ABSTRACT The cornerstone of modern ﬁnance is the efﬁcient market hypothesis. Under this hypothesis all information available about a ﬁnancial asset is immediately incorporated into its price dynamics by fully rational investors. In contrast to this hypothesis many studies have pointed out behavioral biases in investors. Recently it has become possible to access databases that track the trading decisions of investors. Studies of such databases have shown that investors acting in a ﬁnancial market are highly heterogeneous among them, and that heterogeneity is a common characteristic of many ﬁnancial markets. The article describes an empirical study of the daily trading decisions of all Finnish investors investing Nokia stock over a time period of 15 years. The investigation is performed by adapting and using methods and tools in network science. By investigating daily trading decisions, and by constructing the time-evolution of statistically validated networks of investors, clusters of investors —and their time evolution — which are characterized by similar trading proﬁles are detected. These clusters are performing distinct trading decisions on time scales ranging from several months to twelve years. These empirical observations show the presence of an ecology of groups of investors characterized by different attributes and by various investment styles over many years. Some of the detected clusters present a persistent over-expression of speciﬁc investor categories. The study shows that the logarithm of the ratio of pairs of statistically validated trading decisions is different for different values of the market volatility. These ﬁndings suggest that an ecology of investors is present in ﬁnancial markets and that groups of traders are always competing, adopting, using and eventually discarding new investment strategies. This adaptation process is observed over a multiplicity of time scales, and is compatible with several conclusions of behavioral ﬁnance and with the assumptions of the so-called adaptive market hypothesis.
The main topic of this final paper was to research the role, importance and influence of institutional investors on the financialmarket of the Republic of Croatia. Therefore, the goal of this paper was to provide a basic insight and knowledge of forms, functions, importance and impact of institutional investors through the theoretical part. Subsequently, by analyzing the data on the condition of assets and its allocation, the goal was to show the proportions of institutional investors' impact on the financialmarket of the Republic of Croatia with regard to the size of their assets and porftolios in which they invest their assets within observed periods. Institutional investors invest small investor's savings in order to achieve a certain yield rate at a certain rate of risk. We distinguish four forms of institutional investors and those are commercial banks, pension funds, insurance companies and mutual funds. Their functions refer to pooling and transferring funds of small investors, risk management, providing information, solving challenges which small investors would face if there weren't of institutional investors as intermediaries and finally, enabling the financialmarket to progress. Through these functions they influence liquidity, competitivness, demand for capital market instruments, financial innovations, etc. The largest share of institutional investors' assets refers to commercial banks. The second largest share of assets refers to pension funds, followed by insurance companies and mutual funds. Business banks invest most of their funds into loans, while pension funds, insurance companies and investment UCITS funds invest most of their funds into securities. Based on research results, it is concluded that the significance and thus the role of institutional investors in the financialmarket is increasing, due to the increase in the value of their assets. Also, it is concluded that more and more of assets are being allocated into securities than in other forms of investments.
Simulations of the baseline model without transaction taxes produce time series with realistic time series properties like in empirical exchange rate date. This means that the model is capable to reproduce stylized facts of fi- nancial variables like the unit root property, volatility clustering and excess kurtosis. A comparison with empirical data shows that the model is able to replicate these stylized facts very well. Moreover, our financialmarket is characterized by periods dominated by traders using trend-extrapolating trading rules or by trading rules based on economic fundamentals. Further- more, periods emerge which are dominated either by short-term speculators or by long-terminvestors. This is an indication of sudden speculative at- tacks on one currency.
