Different Investment Portfolio and Decisions Undertaken by Investors - Case Study Example

MBA: FALL 2015 FINANCE 620: EXECUTING AND REPORTING FINANCIAL MARKET TRANSACTIONS Table of Contents Introduction 3 The Company Profiles 3 SPDR Barclays Cptl Shrt Term Corp Bd ETF 3 Acadia Realty Trust: (NYSE:AKR) 3 Target Corporation 4 Literature Review 4 Research Methodology 7 Empirical Analysis 8 Standard Deviation 8 Comparison of The Data 8 Different Data based on Companies 9 SPDR Barclays Cptl Shrt Term Corp Bd ETF 9 Acadia Realty Trust: (NYSE:AKR) 10 Target Corporation 10 Conclusion 10 References 11 Introduction In the recent past, the financial markets have developed and may be attributed to the financial literacy and the technological advancement. The investors have tools and capacities to invest in any financial instrument such as the stocks, and bonds. However, each of these different investments has respective risks and benefits. The paper employs standard deviation and moving average to analyze different investment portfolio and decisions undertaken by investors. The investment in question are SPDR Barclays Cptl Shrt Term Corp Bd ETF, Acadia Realty Trust: (NYSE:AKR) and Target Corporation. The Company Profiles SPDR Barclays Cptl Shrt Term Corp Bd ETF The SPDR is a Bond ETF aims to provide investment results before expenses and fees that corresponds with the yield performance and price of 1-3 year Corporate Bond Index. The inception of the bond was 2009 and it is reviewed and presented monthly to reflect the needs and requirements of the investors. The number of shares as of 2016 is 150 million; the share price is $30.39 while the total net asset is $4,625.24 million. Acadia Realty Trust: (NYSE:AKR) Acadia Realty Trust is located in New York and is a fully self managed, integrated and self administered equity REIT. The focus of Acadia Reality Trust is on the management, redevelopment, acquisition and ownership of mixed use and retail properties. The targeted environments including community shopping centers and neighborhood that are located in suburban markets and dense locations in major metropolitan areas. Target Corporation TGT operates in the retail industry and it is a public company. It was established in 1902 and it has more than 1,805 locations in the United States of America. The total asset in 2014 was US$ 41.404 billion while the revenue generated within the period was US$ 72.618 billion. The company operates in the S&P 500 Component in the New York Stock Exchange. Literature Review Van Rooij, M., Lusardi, A. and Alessie, R., 2011. Financial literacy and stock market participation. Journal of Financial Economics, 101(2), pp.449-472. The authors developed special models for De Nederlandsche Bank (DNB) Household Survey with the purpose of measuring financial literacy and analyses its relationship with customers participation ion the stock market. The results indicated that most respondents had basic understanding when it came to financial knowledge and understood concepts such as time value of money, inflation, and interest compounding. However, the most customers do not understand or lack knowledge beyond these limits. For example, the respondents do not understand the relationship between interest rates and bond prices, the difference between stocks and bonds and components of risk diversification. Furthermore, the results indicate that the level of financial literacy affects the decision making on financial matters. Baur, D.G. and Lucey, B.M., 2010. Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial Review, 45(2), pp. 217-229. Different types of investments exist and one of them is the use of gold as hedge. The authors wanted to determine whether gold is uncorrelated with bonds or stocks on average or whether it is a safe haven. Moreover, the authors wanted to determine the significance of gold as hedge in instances of market crash. The authors collected data and studied time varying relations and constant relations between German, UK and US bond and returns against gold returns. The research also aimed at determining gold as a safe haven and hedge. The authors found out that gold is a hedge compared to stocks and a safe haven in extreme conditions and situations. However, through portfolio analyses the aspect of safe haven in gold is short lived. Understanding such relationships and risks in investment is important in determining the appropriate investment strategy. Ben-David, I., Franzoni, F. and Moussawi, R., 2012. Hedge fund stock trading in the financial crisis of 2007–2009. Review of Financial Studies, 25(1), pp.1-54. According to the authors, during the recent financial crisis, hedge funds reduced the investments on equity holding. For example, in the third quarter of 2008, hedge funds sold around 30% of their portfolio. The drivers of the selloffs were attributed to margin calls and redemptions. Furthermore, the selloffs took place during the liquid and volatile stock periods. In addition, the stock sales and redemptions for mutual funds were also not serious compared to stocks. The authors show that the hedge funds investors are ready to withdraw capital at a faster rate compared with mutual fund investors. The needs to take financial decisions are premised on the institutional ownership and liquidity restrictions in hedge funds. Beyer, A., Cohen, D.A., Lys, T.Z. and Walther, B.R., 2010. The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2), pp.296-343. The corporate information environment develops because of agency problems and information asymmetries between managers, entrepreneurs, and investors. The authors reviewed the recent literature ion the variables that influences corporate information environment based on the capital market requirements. Some of the capital market regulations are premised on analysts reporting decisions, regulators disclosures mandated, and managers’ voluntary disclosure decisions. In shaping the corporation information environment, these different stakeholders play an important role but problems and issues on interdependency exits. The problems may be attributed to the manner in which information is shared and the financial statements disclosure. For example, providing credible auditing problems improves the quality of the financial statements. The financial statements can be used during financial analysis and determine effectively the direction of the corporation. Arouri, M.E.H. and Rault, C., 2012. Oil prices