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International Portfolio Diversification and Assets Allocation Bias  [cached]
Feker Mhadhbi
International Journal of Business and Management , 2013, DOI: 10.5539/ijbm.v8n3p51
Abstract: The purpose of this paper is to assess the evolution of home bias in assets allocation over time and to test the effect of financial markets frictions on the equities portfolio holding. Our findings show that all countries present a substantial home bias in their portfolio holding and that investors are unaware of the benefit of diversification and under-weight the foreign securities in their portfolios instead of holding the world market portfolio of risky assets, as suggested by the traditional portfolio theory. The empirical estimates based on a comparison between the version of ICAPM in the absence of frictions in financial markets and the version in the presence of friction reveal that the geography of assets trade is explained by several variables as economic and financial development and other factors related to corporate governance and the level of investor protection.
DevinagaRasiah,PeongKwee Kim
International Journal of Economics and Research , 2011,
Abstract: The Arbitrage Pricing Model (AP) is a famous model used to determine the factors such as market portfolio which influences expected returns on individual asset prices in the financial markets. Many investors believe that the stochastic returns of capital assets are consistent with a factor structure. One of the benefits on the Arbitrage Pricing Model is taking the benefit of the mispriced securities as profit by arbitrageurs. In this study AP is compared with CAPM and also how AP is used in other parts of the globe
Cross-border Portfolio Investment Networks and Indicators for Financial Crises  [PDF]
Andreas Joseph,Stephan Joseph,Guanrong Chen
Quantitative Finance , 2013, DOI: 10.1038/srep03991
Abstract: Cross-border equity and long-term debt securities portfolio investment networks are analysed from 2002 to 2012, covering the 2008 global financial crisis. They serve as network-proxies for measuring the robustness of the global financial system and the interdependence of financial markets, respectively. Two early-warning indicators for financial crises are identified: First, the algebraic connectivity of the equity securities network, as a measure for structural robustness, drops close to zero already in 2005, while there is an over-representation of high-degree off-shore financial centres among the countries most-related to this observation, suggesting an investigation of such nodes with respect to the structural stability of the global financial system. Second, using a phenomenological model, the edge density of the debt securities network is found to describe, and even forecast, the proliferation of several over-the-counter-traded financial derivatives, most prominently credit default swaps, enabling one to detect potentially dangerous levels of market interdependence and systemic risk.
The relationship between stock markets of major developed countries and Asian emerging markets  [PDF]
Wing-Keung Wong,Jack Penm,Richard Deane Terrell,Karen Yann Ching Lim
Advances in Decision Sciences , 2004, DOI: 10.1155/s1173912604000136
Abstract: With the emergence of new capital markets and liberalization of stock markets in recent years, there has been an increase in investors' interest in international diversification. This is so because international diversification allows investors to have a larger basket of foreign securities to choose from as part of their portfolio assets, so as to enhance the reward-to-volatility ratio. This benefit would be limited if national equity markets tend to move together in the long run. This paper thus studies the issue of co-movement between stock markets in major developed countries and those in Asian emerging markets using the concept of cointegration. We find that there is co-movement between some of the developed and emerging markets, but some emerging markets do differ from the developed markets with which they share a long-run equilibrium relationship. Furthermore, it has been observed that there has been increasing interdependence between most of the developed and emerging markets since the 1987 Stock Market Crash. This interdependence intensified after the 1997 Asian Financial Crisis. With this phenomenon of increasing co-movement between developed and emerging stock markets, the benefits of international diversification become limited.
Financial Securities Investments Analysis and Administration of Active Portfolio in Indeterminate Situations
Leonardo Badea
Theoretical and Applied Economics , 2007,
Abstract: This article deals the problems of investments in securities. The purpose of this study is risk optimization and determination within a portfolio of risk value criteria when investments in financial titles are made in condition of undetermined situations. At the end, answers merge into questions mark. This provokes for reflection.
