Risk Analysis and Portfolio Modelling.

226 Pages·2019·3.909 MB·English

by  Elisa Luciano, David Allen

Journal of
Risk Analysis
and Portfolio
Modelling
Edited by
David Allen and Elisa Luciano
Printed Edition of the Special Issue Published in
Journal of Risk and Financial Management
www.mdpi.com/journal/jrfm
Risk Analysis and Portfolio Modelling

Risk Analysis and Portfolio Modelling
SpecialIssueEditors
DavidAllen
ElisaLuciano
MDPI•Basel•Beijing•Wuhan•Barcelona•Belgrade
SpecialIssueEditors
DavidAllen ElisaLuciano
UniversityofSydney UniversityofTorino
Australia Italy
EditorialOffice
MDPI
St.Alban-Anlage66
4052Basel,Switzerland
This is a reprint of articles from the Special Issue published online in the open access journal
JournalofRiskandFinancialManagement (ISSN 1911-8074) from 2018 to 2019 (available at: https://
www.mdpi.com/journal/jrfm/specialissues/riskanalysis).
Forcitationpurposes,citeeacharticleindependentlyasindicatedonthearticlepageonlineandas
indicatedbelow:
LastName,A.A.; LastName,B.B.; LastName,C.C.ArticleTitle. JournalNameYear,ArticleNumber,
PageRange.
ISBN978-3-03921-624-6(Pbk)
ISBN978-3-03921-625-3(PDF)
(cid:2)c 2019bytheauthors. ArticlesinthisbookareOpenAccessanddistributedundertheCreative
Commons Attribution (CC BY) license, which allows users to download, copy and build upon
publishedarticles,aslongastheauthorandpublisherareproperlycredited,whichensuresmaximum
disseminationandawiderimpactofourpublications.
ThebookasawholeisdistributedbyMDPIunderthetermsandconditionsoftheCreativeCommons
licenseCCBY-NC-ND.
Contents
AbouttheSpecialIssueEditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
DavidEdmundAllenandElisaLuciano
RiskAnalysisandPortfolioModelling
Reprintedfrom:J.RiskFinancialManag.2019,12,154,doi:10.3390/jrfm12040154. . . . . . . . . . 1
StuartM.Turnbull
CapitalAllocationinDecentralizedBusinesses
Reprintedfrom:J.RiskFinancialManag.2018,11,82,doi:10.3390/jrfm11040082 . . . . . . . . . . 5
Ching-ChihWuandTung-HsiaoYang
InsiderTradingandInstitutionalHoldingsinSeasonedEquityOfferings
Reprintedfrom:J.RiskFinancialManag.2018,11,53,doi:10.3390/jrfm11030053 . . . . . . . . . . 16
GabrielFrahmandFerdinandHuber
TheOutperformanceProbabilityofMutualFunds
Reprintedfrom:J.RiskFinancialManag.2019,12,108,doi:10.3390/jrfm12030108. . . . . . . . . . 30
AndreaBedin,MonicaBillio,MicheleCostolaandLorianaPelizzon
CreditScoringinSMEAsset-BackedSecurities:AnItalianCaseStudy
Reprintedfrom:J.RiskFinancialManag.2019,12,89,doi:10.3390/jrfm12020089 . . . . . . . . . . 59
A.FordRamseyandBarryK.Goodwin
Value-at-RiskandModelsofDependenceintheU.S.FederalCropInsuranceProgram
Reprintedfrom:J.RiskFinancialManag.2019,12,65,doi:10.3390/jrfm12020065 . . . . . . . . . . 87
EduardKrkoskaandKlausReinerSchenk-Hoppe´
HerdinginSmart-BetaInvestmentProducts
Reprintedfrom:J.RiskFinancialManag.2019,12,47,doi:10.3390/jrfm12010047 . . . . . . . . . . 108
JaneMpapalikaandChristopherMalikane
TheDeterminantsofSovereignRiskPremiuminAfricanCountries
Reprintedfrom:J.RiskFinancialManag.2019,12,29,doi:10.3390/jrfm12010029 . . . . . . . . . . 122
KimHiangLiow,XiaoxiaZhou,QiangLiandYutingHuang
Time–Scale Relationship between Securitized Real Estate and Local Stock Markets: Some
WaveletEvidence
Reprintedfrom:J.RiskFinancialManag.2019,12,16,doi:10.3390/jrfm12010016 . . . . . . . . . . 142
GiorgioArici,MarcoDalai,RiccardoLeonardiandArnaldoSpalvieri
ACommunicationTheoreticInterpretationofModernPortfolioTheoryIncludingShortSales,
LeverageandTransactionCosts
Reprintedfrom:J.RiskFinancialManag.2019,12,4,doi:10.3390/jrfm12010004 . . . . . . . . . . . 165
MatsWilhelmssonandJianyuZhao
RiskAssessmentofHousingMarketSegments:TheLender’sPerspective
Reprintedfrom:J.RiskFinancialManag.2018,11,69,doi:10.3390/jrfm11040069 . . . . . . . . . . 176
FaizaSajjadandMuhammadZakaria
CreditRatingsandLiquidityRiskfortheOptimizationofDebtMaturityStructure
Reprintedfrom:J.RiskFinancialManag.2018,11,24,doi:10.3390/jrfm11020024 . . . . . . . . . . 198
v

