Are covered calls the right option for Australian investors?

2018 ◽  
Vol 35 (2) ◽  
pp. 222-243
Author(s):  
Scott J. Niblock ◽  
Elisabeth Sinnewe
Keyword(s):  
Performance Measures ◽  
Asset Allocation ◽  
Market Volatility ◽  
Risk Exposure ◽  
Content Type ◽  
Fund Managers ◽  
Option Strategies ◽  
Covered Call ◽  
The Right ◽  
Covered Call Strategies

Purpose The purpose of this paper is to examine whether superior risk-adjusted returns can be generated using monthly covered call option strategies in large capitalized Australian equity portfolios and across varying market volatility conditions. Design/methodology/approach The authors construct monthly in-the-money (ITM) and out-of-the-money (OTM) S&P/ASX 20 covered call portfolios from 2010 to 2015 and use standard and alternative performance measures. An assessment of variable levels of market volatility on risk-adjusted return performance is also carried out using the spread between implied and realized volatility indexes. Findings The results of this paper show that covered call writing produces similar nominal returns at lower risk when compared against the standalone buy-and-hold portfolio. Both standard and alternative performance measures (with the exception of the upside potential ratio) demonstrate that covered call portfolios produce superior risk-adjusted returns, particularly when written deeper OTM. The 36-month rolling regressions also reveal that deeper OTM portfolios deliver greater risk-adjusted returns in the majority of the sub-periods investigated. This paper also establishes that volatility spread variation may be a driver of performance for covered call writing in Australia. Originality/value The authors suggest that deeper OTM covered call strategies based on large capitalized portfolios create value for investors/fund managers in the Australian stock market and can be executed in volatile market conditions. Such strategies are particularly useful for those seeking market neutral asset allocation and less risk exposure in volatile market environments.

Leveraged ETF option strategies

2016 ◽  
Vol 42 (5) ◽  
pp. 438-448 ◽  
Author(s):  
William Trainor ◽  
Richard Gregory
Keyword(s):  
Risk Exposure ◽  
Exchange Traded Funds ◽  
Investment Strategies ◽  
Content Type ◽  
Leverage Ratio ◽  
Option Strategies ◽  
Covered Call ◽  
Equity Indices ◽  
Leveraged Etf ◽  
Leveraged Etfs

Purpose – Leveraged exchange traded funds (ETFs) have become increasingly popular since their introduction in 2006. In recent years, options on leveraged ETFs have been promoted as a means of enhancing returns and reducing risk. The purpose of this paper is to examine the interchangeability of S & P 500 ETF options with leveraged S & P 500 ETF options and to what extent these options allow investors to manage their risk exposure. Design/methodology/approach – With increasing liquidity for these fund’s options, simple option strategies such as covered calls and protective puts can be implemented. This study derives call-call and put-put parity between options on the underlying index and the associated leveraged ETFs. The paper examines comparative measures of return and risk on the underlying indices, along with covered call and protective put positions. Findings – Using the formulations derived, this study shows options on non-leveraged ETFs or on the underlying index can be substituted for leveraged ETF options. Empirical results suggest substituting options on leveraged ETFs with options on the underlying index or index ETF give comparable results, but can differ as the realized leverage ratio over time differs from projected values. Originality/value – This study is the first to the authors’ knowledge that investigates option strategies on leveraged and inverse ETFs of equity indices. It is also the first to derive call-call and put-put parity relations between options on ETFs and related leveraged and inverse ETFs. The results contribute to securities issuance, investment strategies, and option parity relations.

An investigation of property-related decision practice of Australian fund managers

2014 ◽  
Vol 32 (3) ◽  
pp. 282-305 ◽  
Author(s):  
Wejendra Reddy ◽  
David Higgins ◽  
Ron Wakefield
Keyword(s):  
Decision Making ◽  
Asset Allocation ◽  
Continuous Process ◽  
Decision Making Process ◽  
Allocation Decision ◽  
Content Type ◽  
Fund Managers ◽  
Investment Level ◽  
Fund Investment ◽  
Managed Funds

