous Industry; Property; and Trade. The sample of this company is Top 10 Constituents in each company sector listed in the fact sheet per sector, published by the Indonesia Stock Exchange. The analytical tools used were paired sample statistics, paired sample correlations and significance tests. The results shows that portfolio formed with naïve diversification modeling shows its superiority compared to its sectoral portfolio. The correlation test shows moderate significance relationship between returns and standard deviation of sectoral portfolios with naïve diversification-based portfolios, while beta shows no meaningful relationship between sectoral portfolios and portfolios with naïve diversification modeling. Discrimination tests show the significance of returns and standard deviations between sectoral and naïve diversification modeling-based portfolios. While in line with the correlation test, there is no significant difference between the beta of the two portfolios, so it appears that the volatility of the two portfolios cannot be separated from overall market movement. For bearish market conditions, the level of portfolio loss using naïve diversification modeling is lower than sector-based portfolios in the Indonesia Stock Exchange.Keywords:investment, sector indexes, simplified, portfolio modelling
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Korzhnev, S. V. "Volatility-based adjustments to portfolio risk assessment tools." Vestnik Universiteta 1, no. 12 (2023): 154–61. http://dx.doi.org/10.26425/1816-4277-2022-12-154-161.
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The article is devoted to the analysis of correlation between assets in the Russian stock market. The purpose of the study is to assess the stability of correlation coefficients. The results of the Jennrich test and correlation analysis carried out indicate that correlation coefficients differ significantly for different volatility levels, that is, the coefficients in times of high volatility are significantly higher than those in times of low volatility. Correlations during periods of heightened volatility are key for assessing risks, since it is such volatility that characterizes negative market movements. The use of conventional correlation coefficients leads to an overestimation of the role of diversification in reducing the volatility in a portfolio of Russian assets and thus an underestimation of the investment portfolio risks. Risks can be assessed more accurately if correlation coefficients corresponding to periods of high volatility are used.
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Sandeep, Yadav. "Risk-Return Diversification Advantages of a Mixed Cryptocurrency Market Portfolio." International Journal of Innovative Research in Engineering & Multidisciplinary Physical Sciences 6, no. 3 (2018): 1–5. https://doi.org/10.5281/zenodo.14059447.
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Cryptocurrencies, despite their strong returns and low correlation with traditional assets, remain underutilized in investment portfolios due to two major concerns: high return volatility and uncertainty regarding the long-term viability of individual cryptocurrencies. In this paper, we propose a comprehensive analysis of the diversification effects offered by a mixed cryptocurrency portfolio, with particular focus on Bitcoin. By constructing and analyzing multiple portfolio configurations, we assess the differences in risk-return profiles when various cryptocurrencies are combined. Our findings indicate that diversified portfolios comprising a basket of cryptocurrencies can mitigate volatility and improve the overall risk-adjusted returns, potentially making cryptocurrencies a more appealing addition to investment portfolios. The paper is organized into the following sections: 1) Introduction, 2) Literature Review, 3) Proposed Methodology 4) Evaluation & 5) Conclusion.
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Saadah, Siti. "Volatility Spillover In Stock And Commodity Futures Market: Empirical Analysis In Indonesia’s Financial Market." Jurnal Manajemen 22, no. 2 (2018): 263. http://dx.doi.org/10.24912/jm.v22i2.363.
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Volatility spillover between stock markets causes insignificancy of diversification. Therefore, other investment alternatives is required to build an optimal portfolio, one of them being commodity futures. The low correlation between commodity futures and stocks indicates the advantage of diversification in investment portfolio containing both assets. In order to prove the advantage of diversification, author tested the existence of volatility spillover during September 16, 2010 - September 30, 2015. Estimation result using GARCH method indicates the presence of significant volatility spillover from stock exchange to commodity futures exchange. An important implication of this finding is that if the sectoral stock index and commodity futures are incorporated into an investment portfolio, the investor will not have optimal diversification advantage. This is because there is a correlation between performance of both markets as a result of both markets having the same characteristics in response to the shock that is coming.
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SARAL, KUNIKA. "Analyzing the Relationship between Real Estate Investments and Portfolio Diversification." INTERANTIONAL JOURNAL OF SCIENTIFIC RESEARCH IN ENGINEERING AND MANAGEMENT 08, no. 05 (2024): 1–5. http://dx.doi.org/10.55041/ijsrem32966.
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Real estate has long been considered an attractive investment option for individuals and institutions seeking to build wealth and diversify their portfolios. Unlike traditional investment vehicles such as stocks and bonds, real estate offers unique characteristics that can potentially enhance returns and mitigate risk. This analysis aims to explore the role of real estate investments in portfolio diversification and assess their potential impact on overall portfolio performance. Portfolio diversification is a fundamental principle in investment management, as it helps to spread risk across different asset classes and mitigate the impact of market fluctuations on a portfolio's overall value. By including assets with low or negative correlations, investors can reduce the volatility of their portfolios and potentially achieve higher risk-adjusted returns. Real estate investments, including direct property ownership, real estate investment trusts (REITs), and other real estate-related securities, have traditionally exhibited low correlations with other asset classes, such as equities and bonds. This low correlation can be attributed to the unique characteristics of real estate, including its tangible nature, the presence of rental income streams, and the potential for capital appreciation. Furthermore, real estate investments can provide a hedge against inflation, as property values and rental rates tend to increase during periods of rising prices. This feature makes real estate an attractive diversification option, particularly for investors seeking to protect their portfolios from the eroding effects of inflation. This analysis will delve into the historical performance of real estate investments, examine their risk and return characteristics, and evaluate their potential contribution to portfolio diversification. By examining empirical data and leveraging portfolio optimization techniques, we aim to provide insights into the optimal allocation of real estate investments within a diversified portfolio.
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Zhao, Xueyao. "Correlation and Impact of Bitcoin with Other Cryptocurrency Portfolios." Advances in Economics, Management and Political Sciences 11, no. 1 (2023): 123–28. http://dx.doi.org/10.54254/2754-1169/11/20230524.
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Bitcoin is a peer-to-peer form of digital currency proposed in 2008. Unlike other currencies, Bitcoin does not rely on a specific institution to issue it, it is based on a specific algorithm that generates it through a large number of calculations. In some countries, government agencies, central banks and academia regard Bitcoin is a virtual currency rather than a currency. This is because of Bitcoins high volatility, which does not have the two basic functions of the unit of account and the store of value that are unique to the currency. In recent years, Bitcoin has seen increasing media coverage and other cryptocurrency portfolios, as well as the significant capital gains have been seen in the high volatility environment. In this paper, we shed light on the low correlation of Bitcoin with traditional investment assets, making Bitcoin a potentially high-quality source of portfolio diversification. The results of the finding suggest that Bitcoin investments offer significant diversification benefits and should be included in optimal portfolios. In addition to this, we find that hedging strategies involving gold, oil, stocks and Bitcoin significantly reduce portfolio risk.
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Kuzheliev, Mykhailo, Dmytro Zherlitsyn, Ihor Rekunenko, Alina Nechyporenko, and Sergii Stabias. "Expanding portfolio diversification through cluster analysis beyond traditional volatility." Investment Management and Financial Innovations 22, no. 1 (2025): 147–59. https://doi.org/10.21511/imfi.22(1).2025.12.
