Application of Markowitz Portfolio Theory by Building Optimal Portfolio on the US Stock Market

This chapter is focused on building investment portfolios by using the Markowitz Portfolio Theory (MPT). Derivation based on the Capital Asset Pricing Model (CAPM) is used to calculate the weights of individual securities in portfolios. The calculated portfolios include a portfolio copying the benchmark made using the CAPM model, portfolio with low and high beta coefficients, and a random portfolio. Only stocks were selected for the examined sample from all the asset classes. Stocks in each portfolio are put together according to predefined criteria. All stocks were selected from Dow Jones Industrial Average (DJIA) index which serves as a benchmark, too. Portfolios were compared based on their risk and return profiles. The results of this work will provide general recommendations on the optimal approach to choose securities for an investor's portfolio.

The Effects of Prudential Supervision on Bank Resiliency and Profits in a Multi-Agent Setting

This chapter utilizes multi-agent modeling to study the effects of prudential supervision on bank resiliency and profitability within a simulated environment of persistent crisis conditions. It focuses on the stabilizing effect of prudential supervision introduced alongside three “traditional” regulatory instruments: a norm, a market-based CDS insurance mechanism and a tax in the form of a bail-in instrument. The results show that: (1) supervision enhances the regulatory instruments' efficiency, (2) the regulatory norm can postpone the bank's default, but not avoid it, (3) the CDS mechanism only produces positive results on resiliency and profitability if the regulator supervises, and (4) the tax bail-in instrument is the most powerful tool in the regulator's arsenal as it potentiates profitable bank operation under long-lasting crisis conditions.

Modeling Labor Market Flows on the Basis of Sectoral Employment in Europe

By tracking the cross-sectoral distribution of employment growth, it is possible to significantly improve the ability to understand aggregate fluctuations of labor force. Adequate model can provide information which sectors have stronger impact on unemployment-to-employment transitional probability. The main goal of this research is modeling the influence of sectoral employment on outflow rate across Europe during economic crisis. Authors argue that shifts in sectoral demand have strong influence on cyclical variation in unemployment-to-employment transition. Study also uncovers highly linear relationships of outflow rate from unemployment to employment and job flows at sectoral level. Empirical data proved a strong positive correlation between dispersion of employment growth across sectors and outflow rate in Europe. Shifts in demand from some sectors to the others are responsible for significant fraction of unemployment-to-employment transition probability. Reallocation shocks accounted for about 70 to 80 percent variability of outflow rates across Europe, during the 2008-2012.

Decision Making under Risk and Uncertainty in the Oil and Gas Industry

The energy system studies include a wide range of issues from short term to long term horizons. The decision making chain is fed by input parameters which are usually subject to uncertainties. The art of dealing with uncertainties has been developed in various directions and has recently become a focal point of interest. Decision making is certainly the most important task of Oil and Gas managers and it is often a very difficult one. The purpose of this chapter is to review and investigate the decision making processes under risk and uncertainty of Oil and Gas companies. Questionnaires were distributed to eight Oil and Gas companies in Ghana to solicit their view on decision making under risk and uncertainty. Results indicate that most managers use Maximax, Minimax Regret and Expected Value when making decisions under risk and uncertainty.

Measuring Governance

The governance concept has become very popular in recent decades and in this regard has increased interest in measuring its quality. The most widely used measures of governance are World Governance Indicators, which represent composite perceptions-based indicators, published by World Bank Institute. There are six composite indicators and the data for constructing those indicators are obtained from 32 individual data sources. The objective of this chapter is to highlight the applicability of Grey Relational Analysis in the ranking of EU countries according to the governance quality. The Grey Relational Analysis entails calculation of Grey relational grade for governance quality. The final stage of the Grey Relational Analysis procedure involves ranking of EU countries according to Grey relational grade and their comparison with ranks obtained from World Bank Institute. The full contribution of Grey Relational Analysis arises on this stage, where ranks of countries have been changed.

