Michael Leslie Kremmer

Feed-Forward Artificial Neural Network Model For Forecasting Rainfall Run-Off

This paper presents the results of a blind test of the ability of a feed-forward artificial neural network to provide out-of-sample forecasting of rainfall run-off using real data. The results obtained are comparable with the results obtained using best methods currently available. The focus of the paper has been an easily repeatable experiment applied to rainfall and run-off data for a catchment area; which particular catchment was not revealed to the experimenters, i.e. a blind experiment. To this end, a simple model has been specified, and the architecture of the neural network and the data preparation procedures adopted are discussed in detail. The results are presented and discussed in detail and the extent to which the system was found to be non-linear is quantified.

Should funds invest in socially responsible investments during downturns?: Financial and legal implications of the fund manager's dilemma

Purpose - The purpose of this paper is to investigate whether socially responsible investment (SRI) is less sensitive to market downturns than conventional investments; the legal implications for fund managers and trustees; and possible legislative reforms to allow conventional funds more scope to invest in SRI. Design/methodology/approach - The paper uses the market model to estimate betas over the past 15 years for SRI funds and conventional investment funds during economic downturns, as distinct from during more “normal” (non-recessionary) economic times. Findings - The beta risk of SRI, both in Australia and internationally, increases more than that of conventional investment during economic downturns. Traditional fund managers and trustees in Australia are therefore likely to breach their fiduciary duties if they go long – or remain long – in SRI funds during economic downturns, unless relevant legislation is reformed. Research limitations/implications - The methodology assumes that alpha and beta in the market model are constant. Second, it categorises the state of the market into “normal” economic conditions and downturns using dummy variables. More sophisticated techniques could be used in future research. Practical implications - The current law would prevent conventional funds from investing in SRI. If SRI is viewed as socially desirable, useful legislative reforms could include explicitly overriding the common law to allow conventional funds to invest in SRI; introducing a 150 percent tax deduction or investment allowance for SRI; and allowing SRI sub-funds to obtain deductible gift recipient status from the Australian Tax Office and other taxation authorities. Originality/value - The accurate assessment of risk in SRIs is an area which, despite its serious legal implications, is yet to be subjected to rigorous empirical investigation.

Socially Responsible Investment in Market Downturns: Implications for the Fiduciary Responsibilities of Investment Fund Trustees

In the past, socially responsible investment (SRI) has been justified largely by empirical evidence showing SRI returns to be broadly similar to returns on conventional (non-SRI) investments. There are exceptions, however, and in any case this empirical evidence is based on returns in normal economic times. The extent to which it applies in recessions such as the recent global financial crisis (GFC) has so far been unclear. Our empirical analysis shows that, before the GFC, SRIs internationally yielded even higher risk-adjusted returns than conventional investments, although SRIs in Australia significantly under-performed compared with conventional investments in terms of risk-adjusted returns. Since the GFC, both in Australia and worldwide, SRIs have significantly underperformed against conventional investments in terms of risk- adjusted returns. These results confirm that traditional investment fund trustees and managers risk breaching their fiduciary duties if they invest in SRIs during times of economic downturn, perhaps suggesting a need for statutory reform if SRI is to be encouraged within the investment community. Reform could include the introduction of a business judgment rule, greater disclosure for SRI, a statutory indemnity for trustees investing in SRIs, and tax breaks and subsidies.