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Journal articles on the topic 'International finance. Tail risk. Asset pricing'

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Published: 11 March 2023

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1

Schreindorfer, David. "Macroeconomic Tail Risks and Asset Prices." Review of Financial Studies 33, no. 8 (2019): 3541–82. http://dx.doi.org/10.1093/rfs/hhz105.

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Abstract I document that dividend growth and returns on the aggregate U.S. stock market are more correlated with consumption growth in bad economic times. In a consumption-based asset pricing model with a generalized disappointment-averse investor and small, IID consumption shocks, this feature results in a realistic equity premium despite low risk aversion. The model is consistent with the main facts about stock market risk premiums inferred from equity index options, remains tightly parameterized, and allows for analytical solutions for asset prices. An extension with non-IID dynamics accoun
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de Santis, Giorgio, and Bruno Gerard. "International Asset Pricing and Portfolio Diversification with Time-Varying Risk." Journal of Finance 52, no. 5 (1997): 1881. http://dx.doi.org/10.2307/2329468.

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Antell, Jan, and Mika Vaihekoski. "International asset pricing models and currency risk: Evidence from Finland 1970–2004." Journal of Banking & Finance 31, no. 9 (2007): 2571–90. http://dx.doi.org/10.1016/j.jbankfin.2006.09.013.

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Valencia-Herrera, Humberto, and Francisco López-Herrera. "Markov Switching International Capital Asset Pricing Model, an Emerging Market Case: Mexico." Journal of Emerging Market Finance 17, no. 1 (2018): 96–129. http://dx.doi.org/10.1177/0972652717748089.

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The article shows how the international capital asset pricing model (ICAPM) with Markov regime switching can model the asset returns in the emerging market of Mexico. For most assets, although significant, the international risk premium factor is not subject to regime switching, but the domestic factor is. The probabilities of regimes are correlated with the volatility of assets. A GARCH(1,1) Markov regime switching model offers better adjustment than a non-GARCH. JEL Classification: C58, F36, F65, G12, G15
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Ott, Steven H., Timothy J. Riddiough, Ha-Chin Yi, and Jiro Yoshida. "International Real Estate Review." International Real Estate Review 11, no. 1 (2008): 1–37. http://dx.doi.org/10.53383/100088.

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Using over 25 years of quarterly U.S. and Japanese time series data, this paper examines the determinants of demand for an important class of real assets: commercial real estate. We specify a structural model of market equilibrium that considers direct effects of real investment on built asset price. Our empirical findings are consistent across countries and produce several new results. First, we find that real investment exerts a significant positive direct effect on asset price, which in turn feeds back to impact investment decisions. Second, idiosyncratic risk is found to be strongly positi
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Wong, Wong Weng, and Wejendra Reddy. "International Real Estate Review." International Real Estate Review 21, no. 1 (2018): 41–70. http://dx.doi.org/10.53383/100254.

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This study explores the sensitivity of the performance of Australian real estate investment trusts (A-REITs) to changes in short and long term interest rates. Based on the intertemporal capital asset pricing model in Merton (1973), we propose an asset pricing model that consists of market returns, macroeconomic indicators, and short and long term interest rates. The effect of market capitalisation is also explored. High debt funds show greater sensitivity to adverse movements in long term interest rates compared to low debt funds. This suggests that gearing levels play a significant role in th
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Li, Kai. "Confidence in the Familiar: An International Perspective." Journal of Financial and Quantitative Analysis 39, no. 1 (2004): 47–68. http://dx.doi.org/10.1017/s0022109000003884.

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AbstractOne striking feature of international portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor—the home bias puzzle. I examine the role of investors' perception of foreign investment risk on their portfolio choices. The expected returns and risk of foreign investment are specified through an asset pricing model with the home portfolio being the benchmark asset—Pastor's (2000) domestic CAPM. The model serves as a reference point around which investors can center their prior beliefs. I focus on investors' prior beliefs t
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Hazny, Mohamad Hafiz, Haslifah Mohamad Hasim, and Aida Yuzy Yusof. "Mathematical modelling of a shariah-compliant capital asset pricing model." Journal of Islamic Accounting and Business Research 11, no. 1 (2020): 90–109. http://dx.doi.org/10.1108/jiabr-07-2016-0083.