A Recommended Financial Model for the Selection of Safest portfolio by using Simulation and Optimization Techniques  [PDF]
Kirti Arekar,Sanjeevani Kumar
Journal of Applied Finance and Banking , 2011,
Abstract: Investment of portfolio known that there is an important level of uncertainty about the future worth of a portfolio. The concept of value at risk (VAR) has been used to help describe a portfolio’s uncertainty. The current trend of investment in India is to invest in stock market which categorized as a high-risk level of investment. There are various methods to calculate the variance. Monte Carlo simulation method is one of the methods to calculate the VAR of the portfolio. Monte-Carlo simulation method is considered to be the optimization technique in which objective is to minimize/maximize the risk/profit before making any type of investment with portfolio. The Monte Carlo simulation method calculation for VAR of a portfolio can briefly be summarized in two steps. In the first step, a stochastic process is specified for financial variables. In the second step, financial variable of interest are simulated to get fictitious price path. The aim of the research is to develop the financial model for the safest portfolio selection based on VAR and Markowitz classical models. In the financial model, at first we measures the value at risk of Indian equity markets over short horizon of time (less than one year) by creating multiple scenarios by using Monte Carlo simulation. With the help of financial model, we ranks measured values at risk by using statistical tools. Finally, financial model will suggest an optimal portfolio over the same horizon of time using a developed optimization model. A real case study was selected and introduced to find the safest allocation of a portfolio; eight of the most active share volume was selected to perform a analysis. The results obtained by financial model indicates that the reliability description of the portfolio’s uncertainty and then gave highly reliable recommendation on portfolio optimization.
Financialisation Impacting Diversification? Evidence from Indian Equity & Commodity Markets  [PDF]
Siddula Narsimhulu, D. Satish, S. V. Satyanarayana
Theoretical Economics Letters (TEL) , 2016, DOI: 10.4236/tel.2016.65088
Abstract: Investors are constantly looking at diversification of risks by combining equities with other assets in their portfolio. Apart from fixed income securities and real estate related instruments, commodities are also being increasingly used as a portfolio diversification strategy. But the overwhelming presence of financial institutions and funds in the commodity markets has resulted in financialisation of commodity markets leading to a greater correlation between equities and commodities especially during recession. This has lead to a reduction in diversification benefits. The paper attempts to study the diversification benefits of investing both in Indian commodities and equities markets in different economic environments using VAR Impulse Response Functions with an aim to find out whether financialization exists. The research found that there was absence of interdependence between the Indian equity and commodities markets which offered a good opportunity for diversification. Also the equities market and commodities market during recession were totally decoupled which showed that the financialization was not present in Indian commodities market and there was a greater scope for diversification during the recession.
Modern Portfolio Theory using SAS\textregistered OR  [PDF]
Murphy Choy
Statistics , 2011,
Abstract: Investment approaches in financial instruments have been varied and often produce unpredictable results. Many investors in the earlier days of investment banking suffered catastrophical losses due to poor strategy and lack of understanding of the financial market. With the development of investment banking, many innovative investment strategies have been proposed to make portfolio returns higher than the overall market. One of the most famous theories of portfolio creation and management is the modern portfolio theory proposed by Harry Markowitz. In this paper, we shall apply the theory in creating a portfolio of stocks as well as managing it.
Compact Securities Markets for Pareto Optimal Reallocation of Risk  [PDF]
David M. Pennock,Michael P. Wellman
Computer Science , 2013,
Abstract: The emph{securities market} is the fundamental theoretical framework in economics and finance for resource allocation under uncertainty. Securities serve both to reallocate risk and to disseminate probabilistic information. emph{Complete} securities markets - which contain one security for every possible state of nature - support Pareto optimal allocations of risk. Complete markets suffer from the same exponential dependence on the number of underlying events as do joint probability distributions. We examine whether markets can be structured and "compacted" in the same manner as Bayesian network representations of joint distributions. We show that, if all agents' risk-neutral independencies agree with the independencies encoded in the market structure, then the market is emph{operationally complete}: risk is still Pareto optimally allocated, yet the number of securities can be exponentially smaller. For collections of agents of a certain type, agreement on Markov independencies is sufficient to admit compact and operationally complete markets.
Value-at-Risk and Expected Shortfall for Quadratic portfolio of securities with mixture of elliptic Distributed Risk Factors  [PDF]
Jules Sadefo Kamdem
Mathematics , 2003,
Abstract: Generally, in the financial literature, the notion of quadratic VaR is implicitly confused with the Delta-Gamma VaR, because more authors dealt with portfolios that contains derivatives instruments. In this paper, we postpone to estimate the Value-at-Risk of a quadratic portfolio of securities (i.e equities) without the Delta and Gamma greeks, when the joint log-returns changes with multivariate elliptic distribution. We have reduced the estimation of the quadratic VaR of such portfolio to a resolution of one dimensional integral equation. To illustrate our method, we give special attention to the mixture of normal and mixture of t-student distribution. For given VaR, when joint Risk Factors changes with elliptic distribution, we show how to estimate an Expected Shortfall .
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