D.K. Malhotra

Analysing financial services industry using data envelopment analysis

The ongoing credit crisis in the financial markets has led to tremendous turmoil in the financial services industry. As a result, during the last one year, we have seen a substantial decline in the profitability and liquidity of the financial services companies. In this paper, we analyse the financial performance of thirteen leading financial services firms to evaluate their relative standing in the industry. We illustrate the use of data envelopment analysis (DEA), an operations research technique, to evaluate the relative financial strength of thirteen financial services firms by benchmarking the financial ratios of a firm against its peers. DEA clearly brings out the firms that are operating more efficiently in comparison to other firms in the industry, and points out the areas in which poorly performing firms need to improve.

An Empirical Examination of the Dynamic Linkages ofFaith-Based Socially Responsible Investing

A fundamental tenet of the investment management process is portfolio construction to maximize wealth creation through investment in efficient portfolios. Faith-based, socially responsible investments (SRI), on the other hand, place importance on investors’ concern with the religious and faith-based consequences of investment decisions. This study examines dynamic linkages among four major Islamic indexes and their corresponding “conventional” indexes of North America, European Union, Far East, and Pacific nation markets. Contrary to the widely held assumption that faith-based SRI involve a selective portfolio selection process due to faith-based screening, and are likely to have low correlation with the set of counterpart conventional investments, we find evidence of a positive and significant spillover from conventional market indexes on their corresponding faith-based SRI returns. Results from impulse response analysis show that innovations in conventional indexes have significant and positive impact on their corresponding Islamic indexes. Regarding the nature of volatility spillover, we find evidence of a positive and significant spillover from conventional indexes on their corresponding Islamic indexes. We also find evidence of an asymmetric news effects.

Do Price-Earnings Ratios Drive Stock Values?

Does a high price-earnings ratio indicate high or low earnings growth or higher or lower future stock prices? Data for the S&P 500, the MSCI World Index, the Europe Index, and the EAFE are examined using regression analysis. The results suggest that subsequent prices rise but subsequent yields decline with high P/E ratios. Adjusted for statistical issues such as autocorrelation, heteroscedasticity, unit roots, and non-stationarity, the findings suggest that P/E ratios may not have as great an impact on prices as once expected, and that they have no impact whatsoever on subsequent yields.

USING DATA ENVELOPMENT ANALYSIS TO ANALYZE THE PERFORMANCE OF NORTH AMERICAN CLASS I FREIGHT RAILROADS

With increased crude oil prices, railroad is emerging as a cheaper alternative to trucks and other less fuel efficient modes of transportation. As a result, with increase in crude oil price, while other modes of transportation have suffered economic slump, railroad industry is thriving with every company reporting an increase in revenue and profits. In this study, we analyze the performance of seven North American Class I freight railroads. In this chapter, we illustrate the use of data envelopment analysis (DEA), an operations research technique, to analyze the financial performance of the U.S. railroad industry by benchmarking a set of financial ratios of a firm against its peers. DEA clearly brings out the firms that are operating more efficiently in comparison with other firms in the industry and points out the areas in which poorly performing firms need to improve.

Benchmarking large U.S. retailers using a data envelopment analysis model

In this chapter, we illustrate the use of data envelopment analysis, an operations research technique, to analyze the financial performance of the seven largest retailers in the United States by benchmarking a set of financial ratios of a firm against its peers. Data envelopment analysis clearly brings out the firms that are operating more efficiently in comparison to other firms in the industry, and points out the areas in which poorly performing firms need to improve.

An Empirical Analysis of Australian Superannuation Fund Expenses

This study investigates the determinants of expense ratios of Australian superannuation funds. No prior research on this topic exists despite the importance of expense ratios for fund selection. We relate expense ratios to fund age, size, investment objective, sales charges, fund family membership, risk-adjusted return, and wholesale/retail category. Average expense ratios for wholesale funds are considerably lower than those of retail funds. For retail funds, expense ratios are positively related to investment objective and sales charge, and negatively related to fund age. For wholesale funds, they are negatively related to investment objective and positively related to fund age and size.

Foreign Institutional Investment And The Indian Stock Market

This article analyzes the impact of foreign institutional investment (FII) on the Indian stock market. The authors find that FII positively impacts the Indian stock market returns and the Bombay stock exchange turnover value. Further, the authors, find that FII “Granger causes” the stock market value and the turnover value to increase. The study employs GARCH and GJR-GARCH analyses in detail and concludes that, in spite of those influences, there is no evidence of volatility spillover from FII to the Indian stock markets.

An empirical examination of volatility spillover between the Indian and US swap markets

Purpose – The purpose of this paper is to examine if the volatility in the US dollar interest rate swap market impacts the volatility of the swap rates in the Indian swap market.Design/methodology/approach – The authors use GARCH, EGARCH, and TGARCH modeling to examine volatility spillover between the US and Indian interest rate swap markets.Findings – Evidence is found of volatility transmission from the US dollar interest rate swap markets to the Indian swap markets. There is no evidence of spillover from the Indian swap markets to the US swap markets. Furthermore, the spillover impact from the US markets to the Indian markets is also asymmetric. The impact on volatility is asymmetric for one‐year swaps, but not for five‐year swaps.Practical implications – Findings from this study will also identify any arbitrage opportunities that may exist between different segments of the US dollar interest rate swap markets and help to improve interest rate swap market efficiency.Originality/value – If the financial...

Determinants of Treasury-LIBOR Swap Spreads

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap markets response to higher default risk seems to be higher spread between the bid and offer rates.

The effect of rule 12b-1 on bond fund expense ratios

This paper presents empirical evidence that bond mutual funds which have adopted the use of 12b-1 fees have not achieved the goal of lowering expense ratios. Using a model specific to bond funds, as opposed to generic models used in previous studies on equity funds, the analysis confirms that the 12b-1 fee is an additional cost borne by shareholders of the fund without any additional benefit. However, this cost as a percent of the net asset value of the fund has decreased from 1991 through 1994. This reduction coincides with the submission of a proposed rule change by the National Association of Security Dealers concerning maximum sales charges imposed by mutual funds on December 28, 1990 and the implementation of limits on 12b-1 fees which became effective in July of 1993.