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.

© 2014 IUP. All Rights Reserved.

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.

© 2014 IUP. All Rights Reserved.

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.

© 2014 IUP. All Rights Reserved.

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.

© 2014 IUP. All Rights Reserved.