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Investment in Microfinance Equity : Risk, Return, and Diversification Benefits

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  • Szafarz, Ariane
  • Brière, Marie

Abstract

This paper takes full advantage of daily quoted prices of microfinance stocks from their issuance, and draws a global picture of worldwide microfinance equity from the viewpoint of a profit-oriented investor. We construct microfinance country equity indices and an international global microfinance index. We analyse the changes in these indices, which we assess in reference to comparable indices for the financial sector and also to national indices. Our findings show that microfinance has resumed its close correlation with the financial sector since 2001. In terms of risk exposure, estimations of the Capital Asset Pricing Model demonstrate that microfinance shares exhibit higher market beta than conventional financial institutions, and have equivalent currency exposure. We also examine whether adding microfinance to international asset portfolios improves the investor's risk-return performance. While the inclusion of microfinance equity has indeed been a major source of diversification in the 1990s, its impact has diminished in recent years. Still, optimal portfolios invested in countries where microfinance equity is available may contain up to 20% of stocks from MFIs.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/7858.

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Date of creation: Oct 2011
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Publication status: Published in CEB Working Paper, 2011
Handle: RePEc:dau:papers:123456789/7858

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Keywords: Microfinance; portfolio management; equity; emerging markets;

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Cited by:
  1. Moulin, Bertrand, 2011. "Microfinance investment vehicles in Sub-Saharan Africa: constraints and potentials," MPRA Paper 32967, University Library of Munich, Germany.

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