and stock markets in GCC countries: empirical evidence from panel analysis. International Journal of Finance & Economics, 17(3), pp. 242-253. The authors employed the seemingly unrelated regression (SUR) methods and bootstrap panel cointegration techniques to examine the links between the stock market and the oil prices in Gulf Cooperation Council (GCC). The GCC countries rely on oil and oil related products to fund their respective developmental requirements meaning a likely chance in which oil prices affect the stock markets. The authors find out that there is evidence for cointegration between the stock markets and the oil prices. The SUR results also indicate that the stock prices are affected when oil price movements are detected. For example, increase in oil markets affects the stock market positively. Therefore, the oil business in the GCC countries influences the stock market and determines the current and future of the stock market. Huyghebaert, N. and Wang, L., 2010. The co-movement of stock markets in East Asia: Did the 1997–1998 Asian financial crisis really strengthen stock market integration? China Economic Review, 21(1), pp. 98-112. The authors examined the causality of independencies and integration among seven stock exchanges before and after the Asian financial crisis. The authors collected the daily stock market data from 1992 to 2003 in US dollar and local currency terms. The results indicate that the Asian stock markets are affected by time variance while stock interactions are not extensively visible during the period. The effect of the stock prices also affects the regions differently based on the immediate decisions undertaken. Therefore, the financial crisis affects the stock market extensively. Research Methodology Comprehensive information was searched and obtained for the following companies: SPDR Barclays Cptl Shrt Term Corp Bd ETF, Acadia Realty Trust: (NYSE:AKR) and Target Corporation. Numerous financial analyses were done on the obtained information to understanding the financial operations of the targeted companies. The range of the data obtained was for the periods 2011 to 2016. Different strategies and methods were employed in analyzing the information. Microsoft Excel Software was used to calculate the standard deviations and to generate some of the graphs. The purpose of the standard deviation is to determine the vitality of the stock or investment. The graphs, which employ moving average strategy is to understanding the historical impact of financials in advancing the requirements of a company. The information is presented in form of tables and charts. Empirical Analysis Standard Deviation Standard deviation is a method used to analyze the historical vitality of investments. The significance of the standard deviation is to determine the vitality of the stock market. The higher the standard deviation means that the stock or investment is volatile. For any successful investment, diversification is important. SPDR (X) AKR TGT Standard Deviation 0.69729 5.345662 11.07339 Standard deviation for portfolio 17.1834 Based on the understanding of standard deviation, the TGT investment is more volatile and more risky compared with the SPDR. The standard deviation of 11.07339 for TGT is also lower that the standard deviation for the portfolio of 17.1834. In general, the current investment portfolio is more risky based on standard deviation. Comparison of The Data The following graphs illustrate the stock volatility or investment vitality. The most volatile stock is the AKR followed by the TGT and finally the SCPB. The SCPB is more stable because it is based on loaning to an institution. The risks are minimal meaning the risks are also minimal. In the same perspective, the AKR operates in the stock market and the stock market is risky because the number of shares is informed based on the operations of the company. For example, a company making loses may seen the capital share reduces because of the perceived risks of the investments. The TGT comparatively better since it balances the threats with the returns. Different Data based on Companies The following charts indicate the moving averages for 20 days, 50 days and 100 days. The significance of the moving average is to smooth the graph through avoiding noises ion the financial analysis. The higher the moving averages in days presents a better understanding of the stock compared with shorter periods. For example, the 100 days moving average presents a better understanding compared with the 20 days average. SPDR Barclays Cptl Shrt Term Corp Bd ETF Acadia Realty Trust: (NYSE:AKR) Target Corporation Conclusion Investors want returns on their investments and the amount of returns depends on the investors risk appetite. Some of the investors are ready to take risky ventures and explore the market and these investors usually receive higher benefits while sometimes, the risks may be higher affecting the entire business operation. Conservative investors do not want to invest in risky portfolios and usually receive minimal benefits. The financial analyses received of the three corporations indicate different levels of vitality. The stock investment is more volatile because it depends on the daily dynamics affecting the operation of the business. If wrong decisions are made, the value of the stock is affected meaning the investor will make some loses. Positive nature of the business drives the business meaning the investor would benefit immensely. References Arouri, M.E.H. and Rault, C., 2012. Oil prices and stock markets in GCC countries: empirical evidence from panel analysis. International Journal of Finance & Economics, 17(3), pp. 242-253. Baur, D.G. and Lucey, B.M., 2010. Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial Review, 45(2), pp. 217-229. Ben-David, I., Franzoni, F. and Moussawi, R., 2012. Hedge fund stock trading in the financial crisis of 2007–2009. Review of Financial Studies, 25(1), pp.1-54. Beyer, A., Cohen, D.A., Lys, T.Z. and Walther, B.R., 2010. The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2), pp.296-343. Huyghebaert, N. and Wang, L., 2010. The co-movement of stock markets in East Asia: Did the 1997–1998 Asian financial crisis really strengthen stock market integration? China Economic Review, 21(1), pp. 98-112. Van Rooij, M., Lusardi, A. and Alessie, R., 2011. Financial literacy and stock market participation. Journal of Financial Economics, 101(2), pp.449-472. Read More