Using a new panel cointegration test that considers serial correlation and cross-section dependence on a mixed and heterogenous sample of Saudi banks, we revisit the cointegrating equation of the z-score index of banking stability. Our results show that even when we consider the cross-section dependency and serial correlation of the errors, there is a possibility of a long-run relationship, which holds in our sample of banks. Furthermore, in the medium term, we found some banks to be integrated, whereas others were non-cointegrated. We interpret this to suggest that some banks contribute to banking stability, whereas others do not. In other words, there exists at least one bank that acts as a destabilizer and the challenge for financial regulators is to identify which banks these are. However, the current version of the Hadri et al. test does not allow for the identification of the non-cointegrated banks. If the test was able to do that, the regulatory authorities would be able to develop corrective policies/measures specifically tailored to the non-cointegrated units.
PurposeThe aim of this study is to measure portfolio diversification benefits of the Turkey-based equity investors into top trading partner countries. Portfolio diversification benefits are analyzed from the viewpoint of two types of investors in Turkey: conventional equities investors and Islamic equity investors.Design/methodology/approachIn order to evaluate the time-varying correlations of the trading partner country's stock index returns with the Turkish stock index returns, the multivariate-generalized autoregressive conditional heteroskedasticity–dynamic conditional correlation (GARCH-DCC) is applied based on daily data covering 13 years' period between January 22, 2008 and January 22, 2021.FindingsThe results revealed that the US stock indices provide the most diversified benefit for both conventional and Islamic Turkey-based equity investors. In general, Islamic indices exhibit relatively lower correlation with trading partners than conventional indices. Turkey and Russia are recorded as the most volatile indices.Originality/valueThe diversification potential in trading partners for Turkey-based Islamic equity investors has not been studied yet. This study is to fill in this gap in the literature and to give fruitful insights to both conventional and Islamic investors.
Mutual fund managers face increasing competition and have incentives to quickly reallocate their portfolios in order to achieve the best risk-adjusted return. However, portfolio allocation is costly, as trading, administrative, and information costs all lower returns after management fees. Therefore, the mutual fund manager's portfolio allocation decision is one of a tradeoff between the benefits of quick portfolio adjustment and the associated costs of adjustment. We apply an asymmetric partial adjustment model to a sample of U.S. equity mutual funds from 2000 through 2012. Empirical results shows that mutual fund managers are able and willing to quickly adjust portfolios when the fund underperforms, offsetting nearly 95 percent of the deviation within one month, indicating that managers perceive the costs of retaining sub-optimal portfolios to be high, relative to the costs of rebalancing. The results are consistent across different types of equity funds. As a secondary result, we show that the speed of adjustment is fairly stable over the 2000 to 2012 sample period, but does exhibit some cyclicality. The application of the partial adjustment model methodology to the mutual fund literature is novel and contributes significantly to the current literature. In addition, the preliminary results have important implications as to the efficiency of mutual funds, which has been questioned in recent years and is relevant to mutual fund investors, managers, and governors.
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