Bank Income Diversification and its Impact on Profitability and Risk: Evidence from Nordic Markets

Financial industry has recently encountered many changes in the business environment. Increased regulation together with growing competition is forcing commercial banks to rethink their business models. In order to maintain profitability in the new environment, banks are focusing more into activities that yield noninterest income. This is a shift away from the traditional intermediation function of banks. This study aims to answer the question if the shift from traditional income yielding activities to more innovative noninterest activities is logical in terms of profitability and risk in Nordics. This study also aims to answer the question if diversification within the noninterest income categories has impact on profitability and risk and if there are certain categories of noninterest income that are better than others in terms of profitability and risk in Nordics. Results show that diversification between interest and noninterest activities and increase in the share of noninterest income have a negative impact on the risk adjusted returns and risk profile. Results also show that further diversification within the noninterest income categories has negative impact on risk adjusted profitability and risk while an increase of the share of commission and fee income category of total noninterest income has a positive impact on risk adjusted profitability and risk. Results are logical and in line with previous research (De Young & Roland, 2001; Stiroh, 2004). Results provide useful information to banks and help them better evaluate outcomes of different income diversification strategies.

The debt crisis: a re-appraisal

The 1980s' debt crisis is a landmark in developing economies' growth and stabilization. According to the most quoted empirical articles, external shocks and vicissitudes gave rise to crisis just because of delays in stabilization policies, engendered by internal conflicts and institutional immaturity. I review some of these papers, and find out some problems - in the measurement of shocks and foreign indebtedness, namely - whose corrections lead to opposite results: external shocks and foreign indebtedness explain that crisis regardless of domestic policies. At the same time, the strong correlation of income distribution to terms of trade changes and foreign indebtedness suggest that inequality may have contributed differently to that crisis: either through an economic channel, or through a political channel based on delays in reforms.

Posicionamento social e a hipótese da distribuição de renda desconhecida. Brasil: quão pobres, quão ricos e quão desiguais nos percebemos?

Based on the ISSP (1999) survey the aim of the present paper is to provide an empirical description about the perceptions Brazilians have towards their own social positioing in the social scale and towards the country’s income distribution. Throughout this description, the paper gives support for the hypothesis that Brazilians do not recognize the form of the country’s income distribution and its high degree of inequality. Also, we present a brief discussion on the causes and consequences of this knowledge gap.

Banking and regional inequality in Brazil: an empirical note

The paper investigates a neglected aspect of regional inequality in Brazil, namely regional inequalities related to financial flows. A synthetic regional financial inequality index is proposed and calculated in a semester basis over the 02-1994/02-2000 period. The inequality measure attempts to capture to what extent deposits in a given state translate into credit operations in that locality. Two main results emerge. First, non-negligible inequality patterns emerge when one considers the segment of private banks and those are consistent with an important proportion of states with a predominantly exporting pattern, for which deposits surpasses loans in that locality. Second, if one focus on the segment of public banks, an opposite pattern appears, that is consistent with decision patterns that might have, in part, a regional development motivation.

PERFORMANCE ANALYSIS OF A TACTICAL ASSET ALLOCATION – Evidence from the Black–Litterman model based fixed income portfolio