Rethinking Social Capital Measurement

Social capital is decisive to many of strategic objectives of organizations. Although it has been extensively defined in the literature, social capital continues to be discussed in particular concerning its measurement. What is the usability of the existing indicators of social capital? How do managers decide which one they would prefer? An overview of the literature reveals that there are very few measurements of social capital and those which have already developed are very complex. Direct measurements appear to provide a better understanding of the complexity of relationships than aggregated measurements. Yet, we show that they are of unsatisfactory quality. Using simple counter-examples, we advance that they give rise to contradictions. From this discussion and using Graph Theory, we propose two complementary indicators of social capital which we call “relational strength” and “relational potential”. These operational indicators can be handled by any actors to position themselves within their social sphere.

Crisis Communication and Crisis Management during the Crisis

Corporate managers are faced with one important role in managing company's overall communications, especially when one crisis event occurred. Since the whole business world was preoccupied with the crisis that has gripped the year 2008, it is interesting to explore the content and the level of development of crisis management teams and crisis communications guidelines in the biggest Croatian companies. The results of research showed that Croatian companies do not stay behind their peers in the rest of the business world in the terms of establishment and development crisis management and crisis communications. Deep business crisis did not stop Croatian companies to invest in their workforces and their communication skills in order to achieve competitiveness in the market. Even though the business environment was very turbulent during the observed period, and suffered from many cutoffs the research results showed even some improvements in 2014 compared to the research from 2011.

Multi-Criteria Decision Making Approach for Choosing Business Process for the Improvement

Dynamic and global environment, does not offer a spot for managers that improvise and make business moves without relevant information. In order to gain relevant information, it is necessary to observe processes through which value is generated. This implies adoption of process orientation and, based on it, business process management, as a way of running a business. Useful concept for operationalization of business process management is the Six Sigma. One of very important managerial decisions under the Six Sigma concept implementation concerns choosing the process for the improvement. Very often managers must take into the account subjective data, based on their opinion and experience, as personal impression. However, subjective data may become objective when adequate tools and methods for the analysis are used. Quantification is necessary for making decisions and, also, for tracking the results of their implementation. Beside statistical, significant information may provide methods from multi-criteria decision making.

Typologies as Management Tools

Mussel farming in Greece constitutes an important economic activity for the areas where it is concentrated. This paper presents the results of a survey of mussel producers in Thermaikos Gulf, Northern Greece, where almost 90% of the total mussel production in the country takes place. Using data from a questionnaire survey of 66 mussel producers in the area, a typology is elaborated, by means of which three types of mussel farmers are discerned. “Professionals” are the ones continuing their family tradition, “Newcomers” are those who chose mussel farming as their main occupation and recently invested in the sector and “Aged amateurs” are the oldest and least educated group, members of which plan to pass their farm to younger family members. There is strong evidence that the sampled “Newcomers” achieve considerably higher financial results, however the sample size is not adequate to generalize for all results except for the farm income. When it comes to their environmental attitudes, mussel farmers comply to bans in cases where high toxin concentrates are detected, but they are not convinced about the effectiveness of controls. They discern very clearly between the environmental and regulatory measures necessary to boost the productivity of the sector, but they seem to proclaim by far the latter type of adjustments, including the resolution of location issues. Based on the profile of each cluster and the general results of the sample proposals are made concerning the implementation of the new Common Fisheries Policy.

Export-Led Recovery in Portugal

The recent expansion of Portuguese exports can not only promote post crisis recovery but also accelerate economic growth if the theoretical predictions on the relationship between exports and growth are correct. The export-led growth hypothesis advocates that export expansion is key in promoting long run performance. However, controversies remain on the causal relationship between the variables. We investigate this nexus for Portugal over the period 1970-2012 by estimating a bivariate VAR model with output and exports and applying cointegration, Granger causality and impulse response analysis. The results show a long-run equilibrium relationship between exports and output supporting the export-led-growth hypothesis. We also investigated the growth impact of exports of manufactured and non-manufactured products. The findings point to the existence of a positive impact of manufactured exports on output and a “limiting” effect of non-manufactured exports supporting in this way the view that what a country exports matters for growth.