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"EQUITY INVESTMENTS"
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Impact of reporting format of unrealized gain or loss of equity investment on investors' risk perception
The purpose of this study is to investigate how the presentation of unrealized gain or loss of equity investment not held for trading purposes, moderated by the volatilities of unrealized gain or loss of such equity investment and stability of share price, affect investors' risk perception. This study used an experimental approach with a psychology framework to explore the research objectives. The finding demonstrates that volatility of unrealized gain or loss of equity investments influences investors' risk perception when it is presented in a profit or loss statement given that the share price trend is stable. Similarly, when unrealized gain or loss was non-volatile and unrealized gain or loss of such equity investments was presented in the profit or loss statement, investors will focus on stability of share price when assessing the risk of the company.
Journal Article
Complementarity of Signals in Early-Stage Equity Investment Decisions: Evidence from a Randomized Field Experiment
This study employs a randomized field experiment to causally identify what type of signal is likely to complement another signal in the context of financing technology ventures. The study examines the effect of product certification by expert intermediaries, prominent customers, and social proof (that is, others’ interest in investing in a venture) on interest in investing. These three signals are primarily signals of a venture’s product, market, and investment characteristics, respectively. The study finds that signals of product certification and prominent customers, and product certification and social proof are complements. In particular, investors who were able to view the combined product certification and prominent customer signals have a 72% higher likelihood of indicating an interest in making an equity investment than those who did not receive any of the three signals. Similarly, investors who were able to view the combined product certification and social proof signals have a 65% higher likelihood of indicating an interest in investing. These results suggest that in the context of technology ventures, a signal about product characteristics is the key to unlocking the value of signals of market or investment characteristics.
This paper was accepted by Gustavo Manso, finance.
Journal Article
Awareness about equity investment among retail investors: a kaleidoscopic view
Purpose
The purpose of this paper is to systematically review the literature published on the various aspects of awareness about equity investment. The paper highlights the major issues and aspects with respect to equity investment awareness. It also aims to raise specific questions for future research.
Design/methodology/approach
The study is based on secondary information collected primarily through the review of existing literature.
Findings
It is found that the important determinants of equity awareness are demographic, socio-economic and psychological factors. Financial well-being is attributable largely to financial awareness. Growth of the financial market can be credited to equity awareness. Equity awareness enables an investor to make better financial decisions, to appreciate their rights and responsibilities and to understand and manage the risk as an investor.
Practical implications
Policy makers can design the equity awareness campaign considering the different demographic and socio-economic factors. While designing such a campaign, the impact and importance of equity awareness should be illustrated, considering their demographic and socio-economic profile.
Originality/value
This study is the first one using the literature review method in the area of equity investment awareness, in particular, and financial awareness in general. This paper will be useful to researchers, academicians and those working in the area of equity investment awareness and in their understanding about the various aspects of awareness about equity investment. The paper is first of its kind, hence original in nature.
Journal Article
Benchmarks as Limits to Arbitrage: Understanding the Low-Volatility Anomaly
Contrary to basic finance principles, high-beta and high-volatility stocks have long underperformed low-beta and low-volatility stocks. This anomaly may be partly explained by the fact that the typical institutional investor's mandate to beat a fixed benchmark discourages arbitrage activity in both high-alpha, low-beta stocks and low-alpha, high-beta stocks.
Journal Article
Fintech in financial reporting and audit for fraud prevention and safeguarding equity investments
Purpose
The purpose of this paper is to explore the audit-related causes of financial scandals and advice on how emerging technologies can provide solutions thereto. Specifically, this study seeks to look at the facilitators of financial statement fraud and explain specific fintech advancements that contribute to financial information reliability for equity investments.
Design/methodology/approach
The study uses the case studies of Enron and Arthur Andersen to document the evidence of audit-related issues in historical financial scandals. Then, a comprehensive and interdisciplinary literature review at the intersection of business, accounting and engineering, provides a foundation to propose technology advancements that can solve identified problems in accounting and auditing.
Findings
The findings show that blockchain, internet of things, smart contracts and artificial intelligence solutions have different functionality and can effectively solve various financial reporting and audit-related problems. Jointly, they have a strong potential to enhance the reliability of the information in financial statements and generally change how companies operate.
Practical implications
The proposed and explained technology advancements should be of interest to all publicly listed companies and investors, as they can help safeguard equity investments, thus build investors’ trust towards the company.
Social implications
Aside from implications for capital markets participants, the study findings can materially benefit various stakeholder groups, the broader company environment and the economy.
Originality/value
This is the first paper that seeks solutions to financial fraud and audit-related financial scandals in technology and not in implementing yet another regulation. Given the recent technology advancements, the study findings provide insights into how the role of an external auditor might evolve in the future.
Journal Article
Active Share and Mutual Fund Performance
Using Active Share and tracking error, the author sorted all-equity mutual funds into various categories of active management. The most active stock pickers outperformed their benchmark indices even after fees, whereas closet indexers underperformed. These patterns held during the 2008–09 financial crisis and within market-cap styles. Closet indexing has increased in both volatile and bear markets since 2007. Cross-sectional dispersion in stock returns positively predicts performance by stock pickers.
Journal Article
The Wages of Social Responsibility
Typical socially responsible investors tilt their portfolios toward stocks of companies with high scores on social responsibility characteristics and shun stocks of companies associated with tobacco, alcohol, gambling, firearms, and military or nuclear operations. Analyzing 1992-2007 returns of stocks rated on social responsibility, this study found that this tilt gave such investors an advantage over conventional investors. The study also found that shunning resulted in a disadvantage for such investors relative to conventional investors. The advantage from tilting toward stocks of companies with high social responsibility scores is largely offset by the disadvantage from the exclusion of stocks of shunned companies. Socially responsible investors can thus do both well and good by adopting the best-in-class method in constructing their portfolios: tilting toward stocks of companies with high scores on social responsibility characteristics but refraining from shunning stocks of any company.
Journal Article