• Title/Summary/Keyword: risky assets

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A Study on Dynamic Asset Allocation Strategy for Optimal Portfolio Selection

  • Lee, Hojin
    • East Asian Economic Review
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    • v.25 no.3
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    • pp.310-336
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    • 2021
  • We use iterative numerical procedures combined with analytical methods due to Rapach and Wohar (2009) to solve for the dynamic asset allocation strategy for optimal portfolio demand. We compare different optimal portfolio demands when investors in each country have different access to overseas and domestic investment opportunities. The optimal dynamic asset allocation strategy without foreign investment opportunities leads domestic investors in Korea, Hong Kong, and Singapore to allocate more funds to domestic bonds than to domestic stocks. However, the U.S. investors allocate more wealth to domestic stocks than to domestic bonds. Investors in all countries short bills at a low level of risk aversion. Next, we investigate dynamic asset allocation strategy when domestic investors in Korea have access to foreign markets. The optimal portfolio demand leads investors in Korea to allocate most resources to domestic bonds and foreign stocks. On the other hand, the portfolio weights on foreign bonds and domestic stocks are relatively low. We also analyze dynamic asset allocation strategy for the investors in the U.S., Hong Kong, and Singapore when they have access to the Korean markets as overseas investment opportunities. Compared to the results when the investors only have access to domestic markets, the investors in the U.S. and Singapore increase the portfolio weights on domestic stocks in spite of the overseas investment opportunities in the Korean markets. The investors in the U.S., Hong Kong, and Singapore short domestic bills to invest more than initial funds in risky assets with a varying degree of relative risk aversion coefficients without exception.

A Study on the Financing Decision of Retail Firms Listed on Korean Stock Markets (유통 상장기업들의 자본조달 특징에 관한 연구)

  • Yoon, Bo-Hyun
    • Journal of Distribution Science
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    • v.12 no.10
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    • pp.75-84
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    • 2014
  • Purpose - This article aims to examine whether the stock issuance of firms in the retail industry follows Myers' (1984) pecking order theory, which is based on information asymmetry. According to the pecking order model, firms have a sequence of financing decisions, of which the first choice is to use retained earnings, the second one is to get into safe debt, the next involves risky debt, and the last involves finance with outside equity. Since the 2000s, the polarization of the LEs (Large enterprises) and SMEs (Small and Medium Enterprises) arose in the retail industry. The LEs exhibited an improvement in growth and profitability, whereas SMEs had a tendency to degenerate. This study contributes to corroborating the features of financing decisions in the retail industry distinguished from the other industries. Research design, data, and methodology - This study considers the stocks listed on the KOSPI and KOSDAQ markets from 1991 to 2013, and is more concentrated on the stocks in the retail industry. The data were collected from the financial information company, WISEfn. The empirical analysis is conducted by employing two measures of net equity issues (and), which were introduced in Fama and French (2005), and can be calculated from firms' accounting information. All variables are generated as the aggregate value of the numerator divided by aggregate assets, which, in effect, treats the entire sample as a single firm. Substantially, the financing decisions of the firms were analyzed by examining how often and under what circumstances firms issue and repurchase equity. Then, this study compares the features of the retail industry with those of the other industries. Results - The proportion of sample firms that show annual net stock issues reaching the level of the year's average was 54.33% for the 1990s, and fell to 39.93% per year for the 2000s. In detail, the fraction of the small firms actually increases from 45.08% to 51.04%, whereas that of large firms shows a dramatic decline from 58.94% to 24.76%. Considering the fact that the large firms' rapid increase in growth after the 2000s may lead to an increase in equity issues, this result is rather surprising. Meanwhile, net stock repurchases of assets are considerably disproportionate between the large (-50.11%) and the small firms (-15.66%) for the 2000s. Conclusions - Stock issuance of retail firms is not in line with the traditional seasoned equity offering based on information asymmetry. The net stock issuance of the small firms in the retail industry can be interpreted as part of an effort to reorganize business and solicit new investment to resolve degenerating business performance. For large firms, on the other hand, the net repurchase can be regarded as part of an effort to rearrange business for efficiency and amplifying synergy across business sections through spin-off. These results can help the government establish a support policy on retail industry according to size.