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The study reviews the application of machine learning tools in financial investment portfolio management, focusing on cluster analysis for asset allocation, diversification, and risk optimization. The paper aims to explore the use of clustering analysis to broaden the concept of portfolio diversification beyond traditional volatility metrics. An open dataset from Yahoo Finance includes a ten-year historical period (2014–2024) of 130 actively traded securities from international stock markets used. Dataset selection prioritizes top liquidity and trading activity. Python analytical tools were employed to clean, process, and analyze the data. The methodology combines classical Markowitz optimization with clustering analysis techniques, highlighting variance-return trade-offs. Various asset characteristics, including annualized return, standard deviation, Sharpe ratio, correlation with indices, skewness, and kurtosis, were incorporated into the clustering models to reveal hidden patterns and groupings among financial assets. Results show that while clustering enhances insights into asset diversity, classical approaches remain historically superior in optimizing risk-adjusted returns. This study concludes that clustering complements, rather than replaces, classical methods by broadening the understanding of diversification and addressing many diversity factors, such as metrics of the technical, graphical, and fundamental analysis. The paper also introduces the diversity rate based on clustering, which measures the variance balance by all features within and between clusters, providing a broader perspective on diversification beyond traditional metrics. Future research should investigate dynamic clustering techniques, integrate fundamental economic indicators, and develop adaptive models for effective portfolio management in evolving financial markets.
Dissertations / Theses on the topic "Correlation; Volatility; Portfolio Diversification"
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Franch, Mattia, and Bahaa Shehabi. "The potential benefits of investing in commodities : A study of the properties related to the investment in several commodities and adding them to stock portfolios." Thesis, Umeå universitet, Företagsekonomi, 2016. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-127354.
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Investing in commodities may have important benefits for investors but only in the last few decades have they started to think more about this possibility. Furthermore, large investors are more inclined to change their own personal view. Therefore, understanding the benefits that commodities could give to an investment portfolio might alleviate investors’ concerns. Several previous studies, as Belousova and Dorfleitner (2012) suggest, that the commodities with higher benefits are precious metals and gold, in particular. The purpose of our work is to understand which possible benefits are for equity investors and if they are common for certain commodities with different physical characteristics. The first part of our empirical work focuses on the main descriptive statistics of the return distribution (mean, variance, volatility, skewness, kurtosis and correlation) for 8 stock indices and 7 commodity futures. The main goal of this is to understand the differences among the commodities and between the commodities and the stock indices. In the second part of the empirical work, we test the safe-haven and the hedge properties of these commodities on a weekly basis for all of them with stock indices, and we do the same on a daily and monthly basis for only commodities which are negatively correlated on average with the stock indices. In the last part of our work, we combine these 7 commodities, following the principles of Bloomberg Commodity Index (BCOM), in order to create a well-balanced and well-diversified commodity index. Additionally, we create some mixed portfolios using this index and a different stock index every time. After that we look at the volatilities and the returns of these mixed portfolios with different weight combinations. Our main goals in this section are to understand the characteristics of the commodity index in comparison with stock indices and then, finding which weight combinations give the mixed portfolios the optimal risk-return trade off. Understanding which are efficient weights, can lead to conclusions about the weight that commodities should have in a portfolio according to the risk tolerance of the investors. The research is done considering three time frequencies: daily, weekly and monthly; in line with the ones used by Baur and McDermott (2010). The sample size differs among these three different time basis. In fact, daily data started in January 2007 and the other two time frequencies data began with January 1997. All the time samples ended in March 2016. The results of the first part show that gold is the only commodity with a volatility similar to the stock indices (it also has a higher average return) and that on the daily, weekly and monthly basis. Whereas, the other commodities are much riskier than stock indices since they have higher volatility for all the three time-frequencies analyzed. The results of the second part suggest that only gold is both a safe-haven and hedging commodity in line with the methodology used by Baur and McDermott (2010), but only for DAX 30 on a weekly basis. Furthermore, our results also show that natural gas is strong hedge in some cases such as natural gas for STI (Singapore) on a monthly basis or gold for Nikkei 225 on daily, weekly and monthly basis. Other commodities are neither safe-haven nor hedge in any case, except for silver which is a safe-haven commodity for DAX 30 and Sensex which at its worst, 1% and 5%, declines in the market respectively. The results of the last part of our work show that all the minimum variance mixed portfolios (the ones with the weights give the lowest risk) - made on a weekly basis - reduce the portfolio volatility and make the portfolio returns higher than the stock indices returns in 5 cases out of 8. Additionally, the results show how investors, who add a well-balanced and well-diversified commodity index to their portfolios, are able to observe several weight combinations and choose the one which suits their risk tolerance. Moreover, our results show that the optimal-weight combinations for commodity weights are lower than 0,5 only for FTSE 100 and S&P 500 (both values are 0,49) and higher than 0,62 but lower than 0,7 for DAX 30, Nikkei 225, Hang Seng, Sensex, SSEC. Furthermore, the optimal weight for STI is 0,54.
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Bui, Ba Tung, and Javier Jo. "Sustainable Bonds and Beyond: A Sustainable Alternative for Portfolio Diversification : An empirical study of sustainable bonds and existing asset classes from a volatility and correlation perspective in Sweden." Thesis, Umeå universitet, Företagsekonomi, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-172185.
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Increasing awareness of sustainable issues is just one of the ways how modern society has evolved. Due to the growing challenges faced by climate change and societal issues, our world has grown to be more innovative in the fight and support towards initiatives that will contribute to the long-term of the world we live in. Capitalists have exploited the resources, and as such, it is the economy where we can make the most significant changes to reverse the negative consequences. Responsible investment has incorporated various financial tools oriented towards the support of environmental, societal, and governance practices to revert the adverse effects brought on by capitalism. Sustainable bonds are a type of fixed income financial tool to support responsible investment practices. Their motive is to drive the financing of projects oriented towards positively contributing to the environment, society, and governance. Previous studies on the field of responsible investment have covered the topic of green bonds and, most recently, social bonds. Although this field is relatively new, much of the literature developed has focused on the financial returns of such fixed-income assets. This thesis is the first to attempt the study of a self-created Swedish Sustainable Bond index consisting of 156 sustainable bonds issued in the Swedish market in correlation to three other asset classes. General interests and a lack of research due to its contemporary issuance in this context brought us to study such relation of return characteristics with its conventional bond counterpart, the equity market, and the energy stock section all within the Swedish market. The objective, as such, was to determine whether such an instrument could be used as a diversification tool. For us to be able to conduct this study, we utilized the returns of each category’s indices. We applied different statistical models and tests, including correlation, univariate, and multivariate GARCH models, to be able to ensure robust results that could yield thought-provoking results for us to analyze. In conjunction with the Modern Portfolio Theory, we were able to determine that sustainable bonds provide investors with some diversification benefit by a positive correlation with the conventional bond and negative correlations with the equity and energy stock market. Volatility clustering and spillover effects within the Swedish sustainable bonds and the identified markets were also present. We went a step ahead and curious to explore whether the conventional bond market was better off than the sustainable bond market. Such results indicate that the conventional bond is still a better tool for diversification purposes with the other two asset classes selected in comparison to the Swedish Sustainable Bond. As such, we are still wishful that sustainable bonds could potentially change their behavior in the future as a diversification tool, as more regulations and standardization of such asset classes are implemented.
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Esteves, Carlos Manuel Geraldes. "Portfolio diversification using Bitcoin." Master's thesis, Instituto Superior de Economia e Gestão, 2020. http://hdl.handle.net/10400.5/21053.