Over time the demand for quantitative portfolio management has increased among financial institutions but there is still a lack of practical tools. In 2008 EDHEC Risk and Asset Management Research Centre conducted a survey of European investment practices. It revealed that the majority of asset or fund management companies, pension funds and institutional investors do not use more sophisticated models to compensate the flaws of the Markowitz mean-variance portfolio optimization. Furthermore, tactical asset allocation managers employ a variety of methods to estimate return and risk of assets, but also need sophisticated portfolio management models to outperform their benchmarks. Recent development in portfolio management suggests that new innovations are slowly gaining ground, but still need to be studied carefully. This thesis tries to provide a practical tactical asset allocation (TAA) application to the Black–Litterman (B–L) approach and unbiased evaluation of B–L models’ qualities. Mean-variance framework, issues related to asset allocation decisions and return forecasting are examined carefully to uncover issues effecting active portfolio management. European fixed income data is employed in an empirical study that tries to reveal whether a B–L model based TAA portfolio is able outperform its strategic benchmark. The tactical asset allocation utilizes Vector Autoregressive (VAR) model to create return forecasts from lagged values of asset classes as well as economic variables. Sample data (31.12.1999–31.12.2012) is divided into two. In-sample data is used for calibrating a strategic portfolio and the out-of-sample period is for testing the tactical portfolio against the strategic benchmark. Results show that B–L model based tactical asset allocation outperforms the benchmark portfolio in terms of risk-adjusted return and mean excess return. The VAR-model is able to pick up the change in investor sentiment and the B–L model adjusts portfolio weights in a controlled manner. TAA portfolio shows promise especially in moderately shifting allocation to more risky assets while market is turning bullish, but without overweighting investments with high beta. Based on findings in thesis, Black–Litterman model offers a good platform for active asset managers to quantify their views on investments and implement their strategies. B–L model shows potential and offers interesting research avenues. However, success of tactical asset allocation is still highly dependent on the quality of input estimates.

O ritmo na queda da desigualdade no Brasil é aceitável?

The rhythm in the fall of inequality in Brazil is acceptable? Evidences of the historical and international context. The following study uses two approaches to answer the question of whether inequality in Brazil is falling fast enough. The first is to compare the variation of the Gini coefficient in Brazil with what was observed in several countries that today belong to the OCDE (United Kingdom, United States, Netherlands, Sweden, France, Norway, and Spain) while these same countries built their social welfare systems during the last century. The second approach is to calculate for how much Brazil must keep up the fall in the Gini coefficient to attain the same levels of inequality of three OCDE countries that can be used as a reference: Mexico, the United States, and Canada. The data indicate that the Gini coefficient in Brazil is falling 0.7 point per year and that this is superior to the rhythm of all the OCDE countries analyzed while they built their welfare systems but Spain, whose Gini fell 0.9 point per year during the 1950s. The time needed to attain various benchmarks in inequality are: 6 years to Mexico, 12 to the United States and 24 to Canadian inequality levels. The general conclusion is that the speed with which inequality is falling is adequate, but the challenge will be to keep inequality falling at the same rate for another two or three decades.

Para medir as desigualdades raciais no mercado de trabalho

Measuring racial inequalities in the labor market. How much racial inequality is there in Brazilian labor market? What has been the impact of the latest transformations in work relations on it? Can we compare the Brazilian situation to other countries? These questions don't have today an objective answer. This is due, mostly, to the absence of measures which could allow us to make long term and regional comparisons of different racial inequalities situations. Our proposal is to provide new indicators to evaluate racial inequalities in both the occupational and income structure in Brazil. Our results show that whites/non-whites gaps widened since the 1980s. They allow us to affirm, in addition, that racial inequalities are today worst in Brazil than in countries that adopted affirmative action laws to fight discrimination.

Desigualdade, mas de qual falamos?

What inequality are we talking about? The essay was motivated by the recent disclosure of documents by multilateral development institutions demonstrating that the last phase of economic growth has tended to aggravate socioeconomic inequality. The purpose of the current analyze is to debate the advances that have been made and the persisting methodological and analytical difficulties in the debate on inequality as well as to contribute with a few insights towards the construction of a multidimensional view of a recurring and inherent aspect of capitalist development.

Corruption, income, and rule of law: empirical evidence from developing and developed economies

This article presents an empirical analysis based on cross-country data concerned with two points regarding corruption: (i) its effects on income; and (ii) how to mitigate corruption. The findings can be highlighted in two points. Firstly the idea that corruption is intrinsically connected with income is confirmed. Secondly, the traditional argument that an increase in rule of law represents a good strategy in the fight against corruption is valid for developing countries. Furthermore, this study reveals that the search for increasing the human development index represents a rule of thumb for high levels of income and to control corruption.

