The state of monetary policy and industrial asset allocation: the Ghanaian perspective

2018 ◽  
Vol 9 (4) ◽  
pp. 449-461
Author(s):  
Lord Mensah ◽  
Anthony Q.Q. Aboagye ◽  
Nana Kwame Akosah
Keyword(s):  
Monetary Policy ◽  
Asset Allocation ◽  
Optimization Technique ◽  
Investment Strategy ◽  
The State ◽  
Excess Returns ◽  
Content Type ◽  
Industrial Sectors ◽  
Food And Beverage ◽  
Allocation Decisions

Purpose The purpose of this paper is to investigate whether asset allocation across various industries listed on the Ghana Stock Exchange (GSE) varies across different monetary policy states. Design/methodology/approach This paper adopts the Markov Chain technique to split monetary policy into three different states. The authors further adopt the Markowitz portfolio optimization technique to find the minimum variance and optimum portfolio for the industries listed on the GSE. Findings The finding reveals a dynamic asset allocation, which varies the industry’s weight mix across the various monetary policy states enhance excess returns compared to the static asset allocation. Specifically, the authors find risk-return trade-off among industries listed on the GSE. Financial and Food and Beverage industries portfolios record high returns relative to the Government of Ghana 91-day Treasury bill. The Food and Beverage portfolio is the only portfolio that records relatively high excess returns across all the monetary policy states. The authors also find that, during expansionary state (high monetary policy rates) of the monetary policy, investors are to allocate about 69 and 30 percent of their investment into food and beverages and financials, respectively. Corner solution is found in the transient state where 100 percent of wealth is allocated to financial to obtain the optimum portfolio. The optimum portfolio in the contraction state assigns 52 percent to financials and 42 percent to manufacturing. In summary, the result supports the dependence of investors’ asset allocation decisions on monetary policy. Practical implications Therefore, the authors propose an investment strategy which is dynamic and takes into consideration the monetary policy states rather than static asset allocation which maintains the same industry weight mix over the investment period. Social implications In sum, the authors interpret the result as support for the dependence of investors’ asset allocation decisions on monetary policy. In Ghana, an increase in the monetary policy appears to support industries listed on the equity market. The result also gives knowledge about investors’ asset allocation decisions on the GSE, which is practical balanced source of information for investors’ risk and return choices. For a prudent monetary policy framework, the monetary policy committee should monitor industries listed on the GSE. The result from the analysis has also an implication for investors, portfolio managers and fund managers to consider the state of the monetary policy in Ghana when making investment decisions. Originality/value The study differs from earlier research on asset allocation by breaking new grounds on two levels. First of all, based on the notion that different industries have different exposures to monetary policy states, the authors extend the portfolios by grouping the equities listed on the GSE into their industrial sectors. Second, the authors examine how investors’ optimal portfolio allocation may change depending on the state of monetary policy.

Presidential parties, monetary regimes, and health care returns

2015 ◽  
Vol 41 (10) ◽  
pp. 1059-1076 ◽  
Author(s):  
Jeffery Scott Bredthauer ◽  
Brian C. Payne ◽  
Jiri Tresl ◽  
Gordon V. Karels
Keyword(s):  
Health Care ◽  
Monetary Policy ◽  
Political Party ◽  
Health Care Industry ◽  
Entire Period ◽  
Excess Returns ◽  
Policy Regime ◽  
Content Type ◽  
Care Industry ◽  
The Us

Purpose – The purpose of this paper is to investigate the absolute and risk-adjusted stock return performance of the US health care industry conditional upon the presidential administration’s political party and the Federal Reserve’s monetary policy stance. It evaluates this return behavior across the 60-year time period from 1954 to 2013, and sub-divides this entire period into the pre-Medicare period (1954-1964), Medicare period (1965-1984), and Medicare-plus-high-health-care-inflation period (1985-2013). Design/methodology/approach – The study uses monthly returns to the health care industry and overall market, characterizing each sample month as either having a Republican or Democratic president and either a contractionary or expansionary monetary policy regime determined by whether the Federal Reserve is increasing or decreasing interest rates, respectively. It incorporates univariate and multivariate analysis to quantify the return behavior of both the health care industry and the overall market during the entire period and all three sub-periods. Additionally, it utilizes a common four-factor multivariate regression model and associated hypothesis testing to characterize risk-adjusted excess returns (i.e. α) to the health care industry during the entire period and all three sub-periods. Findings – The health care industry has earned robust, positive risk-adjusted returns with the magnitude of the returns sensitive to the political party of the administration and the monetary policy regime. The authors find that prior to 1965 (1954-1964), when the president was a Republican, during times of monetary contraction, health care earned an excess risk-adjusted return. There was no association between Democratic administrations and excess health care returns prior to 1965. In contrast, the authors find that after 1965 this relationship changes. The authors find that returns to health care were positive for Republicans during times of monetary expansion and positive for Democrats during monetary contraction. The authors also find this relationship has become more pronounced after 1984. Originality/value – The study extends prior literature, which has shown that the health care industry is a priced factor in the US stock market and that it provides significant risk-adjusted returns in the recent past. Uniquely, this study shows that the excess returns to health care vary considerably over the past 60 years, and that these excess returns are quite sensitive to political policy, proxied by the presidential administration party, and monetary policy, as measured using Fed discount rate changes. These findings have implications for management and shareholders of highly regulated and subsidized industries and firms.

