Explaining the Risk/Return Mismatch of the MSCI China Index: A Systematic Risk Analysis

2007 ◽  
Vol 10 (01) ◽  
pp. 63-80 ◽  
Author(s):  
Priscilla Liang
Keyword(s):  
Risk Analysis ◽  
Systematic Risk ◽  
Global Level ◽  
Total Risk ◽  
Risk Decomposition ◽  
Risk Return ◽  
Systematic Risks ◽  
High Volatility ◽  
Global Investors ◽  
Country Specific

This study examines a risk/return mismatch of the MSCI China Index, which has offered investors low returns and high volatility, yet remains a favorite within the global investors' portfolio. The paper suggests several insights, both from behavioral and traditional finance perspectives, to explain this mismatch. An international risk decomposition model is applied to separate the total risk of China's index return into global systematic risks, regional systematic risks and country specific risks. It suggests the index's lower than average systematic risk might be one of the explanations for its risk/return mismatch. The study also finds that the China Index's systematic risks, both global and regional, have been increasing, but more so at the global level.

scholarly journals Risk-Adjusted Returns of American Depositary Receipts on Chinese and Indian Stocks

2009 ◽  
Author(s):  
Onur Arugaslan ◽  
Ajay Samant
Keyword(s):  
Stock Markets ◽  
Systematic Risk ◽  
Portfolio Theory ◽  
Evaluation Metrics ◽  
American Depositary Receipts ◽  
Total Risk ◽  
Modern Portfolio Theory ◽  
Statistical Measures ◽  
Global Investors ◽  
Depositary Receipts

This study evaluates the risk-adjusted performance of American Depositary Receipts (ADRs) on shares of stock of Chinese and Indian fi rms. The first part of the study examines the nature of Chinese and Indian ADRs (based on depositary bank, sponsorship status, industry classification and listing). The second part of the study evaluates the performance of these ADRs using statistical measures grounded in modern portfolio theory. Returns are adjusted for the degree of total risk and systematic risk inherent in each ADR, and the securities are then ranked on the basis of risk-adjusted performance. Two relatively new evaluation metrics, the Modigliani and Sortino measures, are used. The objective of the study is to provide documentation to global investors who are contemplating participation in Chinese and Indian stock markets via depositary receipts.  

ESTIMATING SECTORAL SYSTEMATIC RISK FOR CHINA, MALAYSIA, SINGAPORE, AND THAILAND

2019 ◽  
Vol 14 (03) ◽  
pp. 1950011
Author(s):  
THACH NGOC PHAM ◽  
DUC HONG VO
Keyword(s):  
Correlation Analysis ◽  
Least Squares ◽  
Systematic Risk ◽  
Ordinary Least Squares ◽  
Estimation Methods ◽  
Pairwise Correlation ◽  
Least Absolute Deviations ◽  
Risk Return ◽  
Systematic Risks

This study examines the relative systematic risks of 10 industries in China and ASEAN-3, including Malaysia, Singapore, and Thailand. We use four different approaches (ordinary least squares, least absolute deviations, MM-estimator and Theil–Sen estimator) and the weekly data from 2004 to 2016 to determine the sectoral systematic risk. The data are also divided into four sub-periods: the pre-crisis, crisis, post-crisis and normal periods. We find that the rankings of systematic risk, and the risk–return framework, for 10 industries vary from one country to another. The pairwise correlation analysis shows that significant correlation of sectoral ranks between estimation methods is found in China and Thailand, but not in Malaysia and Singapore. However, no correlations of industry rankings between China and ASEAN-3 countries for all the estimation methods for the full research periods and sub-periods are found. The sub-periods analysis also suggests that the rankings of systematic risk for industries in four countries across different economic periods are unstable.

Application of Analytical Hierarchy Process to Risk Analysis of Port Construction Project

2012 ◽  
Vol 170-173 ◽  
pp. 2292-2297
Author(s):  
Jiao Zhang
Keyword(s):  
Risk Factors ◽  
Risk Analysis ◽  
Analytical Hierarchy Process ◽  
Comprehensive Evaluation ◽  
Construction Project ◽  
Fuzzy Comprehensive Evaluation ◽  
Analysis Method ◽  
Total Risk ◽  
Hierarchy Process ◽  
Port Construction

