Search Results (195)

The present research proposes a methodology for portfolio construction that integrates the Black–Litterman model with expected returns generated through simulations under dynamic Capital Asset Pricing Model (CAPM) with conditional betas, estimated via Approximate Bayesian Computation Markov Chain Monte Carlo (ABC-MCMC). Bayesian estimation enables the incorporation of volatility regimes and the adjustment of each asset’s sensitivity to the market, thereby delivering expected returns that more accurately reflect the structural state of the assets compared to historical methods. This strategy is applied to the United States stock market, and the results suggest that the Black–Litterman portfolio performs competitively against portfolios optimised using the classic Markowitz model, even maintaining the same fixed weights throughout the month. Specifically, it has been demonstrated to outperform the minimum variance portfolio with regard to cumulative return and attains a Sharpe ratio that approaches the Markowitz maximum Sharpe portfolio, although it does so with a distinct and more concentrated asset allocation. It has been observed that, while the maximum return portfolio attains the highest absolute profit, it does so at the expense of significantly higher volatility. Full article

This article aims to investigate the impact of sustainable assets on dynamic portfolio optimization under varying levels of investor risk aversion, particularly during turbulent market conditions. The analysis compares the performance of two portfolio types: (i) portfolios composed of non-sustainable assets such as fossil energy commodities and conventional equity indices, and (ii) mixed portfolios that combine non-sustainable and sustainable assets, including renewable energy, green bonds, and precious metals using advanced Deep Reinforcement Learning models (including TD3 and DDPG) based on risk and transaction cost- sensitive in portfolio optimization against the traditional Mean-Variance model. Results show that incorporating clean and sustainable assets significantly enhances portfolio returns and reduces volatility across all risk aversion profiles. Moreover, the Deep Reinforcing Learning optimization models outperform classical MV optimization, and the RTC-LSTM-TD3 optimization strategy outperforms all others. The RTC-LSTM-TD3 optimization achieves an annual return of 24.18% and a Sharpe ratio of 2.91 in mixed portfolios (sustainable and non-sustainable assets) under low risk aversion (λ = 0.005), compared to a return of only 8.73% and a Sharpe ratio of 0.67 in portfolios excluding sustainable assets. To the best of the authors’ knowledge, this is the first study that employs the DRL framework integrating risk sensitivity and transaction costs to evaluate the diversification benefits of sustainable assets. Findings offer important implications for portfolio managers to leverage the benefits of sustainable diversification, and for policymakers to encourage the integration of sustainable assets, while addressing fiduciary responsibilities. Full article

We are living in an era where the demand for Open Access to knowledge is growing and the need for transparency in scientific publishing is becoming imperative. The question that arises at this stage is whether openness in knowledge constitutes the Achilles heel of the once profitable legacy publishing industry or whether it is the Trojan horse of the latter for increasing its revenues. At the same time, the question of whether Open Access publishers can ensure their sustainability through this model remains unanswered. This study implements a multi-year analysis (2019–2023) comparing the performance of Open Access and legacy publishers. Using a set of financial ratios—grouped by profitability, liquidity, efficiency, and solvency, as well as data on firm size (revenues, assets, and employee counts), we assess their financial performance. The results indicate that legacy publishers have enormous scale, stable profitability, and high leverage, but low liquidity and return on equity. On the other hand, OA publishers, although smaller, have higher returns, better liquidity, and almost zero borrowing, but with greater annual volatility. The study discusses that OA publishers, despite their small size, can be as profitable as or even more profitable than traditional publishers, thanks to flexible structures and fast cash flows, but remain vulnerable due to limited resources and the risk of acquisition. Furthermore, legacy publishers maintain their dominance by leveraging their scale, strong brands, and investment capacity while adopting or acquiring OA models, creating a competitive environment where scale and strategic differentiation are decisive. Full article

In this paper, we propose a novel optimization model for portfolio selection that integrates the classical mean–variance criterion with a second-order Tsallis entropy term. This approach enables a trade-off between expected return, risk, and diversification, extending Markowitz’s theory to account for non-Gaussian characteristics and heavy-tailed distributions that are typical in financial markets—especially in cryptocurrency assets. Unlike the first-order Tsallis entropy, the second-order version amplifies the effects of distributional structure and allows for more refined penalization of portfolio concentration. We derive the analytical solution for the optimal weights under this extended framework and demonstrate its performance through a case study using real data from selected cryptocurrencies. Efficient frontiers, portfolio weights, and entropy indicators are compared across models. This novel combination may improve portfolio selection under uncertainty, especially in the context of volatile assets such as cryptocurrencies, as the proposed model can provide a more robust and diversified portfolio structure compared to conventional theories. Full article