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Purpose The capital asset pricing model (CAPM) is the most widely used asset pricing model that measures risk–return relationship. The CAPM is based on Markowitz’s mean variance analysis. The advancement of Islamic finance leads to the question whether or not the practice of modern investment theories and analyses such as the Markowitz’s mean variance analysis and CAPM are in accordance to shariah and could be used in pricing Islamic financial assets. Therefore, this paper aims to present a review of the CAPM and to discourse the set of assumptions underlying the model in terms of shariah comp
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Bayraktar, Sema. "The impact of exchange rate risk on international asset pricing under various market structures." Review of Quantitative Finance and Accounting 32, no. 2 (2008): 169–95. http://dx.doi.org/10.1007/s11156-008-0089-4.

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10

Okunev, John, and Patrick J. Wilson. "International Real Estate Review." International Real Estate Review 11, no. 2 (2008): 32–46. http://dx.doi.org/10.53383/100096.

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This study presents further evidence of the predictability of excess equity REIT (real estate investment trust) returns . Recent evidence on forecasting excess returns using fundamental variables has resulted in diminishing returns from the 1990’s onward. Trading strategies based on these forecasts have not significantly outperformed the buy/hold strategy of the 1990’s. We have developed an alternative strategy that is based on the time variation of the risk premium of investors. Our results indicate that it is possible to outperform the buy/hold strategy by modeling the time variation of the
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Maurer, Thomas A., Thuy-Duong Tô, and Ngoc-Khanh Tran. "Pricing Risks Across Currency Denominations." Management Science 65, no. 12 (2019): 5308–36. http://dx.doi.org/10.1287/mnsc.2018.3109.

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We use principal component analysis on 55 bilateral exchange rates of 11 developed currencies to identify two important global risk sources in foreign exchange (FX) markets. The risk sources are related to Carry and Dollar but are not spanned by these factors. We estimate the market prices associated with the two risk sources in the cross-section of FX market returns and construct FX market-implied country-specific stochastic discount factors (SDFs). The SDF volatilities are related to interest rates and expected carry trade returns in the cross-section. The SDFs price international stock retu
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Wang, Ming-Chieh, and Jin-Kui Ye. "The relationship between covariance risk and size effects in emerging equity markets." Managerial Finance 42, no. 3 (2016): 174–90. http://dx.doi.org/10.1108/mf-10-2014-0269.

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Purpose – The purpose of this paper is to examine whether the conditionally expected return on size-based portfolios in an emerging market (EM) is determined by the country’s world risk exposure. The authors analyze the degree of financial integration of 23 emerging equity markets grouped into five size portfolios using the conditional international asset pricing model with both world and domestic market risks. The authors also compare the model’s fitness on the predictability of portfolio returns by using world and EM indices. Design/methodology/approach – This study investigates whether larg
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Seo, Sang Byung, and Jessica A. Wachter. "Option Prices in a Model with Stochastic Disaster Risk." Management Science 65, no. 8 (2019): 3449–69. http://dx.doi.org/10.1287/mnsc.2017.2978.

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Contrary to well-known asset pricing models, volatilities implied by equity index options exceed realized stock market volatility and exhibit a pattern known as the volatility skew. We explain both facts using a model that can also account for the mean and volatility of equity returns. Our model assumes a small risk of economic disaster that is calibrated based on international data on large consumption declines. We allow the disaster probability to be stochastic, which turns out to be crucial to the model’s ability both to match equity volatility and to reconcile option prices with macroecono
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Tomić, Bojan, Saša Žiković, and Lorena Jovanović. "CRYPTO PORTFOLIO OPTIMIZATION THROUGH LENS OF TAIL RISK AND VARIANCE MEASURES." Zbornik radova Ekonomskog fakulteta u Rijeci: časopis za ekonomsku teoriju i praksu/Proceedings of Rijeka Faculty of Economics: Journal of Economics and Business 40, no. 2 (2022): 297–312. http://dx.doi.org/10.18045/zbefri.2022.2.297.

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The choice of an adequate risk measure in portfolio optimization depends to a large extent on the characteristics and dynamics of the underlying assets. For investors and asset managers, a range of potential market risks provides much- needed insights into the optimization of their portfolio of assets. Since this paper focuses on multiple risk measures, it presents the investors with a better insight into the potential magnitude of the risk they are faced with. Since the risk-reward optimization target can be adjusted for a broad choice of risk measures in this paper we will test the performan
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RICHMAN, VINCENT, MICHAEL R. SANTOS, and JOHN T. BARKOULAS. "SHORT- AND LONG-TERM EFFECTS OF THE 9/11 EVENT: THE INTERNATIONAL EVIDENCE." International Journal of Theoretical and Applied Finance 08, no. 07 (2005): 947–58. http://dx.doi.org/10.1142/s021902490500327x.