The application of analytical hierarchy process (AHP) to the risk analysis of port construction project was investigated. Firstly, the happening probabilities of various risk factors during port construction were calculated. Secondly, the aftereffects of the risks were concluded by consulting the experts. Thirdly, the weight of each risk factor was obtained by AHP. Finally, the total risk of port construction project could be evaluated by fuzzy comprehensive evaluation. This risk analysis method was applied to evaluate the total risk of a real port construction project, and the exemplification verified its feasibility.

scholarly journals Contribution to the Valuation of BRVM’s Assets: A Conditional CAPM Approach

2019 ◽  
Vol 12 (1) ◽  
pp. 27 ◽  
Author(s):  
Mamadou Cisse ◽  
Mamadou Konte ◽  
Mohamed Toure ◽  
Smael Assani
Keyword(s):  
Kalman Filter ◽  
Stock Exchange ◽  
Systematic Risk ◽  
Capital Asset Pricing ◽  
Conditional Capm ◽  
Asset Pricing Model ◽  
Market Portfolio ◽  
High Volatility ◽  
Size Criterion ◽  
Better Than

The conditional capital asset pricing model (CAPM) theory postulates that the systematic risk ( β ) of an asset or portfolio varies over time. Several dynamics are thus given to systematic risk in the literature. This article looks for the dynamic that seems to best explain the returns of the assets of the Regional Stock Exchange of West Africa (BRVM) by comparing two dynamics: one by the Kalman filter (assuming that the β follow a random walk) and the other by the Markov switching (MS) model (assuming that β varies according to regimes) for four portfolios of the BRVM. Having found a link between the beta of the market portfolio and the size criterion (measured by capitalization), the two previous models were re-estimated with the addition of the SMB (Small Minus Big) variable. The results show according to the RMSE criterion that the estimation by the Kalman filter fits better than MS, which suggests that investors cannot anticipate systematic risk because of its high volatility.

scholarly journals A New Approach to Risk Attribution and Its Application in Credit Risk Analysis

Risks ◽  
2020 ◽  
Vol 8 (2) ◽  
pp. 65
Author(s):  
Christoph Frei
Keyword(s):  
Risk Factors ◽  
Risk Analysis ◽  
Credit Risk ◽  
Driving Factors ◽  
New Approach ◽  
Risk Decomposition ◽  
Risk Attribution ◽  
Credit Risk Analysis ◽  
A Company ◽  
Over Time

How can risk of a company be allocated to its divisions and attributed to risk factors? The Euler principle allows for an economically justified allocation of risk to different divisions. We introduce a method that generalizes the Euler principle to attribute risk to its driving factors when these factors affect losses in a nonlinear way. The method splits loss contributions over time and is straightforward to implement. We show in an example how this risk decomposition can be applied in the context of credit risk.

The diverging role of the systematic risk factors: evidence from real estate stock markets

2015 ◽  
Vol 33 (1) ◽  
pp. 81-106 ◽  
Author(s):  
Stephan Lang ◽  
Alexander Scholz
Keyword(s):  
Risk Factors ◽  
Time Series ◽  
Asset Pricing ◽  
Real Estate ◽  
Systematic Risk ◽  
Content Type ◽  
Risk Return ◽  
Systematic Risk Factors ◽  
Relationship Of

Purpose – The risk-return relationship of real estate equities is of particular interest for investors, practitioners and researchers. The purpose of this paper is to examine, in an asset pricing framework, whether the systematic risk factors play a significantly different role in explaining the returns of listed real estate companies, compared to general equities. Design/methodology/approach – Running the difference test of the Fama-French three-factor and the liquidity-augmented asset pricing model, the authors analyze the effect of the systematic risk factors related to market, size, BE/ME and liquidity in a time-series setting over the period July 1992 to June 2012. By applying the propensity score matching (PSM) algorithm, the authors bypass the “curse of dimensionality” of traditional matching techniques and identify a comparable control sample of general equities, in terms of the relevant firm characteristics of size, BE/ME and liquidity. Findings – The empirical results indicate that European real estate equity returns load significantly differently on the size, value and liquidity factor, while the influence of the market factor seems to be equivalent. In addition, the authors find an economically and statistically significant underperformance of European real estate equities, after accounting for the diverging role of systematic risk factors. Running the conditional time-series regression, the authors further reveal that these findings are predominately caused by the divergent risk-return behavior of real estate equities in economic downturns. Practical implications – Due to the diverging role of the systematic risk factors in pricing real estate equities, the authors provide evidence of potential diversification benefits for investors and portfolio managers. Originality/value – This is the first real estate asset pricing study to dissect the unique risk-return relationship of real estate equities by employing propensity score matching.

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