This paper aims to explore the effects of illiquidity on portfolio weight and return dynamics.
Abstract
Purpose
This paper aims to explore the effects of illiquidity on portfolio weight and return dynamics.
Design/methodology/approach
Using a novel continuous-time framework, the paper makes two key contributions to the literature on asset pricing and illiquidity. The first is to study the effects of illiquidity on portfolio weight dynamics. The second contribution is to analyze how illiquidity affects the risk/return dynamics of a portfolio.
Findings
The numerical results highlight that investors should be prepared for potentially large and skewed variations in portfolio weights and can be away from optimal diversification for a long time when adding illiquid assets to a portfolio. Additionally, the paper shows that illiquidity increases portfolio risk. Interestingly, this effect gets more pronounced when the return correlation between the illiquid and liquid asset is low. Thus, there is a correlation effect in the sense that illiquidity costs, as measured by the increase in overall portfolio risk, are inversely related to the return correlation of the assets.
Originality/value
This is the first paper that highlights that the increase in portfolio risk caused by illiquidity is inversely related to the return correlation between the liquid and illiquid assets. This important economic result contrasts with the widely used argument that the benefit of adding illiquid (alternative) assets to a portfolio is their low correlation with (traditional) traded assets. The results imply that the benefits of adding illiquid assets to a portfolio can be much lower than typically perceived.
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Axel Buchner, Abdulkadir Mohamed and Niklas Wagner
Compensation of funds managers increasingly involves elements of profit sharing that entitle managers to option-like payoffs. An important example is the compensation of private…
Abstract
Compensation of funds managers increasingly involves elements of profit sharing that entitle managers to option-like payoffs. An important example is the compensation of private equity fund managers. Compensation of private equity fund managers typically consists of a fixed management fee and a performance-related carried interest. The fixed management fee resembles common compensation terms of mutual funds and hedge funds, while the performance-related carried interest is uncommon among most mutual funds. Moreover, the performance-related carried interest typically differs from variable hedge fund fees. In this chapter, we derive the value of the variable components of private equity fund managers’ compensation based on a risk-neutral option-pricing approach.
– The purpose of this paper is to propose a novel theory of the equilibrium liquidity premia of private equity funds and explore its asset-pricing implications.
Abstract
Purpose
The purpose of this paper is to propose a novel theory of the equilibrium liquidity premia of private equity funds and explore its asset-pricing implications.
Design/methodology/approach
The theory assumes that investors are exposed to the risk of facing surprise liquidity shocks, which upon arrival force them to liquidate their positions on the secondary private equity markets at some stochastic discount to the fund’s current net asset value. Assuming a competitive market where fund managers capture all rents from managing the funds and investors just break even on their positions, liquidity premia are defined as the risk-adjusted excess returns that fund managers must generate to compensate investors for the costs of illiquidity. The model is calibrated to data of buyout funds and is illustrated by using numerical simulations.
Findings
The model analysis generates a rich set of novel implications. These concern how fund characteristics affect liquidity premia, the role of the investors’ propensities of liquidity shocks in determining liquidity premia and the impact of market conditions and cycles on liquidity premia.
Originality/value
This is the first paper that derives liquidity premia of private equity funds in an equilibrium setting in which investors are exposed to the risk of facing surprise liquidity shocks.
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John E. Marsh, Jack Demaine, Raoul Bell, Faye C. Skelton, Charlie D. Frowd, Jan P. Röer and Axel Buchner
The purpose of this paper is to investigate the potential susceptibility of eyewitness memory to the presence of extraneous background speech that comprises a description…
Abstract
Purpose
The purpose of this paper is to investigate the potential susceptibility of eyewitness memory to the presence of extraneous background speech that comprises a description consistent with, or at odds with, a target face.