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This paper analyzes the short- and long-term effects of the September 11, 2001 terrorist attacks on a comprehensive sample of stock market indices from 33 industrial and emerging economies. From a finance-theoretic point of view, we employ the international capital asset pricing model (ICAPM) to analyze the incidence of the 9/11 event. Consistent with expectations, we document statistically negative short-term stock market reactions to the 9/11 event for 28 countries. More importantly, we find increases in the level of systematic risk for 10 stock markets which attest to the presence of negati
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Chen, Qian, Xiang Gao, Xiaoxuan Huang, and Xi Li. "Multiple-step value-at-risk forecasts based on volatility-filtered MIDAS quantile regression: Evidence from major investment assets." Investment Management and Financial Innovations 18, no. 3 (2021): 372–84. http://dx.doi.org/10.21511/imfi.18(3).2021.31.

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Forecasting multiple-step value-at-risk (VaR) consistently across asset classes is hindered by the limited sample size of low-frequency returns and the potential model misspecification when assuming identical return distributions over different holding periods. This paper hence investigates the predictive power for multi-step VaR of a framework that models separately the volatility component and the error term of the return distribution. The proposed model is illustrated with ten asset returns series including global stock markets, commodity futures, and currency exchange products. The estimat
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BRADLEY, BRENDAN O., and MURAD S. TAQQU. "AN EXTREME VALUE THEORY APPROACH TO THE ALLOCATION OF MULTIPLE ASSETS." International Journal of Theoretical and Applied Finance 07, no. 08 (2004): 1031–68. http://dx.doi.org/10.1142/s0219024904002815.

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We investigate the portfolio construction problem for risk-averse investors seeking to minimize quantile based measures of risk. Using dependence measures from extreme value theory, we find that most international equity markets are asymptotically independent. We also find that the few cases of asymptotic dependence occur mostly in markets which are in close geographic proximity. We then examine how extremal dependence affects the asset allocation problem. Following the structure variable approach, we focus on the portfolio and model its tail in a manner consistent with extreme value theory. W
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Chabi-Yo, Fousseni, and Riccardo Colacito. "The Term Structures of Coentropy in International Financial Markets." Management Science 65, no. 8 (2019): 3541–58. http://dx.doi.org/10.1287/mnsc.2017.3017.

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We propose a new entropy-based correlation measure (coentropy) to evaluate the performance of international asset pricing models. Coentropy captures the codependence of two random variables beyond normality. We document that the coentropy of international stochastic discount factors (SDFs) can be decomposed into a series of entropy-based correlations of permanent and transitory components of the SDFs. We employ the cross section of G-10 countries to obtain model-free estimates of all the components of coentropy at various horizons and we show that the generalization of the long-run risk model
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Dash, Saumya Ranjan, and Jitendra Mahakud. "Market anomalies, asset pricing models, and stock returns: evidence from the Indian stock market." Journal of Asia Business Studies 9, no. 3 (2015): 306–28. http://dx.doi.org/10.1108/jabs-06-2014-0040.

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Purpose – This paper aims to investigate whether the use of conditional and unconditional Fama and French (1993) three-factor and Carhart (1997) four-factor asset pricing models (APMs) captures the role of asset pricing anomalies in the context of emerging stock market like India. Design/methodology/approach – The first step time series regression approach has been used to drive the risk-adjusted returns of individual securities. For examining the predictability of firm characteristics or asset pricing anomalies on the risk-adjusted returns of individual securities, the panel data estimation t
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20

Coën, Alain, and Patrick Lecomte. "International listed real estate returns: evidence from the global financial crisis." Journal of Property Investment & Finance 37, no. 1 (2019): 72–91. http://dx.doi.org/10.1108/jpif-03-2018-0021.

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PurposeThe purpose of this paper is to analyze and revisit the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015, marked by the unprecedented Global Financial Crisis, in presence of errors-in-variables (EIV) and illiquidity (measured by serial correlation, following Getmanskyet al.(2004)).Design/methodology/approachThe authors extend the seminal work of Bondet al.(2003), and shed a new light on the relative performance of listed real estate before and after the GFC. First, the authors suggest the use of various asset pricing models (APM)
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Ghosh, Bikramaditya, and M. C. Krishna. "Power law in tails of bourse volatility – evidence from India." Investment Management and Financial Innovations 16, no. 1 (2019): 291–98. http://dx.doi.org/10.21511/imfi.16(1).2019.23.