How important are early investment experiences on subsequent investment decisions? A laboratory experiment on asset allocation

2015 ◽  
Vol 41 (6) ◽  
pp. 582-590 ◽  
Author(s):  
Dimitra Papadovasilaki ◽  
Federico Guerrero ◽  
James Sundali ◽  
Gregory Stone
Keyword(s):  
Asset Allocation ◽  
Design Methodology ◽  
Investment Decisions ◽  
Portfolio Allocation ◽  
Investment Behavior ◽  
Content Type ◽  
Aggregate Shocks ◽  
Riskless Asset ◽  
Allocation Decisions

Purpose – The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting. Design/methodology/approach – In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods. Findings – The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom. Originality/value – To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.

Corporate social responsibility and market value: evidence from Jordan

2016 ◽  
Vol 14 (1) ◽  
pp. 2-29 ◽  
Author(s):  
Bilal Fayiz Omar ◽  
Nidal Omar Zallom
Keyword(s):  
Regression Analysis ◽  
Human Resources ◽  
Financial Performance ◽  
Market Value ◽  
Content Type ◽  
Industrial Sectors ◽  
Food And Beverage ◽  
Corporate Social ◽  
The Relationship ◽  
Practical Implications

Purpose This study aims to investigate the relationship between different themes of corporate social responsibility (CSR) and companies’ market value (measured by Tobin Q) for Jordanian firms listed on the Amman Stock Exchange (ASE) for the period 2006-2010. Design/methodology/approach The annual reports of 26 companies on the ASE for the years 2006-2010 were selected for this study. Three industrial sectors were chosen: chemical; food and beverage; and pharmaceutical and medical (P&M). The CSR is measured by constructing an index consisting of four themes which are as follows: environmental 9 items; human resources 16 items; community 7 items; and products 7 items. The study adopts Tobin Q as the dependent variable to measure the market value of corporations. Two control variables were included in the regression analysis for their possible effects on the CSR and company’s market value relationship: size and leverage. This study performs a multiple regression analysis model to test the effect of the four CSR themes: environmental, human resources, community and products on the market value measured by Tobin Q. Findings The results revealed that environmental, community and product activities decreased market value in the food and beverage industry, while human resources activities had no effect on market value in the same industry. Moreover, the community theme was found to have a negative effect on market value in the P&M industry, while the three other themes were found to have no effect on market value in the same industry. The four themes had no effect on market value in the chemical industry. Research limitations/implications The current study has a number of limitations, which have implications for future research. First, the study focused only on three industrial sectors (chemical, food and beverage and P&M), which limited the results to only these industries. In addition, the CSR concept and its effect on profitability is an important issue for the financial and services sectors. Hence, it would be beneficial to investigate the CSR impact on profitability for the financial and services sectors. Moreover, the study focused only on one country, Jordan. An extension of this study could be a comparison of the CSR effect on financial performance between Jordan and other countries in the Middle East. Furthermore, the measurement of CSR is subject to criticism because it might generate bias according to subjective judgments about CSR items. The CSR items are equally weighted, which might not be acceptable because their nature and effect differ among industries. However, introducing qualitative measures for CSR that reflect various perspectives about CSR practices and implications is essential. Finally, the period chosen for this study includes the years of global financial crisis as well which had eroded the market value of many firms in different industries, and this may form a prominent limitation of this study. Practical implications The results of this study have given evidence of the role of CSR in Jordan. The investments in the CSR field could negatively affect or could have no effect on market value. Overall, regulators in Jordan should pay attention to the costs and benefits of CSR among companies. Companies will be encouraged to invest in CSR activities if the benefits on their financial performance exceed the costs (cost-benefit theory). Specifically, companies should select types of CSR activities that enhance their competiveness in the society. Social implications The results of this study provide practical implications to several users in the chemical, food and beverage and P&M industries. Managers, investors and other users may pay attention to the impact of CSR strategies on the company’s market value. For example, food and beverage managers may decrease their CSR investments around environmental, community and product activities because these decrease the market value and profitability of the company. However, the CSR investment in human resources does not affect the profitability in this industry. For the chemical industry, managers may not focus on CSR investments in the different activities (environmental, human resources, community and products) because these have no impact on the company’s market value. In regards to the P&M industry, managers may decrease their CSR investments around community activities because this decreases the market value. However, managers may not be concerned with CSR investments in environmental, human resources and products activities because these do not affect the company’s market value. Originality/value The relationship between CSR and a company’s financial performance has been tested broadly in the financial and management fields without any conclusive results. Some explanations for the inconclusive results are discussed. Inoue and Lee (2011, p. 791) noted three main issues that remain unresolved in the studies regarding the relationship between CSR and a company’s performance: using samples for different industries, using cross sectional observations and using aggregate CSR dimensions. The current study overcomes the main problems in the previous discussion. In particular, the study will focus on specific industries (chemical, food and beverage and P&M). In addition, the study will use multidimensional CSR measures. Moreover, financial performance will be measured by a single measure (market value) instead of using different measures of financial performance.