The contributions of LTIIs to financial stability are debatable in literature. On the one hand, LTIIs could behave pro-cyclically (ie rebalancing their portfolios away from riskier assets and towards safer ones) in the face of financialmarket turbulence to meet regulatory requirements or short-term liquidity needs. Such a flight-to-quality strategy can overvalue short-term investment returns and undervalue long-term returns, which can cause or exacerbate financial instability. On the other hand, LTIIs could rebalance their portfolios away from safer assets and towards riskier ones to
replicate these strategies in the earlier historical period. This criticism applies to many studies using historical financialmarket returns, but it is especially relevant here since the historical transaction costs to replicate a valuation-based strategy would have been high. The question remains as to whether it was these costs or the accompanying taxes that prevented investors from using valuation-based strategies in the past. The answer is likely no, since implementing these strategies requires strong nerves to maintain a contrarian strategy that may only pay off in the longterm. Another caveat relates to the fact that all risk measures considered here are ex post in nature. In hindsight, matters worked out fine for the valuation-based strategies, but historically it might have been quite unnerving to increase stock allocations after significant market drops, such as the call to increase the stock allocation at the start of 2009. As well, an important risk of valuation-based strategies is that the consequences of behavioral mistakes (abandoning the strategy to either increase stock allocations near a peak or reduce stock allocations near a trough) will be amplified due to the mistake being made from a more unfortunate initial level. Finally, as always, past performance does not guarantee future performance.
A well known traditional statistical method for the eval- uation of assets is the calculation of the risk (volatility) and performance. These two scalar values can be determined for each asset individually, and are usually computed with- out taking the investors regions of interest into account. In order to improve these scalars, instead of weighting all values identically, we developed enhanced risk and perfor- mance scalars that also take the regions of interest into ac- count. Once these values have been computed and take the weight matrix into account, it is possible to directly compare assets one to each other with respect to these two scalar variables. Typically, an investor who has the choice between two assets, will take the asset which offers the higher performance with less or identical risk. So when comparing different assets and their scalars one to each other, five possible combinations can occur. Regarding the risk scalar (R) and the performance scalar (P) the relation- ship (rel) between two assets A and B can be
Table 6 presents the results. According to Panel A, long-term investor ownership reduces balance sheet debt issuance by 0.48% of total assets of which 0.05% comes from short-term debt and 0.43% is attributable to long-term debt. Incremental off balance sheet debt usage also falls, by 0.34% of total assets. Equity issuance diminishes by 0.58% of total assets. The accumulation of internal funds, however, is unaffected. Overall, total financing decreases by about 1.4 percentage points. To put this decrease in financing into context, it amounts to roughly $26 million for the average firm. Furthermore, debt maturity also decreases, by 1.32 p.p. or roughly 2% relative to its mean. Panel B and Panel C show that the results are similar for long-term indexer and non-indexer ownership as well as for long-term index firm and non-index firm ownership, respectively. This supports our causal interpretation of the results. To summarize, the generalized reduction in financing caused by long-terminvestors along with the shorter maturity of debt suggests that firms become more exposed to financialmarket discipline.
n Productive capital supports infrastructure development, green growth initiatives, SME financing, etc., leading to sustainable growth. The OECD Project on Institutional Investors and Long-term Investment (the project) aims to facil- itate long-term investment (LTI) by institutional investors such as pension funds, insurance com- panies, and sovereign wealth funds, addressing both potential regulatory obstacles and market failures. The project relies on close co-operation between OECD economies, some non-OECD economies, including G20 and APEC members, major investors, and other key stakeholders. Engaging institutional investors and policy mak- ers will ultimately enable the OECD to develop effective policy recommendations at the highest political level.
But, for each of these people, someone thinks the opposite. They consider that fair values provide the most meaningful information for all investors; that fair values do not create volatility but reflect it and it is important for users to be able to understand the effects of market volatility on the results and position of a company. In their eyes, fair values do not lead either to short-termism or to pro-cyclical effects.
Voya Investment Management’s long-term capital market forecasts provide our estimates of expected returns and volatilities for and correlations among major U.S. and global asset classes over a ten-year horizon. These estimates guide strategic asset allocations for our multi- asset portfolios and provide a context for shorter-term economic and financial forecasting. As has been the case for the past six years, our forecast models an explicit process of convergence to a steady-state equilibrium for global economies and financial markets through 2024. We make this explicit forecast in recognition of the ongoing effects of the 2007–09 financial crisis and recession, the European debt crisis, and the fiscal and monetary policy responses to these events. Although the world economy is several years past its most acute point of crisis in 2008, and while the U.S. economy has been recovering from the Great Recession for more than five years, a number of economic and financial variables remain far from levels consistent with a steady state. In particular, short-term interest rates remain near zero in most developed economies, long-term interest rates have declined substantially, and government debt-to-GDP ratios remain elevated in many countries. Figure 1 shows the 2024 values from this forecast and our estimates of longer-term steady-state values for key U.S. economic variables.
