Subsidy strategy for reserving flexible capacity of emergency supply production

This paper investigates a government's subsidy strategy for motivating a manufacturer to set up a flexible production line for emergency supplies. Four subsidy strategies are proposed to ensure a desired service level in case of an emergency: zero subsidy, a fixed subsidy, a marginal subsidy, and a hybrid subsidy. We develop a game theoretical model to examine how the government can induce a manufacturer to set up a flexible production line that can respond promptly to an emergency, based on the manufacturer's cost structure (fixed and marginal costs). We find that when the marginal profit of an emergency product is higher than that of the manufacturer's regular product, a fixed (marginal) subsidy is the dominant strategy if the manufacturer's fixed (marginal) cost is high, while a hybrid subsidy strategy is dominant if both costs are high. When the marginal profit of an emergency product is lower than that of the manufacturer's regular product, neither a fixed subsidy nor a zero subsidy will be the dominant strategy. We also find that a marginal subsidy can ensure the effectiveness of the strategy, while a fixed subsidy helps improve strategy efficiency. We use government subsidy strategies implemented for Chinese COVID-19 emergency supplies as examples to demonstrate the effectiveness and efficiency of the subsidy strategies under the proposed framework. We also extend the discussion by considering the manufacturer's social consciousness.

A qualitative examination of changing investment preferences, sentiments and behavioural tendencies in COVID-19: a special case of Indian individual investors

Purpose: This paper aims to identify changes in individual investors’ preferences, prominent sentiments in the market, behavioural tendencies and biases demonstrated as a result of the COVID-19 pandemic. Design/methodology/approach: As the study is exploratory social research, the design is also structured as such. In total, 69 Securities and Exchange Board of India-registered investment advisors catering to investors of diverse profiles, experiences and locales are engaged through in-depth semi-structured interviews. The responses are categorised thematically using a data structure model. Findings: Investors are guided by an inclination for safer and liquid asset classes and prefer fixed income securities. The authors observe various emotional reactions – inexperienced investors panic, experienced investors act maturely, while a few of both naïve and sophisticated investors are opportunistic contrarians. Lower valuations, ease of access to digital infrastructure for trading and social norms attract many first-time individual investors, causing a phenomenon identified as the “new investor boom”. Apart from the biases identified during the financial crisis, the authors also detect evidence of cognitive dissonance, bandwagon effect, fear-of-missing-out syndrome, disposition effect and others. Practical implications: The paper also discusses some noticeable behavioural tendencies displayed by the individual investors and compiles helpful strategies to successfully navigate any such financial crisis. Social implications: An individual investor is a least aware and most affected stakeholder in any crisis, so this study contributes newer insights to ensure their financial well-being. Originality/value: The study’s originality lies in adopting a qualitative methodology that uses investment advisors’ professional experience to unveil the sub-structures of investor psychology and decision-making behaviour during COVID-19. © 2022, Emerald Publishing Limited.

Does ESG Impact Really Enhance Portfolio Profitability?

Over the last few decades, growing attention to the topic of social responsibility has affected financial markets and institutional authorities. Indeed, recent environmental, social, and financial crises have inevitably led regulators and investors to take into account the sustainable investing issue;however, the question of how Environmental, Social, and Governance (ESG) criteria impact financial portfolio performances is still open. In this work, we examine a multi-objective optimization model for portfolio selection, where we add to the classical Mean-Variance analysis a third non-financial goal represented by the ESG scores. The resulting optimization problem, formulated as a convex quadratic programming, consists of minimizing the portfolio variance with parametric lower bounds on the levels of the portfolio expected return and ESG. We provide here an extensive empirical analysis on five datasets involving real-world capital market indexes from major stock markets. Our empirical findings typically reveal the presence of two behavioral patterns for the 16 Mean-Variance-ESG portfolios analyzed. Indeed, over the last fifteen years we can distinguish two non-overlapping time windows on which the inclusion of portfolio ESG targets leads to different regimes in terms of portfolio profitability. Furthermore, on the most recent time window, we observe that, for the US markets, imposing a high ESG target tends to select portfolios that show better financial performances than other strategies, whereas for the European markets the ESG constraint does not seem to improve the portfolio profitability.

THE PERFORMANCE OF HEDGE FUND INDUSTRY DURING THE COVID-19 CRISIS – THEORETICAL CHARACTERISTICS AND EMPIRICAL ASPECTS

The study reveals that the COVID-19 crisis has had a strong but one-off negative impact on the hedge fund industry. It also shows that during the new coronavirus pandemic, the main components of the hedge fund industry achieved only partially their main investment goal, i.e. they as a whole provided a hedge of the investment risk but did not produce higher than the market return in the conditions of a growing capital market. In this situation, due to the relatively stable М&A market, the Event-Driven Risk Arbitrage strategy was undoubtedly most successful, followed by the Emerging Markets, the Global Macro and the Long/Short Equity strategies. The worst performance was reported for the Fixed Income Arbitrage strategy due to the currently overvalued bond markets and to the expectations for higher inflation rates in the countries with developed capital markets. © 2022, Bulgarska Akademiya na Naukite. All rights reserved.

Bull and bear markets during the COVID-19 pandemic.

The COVID-19 pandemic has caused severe disruption worldwide. We analyze the aggregate U.S. stock market during this period, including implications for both short and long-horizon investors. We identify bull and bear market regimes including their bull correction and bear rally components, demonstrate our model's performance in capturing periods of significant regime change, and provide weekly forecasts that improve risk management and investment decisions. An investment strategy that uses out-of-sample forecasts for market states outperforms a buy and hold strategy during the pandemic by a wide margin, both in terms of annualized returns and Sharpe ratios.