Uncovering dynamic relationships across sustainable-ethical financial assets: A new outlook from Indonesia

The emergence of Bitcoin in 2009 has received considerable attention surrounding the validity of cryptocurrencies as a viable and, in some jurisdictions, a legal currency alternative. Despite widespread concern that these cryptocurrencies are fostering the environment within which a substantial bubble can occur, it is important to analyze whether these new assets are behaving similarly to major international currencies. This paper investigates the effects of international monetary policy changes on bitcoin returns using a GARCH (1.1) estimation model. The results indicate that monetary policy decisions based on interest rates taken by the Federal Open Market Committee in the United States significantly impact upon bitcoin returns. After controlling for international effects, we find significant evidence of volatility effects driven by United States, European Union, United Kingdom and Japanese quantitative easing announcements. These results show that, despite its nature and ideals, bitcoin seems to be subject to the same economic factors as traditional fiat currencies, and is not entirely unaffected by government policies. This result has implications for investors using bitcoin as a hedging or diversification tool. In addition, we contribute to the existing debate regarding the classification of bitcoin as an asset class, by illustrating that bitcoin volatility exhibits various reactions that bear resemblance to both currency pairs and store-of-value assets.

Despite the success of behavioral finance, the question of whether behavioral biases persist in the face of expertise is an oft-expressed concern. It becomes pertinent to explore if investor sophistication is associated with behavioral biases, as traders gain sophistication with experience and knowledge. The current study explores this relationship by proposing a new conceptualization of investors’ sophistication via the processes of learning and competition. The study empirically explores if herding and overconfidence biases are related to learning and competition, and thus, with investors’ sophistication via these aspects. Using data from equity investors from India (n = 257), the study employs ANOVA and multiple regression analysis through indicator function to form dummy variables for different categories. The results of the study conclude that diversification is significantly related to both the biases using ANOVA (F(3,253) = 3.081; p < 0.05) as well as multiple regression (p < 0.05). The other variables considered are found to be non-significant (p > 0.05) for both the biases. The study controls for all the other observed variables of the conceptual model to find out the effect of the change in the observed variables on the level of investor sophistication, making this study a novel and a distinct attempt.

This study is relevant to investors who wish to diversify their investment portfolio by investing in U.S.-based investment companies that invest in specific Pacific Basin countries to better understand the diversification benefits of such investments. The purpose is to examine the daily returns of selected U.S.-based, country-focused (Pacific Basin) investment companies to see if those returns accurately reflect the changes of the equity indices of the corresponding Pacific Basin market on the following trading day. The method used is that the reactions of daily investment company returns compared to U.S. market daily returns are examined for Japan, South Korea, and Australia for the period 2006–2010. These return reactions are compared to the home-country returns. Next, for the period from 2011 to 2015, the examination is broadened to include U.S.-based investment companies that invest in Taiwan, Singapore, China, and Indonesia. The results show that investment company share prices on “day t” tend to overreact to changes in the S&P 500 on “day t”, relative to “day t+1” changes in the corresponding Pacific Basin market index – often by more than 100%. Finally, the study shows that on “day t+1” these investment company share prices exhibit a reversal. These findings indicate that the diversification benefits of investing in these Pacific Basin investment companies are reduced due to this increased volatility. S&P 500 returns are accompanied by significantly larger returns on the Pacific Basin investment company shares than are actually realized in the home country on the following day, suggesting that the diversification benefits are not being fully realized.