Journal of Economics and Financial Analysis

Number 1, 2019

1-26
Analysis of Equity β Components: New Results and Prospectives in a Low β Framework

Authors: Antonio Amendola, Dennis M. Montagna, Mario Maggi

Abstract

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Number of views: 427

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 β 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 β 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.

27-45
Implication of Credit Supervision Practices on Portfolio at risk of Microfinance Institutions in Tanzania

Authors: Dastun B. Ngonyani, Harun J. Mapesa

Abstract

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Number of views: 534

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.

47-70
Measuring Predictability of Oil and Gas Stock Returns and Performance of Moving Average Trading Rules

Authors: Muhammad Surajo Sanusi, Farooq Ahmad

Abstract

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Number of views: 370

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.

71-85
A Modified Risk Parity Method for Asset Allocation

Authors: Akhilesh Maewal, Joel R. Bock

Abstract

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Number of views: 354

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.

87-115
The causality between Financial Development and Economic Growth in Ethiopia: Supply Leading vs Demand Following Hypothesis

Authors: Tekilu Tadesse, Jemal Abafia

Abstract

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Number of views: 363

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.