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Mestrado em Finanças<br>Normalmente, as Bitcoins são associadas a um lado mais controverso e ilegal - Bitcoin como meio de chantagem a pessoas ou empresas. Esquemas de pirâmide (Ponzi) ou ainda meio de pagamento no mercado negro, geralmente na dark-web.
Mas, existem investidores que estão a utilizar Bitcoin como um ativo nos seus investimentos, seja numa estratégia mais passiva seja mais ativamente, com compra e venda consoante as flutuações cambiais.
O aspeto negativo deste ativo financeiro é a sua volatilidade
Apesar de, atualmente, Bitcoins e outras cripto moedas se encontrarem numa zona cinzenta, ou vazio legal, e serem um ativo de elevado risco, existe a possibilidade de estas pertencerem a portfolios de investimento, como agente de diversificação. Um agente diferente e recente, mas algo possível.
Esta dissertação tem, portanto, como objetivo, analisar se a Bitcoin pode ser um agente diversificador num portfolio eficiente e bem diversificado.<br>Usually, we associate Bitcoin with the dark side of the finance world - Bitcoin as a mean for online blackmail or scam, the black market or even for Ponzi schemes, where Bitcoin and other digital currencies are used as mean of payment, instead of physical currency.
But, there are also investors who are using Bitcoin as an investment asset, whether for buy and hold strategies or trading
The downside of this investment asset it is the volatility
Although risky and legally in a grey zone, it can be used in an investment portfolio as a diversification agent, an odd one but perhaps feasible.
The aim of this thesis is to analyze if Bitcoin can as a diversification agent in an efficient and well diversified portfolio.<br>info:eu-repo/semantics/publishedVersion
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Vieira, Joana Colarinha. "International portfolio diversification: evidence from emerging markets." reponame:Repositório Institucional do FGV, 2015. http://hdl.handle.net/10438/14114.
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Submitted by Joana Vieira (joana_cvieira@hotmail.com) on 2015-10-13T12:58:25Z
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Previous issue date: 2015-09-25<br>Taking into account previous research we could assume to be beneficial to diversify investments in emerging economies. We investigate in the paper International Portfolio Diversification: evidence from Emerging Markets if it still holds true, given the assumption of larger world markets integration. Our results suggest a wide spread positive time-varying correlations of emerging and developed markets. However, pair-wise cross-country correlations gave evidence that emerging markets have low integration with developed markets. Consequently, we evaluate out-of-sample performance of a portfolio with emerging equity countries, confirming the initial statement that it has a better a risk-adjusted performance over a purely developed markets portfolio.
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Gorny, Moritz Fabio. "Time-varying benefits of cross-asset and cross-region portfolio diversification." reponame:Repositório Institucional do FGV, 2017. http://hdl.handle.net/10438/19010.
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Previous issue date: 2017-09-25<br>The thesis uses return data on equities, bonds, commodities and real estate for the U.S., Europe, Asia and Latin America to examine diversification potentials. The analysis focuses on benefits of cross-asset and cross-region diversification as well as the impact of financial distress on those strategies and portfolio performances. It concludes that diversification benefits vary over time and decrease in bear markets due to higher correlation. Investmentgrade bonds and gold have shown the highest diversification benefits for equity investors during financial distress. Assets from emerging markets seem to be less sensitive to global market drops and show more constant performances.<br>A tese utiliza dados de retorno sobre ações, títulos, commodities e imóveis para os EUA, Europa, Ásia e América Latina para examinar os potenciais de diversificação. A análise centra-se nos benefícios da diversificação entre ativos e entre regiões, bem como o impacto do sofrimento financeiro nessas estratégias e desempenhos da carteira. Conclui que os benefícios da diversificação variam ao longo do tempo e diminuem nos mercados ostentosos devido à maior correlação. Os títulos de grau de investimento e o ouro mostraram os maiores benefícios de diversificação para os investidores de capital durante o sofrimento financeiro. Os ativos dos mercados emergentes parecem ser menos sensíveis às quedas do mercado global e mostram performances mais constantes.
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Sawwan, Charbel, and Nathan Lercier. "International Diversification for Swedish investors : A comparative study of different national and international scale portfolios." Thesis, Umeå universitet, Företagsekonomi, 2019. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-160407.
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This thesis aims to investigate the benefits of international diversification from a Swedish perspective. It presents a comparative study of the performance of different portfolios based on their degree of international diversification with a focus on Swedish investors frame of reference. Such a study is motivated by the contradictory literature about portfolio diversification and information portfolio theory that advocate for a more concentrated portfolio. It focuses solely on comparing portfolios constituted with major indices of a representative sample including countries from different parts of the world. The different scales of those portfolios start from a divided part of the Swedish economy to end with a global portfolio. We observed that international diversification can outperform the domestic portfolios when considering risk and return. In addition, we observed that the best performing portfolios over the periods are systematically concentrated on emerging countries and that the high return of those emerging countries is often not associated with a correspondingly high standard deviation as it should be expected. The best levers of performance that we identified as a result of this comparative study are, first, the strategy consisting in focusing on the most concentrated portfolios in order to maximize the return and then trying to time the market, thanks to a specialized information collection strategy, but this bear a high undiversifiable risk. Or second, adopting an intentionally diversified portfolio and collecting information about the most promising emerging markets that will be then over weighted in the portfolio to lower the risk and higher the return. Lastly, the study recommend that home-biased investors should change their behavior and consider international investments when building a portfolio.
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Stark, Caroline, and Emelie Nordell. "Diversifying in the Integrated Markets of ASEAN+3 : A Quantitative Study of Stock Market Correlation." Thesis, Umeå University, Umeå School of Business, 2010. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-34476.
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<p>There is evidence that globalization, economic assimilation and integration among countries and their financial markets have increased correlation among stock markets and the correlation may in turn impact investors’ allocation of their assets and economic policies. We have conducted a quantitative study with daily stock index quotes for the period January 2000 and December 2009 in order to measure the eventual correlation between the markets of ASEAN+3. This economic integration consists of; Indonesia, Malaysia, Philippines, Singapore, Thailand, China, Japan and South Korea. Our problem formulation is:Are the stock markets of ASEAN+3 correlated?Does the eventual correlation change under turbulent market conditions?In terms of the eventual correlation, discuss: is it possible to diversify an investment portfolio within this area?The purpose of the study is to conduct a research that will provide investors with information about stock market correlation within the chosen market. We have conducted the study with a positivistic view and a deductive approach with some theories as our starting point. The main theories discussed are; market efficiency, risk and return, Modern Portfolio Theory, correlation and international investments. By using the financial datatbase, DataStream, we have been able to collect the necessary data for our study. The data has been processed in the statistical program SPSS by using Pearson correlation.From the empirical findings and our analysis we were able to draw some main conclusions about our study. We found that most of the ASEAN+3 countries were strongly correlated with each other. Japan showed lower correlation with all of the other countries. Based on this we concluded that economic integration seems to increase correlation between stock markets. When looking at the economic downturn in 2007-2009, we found that the correlation between ASEAN+3 became stronger and positive for all of the countries. The results also showed that the correlation varies over time. We concluded that it is, to a small extent, possible to diversify an investment portfolio across these markets.</p>
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Yousuf, Abdullah, and Fredrik Nilsson. "Impact of Exchange Rates on Swedish Stock Performances. : Empirical study on USD and EUR exchange rates on the Swedish stock market." Thesis, Umeå universitet, Företagsekonomi, 2013. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-75782.