Design/methodology/approach
A between-participants design was deployed whereby participants viewed an unfamiliar target face in the presence of quiet, or extraneous to-be-ignored speech comprising a verbal description that was either congruent or incongruent with the target face. After a short distractor task, participants were asked to describe the target face and construct a composite of the face using PRO-fit software. Further participants rated the likeness of the composites to the target.
Findings
Recall of correct facial descriptors was facilitated by congruent to-be-ignored speech and inhibited by incongruent to-be-ignored speech compared to quiet. Moreover, incorrect facial descriptors were reported more often in the incongruent speech condition compared with the congruent speech and quiet conditions. Composites constructed after exposure to incongruent speech were rated as worse likenesses to the target than those created after exposure to congruent speech and quiet. Whether congruent speech facilitated or impaired composite construction was found to depend on the distinctiveness of the target face.
Practical implications
The results suggest that the nature of to-be-ignored background speech has powerful effects on the accuracy of information verbally reported from having witnessed a face. Incongruent speech appears to disrupt the recognition processes that underpin face construction while congruent speech may have facilitative or detrimental effects on this process, depending on the distinctiveness of the target face.
Originality/value
This is one of the first studies to demonstrate that extraneous speech can produce adverse effects on the recall and recognition of complex visual information: in this case, the appearance of a human face.
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Harald Kinateder and Niklas Wagner
– The paper aims to model multiple-period market risk forecasts under long memory persistence in market volatility.
Abstract
Purpose
The paper aims to model multiple-period market risk forecasts under long memory persistence in market volatility.
Design/methodology/approach
The paper proposes volatility forecasts based on a combination of the GARCH(1,1)-model with potentially fat-tailed and skewed innovations and a long memory specification of the slowly declining influence of past volatility shocks. As the square-root-of-time rule is known to be mis-specified, the GARCH setting of Drost and Nijman is used as benchmark model. The empirical study of equity market risk is based on daily returns during the period January 1975 to December 2010. The out-of-sample accuracy of VaR predictions is studied for 5, 10, 20 and 60 trading days.
Findings
The long memory scaling approach remarkably improves VaR forecasts for the longer horizons. This result is only in part due to higher predicted risk levels. Ex post calibration to equal unconditional VaR levels illustrates that the approach also enhances efficiency in allocating VaR capital through time.
Practical implications
The improved VaR forecasts show that one should account for long memory when calibrating risk models.
Originality/value
The paper models single-period returns rather than choosing the simpler approach of modeling lower-frequency multiple-period returns for long-run volatility forecasting. The approach considers long memory in volatility and has two main advantages: it yields a consistent set of volatility predictions for various horizons and VaR forecasting accuracy is improved.
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Reginald Harris and Byron Bartlett
Poets House, a poetry special collection in New York, hosts an annual exhibit of the preceding year's poetry publications in the USA. This paper aims to offer a selection of…
Abstract
Purpose
Poets House, a poetry special collection in New York, hosts an annual exhibit of the preceding year's poetry publications in the USA. This paper aims to offer a selection of recommended titles that reflect the range of poetry titles including single‐author works, anthologies, and prose about poetry.
Design/methodology/approach
The paper researched and requested donations of 2010‐2011 poetry titles from US poetry publishers to assemble and display a comprehensive collection of poetry publications, from which a selection of 50 titles was made. The selections should appeal to a range of poetry readers, from novices and students to poets looking to access the latest work from their peers.
Findings
Over 2,500 poetry titles were published and/or available to readers in the USA between June 2010 and June 2011. These titles range from mainstream publishers to independent presses to artists' collectives publishing works from established poets as well as emerging and international poets.
Research limitations/implications
Without a budget for collection development, the exhibit and resulting titles represent those which publishers have opted to donate to the library. Every effort is made to be all‐inclusive, with the understanding that publishers may send only a selection of their list. The selected titles herein are based on the titles received for the exhibition.
