The Industry 4.0 wave is built on technological advancement that is bringing about significant change. The impact of Industry 4.0 is being felt across all industries, including the education sector. During the 2019 State of the Nation address, the President of South Africa pointed out that the government was seeking to respond to the change in skil...
The CAPM is still the most popular model for analysing the relationshipbetween risk and return. This paper provides evidence on the degree ofpersistence of one of its key components, namely the market risk premium,as well as its volatility. The analysis applies fractional integration methods todata for the US, Germany and Japan, and for robustness purposes considersdifferent time horizons (2, 5 and 10 years) and frequencies (monthly andweekly). The empirical findings in most cases imply that the market riskpremium is a highly persistent variable which can be characterized as a randomwalk process, whilst its volatility is less persistent and exhibits stationary long-memory behaviour. There is also evidence that in the case of the US the degreeof persistence has changed as a results of various events such as the 1973–74oil crisis, the early 1980s recession resulting from the Fed’s contractionarymonetary policy, the 1997 Asian financial crisis, and the 2007 global financialcrisis; this is confirmed by both endogenous break tests and the associatedsubsample estimates. Market participants should take this evidence into accountwhen designing their investment strategies.
The results for the overall population of 948 respondents reveal that 72 percent of the overall population has a medium to high interest in ESG investing.
Four ESG investment strategies are described below:
1. Consideration funds—These funds consider ESG criteria and performance along with traditional financial analysis during investment analysis with ESG not being the entire focus
2. Integration funds—These funds broadly integrate ESG investment criteria throughout the investment-analysis process. Integration funds comprise the largest group of ESG funds. These funds exhibit a higher level of commitment to ESG investing than do ESG consideration funds.
3. Impact funds—These funds focus on investments made in companies that generate financial return and demonstrate specific social or environmental impact, such as low carbon or natural resource depletion.
4. Sustainable sector funds—These funds focus on investments in specific “green economy” sectors and address initiatives such as renewable energy, environmental services, water infrastructure, and green real estate.
Growth with equity is the foremost objective in all economies in the world today, especially in the emerging market economies (EMEs), where the poor still make up a sizeable proportion of the population. To ensure growth and development with equity, financial sector policies are expected to be tuned to sub-serve these broad objectives. Though there is no unanimity among economists, including Nobel laureates, on the relevance of finance for growth, the crisis has provided ample evidence that a stable financial system will have a positive impact on both growth and equity and an unstable one will harm both these economic objectives. There could, however, be conflicts in the short and medium term between the objective of financial stability on the one hand, and growth and equity on the other hand. But there cannot be any dispute that in the long term all three objectives are simultaneously achievable. This paper highlights the interaction between prudential and other financial sector and macroeconomic policies and goes on to review financial sector regulation in the pre-crisis, mid-crisis, and post-crisis periods, with a special focus on issues specific to the EMEs in the implementation of Basel II and III. The paper argues that even though the EMEs find implementing the Basel capital regulations a major challenge, in the long run following these standards will contribute to strengthening their banking systems. The paper also emphasizes that some aspects of regulation can be oriented towards achieving the development objectives of EMEs without necessarily sacrificing prudent regulation and financial stability considerations and that EMEs can supplement their development objectives with other well designed financial sector policies
Two critical questions about intergenerational outcomes are: one, whethersignificant barriers or traps exist between different social or economicstrata; and two, the extent to which intergenerational outcomes do (or can beused to) affect individual investment and consumption decisions. We develop amodel to explicitly relate these two questions, and prove the first such `ratrace' theorem, showing that a fundamental relationship exists between highlevels of individual investment and the existence of a wealth trap, which trapsotherwise identical agents at a lower level of wealth. Our simple model ofintergenerational wealth dynamics involves agents which balance currentconsumption with investment in a single descendant. Investments then determinedescendant wealth via a potentially nonlinear and discontinuous competitivenessfunction about which we do not make concavity assumptions. From this model wedemonstrate how to infer such a competitiveness function from investments,along with geometric criteria to determine individual decisions. Additionallywe investigate the stability of a wealth distribution, both to localperturbations and to the introduction of new agents with no wealth.
We introduce an agent-based model, in which agents set their prices tomaximize profit. At steady state the market self-organizes into three groups:excess producers, consumers and balanced agents, with prices determined bytheir own resource level and a couple of macroscopic parameters that emergenaturally from the analysis, akin to mean-field parameters in statisticalmechanics. When resources are scarce prices rise sharply below a turning pointthat marks the disappearance of excess producers. To compare the model withreal empirical data, we study the relations between commodity prices andstock-to-use ratios of a range of commodities such as agricultural products andmetals. By introducing an elasticity parameter to mitigate noise and long-termchanges in commodities data, we confirm the trend of rising prices, provideevidence for turning points, and indicate yield points for less essentialcommodities.
A Systemic Optimal Risk Transfer Equilibrium (SORTE) was introduced in"Systemic Optimal Risk Transfer Equilibrium" for the analysis of theequilibrium among financial institutions or in insurance-reinsurance markets. ASORTE conjugates the classical B\"uhlmann's notion of an equilibrium riskexchange with a capital allocation principle based on systemic expected utilityoptimization. In this paper we extend such notion to the case in which thevalue function to be optimized has two components, one being the sum of thesingle agents' utility functions, the other consisting of a truly systemiccomponent. The latter could be either enforced by an external regulator or beagreed on by the participants in the market. Technically, the extension ofSORTE to the new setup requires developing a theory for multivariate utilityfunctions and selecting at the same time a suitable framework for the dualitytheory. Conceptually, this more general framework allows us to introduce andstudy a Nash Equilibrium property of the optimizer. We prove existence,uniqueness, Pareto optimality and the Nash Equilibrium property of the newlydefined Multivariate Systemic Optimal Risk Transfer Equilibrium.
Francesca Biagini, Alessandro Doldi, Jean-Pierre Fouque, Marco Frittelli, Thilo Meyer-Brandis
Published: Jul 2019
We propose a novel concept of a Systemic Optimal Risk Transfer Equilibrium(SORTE), which is inspired by the B\"uhlmann's classical notion of anEquilibrium Risk Exchange. We provide sufficient general assumptions thatguarantee existence, uniqueness, and Pareto optimality of such a SORTE. In boththe B\"uhlmann and the SORTE definition, each agent is behaving rationally bymaximizing his/her expected utility given a budget constraint. The twoapproaches differ by the budget constraints. In Buhlmann's definition thevector that assigns the budget constraint is given a priori. On the contrary,in the SORTE approach, the vector that assigns the budget constraint isendogenously determined by solving a systemic utility maximization. SORTE givespriority to the systemic aspects of the problem, in order to optimize theoverall systemic performance, rather than to individual rationality.
We introduce signature payoffs, a family of path-dependent derivatives thatare given in terms of the signature of the price path of the underlying asset.We show that these derivatives are dense in the space of continuous payoffs, aresult that is exploited to quickly price arbitrary continuous payoffs. Thisapproach to pricing derivatives is then tested with European options, Americanoptions, Asian options, lookback options and variance swaps. As we show,signature payoffs can be used to price these derivatives with very highaccuracy.