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This paper examines the impact of USD and EUR exchange rates on the Swedish stock market performance for different economic sectors over a time period of ten years (2003-2013). The growing integration between foreign exchange markets and stock markets with the wide spread use of hedging and diversification policies made it necessary to test the degree of impact these two distinct markets share between each other. Number of studies, were done studying the relationship between the exchange rates and stock performance combining and comparing different economies and currencies. Nevertheless, research gap prevailed when it came at the point of the studying the relationship on Swedish stock and foreign exchange market. The research was conducted with the quantitative method. Initially we have tested how the performance of Swedish stock market is correlated with the return of the USD and EUR in different economic sectors over different time periods. Later, we try to investigate if there is any spillover effect flows from the exchange market to the Swedish stock market. The Pearson’s correlation coefficient and GARCH (1,1) model were applied to study the correlation and spillover effect between the exchange and stock return respectively. Our empirical study showed that there is very low correlation which is statistically insignificant between the two different markets. Correlations were found to be significantly varied across the different economic sectors in different time periods. Moreover empirical study supported that the spillover effect exists and showed that movement of exchange rates will affect the future performance of stock market. The significant conclusions were that USD and EUR can be used as portfolio diversification and during the volatile exchange market, investors should diversify or hedge their risk domestically and vice versa. The implications of this finding is particularly very important for the portfolio managers when devising their hedging policies and diversifying their portfolios in order to minimize their unsystematic risk.
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Pedrono, Justine. "Banking stability and currency diversification." Thesis, Aix-Marseille, 2017. http://www.theses.fr/2017AIXM0283/document.
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La crise financière de 2008 a mis en exergue l'instabilité financière des banques en identifiant le caractère procyclique du levier bancaire, la sous-capitalisation des banques, et la nécessité de définir une nouvelle régulation bancaire. La dimension internationale des activités bancaires et l'identification des banques globales complètent ce constat. Les banques européennes, par leurs expositions aux marchés financiers américains, sont diversifiées internationalement: une part de leurs actifs et de leurs dettes est libellée en dollar américain. Le taux de change flottant entre le dollar et l'euro introduit un effet de valorisation et un risque de change qui impactent la stabilité bancaire. Cette thèse étudie l'impact de la diversification internationale des bilans bancaires sur la procyclicité du levier, sur la structure du capital, et sur la volatilité de capital. Quatre chapitres combinent des travaux théoriques et empiriques. Le premier chapitre analyse l'impact théorique de la diversification sur la procyclicité du levier. Le chapitre 2 utilise des données bancaires françaises entre 1999 et 2015 et montre un impact positif. Dans le chapitre 3, les mêmes données sont utilisées afin d'estimer l'impact de la diversification sur la structure du capital. L'introduction de cette dimension est déterminante dans le cadre de cette analyse. Enfin, le chapitre 4 élargit la problématique en reliant l'intégration internationale, la diversification et la volatilité du capital. Nous identifions les différentes sources de risque et nous montrons que la banque peut bénéficier d'un régime de change flottant et d'une diversification internationale<br>The 2008 financial crisis has rekindled discussions on the financial stability of banks by identifying the procyclical behavior of banking leverage, the lack of capital in banks' balance sheet and the necessity of introducing a new regulatory framework. It has also highlighted the international dimension of banking activities and the identification of global banks. The significant exposure to the US financial markets leads to an international diversification of European global banks where part of their assets and liabilities are denominated in US dollar. The floating exchange rate regime between the US dollar and the euro then implies a foreign exchange risk and a valuation effect that would affect banking stability. The purpose of thesis is to study the impact of international diversification of bank’s balance sheet on leverage procyclicality, capital structure and equity volatility. I develop four chapters combining theoretical and empirical research. The first chapter analyses the theoretical impact of currency diversification on leverage procyclicality. Chapter 2 uses innovative data on banks located in France from 1999 to 2015 and shows that the relationship is positive. In the third chapter, we use our data to estimate the impact of international diversification on capital structure and we show that introducing this new dimension is determinant to the capital structure. Finally, chapter 4 enlarges the analysis to international integration, diversification and equity volatility. I identify all risk channels a bank supports and show that banks can benefit from both floating foreign exchange regime and international diversification
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Katzler, Sigrid. "Improving strategic decisions for real estate investors : Perspectives on allocation and management." Doctoral thesis, KTH, Fastigheter och byggande, 2017. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-207004.
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Real estate is an attractive asset class in the mixed-asset portfolio due to favorable risk return characteristics and low correlations with other asset classes like stock and bonds. Unlike financial assets, real estate is a physical asset where large lot sizes/indivisibility, heterogeneity, low liquidity and high transaction costs make applying financial models like modern portfolio theory (MPT) challenging. Optimal allocations to real estate found in literature are generally lower than actual allocations by investors and portfolio managers indicating there are aspects of the application of MPT to real estate that are not fully understood. Since management of real estate is costly and requires expert skills, the question on whether to outsource property management functions is of paramount interest for the real estate industry. The aim of the thesis is to contribute to the literature on strategic decisions for real estate investors on allocation and management, Apart from reviewing literature relevant for strategic decisions at different levels and using a top-down approach to illustrate how selected allocation and management decisions are connected, four separate empirical studies are made to investigate the nature of selected strategic decisions for real estate investors.<br><p>QC 20170515</p>
Books on the topic "Correlation; Volatility; Portfolio Diversification"
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Satchell, Stephen, and Jamie Alcock. Assymetric Dependence in Finance: Diversification, Correlation and Portfolio Management in Market Downturns. Wiley & Sons, Limited, John, 2018.
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Satchell, Stephen, and Jamie Alcock. Asymmetric Dependence in Finance: Diversification, Correlation and Portfolio Management in Market Downturns. Wiley & Sons, Incorporated, John, 2018.
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Satchell, Stephen, and Jamie Alcock. Asymmetric Dependence in Finance: Diversification, Correlation and Portfolio Management in Market Downturns. Wiley & Sons, Incorporated, John, 2018.
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Satchell, Stephen, and Jamie Alcock. Assymetric Dependence in Finance: Diversification, Correlation and Portfolio Management in Market Downturns. Wiley & Sons, Limited, John, 2018.
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Billio, Monica, Mila Getmansky Sherman, and Loriana Pelizzon. Financial Crises and Evaporating Diversification Benefits of Hedge Funds. Oxford University Press, 2017. http://dx.doi.org/10.1093/oso/9780190607371.003.0024.
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Diversification of risk is a potential benefit of investing in hedge funds. Using CSFB/Tremont hedge fund indices, this chapter shows that hedge fund strategies have different returns, volatility, and exposures to various systematic risk factors during tranquil times. This relation has led to the growth of the hedge industry and in particular funds of hedge funds, which provide diversification benefits by investing across different hedge fund styles. However, during financial crises, different hedge fund strategies are exposed to similar systematic risk factors. Most of the strategies become exposed to market liquidity and credit risk factors. Moreover, during the financial crises of 1998 and 2007–2008, all strategies were loading positively on the latent factor that induced positive correlation among hedge fund strategy residuals. As a result, diversification benefits incurred due to investing in different hedge fund strategies evaporated during these financial crises.
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Preece, Dianna. Return Characteristics of Commodities. Oxford University Press, 2018. http://dx.doi.org/10.1093/oso/9780190656010.003.0016.