Purpose – In Australia, the A$2.2 trillion managed funds industry including the large pension funds (known locally as superannuation funds) are the dominant institutional property investors. While statistical information on the level of Australian managed fund investments in property assets is widely available, comprehensive practical evidence on property asset allocation decision-making process is underdeveloped. The purpose of this research is to identify Australian fund manager's property asset allocation strategies and decision-making frameworks at strategic level. Design/methodology/approach – The research was undertaken in May-August 2011 using an in-depth semi-structured questionnaire administered by mail. The survey was targeted at 130 leading managed funds and asset consultants within Australia. Findings – The evaluation of the 79 survey respondents indicated that Australian fund manager's property allocation decision-making process is an interactive, sequential and continuous process involving multiple decision-makers (internal and external) complete with feedback loops. It involves a combination of quantitative analysis (mainly mean-variance analysis) and qualitative overlay (mainly judgement, or “gut-feeling”, and experience). In addition, the research provided evidence that the property allocation decision-making process varies depending on the size and type of managed fund. Practical implications – This research makes important contributions to both practical and academic fields. Information on strategic property allocation models and variables is not widely available, and there is little guiding theory related to the subject. Therefore, the conceptual frameworks developed from the research will help enhance academic theory and understanding in the area of property allocation decision making. Furthermore, the research provides small fund managers and industry practitioners with a platform from which to improve their own property allocation processes. Originality/value – In contrast to previous property decision-making research in Australia which has mainly focused on strategies at the property fund investment level, this research investigates the institutional property allocation decision-making process from a strategic position involving all major groups in the Australian managed funds industry.

Momentum and Covered Calls Almost Everywhere

2018 ◽  
Keyword(s):  
Asset Allocation ◽  
Underlying Asset ◽  
Times Series ◽  
Tactical Asset Allocation ◽  
Individual Strategy ◽  
Almost Everywhere ◽  
Risk Contribution ◽  
Asset Classes ◽  
Covered Call ◽  
Covered Call Strategies

This article examines times series momentum and covered call strategies through conventional representations across ten asset classes. The performance of the two strategies generally outperform static buy and hold investments and are classified as positive and negative autocorrelation factors. The tactical overlay of time series momentum and covered call strategies onto asset classes are considered asset transformations. The two transformed replacements of the underlying asset are incorporated into well-established risk-based allocation heuristics, such as maximum diversification and equal risk contribution. The resulting portfolios show enhanced risk-adjusted performance compared with corresponding buy and hold investments or individual strategy portfolios. The authors designate this global tactical asset allocation framework as autocorrelation factor allocation (ACFA).

Tempered stable models for Islamic finance asset management

2014 ◽  
Vol 7 (1) ◽  
pp. 37-60 ◽  
Author(s):  
Mahmoud Bekri ◽  
Young Shin (Aaron) Kim ◽  
Svetlozar (Zari) T. Rachev
Keyword(s):  
Risk Management ◽  
Stock Market ◽  
Empirical Evidence ◽  
Market Risk ◽  
Market Volatility ◽  
Risk Exposure ◽  
Islamic Finance ◽  
Content Type ◽  
Portfolio Manager ◽  
Safety First

Purpose – In Islamic finance (IF), the safety-first rule of investing (hifdh al mal) is held to be of utmost importance. In view of the instability in the global financial markets, the IF portfolio manager (mudharib) is committed, according to Sharia, to make use of advanced models and reliable tools. This paper seeks to address these issues. Design/methodology/approach – In this paper, the limitations of the standard models used in the IF industry are reviewed. Then, a framework was set forth for a reliable modeling of the IF markets, especially in extreme events and highly volatile periods. Based on the empirical evidence, the framework offers an improved tool to ameliorate the evaluation of Islamic stock market risk exposure and to reduce the costs of Islamic risk management. Findings – Based on the empirical evidence, the framework offers an improved tool to ameliorate the evaluation of Islamic stock market risk exposure and to reduce the costs of Islamic risk management. Originality/value – In IF, the portfolio manager – mudharib – according to Sharia, should ensure the adequacy of the mathematical and statistical tools used to model and control portfolio risk. This task became more complicated because of the increase in risk, as measured via market volatility, during the financial crisis that began in the summer of 2007. Sharia condemns the portfolio manager who demonstrates negligence and may hold him accountable for losses for failing to select the proper analytical tools. As Sharia guidelines hold the safety-first principle of investing rule (hifdh al mal) to be of utmost importance, the portfolio manager should avoid speculative investments and strategies that would lead to significant losses during periods of high market volatility.

scholarly journals Can market state and market volatility explain time-varying momentum profits in South Africa?