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Inverse cubic law has been an established Econophysics law. However, it has been only carried out on the distribution tails of the log returns of different asset classes (stocks, commodities, etc.). Financial Reynolds number, an Econophysics proxy for bourse volatility has been tested here with Hill estimator to find similar outcome. The Tail exponent or α ≈ 3, is found to be well outside the Levy regime (0 < α < 2). This confirms that asymptotic decay pattern for the cumulative distribution in fat tails following inverse cubic law. Hence, volatility like stock returns al
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Cayón Fallon, Edgardo, and Julio Sarmiento. "Impact of commodities and global stock prices on the idiosyncratic risk of Bitcoin during the COVID-19 pandemic." Investment Management and Financial Innovations 18, no. 4 (2021): 213–22. http://dx.doi.org/10.21511/imfi.18(4).2021.19.

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In times of exogenous systemic shocks, such as the COVID-19 pandemic, it is important to identify hedge or safe haven assets. Therefore, this paper analyzes changes in the idiosyncratic risk of Bitcoin in a portfolio of commodities and global stocks. For this purpose, the M-GARCH model employed considers the interdependence among all the portfolio assets by using a time-varying asset pricing framework. This framework measures the impact of commodities and global stock prices as sources of systemic risk for Bitcoin returns before and after the COVID-19 pandemic. The evidence suggests that durin
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Shetty, Soumya, Janet Jyothi Dsouza, and Iqbal Thonse Hawaldar. "Rolling regression technique and cross-sectional regression: A tool to analyze Capital Asset Pricing Model." Investment Management and Financial Innovations 18, no. 4 (2021): 241–51. http://dx.doi.org/10.21511/imfi.18(4).2021.21.

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The Capital Asset Pricing Model (henceforth, CAPM) is considered an extensively used technique to approximate asset pricing in the field of finance. The CAPM holds the power to explicate stock movements by means of its sole factor that is beta co-efficient. This study focuses on the application of rolling regression and cross-sectional regression techniques on Indian BSE 30 stocks. The study examines the risk-return analysis by using this modern technique. The applicability of these techniques is being viewed in changing business environments. These techniques help to find the effect of select
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Zhang, Jinping, and Keming Zhang. "Portfolio Selection Models Based on Interval-Valued Conditional Value-at-Risk (ICVaR) and Case Study on the Data from Stock Markets." Fractal and Fractional 6, no. 10 (2022): 536. http://dx.doi.org/10.3390/fractalfract6100536.

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Risk management is very important for individual investors or companies. There are several ways to measure the risk of investment. Prices of risky assets vary rapidly and randomly due to the complexity of finance market. Random interval is a good tool to describe uncertainty including both randomness and imprecision. Considering the uncertainty of financial market, we employ random intervals to describe returns of a risk asset and define an interval-valued risk measurement, which considers the tail risk. It is called the interval-valued conditional value-at-risk (ICVaR, for short). Similar to
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Ho, Kim Hin David, Kwame Addae-Dapaah, and Fang Rui Lina Peck. "Cross-listing of real estate investment trusts (REITs)." Journal of Property Investment & Finance 35, no. 5 (2017): 509–27. http://dx.doi.org/10.1108/jpif-08-2016-0063.

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Purpose The purpose of this paper is to examine the common stock price reaction and the changes to the risk exposure of the cross-listing for real estate investment trusts (REITs). Design/methodology/approach The paper adopts the event study methodology to assess the abnormal returns (ARs). Pre- and post-cross-listing changes in the risk exposure for the domestic and foreign markets are examined, via a modified two-factor international asset pricing model. A comparison is made for two broad cross-listings, namely, the depositary receipts and the dual ordinary listings, to examine the impacts f
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Lahouel, Noureddine, and Slaheddine Hellara. "Improving the option pricing performance of GARCH models in inefficient market." Investment Management and Financial Innovations 17, no. 2 (2020): 14–25. http://dx.doi.org/10.21511/imfi.17(2).2020.02.

