scholarly journals Do Cryptocurrencies Offer Diversification Benefits for Equity Portfolios?

2021 ◽  
Vol 16 (2) ◽  
pp. 5-18
Author(s):  
Florin Aliu ◽  
Artor Nuhiu ◽  
Adriana Knapkova ◽  
Ermal Lubishtani ◽  
Khang Tran
Keyword(s):  
Economic Benefits ◽  
Portfolio Diversification ◽  
Risk Level ◽  
Stock Exchanges ◽  
Portfolio Risk ◽  
Future Studies ◽  
Portfolio Managers ◽  
Equity Portfolios ◽  
Stock Indexes ◽  
Theoretical Paradigms

Abstract Cryptocurrencies are becoming an exciting topic for legislative bodies, practitioners, media, and scholars with diverse academic backgrounds. The work identifies diversification benefits when cryptocurrencies are combined with the equity instruments from Visegrad Stock Exchanges. Furthermore, the results of the study explore financial and economic benefits for the investors of combining cryptocurrencies with equity stocks on the mixed portfolio. Three different independent experiments were conducted to observe diversification benefits generated from cryptocurrencies. Results from the two experiments show that cryptocurrencies employ higher portfolio risk and generate higher returns when they are involved with equity stocks portfolios. The first experiment indicates that cryptocurrencies reduce the risk level of the equity portfolios while increase average returns. Providing the equity portfolios with additional equity stocks lower the portfolio risk which is in line with the theoretical paradigms. Results indicate that cryptocurrencies must be seriously considered by the portfolio managers as an essential aspect of the portfolio diversification benefits. Future studies might raise the samples of selected portfolios with stocks from different stock indexes, to identify the problem from a broader perspective.

Modeling the optimal diversification opportunities: the case of crypto portfolios and equity portfolios

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Florin Aliu ◽  
Artor Nuhiu ◽  
Besnik A. Krasniqi ◽  
Gent Jusufi
Keyword(s):  
Stock Prices ◽  
Portfolio Diversification ◽  
Trade Volume ◽  
Content Type ◽  
Thomson Reuters ◽  
Equity Portfolios ◽  
Diversification Techniques ◽  
Stock Indexes ◽  
European Equity ◽  
Practical Implications

Purpose This study aims to compare the diversification risk of the crypto portfolio with those of equity portfolios. For this purpose, the hypothetical index was constructed with 20 cryptocurrencies that hold the highest market capitalization in the Coin Market Cap database, named as the Crypto-Index 20. Design/methodology/approach The portfolio diversification techniques were used to identify risk linked with the six largest European equity indexes and compared with the Crypto-Index 20. Indexes were considered as an independent portfolio while analysis was completed separately for each of them. Data concerning stock prices and their trade volume were collected from the Thomson Reuters Eikon database while crypto prices and their trade volume from the Coin Market Cap database. The diversification risk of the stock indexes was measured separately for each portfolio with the same risk techniques and the same methodological process. Findings Research results indicate that Crypto-Index 20 on average was 76 times riskier than FTSE 100, 55 times riskier than FTSE MIB, 44 times riskier than IBEX 35, 10 times riskier than CAC 40 and 9 times riskier than DAX and MDAX. Crypto-Index 20 comprises a stronger positive correlation and is exposed to higher volatility than six selected European equity indexes. Originality/value This research provides practical implications for the investors on the diversification benefits and risks attached to the cryptocurrencies portfolio by comparing it with the traditional equity portfolios. From a policy perspective, regulators might obtain information on the risk properties involved into cryptocurrencies and the possibility of creating an optimal portfolio.

scholarly journals Modeling the Optimal Portfolio: the Case of the Largest European Stock Exchanges

2020 ◽  
Vol 23 (2) ◽  
pp. 41-51
Author(s):  
Florin Aliu ◽  
Artor Nuhiu ◽  
Besnik Krasniqi ◽  
Fisnik Aliu
Keyword(s):  
Stock Prices ◽  
Trading Volume ◽  
Weighted Average ◽  
Risk Tolerance ◽  
Risk Level ◽  
Stock Exchanges ◽  
Main Concern ◽  
Managerial Implications ◽  
Portfolio Managers ◽  
The Individual

Portfolio optimization is the main concern for portfolio managers. Financial securities are placed within the portfolio based on the investor’s risk tolerance. The study measures the risk-reward relationship when the number of stocks in the portfolio increases. Six diverse portfolios have been created with a different number of stocks, such as portfolios with 47 stocks, 95 stocks, 142 stocks, 190 stocks, 239 stocks, and 287 stocks. Stock prices and trading volume were collected on a weekly basis from the six largest European stock exchanges (FTSE100, CAC40, FTSE MIB, IBEX35, DAX, and MDAX). Markowitz’s (1952) diversification formula has been used to measure the risk level of the individual portfolios. The results of the study show that the diversification risk constantly decreases when we move from the portfolios with 47 stocks to the portfolios with 287 stocks. The weighted average returns increase on the portfolios with a higher number of stocks, which is contrary to the standard portfolio theories. The results of the study indicate managerial implications for financial investors that are focused exclusively on the largest European stock exchanges.

ANALISIS PORTOFOLIO INVESTASI PADA SAHAM LQ45 DENGAN METODE MEAN VARIAN SATU KONSTRAIN

Jurnal Varian ◽  
2018 ◽  
Vol 1 (2) ◽  
pp. 22-29
Author(s):  
Gilang Primajati
Keyword(s):  
Capital Markets ◽  
Minimum Variance ◽  
Return Rate ◽  
Optimal Portfolio ◽  
Portfolio Diversification ◽  
Portfolio Risk ◽  
Expected Return ◽  
Positive Weight ◽  
The Mean

In the capital markets, especially the investment market, the establishment of a portfolio is something that must be understood by investors. Portfolio formation by investors to maximize profits as much as possible by minimizing the risk of losses that may occur. Portfolio diversification is defined as portfolio formation in such a way that it can reduce portfolio risk without sacrificing returns. Optimal portfolio with efficient-portfolio mean criteria, investors only invest in risk assets only. Investors do not include risk free assets in their portfolios. The efficient variance portfolio is defined as a portfolio that has minimum variance among the overall possible portfolio that can be formed, at the same expected return rate. The mean method of one constraint variant can be used as the basis for optimal portfolio determination. The shares of LQ-45 used are shares of AALI, BBCA, UNVR, TLKM and ADHI. AALI shares received a positive weight of 7%, BBCA 48%, UNVR 16%, TLKM 26% and ADHI 3%

scholarly journals Diversification opportunities in European stock markets and their impact on textile industry development based on a financial education approach

2021 ◽  
Vol 72 (05) ◽  
pp. 528-537
Author(s):  
CRISTI SPULBĂR ◽  
RAMONA BIRĂU ◽  
VICTOR OLUWI ◽  
ABDULLAH EJAZ ◽  
TIBERIU HORAȚIU GORUN ◽  
...  
Keyword(s):  
Stock Market ◽  
Textile Industry ◽  
Stock Exchange ◽  
Financial Education ◽  
Sustainable Growth ◽  
Stock Exchanges ◽  
Portfolio Risk ◽  
Stock Indices ◽  
High Investment ◽  
European Stock Markets

This research study explores the diversification opportunity among 18 European stock market indices for the sample period from January 2001 to December 2019. However, financial education plays an important role in the development of the textile industry, considering the dynamics of the companies listed on the European stock exchanges. The correlation matrix, pairwise cointegration and Johansen cointegration reveal that selected 18 European stock market indices do not reduces the portfolio risk because exhibit higher positive correlation among them, and their movement pulsed in tandem. Potential investors are attracted by high investment opportunities in order to maximize their return based on portfolio diversification. Financial education can effectively contribute to the sustainable growth of the textile industry in Europe. This empirical research provides an integrated perspective on the long-term evolution of certain major European stock exchange indices. The findings have significant implications for investors interested in selecting these European stock indices in order to diversify their portfolio risk. Our study also imply that selected stock indices have been strongly affected by similar political and financial belies across Europe thus, eliminating the possibility of portfolio risk diversification.

Evolution and Diversification of the Going Concern Uncertainties Disclosed in the Auditor’s Report

2021 ◽  
Vol 19 (163) ◽  
pp. 516-527
Author(s):  
Camelia-Daniela HATEGAN ◽  
◽  
Carmen-Mihaela IMBRESCU ◽  
Keyword(s):  
Financial Statements ◽  
Point Of View ◽  
Stock Exchanges ◽  
Going Concern ◽  
Reduced Frequency ◽  
Legal Perspective ◽  
Accounting Principle ◽  
Threat Reporting ◽  
Stock Indexes ◽  
The Impact

The going concern of an entity's activity is a fundamental accounting principle. The practical application of this principle has accounting, legal and financial implications. From an accounting point of view, the management of the entities shall be responsible for drawing up the financial statements in accordance with this principle. From a legal perspective, entities that go into liquidation are no longer obliged to respect the going concern principle. When auditing financial statements, auditors shall be responsible for assessing the adequacy of compliance with the principle of going concern and for including the appropriate references in their report. The objective of the paper is to analyse the reasons for including in the auditors' report the paragraph on going concern uncertainties, in the light of their evolution over time, their frequency and diversification. The sample included 120 companies listed on European stock exchanges, included in the main stock indexes for the period 2010-2020. The data was gathered from reports published by auditors that were included in the Audit Analytics database. The results showed that there was an average trend of 20 reported situations per year, but with a significant increase over the last two years analysed mainly due to the situations arising from the impact of the Covid-19 pandemic. The most common reasons were liquidity risk, substantial liabilities and the refinancing of activities. In recent years there has been a diversification of reasons, but with a reduced frequency, such as the working capital, the decrease in stockholder equity and competitor threat. Reporting on going concern issues is of particular importance so that increasing transparency in the publication of this information can contribute to a higher degree of investor confidence in the entities' financial statements.

Long-term dependency between sovereign bonds and sectoral indices of India: evidence using Hurst exponent and wavelet analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Santanu Das ◽  
Ashish Kumar
Keyword(s):  
Wavelet Analysis ◽  
Hurst Exponent ◽  
Minimum Variance ◽  
Portfolio Risk ◽  
Content Type ◽  
Sovereign Bonds ◽  
Portfolio Returns ◽  
Portfolio Managers ◽  
Practical Implications

PurposeThe purpose of this study is to provide a new way to optimize a portfolio and to show that combining the Hurst exponent and wavelet analysis may help to increase portfolio returns.Design/methodology/approachThe authors use the Hurst exponent and wavelet analysis to study the long-term dependencies between sovereign bonds and sectoral indices of India. The authors further construct and evaluate the performance of three portfolios constructed on the basis of Hurst standard deviation (SD) – global minimum variance (GMV), most diversified portfolio (MDP) and equal risk contribution (ERC).FindingsThe authors find that an ERC portfolio generates positive superior return as compared other two. Since our sample includes periods of two crisis – post-2007 financial crisis and the ongoing pandemic, this study reveals that combining government bond with equities and gold provides a higher returns when the portfolios are constructed using the risk exposures of each asset in the overall portfolio risk.Practical implicationsThe findings provide guidance to portfolio managers by helping them to select assets using the Hurst approach and wavelet analysis thereby increasing the portfolio returns.Originality/valueIn this study, the authors use a combination of Hurst exponent and wavelet analysis to understand the long-term dependencies among various assets and provide a new methodology to optimize a portfolio. As far as the authors’ knowledge, no study in the past has attempted to provide a joint framework for portfolio optimization and therefore this study is the first to apply this methodology.

Dynamic and frequency connectedness across Islamic stock indexes, bonds, crude oil and gold

2019 ◽  
Vol 12 (3) ◽  
pp. 306-321 ◽  
Author(s):  
Nader Trabelsi
Keyword(s):  
Crude Oil ◽  
The United States ◽  
Asia Pacific ◽  
Volatility Spillover ◽  
Content Type ◽  
Time Frequency ◽  
Volatility Spillovers ◽  
Long Run ◽  
Portfolio Managers ◽  
Stock Indexes

Purpose This paper aims to investigate the connectedness of Islamic Stock Markets in five regional financial systems, namely, the United States, the United Kingdom, Europe (EU), GCC (Gulf Cooperation Council) and APAC (Asia-Pacific Countries), and across different asset classes (i.e. bonds, gold and crude oil). Design/methodology/approach This methodology is inspired by Diebold and Yilmaz (2012) and Barunlik and Krehlik (2017) for performing dynamic variance decomposition network and for studying time–frequency dynamics of connectedness at different frequencies. Findings Results show that the nature of connectedness over the past decade is time–frequency dynamics. The decomposition of the total volatility spillovers is mostly dominated by the long-run component. Furthermore, dominant regions are the largest contributors of spillover index, with the lowest contribution in the system coming from the GCC market. Results also reveal a slightly higher volatility spillover index of Islamic than conventional equity indexes. Finally, the system that encompasses commodities and Islamic finance instruments, generates the much lower volatility spillover. Originality/value The findings have significant implications for portfolio managers who are interested in being able to predict asset returns, as well as for policymakers who are concerned with market stability.

Market states and mutual fund risk shifting

2017 ◽  
Vol 43 (7) ◽  
pp. 828-838 ◽  
Author(s):  
Marius Popescu ◽  
Zhaojin Xu
Keyword(s):  
Mutual Fund ◽  
The State ◽  
Risk Level ◽  
Risk Shifting ◽  
Portfolio Risk ◽  
Past Performance ◽  
Content Type ◽  
Fund Managers ◽  
Bear Markets ◽  
Bull Markets

Purpose The purpose of this paper is to explore the motivation behind mutual funds’ risk shifting behavior by examining its impact on fund performance, while jointly considering fund managers’ compensation incentives and career concerns. Design/methodology/approach The study uses a sample of US actively managed equity funds over the period 1980-2010. A fund’s risk shifting is estimated as the difference between the fund’s intended portfolio risk in the second half of the year and the realized portfolio risk in the first half of the year. Using the state of the market to identify the dominating type of incentive that fund managers face, we examine the relationship between performance and risk shifting in a cross-sectional regression setting, using the Fama and MacBeth (1973) methodology. Findings The authors find that poorly performing (well performing) funds are likely to increase (decrease) their risk level in bull markets, while reducing (increasing) it during bear markets. Furthermore, we find that funds that increase risk underperform, while those that decrease their portfolio risk do not. In addition, we find that poorly performing funds that increase (or decrease) their risk underperform across bull and bear markets, while well performing funds that reduce risk during bull markets subsequently outperform. Originality/value The paper contributes to the literature on mutual fund risk shifting by providing evidence that the performance consequence of such behavior is dependent on the state of the market and on the funds’ past performance. The results suggest that loser funds tend to be agency prone or be managed by managers with inferior investment skill, and that winner funds exhibit superior investment ability during bull markets. The authors argue that both the agency and investment ability hypotheses are driving fund managers’ risk shifting behavior.

Volatility Spillover Between Indian and MINT Stock Exchanges: Portfolio Diversification Implication

2019 ◽  
Vol 67 (3-4) ◽  
pp. 299-311
Author(s):  
Miklesh Prasad Yadav ◽  
Asheesh Pandey
Keyword(s):  
Stock Market ◽  
Spillover Effect ◽  
Stock Exchanges ◽  
Volatility Spillover ◽  
Conditional Correlation ◽  
Causality Test ◽  
Portfolio Managers ◽  
Vector Auto Regression ◽  
Indian Stock Market ◽  
Auto Regression

We examine the spillover effect from the Indian stock market to Mexico, Indonesia, Nigeria and Turkey (MINT) stock markets in order to check if suitable diversification opportunities are available to global portfolio managers investing in India. We apply Granger causality test, vector auto-regression (VAR) and dynamic conditional correlation (DCC)–MGARCH to investigate the level of integration between India and MINT economies. We observe bidirectional causality between India and Nigeria, unidirectional causality in Mexico and Indonesia, while no causality is found between India and Turkey. Our VAR results suggest that none of the MINT economies impact the return of the Indian stock market; rather returns of the Indian stock market are more affected by their own lagged values. Finally, by applying DCC–MGARCH, we observe that there is no volatility spillover from India to any of the MINT economies. We recommend that portfolio managers investing in the Indian economy may explore MINT economies as possible destinations to diversify their risk. Our study has implications for both academia and portfolio managers.

ENDOGENOUS CROSS CORRELATIONS

2007 ◽  
Vol 11 (S1) ◽  
pp. 124-153 ◽  
Author(s):  
STEPHEN E. SATCHELL ◽  
STEFFI J.-H. YANG
Keyword(s):  
Financial Regulation ◽  
Equity Markets ◽  
Portfolio Diversification ◽  
Current View ◽  
Investment Behavior ◽  
Portfolio Risk ◽  
Herd Effect ◽  
Cross Correlations ◽  
Asymmetric Correlation ◽  
The Relationship

This paper studies the relationship between rational herding and cross correlations in security returns. It demonstrates analytically and numerically that herding, as a temporary, fragile convergence of investment behavior, can endogenously induce asset dependency. Furthermore, there exists a self-reinforcing process, in which market extreme events amplify the herd effect, which further exacerbates asset dependency. Considering the Taiwan and U.K. equity markets, we find that the simulated markets in the presence of herding have results closer to the real patterns of asset dependency than a static model with isolated, noninteracting individuals. Our findings cast doubts on the current view that transparent financial regulation is always desirable. Moreover, this paper finds statistical evidence of asymmetric correlation patterns in both the top 50 stocks in the U.K. and Taiwan equity markets. This suggests that portfolio diversification as a means of managing portfolio risk is unlikely to be effective in periods of extreme losses in these markets.

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