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mwangele Kaluba ◽  
Yudhvir Seetharam
Keyword(s):  
South Africa ◽  
Default Risk ◽  
Explanatory Power ◽  
Market Volatility ◽  
Momentum Strategies ◽  
Content Type ◽  
Fund Managers ◽  
Fundamental Factor ◽  
Momentum Profits ◽  
Market State

PurposeWhile the momentum anomaly is prevalent in South Africa, few have examined the reasons influencing it. This study examines whether momentum profits vary through time and are affected by the state of the market and market volatility between 1998 and 2019.Design/methodology/approachThe authors consider combinations of portfolio construction, such as the lookback period, weighting scheme, measure of volatility and the volatility window period. They further examine the interaction of momentum with sentiment, default risk and semi-deviation as a measure of risk, as a means of testing whether behavioural factors have significant influence.FindingsThe results generally show that neither volatility nor market state has explanatory power on momentum profits.Originality/valueThese results make the momentum anomaly in South Africa an even greater mystery than before as they do not conform to the existing literature from developed economies. The authors do, however, find that default risk is a significant predictor of momentum profits, which is a useful additional factor for those fund managers who utilise momentum strategies. This implies that a fundamental factor, default risk, is a potential explanation for the market-related momentum anomaly.

Corporate governance mechanism and the risk exposure of Islamic mutual funds: evidence from Islamic countries

2020 ◽  
Vol 11 (9) ◽  
pp. 1709-1723
Author(s):  
Farrukh Naveed ◽  
Syed Zain Ul Abdin
Keyword(s):  
Corporate Governance ◽  
Mutual Funds ◽  
Risk Exposure ◽  
Governance Mechanism ◽  
Method Of Moment ◽  
Content Type ◽  
Fund Managers ◽  
Islamic Countries ◽  
Dynamic Panel Regression ◽  
The Impact

Purpose This study aims to analyze the impact of corporate governance characteristics on the risk exposure of Islamic mutual funds prevailing in different Islamic countries (Pakistan and Malaysia). Design/methodology/approach This study used dynamic panel regression model for analysis and estimated the results using system generalized method of moment technique. A sample of 185 Islamic funds is used in the current research, which is selected using judgmental sampling. The data span of this study consists nine years from 2009 to 2017. Findings The results showed that the corporate governance characteristics such as board independence, directors and institutional ownership and overall governance quality are helpful in reducing the total and downside risk exposure of Islamic mutual funds. The findings also suggest that board size and Chief Extractive officer duality play no role in mitigating the risk of Islamic funds prevailing in both countries. Practical implications This study has implication for industry practitioners and fund managers. This study showed that the corporate governance characteristics are helpful in reducing the risk exposure of Islamic mutual funds. Therefore, this study provides input to the investment firms to improve the quality of corporate governance for lowering the risk exposure of mutual funds. Originality value To the best of the authors’ knowledge, this study is the first attempt to analyze the impact of corporate governance characteristics on the risk exposure of Islamic mutual funds and hence provides significant contribution in the literature of mutual funds.

scholarly journals Lipper’s rating and the performance of unit trusts in Malaysia

2015 ◽  
Vol 32 (3) ◽  
pp. 322-339 ◽  
Author(s):  
Ahmad Ridhuwan Abdullah ◽  
Nur Adiana Hiau Abdullah
Keyword(s):  
Performance Measures ◽  
Asset Allocation ◽  
Factor Model ◽  
Emerging Market ◽  
Performance Comparison ◽  
Content Type ◽  
Trust Funds ◽  
Significant Difference ◽  
Unit Trust ◽  
Risk Free Rate

Purpose – The purpose of this paper is to examine the risk-adjusted performance of rated funds and determine the usefulness of Lipper Leader rating of unit trusts in Malaysia during the period 2000 to 2010. Design/methodology/approach – The paper utilizes the Sharpe ratio, Treynor ratio, Jensen’s alpha and Fama-French three-factor model to measure performance. Findings – During the period of study, the performance of the market index and risk-free rate outperformed that of 68 equity unit trust funds in the 3-year, 5-year and 10-year investment horizons. The ranking, based on four performance measures, corresponds to Lipper rating for the lowest rated and leader funds, but not for the three- and four-key rated funds. Further, there is a significant difference in the performance of the five-key, four-key and three-key rated funds which outperform the lowest rated funds, indicating that Lipper rating is able to distinguish superior and inferior unit trust funds. Research limitations/implications – Some of the limitations in this study are that the indexes could be self-constructed. The existing index might not represent the asset allocation of the funds concerned. Additional variables might have to be considered when examining fund performance as they should correspond to the characteristics of a fund. Practical implications – The results indicate that Lipper rating classification could identify the highest and lowest performing funds. Therefore, investors could use this rating to make informed investment decisions without undertaking time-consuming analysis to ascertain the good- and bad-quality funds in the market. Social implications – The findings of this study could be used by the academia as another source of reference to enhance their understanding of the applicability of Lipper rating for unit trust funds in an emerging market. Originality/value – The contribution of this study is that it analyzes the effectiveness and capability of Lipper Leader rating in identifying quality funds in the context of an emerging market. Performance comparison between Lipper Leader rating and methods used in the portfolio theory bridges the theory-practice gap between practitioners and academics. To date, there have been no attempts to study and compare the ratings of advisory firms with theoretical performance measures, particularly in the context of Malaysia.

