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Welcome to The IUP Journal of Financial Risk Management

Jun'14

Previous Issues

The IUP Journal of Financial Risk Management is a quarterly journal that focuses on identifying financial risk, risk management models, accounting for derivatives, risk-hedging techniques, asset liability management. The journal provides a platform for cutting edge research in the field of financial risk management.

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Editorial Board
Information to Authors
  • Identifying Financial Risk
  • Risk Management Models
  • Accounting for Derivatives
  • Risk-Hedging Techniques
  • Asset Liability Management
Articles
   
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A Credit Scoring Model for Microfinance Bank Based on Fuzzy Classifier Optimized by a Differential Evolution Algorithm
A Comparative Performance Evaluation of Private Sector and Public Sector Equity Funds of India
Order Imbalance and Returns: Evidence of Lead-Lag Relationship
Modeling the Conditional Heteroscedasticity and Leverage Effect
in the BSE Sectoral Indices
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Contents
(Jun'14)

A Credit Scoring Model for Microfinance Bank Based on Fuzzy Classifier Optimized by a Differential Evolution Algorithm

--Ibtissem Baklouti

The process of effective credit risk assessment plays an important role in the financial decision making in Microfinance Institutions (MFIs) as it enables faster credit approval decisions and diminishes the possible risks associated with customers’ repayment defaults. Credit scoring is the most commonly used technique for evaluating the creditworthiness of loans which has gradually begun to find its way into the microfinance field. Many parametric and nonparametric techniques have been adopted by financial institutions to develop accurate credit scoring models. In this study, a credit scoring model is developed for a Tunisian Microfinance Bank by applying fuzzy classifiers where the fuzzy knowledge bases are optimized through differential evolution. Further, the performance of the proposed model is compared to that of the decision tree model. The obtained results reveal that the proposed model consistently gives a better average correct classification rate than the decision tree model. As with the decision tree model, the proposed model can be easily understood by any user and is very useful in the context of credit evaluation process, since it is in ‘if-then’ rule form; unlike decision tree model, the proposed model does not stay in a black box. In the proposed model, the interpretation of independent variables may provide valuable information for bankers and consumers, especially in explaining why credit applications are rejected.

Article Price : Rs.50

A Comparative Performance Evaluation of Private Sector and Public Sector Equity Funds of India

--Kshama Agarwal and Prerna Patwa

Mutual fund is an investment avenue which offers different schemes to its investors that match their risk-bearing capacity and generate smart returns. This is a comparative study of the performance of equity funds focusing on the growth of public sector mutual funds and private sector mutual funds. It aims to evaluate the performance of equity funds by analyzing a sample of four companies each from both the sectors and five schemes of similar nature. It basically evaluates the risk-return profile of the funds. Testing the hypotheses using Mann-Whitney U-test, the study reveals that there is a significant difference between the performances of private and public sector mutual funds and that the private sector has performed better than the public sector.

Article Price : Rs.50

Order Imbalance and Returns: Evidence of Lead-Lag Relationship

--Nikhil Rastogi, V N Reddy and Kiran Kumar Kotha

The paper explores the lead-lag relationship between the variables of order imbalance and return in futures and spot markets. Order imbalance is defined as the difference between buyer and seller initiated trades. Using tick test, the trades have been classified as buyer and seller initiated. The paper finds positive correlation between the variables of order imbalance in the futures market and the returns in the spot market. This relationship is further explored using a VAR framework for daily as well as a shorter interval of 120 min. The results reveal that even after controlling for lagged futures and spot returns, the futures market imbalance has a significant effect on spot market returns.

Article Price : Rs.50

Modeling the Conditional Heteroscedasticity and Leverage Effect
in the BSE Sectoral Indices

--Sajad Ahmad Bhat and Md Zulquar Nain

The study uses three volatility models of the GARCH family to examine the volatility behavior and in particular volatility persistence or long memory of the return series of four Bombay Stock Exchange (BSE) sectoral indices. The study uses the daily data from January 1, 2002 to December 31, 2013. The results of the standard GARCH model suggest the presence of volatility persistence in the return series of all four indices. The EGARCH results suggest that the leverage effect is present and significant for BSE IT and BSE Bankex only, implying that BSE Metal and BSE PSU can be good investment in anticipation of bad times. The CGARCH estimates indicate that the short-run volatility component is weaker. However, the permanent components of the conditional variance exhibit a high degree of persistence for all return series.

Article Price : Rs.50

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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