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The role of commodities in a diversified portfolio has been the subject of research and debate since the late 1970s. Investors can hold the physical commodity or use derivatives such as futures contracts to access commodity exposure. Institutional investors primarily gain exposure to commodities via futures contracts. Commodity futures returns are comprised of a collateral return, a spot return, and a roll return. Research dating back to the late 1970s suggests that commodities should be included in diversified portfolios because they act as an inflation hedge, are portfolio diversifiers due to negative correlation with stocks and bonds, and potentially offer returns and volatility comparable to equities. Commodity performance has been generally weak in the years following the financial crisis of 2007–2008. Many studies find that correlation of commodity returns with stocks and bonds increases during periods of financial stress.
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Auleta, Oreste, and Filippo Stefanini. Directional Equity Strategies of Hedge Funds. Oxford University Press, 2017. http://dx.doi.org/10.1093/oso/9780190607371.003.0011.
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This chapter discusses three directional hedge fund strategies: long/short equity, short only, and equity market neutral. These strategies rely on different types of positions that are enumerated and explained using trade examples. A key feature of funds implementing directional strategies is the market exposure best described by gross exposure and beta-adjusted net exposure. In long/short equity funds, money managers often use yield enhancement strategies based on option overlays. A review of different management styles explicates the heterogeneity of hedge funds and liquid alternatives that implement the long/short equity strategy. Analysis of portfolio diversification highlights why equity market-neutral funds have more holdings than long/short equity funds. For equity market-neutral funds, the chapter highlights a link between the fund’s correlation with the market and its beta: low beta does not imply that it has a low correlation with the market. The chapter provides a theoretical discussion with some real fund examples.
Book chapters on the topic "Correlation; Volatility; Portfolio Diversification"
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Joseph, Tonuchi E., Atif Jahanger, Joshua Chukwuma Onwe, and Daniel Balsalobre-Lorente. "The Implication of Cryptocurrency Volatility on Five Largest African Financial System Stability." In Blockchain, Crypto Assets, and Financial Innovation. Springer Nature Singapore, 2025. https://doi.org/10.1007/978-981-96-6839-7_7.
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Abstract This study examined the interconnectedness and volatility correlation between cryptocurrency and traditional financial markets in the five largest African countries, addressing concerns about potential spillover effects, especially the high volatility and lack of regulation in the cryptocurrency market. The study employed both diagonal BEKK-GARCH and DCC-GARCH to analyze the existence of spillover effects and correlation between both markets. A daily time series dataset from January 1, 2017, to December 31, 2021, was employed to analyze the contagion effect. Our findings reveal a significant spillover effect from cryptocurrency to the African traditional financial market; however, the percentage spillover effect is still low but growing. Specifically, evidence is insufficient to suggest a spillover effect from cryptocurrency to Egypt and Morocco’s financial markets, at least in the short run. Evidence in South Africa, Nigeria, and Kenya indicates a moderate but growing spillover effect from cryptocurrency to the financial market. Similarly, we found no evidence of a spillover effect from the African financial market to the cryptocurrency market. The conditional correlation result from the DCC-GARCH revealed a positive low to moderate correlation between cryptocurrency volatility and the African financial market. Specifically, the DCC-GARCH revealed a greater integration in both markets, especially in the long run. The findings have policy implications for financial regulators concerning the dynamics of both markets and for investors interested in portfolio diversification within the two markets.
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Yousaf, Imran, and Shoaib Ali. "Discovering Interlinkages Between Major Cryptocurrencies Using High-Frequency Data: New Evidence from COVID-19 Pandemic." In Blockchain, Crypto Assets, and Financial Innovation. Springer Nature Singapore, 2025. https://doi.org/10.1007/978-981-96-6839-7_13.
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Abstract Through the application of the VAR-AGARCH model to intra-day data for three cryptocurrencies (Bitcoin, Ethereum, and Litecoin), this study examines the return and volatility spillover between these cryptocurrencies during the pre-COVID-19 period and the COVID-19 period. We also estimate the optimal weights, hedge ratios, and hedging effectiveness during both sample periods. We find that the return spillovers vary across the two periods for the Bitcoin-Ethereum, Bitcoin-Litecoin, and Ethereum-Litecoin pairs. However, the volatility transmissions are found to be different during the two sample periods for the Bitcoin-Ethereum and Bitcoin-Litecoin pairs. The constant conditional correlations between all pairs of cryptocurrencies are observed to be higher during the COVID-19 period compared to the pre-COVID-19 period. Based on optimal weights, investors are advised to decrease their investments (a) in Bitcoin for the portfolios of Bitcoin/Ethereum and Bitcoin/Litecoin and (b) in Ethereum for the portfolios of Ethereum/Litecoin during the COVID-19 period. All hedge ratios are found to be higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. Last, the hedging effectiveness is higher during the COVID-19 period compared to the pre-COVID-19 period. Overall, these findings provide useful information to portfolio managers and policymakers regarding portfolio diversification, hedging, forecasting, and risk management.
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Chen, James Ming. "Sinking, Fast and Slow: Relative Volatility Versus Correlation Tightening." In Postmodern Portfolio Theory. Palgrave Macmillan US, 2016. http://dx.doi.org/10.1057/978-1-137-54464-3_7.
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Bandyopadhyay, Arindam. "Correlation Theorem and Portfolio Management Techniques." In Basic Statistics for Risk Management in Banks and Financial Institutions. Oxford University Press, 2022. http://dx.doi.org/10.1093/oso/9780192849014.003.0006.
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Covariance and correlation play important roles in portfolio management of risk. In market risk, it is used as a measure of the dependence between different financial instruments in the calculation of value at risk (VaR). Correlation is concerned with the measurement of strength of association between two variables. It is a crucial parameter in modern portfolio management theory. It is widely used to measure portfolio return volatility as well as computation of portfolio volatility and risk-adjusted return. This chapter explains in detail how correlation contributes significantly in the assessment of portfolio risk. Correlated and interrelated risk events and indicators need to be highlighted for better portfolio management. The chapter suggests that combining the credit or investment assets with lower correlations tend to reduce the overall portfolio risk. Modern portfolio theorem suggests effective ways to allocate assets and utilize correlations to maximize gains through diversification. Accordingly, portfolio optimization techniques have been illustrated with numerical examples as well as chart demonstration.
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Jaffar Sadiq Abdullah, Muhammad, and Norizarina Ishak. "An Optimal Control Approach to Portfolio Diversification on Large Cap Stocks Traded in Tokyo Stock Exchange." In Control Theory in Engineering [Working Title]. IntechOpen, 2022. http://dx.doi.org/10.5772/intechopen.100613.
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In this chapter, Markowitz mean-variance approach is proposed for examining the best portfolio diversification strategy within three subperiods which are during the global financial crisis (GFC), post-global financial crisis, and during the non-crisis period. In our approach, we used 10 securities from five different industries to represent a risk-mitigation parameter. In this way, the naive diversification strategy is used to serve as a comparison for the approach used. During the computation process, the correlation matrices revealed that the portfolio risk is not well diversified during non-crisis periods, meanwhile, the variance-covariance matrices indicated that volatility can be minimized during portfolio construction. On this basis, 10 efficient portfolios were constructed and the optimal portfolios were selected in each subperiods based on the risk-averse preference. Performance-wise that optimal portfolio dominated the naïve strategy throughout the three subperiods tested. All the optimal portfolios selected are yielding more returns compared to the naïve portfolio.
