Low-risk investment strategy: sector bets or stock bets?

PurposeThe portfolio of low-risk stocks outperforms the portfolio of high-risk stocks and market portfolios on a risk-adjusted basis. This phenomenon is called the low-risk effect. There are several economic and behavioral explanations for the existence and persistence of such an effect. However, it is still unclear whether specific sector orientation drives the low-risk effect. The study seeks to answer the following important questions in Indian equity markets: (a) Whether sector bets or stock bets mainly drive the low-risk effect? (b) Is it a mere proxy for the well-known value effect? (c) Does the low-risk effect prevail in long-only portfolios?Design/methodology/approachThe study is based on all the listed stocks on the National Stock Exchange (NSE) of India from December 1994 to September 2018. It classifies them into 11 Global Industry Classification Standard (GICS) sectors to construct stock-level and sector-level BAB (Betting Against Beta) and long-only low-risk portfolios. It follows the study of Asness et al. (2014) to construct various BAB portfolios. It applies Fama–French (FF) three-factor and Fama–French–Carhart (FFC) four-factor asset pricing models in addition to Capital Asset Pricing Model (CAPM) to examine the strength of BAB, sector-level BAB, stock-level BAB and long-only low-beta portfolios.FindingsBoth sector- and stock-level bets contribute to the return of the low-risk investing strategy, but the stock-level effect is dominant. Only betting on safe sectors or industries will not earn economically significant alpha. The low-risk effect is unique and not a value effect in disguise. Both long-short and long-only portfolios within sectors and industry groups deliver positive excess returns. Consumer staples, financial, materials and healthcare sectors mainly contribute to the returns of the low-risk effect in India. This study offers empirical evidence against the Samuelson (1998) micro-efficient market given the strong performance of the stock-level low-risk effect.Practical implicationsThe superior performance of the low-risk investment strategies at both stock and sector levels offers investors an opportunity to strategically invest in stocks from the right sectors and earn high risk-adjusted returns with lower drawdowns over an entire market cycle. Besides, it paves the way for stock exchanges and index manufacturers to launch sector-specific low-volatility indices for relevant sectors. Passive funds can launch index funds and exchange-traded funds by tracking these indices. Active fund managers can espouse sector-specific low-risk investment strategies based on the results of this and similar other studies.Originality/valueThe study is the first of its kind. It offers insights into the portfolio characteristics and performance of the long-short and the long-only variant of low-risk portfolios within sectors and industry groups. It decomposes the low-risk effect into sector-level and stock-level effects.

Does it pay to be a faithful investor? A risk-based approach performance analysis of Islamic funds vs UCITS schemes

PurposeThis paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European product designed to protect the most vulnerable of investors, UCITS funds.Design/methodology/approachThis paper builds on 128 time-series regressions using various factor models to analyse the risk-return relationship of 242 Islamic and UCITS funds relative to a market benchmark, over a 10-year period starting January 2006, to capture severe bear and bull market conditions.FindingsIslamic funds do not face a competitive disadvantage arising from their strict compliance with Shariah principles, and their performance and investment style is relatively similar to UCITS schemes.Practical implicationsIslamic funds represent a low risk investment due to their very mild betas. Therefore, when forming part of a diversified portfolio, they can act as a hedging tool against adverse market movements.Social implicationsMuslim investors are not punished relative to conventional retail investors when following their own beliefs. Other investors can consider Islamic funds in their portfolio allocation, especially those who seek socially and ethically responsible investments.Originality/valueThis paper fills a lacuna in the existing literature, because the sample is made up of Islamic funds established worldwide and includes not only equity, but also fixed income and mixed allocation funds.

Research on Optimal Investment Reinsurance of Insurance Companies under Delayed Risk Model

The reinsurance and investment portfolio of insurance companies has always been a hot issue in insurance business. In insurance practice, it is inevitable for insurance companies to invest their own funds in order to expand their capital scale and enhance market competitiveness so as to obtain greater returns. At the same time, in order for insurance companies to disperse insurance risks and to avoid too concentrated claims or catastrophes caused by failure to perform compensation responsibilities, the purchase of reinsurance business has also become an important way. Stochastic control theory is widely used in reinsurance and investment issues. Based on the reinsurance system architecture, this paper establishes a reinsurance delay risk investment model, which reduces the amount of claims to be borne by buying proportional reinsurance to avoid bankruptcy caused by the excessive amount of claims. By using the delayed venture capital model to describe the earnings of insurance companies, the optimal investment and reinsurance strategy are solved under the optimization criterion of minimizing the probability of bankruptcy. By analyzing the model parameter data, the influence of each parameter on optimal investment strategy and optimal reinsurance strategy is discussed.