GCC countries' market risk premia and US monetary policy announcements

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hong Wu
Keyword(s):  
Monetary Policy ◽  
Global Economy ◽  
Capital Budgeting ◽  
Risk Premia ◽  
The State ◽  
Content Type ◽  
Portfolio Evaluation ◽  
Gcc Countries ◽  
Equity Indices ◽  
Us Monetary Policy

PurposeThis paper aims to examine if the market risk premiums of the Gulf Cooperation Council (GCC) countries are particularly higher on prescheduled US monetary policy announcement days. The findings shed light on the causality relationship from the state of the global economy to the GCC equity markets as well as their integration with the rest of the world.Design/methodology/approachThe author takes the standard event-study approach, following Fama et al. (1969). As the announcement days are prescheduled, the impact of the announcements on the GCC markets' risk premia allows for test of causality, while other studies address predictability and association.FindingsThe author finds that excess returns are higher, both economically and statistically, on announcement days in most individual GCC countries and the region overall. Moreover, additional compensations may not appear on the exact days of announcement in a few countries; rather, on the days right before or after announcements, possibly due to information leakage or gradual diffusion. My results show that there is a causal relationship from the state of the global economy to the GCC equity markets' risk premia. This new evidence supports integration between the Gulf region's and the world's financial markets.Practical implicationsThe evidence of risk–return transmission from US monetary policy announcements to GCC countries' equity indices supports integration between the region's and the world's financial markets. The study results will help guide investors' and corporations' investing, capital budgeting and portfolio evaluation decisions.Originality/valueThis paper extends the announcement literature (Savor and Wilson 2013, 2014) by examining the responses of the GCC countries, the major players of the global oil markets. The empirical analysis documents a causal relationship from the state of the global economy, as revealed by US monetary policy announcements, to the GCC equity indices. This new evidence supports increased integration between the Gulf region and the world, a finding that investors and corporations should consider when making investing, capital budgeting and portfolio evaluation decisions.

scholarly journals The impact of rating classifications on stock prices of Brazilian companies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fernanda Pagin ◽  
Matheus da Costa Gomes ◽  
Rafael Moreira Antônio ◽  
Tabajara Pimenta Júnior ◽  
Luiz Eduardo Gaio
Keyword(s):  
Decision Making ◽  
Asset Allocation ◽  
Stock Prices ◽  
Market Reaction ◽  
Investment Decision ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Market Model ◽  
Content Type ◽  
The Impact

