Krishnan Dandapani

Portfolio selection and skewness: Evidence from international stock markets

Abstract This paper finds that the returns of the worlds 14 major stock markets are not normally distributed, and that the correlation matrix of these stock markets was stable during the January 1988–December 1993 time period. Polynomial goal programming, in which investor preferences for skewness can be incorporated, is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes. The empirical findings suggest that the incorporation of skewness into an investors portfolio decision causes a major change in the construction of the optimal portfolio. The evidence also indicate that investors trade expected return of the portfolio for skewness.

Optimal repayment policies for multiple loans

This paper extends the applications of scheduling theory to certain problems in the area of finance. Specifically, a branch and bound algorithm to identify optimal repayment policies for multiple loans (credit purchases) has been developed. Each loan qualifies for a discount if it is paid on or before a certain date and a penalty is imposed if it is paid after its due date. These two dates are different in general. It is assumed that the cash for repayment is generated at a constant rate per day and it can be invested so that it continues to earn money until used for repayment. The objective is to minimize the present value of all future cash outflows.

Internet banking services and credit union performance

Purpose - Existing empirical evidence indicates internet banks worldwide have underperformed newly chartered traditional banks mainly because of their higher overhead costs. The purpose of this paper is to examine the impact of internet banking services on credit union activity. Design/methodology/approach - The impact of internet banking services on credit union over the period 1999-2006 was studied and regression equations were estimated for the growth in assets, operating expenses and return on assets as functions of portfolio characteristics, economic conditions and a dummy variable indicating if the credit union has adopted internet banking services. Findings - The operating costs of credit unions providing web access were found to be significantly higher than those credit unions which do not have any web account offerings. There is increased growth in assets for the credit unions which have worldwide web accounts although this relationship is statistically significant in only three of the eight years studied. The return on assets show that the credit unions with web accounts have similar average profitability to those credit unions that do not provide the facility of internet access to their customers. Research limitations/implications - Consideration could be given to running the regressions with the number of years the web site has been in place instead of just a dummy variable and putting in common bond dummy variables. Some common bonds are so narrow it may not pay to have internet services. Practical implications - Even though there are costs associated with providing internet services, the retention of profitability and the evidence of potentially higher asset growth rates suggest the importance of internet banking and the trend of internet banking adoption is expected to continue in the near future in the credit union industry. Originality/value - This is a pioneering study on the effect of internet banking services on the costs, growth and profitability of Credit Unions in the USA.

Success and failure in Web-based financial services

Examining the financial viability of the underlying business model.

Credit Spread Changes and Equity Volatility: Evidence from Daily Data

We investigate the determinants of daily changes in credit spreads in the U.S. corporate bond market. Using a sample of liquid investment grade and high‐yield bonds, we show that both systematic bond and stock market factors as well as idiosyncratic equity market factors affect changes in the yield spread at the daily frequency. In particular, we find that increase in stock market volatility has a positive effect on changes in the spread of corporate bonds over the corresponding Treasuries beyond that captured by standard term structure variables. Our results show that there is an almost contemporaneous inverse relationship between changes in the bond yield spread and the stock return of the issuing firm.

Media perceptions and their impact on Web site quality

The growth of the Internet has created an explosion of sites that seek to provide information and conduct business transactions. The service industry and especially online banking stand to gain from that development. This study, anchored in the marketing, social psychology, media, and information systems literature, investigates how users perceive the Internet’s abilities to conduct banking activities. Results show variation in media perceptions for the same online banking site across various task environments. The results indicate that user perceptions of the Internet medium depend on task complexity and that technology can serve as a mitigating factor to improve media and quality perception.

Virtual bank failures: an investigation

Purpose - The purpose of this paper is to identify the causes behind the failures of virtual banks. This work underscores the importance of the differing financial metrics in the virtual and brick and mortar banking channels, when analyzing bank failures. Design/methodology/approach - “Probit” analysis on the failed virtual banks and the failed brick and mortar banks revealed that the interest incomes in both banks are significantly different. The non-interest income and non-interest expense (NIE) of the surviving banks and the failed banks are explored to examine the causes for failure. Findings - Similar to previous research it was found that the brick and mortar banks failed due to bad asset quality, but the failure of virtual banks is mainly due to high NIEs. For virtual banks to succeed, the institutions must focus on controlling the burden. Research limitations/implications - A larger sample size would have been preferable and non-availability of data limited the scope of the study. Continuing studies could explore the performance of Internet channels of existing brick and mortar banks. Practical implications - This study accentuates the importance of the differing business models underlying the two banking channels (virtual banks and brick and mortar banks). These channel specific differences underscore the significance of the financial metrics in operational evaluation. Originality/value - This is probably the first study to examine the causes of failures of virtual banks and contrast them with brick and mortar banks.

Global market place and causality

Financial markets in recent years have become linked as never before due to the development of low-cost computer and communication technology and the deregulations which have led to the lessening of the frictions and barriers to international capital flows. Trading takes place continuously around the clock due to telephone and satellite links, and we are moving very fast toward the integration of the world markets. The investor in the stock market has truly become global. For example, pension funds have been investing record sums in foreign stocks-an estimated

Growth of e-financial services: Introduction to the special issue

120 billion in 1992 as compared to only

The American Depository Receipt (ADR): A creative financial tool for multinational companies

10 billion in 1977. Deregulation and restructuring have made the world capital markets more liquid and efficient. However, Black Monday provided an early preview that, while the integration of the markets increase the investors’ flexibility and potential for diversification, integration could as well lead to a chain reaction of the markets that could bring the worlds markets down together. There is an axiom of parallelism which indicates that prices in the NYSE, London, etc. normally move in the same direction. But the remaining questions are the following: Does any one of these centers lead the others? Do the leaders get affected equally by the followers? A priori, there exists a high expectation of correlation among these markets. But correlation does not imply causation. Various aspects of linkages between international financial markets have been the subject of several studies since the early 1970s. Relevant to the theme of this papeG the main thrust of these studies may be categorized in the areas of “international” market: