Multiscale Partial Correlation Clustering of Stock Market Returns

This study proposes a wavelet procedure for estimating partial correlation coefficients between stock market returns over different time scales. The estimated partial correlations are subsequently used in a cluster analysis to identify, for each time scale, groups of stocks that exhibit distinct market movement characteristics and are therefore useful for portfolio diversification. The proposed procedure is demonstrated using all the major S&P 500 sector indices as well as precious metals and energy sector futures returns during the last decade. The results suggest cluster formations that vary by time scale, which entails different stock selection strategies for investors differing in terms of their investment horizon orientation.

Short and/or long-term investment choice: Artificial intelligence analysis of the role of both or-ganizational and behavioral determinants

This paper shows empirically the impact of organizational and behavioral determinants on the CEO's investment horizon choice, using artificial intelligence explanatory methods. We apply our approach to 100 Saudi firms. We test the effect of three organizational determinants: ownership concentration, board independence, and CEO remuneration system; and three behavioral determinants: myopia, the locus of control and commitment, on the CEO's investment horizon choice. The study’s key finding is that executives' commitment bias is the most important variable in terms of modal value that affects firms' long-term investment choice. We also find a positive and significant relationship between myopia and long-term investment choice, whereas the lowliest determinant of the horizon choice is the locus of control. More generally, these results show that CEOs who are likely to be the most myopic may display long-term behavior with the existence of high cognitive involvement.

Short- and long-term effects of responsible investment growth on equity returns

PurposeThe growth of socially responsible assets has been exponential over the last decade, they now account for almost a third of professional investments. As the growth persists, faith and conviction investors reshape the equity markets. To fully comprehend the impact of socially conscious participants on security returns, this paper attempts to provide insights on how responsible investment growth has impacted the returns of sustainable stocks. The examination is split by investment horizon to account for short and long effects.Design/methodology/approachUsing an exclusive dataset of non-financial ratings, provided by MSCI ESG research, the authors examine the cross-sectional returns of US and European sustainability-leading and lagging corporations between 2007 and 2019. Panel models robust to country, firm-year and industry effects were then employed to examine the impact of responsible investment growth on future stock returns.FindingsThe authors find evidence that the impact of responsible investment growth is dual contingent upon the timeframe considered. In the short run, sustainability-leading and lagging firms display similar stock returns. However, the spread in returns is negative over long horizons and increasing over time.Originality/valueThe examination performed in this study highlights the significant effect of responsible investment growth on future stock returns. Overall, the authors’ findings are consistent with the price pressure hypothesis in the short run and the cost of capital alteration over longer horizons.

Private pension funds: pragmatics and problems of activity in Ukraine

Introduction. Nowadays, the pension system in Ukraine is being transformed, which necessitates analytical research on the activities of private pension funds, namely, open-ended, identifying problems of their activities and finding ways for further effective development.Methods. In the article author uses methods of analysis and synthesis, graphic research methods, economic and statistical methods for information collection and processing, in particular, sample surveys, groupings, statistical comparisons, trend analysis - in the process of evaluating the activities of private pension funds in Ukraine, and the method of logical generalization in formulating conclusions.Results. Author did an analytical assessment of indicators that characterize both the quantitative side of the activities of private pension funds in Ukraine and the qualitative side of their effectiveness in the domestic financial market. Attention is focused on the peculiarities of the structure of the portfolio of open non-state pension funds and it is concluded that the biggest quote (about 95%) in it belongs to cash on bank deposits and government securities. Author analyzed the indicators of profitability of the five most profitable open pension funds of Ukraine (according to the results of 2020) and their comparative characteristics, both in terms of the level of profitability and with the inflation rate. The tendency to decrease the profitability of investment portfolios during the analyzed period is noted. It was found that the structure of the portfolio of the most profitable open private pension funds is practically the same as the general structure of all pension funds of Ukraine. Discussion. Author proposed to form the portfolio structure of a private pension fund based on the characteristics of its depositors, and for the part of the portfolio with the largest investment horizon include risky instruments: direct investment funds, venture funds and real estate funds. This will allow using part of the pension savings as a long-term investment resource for the modernization of the domestic economy.Prospects for further research necessitate consideration of the main methods used in the process of selecting an asset management company, the administrator of a private pension fund, and assess the effectiveness of its asset management of private pension funds.

Legal Foundations of Funding Fundamental Science Projects within the Horizon Europe Programme

Since the end of the twentieth century, there has been a trend in Europe towards the accumulation of scientific knowledge, increasing the competitiveness of European research and the mobility of scientists themselves. The goals and objectives set by the European Union are being realised through the creation of a common European Research Area and the implementation of special framework programmes. The EU funding for basic research is now being pursued under a new framework programme known as Horizon Europe. Despite a number of changes caused by the increasing complexity of the structure of the bodies involved in funding research projects, grants to researchers, including through the activities of the European Research Council, remain the main sourсe of investment. Horizon Europe provides research and innovation funding for multinational cooperation projects as well as for individual researchers and supports SMEs with a special funding instrument. Attention should also be paid to such aspects of the programme implementation as European partnerships (in various forms) and research infrastructures. However, despite all the positive experiences of the previous framework programmes, the current legal regulations make it very difficult for researchers from third countries to participate in the call for proposals, usually the possible implementation of such projects is subject to the participation of European researchers or research organisations, thereby ensuring EU competitiveness in the international arena.