The escalating frequency and severity of natural disasters present significant challenges to the stability and sustainability of global financial systems, with the US stock market being especially vulnerable. This study examines sector-level exposure and contagion dynamics during climate-related disaster events, providing insights essential for sustainable investing and resilient financial planning. Using an advanced econometric framework—dynamic conditional correlation GARCH (DCC-GARCH) augmented with Generalized Hyperbolic Processes (GHPs) and an asymmetric specification (ADCC-GARCH)—we model daily stock returns for 20 publicly traded US companies across five sectors (insurance, energy, automotive, retail, and industrial) between 2017 and 2022. The results reveal considerable sectoral heterogeneity: insurance and energy sectors exhibit the highest vulnerability, with heavy-tailed return distributions and persistent volatility, whereas retail and selected industrial firms demonstrate resilience, including counter-cyclical behavior during crises. GHP-based models improve tail risk estimation by capturing return asymmetries, skewness, and leptokurtosis beyond Gaussian specifications. Moreover, the ADCC-GHP-GARCH framework shows that negative shocks induce more persistent correlation shifts than positive ones, highlighting asymmetric contagion effects during stress periods. The results present the insurance and energy sectors as the most exposed to extreme events, backed by the heavy-tailed return distributions and persistent volatility. In contrast, the retail and select industrial firms exhibit resilience and show stable, and in some cases, counter-cyclical, behavior in crises. The results from using a GHP indicate a slight improvement in model specification fit, capturing return asymmetries, skewness, and leptokurtosis indications, in comparison to standard Gaussian models. It was also shown with an ADCC-GHP-GARCH model that negative shocks result in a greater and more durable change in correlations than positive shocks, reinforcing the consideration of asymmetry contagion in times of stress. By integrating sector-specific financial responses into a climate-disaster framework, this research supports the design of targeted climate risk mitigation strategies, sustainable investment portfolios, and regulatory stress-testing approaches that account for volatility clustering and tail dependencies. The findings contribute to the literature on financial resilience by providing a robust statistical basis for assessing how extreme climate events impact asset values, thereby informing both policy and practice in advancing sustainable economic development. Full article

This study examined the factor structure of Green, Grey, and Red EU securities using extended asset pricing models built on the Fama–French and Carhart frameworks. The findings show improved return predictability and consistently negative risk-adjusted alpha across categories post-Global Financial Crisis (GFC), suggesting systematic overestimation of expected returns. All environmental asset types are positively linked to the MKTRF, SMB, HML, and HML^Devil factors, indicating exposure to core risk premia. Green securities exhibit elevated currency risk and persistent negative momentum, while Red assets transition from positive to negative momentum. Green and Red securities show stronger gold associations post-GFC, signaling a hedging role. Grey assets shift away from safe-haven behavior, becoming more sensitive to volatility. FEAR factor exposure and QML results suggest evolving sensitivity and declining quality, particularly in Grey assets. These findings underscore the need for enriched asset pricing models to capture dynamic risk characteristics in environmental assets within the EU financial markets. Full article

In a stage of more and more complex and high-frequency financial markets, the volatility analysis is a cornerstone of modern financial econometrics with practical applications in portfolio optimization, derivative pricing, and systematic risk assessment. This paper introduces a novel Bayesian Time-varying Generalized Autoregressive Conditional Heteroskedasticity (BtvGARCH-Itô) model designed to improve the precision and flexibility of volatility modeling in financial markets. Original GARCH-Itô models, while effective in capturing realized volatility and intraday patterns, rely on fixed or constant parameters; thus, it is limited to studying structural changes. Our proposed model addresses this restraint by integrating the continuous-time Ito process with a time-varying Bayesian inference to allow parameters to vary over time based on prior beliefs to quantify uncertainty and minimize overfitting, especially in small-sample or high-dimensional settings. Through simulation studies, using sample sizes of N = 100 and N = 200, we find that BtvGARCH-Itô outperformed original GARCH-Itô in-sample fit and out-of-sample forecast accuracy based on posterior estimates comparison with true parameter values and forecasting error metrics. For the empirical validation, this model is applied to analyze the volatility of S&P 500 and Bitcoin (BTC) using one-minute length data for S&P 500 (from 3 January 2023 to 31 December 2024) and BTC (from 1 January 2023 to 1 January 2025). This model has potential as a robust tool and a new direction in volatility modeling for financial risk management. Full article