The Effect of PCAOB on Auditing Fee (외국회계감독기구의 등록이 감사보수에 미치는 영향)

  • Yoon, Min;Lee, Jin-Soo
    • Journal of Digital Convergence
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    • v.14 no.12
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    • pp.111-120
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    • 2016
  • PCAOB conducts the direct supervision for the PCAOB registered accounting firm. Therefore, if an accounting firm is registered with the PCAOB, it will thoroughly manage for their quality management systems. The registered auditor can be expected to have better quality of the audit. This study carried out the analysis using the audit fee which proxies for audit quality. The results of analysis are as follows. After controlling for foreign accounting firms affiliated status, company size, risky assets, leverage, ROA, and market-related variables, PCAOB is a significant explanatory variable for the audit fees. The results of this study support the hypothesis that PCAOB-registered auditors will provide a good audit quality.

A Study of Efficiency about Nonlife Insurance Asset Management to Low Interest (저금리에 따른 손해보험회사 자산운용의 효율화 방안 연구)

  • Kim, Sun-Je
    • Journal of Service Research and Studies
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    • v.5 no.2
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    • pp.35-49
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    • 2015
  • The purpose of this paper is to see what the problem is and what the direction of the strategy of asset management after this study has analyzed asset management status of nonlife insurance companies according to interest rate trends, analyzing in time series asset state, management asset lists, asset distribution state, securities list and total asset yield of Nonlife insurance companies during year 2009~2014. As the study result, nonlife insurance companies have managed assets in stability than profitability according to safety asset was increased, but risky asset was decreased. Performance rate of total asset was dropped according to interest rate declined trends. Trend between stock index and performance rates of total asset was not accord. The correlation coefficient between interest rate and performance rates of total asset was highly plus, but the correlation coefficient of KOSPI and performance rate of total asset showed minus.

Optimal Asset Allocation for National Pension Considering Cohort-Specific Internal Rates of Return (코호트별 내부수익률을 고려한 국민연금 적정 자산배분)

  • Dong-Hwa Lee;Daehwan Kim
    • Journal of the Korea Society for Simulation
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    • v.32 no.4
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    • pp.69-76
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    • 2023
  • To improve the financial stability of the National Pension, an appropriate target rate of return should be established based on pension liabilities, and asset allocation policies should be formulated accordingly. The purpose of this study is to calculate the target rate of return considering the contributions of subscribers and the pension benefits, and based on this, derive an asset allocation. To do this, we utilized the internal rate of return methodology to calculate the target rate of return for each cohort. And then, we employed a Monte Carlo simulation-based re-sampling mean-variance model to derive asset allocation for each cohort that satisfy the target rate of return while minimizing risks. Our result shows that the target rate of return for each cohort ranged from 6.4% to 6.85%, and it decreased as the generations advanced due to a decrease in the income replacement rate of the National Pension. Consequently, the allocation of risky assets, such as stocks, was relatively reduced in the portfolios of future generations. This study holds significance in that it departs from the macroeconomic-based asset allocation methodology and proposes investments from an asset-liability management perspective, which considers the characteristics of subscribers' liabilities.

Effect of Capital Market Return On Insurance Coverage : A Financial Economic Approach (투자수익(投資收益)이 보험수요(保險需要)에 미치는 영향(影響)에 관한 이론적(理論的) 고찰(考察))

  • Hong, Soon-Koo
    • The Korean Journal of Financial Management
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    • v.10 no.1
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    • pp.249-280
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    • 1993
  • Recent financial theory views insurance policies as financial instruments that are traded in markets and whose prices reflect the forces of supply and demand. This article analyzes individual's insurance purchasing behavior along with capital market investment activities, which will provide a more realistic look at the tradeoff between insurance and investment in the individual's budget constraint. It is shown that the financial economic concept of insurance cost should reflect the opportunity cost of insurance premium. The author demonstrates the importance of riskless and risky financial assets in reaching an equilibrium insurance premium. In addition, the paper also investigates how the investment income could affect the four established theorems on traditional insurance literature. At the present time in Korea, the price deregulation is being debated as the most important current issue in insurance industry. In view of the results of this paper, insurance companies should recognize investment income in pricing their coverage if insurance prices are deregulated. Otherwise. price competition may force insurance companies to restrict coverage or to leave the market.