Purpose This paper aims to identify if there is an impact of the rating announcements issued by the agencies on the returns of the stocks of Brazilian companies listed on Brasil Bolsa Balcão, from August 2002 to August 2018, identifying which types of announcement (upgrade, downgrade or the same initial classification) cause variations in prices around the date of disclosure of the rating. Design/methodology/approach The event study methodology was applied to verify the market reaction around the announcement dates in a 21-day event window (−10, +10). The market model was used to calculate the abnormal returns (ARs), and subsequently, the accumulated ARs. Findings The hypotheses tests allowed to verify that the accumulated ARs are different, before and after the three types of rating announcements (upgrades, downgrades and the same classification); in upgrades, the mean of accumulated ARs increases in the days before the event, while in downgrades, this increase occurs after the event. This paper concluded that the rating announcements have an impact on the return of stock of the Brazilian market and that the market reaction occurs most of the time before the event happens, which indicates that the market can anticipate the information contained in the changes in credit ratings. Practical implications The results have considerable implications for portfolio managers, institutional investors and traders. It facilitates investment decision-making in the face of rating classification announcements. Market participants can pay more attention to their investment strategies and asset allocation during periods of risk rating announcements. Additionally, traders can understand the form of investment strategy for superior earnings. Originality/value The importance of the study is related to the fact that the results may explain the causes of specific movements in the Brazilian financial market related to a source of information that may or may not be able to influence the decisions of the financial agents that operate in this market. The justification is centred on the idea that, for investors who somehow react to the announcements, it is relevant to understand the impact of rating classifications on companies, as access to such information allows for more conscious decision-making.

Financial and monetary policy of the State and its impact on the income level and poverty reduction in Russia

2020 ◽  
Vol 26 (5) ◽  
pp. 964-990
Author(s):  
N.I. Kulikov ◽  
V.L. Parkhomenko ◽  
Akun Anna Stefani Rozi Mobio
Keyword(s):  
Monetary Policy ◽  
Household Income ◽  
Poverty Reduction ◽  
The State ◽  
Financial Policy ◽  
Gdp Growth ◽  
Tax Rate ◽  
Gdp Growth Rate ◽  
The Government ◽  
The Impact

Subject. We assess the impact of tight financial and monetary policy of the government of the Russian Federation and the Bank of Russia on the level of household income and poverty reduction in Russia. Objectives. The purpose of the study is to analyze the results of financial and monetary policy in Russia and determine why the situation with household income and poverty has not changed for the recent six years, and the GDP growth rate in Russia is significantly lagging behind the global average. Methods. The study employs methods of analysis of scientific and information base, and synthesis of obtained data. The methodology and theoretical framework draw upon works of domestic and foreign scientists on economic and financial support to economy and population’s income. Results. We offer measures for liberalization of the financial and monetary policy of the government and the Central Bank to ensure changes in the structure of the Russian economy. The proposed alternative economic and financial policy of the State will enable the growth of real incomes of the population, poverty reduction by half by 2024, and annual GDP growth up to 6 per cent. Conclusions. It is crucial to change budget priorities, increase the salaries of public employees, introduce a progressive tax rate for individuals; to reduce the key rate to the value of annual inflation and limit the bank margin. The country needs a phased program to increase the population's income, which will ensure consumer demand.

The technological transformation of Russia's industrial sectors: Difficulties and prospects

2020 ◽  
Vol 16 (9) ◽  
pp. 1674-1697
Author(s):  
O.P. Smirnova ◽  
A.O. Ponomareva
Keyword(s):  
Production Method ◽  
Industrial Sector ◽  
The State ◽  
Industrial Complex ◽  
Economic Activities ◽  
Resource Saving ◽  
Technological Transformation ◽  
Modern Approach ◽  
Industrial Enterprises ◽  
Industrial Sectors

Subject. The article focuses on contemporary trends in the industrial and socio-economic development of Russia during the technological transformation of its sectors. Objectives. The study is an attempt to analyze what opportunities and difficulties may arise for the development of the industrial sectors in Russia. We also examine the dynamics of key development indicators of the industrial sectors, point out inhibitors of their competitiveness. Methods. The methodological framework comprises general methods of systems, structural-functional and comprehensive approaches to analyzing economic phenomena. We applied graphic, economic-statistical methods of research, conventional methods of grouping, comparison and generalization, and the logic, systems and statistical analysis. Results. We display how industrial sectors develop over time by type of economic activities. The article provides the rationale for structural rearrangements and further innovation-driven development of the industries. We display that the Russian industries technologically depend om imported production technologies. We substantiate the renewal of assets and technologies at industrial enterprises, and retain and develop human capital. Conclusions and Relevance. Primarily, the Russian economy should be digitalized as a source of the long-term economic growth. Notably, industrial enterprises should replace their linear production method with that of the circular economy and implement resource-saving innovative technologies. The State evidently acts as the leading driver of technological retrofitting of the industrial sector. If the State holds the reasonable and appropriate industrial policy at the federal and regional levels and configure its tools to ensure the modern approach to developing the industries in a competitive fashion, the industrial complex will successfully transform into the innovative economy.

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