AN EMPIRICAL STUDY OF BOND PORTFOLIO IMMUNIZATION EFFECTIVENESS DURING 2008 GLOBAL FINANCIAL CRISIS

Interest Rate Risk, Bank Stability, and Valuation

This article surveys recent theoretical and empirical advancements on the impact of interest rates on bank valuations and stability—two crucial concerns for financial researchers, policy makers, and regulators. We begin by highlighting the distinctive feature of the regional banking crisis of 2023—the prevalence of liquid assets on bank balance sheets—in contrast to earlier crises such as the savings and loan crisis of the 1980s and 1990s, where illiquid assets contributed to banking failure. In Section 2, we present a theoretical framework that integrates both asset illiquidity and the risk of self-fulfilling solvency runs on the deposit franchise. We show the conditions under which the deposit franchise fails to hedge asset declines due to rising interest rates and demonstrate how and why this amplifies bank fragility. Sections 3–5 explore empirical methods for assessing these effects. We review approaches to measuring the interest rate sensitivity of bank asset values, highlighting their limitations. We also examine recent advances in quantifying bank fragility, particularly the challenges of valuing the deposit franchise under both stable conditions and crisis scenarios. Additionally, we discuss new measures of bank fragility that capture the potential endogenous collapse of franchise value during crises. Applying these measures leads us to conclude that US banks face significant unhedged interest rate exposure in their asset portfolios. When combined with their high leverage, this exposure substantially increases the risk of solvency runs. Liquidity interventions, while useful in the short term, are insufficient for addressing the systemic risks posed by this vulnerability.

Solvency II and Portfolio Risk Exposure

Evaluating the Impact of Sovereign Wealth Fund Investments on US Stock Market

This paper analyzes the impact of Sovereign Wealth Funds’ (SWFs) investments on US-listed stocks. An event study methodology was employed using a sample of 627 investments from seven countries. The study uses a 90-day estimation period to develop the CAPM model for target stocks and analyzes average abnormal returns (AARs) and cumulative AARs (CAARs) over a 41-day event window. The findings confirm that SWF investments generate positive abnormal returns, but these effects are short-lived, peaking around the event day and fading within a few days. This suggests that SWF investments act as a short-term catalyst rather than a driver of long-term value, benefiting speculators and short-term investors more than long-term shareholders. Additionally, the study shows that higher transparency levels in SWFs are significantly associated with positive market reactions, likely due to increased investor confidence. In contrast, ownership share does not significantly affect abnormal returns. This study extends the literature by providing new evidence on the short-term market effects of SWF investments during the 2007–2008 financial crisis. The findings provide useful insights for investors and policymakers regarding the market impact of SWF investments and highlight the importance of transparency in enhancing investor confidence.

Impact of Foreign Exchange Risk on the Performance of Global Portfolios

Nigerian investors diversifying into international markets face a significant obstacle in the form of foreign exchange risk, but there is a startling lack of empirical data on its effects. This study closes this gap by carefully examining the impact of Naira volatility (NGN/USD, NGN/GBP, and NGN/EUR) on the risk-adjusted performance of international portfolios. We use comparative hedging simulations and multivariate regression using monthly data from 2010–2023, which includes Nigeria’s 2016 capital liberalisation, several currency crises, and the 2023 Naira float. Key findings show that oil price fluctuations and inflation discrepancies increase losses, and that a 1% increase in forex volatility lowers real risk-adjusted returns (Sortino ratio) by 0.62% (*p* < 0.001). Importantly, despite transaction costs, forward contracts through Nigeria's Investors' & Exporters' window prove to be the best hedge, providing net returns during crises that are 10.8 percentage points higher than unhedged portfolios.

A Study of Bonds as a Method of Investment: Risk, Return, and Investor Preferences

This study examines bonds as an investing strategy, focusing on how they contribute to fixed income generation, risk management in diverse portfolios, and financial security. As fixed-income securities, bonds have long been thought to be safer than stocks, especially during erratic economic times. The study makes use of secondary data from reliable sources including the National Stock Exchange (NSE), the Securities and Exchange Board of India (SEBI), and the Reserve Bank of India (RBI) in addition to primary data gathered from a survey of 150 Indian investors. To assess investor preferences, demographic variations, and the relative returns of bonds and shares, statistical methods such as percentage analysis, mean and standard deviation, and chi-square testing were used. The findings show that 55% of respondents strongly favored government bonds because of sovereign guarantees, while 62% of respondents preferred bonds primarily for safety and stability. Only 28%, on the other hand, chose corporate bonds, which are thought to be riskier even though they have marginally higher yields. Government bonds consistently produced returns between 6 and 7%, corporate bonds between 7 and 9%, while the equity index (NIFTY 50) showed much more volatility with returns ranging from -4% to 24%, according to the five-year return analysis (2019–2023). According to the study's findings, bonds are especially appealing to conservative and retired investors even if they might not yield the highest profits. They also serve as a vital basis for steady investment portfolios. This study advances knowledge of investor behavior in the Indian bond market and offers guidance to individual investors, financial advisors, and policymakers regarding the value of bonds in wealth management plans.

Features of investment portfolio management during a crisis period

The article examines the features of investment portfolio management under crisis shocks associated with the COVID-19 pandemic, geopolitical instability in 2022-2023, and the declining reliability of traditional diversification models. The relevance of reconsidering the 60/40 portfolio is substantiated, as in 2022 it demonstrated a significant deterioration in its protective properties. The research methodology is based on a comparative analysis of passive, active, defensive, and dynamic portfolio management models, as well as a computational testing of asset structures using Russian market data from the acute phase of the 2022 crisis. The study evaluates returns, final portfolio value, drawdown, the role of gold and the currency component, rebalancing frequency, and the economic effect relative to the baseline 60/40 model. It is established that crisis-oriented management is primarily aimed at reducing losses, preserving liquidity, and creating conditions for capital recovery. The conclusion is made that it is advisable to combine models, taking into account the type of crisis and investor behavior.