Linkages between gold and Latin American equity markets: portfolio implications

PurposeThe authors aim to examine the mean and volatility linkages between the gold market and the Latin American equity markets in the entire sample period and two crises periods, namely the US financial crisis and the Chinese crash.Design/methodology/approachTo examine the return and volatility spillovers, the authors employ VAR-BEKK-GARCH model on the daily data of four emerging Latin American equity markets which include Peru, Chile, Brazil and Mexico, which ranges from January 2000 to June 2018.FindingsThe results show that the return transmissions vary across the stock markets and the crises periods. The volatility transmission is found to be bidirectional between the gold and stock markets of Brazil and Chile during the US financial crisis. Furthermore, the volatility spillover is unidirectional from Brazil to gold and from gold to Peru stock market during the Chinese crash. We also calculate the optimal weights hedge ratios for gold and stock portfolio. The result suggests that portfolio managers need to increase the weight of gold for the equity portfolios of Peru and Mexico during the US financial crisis. Furthermore, during the Chinese crisis, investors may raise the investment in gold for the equity portfolios of Brazil and Chile. Finally, the cheapest hedging strategy is CHIL/GOLD during the US financial crisis, whereas MEXI/GOLD during the Chinese crash.Practical implicationsThese findings have useful insights for portfolio diversification, asset pricing and risk management.Originality/valueThe study's outcome provides policymakers and investors with in-depth insights regarding hedging, risk management and portfolio management.

Do Cryptocurrencies Offer Diversification Benefits for Equity Portfolios?

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.

Does the choice of stock selection criteria affect the performance of Sharīʿah-compliant equity portfolios?

Purpose There are a number of differences in the current Sharīʿah screening guidelines formulated by Sharīʿah scholars associated with world-renowned index providers and financial institutions. The purpose of this study is to highlight the consequences of such differences on the portfolio level outcomes for Sharīʿah-compliant investors. This study also investigates the cost of adopting an alternative stock selection methodology. Design/methodology/approach Seven Sharīʿah-compliant equity portfolios (SCEPs) are created from the active constituents of the S&P 500. Size, sector allocation and financial performance of the resulting seven portfolios are evaluated for the period 1984–2019. Style analysis is performed to attribute the difference in financial performance caused by the choice of selection criteria to different risk factors. The cost of switching the selection criteria is evaluated with turnover analysis and break-even transaction cost. Findings The choice of stock selection criteria has a significant effect on the size, sector bets and financial performance of the portfolios. Those portfolios which are constructed with market capitalization-based screens outperform portfolios constructed with total assets-based screens. The turnover analysis revealed that SCEPs are relatively costly in practice. Originality/value This study investigates the performance of Sharīʿah-compliant portfolios in the context of seven different screening guidelines. The effects of transaction cost and performance attribution to different risk factors represent the key contributions of this study.

Size and Operating Profitability Portfolio Returns and Return Premia in Japan—A Tour d’horizon

This study examines the Japanese equity returns and return premia by focusing on firm size- and corporate operating profitability-sorted portfolios over the period from 1990 to 2020. As a result of our explorations, this study derives the following much beneficial findings. (1) The effects of corporate operating profitability and firm size are generally continuously seen in the Japanese equity market. More specifically, (2) the size effect is much stronger in our latter half sub-period; while the operating profitability effect is similarly seen in both our former half and latter half sub-periods. Furthermore, (3) we stress that this study employs the data in US dollars, and calculates several key statistics and measures for not only our full sample period but also many different sub-periods, in which economic and business circumstances are much different. Therefore, for both Japanese and international equity investors, our findings shall be highly useful for enriching and furthering the understanding of returns and return premia of Japanese equity portfolios.