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Understanding the relation between option pricing and market efficiency is important. Indeed, emphasizing this relation generates new insights that are appropriate in practice. These insights give a better understanding of the current limitations of the option pricing and hedging methods. This article thus aims to improve the performance of the option pricing approach. To start, the relation between the option pricing methodology and the informational market efficiency was discussed. It is, therefore, useful, before proceeding to apply the standard risk-neutral approach, to check the efficienc
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Nguyen, Pascal, Younes Ben Zaied, and Thu Phuong Pham. "Does idiosyncratic risk matter? Evidence from mergers and acquisitions." Journal of Risk Finance 20, no. 4 (2019): 313–29. http://dx.doi.org/10.1108/jrf-03-2018-0040.

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Purpose This paper aims to investigate whether idiosyncratic volatility is a priced risk factor in the Australian stock market. Design/methodology/approach The authors use the change in idiosyncratic volatility around acquisition announcements and the related stock price revaluation to test whether the idiosyncratic risk is priced. If the idiosyncratic risk is priced, increases (decreases) in idiosyncratic volatility should be associated with decreases (increases) in the acquirer’s stock price, as the latter’s future cash flows are discounted at a higher (lower) rate. The sample consists of 2,
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Vinodkumar, Nisa, and Hadeel Khalid AlJasser. "Financial evaluation of Tadawul All Share Index (TASI) listed stocks using Capital Asset Pricing Model." Investment Management and Financial Innovations 17, no. 2 (2020): 69–75. http://dx.doi.org/10.21511/imfi.17(2).2020.06.

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The Kingdom of Saudi Arabia is strongly committed to stimulating savings culture in the local community by providing financial literacy in financial planning, investments, and budgeting. Inculcating the savings and investment behavior among the people will help materialize one of the elements of Saudi Vision 2030. Tadawul, being the most liquid stock market in the Middle East and North Africa, offers investors the ability to grow their capital with confidence through facilitating trading in different securities such as equities, debt instruments, and Exchange Traded Funds (ETFs). There is a gr
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Kanaryan, Nigokhos Krikorov, Peter Chuknyisky, and Violeta Kasarova. "The cost of equity estimation in emerging Europe: the case of Bulgarian REITs." Journal of Property Investment & Finance 33, no. 6 (2015): 517–29. http://dx.doi.org/10.1108/jpif-05-2015-0028.

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Purpose – The International Valuations Standards Committee adopts the Capital Asset Pricing Model as a method for estimation of the cost of equity. It has several drawbacks and appraisers in emerging markets need more useful model for cost of equity estimation. The paper aims to discuss these issues. Design/methodology/approach – The proposed model is a modification of the Salomon Smith Barney model for cost of capital determination. The econometric part of the model incorporates the non-synchronous effect, the thin trading effect, the time varying risk nature, and the systematic country risk.
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Shilov, K. D., and A. V. Zubarev. "Evolution of bitcoin as a Financial Asset." Finance: Theory and Practice 25, no. 5 (2021): 150–71. http://dx.doi.org/10.26794/2587-5671-2021-25-5-150-171.

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The cryptocurrency market debate resumed in 2020 with renewed vigour as the price of Bitcoin surpassed late 2017 highs. This study aims to analyse possible factors of Bitcoin’s pricing at various cryptocurrency market development stages — before the 2017 price bubble, after and during the COVID-19 pandemic. The main method of analysis is a generalized autoregressive conditional heteroskedasticity model with conditional generalized error distribution (GARCHGED). Two groups of indicators are used as possible factors related to the Bitcoin dynamics. The first group consists of various quantitativ
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Ielasi, Federica, Monica Rossolini, and Sara Limberti. "Sustainability-themed mutual funds: an empirical examination of risk and performance." Journal of Risk Finance 19, no. 3 (2018): 247–61. http://dx.doi.org/10.1108/jrf-12-2016-0159.

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PurposeThis paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement different sustainable and responsible investment strategies.Design/methodology/approachThe study refers to a European sample of 106 ethical funds and 51 sustainability-themed funds. The monthly performance of each fund is downloaded from Bloomberg for the period from January 1996 to December 2015. By applying a Fama and French (1993) three-factor model, the authors overcome the limits of a capital asset pricing model
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Liow, Kim Hiang, and Zhuo Lee. "International Real Estate Review." International Real Estate Review 16, no. 2 (2013): 147–65. http://dx.doi.org/10.53383/100168.

