Optimal investment risks management strategies of an economy in a financial crisis

2018 ◽  
Vol 05 (01) ◽  
pp. 1850003 ◽  
Author(s):  
Charles I. Nkeki
Keyword(s):  
Financial Crisis ◽  
Stock Returns ◽  
Linear Combination ◽  
Stock Exchange ◽  
Management Strategies ◽  
Efficient Frontier ◽  
Real Data ◽  
Optimal Investment ◽  
Lagrangian Multiplier ◽  
Investment Portfolio

In this paper, we consider a strategic management of investment risks of an economy that faces financial crisis. The assets consider are multiple stocks and multiple fixed assets. Asset of the economy is a linear combination of portfolio weights and the expected stock returns plus a linear combination of the price of fixed and quantities of assets. Also, the debt profile, consumption and income growth of the economy are studied. The resulting optimization problem was solved by the method of Lagrangian multiplier. The aims of this paper are to determine the (i) mean–variance investment portfolio of the economy, (ii) optimal investment of the economy, (ii) optimal debt ratio of the economy, (iii) efficient frontier for the economy (iv) global minimum risks in the investment portfolio. Empirical results using real data collected from Nigerian Stock Exchange are considered.

scholarly journals What Factors Affect Stocks’ Abnormal Return during the COVID-19 Pandemic: Data from the Indonesia Stock Exchange

2021 ◽  
Vol 6 (6) ◽  
pp. 1-11
Author(s):  
Yohanes Indrayono
Keyword(s):  
Financial Crisis ◽  
Stock Returns ◽  
Stock Prices ◽  
Trading Volume ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Early Period ◽  
World Health ◽  
Book Value ◽  
Market Capitalization

This study identifies Indonesian investors’ reactions to the drop in stock prices on the Indonesia Stock Exchange market, during the early months of the COVID-19 crisis, before and after the World Health Organization (WHO) announced that its global spread constitutes a pandemic. It also explores variables that influence stock returns on this market during the financial crisis caused by the COVID-19 pandemic. This study uses a regression analysis of 70 firms, listed on the Indonesia Stock Exchange to examine the pandemic’s influence on trading volume, market capitalization, profitability, and book value for the period December 31, 2019, to April 30, 2020. The results show that stock returns were lower in the early period of the financial crisis caused by the pandemic. Firms’ trading volumes, profitability and book values positively affected stock returns and their market capitalization negatively affected stock returns during the study period. This study contributes useful insights to the finance literature and stock-market participants in terms of dealing with stock markets during financial crises. This study recommends that in any crisis investors should begin buying stocks or increasing their stock purchases to achieve abnormal returns by choosing stocks that perform well in terms of firm profitability and book value by looking a number of financial factors.

scholarly journals Form the Optimal Investment Portfolio Applied Study in the Jordanian Banking Sector (2013-2017)

2020 ◽  
Vol 13 (3) ◽  
pp. 79
Author(s):  
Suleiman Daood Al-Oshaibat ◽  
Daood Al-Oshaibat
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Stock Exchange ◽  
Optimal Investment ◽  
Effective Rate ◽  
Rate Of Return ◽  
Investment Portfolio ◽  
Applied Study ◽  
Securities Analysts ◽  
Amman Stock Exchange

The study aimed to form the optimal investment portfolio in the Jordanian banking sector. The research covered a period (2013-2017) and the sample of the study was selected from its community of Jordanian banks listed on the Amman Stock Exchange, consisting of (15) working banks for which the necessary data are available to study. The importance of the research lies in the formation of a thought and methodology that can be applied and utilized by investors and securities analysts in the management of their investment portfolio. The study shows that the effective rate of return is higher than the required rate of return in the Jordanian commercial banks. This indicates that the commercial banks have succeeded in their estimates of the required or actual rate of return for the optimal investment portfolio banks. the correlation matrix between returns on each bank in the investment portfolio is mostly low, which confirms that the investment portfolio of Jordanian banks is efficient, as Markowitz stressed on his focus on the correlation coefficient between returns and its impact on the return and risk of the optimal investment portfolio that achieve the highest return at a certain level of risk.

scholarly journals Constructing an optimal investment portfolio for the Bank of Lithuania

Ekonomika ◽  
2016 ◽  
Vol 95 (1) ◽  
pp. 112-133
Author(s):  
Birutė Galinienė ◽  
Justina Stravinskytė
Keyword(s):  
Management Strategies ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Financial Assets ◽  
Currency Risk ◽  
Investment Portfolio ◽  
Risky Assets ◽  
Course Of Action ◽  
Total State ◽  
Assets Management