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Śliwiński, Paweł. "International portfolio diversification during the Covid-19 onset: A study of correlations among CEE post-transition and developed countries." In Towards the „new normal” after COVID-19 – a post-transition economy perspective. Wydawnictwo Uniwersytetu Ekonomicznego w Poznaniu, 2021. http://dx.doi.org/10.18559/978-83-8211-061-6/i6.
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Purpose: The chapter examines the hypothesis that during the Covid-19 onset, the higher positive correlations between stock exchange indices persist, preventing the use of international diversification to reduce the volatility of global portfolio. Design/methodology/approach: The study focuses on CEE post-transition countries and their main stock exchange indices’ correlations with developed markets stock exchange indices. The data cover the period starting from January 8, 2004, until the end of October, 2020. The bivariate relationship between stock indices and VIX was measured by the Pearson coefficient of correlation. Findings: The findings of correlations estimation in three periods (long-term, Covid-19 on-set, and recovery) indicate that except for a period of large volatility measured by the VIX index lower relationships between developed and emerging stock markets persist. However, the results of the study concerning the shaping of correlation between the stock indices and the global risk shows a significant negative relationship between them, approaching very high levels close to 1 during the Covid-19 onset. All the CEE stock exchanges – even those low correlated in the longer term – behaved very similarly during the stock exchange crunch with its epicenter in March 2020. Practical implications: The answer to the research questions concerning the shaping of correlations on international markets is important for the portfolio theory itself in its international aspect, but also from the viewpoint of its applicability in practice. Huge market synchronization in terms of comovements in stock indices is troubling. It significantly reduces or even eliminates the benefits of international diversification during market crashes.
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Varoglu, Nesibe, and Aysel Varoglu. "Exploring Dynamic Volatility Transmission in Canadian and Global Financial Markets." In Advances in Finance, Accounting, and Economics. IGI Global, 2025. https://doi.org/10.4018/979-8-3693-8186-1.ch015.
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This paper investigates the volatility transmission between the S&P/TSX and key global financial markets, including the S&P500, Gold, VIX, WTI, and Brent Crude Oil (BO), using the Dynamic Correlation-Multivariate Stochastic Volatility (DC-MSV) model. By analyzing daily market index returns, the study uncovers dynamic volatility interactions and spillovers, providing valuable insights into how shocks in one market can affect others. The findings reveal significant bidirectional volatility transmission between the S&P/TSX and S&P500, with notable unidirectional spillovers to Gold and WTI. The results have important implications for financial professionals, especially in Canada, where market volatility and global economic dynamics directly impact investment strategies and risk management. This paper contributes to the literature by offering a comprehensive understanding of volatility transmission across diverse markets and its relevance for portfolio diversification, economic forecasting, and policy formulation.
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Yesuf, Abdurahman Jemal. "Emerging Market Sovereign Debts as a Means for Profit Maximization and Portfolio Diversification." In Advances in Religious and Cultural Studies. IGI Global, 2016. http://dx.doi.org/10.4018/978-1-5225-0148-0.ch024.
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The case for emerging markets debts (EMD) has convinced many investors. This is an asset class that has been experiencing an increase in inflows and is getting international investors attention. During the past two decades, cross-border inflows into ‘emerging market' debt instruments have rose rapidly. Over twelve trillion dollar is currently invested in ‘Emerging Markets' debt. This asset classes has delivered strong returns over time and deserves consideration. Therefore, this paper is intended to show how and why Emerging Market debts are vital instrument in portfolio diversification by using descriptive analysis. The performance assessment has made by noting the unique statistical attributes of ‘emerging market' bond returns, such as their correlation with other asset classes and also by taking their annualized volatility rate and Sharpe ratios. The assessment has done based on compiled data from known sources such as JP Morgan, Bloomberg and other well known secondary data sources.
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"Modeling and Estimating Long-Term Volatility of Stock Markets in Romania, Poland, Greece, and USA." In Emerging Research on Monetary Policy, Banking, and Financial Markets. IGI Global, 2019. http://dx.doi.org/10.4018/978-1-5225-9269-3.ch009.
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The main purpose of this chapter is to examine long-term volatility of stock markets in Romania, Poland, Greece, and USA using asymmetric GARCH class models. The selected financial databases include daily log-returns of sample stock market major indices during the period from January 2000 until January 2014. The empirical results provide an additional contribution to existing literature regarding volatility estimations and international portfolio investment strategies. Moreover, this book chapter provides a useful empirical approach for a better understanding of volatility behavioral patterns, similar reaction to external shocks, international contagion, the impact of new information on the market and risk management optimal strategies, investor risk aversion and international portfolio diversification benefits.
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Veliu, Denis. "The Risk Parity Approach Applied to Agricultural Commodities." In Advances in Business Strategy and Competitive Advantage. IGI Global, 2017. http://dx.doi.org/10.4018/978-1-5225-2107-5.ch013.
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The recent years were hard for commodities, with most suffering of high losses. The uncertainty of the financial markets after the 2008 crisis has pushed in the interest of finding new way of diversification. With the Risk Parity or Equally Weighted Risk Contribution strategy, Maillard, Roncalli, and Teiletche (2008) suggested a method that maximize the diversification. These authors have applied this strategy to the volatility (standard deviation). In this chapter, the author describes how to apply Risk Parity to the Conditional Value at Risk using historical data estimation. Passing to CVaR, a coherent measure, the model can benefit from its properties with the needed assumptions. As a special case, the author has applied this method to an agricultural portfolio, compared the Risk Parity strategies with each other and with the Mean Variance and Conditional Value at Risk. An important part is the analysis of the riskiness, the diversification and the turnover. A portfolio with a certain numbers of agricultural commodities may have particular specified that an investor requires.
Conference papers on the topic "Correlation; Volatility; Portfolio Diversification"
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Sharma, Sudhi, Neeraj Aswal, Vaibhav Aggarwal, Reepu, and Vivek Tiwari. "Time-Varying Volatility Among Bahrain Stock Exchange with Disruptive Technology and Sustainable Asset Class- Insights for Portfolio Diversification." In 2024 ASU International Conference in Emerging Technologies for Sustainability and Intelligent Systems (ICETSIS). IEEE, 2024. http://dx.doi.org/10.1109/icetsis61505.2024.10459459.
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Dias, Rui, and Hortense Santos. "THE IMPACT OF COVID-19 ON EXCHANGE RATE VOLATILITY: AN ECONOPHYSICS APPROACH." In Sixth International Scientific-Business Conference LIMEN Leadership, Innovation, Management and Economics: Integrated Politics of Research. Association of Economists and Managers of the Balkans, Belgrade, Serbia, 2020. http://dx.doi.org/10.31410/limen.2020.39.
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This paper aims to analyze the efficiency, in its weak form, between exchange rates, US-RMB, US-EUR, US-JPY, US-MYR, US-PHP, US-SGD, US-THB, US-CHF, US-GBP, in the period from July 1, 2019 to October 27, 2020. To perform this analysis, different approaches were undertaken to assess whether: (i) the impact of the global pandemic created long memories in international foreign exchange markets? The results of the exponents Detrended Fluctuation Analysis (DFA) show that the exchange rates US-THB (0.60), US-MYR (0.59), US-SGD (0. 59), present long memories, to a lesser extent the exchange pairs US-GBP (0.56), US-EUR (0.53). On the other side, exchange rates US-RMB (0. 47), US-JPY (0. 43), US-CHF (0. 46), US-PHP (0. 38) show anti persistence, while the Detrended cross-correlation coefficient (𝑝𝐷𝐶𝐶𝐴) results show 19 average correlation coefficients (≌ 0.333 → ≌ 0.666), 10 weak correlation coefficient (≌ 0,000 → ≌ 0.333), 7 strong non-trend cross correlation coefficients (0.666→ ≌ 1,000). In conclusion, we show that the exchange pairs analyzed show some predictability, that is, there are levels of arbitrage that can be explored by investors; we also found that the exchange rates analyzed have characteristics of diversification, due to the low autocorrelation between markets. The objective of this study was not to analyze abnormal profitability by investors without incurring additional risk.