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The main contribution of this study is to examine the extreme dependence between the real estate securities and stock markets in Australia, China, Hong Kong, Japan, Malaysia, the Philippines, Singapore and Taiwan between January 1995 and March 2011. For each market, we derive time series tail dependence coefficients (TDC) which measure how likely financial returns move in extreme market conditions by using the dynamic conditional correlation (DCC) methodology provided by Engle (2002). Overall, our results indicate that Singapore, the Philippines and Hong Kong have the highest extreme real esta
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McMahon, Richard G. P., and Anthony M. J. Stanger. "Understanding the Small Enterprise Financial Objective Function." Entrepreneurship Theory and Practice 19, no. 4 (1995): 21–39. http://dx.doi.org/10.1177/104225879501900403.

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This paper presents views on the small enterprise financial objective function that are sympathetic to existing financial thought, but which capture complexities arising in small enterprises that frequently receive minimal attention in the mainstream finance literature. It is argued that the small enterprise financial objective function should reflect the kinds of enterprise-specific risk that typically exist in small enterprises arising from liquidity, diversification, transferability, flexibility, control, and accountability considerations. A conceptualization of the small enterprise financi
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Hsu, Audrey Wen-hsin, Chung-Fern Wu, and Jui-Chia Lin. "Factors in Managing Actuarial Assumptions for Pension Fair Value: Implications for IAS 19." Review of Pacific Basin Financial Markets and Policies 16, no. 01 (2013): 1350002. http://dx.doi.org/10.1142/s0219091513500021.

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Corporate managers make several discretionary assumptions (i.e., the rate of salary growth and assumed return rate of pension plan assets) in calculating the fair value of pension assets and value of pension liabilities. In this study, we examine the factors that can induce managers to increase (decrease) fair value of pension assets (liabilities) through pension assumptions. We use the Taiwan setting as a natural experiment because Taiwan is planning to adopt IFRS from 2013 on. The estimation of pension asset (liability) value is similar between Taiwan accounting standards (i.e., TFAS 18) and
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Ekemode, Benjamin Gbolahan, and Abel Olaleye. "Convergence between direct and indirect real estate investments." Journal of Financial Management of Property and Construction 21, no. 3 (2016): 212–30. http://dx.doi.org/10.1108/jfmpc-12-2015-0040.

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Purpose This paper aimed to examine the return/risk performance of direct and indirect real estate (listed property stock) in the Nigerian real estate market and analyzed the short-term integration between the two classes of real estate assets. It also established whether investors could achieve diversification benefits by combining both assets in a portfolio. Design/methodology/approach The data utilized comprised annual returns on direct real estate calculated from the rental and capital values of 226 direct commercial properties obtained from property valuers in Lagos, Nigeria, for a period
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Ryan Homan, Garth, та Gary van Vuuren. "Applied prospect theory: assessing the βs of M&A-intensive firms". Investment Management and Financial Innovations 16, № 2 (2019): 236–48. http://dx.doi.org/10.21511/imfi.16(2).2019.20.

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Behavioral components of Kahneman and Tversky’s (1979) prospect theory (PT) were applied to derive an adjusted Capital Asset Pricing Model (CAPM) in the estimation of merger and acquisition-intensive firms’ expected returns. The premise was that the CAPM – rooted in expected utility theory – is violated by the behavioral biases identified in prospect theory. Kahneman and Tversky’s prospect theory (1979) has demonstrated that weaknesses abound in the viability of classical utility theory predictions. For mergers and acquisitions, firms appear to be isolated from and immune to human error, yet d
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Tai, Chu-Sheng. "International diversification during financial crises." Managerial Finance 44, no. 12 (2018): 1434–45. http://dx.doi.org/10.1108/mf-11-2017-0477.

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Purpose The purpose of this paper is to provide empirical evidence on how 1999–2001 dot-com crisis and 2007–2009 subprime crisis affect the gains from international diversification from the perspective of US investors. Design/methodology/approach A conditional international CAPM with asymmetric multivariate GARCH-M specification is used to estimate international diversification gains. Findings The authors find that over the entire sample period, the average gains from international diversification is statistically significant and about 1.253 percent per year. During the subprime crisis period,
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Sehrawat, Neeraj, Amit Kumar, Narander Kumar Nigam, Kirtivardhan Singh, and Khushi Goyal. "Test of capital market integration using Fama-French three-factor model: empirical evidence from India." Investment Management and Financial Innovations 17, no. 2 (2020): 113–27. http://dx.doi.org/10.21511/imfi.17(2).2020.10.

