• Korean Management Science Review
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• v.32 no.1
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• pp.15-33
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• 2015

Under complete information, introducing additional constraints to a portfolio will have a negative impact on performance. However, real-life investments inevitably involve use of error-prone estimations, such as expected stock returns. In addition to the reality of incomplete data, investments of most Korean domestic equity funds are regulated externally by the government, as well as internally, resulting in limited maximum investment allocation to single stocks and risk free assets. This paper presents an investment framework, which takes such real-life situations into account, based on a newly developed portfolio selection model considering realistic constraints under incomplete information. Additionally, we examined the effects of additional constraints on portfolio's performance under incomplete information, taking the well-known Samsung and SK group stocks as performance benchmarks during the period beginning from the launch of each commercial fund, 2005 and 2007 respectively, up to 2013. The empirical study shows that an investment model, built under incomplete information with additional constraints, outperformed a model built without any constraints, and benchmarks, in terms of rate of return, standard deviation of returns, and Sharpe ratio.

• The Korean Journal of Financial Management
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• v.23 no.1
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• pp.101-133
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• 2006

We examine whether new derivatives on KOSPI 200 affect volatility asymmetry of KOSPI 200 portfolio, relative to the carefully matched non-KOSPI 200 portfolio. To test the effect or new derivatives trading, we use GJR-GARCH model and newly developed Volatility Ratio(down-market volatility to up-market volatility ratio). Our results show that KOSPI 200 portfolio experiences lower volatility asymmetry than non-KOSPI 200 portfolio after the trading of new derivatives on KOSPI 200, especially after the introduction of stock index options(KOSPI 200 options). For non-KOSPI portfolio, no significant reduction in volatility asymmetry occurred when trading of stock index options began. Also, we find that in the period of after January 1999, the period of after do-regulations and Financial Crisis in the Korean capital market, volatility asymmetry of stock markets was significantly decreased. This means that level of volatility asymmetry is closely related to the level of market regulations. Further, the results of the paper show that leverage effect and changes in foreign exchange ratio can be good candidates for explaining the stylized volatility asymmetry in the Korean stock market.

• Journal of Intelligence and Information Systems
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• v.25 no.2
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• pp.39-55
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• 2019

Recently banks and large financial institutions have introduced lots of Robo-Advisor products. Robo-Advisor is a Robot to produce the optimal asset allocation portfolio for investors by using the financial engineering algorithms without any human intervention. Since the first introduction in Wall Street in 2008, the market size has grown to 60 billion dollars and is expected to expand to 2,000 billion dollars by 2020. Since Robo-Advisor algorithms suggest asset allocation output to investors, mathematical or statistical asset allocation strategies are applied. Mean variance optimization model developed by Markowitz is the typical asset allocation model. The model is a simple but quite intuitive portfolio strategy. For example, assets are allocated in order to minimize the risk on the portfolio while maximizing the expected return on the portfolio using optimization techniques. Despite its theoretical background, both academics and practitioners find that the standard mean variance optimization portfolio is very sensitive to the expected returns calculated by past price data. Corner solutions are often found to be allocated only to a few assets. The Black-Litterman Optimization model overcomes these problems by choosing a neutral Capital Asset Pricing Model equilibrium point. Implied equilibrium returns of each asset are derived from equilibrium market portfolio through reverse optimization. The Black-Litterman model uses a Bayesian approach to combine the subjective views on the price forecast of one or more assets with implied equilibrium returns, resulting a new estimates of risk and expected returns. These new estimates can produce optimal portfolio by the well-known Markowitz mean-variance optimization algorithm. If the investor does not have any views on his asset classes, the Black-Litterman optimization model produce the same portfolio as the market portfolio. What if the subjective views are incorrect? A survey on reports of stocks performance recommended by securities analysts show very poor results. Therefore the incorrect views combined with implied equilibrium returns may produce very poor portfolio output to the Black-Litterman model users. This paper suggests an objective investor views model based on Support Vector Machines(SVM), which have showed good performance results in stock price forecasting. SVM is a discriminative classifier defined by a separating hyper plane. The linear, radial basis and polynomial kernel functions are used to learn the hyper planes. Input variables for the SVM are returns, standard deviations, Stochastics %K and price parity degree for each asset class. SVM output returns expected stock price movements and their probabilities, which are used as input variables in the intelligent views model. The stock price movements are categorized by three phases; down, neutral and up. The expected stock returns make P matrix and their probability results are used in Q matrix. Implied equilibrium returns vector is combined with the intelligent views matrix, resulting the Black-Litterman optimal portfolio. For comparisons, Markowitz mean-variance optimization model and risk parity model are used. The value weighted market portfolio and equal weighted market portfolio are used as benchmark indexes. We collect the 8 KOSPI 200 sector indexes from January 2008 to December 2018 including 132 monthly index values. Training period is from 2008 to 2015 and testing period is from 2016 to 2018. Our suggested intelligent view model combined with implied equilibrium returns produced the optimal Black-Litterman portfolio. The out of sample period portfolio showed better performance compared with the well-known Markowitz mean-variance optimization portfolio, risk parity portfolio and market portfolio. The total return from 3 year-period Black-Litterman portfolio records 6.4%, which is the highest value. The maximum draw down is -20.8%, which is also the lowest value. Sharpe Ratio shows the highest value, 0.17. It measures the return to risk ratio. Overall, our suggested view model shows the possibility of replacing subjective analysts's views with objective view model for practitioners to apply the Robo-Advisor asset allocation algorithms in the real trading fields.