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Febrian, F. "Managing Oil and Gas Project Value By Prime (Pertamina Investment Management Engine)." In Digital Technical Conference. Indonesian Petroleum Association, 2020. http://dx.doi.org/10.29118/ipa20-bc-88.
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Oil and gas companies are facing an enormous challenge to create value from mature fields. Moreover, price volatility presents a massive impact on project uncertainties. Therefore, robust portfolio management is essential for oil and gas companies to manage critical challenges and uncertainties. The objective of this study is to develop a robust portfolio model to assist top management in oil and gas companies to drive investment strategy. PRIME (Pertamina Investment Management Engine) has been built to visualize advanced oil and gas project portfolio management. The engine observes the relationship between risk-and-return as the main framework drivers. The profitability index is endorsed as a parameter to envisage the investment effectiveness of individual projects. Correspondingly, the risk index is a manifestation of multi-variable analysis involving subsurface uncertainty and price. A nine clusters "tactical board" matrix is provided as the outcome of PRIME to define generic strategy & action plans. The PRIME analysis leads to a dual theme of perspective: both macro and micro-scale. The macro-scale discovers a diversification of strategy and scenario development to achieve long-term objectives. Whereas, micro-scale perspective generates a detailed action plan in a particular cluster as a representation of the short and mid-term corporate strategy. Several strategies and action plans have been recommended, including advanced technology implementation, new gas commercialization, additional incentives in the Production Sharing Contract, tax management renegotiation, and project portfolio rebalancing
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Atsi, Eugene Ray. "OIL PRICES, EXCHANGE RATE VOLATILITY AND FDI INFLOWS ON THE ECONOMIC GROWTH OF GHANA: WAVELET TECHNIQUE AND ARDL APPROACH." In MBP 2025 Tokyo International Conference on Management & Business Practices, 21-22 January. Global Research & Development Services, 2025. https://doi.org/10.20319/icssh.2025.1338.
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Ghana, like many other developing economies, is intricately connected to global economic trends and fluctuations. This paper investigates the influence of oil prices, exchange rate volatility and FDI inflows on Ghana’s economic growth. Moreover, it determines the level of interdependencies and the lead/lag connectedness among the variables. The study utilizes time series data from 1995 to 2022 and applies the Autoregressive Distributed Lag (ARDL) model as well as Wavelet Multiple techniques (Wavelet Multiple Correlation (WMC) and Wavelet Multiple Cross-Correlation (WMCC)). Based on the ARDL model, oil prices and exchange rate volatility adversely impact Ghana’s GDP. However, FDI inflows reveal a positive and significant relationship to GDP. Using the Wavelet model, the WMC result demonstrates stronger interdependence among the variables. Finally, the outcome from WMCC indicates that the exchange rate is the dominant variable without any lag that plays a pivotal role in determining the coherence among the economic indicators. Therefore, the study suggests that investment in renewable energy, diversification of export products and markets, enhancement of exchange rate framework, promotion of local content and linkages, and monitoring and evaluation of anti-corruption measures should be encouraged to boost the economy of Ghana.
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Dias, Rui, Nicole Horta, Catarina Revez, Paulo Alexandre, and Paula Heliodoro. "Risk Diversification in Central and Eastern European Capital Markets: Evidence from Russia’s Invasion of Ukraine." In 8th International Scientific Conference ERAZ - Knowledge Based Sustainable Development. Association of Economists and Managers of the Balkans, Belgrade, Serbia, 2022. http://dx.doi.org/10.31410/eraz.s.p.2022.1.
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Following the Revolution of Dignity in Ukraine in 2014, Russia annexed Crimea, while separatist forces supported by the Russian government seized part of the Donbas region in south-eastern Ukraine. Since the beginning of 2021, a build-up of Russian military presence has occurred along the Russia-Ukraine border. The United States and other countries have accused Russia of planning an invasion of Ukraine. On February 24th, Putin announced a “special military operation,” supposedly to “demilitarize” and “denazify” Ukraine. In light of these events, the global economy and consequently the financial markets had significant structural breaks; based on these facts, this paper aims to analyze the synchronizations between the capital markets of Austria (Austrian Traded), Budapest (BUX), Bulgaria (SE SOFIX), Croatia (CROBEX), Russia (MOEX), Czech Republic (Prague SE PX), Romania (BET), Slovakia (SAX 16), and Slovenia (SBI TOP), in the period from January 2nd, 2017 to May 6th, 2022. To perform this analysis and to get more robust results we divided the sample into two sub-periods: The first from January 2nd, 2017, to December 31st, 2019, with the second sub-period called capital markets stress comprising the time lapse from January 1st, 2020, to May 6th, 2022. In order to answer the research question, we aim to find out, whether the Russian invasion of Ukraine accentuated interdependencies in Central/Eastern European financial markets. The time series do not show normal distributions, with the Russian market showing the highest risk; we find that the markets broke down significantly, mostly in March 2022 arising from instability in the global economy. The results obtained suggest very significant levels of integration during the stress period in the capital markets analyzed, and we see that during the quiet period the Slovakian market tends to be highly integrated (8 out of 8 possible), while the Slovenian market shows no integration with its regional peers, which shows that we are dealing with a segmented market. These findings suggest that markets tend toward integration in periods of extreme volatility, calling into question the implementation of efficient portfolio diversification strategies.
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Alexandre, Paulo, Rui Dias, Nicole Horta, Paula Heliodoro, and Mariana Chambino. "Testing the Causal Relationship between Central and Eastern European Capital Markets: Evidence in Periods of Uncertainty in the Global Economy." In Sixth International Scientific Conference ITEMA Recent Advances in Information Technology, Tourism, Economics, Management and Agriculture. Association of Economists and Managers of the Balkans, Belgrade, Serbia, 2022. http://dx.doi.org/10.31410/itema.s.p.2022.31.
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The purpose of this study is to examine the movements of capital markets in Austria (ATX), Serbia (BELEX 15), Hungary (BUX), Croatia (CROBEX), Russia (IMOEX), the Czech Republic (PRAGUE PX), Slovenia (SBI TOP), and Poland (WIG) from September 18th, 2017 to September 15th, 2022. To obtain more robust results, we divide the sample into two sub-periods: the Quiet period, from September 18th, 2017, to December 31st, 2019; and the Stress Period, from January 1st, 2020, to September 15th, 2022, marked by the global pandemic (COVID-19), the oil price war in 2020, and the Russian invasion in 2022. The time series exhibit non-normal distributions due to the presence of fat tails, a characteristic that is common in periods of extreme volatility. The results of the VAR Granger Causality/Block Exogeneity Wald Tests model verified the existence of 16 pairs of markets showing co-movements between them during the quiet subperiod. The market that causes more co-movements is the Austrian stock market (ATX), while the Russian stock index (IMOEX) does not cause shocks in the markets under analysis. In the Stress subperiod, we verify the presence of 42 pairs of markets causing (each other in the Grangerian sense. The stock indexes ATX, BUX, CROBEX, and PRAGUE PX show 6 causal relations in 7 possible, while the capital markets of Russia (IMOEX) and Poland are the ones that cause less (4 in 7 possible). In conclusion, we verify that the events that occurred in 2020 and 2022 have significantly increased the movements in these regional markets. Such findings could put into question the implementation of efficient portfolio diversification strategies and eventually some gains above the market average due to arbitrage levels. The authors consider this evidence to be relevant for supervisors, regulators, and investors operating in these regional markets.