The main goal of this article is to illustrate the strategy, devised to improve the effectiveness of utilizing the financial assets, or in this case, the official international reserves, belonging to the Bank of Lithuania. In Lithuania, the value of financial assets as a percentage of total state assets has doubled in the span of 10 years. Moreover, a strong correlation between the real GDP growth and the Bank of Lithuania’s financial assets/profitability implies that the effectiveness of financial assets management has a nationally wide impact. Unfortunately, the Bank’s profit/invested value indicator has reached a record low in 2012–2013, which resulted in the whole bank’s profit being absorbed into the state’s budget (as opposed to 70 % of it). Such signs meant that the previous investment strategy has become ineffective and needed changes.To highlight the necessary changes, the authors conduct a practical research and construct the optimal investment portfolio, according to the goals and variables given by the guidelines, proposed by Bank of Lithuania. The size of the portfolio is 4,14 bn euros, and the maximum loss per year (VaR) allowed is -100 M euro/year, as stated by the Bank of Lithuania’s risk budget limit. The authors also focus on the issue of increased currency risk after investing in volatile share indices and whether hedging against it with Forex spot transactions is beneficial.The result of the research is an optimal portfolio, consisting of 9,85 percent of risk-free assets and 90,15 percent of risky assets. Hedging against currency risk in this case is an ultimately beneficial course of action, yielding an increase of annual returns by 0,3 percent, which translates to +12,3 mln euros. Finally, the portfolio is flexible and simple to reshape into a less risky variant, if the institution predicts the dangers of possible future economic downfalls.This research was further used in a broader paper whose goal was to analyse and assess the effectiveness of currently employed assets’ management strategies in Lithuania.

scholarly journals Evaluating the Effectiveness of Asset Pricing Model before, during and after Financial Crisis 2008: Evidence from Karachi Stock Exchange

2017 ◽  
Vol 7 (1) ◽  
pp. 177
Author(s):  
Waqar Ul Hassan ◽  
Zeeshan Hasnain ◽  
Shahbaz Hussain
Keyword(s):  
Financial Crisis ◽  
Stock Returns ◽  
Stock Exchange ◽  
Pearson Correlation ◽  
Random Effect ◽  
Random Effect Model ◽  
Poor Performance ◽  
Pricing Model ◽  
Crisis Period ◽  
Effect Model

The Study aims to explore the strength of arbitrage pricing model (APT) for determining stock returns of Karachi stock exchange (KSE) across three distinct and structured periods; before financial crisis period (2006-07), during financial crisis period (2008) and after financial crisis period (2009-10). The Study adopted descriptive statistics, Pearson correlation, linear regression, Random effect model for interpretation and execution of data. 253 financial and non-financial listed companies on KSE for the period of (2006-10) are considered as sample firms. Results of regression analysis indicated that models selected for the present study showed poor performance for measuring KSE returns. Independent variables showed significant behavior for measuring KSE returns in pre-financial crisis period; no statistical relationship for measuring KSE returns in during financial crisis period; insignificant nature for measuring KSE returns the post-financial crisis period. The Study has provided understandings about arbitrage theory applicability and financial crisis - 2008 impacts on KSE. 

Provisions for bank deposit withdrawals and portfolio selection

2020 ◽  
Vol 07 (01) ◽  
pp. 1950037
Author(s):  
Ryle S. Perera
Keyword(s):  
Portfolio Selection ◽  
Closed Form Solution ◽  
Efficient Frontier ◽  
Optimal Investment ◽  
Form Solution ◽  
Investment Portfolio ◽  
Efficient Manner ◽  
Selection For ◽  
Mean Variance Portfolio ◽  
Mean Variance

The primary economic function of a bank is to redirect funds from savers to borrowers in an efficient manner, while increasing the value of the bank’s asset holdings in absolute terms. Within the regulatory framework of the Basel III accord, banks are required to maintain minimum liquidity to guard against withdrawals/liquidity risks. In this paper, we analyze a continuous-time mean-variance portfolio selection for a bank with stochastic withdrawal provisioning by relating the reserves as a proxy for the assets held by the bank. We then formulate an optimal investment portfolio selection for a banker by constructing a special Riccati equation as a continuous solution to the Hamilton–Jacobi–Bellman (HJB) equation under mean-variance paradigm. We obtain an explicit closed form solution for the optimal investment portfolio as well as the efficient frontier. The aforementioned modeling enables us to formulate a stochastic optimal control problem related to the minimization of the reserve, depository, and intrinsic risk that are associated with the reserve process.

scholarly journals ANALISIS EFISIENSI PENENTUAN PORTOFOLIO SAHAM PERUSAHAAN MANUFAKTUR DI PT. BURSA EFEK INDONESIA (BEI)

