Socio–demographic Impacts on the Personal Savings Portfolio Choice - a Decision Tree Approach

Insufficiently developed financial system, poor standard of living and inappropriate education of citizens on the saving products, lead to low level of investment in the financial market of developing countries. In this paper special attention is paid to examining the socio-demographic profile of Montenegrin citizens that invest their funds in some of the offered form of savings, as well as examining main factors that restrict their investment. For this purpose, data collected through the survey of Montenegrin citizens were processed using Decision Tree method. Survey results have shown that there is a low level of savings, as well as that citizens prefer deposits and life insurance products rather than pension plans and debt securities. Also, the results indicate that the main causes of the current state of savings in Montenegro are low standard of living, citizens´ poor awareness and the financial system which causes the insufficiently attractive supply of savings.

Subjective Return Expectations, Perceptions, and Portfolio Choice

Exploiting a representative sample of the French population by age, wealth, and asset classes, we document novel facts about their expectations and perceptions of stock market returns. Both expectations and perceptions of returns are very dispersed, significantly lower than their data counterparts, and a substantial portion of the variation in the former is explained by dispersion in the latter. Consistent with portfolio choice models under incomplete information, a conditional risk-return trade-off explains the intensive margin, while at the extensive margin, only expected returns matter. Despite accounting for survey measurement error in subjective return expectations, ’muted sensitivities’ at both portfolio choice margins obtain, getting consistently (i) bigger when excluding informed non-participants, and (ii) smaller, for inertial and professionally delegated portfolios.

Are ESG stocks safe-haven during COVID-19?

Purpose The purpose of this study is to investigate safe-haven properties of environmental, social and governance (ESG) stocks in global and emerging ESG stock markets during the times of COVID-19 so that portfolio managers and equity market investors could decide to use ESG stocks in their portfolio hedging strategies during times of health and market crisis similar to COVID-19 pandemic. Design/methodology/approach The study uses a wavelet coherence framework on four major ESG stock indices from global and emerging stock markets, and two proxies of COVID-19 fear over the period from 5 February 2020 to 18 March 2021. Findings The results of the study show a positive co-movement of the global COVID-19 fear index (GFI) with ESG stock indices on the frequency band of 32 to 64 days, which confirms hedging and safe-haven properties of ESG stocks using the health fear proxy of COVID-19. However, the relationship between all indices and GFI is mixed and inconclusive on a frequency of 0–8 days. Further, the findings do not support the safe-haven characteristics of ESG indices using the market fear proxy (IDEMV index) of COVID-19. The robustness analysis using the CBOE VIX as a proxy of market fear supports that ESG indices do not possess safe-haven properties. The results of the study conclude that the safe-haven properties of ESG indices during the ongoing COVID-19 pandemic is contingent upon the proxy of COVID-19 fear. Practical implications The findings have important implications for the equity investors and assetty managers to improve their portfolio performance by including ESG stocks in their portfolio choice during the COVID-19 pandemic and similar health crisis. However, their investment decisions could be affected by the choice of COVID-19 proxy. Originality/value The authors believe in the originality of the paper due to following reasons. First, to the best of the knowledge, this is the first study investigating the safe-haven properties of ESG stocks. Second, the authors use both health fear (GFI) and market fear (IDEMV index) proxies of COVID-19 to compare whether safe-haven properties are characterized by health fear or market fear due to COVID-19. Finally, the authors use the wavelet coherency framework, which not only takes both time and frequency dimensions of the data into account but also remains unaffected by data stationarity and size issues.

Optimal Consumption and Portfolio Choice: The Impact of Health and Health Risk

This paper investigates the effect of health and health risk on households’ optimal consumption and portfolio allocations over the life cycle. The simulation results show that consumption, savings in bonds, and savings in stocks all increase in health. Compared with poor health households, the healthy households consume 49% higher, invest 27% and 39% more in bonds and in stocks, respectively. The risky portfolio share, which is the ratio of stocks to the total financial assets is positively related with health for most of the lifetime. Regarding the age profile, it demonstrates the same tendency for both health levels: at the very young age, the risky portfolio share is relatively high. Starting from the middle age, this share falls significantly and keeps steady until the end of life. These results emphasize the importance of health and its associated risk in consumption and portfolio decisions. With all other things equal, households’ consumption and investment behaviors are heterogenous across health. It also provides significant policy applications: by promoting health and reducing health risk, it would largely improve households’ well-being: higher consumption, and more savings in financial assets.

Understanding heuristics-based financial decision-making using behavioral portfolio strategies

PurposeThrough a portfolio choice model, the study empirically examines the influence of the heuristic simplification through peak-end rule (PER) and the associated neglect of the duration of the experience. The portfolio strategy adopted involves optimizing portfolios to capture the impact of heuristic-driven investors' experience of good and bad states. The study attempts to validate PER in an empirical context and is expected to generate trading rules, which would exploit pricing errors emerging out of the use of heuristics by investors.Design/methodology/approachThe empirical approach adopted in the study primarily examines returns to portfolios sorted according to various hedonic evaluation rules. Behavioral portfolios are constructed using hedonic experiences as conditioning variables.FindingsThe results imply that there is continued investor demand for such assets in the short run. An equal weight portfolio based on a three-month hedonic evaluation earns an average monthly return of 2.77% over the next 12 months.Originality/valueThe authors’ study may perhaps be the first attempt to use the peak-end heuristic in portfolio construction.