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Integration or segmentation of markets determines whether substantial advantages in risk reduction can be attained through portfolio diversification in foreign securities. In an integrated market, investors face risk from country-specific factors and factors, which are common to all countries, but price only the later, as country-specific risk is diversifiable. The aim of this study is two-fold, firstly, investigating the superiority of the Fama-French three-factor model over Capital Asset Pricing Model (CAPM) and later using the superior model to test for integration of Indian and US equity m
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Pan, Zhiyuan, Xu Zheng, and Qiang Chen. "Testing asymmetric correlations in stock returns via empirical likelihood method." China Finance Review International 4, no. 1 (2014): 42–57. http://dx.doi.org/10.1108/cfri-08-2012-0091.

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Purpose – This study aims to propose a model-free statistic that tests asymmetric correlations of stock returns, in which stocks move more often with the market when the market goes down than when it goes up, and then empirically analyze the asymmetric correlations of the China stock market and international stock markets, respectively. Design/methodology/approach – Using empirical likelihood method, this study designs and conducts a model-free test, which converges to χ2 distribution under regulated conditions and performs well in the finite sample using bootstrap critical value method. Findi
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Burtnyak, Ivan, and Anna Malytska. "Spectral study of options based on CEV model with multidimensional volatility." Investment Management and Financial Innovations 15, no. 1 (2018): 18–25. http://dx.doi.org/10.21511/imfi.15(1).2018.03.

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This article studies the derivatives pricing using a method of spectral analysis, a theory of singular and regular perturbations. Using a risk-neutral assessment, the authors obtain the Cauchy problem, which allows to calculate the approximate price of derivative assets and their volatility based on the diffusion equation with fast and slow variables of nonlocal volatility, and they obtain a model with multidimensional stochastic volatility. Applying a spectral theory of self-adjoint operators in Hilbert space and a theory of singular and regular perturbations, an analytic formula for approxim
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Montiel, Eduardo Luis, and Octavio Martinez. "Hotel Business Inn." Emerald Emerging Markets Case Studies 9, no. 4 (2019): 1–15. http://dx.doi.org/10.1108/eemcs-10-2019-0258.

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Learning outcomes These are the three most important learning outcomes: discuss the relevance of capital asset pricing model (CAPM) as the methodology to estimate the cost of equity for an investment in an emerging market; analyze the different alternatives to estimate country risk discussing the pros and cons of each. Consider the additional complexity in estimating the cost of equity, contrasting the perspective of a local, non-diversified investor with that of a multinational company operating in 39 countries. Case overview/synopsis The Chief Financial Officer of a business group has to det
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Bouri, Elie, Riza Demirer, Rangan Gupta, and Jacobus Nel. "COVID-19 Pandemic and Investor Herding in International Stock Markets." Risks 9, no. 9 (2021): 168. http://dx.doi.org/10.3390/risks9090168.

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The aim of this study is to understand the effect of the recent novel coronavirus pandemic on investor herding behavior in global stock markets. Utilizing a daily newspaper-based index of financial uncertainty associated with infectious diseases, we examine the association between pandemic-induced market uncertainty and herding behavior in a set of 49 global stock markets. More specifically, we study the pattern of cross-sectional market behavior and examine whether the pandemic-induced uncertainty drives directional similarity across the global stock markets that cannot be explained by the st
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S. Daugherty, Mary, Thadavillil Jithendranathan, and David O. Vang. "Portfolio selection using the multiple attribute decision making model." Investment Management and Financial Innovations 18, no. 2 (2021): 155–65. http://dx.doi.org/10.21511/imfi.18(2).2021.13.

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This paper uses a Multiple Attribute Decision Making (MADM) model to improve the out-of-sample performance of a naïve asset allocation model. Under certain conditions, the naïve model has out-performed other portfolio optimization models, but it also has been shown to increase the tail risk. The MADM model uses a set of attributes to rank the assets and is flexible with the attributes that can be used in the ranking process. The MADM model assigns weights to each attribute and uses these weights to rank assets in terms of their desirability for inclusion in a portfolio. Using the MADM model, a
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Chenchik, Ya V. "How to Estimate the Impact of an Issuer’s ESG Risk on the Yield of its Bonds." Issues of Risk Analysis 19, no. 3 (2022): 86–100. http://dx.doi.org/10.32686/1812-5220-2022-19-3-86-100.

