Risk and Return of Illiquid Investments: A Trade-Off for Superannuation Funds Offering Transferable Accounts

2011 ◽  
Author(s):  
James Richard Cummings ◽  
Katrina Ellis
Keyword(s):  
Risk And Return ◽  
Trade Off ◽  
Illiquid Investments

Volatility and Targeted Portfolio Returns

2016 ◽  
Vol 27 (1) ◽  
pp. 122-129 ◽  
Author(s):  
Travis L. Jones ◽  
Steve P. Fraser ◽  
J. Howard Finch
Keyword(s):  
Market Volatility ◽  
Economic Uncertainty ◽  
Expected Return ◽  
Risk And Return ◽  
Trade Off ◽  
Portfolio Returns ◽  
Financial Planners

Financial planners face a consistent challenge to help clients understand the trade-off between risk and return. Most clients relate to the idea of a targeted level of expected return to achieve specific wealth goals but with limited understanding of the required risk. Extended investment horizons require client discipline when market volatility appears to be enhancing the possibility of loss of wealth. The purpose of this article is to illustrate that bearing the risk associated with market volatility can reward clients with the achievement of targeted portfolio returns, even during times of great financial and economic uncertainty. Data from 1994 to 2013 is used to create hypothetical portfolios consisting of stock and bond allocations designed to target specific client return objectives. Graphical charts illustrate the resulting annual volatility associated with multiyear investment horizons. Financial planners can use these examples to better communicate the historical volatility associated with portfolios constructed to deliver target levels of return to clients.

On Relation Between Margin and Conditional Volatility in Japanese Stock Market

2010 ◽  
Vol 18 (4) ◽  
pp. 51-68
Author(s):  
Pan-Do Sohn ◽  
Sung-Shin Kim ◽  
Jung-Soon Shin
Keyword(s):  
Stock Market ◽  
Empirical Test ◽  
Conditional Volatility ◽  
Positive Relation ◽  
Risk And Return ◽  
Trade Off ◽  
Bear Market ◽  
Asymmetric Volatility ◽  
Policy Tool ◽  
Market State

This paper investigates the asymmetric volatility between conditional volatility and initial margin using daily market return of TOPIX and Nikkei225 over 1970 to 1990. In prior studies, generally, it has been known that margin is regard as a main discipline to control volatility with respect to a policy tool. Our empirical test provides the following results. First, this paper shows that there is significantly positive relation between return of stock market and margin, implying that as margin increases, also return increases. Thus we conclude that the trade-off of risk and return is found. Second, our result suggests that in normal state, margin affects to conditional volatility negatively and significantly, indicating that margin policy could control the conditional volatility. Third, this paper finds that in recession state, there is little bit evidence of discipline action in controlling volatility. Fourth, our paper also finds that in boom state, there is adversely evidence of margin on conditional volatility. As a result, government has motivation to decrease the volatility in bull market state, whereas it also has motivation to increase the volatility in bear market state. Our paper finds the evidence that the motive for changing the margin is fitted to normal and boom state. Therefore, our result suggests that government has to adjust the change of margin policy adequately to fit the market conditions.

Exploring the trade-off between liquidity, risk and return under sectoral diversification across distinct economic settings

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carla Henriques ◽  
Elisabete Neves
Keyword(s):  
Economic Crisis ◽  
Liquidity Risk ◽  
Investment Strategies ◽  
Objective Functions ◽  
Cardinality Constraints ◽  
Risk And Return ◽  
Trade Off ◽  
Content Type ◽  
Risk Increase ◽  
Trade Offs

