We investigated the profitability of a simple and easily implementable pairs trading strategy that included trading costs and restrictions to short selling so as to replicate an effective strategy exploitable by an individual investor. Notwithstanding the limitations embodied in our model, pairs trading still works. However, the constraints significantly affect the profitability of the strategy. We found evidence that restrictions to the number of shares that are allowed to be shorted have a relevant impact on the risk profile of the pairs portfolios. Our results support the hypothesis that pairs trading is an equity market neutral investment strategy.

The existence of country-specific risk factors that could be mitigated by international investments is investigated. An innovative methodology for quantifying the benefits of international diversification is also proposed and tested. In order to overcome many of the problems that arise in the study of international diversification, the analysis is restricted to the equity markets of the Eurozone. The results clearly show the benefits of international equity diversification, even in close economies. The introduction of constraints on short selling significantly reduces these benefits. For asset managers and practitioners, the analysis shows unambiguously that, despite the economic and monetary union and notwithstanding the high degree of correlation between the European markets, opportunities for diversification still exist. There is, actually, a significant country-specific source of risk that can be hedged via the use of non-domestic diversification. Most of the previous literature on this topic has adopted an U.S. perspective. Few papers assumed a European point of view. This paper fills this knowledge gap by focusing its analysis on the Eurozone markets. In contrast with previous literature, the profitability of international diversification has been verified for all countries under consideration, and not just from the standpoint of one nation alone.

The existence of country-specific risk factors that could be mitigated by international investment is investigated. An innovative methodology for quantifying the benefits of international diversification is also proposed and tested. In order to overcome many of the problems that arise in the study of international diversification, the analysis is restricted to the equity markets of the Eurozone. The results clearly show the benefits of international equity diversification, even in close economies. The introduction of constraints on short selling significantly reduces these benefits. For asset managers and practitioners, the analysis shows unambiguously that, despite the economic and monetary union and notwithstanding the high degree of correlation between the European markets, opportunities for diversification into the national stock markets of the Eurozone still exist. There is, furthermore, a significant country-specific source of risk that can be hedged via the use of non-domestic diversification.

Ad un ampio consenso sulla criticità della stretta creditizia che ha accompagnato l’attuale periodo di crisi, fa riscontro la povertà di analisi a livello di micro area territoriale o di micro settore economico-produttivo. E’ possibile, sulla base dei dati pubblicamente disponibili, costruire indicatori dell’andamento dell’offerta di credito che permettano di condurre una approfondita analisi a livello regionale? Il paper evidenzia che si possono trarre solo indicazioni non conclusive, su orizzonti temporali non di brevissimo periodo. La periodicità di diffusione dei dati non permette di poter condurre le analisi con grande tempestività. Del tutto assenti informazioni sugli elementi qualitativi dell’offerta di credito.

The paper aims at verifying if there still are advantages in diversification inside the Eurozone despite the economic and monetary unification process. The results show unambiguously that notwithstanding the high degree of correlation between the Eurozone stock markets, opportunities for diversification still exist. The introduction of constraints on short selling significantly reduces these benefits. Investors from the European leading countries would have greatly benefitted from a Eurozone portfolio diversification strategy. The advantages of diversification appear to change significantly over time and from country to country. The results are also conclusive in reflecting the instability of the historical mean-variance data.

The competitive advantages of foreign direct investment can be largely dependent on location. In this study, we develop an innovative model to deal with this crucial step for any multinational involved in expanding its operations abroad. The model has a pure financial perspective and is based on a binomial approach. An application of the model explores its practical implementation and outlines the extent to which different financial variables impact on the location choice of foreign direct investment.

The aim of this paper is to verify if there still are advantages in diversification inside the Eurozone despite the economic and monetary unification process. The results clearly show the benefits of the Eurozone equity diversification. The introduction of constraints on short selling significantly reduces these benefits. For asset managers and practitioners, the analysis shows unambiguously that, despite the economic and monetary union and notwithstanding the high degree of correlation between the European markets, opportunities for diversification still exist. Most of the previous literature on the international diversification has adopted an U.S. perspective. Few papers assumed a European point of view. This paper fills this knowledge gap by focusing its analysis on the Eurozone markets. In contrast with previous literature, the profitability of international diversification has been verified for all countries under consideration, and not just from the standpoint of one nation alone.