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All over the world, the ESG agenda is receiving more and more attention from the leadership of countries, international organizations and companies. These trends can be reflected both in the operating activities of companies and in the way they raise funds in financial markets, as well as in the pricing of financing instruments such as bonds. The subject of the study is the yield of circulating bonds of issuers with a credit rating, as well as ESG risk expressed by the ESG rating assigned to the issuer. The aim of the study is to develop the author’s theoretical and methodological approach to
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Ahmed, Essia Ries, Md Aminul Islam, Tariq Tawfeeq Yousif Alabdullah, and Azlan Bin Amran. "A qualitative analysis on the determinants of legitimacy of sukuk." Journal of Islamic Accounting and Business Research 10, no. 3 (2019): 342–68. http://dx.doi.org/10.1108/jiabr-01-2016-0005.

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Purpose This paper aims to investigate the influence of the determinants (pricing, type of structure, Shariah auditing, Shariah risk and Shariah documentation) and the sukuk legitimacy among Islamic financial institutions using a qualitative approach. The paper further explained the significance of the determinants on legitimacy, evaluated the relationship between sukuk characteristics and sukuk legitimacy and examined the moderating effect of Shariah Supervisory Board (SSB) on the relationship. Design/methodology/approach The study used a purposive sampling technique to select the target resp
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"Tail Risk in the Cross Section of Alternative Risk Premium Strategies." Journal of Portfolio Management, January 1, 2019. http://dx.doi.org/10.3905/jpm.2018.45.2.093.

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In this article, the authors attempt to get a better understanding of the cross-section of alternative risk premiums using a multi-asset version of the downside risk capital asset pricing model (CAPM). In line with the empirical literature, they find that the cross-section of realized returns is much better explained when using the downside CAPM, rather than relying on the traditional CAPM. However, in contrast to the empirical literature, the authors cannot always recover the required signs in their cross-sectional regressions. In particular, they find that taking on downside risk is not alwa
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Bekaert, Geert, Eric Engstrom, and Andrey Ermolov. "The Variance Risk Premium in Equilibrium Models." Review of Finance, March 1, 2023. http://dx.doi.org/10.1093/rof/rfad005.

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Abstract The equity variance risk premium is the expected compensation earned for selling variance risk in equity markets. The variance risk premium is positive and shows only moderate persistence. High variance risk premiums coincide with the left tail of the consumption growth distribution shifting down. These facts, together with risk neutral skewness being substantially more negative than physical return skewness, refute the bulk of the extant consumption-based asset pricing models. We introduce a tractable habit model that does fit the data. In the model, the variance risk premium depends
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Aramonte, Sirio, Mohammad R. Jahan-Parvar, Samuel Rosen, and John W. Schindler. "Firm-Specific Risk-Neutral Distributions with Options and CDS." Management Science, October 28, 2021. http://dx.doi.org/10.1287/mnsc.2021.4170.

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We propose a method to extract the risk-neutral distribution of firm-specific stock returns using both options and credit default swaps (CDS). Options and CDS provide information about the central part and the left tail of the distribution, respectively. Taken together, but not in isolation, options and CDS span the intermediate part of the distribution, which is driven by exposure to the risk of large, but not extreme, returns. Through a series of asset-pricing tests, we show that this intermediate-return risk carries a premium, particularly at times of heightened market stress. This paper wa
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Chen, Jian, Jiaquan Yao, Qunzi Zhang, and Xiaoneng Zhu. "Global Disaster Risk Matters." Management Science, March 14, 2022. http://dx.doi.org/10.1287/mnsc.2022.4328.

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This article examines the cross-country asset pricing implications of disaster risk concerns. We construct a new disaster risk index, relying on six news-implied rare disaster proxies of Manela and Moreira (2017) , and show that this index is a powerful predictor for stock returns and other asset returns in international markets both in and out of sample. By further disentangling a global common component from our rare disaster index, we find evidence supporting theories that emphasize globally shared disaster risk as the important driving force of asset price fluctuations. Moreover, we conduc
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Su, Chi-Wei, Yiru Liu, Tsangyao Chang, and Muhammad Umar. "CAN GOLD HEDGE THE RISK OF FEAR SENTIMENTS?" Technological and Economic Development of Economy, December 16, 2022, 1–22. http://dx.doi.org/10.3846/tede.2022.17302.

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This paper investigates the interaction between fear sentiments and gold price (GP) by utilising the full-sample and sub-sample rolling-window bootstrap causality tests. It can be observed that GP can hedge the risk of fear sentiments in a certain period. The result supports the inter-temporal capital asset pricing model, which demonstrates that the increase in fear sentiments can promote the rise in gold prices. Due to excessive panic, fear sentiments also have negative effects on GP. In contrast, GP positively impacts fear sentiments, which manifests that market sentiment can be forecasted b
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