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Horta, Nicole, Rui Dias, and Mariana Chambino. "Efficiency and Long-Term Correlation in Central and Eastern European Stock Indexes: An Approach in the Context of Extreme Events in 2020 and 2022." In Eighth International Scientific-Business Conference LIMEN Leadership, Innovation, Management and Economics: Integrated Politics of Research. Association of Economists and Managers of the Balkans, Belgrade, Serbia, 2022. http://dx.doi.org/10.31410/limen.2022.23.
Full textAbstract:
The analysis of the behaviour of capital markets remains a very interesting issue as it can give investors information about where to invest their money. Given the importance of measuring autocorrelation in financial markets, this paper aims to analyse the predictability of capital markets, namely Austria (Austrian Traded), Budapest (BUX), Bulgaria (SE SOFIX), Croatia (CROBEX), Russia (MOEX), Czech Republic (PragueSE PX), Romania (BET), Slovakia (SAX 16), and Slovenia (SBI TOP), for the period from January 1st, 2020, to May 6th, 2022. To conduct this analysis and obtain more robust results we partitioned the sample into three sub-periods: 1st wave of Covid (January 2020 to December 2020), 2nd wave of Covid (January 2021 to December 2021), and the Russian invasion of Ukraine in 2022 (January 2022 to May 2022). The results of the Lagrange Multiplier test (ARCH-LM test), show that the residuals of the autoregressive processes of the capital markets under analysis exhibit conditional heteroscedasticity. Furthermore, the BDS test findings indicate the presence of non-linear components, implying that the hypothesis that the returns are independent and identically distributed is rejected, with a statistical significance of 1%, from dimension 2 onwards. Overall, the DFA exponents show that the Russian invasion of Ukraine in 2022 had a different impact on the predictability of these regional markets indicating that markets were predictable and showed pronounced long memories during the first wave of Covid-19, while markets mostly tended towards equilibrium during the last sub-period of 2022. The authors believe that this research is crucial for policymakers and investors in Central and Eastern Europe capital markets in terms of regional development initiatives and portfolio diversification strategies.
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Manuel, Maria, Paula Heliodoro, Rui Dias, and Paulo Alexandre. "THE IMPACT OF COVID-19 ON THE SECURITIES AND EQUITY MARKETS OF PORTUGAL AND EDP: AN ECONOPHYSICS APPROACH." In Sixth International Scientific-Business Conference LIMEN Leadership, Innovation, Management and Economics: Integrated Politics of Research. Association of Economists and Managers of the Balkans, Belgrade, Serbia, 2020. http://dx.doi.org/10.31410/limen.2020.13.
Full textAbstract:
The Efficient Market Hypothesis (EMH), is one of the most important hypotheses in the financial economy, which argues that yields have no memory (correlation), which implies that agents cannot have abnormal returns in the financial markets, base arbitration operations. This essay intends to investigate the efficiency, in its weak form, in the stock and bond markets of Portugal and EDP, in the period from December 31, 2019, to August 10, 2020. With the purpose of achieving such an analysis, whether: (i) with the evolution of the global pandemic (Covid-19) the Portuguese and EDP stock and bond markets show signs of (in) efficiency? (ii) Does the increased integration between the Portuguese and EDP stock and bond markets result in risk transmission? The model 𝐷𝐹𝐴 shows the existence of long memories in these markets, suggesting that they are not efficient, which validates the first research question. This situation has implications for investors, since some returns can be expected, creating opportunities for arbitrage and abnormal earnings. However, to confirm the inefficiency of these markets, based on our results, we must prove the existence of anomalous returns. In order to answer the second investigation question, we carried out the integration test that shows that these markets are mostly integrated. To validate whether financial integration results in risk transmission between the analyzed markets, we estimate the trendless cross-correlation coefficients (𝜆𝐷𝐶𝐶𝐴), which shows 4 pairs of markets showing risk transmission (4 out of 10 possible). In conclusion, the authors suggest that these results are of interest, among others, to international investors interested in expanding the geographical scope, regarding the implementation of portfolio diversification strategies.
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Heliodoro, Paula, Rui Dias, Paulo Alexandre, and Maria Manuel. "THE IMPACT OF THE COVID-19 ON THE FINANCIAL MARKETS: EVIDENCE FROM G7." In Fourth International Scientific Conference ITEMA Recent Advances in Information Technology, Tourism, Economics, Management and Agriculture. Association of Economists and Managers of the Balkans, Belgrade, Serbia, 2020. http://dx.doi.org/10.31410/itema.2020.103.
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This essay aims to analyse the impact of the 2020 global pandemic on the stock indexes of France (CAC 40), Germany (DAX 30), USA (DOW JONES), United Kingdom (FTSE 100), Italy (FTSE MID), Japan (Nikkei 225) and Canada (TSX 300), from January 2018 to June 2020, with the sample being divided into two sub periods: first sub period from January 2018 to August 2019 (Pre-Covid); second period from September 2019 to June 2020 (Covid-19). In order to carry out this analysis, different approaches were taken in order to analyse whether: (i) the global pandemic (Covid-19) increased the persistence of the G7 financial markets? In the Pre-Covid period, we can verify the presence of long memories in the Canadian market (TSX), while the markets in France (CAC 40) and Italy (FTSE MID) show signs of balance, since the random walk hypothesis was not rejected. The German (DAX 30), USA (DJI), United Kingdom (FTSE 100) and Japan (NIKKEI 225) markets have anti-persistence (0 <α <0.5). In period II, the Covid-19-time scale is contained, and we verified the presence of significant long memories, except for the US stock index (0.49). These findings make it possible to show that the assumption of the market efficiency hypothesis may be called into question, because these markets are predictable, which validate the research question. The results of the pDCCA correlation coefficients, in the Pre-Covid period, show 14 pairs of median markets (0.333 → ≌ 0.666). We can also see 7 pairs of markets with strong correlation coefficients (0.666 → ≌ 1,000), showing that these markets have a tendency towards integration, this evidence may call into question the hypothesis of portfolio diversification. In period II (Covid-19) the λ_DCCA correlation coefficients have 7 strong market pairs (0.666 → ≌ 1,000), 5 pairs have weak pDCCA coefficient (0.000 → ≌ 0.333), 5 market pairs show anti-correlation (-1.000 → ≌ 0.000), and 4 market pairs show median coefficients (pDCCA) (0.333 → ≌ 0.666) (out of 21 possible). When compared to the previous subperiod, we found that the majority of the pDCCAs decreased, which shows that the markets have decreased their integration, making it possible to diversify portfolios in certain markets, especially in the Japanese market (NIKKEI 225). These conclusions open space for market regulators to take measures to ensure better informational information, in the stock markets, in the 7 most advanced economies in the world.