Secondary and Balancing purchases are escalated from BP-16 levels by general inflation. Expectations for secondary sales and purchases are modeled in RevSim through 2030, using load and resource assumptions consistent with Power Rates, and Aurora market prices consistent with the escalation assumptions stated above These assume 50 games for 80 water years, and incorporate load and resource variability consistent with BP-16 modeling assumptions. Results are incorporated into risk assessment around the reference case.
Many consider issues like climate change, poverty, and global health to be largely the purview of governments, philanthropies, and nonprofits. Each of those sectors no doubt plays a critical role in setting policy, provid- ing essential services, and supporting innova- tive approaches to address market failures. The private sector, however, has a crucial role to play by deploying innovative technologies and developing new business models to meet changing social and economic circumstances. Companies that focus on these challenges will be best positioned for long-term growth; indeed, attempts to quantify the value of sustainable business opportunities yield esti- mates ranging from $3 trillion to $10 trillion annually by 2050, potentially 4.5 percent of the world’s projected gross domestic product. 2
Consumers are often faced with a varied array of communities and services in a local area, and must make comparisons and decisions about communities which may have a significant financial impact on them. With this in mind, consumers and financial advisors should consider carefully when making comparisons, and be especially mindful to gather information about services included in the monthly base cost and the cost of services not included. When faced with paying thousands of dollars each month for care which will not be covered by Medicare, even a few dollars in lowered cost is attractive. However, it is in their best interest to make comparisons on total potential costs for equivalent levels of service, and not simply on monthly base rates.
Badrinath, Kale, and Ryan  analyze the various in- vestment decisions of institutional investors. The results in- dicate that beta, firm size, volatility, liquidity, time of listing on the stock market and past performance are not statistically significant in explaining the equity ownership of insurance companies. However, while the security features of a firm do not explain the size of equity shareholding of insurance companies, they have a good explanatory power when con- sidering an investment of more fundamental choice: to invest or not in a firm. Firms in which insurance companies invest seem more cautious than the firms that they do not invest. 3. METHODOLOGY
Guidolin and Timmermann (2008) take an international point of view by bringing skewed and kurtotic distributions of returns in international portfolia when home bias is present. The analysis uses the ICAPM model but with emphasis on higher moments under bull and bear regimes and time variability. Fat tails are also present and investors are found to show an aversion towards them (kurtosis) but a preference towards positive skewness. Although such a perspective is beyond the scope of the thesis, the paper is a good example on how tails affect decision making and the severe limitations of ignoring fat tails either by assuming normality or by limiting optimal solutions to the mean-variance criterion. Kole et al. (2006) also focus on international decision making under crises, but their setup is fundamentally different. Instead of treating jumps as one-off events, they consider crises to be systemic, lingering events that change the state of the economy. In a continuous time Markov switching model that resembles a jump-diffusion model (with the difference being in the structure of the jump, which is not a Poisson of generally Levy process) closed-form solutions for portfolio weights are derived. The paper finds strong crisis persistence and major differences between the crisis awareness and crisis ignorance states. The latter is an idea that will be explored in the thesis but in a much different context and from a completely different angle. Finally, a major drawback is the use of monthly data for a period of 30 years, a choice in stark contrast with the continuous time framework that drastically limits the number of observations making the results rather questionable. Azevedo et al. (2014) perform a similar exercise in a deterministic finite investment horizon. Maheu et al. (2013) find further evidence on the existence of a ”skewness premium” and the relationship between time-varying disaster risk and the equity premium, in a GARCH setup with a third-order Taylor approximation for the utility function.
