In recent decades, revenue diversification has become a prevalent practice in state and local government finance. The trend of revenue diversification, according to the portfolio theory, has far-reaching implication for public financial management as it may change revenue stability, which has been an important policy objective for state and local government administrators. This study explores how revenue diversification affects revenue stability from both empirical and theoretical perspectives. Drawing on portfolio theory and regional science literature, this study develops a theoretical framework to explain how the effect of revenue diversification on revenue volatility of sub-national governments varies in terms of its economic base instability. To empirically test the theoretical framework, an econometric model that explores a series of factors that could affect revenue stability is estimated using socioeconomic and fiscal data of 156 Georgia county governments and 47 state governments during the years 1986-2004. The findings indicate that revenue diversification affects revenue stability conditional on the instability of a jurisdiction’s economic base. The county level analysis suggests revenue diversification significantly increases the revenue instability of a county that has a stable economic base and the revenue stabilizing effect of diversification is enhanced as an economic base becomes more unstable. However, the state level analysis shows that revenue diversification significantly reduces revenue volatility for a state that has a stable economic base and the revenue stabilizing effect of diversification decreases when an economic base gets more unstable. An important policy implication of the dissertation is that the degree of revenue diversification should be gauged by the condition of its corresponding economic base in order to achieve the goal of revenue stability.

This paper consolidates and compares the applicability and practicality of Black-Litterman model versus traditional Markowitz Mean-Variance model. Although well-known model such as Mean-Variance is academically sound and popular, it is rarely used among asset managers due to its deficiencies. To put the discussion into context we shed light on the improvement made by Fisher Black and Robert Litterman by putting the performance and practicality of both Black- Litterman and Markowitz Mean-Variance models into test. We will illustrate detailed mathematical derivations of how the models are constructed and bring clarity and profound understanding of the intuition behind the models. We generate two different portfolios, composing data from 10-Swedish equities over the course of 10-year period and respectively select 30-days Swedish Treasury Bill as a risk-free rate. The resulting portfolios orientate our discussion towards the better comparison of the performance and applicability of these two models and we will theoretically and geometrically illustrate the differences. Finally, based on extracted results of the performance of both models we demonstrate the superiority and practicality of Black-Litterman model, which in our particular case outperform traditional Mean- Variance model.

Las diferencias existentes entre la teoría financiera y las estrategias administrativas no han llegado a tener una participación conjunta en beneficio de la maximización de rendimientos que ellos siempre han atendido de manera independiente. Bavaria es uno de los pocos casos documentados académicamente para ser usado como caso de estudio en Latinoamérica, y es porque cuando estuvo en la administración del Grupo Santo Domingo, tuvo diversas decisiones en las que influyo la diversificación corporativa y las adquisiciones de empresas con el fin de expandirse para así convertirse en un gran grupo cervecero sino también en un gran holding luego de la escisión. La presente investigación nos llevará a ver por qué la teoría administrativa sigue centrándose en los problemas habituales del riesgo específico a través de la diversificación corporativa, cuando la teoría financiera dicta todo lo contrario para centrarse únicamente en el riesgo y el rendimiento como componentes de la teoría del portafolio. Con la finalidad de que cada uno de nosotros comprendamos el valor que aporta cada una de estas perspectivas, y se sugiera de que existe la necesidad de buscar una cohesión teórica entre ambos pensamientos, para lograr un beneficio en la búsqueda de rendimientos hacia las empresas que se encuentran en un mercado cada vez más competitivo y cambiante tanto por la innovación como la satisfacción de nuevas necesidades en los seres humanos. / The differences between financial theory and management strategies have not come to have a joint participation in benefit of the maximization of returns that they have always attended independently. Bavaria is one of the few cases documented academically to be used as a case study in Latin America, and is because when he was in the administration of the Santo Domingo Group he had several decisions influenced by corporate diversification and acquisitions of companies in order to expand to become a large beer group but also a large holding after the split. The present investigation will lead us to see why administrative theory continues to focus on the usual problems of specific risk through corporate diversification, when financial theory dictates the opposite to focus solely on the risk and performance of the components in the company portfolio theory. In order that each of us understand the value of each of these perspectives, and suggest that there is a need to seek a theoretical cohesion between both thoughts, to achieve a profit in the returns to the companies that are in the search for a market increasingly competitive and changing both for innovation and the satisfaction of new needs in human beings. / Trabajo de Suficiencia Profesional

