ACRN Journal of Finance and Risk Perspectives
Vol. 5, Issue 2, August 2016, ISSN 2305-7394
TABLE OF CONTENTS
The Performance, Volatility, Persistence and Downside Risk Characteristics of Sustainable Investments in Emerging Market
Olaf Weber 1, Wei Rong Ang 2
1 School of Environment, Enterprise and Development, University of Waterloo, Canada
2 Independent Researcher, Malaysia, firstname.lastname@example.org
Abstract: We analyzed the performance of an emerging market SRI index, the MSCI SRI Emerging Market Index, with regard to its financial performance compared to conventional indexes between June 2011 and December 2014 based on daily returns. Our analysis suggests that the SRI index is ranked higher in terms of mean return than most of the conventional emerging market portfolios. Generally, we found relative stability in the performance and persistence for the SRI index whereby its performance is indifferent from the market benchmark and no persistence can be found. Furthermore, the results suggest that negative shocks have greater impact on the volatility of the index than positive shocks. In general, it can be concluded that the emerging markets SRI index has lower sensitivity to market return during bearish condition.
How make real option dependable and understandable as a strategic decision making tool?
Zahra Shahrokhshahi 1
1 Carlos de Thirth University, Finance Department
Abstract: Real option methodology has gained surge of attention by scholars after its introduction, yet in real world application, in spite of general acceptance of the model, decision makers do not trust the model extensively. Focusing on different criticisms of the model, this paper is a try to make real option model more trustworthy for real world application. At first, the topic of capturing all the concurrent options investigated with assumption of mean reversion stochastic process and dynamic leakage rate for deferment in start a project. Then, in next step, distribution based model introduced to face the issue of option pricing with two sources of risk, market and private risks. The new model treat different risks individually, besides, its result is suitable for strategic decision making process. As a response to the necessity of proper understanding of real option result, its interpretation mentioned ,briefly, by using Pascal triangular. Finally the result of proposed approaches reviewed applying a real world case.
Keywords: Defer option, Private risk, Multiplex model, distribution based model, real option interpretation
Selection of risk identification instruments
Susanne Baumann 1, Iris Erber 1, Magdalena Gattringer 1
1 Controlling, Accounting and Finance at University of Applied Sciences, Upper Austria
Abstract: The growing volatility in the business environment fosters the importance of risk identification. This step as part of the risk management process builds the basis for every further stage. The prospective risks need to be analysed closely as they reveal potential threats and opportunities. Creativity tools are used here to overcome biases like hindsight or conservativism as these often occur when evaluating past data. However, not one single technique offers the solution but a combination is necessary to identify potential risks. To identify all importantones a diversified group is best suited as they are able to identify more risks than individuals. A combination of internal and external experts is useful for effective risk identification. The techniques used thus need to be customized to the involved persons and business environment to provide a starting point for the decision making. If the importance of risk identification is not seen by companies one of the many negative effects this can have is a weakening of the market position and lagging behind the competitors.
Keywords: Risk Identification, Creativity tools, Brainstorming, SWOT-Analysis, Interview, Delphi-Technique, Bisociation, Synectics
Islamic Banking and Finance as an Ethical Alternative: a Systematic Literature Review
Johanna Pesendorfer 1, Othmar Lehner 2
1 Oberbank AG and University of Applied Sciences in Upper Austria
2 University of Oxford, Said Business School
Abstract: Despite huge global growth rates and a rapidly increasing importance of Islamic banking and finance, research in this area still needs to be classified as nascent. Recent economic events have led to an increasingly critical attitude towards the conventional banking and finance system, whereas Islamic banking is considered to be an ethical alternative not only in Muslim economies but also progressively in the “western” world. As their business models have their origins in religious and ethical ideals, Islamic banks struggle to observe the foundational Shariah principles while simultaneously meeting applicable guidelines such as Basel III and flexibly adapt to the ever changing customer demands. Due to the increasing importance of Islamic banking and finance, this article aims to analyse and summarise various aspects of current research and sets out to identify both, congruence and inconsistencies between the implied promise of an “ethical” alternative and the actual market.
Keywords: Islamic banking, Islamic finance, Shariah, Ethics, Sustainability
A Case for an Islamic Social Impact Bond
Saadiah Mohamad 1, Othmar Lehner 2, Aly Khorshid 3
1 Universiti Teknologi MARA-Faculty of Business Management
2 University of Oxford, UK
3 University of Reading, UK
Abstract: While the premise of Islamic finance is often couched in the principle of maqasid al-shariah and that of risk sharing with claims to social justice and welfare, the impact and contribution to the social sector has been minimal. This paper examines the claim among critics that there is an inherent weakness of the present day Islamic banking and finance industry in terms of its underdeveloped social sector and argues for the need for new models that will enhance a proliferation of shariah compliant financial products for solutions in the social sector. This paper further examines the framework for a socially responsible investment (SRI) sukuk, launched in Malayia in 2014 and the model of SIB (social impact bond) in the social finance space to come up with recommendations for structuring a shariah compliant SIB or social sukuk.