A queda da desigualdade de renda corrente e a participação do 1% de domicílios de maior renda, 2000-2010

According to OECD, the recent process of deterioration of the income distribution chain in developing and developed countries has been marked by increased participation of 1% of households with higher income. In the past decade, Brazil has escaped the general trend of deterioration of the income distribution. This paper shows that the reduction of economic inequality was accompanying the reluctance of the participation of top 1%, arguing that the reproduction of the movement more generally requires that this participation has been reduced in the current decade, to enable sustained growth and development with social justice.

Economic stagnation in the United States: underlying causes and global consequences

This paper analyzes the causes of the slow recovery of the US economy since the financial crisis and Great Recession of 2008-9. Fallen house values and excessive household debts continue to depress consumer spending, while corporations are failing to invest in spite of record profits. The increasingly unequal distribution of income limits demand, while long-term structural transformations continue to erode employment creation. An expansionary monetary policy has been incapable of sparking a more robust recovery and fiscal policy has been shifted to an austerity stance. In this context, Brazil and other emerging market nations cannot count on the United States to continue to be the leading source of global demand as it was in previous decades.

Gendered inequality in academia : exploring women's experiences during the pre-tenure stages of their academic career

This research uses the work of Pierre Bourdieu as a starting point for an examination of women's experiences during the pre-tenure stages of their academic career. This thesis is based on six semi-structured interviews with six tenured academic women in the Faculty of Social Sciences at a medium sized Ontario University. I explore the ranges of experiences that the women report encountering during their pre-tenure years, as well as demonstrate how these experiences are gendered. Through my analysis, I find that women's experiences in academia are shaped by a culture that legitimates their existence in the academic field insofar as they embody the dispositions that reinforce the gendered structure of the academic institution. I argue that being measured according to a prototypical male standard creates difficulties for academic women during their pre-tenure years.

Dynamic Performance Evaluation of Canadian Fixed-Income Funds using Markov Regime Switching Models

This thesis examines the performance of Canadian fixed-income mutual funds in the context of an unobservable market factor that affects mutual fund returns. We use various selection and timing models augmented with univariate and multivariate regime-switching structures. These models assume a joint distribution of an unobservable latent variable and fund returns. The fund sample comprises six Canadian value-weighted portfolios with different investing objectives from 1980 to 2011. These are the Canadian fixed-income funds, the Canadian inflation protected fixed-income funds, the Canadian long-term fixed-income funds, the Canadian money market funds, the Canadian short-term fixed-income funds and the high yield fixed-income funds. We find strong evidence that more than one state variable is necessary to explain the dynamics of the returns on Canadian fixed-income funds. For instance, Canadian fixed-income funds clearly show that there are two regimes that can be identified with a turning point during the mid-eighties. This structural break corresponds to an increase in the Canadian bond index from its low values in the early 1980s to its current high values. Other fixed-income funds results show latent state variables that mimic the behaviour of the general economic activity. Generally, we report that Canadian bond fund alphas are negative. In other words, fund managers do not add value through their selection abilities. We find evidence that Canadian fixed-income fund portfolio managers are successful market timers who shift portfolio weights between risky and riskless financial assets according to expected market conditions. Conversely, Canadian inflation protected funds, Canadian long-term fixed-income funds and Canadian money market funds have no market timing ability. We conclude that these managers generally do not have positive performance by actively managing their portfolios. We also report that the Canadian fixed-income fund portfolios perform asymmetrically under different economic regimes. In particular, these portfolio managers demonstrate poorer selection skills during recessions. Finally, we demonstrate that the multivariate regime-switching model is superior to univariate models given the dynamic market conditions and the correlation between fund portfolios.

The Federal Empowerment Zone and Enterprise Community Program: Outcome on Labor Income.

Rapport de recherche