Practical implications
For 19 years Poets House's annual Showcase has been the main collection‐development tool. Publishers donate copies of their titles, which are arranged by publisher for a month‐long exhibition. This approach enriches the poetry special collection, a unique poetry library built on community participation. The all‐inclusive collection‐development approach results in a full representation of poetry publishing.
Originality/value
A selection made from a comprehensive collection of the year's poetry titles offers a sample of poetry publishing from large to small presses and the self‐published in the USA.
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Pablo A. Caron, Marcela A. Cruchaga and Axel E. Larreteguy
The present work is a numerical study of a breaking dam problem. The purpose of this paper is to assess the effect of turbulence and surface tension models in the prediction of…
Abstract
Purpose
The present work is a numerical study of a breaking dam problem. The purpose of this paper is to assess the effect of turbulence and surface tension models in the prediction of the interface position in a long-term analysis. Additionally, dimensional effects are analyzed by carrying out both 2D and 3D simulations.
Design/methodology/approach
Finite volume simulations performed with the different models are compared between them and contrasted with numerical results computed using other numerical techniques and experimental data.
Findings
The reported numerical results are in general in good agreement with experimental results available in the literature. They are also consistent with numerical solutions of other authors obtained using different numerical techniques. The results show that the laminar simulations exhibit strong mesh size dependency, while the turbulence models seem to help in producing mesh-independent solutions. Surface tension modeling does not seem to play a relevant role in the interface evolution.
Practical implications
Model validation.
Originality/value
The value of the present work encompass the comparison of different flow conditions used to simulate a free surface problem and their validation by contrasting numerical results with experiments. Also, the results shown in the present work are a contribution to the understanding of the role of some specific aspects of the models in the simulation of the proposed problem.
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The transitions of early adulthood and early careers are becomingincreasingly disorderly and less predictable than in the past. Thesechanges can be seen as manifestations of the…
Abstract
The transitions of early adulthood and early careers are becoming increasingly disorderly and less predictable than in the past. These changes can be seen as manifestations of the “risk society”. Based on surveys and biographical interviews of the life and early career experiences of young adults in Germany and England, generates some insights into the relationships between “transition behaviour” and career outcomes, with reference to contrasting labour markets and the interfaces between personal lives, work and learning. While focusing on comparisons between the labour markets in the former West Germany, reference is also made to the emerging situation in the eastern part of Germany. Concludes that policies are required which develop active transition behaviours in young adults, while providing social and economic support to finance studies, reduce risk for the most vulnerable and promote active and autonomous modes of learning trajectories in adult life.
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Katrin Brückner, Agnes Emberger-Klein and Klaus Menrad
The purpose of this study was to investigate how and through which social-cognitive constructs, emotions influence healthy food shopping behaviors. Direct effects of those…
Abstract
Purpose
The purpose of this study was to investigate how and through which social-cognitive constructs, emotions influence healthy food shopping behaviors. Direct effects of those constructs, as well as indirect effects of consumer emotions are considered.
Design/methodology/approach
An altered version of the Social Cognitive Theory, including intention, socio-structural factors, outcome expectancies and self-efficacy with the addition of consumer emotions was analyzed using structural equation modeling. Data of 1,181 volunteers were collected in Germany in 2021 through an online survey.
Findings
Intention was the most important positive predictor of food choice, while socio-structural factors had the biggest impact on intentions. Those were mostly influenced by self-efficacy, which was strongly predicted by consumer emotions. Outcome expectancies did not influence the current model in any way. Consumer emotions did not directly influence intention, nor actual choice, however showed to be influencing those variables through indirect effects.
Practical implications
Marketers could benefit from these results by incorporating the current findings into existing marketing strategies through targeting a combination of social cognitive constructs, as well as consumer emotions to facilitate healthier food shopping behavior.
Originality/value
Affect has received increasing attention in regards to its impact on healthy eating behaviors in recent years. Less attention has been paid to the mechanisms through which emotions influence healthy nutrition behavior, specifically how consumer emotions influence healthy food shopping behavior.