In 1952, Markowitz published his famous paper on portfolio selection that transformed the field of finance. Although over 65 years have passed since then, the mean-variance model remains today the ...

On the increasing importance of multiple criteria decision aid methods for portfolio selection

We use a new method to better measure internal control quality. Specifically, we construct an internal control index for all public firms in China, because the lack of internal control regulations during our sample period presents an interesting setting, in which the diversity of internal control quality is preserved. Two distinctive features set our index apart from the information currently available under SOX 404 in the U.S. First, it comprehensively evaluates a firm’s internal control, based on the COSO framework. Second, it quantitatively measures a firm’s internal control, using the analytic hierarchy process designed for analyzing complex decisions. We proceed to validate our index by confirming the known relation between internal control quality and earnings management. Further, we theorize that our internal control index has a positive impact on the earnings response coefficient, and find that better internal control indeed makes financial reporting more credible to investors.

A comprehensive and quantitative internal control index: construction, validation, and impact

Purpose



– Mutual funds in India have not been as favourable investment alternatives as in developed countries, as assets under management of mutual funds to gross domestic product in India have been 7-8 per cent compared to 37 per cent globally. Further, investor base of mutual funds has been narrow, as retail investors constitute 98 per cent of folios but contributed only 58 per cent of investments in September 2014. To broaden the investor base for mutual funds in India, it remains imperative to understand the determinants of investment behaviour of investors towards mutual funds. This study aims to achieve this objective. 




Design/methodology/approach



– Based on the theory of planned behaviour, the study examined the effect of awareness, attitude (perception for outcome) and socioeconomic conditions of an investor on his investment behaviour towards mutual funds with the logit model. The results are based on 450 valid responses from the primary survey in Delhi-NCR. 




Findings



– The research provided that investment behaviour could be explained with awareness, perception and socioeconomic characteristics of individual investors. Better awareness related to various aspects of mutual funds will have a positive effect on investment in mutual funds. Contrary to belief, risk perception for mutual funds had no effect on the investment decision. Further, socioeconomic characteristics such as age, gender, occupation, income and education of investors had an impact on the awareness about mutual funds. 




Research limitations/implications



– As the study has been confined to Delhi-NCR, it should be considered a pilot study and needs to be replicated in other states of India to have more robust results. 




Practical implications



– The study has implications for mutual funds and regulators. The study highlights a lack of awareness about mutual funds among particular sections of society as a reason for non-investment in mutual funds. The mutual funds and regulators need to focus on females, older age groups and middle-income groups in their efforts to improve their awareness about mutual funds. This would improve their investor base and flow of funds in mutual funds. Furthermore, the process of investment in mutual funds needs to simplified. 




Originality/value



– In an Indian context, this study has been the first attempt to understand the systematic relation between actual investment behaviour towards mutual funds and various determinants such as socioeconomic characteristics, awareness and attitude (perception) about mutual funds.

Determinants of investment behaviour of investors towards mutual funds

We use a new method to better measure internal control quality. Specifically, we construct an internal control index for all public firms in China, because the lack of internal control regulations during our sample period presents an interesting setting, in which the diversity of internal control quality is preserved. Two distinctive features set our index apart from the information currently available under SOX 404 in the U.S. First, it comprehensively evaluates a firm’s internal control, based on the COSO framework. Second, it quantitatively measures a firm’s internal control, using the analytic hierarchy process (AHP) designed for analyzing complex decisions. We proceed to validate our index by confirming the known relation between internal control quality and earnings management. Further, we theorize that our internal control index has a positive impact on the earnings response coefficient (ERC), and find that better internal control indeed makes financial reporting more credible to investors.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2813932_code2173240.pdf?abstractid=2368000&mirid=1

A Comprehensive and Quantitative Internal Control Index: Construction, Validation, and Impact

The objective of this paper is to evaluate the relative attractiveness of seven MENA countries (Algeria, Egypt, Iran, Saudi Arabia, Morocco, Tunisia and Turkey) as a location for foreign portfolio investment (FPI) from the G7 investors' viewpoints over the period 2001-2005. We suggest a methodology based on the combination of the gravity model, the analytic hierarchy process (AHP) and the goal programming model (GP). The gravity model is used to determine the attractiveness factors of a country with respect to FPI for 30 investing and 43 receiving countries. Results show the importance of information costs and bilateral trade in the determination of the bilateral asset holdings. The AHP method is applied to prioritize the set of FPI location alternatives according to variables' significance in the gravity model outcome; information costs, bilateral trade, GDP, investment freedom, institutional quality, and geographic distance. Results show that in general Saudi Arabia is the best destination for Japanese and US investors, Turkey is the favorite location for French, German, Italian and British investors and Algeria is the preferred country for Canadian investors. A combined AHP-GP model has been used to determine the degree of portfolio investment in each MENA country from the viewpoint of G7 investors. The relative attractiveness of MENA countries varies over time and across investors. In general, over the period 2001-2005, the most attractive country is Iran for Canadian, French and Italian investors, Turkey for German and British investors and Saudi Arabia for Japanese and US investors. For a MENA country to attract more FPI it should especially improve bilateral trade and institutional quality and reduce foreign investment restrictions and information costs.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2430094_code495979.pdf?abstractid=2429195&mirid=3

Selected MENA Countries' Attractiveness to G7 Investors

We present a rigorous framework for asset allocation and selecting mutual funds that takes into account the unique preferences and constraints of an individual investor. The framework is based on the analytic hierarchy process (AHP), and the model generates reasonable asset-allocation recommendations and identifies the most suitable funds within an asset class. We include sample mutual fund selection for a hypothetical investor. A mutual fund selection model that uses the AHP framework is flexible, is user friendly, and ensures consistency throughout the portfolio decision process.

/pdf/a-sensible-mutual-fund-selection-model-3jwj7fhd6n.pdf

A Sensible Mutual Fund Selection Model

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A Sensible Mutual Fund Selection Model