Keywords: socially responsible investment (SRI) sukuk, social impact bond (SIB), shariah compliant, Islamic finance, social finance
Environmental Finance and Impact Investing: Status Quo and Future Research
Christoph Bertl 1
1 University of Applied Sciences Upper Austria
Abstract: Environmental finance (EF) has largely taken root in the financial world. Although the term EF is not commonly used among scholars, in practice though, its components, such as carbon, energy and climate finance, are present in various forms. A proliferation of views, theories and future action alternatives has emerged that could hamper a promotion of the EF field. Consequently, the aim of this paper is to structure, highlight and summarize existing streams, obstacles and future research areas with the assistance of a systematic literature review. Imposed by this review, 117 identified and examined articles have been categorized into three meta-themes: types of EF and markets, impact investing in EF and business models in EF to recap major themes. Based on these findings, the main hurdles and future research avenues are proposed as a research agenda to urge the EF field and stimulate the appetite to develop new analyses, models, tools and regulations in both theory and practice. Future comparative, large-scale quantitative and sector-specific studies should verify the findings in this paper and provide new insights into the EF field. Practitioners might benefit from proper definitive environmental and impact markets with accurate measurement tools and tailored financial products that assort well with personal values of interested parties.
Keywords: Environmental Finance; Environmental Markets; Impact Investing
An Epistemic Definition of Islamic Economics
Masudul Alam Choudhury 1, Hafizah Abdul Rahim 1
1 Department of Shari’ah and Economics, Academy of Islamic Studies, University of Malaya
Abstract: The epistemic explanation of the heterodox philosophico-economic field of Islamic economics and finance opens doors to a great deal of intellectual contribution in global socio-scientific learning. Islamic economics as it has been clamored for does not have an ontological, epistemological, and phenomenological content to it. These terms are explained in the text of this paper. Such an ambivalence makes the discipline of Islamic economics and finance devoid of scientific meaning. Islamic economics and finance are presently driven by the mainstream economic objective of maximization of shareholders’ wealth. The field of Islamic economics and finance has thereby remained tied to old economics. It is thereby unable to make intellectual contribution. The intellectual gap between the conventional and a revolutionary paradigmatic emergence needs to be filled up. The result then will be a significant contribution of Islamic economics and finance to the world of socio-scientific knowledge.
Some pertinent issues are discussed in this paper on the inadequacy of present days’ understanding of Islamic financial legal contracts in the absence of a generalized theory of integration between the prevailing exogenously set shari’ah rules and the endogenous dynamics of market system. In the epistemic definition of Islamic economics and finance, this existing mainstream methodology is replaced by the cardinal core of Islamic socio-scientific intellection. This is the episteme of monotheistic unity of knowledge as law that can configure the generality and details of the world-system being studied. A particular case of such a world-system is Islamic economics and finance taken up in this paper.
Keywords: Islamic economics, Islamic finance, epistemology and economics, shari’ah and economics.
Accrual-based versus Real earnings management; the effect of Ownership structure: Evidence from East Africa
Janeth P. Swai 1, Cosmas S. Mbogela 1
1 School of Business, Mzumbe University, Tanzania
Abstract: Existing literature suggests that different ownership structure have different impact on earnings management. The findings from prior studies provide confliction and contradicting results regarding the relationship between ownership structure and earnings management.We examine whether ownership structure has impact on both accrual-based and real earnings management. Using a sample of 44 non-financial East African listed firms for years from 2003 to 2013, we find little evidence to suggest that ownership structure has animpact on accrual-based earnings management in East Africa. However, we find that ownership concentration and institutional ownership has significant negative effect on real earnings management. Therefore our results highlight the importance of analyzing both earnings management strategies in order come up with a definitive conclusion.
Keywords: Real earnings management, Discretionary accruals, Ownership structure, Emerging Markets
Making money at the expense of the poor?
An investigation of individuals’ preferences to impact invest versus donate
Barbara Scheck 1, Anna Katharina Höchstädter 2, Timo Busch 2
1 Munich Business School 2 Universität Hamburg
Abstract: Bringing together philanthropic objectives and financial decision-making, impact investors explicitly aim to generate impact while also yielding a financial return. Yet, the values, norms, and motives associated with philanthropy may be at odds with those of financial investing. Consequently, the question arises whether individuals deem it inappropriate—or even unethical—to invest in social problem-solving. This article aims to shed light on this question. Using an experimental set-up, we study the effect of funding scale (small or large funding requests) and funding scheme (donation or impact investment) on the funding decision of 872 individuals. Our findings indicate that a substantial share of the general population could embrace impact investing opportunities in real settings. In particular, small-scale, interest-free impact investments may be a promising way to elicit funding for social problem-solving. However, when larger amounts of money are at stake, individuals appear to exhibit self-interested behavior and require a positive financial return.
Keywords: charitable giving, impact investing, philanthropy, social entrepreneurship, social finance, social investment