1,720,975 research outputs found
The impact of terrorist attacks in G7 Countries on international stock markets and the role of investor sentiment
Full text linkWe consider terrorism acts in G7 countries over the period 1998–2017 and examine their impact on a sample of stock market indices from 66 countries. Using an event-study methodology we find that stock markets decline significantly on the event day and on the following trading day. We further consider the investor sentiment following the attacks, based on the content of country-level news stories and social media sources, and find that indices in countries associated with higher declines in the post-event sentiment, exhibit significantly higher economic losses. Our data and results are robust to several settings; these include using samples of events from different studies, excluding the 9/11 terrorist attack from the sample of events, excluding stock market indices of G7 countries from the sample of equity data and utilizing more sophisticated event-study methodologies
Dynamic asset allocation with liabilities
Full text linkWe develop an analytical solution to the dynamic multi-period portfolio choice problem of an investor with risky liabilities and time varying investment opportunities. We use the model to compare the asset allocation of investors who take liabilities into account, assuming time varying returns and a multi-period setting with the asset allocation of myopic ALM investors. In the absence of regulatory constraints on asset allocation weights, there are significant gains to investors who have access to a dynamic asset allocation model with liabilities. The gains are smaller under the typical funding ratio constraints faced by pension funds.<br/
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Harmful diversification: evidence from alternative investments
Full text linkAlternative assets have become as important as equities and fixed income in the portfolios of major
investors, and so their diversification properties are also important. However, adding five alternative
assets (real estate, commodities, hedge funds, emerging markets and private equity) to equity and bond
portfolios is shown to be harmful for US investors. We use 19 portfolio models, in conjunction with
dummy variable regression, to demonstrate this harm over the 1997-2015 period. This finding is robust
to different estimation periods, risk aversion levels, and the use of two regimes. Harmful diversification
into alternatives is not primarily due to transactions costs or non-normality, but to estimation risk. This
is larger for alternative assets, particularly during the credit crisis which accounts for the harmful
diversification of real estate, private equity and emerging markets. Diversification into commodities, and
to a lesser extent hedge funds, remains harmful even when the credit crisis is excluded
Stock market dispersion, the business cycle and expected factor returns
Full text linkWe provide evidence using data from the G7 countries suggesting that return dispersion may serve as an economic state variable in that it reliably predicts time-variation in economic activity, market returns, the value and momentum premia and market volatility. A relatively high return dispersion predicts a deterioration in business conditions, a higher value premium, a smaller momentum premium and lower market returns. Dispersion based market and factor timing strategies outperform out-of-sample buy and hold strategies. The evidence are robust to alternative specifications of return dispersion and are not driven by US data. Return dispersion conveys incremental information relative to idiosyncratic ris
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