This study proposes a novel hybrid framework that integrates a jump model with model predictive control (JM-MPC) for dynamic asset allocation under regime-switching market conditions. The proposed approach leverages the jump model to identify distinct market regimes while incorporating a rolling prediction mechanism to estimate time-varying asset returns and covariance matrices across multiple horizons. These regime-dependent estimates are subsequently used as inputs for an MPC-based optimization process to determine optimal asset allocations. Through comprehensive empirical analysis, we demonstrate that the JM-MPC framework consistently outperforms an equal-weighted portfolio, delivering superior risk-adjusted returns while substantially mitigating portfolio drawdowns during high-volatility periods. Our findings establish the effectiveness of combining regime-switching modeling with model predictive control techniques for robust portfolio management in dynamic financial markets. Full article

This paper examines the interconnection and wavelet coherence between the green cryptocurrency market and the green conventional market, utilizing daily data. The research period covers 1 July 2020 to 30 September 2024. Employing the time-varying parametric vector autoregression (TVP-VAR) model and wavelet coherence analysis, we capture both short- and long-term spillovers across markets. The results show that cryptocurrencies, particularly Binance and Litecoin, act as dominant transmitters of volatility and return shocks, while green conventional indices function mainly as receivers with strong self-dependence. Spillover intensity is highly time-varying, with peaks during periods of systemic stress, particularly during the COVID-19 pandemic, and troughs indicating diversification opportunities. These findings advance the literature on systemic risk and portfolio design by showing that crypto assets can simultaneously amplify vulnerabilities and enhance diversification when combined with green finance instruments. For policy, the results highlight the need for regulatory frameworks that integrate sustainability taxonomies, mandate environmental disclosures for digital assets, and incentivize energy-efficient blockchain adoption to align crypto markets with sustainable finance objectives. This research enhances our understanding of the interrelationship between green investments and cryptocurrencies, providing valuable insights for investors and policymakers on risk management and diversification strategies in an increasingly sustainable financial landscape. Full article

This study develops an integrated risk modeling framework to assess capital adequacy and optimize portfolio performance for Thai life and non-life insurers. Leveraging ARMA–GJR–GARCH models with skewed Student-t innovations, extreme value theory, and dynamic R-vine copulas, the framework effectively captures volatility, tail risks, and evolving asset interdependencies. Utilizing daily data from 2014 to 2024, the models generate value-at-risk forecasts consistent with international standards such as Basel III’s 10-day 99% VaR and rolling Sharpe ratios for portfolios integrating green bonds compared to traditional asset allocations. The results demonstrate that green bonds, fixedincome instruments funding renewable energy and other environmental projects, significantly improve risk-adjusted returns and have the potential to reduce capital requirements, particularly for life insurers with long-term sustainability mandates. These findings underscore the importance of portfolio-level capital assessment and support the proactive integration of ESG considerations into supervisory investment guidelines to enhance financial resilience and align the insurance sector with Thailand’s sustainable finance agenda. Full article

This study analyzes the volatility of Bitcoin using stochastic volatility models fitted to one-minute transaction data for the BTC/USDT pair between 1 April 2023, and 31 March 2024. Bernstein polynomial terms were introduced to accommodate intraday and intraweek seasonality, and flexible return distributions were used to capture distributional characteristics. Seven return distributions—normal, Student-t, skew-t, Laplace, asymmetric Laplace (AL), variance gamma, and skew variance gamma—were considered. We further incorporated explanatory variables derived from the trading volume and price changes to assess the effects of order flow. Our results reveal structural market changes, including a clear regime shift around October 2023, when the asymmetric Laplace distribution became the dominant model. Regression coefficients suggest a weakening of the volume–volatility relationship after September and the presence of non-persistent leverage effects. These findings highlight the need for flexible, distribution-aware modeling in 24/7 digital asset markets, with implications for market monitoring, volatility forecasting, and crypto risk management. Full article