Despite the empirical evidence of market deviations from eﬃciency, investors directly experience the diﬃculty of implementing proﬁtable trading strategies with long run positive proﬁts. The notion of statistical arbitrage (SA) plays a central role in this framework. An SA is a strategy allowing an extra-return and a vanishing variance; negative returns are allowed, but over a long time horizon they shall become negligible. On one hand, the SA notion represents an useful tool to investigate market eﬃciency. On the other hand, the goal of many investment strategies is to test positive for SA. These facts seem to support the following idea: market deviations from eﬃciency in a short term period are frequent and possibly severe. It is easy to support the evidence on past ﬁnancial data. Obviously, it is impossible to predict future market deviations from eﬃciency. Short time deviations from equilibrium have been also analyzed from the empirical point of view, among others, by Balke and Fomby (1997) 7 .
The contribution of finance to growth cannot be overstressed. While some scholars believe that economic growth and finance have no relationship whatsoever (Lucas, 1988). Others Schumpeter, 1912; McKinnon 1973; Shaw, 1973) are of the views that finance is leading growth. Particularly Schumpeter holds the view that financial intermediaries are created for credit purposes. The granting of credit by banks is vital for economic development without which the entrepreneurial abilities would be curtailed (Fowowe, 2013). The important of stock market to the development of a nation is emphasized by Bencivenga, Smith & Starr (1996) where the paper points out the important of liquidity of the stock market. According to this paper the British industrial revolution is made manifest by the evolution of finance as emphasized by Hicks. The industrial revolution is made practicable by the existence of longterm finance provided through the liquidity of the capital markets. In essence the reduction in transaction costs in efficient stock markets entails that longterm investment can be undertaken in order to enhance growth. Stock market has also contributed immensely to the growth of the economies of the industrial countries. The development and growth of an economy is linked to the development of the stock markets (Mankiw, 2010). It provides avenue for risk diversification and better diversification of risk entails that riskier and high yields project are substituted for low risk-return projects. The debate on the influence of finance on growth was rejuvenated by both McKinnon (1973) and Shaw (1973) who suggested that developing countries can shore up the growth of their economies through the liberalization of their financial markets. However liberalization of financial markets has not been worth the pains (Ahmed, 2013). The literature
In this framework two-sided (S,s) model is considered, the agent can choose if upgrading or down grading its asset depending on the evolution of wealth. The agent is endowed by a house, he observes the ratio of wealth and asset value changing over time. Financial and non nancial costs prevent him to change the size of the durable good continuously and he waits, stays inac- tive, until a critical level of this ratio is reached, meaning that the house appreciated too much with respect to his total, liquid plus illiquid, wealth, or meaning that the value of the house is too small compared to his wealth and he is willing to adjust the size of the durable with a new purchase. In spite of the simplicity of the underlying motivation for using these class of models, the diculties which arise from a mathematical and numerical point of view are extremely high. Very often the solution to the Hamilton Jacobi Bellman equation has no close form and numerical methods, that must con- sider stability issues, need to be performed.
The SASD forecast takes a more conservative approach to forecasting growth in the regional construction market as uncertainty driven by slow wage growth and continuing challenges in the local, national, and global economies do not appear to support growth assumptions above 1% per year. The Sacramento region has a high concentration of government employers, many of which are facing structural fiscal problems throughout the 10 year forecast horizon. Twelve of the region’s top 25 employers are government entities including the top employer, the State of California with 65,801 full-time employees 3 . The fiscal constraints facing these governments
From Gompers and Lerner (1998, 2000), Kaplan and Schoar (2005) and Gompers et al. (in press) we learn that both capital flows and returns in the private equity market are cyclical. For example, the venture capital market experienced a boom in 1981–1983 and in 1998–2000 when investments grew dramatically in personal computer hardware manufacturers, and in internet and telecommunication compa- nies, respectively. The question rises to what extent our recommitment strategy is cyclical in nature. This may be the case for several reasons. First, we might in- vest aggressively when the market becomes overvalued, because we will receive more distributions than normal that will be invested again. Second, it might be that we make larger commitments at times when investments are difficult to find due to our dynamic overcommitment, while simultaneously the uncalled commitments might be relatively large, resulting in additional recommitments after 6 years. This can lead to an undesirable accumulation of new commitments.