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Structural Adjustment of Domestic Firms in the Era of Market Liberalization (시장개방(市場開放)과 국내기업(國內企業)의 구조조정(構造調整))

  • Seong, So-mi
    • KDI Journal of Economic Policy
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    • v.13 no.4
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    • pp.91-116
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    • 1991
  • Market liberalization progressing simultaneously with high and rapidly rising domestic wages has created an adverse business environment for domestic firms. Korean firms are losing their international competitiveness in comparison to firms from LDC(Less Developed Countries) in low-tech industries. In high-tech industries, domestic firms without government protection (which is impossible due to the liberalization policy and the current international status of the Korean economy) are in a disadvantaged position relative to firms from advanced countries. This paper examines the division of roles between the private sector and the government in order to achieve a successful structural adjustment, which has become the impending industrial policy issue caused by high domestic wages, on the one hand, and the opening of domestic markets, on the other. The micro foundation of the economy-wide structural adjustment is actually the restructuring of business portfolios at the firm level. The firm-level business restructuring means that firms in low-value-added businesses or with declining market niches establish new major businesses in higher value-added segments or growing market niches. The adjustment of the business structure at the firm level can only be accomplished by accumulating firm-specific managerial assets necessary to establish a new business structure. This can be done through learning-by-doing in the whole system of management, including research and development, manufacturing, and marketing. Therefore, the voluntary cooperation among the people in the company is essential for making the cost of the learning process lower than that at the competing companies. Hence, firms that attempt to restructure their major businesses need to induce corporate-wide participation through innovations in organization and management, encourage innovative corporate culture, and maintain cooperative labor unions. Policy discussions on structural adjustments usually regard firms as a black box behind a few macro variables. But in reality, firm activities are not flows of materials but relationships among human resources. The growth potential of companies are embodied in the human resources of the firm; the balance of interest among stockholders, managers, and workers of the company' brings the accumulation of the company's core competencies. Therefore, policymakers and economists shoud change their old concept of the firm as a technological black box which produces a marketable commodities. Firms should be regarded as coalitions of interest groups such as stockholders, managers, and workers. Consequently the discussion on the structural adjustment both at the macroeconomic level and the firm level should be based on this new paradigm of understanding firms. The government's role in reducing the cost of structural adjustment and supporting should the creation of new industries emphasize the following: First, government must promote the competition in domestic markets by revising laws related to antitrust policy, bankruptcy, and the promotion of small and medium-sized companies. General consensus on the limitations of government intervention and the merit of deregulation should be sought among policymakers and people in the business world. In the age of internationalization, nation-specific competitive advantages cannot be exclusively in favor of domestic firms. The international competitiveness of a domestic firm derives from the firm-specific core competencies which can be accumulated by internal investment and organization of the firm. Second, government must build up a solid infrastructure of production factors including capital, technology, manpower, and information. Structural adjustment often entails bankruptcies and partial waste of resources. However, it is desirable for the government not to try to sustain marginal businesses, but to support the diversification or restructuring of businesses by assisting in factor creation. Institutional support for venture businesses needs to be improved, especially in the financing system since many investment projects in venture businesses are highly risky, even though they are very promising. The proportion of low-value added production processes and declining industries should be reduced by promoting foreign direct investment and factory automation. Moreover, one cannot over-emphasize the importance of future-oriented labor policies to be based on the new paradigm of understanding firm activities. The old laws and instititutions related to labor unions need to be reformed. Third, government must improve the regimes related to money, banking, and the tax system to change business practices dependent on government protection or undesirable in view of the evolution of the Korean economy as a whole. To prevent rational business decisions from contradicting to the interest of the economy as a whole, government should influence the business environment, not the business itself.

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