Analysis and Diagnosis of Corporate Financial Investments amid Social and Political Events Causing High Market Volatility

We create and diversify investment portfolios to increase returns while reducing risk in the face of social and political events that cause high market volatility. We provide comprehensive, detailed analyses tailored to the specific characteristics and individual requirements of each company’s or institution’s financial investments. In recent years, words such as “risk”, “volatility” and “uncertainty” have become part of our everyday vocabulary. Indeed, an index has been developed to measure economic policy uncertainty (EPU), introduced by Baker et al. (2013; 2016). Its methodology is based on counting the occurrence of these types of words in the media. The EPU is now one of the most widely used indices for measuring uncertainty in economics and finance. Its underlying principle is straightforward: the more frequently risk-related terms appear in official and mainstream media, the higher the index value. According to its estimates, global uncertainty peaked in April 2020 during the COVID-19 pandemic, while its four highest historical peaks occurred between 2015 and 2021.

Global financial markets have continued to grow throughout the 21st century. Given the substantial increase in market value and stock market trading, financial markets have become increasingly relevant to our everyday lives. Their prominence is such that, following any major event, the media immediately report on its impact on stock markets, often highlighting falling prices and sharp increases in volatility. This makes it essential for companies to understand, analyse and assess their investment portfolios in response to events that trigger high volatility, such as a global pandemic, a war in Europe, the collapse of a US bank or an environment of high inflation. First, we need to determine the actual return on an asset following an event such as a pandemic. This is commonly calculated using logarithmic returns, which convert multiplicative calculations into additive ones. This allows abnormal returns to be added together to calculate cumulative abnormal returns and perform the relevant statistical tests. Second, we need a model that estimates expected returns, known as normal returns. These are the returns that would be expected in the absence of unexpected events of this kind. Once actual and expected returns have been calculated for the estimation and event periods, the variable under investigation is the difference between them, known in econometrics as the residual. Under normal conditions, this difference should be zero. The magnitude and variability of the residual therefore determine the statistical significance of the anomaly associated with the event. This residual will vary depending on the company concerned and the economic, accounting, financial and social factors affecting it. Expertise in investment analysis under highly volatile conditions, such as those experienced over the past five years, can be applied across business, industry and institutional settings.

This approach enables comprehensive, detailed analyses tailored to the specific characteristics and individual requirements of each company’s or institution’s financial investments. The proposed financial analysis provides reliable and timely information to help corporate finance directors make efficient tactical investment decisions aimed at maximising returns in highly volatile environments. We have worked on managing investment portfolios following various social and political events that affect portfolio returns, including the COVID-19 pandemic, the war in Ukraine and successive interest rate increases by the European Central Bank (ECB). Understanding the abnormal returns of different companies in different circumstances helps us anticipate their behaviour, with the aim of achieving higher returns while reducing risk. We can also provide financial managers with a tool to calculate and analyse the risk and return of financial investments in line with each company’s or institution’s budgets and portfolios.

The financial analyses and assessments offered are available to any organisation or company upon request. We can also provide financial managers with a tool to calculate and analyse the risk and return of financial investments in line with each company’s or institution’s budgets and portfolios.

• Companies and Corporations with Treasury Departments or Large Investment Portfolios.
• Financial Institutions and Banks.
• Investment Funds, Pension Funds and Securities Firms.
• Public Institutions and Foundations with Financial Assets.
• Any Business or Institutional Sector Exposed to Global Financial Markets.

María Victoria Ferrández Serrano – Department of Economic and Financial Studies