<p>Why do people invest? People are insecure about their future welfare and aim for future guaranteed cash flows. To give ourselves a more thorough introduction to investments we decided to write our bachelor-thesis within the area of finance. This thesis will combine financial institutions and investments. It is a topic repeatedly discussed in the media and a study carried out in Sweden showed that in 2003, 80% of the population were shareholders.</p><p>When trading with stocks and shares there is risk involved that can be defined as the volatility in the cash flow of an investment. A portfolio is a collection of securities that an investor has placed capital in. In order to minimise the risk of the portfolio, the investor can diversify his or her portfolio, which involves investing in different securities in order to minimise risk. Institutional Theory will help us to see how these financial institutions interact with each other and what internal and external factors may influence their behaviour. Institutional investors; such as banks, are seen as large actors on the financial markets as they gain more and more control over the management of equities. It is necessary that intermediaries take care of their customers and inform them thoroughly about the rules of the investment game. With this as a background we felt it would be interesting to investigate the following problem.</p><p>On what basis do financial institutions create their customers’ portfolios and is the process the same across the branch as a whole?</p><p>In order to find an answer to this question; we have done a qualitative study with an overall positivistic influence. The study is based upon an analysis of the empirical material; collected through interviews with three financial institutions, grounded in theory in order to answer our specific question.</p><p>From the information gathered we understood that the first information financial institutions gather is personal information about the investors, which is needed to get a picture and an understanding about their client. We have also learned how important it is to understand risk, as it is the risk that will determine the composition of the portfolio for the investor. We could see with the help of the institutional theory that there is little space for differentiation and can therefore say that the financial institutions work in the same way in the advising of their clients and for the composition of their client’s portfolio.</p><p>Our results show that the basis for the creation of portfolios is more or less the same across the branches as a whole. The service given may differ, due to the competence and knowledge level of employees, between institutions but the end product is similar in all aspects.</p>

<p>This paper is an empirical study on Harry Markowitz work on Modern Portfolio Theory. The model introduced by him assumes the normality of assets’ return. We examined the OMX Large Cap List1 by mathematical and statistical methods for normality of assets’ returns. We studied the effect of the parameters, Skewness and Kurtosis for different time series data. We tried to figure it out which data series is better to construct a portfolio and how these extra parameters can make us better informed in our investments.</p>

<p><strong>Title: </strong>Measuring and handling risk - How different financial institutions face the same problem</p><p><strong>Seminar date: </strong>4^th of June, 2010</p><p><strong> </strong></p><p><strong>Level: </strong>Bachelor thesis in Business Administration, Basic level 300, 15 ECTS</p><p><strong>Authors: </strong>Sarah Rörden and Kristofer Wille</p><p><strong>Supervisor</strong>: Angelina Sundström</p><p><strong>Subject</strong> <strong>terms:</strong> Risk variables, Risk measurement, Risk management, Modern Portfolio Theory, Diversification, Beta</p><p><strong>Target group: </strong>Everyone who has basic knowledge of financial theories and risk principles but lacks the understanding of how they can be used in risk management.</p><p><strong> </strong></p><p><strong>Purpose: </strong>To understand the different Swedish financial institutions’ way of handling and reducing risk in portfolio investing using financial theories.</p><p><strong>Theoretical framework: </strong>The theoretical framework is based on relevant literature about financial theories and risk management, including critical articles.</p><p><strong> </strong></p><p><strong>Method: </strong>A multi-case study has been conducted, built upon empirical data collected through semi-structured interviews at three different financial institutions.</p><p><strong> </strong></p><p><strong>Empiricism: </strong>The study is based on interviews with Per Lundqvist, private banker at Carnegie Investment Bank AB; Erik Dagne, head of risk management department and Joachim Spetz, head of asset management at Erik Penser Bankaktiebolag; and David Lindström, asset manager at Strand Kapitalförvaltning AB.</p><p><strong> </strong></p><p><strong>Conclusion:</strong> There is a practical implementation of the theoretical models chosen for this research. The numbers the financial models generate do not tell one the entire truth about the total risk, therefore the models are used differently at each study object. For a model to hold it has to be transparent, and take each model’s assumptions into account. It all comes down to interpreting the models in an appropriate way.</p>

