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The Problems of Correlation in the Financial Risk Management - The Contribution of Microfinance
21 Dec 2009, Karel, J. & Barbora, S.

Correlating performance measures in microfinance and conventional financial markets

The paper proposes to study risk characteristics and performance of selected microfinance investment funds (MIVs) against given equity and fixed income indices over a defined study period.

MIVs are investment vehicles that focus solely on the microfinance sector. The paper states that microfinance investments offer significant portfolio enhancement opportunities besides being socially responsible. It presents a literature review of possible contribution that microfinance can make to financial risk management.

The paper states that MIVs could represent a valuable portfolio diversification opportunity if they do not show significant correlation with global developed markets. It presents an overview of possible ways to evaluate the correlation between microfinance related financial instruments and conventional financial market measures of risk and return. MIVs can be evaluated using the following performance measures:

Risk measures;
Return measures such as Jensen’s Alpha, Sharpe ratio and Treynor ratio.

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Journal Volume/Pages:
14

Publisher(s):
University Library of Munich