Volatility Decay and Diversification Role of Timberland as the Investment Horizon Lengthens

Under the mean-variance efficiency framework, we investigate the role of timberland asset in a mixed-asset portfolio in the United States. Starting from a single period (quarterly) view, we first reveal the crucial role of serial correlation in defining an asset’s financial performance. Accordingly, we modify return, volatility, and correlation for multiyear horizons to account for the nature of long-term investments. Our results show that, although timberland is persistent in all portfolios, private-equity timberland can be substituted by other liquid assets, including public-equity timberland, as the lengthening holding period substantially reduces their volatilities. We conclude that private-equity timberland is a risk diversifier regardless of the length of the investment horizon, whereas public-equity timberland becomes a suitable diversifier only for long-term investors with high risk tolerance. Study Implications: Serial correlation influences an asset’s return, risk, and correlation with other assets as the investment horizon lengthens. Volatilities of large-cap stocks and public timber real estate investment trusts decay significantly when the holding period is longer than three years. Therefore, these liquid assets become more efficient in the long run. Regardless of the length of the investment horizon, private-equity timberland acts as a risk diversifier in a mixed-asset portfolio, whereas public-equity timberland is a suitable diversifier only for high risk, long-term investors.

What sustainability assurance services do institutional investors demand and what value do they give them?

Purpose The purpose of this study is to analyse the role played by institutional investors in a firm’s decision to hire sustainability assurance services and to determine the benefits of sustainability assurance for the functioning of the capital market. This analysis is complemented by examining the quality of the sustainability assurance service that institutional investors demand. Design/methodology/approach The authors selected a sample of 1,564 multinational firms from 2002 to 2017. Panel data logit and generalised method of moments (GMM) regressions were estimated to consider decisions about hiring sustainability assurance services or not, and the assurance quality indexes constructed by a checklist based on the academic literature, respectively. Findings Institutional pressures associated with the environmental and social impacts of a firm’s activities lead to the convergence of institutional investor attitudes towards corporate sustainability, so that, regardless of their investment horizon, they promote the hiring of sustainability assurance services by corporate boards, which favours analyst precision and a reduction in the cost of capital. Long-term (LT) institutional investors exert influence through a selection mechanism, whereas short-term (ST) institutional investors exert influence through their presence on the board. Once the company has decided to provide assurance about its sustainability report, both types of institutional investors promote a higher quality of such service, although this is not well valued by the stock market. Research limitations/implications This paper extends research on the monitoring role of institutional investors into the sustainability assurance context. Researchers may benefit from this paper’s findings when they examine the factors that drive the hiring of sustainability assurance services and their characteristics. This paper also shows that sustainability assurance services are a significant weakness due to the lack of standardisation in comparison with financial auditing, which complicates the assessment of their quality by stock market participants, thereby penalising those companies that provide more complete sustainability assurance reports. Practical implications Considering this paper’s findings, it seems advisable that regulators establish a normative framework to standardise sustainability assurance processes. The results can also be used as an orientation for both companies, to design their sustainability disclosure policies and regulators, to improve the running of the capital market. Social implications Sustainability assurance services have a positive effect on the running of the capital market and improve external stakeholder decision-making by providing more reliable information, which, in turn, will favour the implementation of more sustainable actions that contribute to the attainment of sustainable development goals. Originality/value This is one of the first papers to analyse the effect of institutional ownership on a firm’s decision to hire sustainability assurance services and consider the effect of the institutional investors’ investment horizon – LT versus ST – and the channel – selection methods and/or active engagement – used by them to exert their influence. The authors also propose several measures of sustainability assurance quality to demonstrate the relevance of the contents of the assurance statement for the capital market in general and the institutional investors in particular.

On being Sharīʿah compliant in equity investments: impact of investment horizon andmarket volatility

Purpose This paper aims to undertake a comprehensive comparative analysis of Sharīʿah-compliant equity investments (SCEIs) and their non-Sharīʿah counterparts, in India, conditioning for investment horizon and market volatility. Indirectly, it also investigates for time varying performance of SCEIs, and explicitly analyses the unsystematic risk and related adequacy of returns. Design/methodology/approach Testing for statistical significance of differences in risks and returns; analysing portfolio performance using conventional metrics, information ratio, and Jensen's Alpha; Estimating returns due to stock selection and market timing using Fama’s Net Selectivity and Treynor and Mazuy’s Models. Findings SCEIs in India do not significantly differ in their total risks and returns compared to their conventional counterparts. While their risk is lower in the monthly and quarterly investment horizons, their Jensen’s Alphas are positive only in the annual investment horizons. These findings hold, when market volatility is low. Market timing wipes out the superior returns that exist due to stock selection in SCEIs. Research limitations/implications Being Sharīʿah-compliant is beneficial only in longer investment horizons. Asset selection, not co-movement with the market, is key to excess returns to compensate for risks due to inadequate diversification. However, only cautious market timing can conserve them. Practical implications Though investors are not better-off in choosing ethical investments, they are not worse-off either. Being Sharīʿah-compliant is rewarding during less volatile markets. Originality/value This paper extends international literature on SCEIs, with evidence on the impact of investment horizon and market volatility on their returns and risks. Further, this paper is also a comprehensive analysis of Indian SCEIs, broadening the empirical evidence on a significant, non-Islamic and emerging market.