This study evaluates the performance of U.S. data center Exchange-Traded Funds (ETFs) relative to major equity and technology benchmarks, using monthly returns from January 2000 through December 2024, with particular emphasis on the COVID-19 period and the subsequent post-vaccine era. Data center ETFs have not provided better risk-adjusted returns even though they are often advertised as access points to the digital economy. Digital infrastructure demand increased through the pandemic but did not improve the performance of these funds which stayed weak across both traditional and conditional multi-factor asset pricing models. These ETFs struggle with asset selection and market timing proficiency, which leads to relatively poor performance results during volatile market conditions. The downside risks linked to these funds tend to match or exceed the downside risks of broader indices like the S&P 1500 Information Technology Index. Although these investments are based on strong thematic narratives, they do not achieve returns that align with investor expectations. Full article

This study evaluates the risk-adjusted performance of Hospitality REITs using multi-factor asset pricing models and downside risk measures with the aim of assessing their diversification potential and crisis sensitivity. Unlike prior studies that examine REITs in aggregate, this study isolates Hospitality REITs to explore their unique cyclical and macroeconomic sensitivities. This study looks at the risk-adjusted performance of Hospitality Real Estate Investment Trusts (REITs) in relation to more general REIT indexes and the S&P 500 Index. The study reveals that monthly returns of Hospitality REITs increasingly move in tandem with the stock markets during financial crises, which reduces their historical function as portfolio diversifiers. Investing in Hospitality REITs exposes one to the hospitality sector; however, these investments carry notable risks and provide little protection, particularly during economic upheavals. Furthermore, the study reveals that Hospitality REITs underperform on a risk-adjusted basis relative to benchmark indexes. The monthly returns of REITs show significant volatility during the post-COVID-19 era, which causes return-to-risk ratios to be below those of benchmark indexes. Estimates from multi-factor models indicate negative alpha values across conditional models, indicating that macroeconomic variables cause unremunerated risks. This industry shows great sensitivity to market beta and size and value determinants. Hospitality REITs’ susceptibility comes from their showing the most possibility for exceptional losses across asset classes under Value at Risk (VaR) and Conditional Value at Risk (CvaR) downside risk assessments. The findings have implications for investors and portfolio managers, suggesting that Hospitality REITs may not offer consistent diversification benefits during downturns but can serve a tactical role in procyclical investment strategies. Full article

Amid the growing debate over how cryptocurrencies are reshaping global finance, this study explores the nexus between Bitcoin, Brent Crude Oil, Gold and the U.S. Dollar Index. We used a time-varying vector autoregressive (tvVAR) model to examine the connection among these four assets during the Trump (2017–2020) and Biden (2021–2024) governments. The 48-week return forecast of the Bitcoin–Gold correlation was also conducted by using the Bayesian Structural Time Series (BSTS) model. Results indicate that Bitcoin was the most volatile asset, while the U.S. Dollar remained the least volatile under both regimes. Under Trump, U.S. Dollar significantly influenced Oil and Bitcoin while Bitcoin and Gold were negatively linked to Oil and positively associated with U.S. Dollar. An inverse relationship between Bitcoin and Gold also emerged. Under Biden, Bitcoin, Gold, and U.S. Dollar all significantly affected Oil with Bitcoin showing a positive impact. Bitcoin and Gold remained negatively correlated though not significantly, and the Dollar maintained positive ties with both. Forecasts show a positive link between Bitcoin and Gold in the coming year. However, Bitcoin does not exhibit consistent characteristics of a safe-haven asset during the U.S. presidential transitions examined, largely due to its high volatility and unstable correlations with a traditional safe-haven asset, Gold. This study contributes to the understanding of shifting relationships between digital and traditional assets across political regimes. Full article

This study explores asymmetric volatility structures within multivariate hysteretic autoregressive (MHAR) models that incorporate conditional correlations, aiming to flexibly capture the dynamic behavior of global financial assets. The proposed framework integrates regime switching and time-varying delays governed by a hysteresis variable, enabling the model to account for both asymmetric volatility and evolving correlation patterns over time. We adopt a fully Bayesian inference approach using adaptive Markov chain Monte Carlo (MCMC) techniques, allowing for the joint estimation of model parameters, Value-at-Risk (VaR), and Marginal Expected Shortfall (MES). The accuracy of VaR forecasts is assessed through two standard backtesting procedures. Our empirical analysis involves both simulated data and real-world financial datasets to evaluate the model’s effectiveness in capturing downside risk dynamics. We demonstrate the application of the proposed method on three pairs of daily log returns involving the S&P500, Bank of America (BAC), Intercontinental Exchange (ICE), and Goldman Sachs (GS), present the results obtained, and compare them against the original model framework. Full article