• The Journal of the Korea Contents Association
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• v.22 no.10
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• pp.691-702
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• 2022

This study verifies the diversification effect when non-financial asset such as fractional music royalties investment which is recently get interest from masses, is included in traditional global asset allocation portfolio. From Jan 2019 when Music Royalties index is announced to Jun 2022, compared traditional global asset allocation portfolio and the portfolio included with music royalties. To eliminate the enhancement effect from portfolio strategy itself rather than including non-financial asset, used the four basic portfolio strategy such as buy & hold, constant rebalanced, mean variance, risk parity. As a result, all the portfolios included with music royalties shows less risk with higher returns. This means the sharpe ratio has enhanced and that results the portfolio diversification effect is placed. The empirical analysis of the study found academic significance in that the portfolio included with music royalties investment has diversification effect, and show the possibilities the not only on the music royalties, other non-financial asset can be shown the portfolio diversification effect.

• East Asian Economic Review
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• v.20 no.3
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• pp.391-423
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• 2016

By examining the relationship between private credit growth and the possibility of credit risk while focusing on international capital in 21 countries over the period 2000:1Q-2015:2Q, this paper shows that the impact of private credit growth on credit risk is apparent under the high ratio of capital inflows, and its impact on credit risk in the seven Asian countries is even stronger. And the possibility of credit risk caused by private credit is mainly coming from portfolio inflows rather than direct inflows. Finally, portfolio inflows strengthen the positive relationship between credit excess and credit risk in Asian countries, and this trend is seen more in these after the global financial crisis. Taken together, the stronger positive relationship between credit excess and credit risk can be strengthen under the massive portfolio inflows in particular in the seven Asian countries such as Hong Kong, India, Indonesia, Korea, Malaysia, Singapore, and Thailand.

• Journal of Korean Society for Quality Management
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• v.51 no.2
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• pp.171-184
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• 2023

Purpose: First, this paper suggests an alternative approach to find optimal portfolio (stocks, bonds and ESG stocks) under the maximizing utility of investors. Second, we include ESG stocks in our optimal portfolio, and compare improvement of welfares in the case with and without ESG stocks in portfolio. Methods: Our main method of analysis follows Brennan et al(2002), designed under the continuous time framework. We assume that the dynamics of stock price follow the Geometric Brownian Motion (GBM) while the short rate have the Vasicek model. For the utility function of investors, we use the Power Utility Function, which commonly used in financial studies. The optimal portfolio and welfares are derived in the partial equilibrium. The parameters are estimated by using Kalman filter and ordinary least square method. Results: During the overall analysis period, the portfolio including ESG, did not show clear welfare improvement. In 2017, it has slightly exceeded this benchmark 1, showing the possibility of improvement, but the ESG stocks we selected have not strongly shown statistically significant welfare improvement results. This paper showed that the factors affecting optimal asset allocation and welfare improvement were different each other. We also found that the proportion of optimal asset allocation was affected by factors such as asset return, volatility, and inverse correlation between stocks and bonds, similar to traditional financial theory. Conclusion: The portfolio with ESG investment did not show significant results in welfare improvement is due to that 1) the KRX ESG Leaders 150 selected in our study is an index based on ESG integrated scores, which are designed to affect stability rather than profitability. And 2) Korea has a short history of ESG investment. During the limited analysis period, the performance of stock-related assets was inferior to bond assets at the time of the interest rate drop.