<p>There is evidence that globalization, economic assimilation and integration among countries and their financial markets have increased correlation among stock markets and the correlation may in turn impact investors’ allocation of their assets and economic policies. We have conducted a quantitative study with daily stock index quotes for the period January 2000 and December 2009 in order to measure the eventual correlation between the markets of ASEAN+3. This economic integration consists of; Indonesia, Malaysia, Philippines, Singapore, Thailand, China, Japan and South Korea. Our problem formulation is:Are the stock markets of ASEAN+3 correlated?Does the eventual correlation change under turbulent market conditions?In terms of the eventual correlation, discuss: is it possible to diversify an investment portfolio within this area?The purpose of the study is to conduct a research that will provide investors with information about stock market correlation within the chosen market. We have conducted the study with a positivistic view and a deductive approach with some theories as our starting point. The main theories discussed are; market efficiency, risk and return, Modern Portfolio Theory, correlation and international investments. By using the financial datatbase, DataStream, we have been able to collect the necessary data for our study. The data has been processed in the statistical program SPSS by using Pearson correlation.From the empirical findings and our analysis we were able to draw some main conclusions about our study. We found that most of the ASEAN+3 countries were strongly correlated with each other. Japan showed lower correlation with all of the other countries. Based on this we concluded that economic integration seems to increase correlation between stock markets. When looking at the economic downturn in 2007-2009, we found that the correlation between ASEAN+3 became stronger and positive for all of the countries. The results also showed that the correlation varies over time. We concluded that it is, to a small extent, possible to diversify an investment portfolio across these markets.</p>

The final aim of this thesis is to evaluate opportunities and risk factors of investing in China, in terms of pros and cons, and also to elaborate an optimal portfolio strategy. The pros regarding investments in China are (1) the economic liberalisation and reforms of the institutional framework; (2) the Chinese market’s huge potential and the high-growth IT and telecommunications sectors; (3) a favourable macroeconomic climate and an impressive development. The cons are (1) the mismanagement of the state-run companies; (2) the mainland exchanges’ intra-year volatility; (3) the export sector’s performance might decline; (4) the institutional framework is largely responsible for many risk factors; (5) a tougher competition climate after the entry in the WTO. Also, our calculations on an optimal portfolio strategy suggest that less risk-averse investors may want to consider the World/Shanghai portfolio, whereas the World/Shenzhen portfolio might instead suit the preferences of more risk-averse investors.