About the Special Issue Editors
David Allen is currently an Honorary Professor, in the School of Mathematics and Statistics,
attheUniversityofSydney, Australia; anHonoraryProfessor, intheSchoolofBusinessandLaw,
Edith Cowan University, Joondalup, Western Australia; and an Honorary Chair Professor, in the
DepartmentofFinance,AsiaUniversity,Taiwan. Priortoretirementin2013,heheldFinanceChairs
successivelyatCurtinandEdithCowanUniversitiesinWesternAustralia.HehasaPh.DinFinance
fromtheUniversityofWesternAustraliaandanM.PhilintheHistoryofEconomicThoughtfrom
LeicesterUniversity,England.
He is a Fellow of the Modelling and Simulation Society of Australia and New Zealand and
the International Engineering and Technology Institute. His research interests include financial
economics,financialeconometrics,marketmicrostructure,riskmodeling,andportfolioanalysis. He
haspublishedfivebooksinfinanceandeconomics,themostrecentin(2017),whichfeaturedtheuse
ofRineconomicsandfinanceresearch. Hisresearchoutputincludesover150papersandchapters
inbooks,onadiverserangeoftopics,whichhavebeenpublishedineconomics,finance,statistics,
andoperationalresearchjournals.
ElisaLucianoiscurrentlyaProfessorofFinanceattheUniversityofTorino;theScientificDirectorof
LTI@Unito,athinktankonlong-terminvestors;aFellowofCollegioCarloAlberto;andhasbeena
VisitingScholarattheWhartonSchool,CornellUniversity,INSEAD,andtheUniversityofZurich.
She is an expert in asset allocation, asset pricing, insurance, and risk management. She has
publishedaround100articlesinacademicjournals,includingtheJournalofFinanceandtheReview
ofFinancialStudies.ShehaspublishedalsoforMITPress.
ShebelongstotheEIOPAOccupationalPensionsStakeholderGroupandisinthetop2%of
SSRNAuthors,andthetop8%ofwomeneconomistsaccordingtoREPEC-IDEAS.
vii

Journal of
Risk and Financial
Management
Editorial
Risk Analysis and Portfolio Modelling
DavidEdmundAllen1,2,3,* andElisaLuciano4
1 SchoolofMathematicsandStatistics,UniversityofSydney,Sydney,NSW2006,Australia
2 DepartmentofFinance,AsiaUniversity,Wufeng41354,Taiwan
3 SchoolofBusinessandLaw,EdithCowanUniversity,Joondalup,WA6027,Australia
4 DepartmentofEconomicsandStatistics,UniversityofTorino,I-10134Torino,Italy;[email protected]
* Correspondence:[email protected]
Received:18September2019;Accepted:18September2019;Published:21September2019
Abstract:Financialriskmeasurementisachallengingtaskbecauseboththetypesofriskandtheir
measurementtechniquesevolvequickly.Thisbookcollectsanumberofnovelcontributionsforthe
measurementoffinancialrisk,whichaddressespartiallyexploredrisksorrisktakersinawidevariety
ofempiricalcontexts.
Keywords:riskanalysis;portfolioanalysis;riskattribution
InaspecialissueoftheJournalofRiskandFinancialManagement,therewasacallforcontributions
withinthebroadtopicofportfolioanalysis. Thistopicincludesanynovel,theoretical,orempirical
researchapplicationintheareaofportfolioanalysis.Thisbookcollectsanumberofnovelcontributions
forthemeasurementoffinancialrisk,whichaddresspartiallyexploredrisksorrisktakersinawide
varietyofempiricalcontexts.Financialriskmeasurementisachallengingtaskbecauseboththetypes
ofriskandtheirmeasurementtechniquesevolvequickly.
Themoretheoreticalcontributionsinthebookincludeanadjustedpresentvalue(APV)modelof
capitalallocationfordecentralizedbusinesses.Further,itincludesanintegrationofcommunication
regardingtheoreticmodelsandportfoliotheory.Attheoppositeendofthespectrum,thiscollection
includesastudythatdetailsthelinksbetweeninsidertradingandinstitutionalholdingsinthecontext
ofUnitedStates(US)equityissues(SEOs).
Anumberofissuesrelatingtoportfolioriskandperformanceareaddressedinthisvolume.Apart
fromtheconstructionofnovelportfolioperformancebenchmarks,theseincludevariousaspectsof
defaultrates,probabilityofloss,andlossdistributionsonsmallenterpriseloans.Further,value-at-risk
(VaR)isexaminedinthecontextofcropinsuranceprograms,asisherdinginsmartbetainvestments
anddeterminantsofsovereignriskpremiums. Therearetwocontributionsregardingrealestate
marketsthatincludetheanalysisoflinksbetweenrealestateandstockmarkets,plustheanalysisof
riskinSwedenhousingmarketsegments.
Turnbull(2018)considersatheoryofcapitalallocationfordecentralizedbusinesses,considering
thecostsassociatedwithriskcapital.HederivesanAPVexpressionformakinginvestmentdecisions
thatincorporatesatimevaryingprofileofriskcapital. Thisdiffersfromatop-downapproach,in
which,inthecaseofabank,seniormanagementdecidesontheoptimalbuffersizeandtheallocationto
individualbusinesseswithinthebankmakeupitscomponentactivities.Managerswhorunsub-units
ofsaidbusinesswouldpresumablypreferasituationwherethedeterminationofaproject’sriskcapital
dependedonprojectcharacteristicsundertheirremit,notthecharacteristicsofthebankasawhole.
Thisisbecausetheyareconcernedaboutrisksoverwhichtheyhavesomecontrol.Turnbullderivesan
expressionfortheAPVofabusinessbyaggregatingacrosstheindividualprojectswithinabusiness.
Theassociateddifficultyisthatthismeansthereisnosimplebenchmark,suchasriskadjustedrateof
returnoncapital(RAROC),withwhichtocomparetherelativeperformanceofdifferentprojectsinthe
samecompany.
JRFM2019,12,154;doi:10.3390/jrfm12040154 1 www.mdpi.com/journal/jrfm