2017 ◽  
pp. 38-56
Author(s):  
Jonner Pangaribuan
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Stock Exchange ◽  
Efficient Frontier ◽  
Positive Influence ◽  
Optimal Portfolio ◽  
Manufacturing Companies ◽  
Technical Documentation ◽  
Expected Return ◽  
Portfolio Return

companies, as well as the influence of optimal portfolios and efficient manufacturing companies on stock returns in IDX. Benefits gained for investors itself is as an input to invest in stocks is optimal. The population in this study are all companies listed on the Stock Exchange, and the samples used are as many as 152 shares of manufacturing companies are divided into two portfolios based on market capitalization and value of corporate assets. Data collection techniques used by technical documentation, that the financial statements of companies that have previously run for two years ie from 2002 to 2003 observations. The data analysis technique used is multiple linear regression. Based on the results of the regression can be concluded that the higher the premium market significantly increases the risk of a stock portfolio of manufacturing companies. Regression coefficient for the independent variable on the dependent variable ERM portfolio return has a positive influence on the company. From the observations made, the optimal portfolio is the portfolio to be done based on the value of assets, particularly as it offers a great asset portfolio return of 55 percent with a 100 percent risk. Obviously the determination of the optimal portfolio for an investor to do and are applied in the efficient frontier curve is in accordance with the preferences of the investor returns and are willing to bear the risk. Therefore, investors should consider the investment shares of SBI level, analyzing the stock price and the expected return on a portfolio that is offered, as well as selecting a portfolio of shares in accordance with the preferences of the investor.

scholarly journals Estimating Stock Returns Volatility and the Risk-Return Nexus in the Nigerian Stock Market in the Presence of Shift Dummies

2019 ◽  
pp. 1-15
Author(s):  
David Adugh Kuhe ◽  
Moses Abanyam Chiawa ◽  
Sylvester Chigozie Nwaosu ◽  
Jonathan Atsua Ikughur
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Stock Returns ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Stock Market Volatility ◽  
Trade Off ◽  
Risk Return ◽  
Market Changes

Volatility and the trade-off between risk and return in stock markets is an important subject in financial theory which play significant role in investment decision making, portfolio selection, options pricing, financial stability, hedging and pair trading strategy among others. This study estimates stock return volatility and analyses the risk-return trade-off in the Nigerian stock market using symmetric GARCH (1,1)-in-mean, asymmetric CGARCH (1,1)-in-mean and EGARCH (1,1)-in-mean models with Generalized Error Distribution and Student-t innovation. Data on daily closing all share prices of the Nigerian stock exchange for the period 2nd January, 1998 to 9th January, 2018 are utilised. The data is further divided into three sub-periods of pre-crisis, global financial crisis and post crisis periods to allow volatility behaviour and the risk-return trade-off to be investigated across the sub-periods. Results showed evidence of volatility clustering, leptokurtosis, high persistence of shocks to volatility and asymmetry without leverage effects across the study periods. The persistence of shocks to volatility increased during the global financial crisis period with delayed reactions of volatility to market changes. However, by incorporating the exogenous breaks into the volatility models for the full study period, the shock persistence drastically reduced with faster reactions of volatility to market changes. The results of this study also found supportive evidence for a significant positive risk-return relationship in Nigerian stock market across various study sub-periods and model specifications meaning that investors in Nigerian stock market should be compensated for holding risky assets. The empirical findings of this study further suggest that the recent global financial crisis have not altered the market dynamics to distort the risk-return trade-off in Nigerian stock market indicating that expected returns are not driven by changes in the stock market volatility. The study provides some policy recommendations for investors and policy makers in the Nigerian stock market.

scholarly journals Optimized Portfolios: All Seasons Strategy

2020 ◽  
Author(s):  
Raúl D. Navas ◽  
Sónia R. Bentes ◽  
Helena V. G. Navas
Keyword(s):  
Financial Crisis ◽  
Efficient Frontier ◽  
Optimal Investment ◽  
Excess Returns ◽  
Linear Solver ◽  
Reduce Risk ◽  
Diversified Portfolio

Our study explores the efficient frontier of optimal investment, taking behind the Markowitz’s theory, while advocating a diversified portfolio to reduce risk. To perform it, six portfolio models are proposed, and its formation are made by a solver, where the selected solving method is the GRG Nonlinear engine for linear solver problems. Our main goal is to design portfolios that resists to financial crisis but at the same time persists in a wealthy period. We analyze the decade where we assisted to two crashes (2000–2010) and a semi-decade where we assist to a wealthy period (2011–2018). The assets used are varied, such as Equities indexes form various countries, sector equities, bonds, commodities, EURUSD exchange and VIX. Results show that the GRG Nonlinear engine is powerful, providing excess returns in all six models.

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