Template-Type: ReDIF-Article 1.0 Title: Analysis of Equity Beta Components: New Results and Prospectives in a Low Beta Framework Author-Name: Antonio Amendola Author-Name: Dennis M. Montagna Author-Name: Mario Maggi Author-Workplace-Name: University of Pavia Author-Workplace-Name: University of Pavia Author-Workplace-Name: University of Pavia Author-Email: antonio.amendola@intermonte.it Author-Email: dennis.montagna@unipv.it Author-Email: mario.maggi@unipv.it Classification-JEL: G11, G12, G14. Keywords: Asset Allocation; Quantitative Portfolio Management; CAPM; Hedge Funds; Correlation; Beta Anomaly. Abstract: This work aims to exploit the so-called 'Beta anomaly' regarding the risk-reward relationship, and set up rules and methodologies in order to build new efficient portfolios. It is well known in literature, and among practitioners, that 'Low Beta strategies' generate good performances exploiting alpha opportunities. In this paper, we focus on Beta parameters: we analyze this one and its components (Correlation and Standard Deviation) in order to better understand the drivers and contributions behind the 'Low Beta strategies', and eventually exploit them. We perform an extensive empirical analysis on the S&P500 and the relative sectors, covering more than 10 years. In addition, we follow Long/Short strategies in building portfolios based on Beta and their components where we compare results against the benchmark. We also introduce 'Walking Beta' approach in order to give a deep and innovative view on the market risk/reward relationship, illustrating different time frames and the evolution of risk parameters. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 1 Pages: 1-26 DOI: http://dx.doi.org/10.1991/jefa.v3i1.a21 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/41/45 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/41/50 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0021 Template-Type: ReDIF-Article 1.0 Title: Implication of Credit Supervision Practices on Portfolio at risk of Microfinance Institutions in Tanzania Author-Name: Danstun B. Ngonyani Author-Name: Harun J. Mapesa Author-Workplace-Name: St. Johns University of Tanzania Author-Workplace-Name: Mzumbe University Author-Email: dngonyani@sjut.ac.tz Author-Email: hjmapesa@mzumbe.ac.tz Classification-JEL: D23, G21, G23 Keywords: Credit Supervision; Portfolio at Risk; Microfinance Institutions; Credit Risk Abstract: This study seeks to establish the implication of credit supervision practices on portfolio management of microfinance institutions in Tanzania. Utilizing multivariate regression technique over sampled 219 microfinance institutions from Dar es Salaam, Morogoro and Dodoma regions, it documents two plausible results. First, the study finds that timely loan release and number of borrowers per loan officer have positive and statistically significant impact on portfolio at risk of microfinance institutions. Second, it reveals that operation cost per borrower and provision of training sessions to borrowers have negative and statistically significant impact on portfolio at risk of microfinance institutions. These results suggest that microfinance institutions can diminish portfolio risks by (1) decreasing number of days for processing clients’ loan applications and releasing funds; (2) decreasing number of clients per each loan officer in order to increase efficiency of loan management of the officers; (3) increasing training sessions on various skills given to their borrowers which will increase knowledge and skills of clients on the best ways to keep their business records and proper utilization of funds, and so successful repayments; (4) allocating enough budgets for overall supervisory purposes including loan appraisal processes, disbursement procedures and collection of funds from their clients. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 1 Pages: 27-45 DOI: 10.1991/jefa.v3i1.a22 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/42/46 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/42/51 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0022 Template-Type: ReDIF-Article 1.0 Title: Measuring Predictability of Oil and Gas Stock Returns and Performance of Moving Average Trading Rules Author-Name: Muhammad Surajo Sanusi Author-Name: Farooq Ahmad Author-Workplace-Name: Birmingham City University Author-Workplace-Name: Robert Gordon University Author-Email: muhammad.sanusi@bcu.ac.uk Author-Email: f.ahmad@rgu.ac.uk Classification-JEL: G100, G120. Keywords: Trading and Filter Rules; Moving Average Trading Rule; Buy and Hold Investment Strategy; Oil and Gas Stock Returns. Abstract: The paper re-examines whether investors can predict oil and gas stock prices for abnormal returns using autocorrelation-based trading and filter rules and moving average strategies. In this paper, short and long lengths moving averages are employed and their performances are measured against the returns from simple buy and hold investment strategy. As a result, the paper finds that employed trading rules do not indicate that investors can make abnormal returns in oil and gas stocks. Moreover, the performances of short and long moving averages in predicting abnormal returns also do not suggest a conclusive evidence that any of the moving averages can result in more returns compared to others. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 1 Pages: 47-70 DOI: 10.1991/jefa.v3i1.a23 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/43/47 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/43/52 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0027 Template-Type: ReDIF-Article 1.0 Title: A Modified Risk Parity Method for Asset Allocation Author-Name: Akhilesh Maewal Author-Name: Joel R. Bock Author-Workplace-Name: Yale University Author-Workplace-Name: University of California, San Diego Author-Email: amaewal@gmail.com Author-Email: sauerkraut@gmail.com Classification-JEL: G11, G12, D81. Keywords: Risk Parity; Asset Allocotion; Decision Making; Portfolio Optimizaion. Abstract: We propose a return based modification of the portfolio variance matrix for asset allocation using risk parity. The modification is based upon a single scalar parameter which can be tuned to tailor the allocation for desired expected risk and/or return. The present work contributes a new twist on risk parity. While classical risk parity methods are based exclusively on volatility, the new solution (Modified Risk Parity) considers both historical returns and their variance in the construction of an optimal, diversified investment portfolio. We present two examples for periods including the recent financial market crises. The results suggest that the modification may lead to significantly improved risk adjusted returns over those realized by the conventional risk parity method. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 1 Pages: 71-85 DOI: 10.1991/jefa.v3i1.a24 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/44/48 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/44/53 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0028 Template-Type: ReDIF-Article 1.0 Title: The causality between Financial Development and Economic Growth in Ethiopia: Supply Leading vs Demand Following Hypothesis Author-Name: Tekilu Tadesse Author-Name: Jemal Abafia Author-Workplace-Name: Jimma University Author-Workplace-Name: Jimma University Author-Email: tekitade.tt@gmail.com Author-Email: abafitajem@yahoo.co.uk Classification-JEL: G12, D40, C51, C59. Keywords: Financial Development; Economic Growth; ARDL Bound Test; VECM; Granger Causality Test. Abstract: This paper investigates linkage between financial development and economic growth in Ethiopia during the period from 1975 to 2016 using Autoregressive Distributed Lag (ARDL) approach. The paper also schedules Vector Error Correction Model (VECM) in order to observe how fast the cointegrated variables convergence in long-run. Accordingly, the results of bound test confirm existence of the long-run relationship between explanatory variables and economic growth. The empirical results show evidence of long- and short-run positive impacts of financial development on economic growth in Ethiopia which implies that progesses in financial sector contribute to economic growth in both short- and long-run. In consideration of few control variables, the study finds all indicators, except inflation and government expenditure, significantly influence economic growth in the long-run. However, it also reveals that government expenditure, trade openness, human capital, and gross investment are pioneering determinants of the economic growth in Ethiopia in short-run. Moreover, the study employs Granger causality tests in order to show direction of impact is running from financial development to economic growth both in short- and long-run. As a result, it finds that the ‘supply-leading’ hypothesis holds in Ethiopia. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 1 Pages: 87-115 DOI: 10.1991/jefa.v3i1.a25 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/45/49 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/45/54 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0029 Template-Type: ReDIF-Article 1.0 Title: Income Diversification, Market Power and Performance Author-Name: Peter Nderitu GITHAIGA Author-Workplace-Name: Moi University Author-Email: nderitugithaiga@mu.ac.ke Classification-JEL: G11, G21. Keywords: Income diversification; Non-interest income; Market power; Firm performance; Herfindahl-Hirschman Index. Abstract: This paper aims at examining the mediating role of market power on income diversification and performance nexus. Using 310 yearly observations drawn from a sample of 31 Kenyan commercial banks and panel data for the 2008–2017 periods, the study finds that market power significantly mediate the relationship between income diversification and performance. Thus, income diversification will have a larger impact on performance for banks with significantly high market power compared to those with low market power. Given the novelty of these findings, the study has implications for bank regulators, scholars and practitioners. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 2 Pages: 1-21 DOI: 10.1991/jefa.v3i2.a26 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/47/55 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/47/59 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0030 Template-Type: ReDIF-Article 1.0 Title: Does Portfolio Quality Influence Financial Sustainability? A Case of Microfinance Institutions in Kenya Author-Name: Stephen Kosgei BITOK Author-Name: Josephat CHEBOI Author-Name: Ambrose KEMBOI Author-Workplace-Name: Moi University Author-Workplace-Name: Moi University Author-Workplace-Name: Moi University Author-Email: stephenkbitok@gmail.com Author-Email: no-mail@mail.com Author-Email: no-mail@mail.com Classification-JEL: D23, G21, G23. Keywords: Portfolio Quality; Financial Sustainability; Microfinance Institutions; Institutional Theory. Abstract: This article studies the relationship between portfolio quality and the financial sustainability of microfinance institutions in Kenya. The analysis is based on a panel dataset of 30 microfinance institutions in the period 2010 to 2018. The study is guided by institutional theory which is built on conformance and continuity. The study adopts an explanatory research design where a panel approach is used under positivist paradigm. The study finds that portfolio quality has a positive significant effect on the financial sustainability at 1% statistical significance level. Based on this finding, the study concludes that portfolio quality is an essential element of MFIs financial sustainability. The study recommends that MFIs managers should devise good collection policies to improve portfolio quality while lessening loan default rate. The portfolio quality may improve the overall profitability and enhance investor confidence in their strategic decision-making on refinancing. It is important to note in order to ensure financial inclusion; the stakeholders must be involved. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 2 Pages: 23-39 DOI: 10.1991/jefa.v3i2.a27 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/48/56 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/48/60 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0031 Template-Type: ReDIF-Article 1.0 Title: Convexity Adjustments Made Easy: An Overview of Convexity Adjustment Methodologies in Interest Rate Markets Author-Name: Nicholas BURGESS Author-Workplace-Name: University of Reading, Author-Email: nburgessx@gmail.com Classification-JEL: G100, G120. Keywords: Convexity Adjustments; Radon-Nykodym Derivative; Shifted- Lognormal; Linear Swap Rate Method; Libor In-Arrears Swaps; Constant Maturity Swaps; CMS Caplets, Floorlets and Swaplets. Abstract: Interest rate instruments are typically priced by creating a non-arbitrage replicating portfolio in a risk-neutral framework. Bespoke instruments with timing, quanto1 and other adjustments often present arbitrage opportunities, particularly in complete markets where the difference can be monetized. To eliminate arbitrage opportunities we are required to adjust bespoke instrument prices appropriately, such adjustments are typically non-linear and described as convexity adjustments. We review convexity adjustments firstly using a linear rate model and then consider a more advanced static replication approach. We outline and derive the analytical formulae for Libor and Swap Rate adjustments in a single and multicurve environment, providing examples and case studies for Libor In-Arrears, CMS Caplet, Floorlet and Swaplet adjustments in particular. In this paper we aim to review convexity adjustments with extensive reference to popular market literature to make what is traditionally an opaque subject more transparent and heuristic. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 2 Pages: 41-83 DOI: 10.1991/jefa.v3i2.a28 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/49/57 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/49/62 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0032 Template-Type: ReDIF-Article 1.0 Title: Foreign Remittances, Private Sector Investment and Banking Sector Development Author-Name: Peter Nderitu GITHAIGA Author-Workplace-Name: Moi University Author-Email: nderitugithaiga@mu.ac.ke Classification-JEL: F24, F41, F63, F68. Keywords: Foreign Remittance; Private Sector Investment; Banking Sector Development. Abstract: In the last three decades, foreign remittances flowing to Sub-Saharan Africa have grown more rapidly than the average for developing countries forming a significant component of external capital flows. Simultaneously, there has been an increase in the number of studies investigating the impact of these transfers on consumption and the general welfare of the receiving household. However, very few studies have examined the impact of foreign remittances on private sector investment in Sub-Saharan Africa, which is considered as having an inefficient banking sector. From this background, this study aims to investigate the impact foreign remittances on private sector investment and the moderating role of banking sector development. The study uses a sample of 15 Sub-Saharan African countries with data for the years 1986-2017. The findings of this study indicate that foreign remittances and banking sector development has a positive and statistically significant impact on private investment Sub-Saharan Africa. Moreover, the banking sector development has a moderating effect. These results suggest that foreign remittances are important sources of capital for private investment and it can efficiently fill the financing gaps of inefficient financial markets. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 2 Pages: 85-112 DOI: 10.1991/jefa.v3i2.a29 File-URL: https://ojs.tripaledu.com/index.php/jefa/article/download/50/58 File-Format: application/pdf File-URL: https://ojs.tripaledu.com/index.php/jefa/article/view/50/61 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0033 Template-Type: ReDIF-Article 1.0 Title: Interaction of Economic Freedom and Foreign Direct Investment Globally: Special Cases from Neglected Regions Author-Name: Yhlas Sovbetov Author-Workplace-Name: London School of Commerce Author-Email: ihlas.sovbetov@lsclondon.co.uk Author-Name: Mohamed Moussa Author-Workplace-Name: Istanbul University Author-Email: medmoussane@yahoo.fr Classification-JEL: C33, F00, F21. Keywords: Economic Freedom; Openness of Economy; Foreign Direct Investments; Neglected Regions; Panel Data Analysis. Abstract: This paper studies the macroeconomic impact of economic freedom on foreign direct investments inflows in both global and regional panel analyses involving 156 countries through the period of 1995-2016. Unlike to prior literature, it includes often neglected nations such as Fragile and Conflict-Affected states, Sub-Saharan, Oceanian, and Post-Soviet countries. The paper finds a positive impact of economic freedom on FDI under fixed-effects model in global case where a unit change in economic freedom scales FDI inflows up to 1.15 units. More specifically, all 9 regions also refer to positive and significant impact of economic freedom on FDI. The highest impact is recorded in European countries, whereas the lowest ones are documented in Fragile-Conflict affected states, Sub-Saharan zone, and Oceanian countries. Journal: Journal of Economics and Financial Analysis Year: 2019 Volume: 3 Issue: 2 Pages: 113-134 DOI: http://dx.doi.org/10.1991/jefa.v1i1.a4 File-URL: http://ojs.tripaledu.com/jefa/article/download/6/3 File-Format: application/pdf File-URL: http://ojs.tripaledu.com/jefa/article/view/6/12 File-Format: text/html Handle: RePEc:trp:01jefa:jefa0006