Faktor-faktor yang Mempengaruhi Minat Berinvestasi Saham Syariah

The purpose of this research to analyze the effect of financial literacy, risk, investment psychology, and social media on the investment interest of the people of Jakarta in Islamic stocks. The sample used in this study uses one hundred people who will represent the entire population. Data collection in this study was carried out using a questionnaire distributed by the purposive sampling technique. The statistical methods used are descriptive statistical analysis, classical assumptions, multiple linear regression, validity and reliability, and hypotheses using SPSS Statistics 23 application as a data processor. The results of this study are the influence of the independent variables simultaneously on the interest in investing in Islamic stocks. However, in a partial test, only financial literacy, risk, and investment psychology factors have a significant influence on interest in investing in Islamic stocks, while social media factors do not have a significant influence on interest in investing in Islamic stocks.Tujuan penelitian ini untuk menganalisis pengaruh literasi keuangan, risiko, psikologi investasi, dan media sosial terhadap minat berinvestasi masyarakat Jakarta pada saham syariah. Sampel yang digunakan berjumlah seratus orang yang mewakili seluruh populasi. Pengumpulan data penelitian dilakukan dengan menggunakan kuesioner yang disebar dengan teknik purposive sampling. Metode statistik yang digunakan adalah analisis statistik deskriptif, asumsi klasik, regresi linier berganda, validitas dan reliabilitas, serta hipotesis dengan menggunakan alat bantu berupa aplikasi SPSS Statistics 23 sebagai pengolah data. Hasil penelitian menunjukkan adanya pengaruh variabel bebas secara bersamaan terhadap minat berinvestasi saham syariah. Akan tetapi pada pengujian secara parsial, hanya faktor literasi keuangan, risiko, dan psikologi investasi yang memiliki pengaruh signifikan terhadap minat berinvestasi saham syariah, sedangkan faktor media sosial tidak memiliki pengaruh yang signifikan terhadap minat berinvestasi saham syariah.

PENGARUH PENGETAHUAN PASAR MODAL, PERSEPSI RISIKO INVESTASI, PENGGUNAAN TEKNOLOGI TERHADAP PERILAKU MAHASISWA BERINVESTASI DI PASAR MODAL (Studi Empiris pada Galeri Investasi di Purwokerto)

This study aims to determine and analize effect of capital market knowledge, risk investment perception and use of technology towards the student’s investing behavior in the capital market. The population is the student’s who are members of the Investment Gallery Universitas Jenderal Soedirman and Islamic Investment Gallery Universitas Muhammadiyah Purwokerto. The sampling method used is purposive sampling. The data sample was obtained as many as 143 respondents. The result of this research indicates that capital market knowledge has a positive impact to the student’s investing behavior in the capital market, risk investment perception and use of technology have no impact to the student’s investing behavior in the capital market. Implication of the research is the most basic student’s must have as the investor. Investors need a basic understanding of the capital market, stocks as an investment in the capital market and rate of returns. Knowledge will support skills in analyzing, choosing and making a decision.

ANALYSIS ON THE RISKS OF CHINA'S DIRECT INVESTMENT IN AFRICA AND THE COUNTERMEASURES

Since the establishment of Forum on China-Africa Cooperation, China's Direct investment in Africa has the characteristics as follows: rapid development of investment scale, enriched investment fields and diversified investors. While the investment proportion in Africa of total China’s OFDI is still small and the investment mainly concentrates on certain Africa countries. Most importantly, in the process of China’s investment in Africa, investment risks are rising, many investment projects have suffered setbacks or failures. Chinese enterprises face with political risk, corruption risk, environmental risk and public opinion risk in process of direct investment in Africa. Therefore, enterprises should improve the ability to control and prevent the risk, investment strategy should be optimized according to local conditions, as well as fulfill the environmental responsibility and enhance the voice in Africa to improve the international image.

Kajian Investasi Pembangunan Jalan Tol Menggunakan Dana Haji (Studi Kasus: Jalan Tol Gempol - Pandaan)

Abstrak Pendanaan jalan tol di Indonesia dapat berasal dari dana pemerintah, swasta ataupun sumber lain. Salah satu alternatifnya adalah dengan sistem syariah yang didasarkan pada bagi hasil keuntungan dan resiko sesuai dengan presentase modal pinjaman yang diberikan. Pemerintah Indonesia telah berencana menggunakan dana haji sebagai modal investasi pembangunan infrastruktur, salah satunya pembangunan jalan tol. Namun hal ini menimbulkan protes dari masyarakat sebagai pemilik dana haji karena langkah tersebut dinilai berisiko tinggi. Sebagai hasil analisis kelayakan finansial diperoleh bahwa skema dana haji memiliki kelayakan investasi yang paling baik dibandingkan skema konvensional dan skema bank syariah berdasarkan parameter NPV, BCR, Payback Period, IRR, ROI, dan ROE dikarenakan tingkat suku bunga pada konvensional lebih tinggi dibandingkan skema syariah. Skema dana haji lebih baik dibandingkan skema bank syariah disebabkan cara menghitung bagi hasil skema dana haji menghasilkan nilai yang lebih kecil dibandingkan pinjaman bank syariah. Dana haji layak secara finansial dan dapat diterapkan pada pembiayaan jalan tol di Indonesia. Namun perlu adanya perundang- undangan yang jelas dan menjamin penggunaan dana haji aman dan bermanfaat bagi pemilik dana haji. Kata-kata Kunci: Jalan tol, dana haji, investasi, kelayakan finansial, tarif tol, optimasi. Abstract Toll road funding in Indonesia could come from the government, private sector or other sources. One of funding alternative is the sharia system, which based on profit and risk sharing according to the percentage of loan capital provided. The Indonesian government has planned to use Hajj fund as investment capital for construction of toll road. However, this plan caused protests from the society as an owner of the Hajj fund because it was considered as a high-risk investment. The result of this study, the Hajj fund scheme have the best investment feasibility more than conventional and sharia bank scheme based on NPV, BCR, Payback Period, IRR, ROI, and ROE due to higher conventional interest rate than the sharia scheme. The hajj fund scheme is better than the Islamic bank scheme because the method of calculating the profit share of the Hajj fund scheme produces smaller value than the Islamic bank scheme. Hajj fund scheme has lower investment risk than conventional and islamic bank loan. Hajj fund is financially feasible and thus is applicable to financing toll road in Indonesia.. However, it is imperative to establish a clear regulation that can guarantee for their owners that the Hajj fund is safe and beneficial. Keywords: Toll roads, hajj funds, investment, financial feasibility, toll rates, optimization.