A long history of psychological studies has postulated that good (bad) weather induces a positive (negative) mood. Other studies have concluded that mood can influence humankind decision-making process under risk and uncertainty. Several behavioural finance studies have raised the question of whether sunshine, temperature or other weather variables exert an impact on stock prices by affecting the behaviour of market operators, thus challenging the efficient-market hypothesis. However, very few papers on the weather effect, with contradictory results, have concentrated on the stock markets of emerging countries. We fill this gap by conducting a comprehensive analysis of the effect of four weather variables (temperature, cloud cover, humidity and wind) on the stock markets of nine emerging countries located in three climatic and economically different areas of the world. Differently from the existent literature, we extend the analysis by analyzing stock prices’ behaviour along with that of stock indexes and by inspecting the opening market activity along with the whole-day activity. Based on our results, we strongly reject the weather effect hypothesis.

In an article that recently appeared in this journal, Marshall (2015) argued that the systematic component of the SD of a stock or of a portfolio of stocks is its beta scaled by the SD of the market returns. She also contended that the beta mispredicts the actual systematic risk of a stock or of a portfolio of stocks. In this article, I dispute this conclusion, showing that it has been induced by an imperfection in the construction of the empirical application and by some misinterpretations of the results. A corrected replication of the empirical study of Marshall (2015) is provided, along with some comments. I conclude that both the beta and the systematic component inMarshall (2015) are effective measures of systematic risk.

In this paper we analyze security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan’s maturity and it depends on the same factors that determine the value of a financial option. We also analyze their value in the condition of market efficiency and we conclude that the inefficiencies of the financial markets justify their existence. Finally, we focus our attention on public agencies’ intervention by offering credit guarantees to private firms.

This paper aims to empirically verify whether an individual European investor can enhance the diversification of his/her portfolio of financial assets by implementing an equity market neutral strategy. The analysis takes into consideration a typical European investor who has roughly diversified her financial investments and assumes that investors are risk-averse and have preferences characterized by a mean-variance model. We concluded that adding an equity market neutral can significantly improve the long term risk-return profile of a conventional asset allocation. The diversification benefits are realizable even with a little exposition to the market neutral and are more consistent for an investor who is allowed to go short. Investors who are willing to bear high levels of risk better appreciate the low correlation/ low standard deviation features of the equity market neutral. We also discuss how an individual investor who cannot afford a hedge fund can actually implement an equity market neutral strategy and point out that the appealing features of the equity market neutral open an interesting niche in the European exchangetraded fund (ETF) industry.

This article proposes a straightforward measure of the residual unsystematic risk that a selective portfolio investment strategy, such as socially responsible investment, eventually bears. The model is empirically employed in order to analyse whether the MSCI socially responsible indices bear significant levels of volatility that could be diversified by not imposing social screenings to the set of eligible investments. The study finds that a low but not negligible part of the volatility of the returns could be diversified by not restricting the investment to socially responsible companies. Implications for the socially responsible investing industry and socially responsible investors are discussed. © 2016 Informa UK Limited, trading as Taylor & Francis Group

Le decisioni di capital budgeting in ambito internazionale comportano problemi e complessità che non devono essere affrontati nella valutazione di progetti di investimento domestici. Il presente lavoro ha come oggetto l’analisi di tali problematiche e l’elaborazione di modelli che ne possano permettere un pratico trattamento coerente con i principi della moderna teoria della finanza di azienda. I principali aspetti delle decisioni finanziarie di azienda sono affrontati e analizzati dalla prospettiva internazionale delle imprese multinazionali. L’attenzione è su quegli elementi di decisione che raramente si affrontano nella valutazione di progetti di investimento domestici. L’approccio non è solo di tipo teorico: i modelli di analisi e di valutazione proposti, infatti, pur fondati su solide basi teoriche, sono costruiti nell’intento di essere efficacemente utilizzati nella pratica. Il testo è arricchito da innovativi contributi alla letteratura scientifica in tema di scelte di localizzazione degli investimenti all’estero, di impiego delle opzioni reali nei processi di capital budgeting internazionale, di determinanti del rischio di cambio, di effetti del rischio politico sul costo del capitale, di modalità di pagamento delle operazioni di cross border merger and acquisition. Il carattere prettamente scientifico del lavoro non toglie che possa essere un utile strumento, oltre che per gli studenti dei corsi avanzati di international finance, anche per i manager finanziari impegnati nella quotidiana gestione degli investimenti all’estero delle proprie aziende.