PurposeThis paper aims to explore the trade-off between liquidity, risk and return under sectoral diversification across distinct economic settings and investment strategies.Design/methodology/approachA novel multi-objective portfolio model is proposed to assess investment decisions under sectoral diversification, where the objective functions and constraints are interval-valued. The objective functions used are risk minimization (through the semi-absolute deviation measure of risk), maximization of liquidity (using turnover as a proxy) and the maximization of logarithmic return. Besides coherence constraints (imposing that the sum of the percentages of investment assigned to each stock should be equal to 100%), constraints regarding the maximum proportion of capital that can be invested (ensuring a minimum level of diversification) and cardinality constraints (to account for transaction costs) are also imposed.FindingsBesides the trade-off between return and risk, the study findings highlight a trade-off between liquidity and return and a positive relationship between risk and liquidity. Under an economic crisis scenario, the trade-off between return and liquidity is reduced. With the economic recovery, the levels of risk increase when contrasted with the setting of the economic crisis. The highest liquidity levels are reached with the economic boom, whereas the highest returns are obtained with the economic recession.Originality/valueThis paper suggests a new modeling approach for assessing the trade-offs between liquidity, risk and return under different scenarios and investment strategies. A new interactive procedure inspired on the reference point approach is also proposed to obtain possibly efficient portfolios according to the investor's preferences. Regarding previous approaches suggested in the literature, this new procedure allows obtaining both supported and unsupported efficient solutions when cardinality constraints are included.

scholarly journals PORTOFOLIO MARKOWITZ: UJI OPTIMAL HOLDING PERIOD DAN KINERJA PORTOFOLIO BERDASARKAN KRITERIA RISIKO DAN TARGET RETURN

2017 ◽  
Vol 15 (2) ◽  
pp. 115
Author(s):  
Andi Ivand Markemo Boangmanalu ◽  
Puput Tri Komalasari
Keyword(s):  
Research Question ◽  
Portfolio Performance ◽  
Risk And Return ◽  
Trade Off ◽  
Holding Period ◽  
Price Series ◽  
Portfolio Composition ◽  
Dynamic Movement ◽  
Finance Theory ◽  
Mean Variance

The concept of mean-variance optimization, developed by Markowitz, is the cornerstone of modern finance theory. The objective of this portfolio construction is to minimize investment risk by forming optimal portfolios. Dynamic movement in capital markets requires not only changes in portfolio composition. Optimal portfolio is not only determined by the covariance between securities in the portfolio, but also by holding period. The aims of this study is to answer two research questions. The first research question is how long the optimal holding period that was resulted from trade-off between risk and return. This study using target return that are determined hypothetically as well as the risk criteria are divided into 3 namely the mean variance, semivarians and expected loss. Target returns are simulated in this study were divided into 3 criteria namely aggressive, moderate and conservative. The second research question is whether there are differences among the various portfolio performance based on criteria of risk and target return. Portfolio performance is measured by using excess return and the Sharpe index. In this study, stocks covered in LQ-45 index are used to construct efficient portoflio. Monthly price series for company and LQ-45 index for February 2004 to September 2008 are collected. The analysis found that optimal holing period is ranges between 1-5 months. Holding period of a portfolio that more than 5 months will provide risk and return trade-off less favorable. In addition this study found that there was no significant differences in portfolio performance based on overall scenarios

scholarly journals Comparative Risk Return Analysis of Bombay Stock Market with Selected Banking Stocks in India

2016 ◽  
Vol 4 (1) ◽  
Author(s):  
Pramod Kumar Patjoshi
Keyword(s):  
Banking Sector ◽  
Stock Exchange ◽  
Equity Markets ◽  
Secondary Data ◽  
Descriptive Statistics ◽  
Stock Trading ◽  
Risk And Return ◽  
Trade Off ◽  
Risk Return ◽  
Comparative Risk

<div><p class="Default"><em>The stock markets in India are contributing an enormous extent in progress of the economy. The banking sector engages major share among other sectors in Indian stock trading scenario. The study examines the correlation between risk and return of the Sensex and banking stocks of BSE 30 (Sensex). India’s one of the superior stock exchange i.e. Bombay Stock Exchange (BSE). In this study different Sensex and banking stock indices have been used to examine the risk return trade off of Sensex with that of HDFC Bank, ICICI Bank, Axis Bank and SBI. </em><em>The study is based on secondary data. The data for the analysis has taken from the BSE website over a period of 15 years from January 1, 2001 to December 31, 2015. In this analysis for testing the presence or absence of risk return trade off  in the Indian equity markets and for testing hypothesis, different methods like correlation, regression, descriptive statistics and t test have been employed.</em></p></div>

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