Sammanfattning Introduktion: Sverige har en lång tradition av olika pensions system, så tidigt som 1914 blev det första sy-stemet implementerat. Systemet har blivit förändrat åtskilliga gånger och 1998 infördes Premie Pensions (PPM) systemet. PPM är en blandning av ett distributionsbaserat system och ett fondbaserat system. 16 procent av en individs inkomst är bundet till det distribu-tionsbaserade systemet för att kunna finansiera dagens pensioner. 2,5 procent av en indi-vids inkomst är låst till det fondbaserade systemet och kan investeras av individen i olika fonder. PPM systemet har blivit utsatt för mycket kritik eftersom tidigare studier påvisat att flertalet svenskar inte gör aktiva fondval samt att de har otillräcklig kunskap. Diversifiering förklaras bäst genom talesättet; att inte placera alla ägg i samma korg. Diver-sifiering är ett mått på hur väl en investerare lyckats sprida risken i sin portfölj genom att fördela tillgångarna i olika sorters värdepapper. Syfte: Syftet med denna uppsats är att studera huruvida svenskens pensionsportfölj inom PPM är diversifierad. Detta syfte valdes för att ingen tidigare studie med ett likadant syfte genomförts samt där-för att risken med att inneha en dåligt diversifierad portfölj kan vara stor. Metodval: En kvantitativ ansats har använts i denna uppsats då syftet med den är att dra slutsatser ba-serat på en stor urvalsgrupp. Andrahandsdata emottaget från PPM har uteslutande använts för att genomföra den empiriska studien. För att underlätta studien har en viss begränsning av information gjorts. I studien har ett urval av 100 individer samt 50 fonder använts. En avgränsning är att endast fonddata för de tre senaste åren använts. Trots dessa tillkorta-kommanden hävdar författarna att en hög validitet och reliabilitet har uppnåtts i uppsatsen. Slutsats: Efter att ha jämfört individernas portföljer mot efficient frontier, har åtskilliga resultat uppdagats som påvisar samma slutsats; att svenskens pensionsportfölj inom PPM är dåligt diversifie-rad. Handlingsplan för ansvariga: Att genomföra vidare studier med syfte att få mer kunskap om varför portföljerna är dåligt diversifierade samt implementera dessa resultat av studien i praktiken. / Introduction: Sweden has a long tradition of pension systems, as early as 1914 was the first system implemented. The system has been changed a number of times and in 1998 was the Premium pension authority (PPM) system introduced. PPM is a mixture of a distribution-based system and fund-based system. 16 per cent of an individual’s income is devoted to the distribution-based system for financing today’s pensions. 2.5 per cent of an individual’s income is looked in the fund-based system and can be invested by the individual in different funds. The PPM system has been a target for much criticism since earlier studies has shown that the Swedes do not make an active choice nor have the demanded knowledge. Diversification is best explained through the saying; not to place all your eggs in the same basket. Diversification is a measure of how well an investor has succeeded to spread the risk of the portfolio by allocating assets in different securities. Purpose: The purpose of this thesis is to study whether the Swedish inhabitant’s pension portfolios within the PPM system are diversified. This purpose has been chosen because no studies have been made with an identical aim and also that the risk with holding a poorly diversified portfolio is grave. Methodology: A quantitative approach has been chosen since the aim of the thesis is to draw conclusions based on large sample numbers. Solitary secondary data, received from PPM, has been used to conduct the empirical study. To simplify the study limitations of information have been made; in the study samples of 100 individuals and 50 funds have been used. A Delimitation of the study is that only fund data for the last three years has been used. Despite the scarcities of the thesis the authors claim that the thesis has high validity and reliability. Conclusions: When benchmarking the individual portfolios against the efficient frontier a number of results were revealed and they all ended up in the same conclusion that the Swede’s pension portfolio within the PPM system is insufficient diversified. Implication for management of the PPM system To conduct further studies with the aim to get knowledge; why the investments are poorly diversified and find ways to transform the suggestions of the study into practice.

Title: Measuring and handling risk - How different financial institutions face the same problem Seminar date: 4th of June, 2010   Level: Bachelor thesis in Business Administration, Basic level 300, 15 ECTS Authors: Sarah Rörden and Kristofer Wille Supervisor: Angelina Sundström Subject terms: Risk variables, Risk measurement, Risk management, Modern Portfolio Theory, Diversification, Beta Target group: Everyone who has basic knowledge of financial theories and risk principles but lacks the understanding of how they can be used in risk management.   Purpose: To understand the different Swedish financial institutions’ way of handling and reducing risk in portfolio investing using financial theories. Theoretical framework: The theoretical framework is based on relevant literature about financial theories and risk management, including critical articles.   Method: A multi-case study has been conducted, built upon empirical data collected through semi-structured interviews at three different financial institutions.   Empiricism: The study is based on interviews with Per Lundqvist, private banker at Carnegie Investment Bank AB; Erik Dagne, head of risk management department and Joachim Spetz, head of asset management at Erik Penser Bankaktiebolag; and David Lindström, asset manager at Strand Kapitalförvaltning AB.   Conclusion: There is a practical implementation of the theoretical models chosen for this research. The numbers the financial models generate do not tell one the entire truth about the total risk, therefore the models are used differently at each study object. For a model to hold it has to be transparent, and take each model’s assumptions into account. It all comes down to interpreting the models in an appropriate way.