Transport infrastructure investment covers spending on new transport construction, as well as on the improvement of the existing network. It provides a number of benefits for the entire economy, including positive impact on availability of goods and services, volume of trade, productivity of the economy, employment and level of business activity, transport costs and possibility of achieving economies of scale, value of assets, balanced regional and local economic development etc. The paper analyses economic impact of transport infrastructure investment, with special focus on positive contribution to economic growth measured by growth rate of gross domestic product in real terms. There can be identified various channels of such an impact. Transport infrastructure investment can lower costs and raise competitiveness of products, which stimulates the production and contributes to economic growth, but also opens the door to greater savings and investments. Investment in transport infrastructure, also affects aggregate demand level by stimulating the construction industry, as well as a series of related branches of manufacturing industry, whose inputs are used in the construction industry. In addition, investment in transport infrastructure provides positive signals to key sectors of the economy. The conducted empirical researches on the impact of transport infrastructure investments, which mostly rely on Cobb–Douglas production function approach, confirm literature findings on positive impact on economic growth, whether the researches were based on multi-country panel data analysis or on single-country time series analysis. The paper also considers the economic impact of transport infrastructure investment from the point of importance of possible crowding-out effect, which indicates that higher public spending, financed primarily from loans, increases aggregate demand and interest rate and thus reduces the level of private investments.

We employ the Pearson system of frequency curves to analyse the behaviour of unconditional daily return distributions for all the shares that constitute the STOXX Europe 600 index. Our results show that over finite time periods of analysis the distributions are adequately described as type IV. The occasional exceptions are linked strictly to extraordinary events that result in abnormal returns. They are more frequent if short time intervals are examined. When an infinite time of analysis is assumed, the results do not reject the hypothesis that the behaviour of stock returns is symmetrical and that it is of type VII, which is a special case of type IV that subsumes the Student’s t and the Cauchy distributions and is easier to deal with in practice.

The behaviour of the distribution of stock returns is of fundamental importance in financial economics, in view of its direct bearing on the descriptive validity of any theoretical model. We analysed the behaviour of Japanese stock return distributions using the Pearson system of frequency curves to determine whether a) the distributions of the returns of the shares listed in the Nikkei 225 can be described by a single type of distribution; b) the length of the time period used for the analysis affects the behaviour of the distributions, and c) the distributions of the returns of portfolios of Japanese stocks follow similar patterns of behaviour. We found that all the shares listed on the Nikkei 225 may be described by the Pearson Type IV distribution. Other behaviours are occasionally observable but only when short time periods are used in the analysis, suggesting that the length of the period is not a variable that has any significant effect on the behaviour of Japanese stock returns. When the returns of portfolios of Japanese stocks are examined, the results are more robust and exceptions to the Pearson type IV rule are less common and are confined to very short time periods of analysis. We discuss the implications of our findings for financial modelling. To the best of our knowledge, we provide the first such analysis for the Japanese market.

Pearson’s system of continuous probability distributions is used herein to analyse return distributions of the shares in all companies listed on the Italian stock exchange. Results show that when finite time periods are examined, the type IV distribution describes the behaviour of almost all returns on stocks. The occasional exceptions to this rule appear to be linked only with the occurrence of extraordinary events in the life of a company. When an infinite time horizon is assumed, the results do not reject the hypothesis that the distributions are of type VII, which is a special, symmetrical and hyperkurtotical case of type IV distribution that subsumes the Student's t and the Cauchy distributions, and is easier to deal with in practice

The paper aims at contributing to the literature that tries to overcome the classical mean-variance approach to portfolio selection by investigating the behavior of Italian stock return distributions through the Pearson system of frequency curves. Results show that over finite time horizons, the type IV distribution describes the behaviour of almost all returns on stocks. The occasional exceptions to this rule appear to be linked only with the occurrence of extraordinary events in the life of a company. The exceptions are more common when short time horizons are used to examine the data. When an infinite time horizon is assumed, the results are consistent with the hypothesis that the distributions are of type VII, which is a special, symmetrical and hyperkurtotical case of type IV distribution that subsumes the Student's t and the Cauchy distributions, and is easier to deal with in practice.