Dow Jones Islamic Index firms: how profitable are they?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Naseem Al Rahahleh ◽  
Serkan Akguc ◽  
Turki Abalala
Keyword(s):  
Financial Crisis ◽  
Asset Allocation ◽  
Operating Performance ◽  
Multivariate Regression Analysis ◽  
Content Type ◽  
Fund Managers ◽  
Final Sample ◽  
Equity Funds ◽  
Investment Portfolios ◽  
The Impact

Purpose The purpose of this paper is to examine the operating performance of Dow Jones Islamic Index (DJII) firms vs non-DJII firms. It also explores the impact of the 2007–2008 financial crisis on the operating performance of firms included under DJII relative to a comparable set of firms (i.e. industry-size matched) that are not included in the DJII. Design/methodology/approach The final sample consisted of 1,128 unique firms (or 5,669 observations) in the DJII sample and 9,501 unique firms (or 55,889 observations) in the non-DJII sample. The paper uses a unique dataset from S&P’s Compustat North America database during the period of 2005–2014. This study uses univariate tests complemented with multivariate regression analysis to gain further insight into the influence of Shariah compliance on the operating performance of firms during the crisis. Findings The paper shows that DJII firms were more profitable than non-DJII firms during the sample period. In addition, DJJI firms’ profitability was not affected as much during the financial crisis as non-DJII firms. This finding is robust to various model specifications and to alternative definitions of operating profitability. Research limitations/implications Corporate governance and managerial characteristics and the possible effects of these on operational performance are not considered herein. Practical implications Investors and fund managers could benefit from investing in Islamicly permissible equity funds when constructing investment portfolios in regard to asset allocation and policy responses to financial crises. Originality/value The present paper uses a unique sample and timeframe to show that the characteristics that makes a firm Shariah-compliant also leads to much higher operating profitability and reduces the impact of the financial crisis on firm profitability.

Islamic hedging for pilgrimage funds: case of Indonesia

2019 ◽  
Vol 11 (3) ◽  
pp. 328-341
Author(s):  
Rifki Ismal ◽  
Nurul Izzati Septiana
Keyword(s):  
Exchange Rate ◽  
The Other ◽  
Exchange Rate Risk ◽  
Content Type ◽  
Other Hand ◽  
Rate Risk ◽  
Risk Identify ◽  
Hajj Season ◽  
The Right ◽  
Very High

Purpose The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj funds are potentially exposed to exchange rate risk, which can impact the value of hajj funds and generate extra cost to the pilgrims. The purpose of this paper is to conduct simulations of Islamic hedging for pilgrimage funds to: mitigate and minimize exchange rate risk, identify and recommend the ideal time, amount and tenors of Islamic hedging for hajj funds, estimate cost saving by pursuing Islamic hedging and propose technical and general recommendations for the authority. Design/methodology/approach Forward transaction mechanism is adopted to compute Islamic forward between SAR and Rupiah (Indonesian currency) or IDR. Findings – based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds. Findings Based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds. Research limitations/implications The research suggests the authority to (and not to) hedge the hajj fund, depending on economic conditions and market indicators. Even though the assessment is for the Indonesian case, other countries maintaining hajj funds might also learn from this paper. Originality/value To the best of author’s knowledge, this is the first paper in Indonesia that attempts to simulate the optimal hedging of hajj funds.

scholarly journals Implicit incentives for fund managers with partial information

2021 ◽  
Author(s):  
Flavio Angelini ◽  
Katia Colaneri ◽  
Stefano Herzel ◽  
Marco Nicolosi
Keyword(s):  
Asset Allocation ◽  
Partial Information ◽  
Market Price ◽  
Investment Strategy ◽  
Expected Returns ◽  
Martingale Method ◽  
Fund Manager ◽  
Market Price Of Risk ◽  
Fund Managers ◽  
Price Of Risk

AbstractWe study the optimal asset allocation problem for a fund manager whose compensation depends on the performance of her portfolio with respect to a benchmark. The objective of the manager is to maximise the expected utility of her final wealth. The manager observes the prices but not the values of the market price of risk that drives the expected returns. Estimates of the market price of risk get more precise as more observations are available. We formulate the problem as an optimization under partial information. The particular structure of the incentives makes the objective function not concave. Therefore, we solve the problem by combining the martingale method and a concavification procedure and we obtain the optimal wealth and the investment strategy. A numerical example shows the effect of learning on the optimal strategy.

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