Real Misconceptions about Optimal Equity Allocation and Investment Horizon

Purpose This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

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A Downside Risk Analysis of Inflation Hedging Capabilities of Individual Assets and Optimal Asset Allocation

Sukkur IBA Journal of Management and Business ◽

10.30537/sijmb.v8i1.454 ◽

2021 ◽

Vol 8 (1) ◽

pp. 80

Author(s):

Aftab Hussain Tabassam ◽

Zafar Iqbal ◽

Arshad Ali Bhatti ◽

Amna Mushtaq

Keyword(s):

World Bank ◽

Asset Allocation ◽

Foreign Currency ◽

Investment Horizon ◽

Medium Term ◽

Optimal Portfolios ◽

Monthly Data ◽

Short Run ◽

Asset Classes ◽

Inflation Hedging

The objective of this study is to examine the inflation hedging capabilities of most widely used asset classes in Pakistan. It also attempts to find out the possibility of creating an inflation protected optimal asset mix. The sample consists of monthly data of cash, gold, stocks, foreign currency, real estate and inflation from 2005 to 2015. The major sources of data are SBP, World Bank and Pakistan Statistics Bureau. The downside analysis of these assets concludes that cash act as an inflation hedge for all the investment horizons. The findings showed that the Gold and stocks also have inflation hedging abilities in short run which extend to medium term investment horizon for gold only, while stocks appear to be a good inflation hedge for longer investment horizons. This study also suggests that investors can strategically create optimal portfolios that are hedged against inflation.

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