• Journal of the Korean Operations Research and Management Science Society
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• v.28 no.3
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• pp.81-101
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• 2003

The financial statements purpose to provide useful information to decision-making process of business managers. The value-relevant information, however, embedded in the financial statement has been often overlooked in Korea. In fact, the financial statements in Korea have been utilized for nothing but account reports to Security Supervision Boards (SSB). The objective of this study is to develop earnings forecasting models through financial statement analysis using artificial intelligence (AI). AI methods are employed in forecasting earnings: artificial neural networks (ANN) for manufacturing industry and case~based reasoning (CBR) for banking industry. The experimental results using such AI methods are as follows. Using ANN for manufacturing industry records 63.2% of hit ratio for out-of-sample, which outperforms the logistic regression by around 4%. The experiment through CBR for banking industry shows 65.0% of hit ratio that beats the statistical method by 13.2% in holdout sample. Finally, the prediction results for manufacturing industry are validated through monitoring the shift in cumulative returns of portfolios based on the earning prediction. The portfolio with the firms whose earnings are predicted to increase is designated as best portfolio and the portfolio with the earnings-decreasing firms as worst portfolio. The difference between two portfolios is about 3% of cumulative abnormal return on average. Consequently, this result showed that the financial statements in Korea contain the value-relevant information that is not reflected in stock prices.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.17 no.6
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• pp.560-565
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• 2016

In this study, we empirically scrutinize the relationship between short selling transactions and stock price behaviors using the stock market data in Korea during the period from January 2005 to March 2016. We chose the short selling volume ratio (SVR), stock lending volume ratio (LVR), and stock lending open interest ratio (LIR) as variables of the short selling trading activities. We construct portfolios based on the percentile of the short selling volume ratio during the sample period; upper-10%-SVR portfolio, upper-25%-SVR portfolio, upper-50%-SVR portfolio. We estimate the monthly firm-specific return and monthly skewness of the daily firm-specific returns of each portfolio. The firm-specific return or skewness is specified as a dependent variable and the short selling activities as explanatory variables. The results show that all of the statistically significant estimates of the short selling activities for the firm-specific returns are negative and that all of the statistically significant estimates of the skewness of the short selling activities are positive. These results support the hypothesis that short selling activities cause the stock price to decrease.

• Korean Management Science Review
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• v.28 no.3
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• pp.61-72
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• 2011

This study suggests a DEA(Data Envelopment Analysis) based model to evaluate the value of corporate stock. The model integrating PER(Price-Earning Ratio), PBR(Price-BookValue Ratio), PSR(Price-Sales Ratio) and volatility in DEA structure has an advantage of overcome the limitation of traditional financial ratio based models. In order to show the effectiveness of the suggested model. we compare the performance of portfolio composed by DEA approach with those of portfolios made by traditional approaches such as PER, PBR, and PSR in terms of stock return and volatility. Specifically, we use the data of all the enterprises listed on the S&P 500 in the U.S. in 2007 and 2009 as the sample data for the experiments. The results of the experiments show that the performance of the DEA approach is clearly better than those of other approaches. Particularly, in sharply plummeting market, the performance of the DEA approach is shown to be prominently better than those of other approaches as the DEA approach reflects investment risk as well as profitability and growth. The DEA score combining the existing investment indices may serve as a useful barometer for selecting a stable and profitable portfolio.

• Management & Information Systems Review
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• v.34 no.1
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• pp.65-80
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• 2015

In previous studies concerning turnover, they argue individual stock's turnover must be identical to market portfolio's turnover under one condition where 2 funds separation theorem holds. In this kind of world, all market participants hold and trade the same portfolio and this should be only market portfolio. If one's trading portfolio's shape is different from market portfolio's, this would mean he or she has an advantage over others in information and this kind of information would be private. In accordance with this theory, we develop a metric which measures how far one's trading portfolio from market's and name it as Stock Selection by Investor(SSI). We apply this measurement to the various types of investor groups classified as individual, institutional and foreign who participate in Korea stock market. To test the validity of measure, we regress price ratio on this measurement using SUR method. As a result, individual investor group shows large number in SSI, but the coefficient in regression is not significant and economically meaningless. In case of institutional investor group, the coefficient proves to be significantly negative. We can infer from this fact that their trading is somehow far from informed trading. Stock selection activity by foreign investor groups proves to be informed trading by showing significantly positive coefficient and the magnitude of coefficient is economically meaningful, especially in sell activity.