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Volume 35 - Numéro 3

December 2014

Performance of microfinance institutions: do board activity and governance ratings matter? - 25 December 2014


This article aims to empirically verify the relationship among board activity, governance rating scores, and the financial performance of microfinance institutions (MFIs). The study comprises a sample of 215 MFIs rated by Planet Rating between 2003 and 2009. The findings, obtained after controlling for endogeneity and selection biases, suggest that board activity and governance rating scores are associated with profitability. In addition, the study of the moderating effect of legal status reveals a significant difference of the effect of governance rating score and CEO/Chairman duality. In view of the results, it seems difficult to conclude definitively that the legal form of MFIs has a moderating effect on their financial performance. The existence of a moderating effect and thus validation of the thesis that shareholder-based MFI governance systems would be more effective than nonprofit MFIs depends on how governance is measured. The results are robust to other measures of financial performance and to the functional form of board activity.

The 99% Market Sentiment Index - 25 December 2014

Patrick ROGER

We build a market sentiment index based solely on the changes over time in the number of different stocks held by individual investors. No prices, returns or trading volumes enter the definition and trades of unwealthy and underdiversified investors are overweighted in our sentiment index. Using the trades and portfolios of a large sample of 87,373 French investors over a eight-year period, we show that our index outperforms other usual indices (based on surveys, macro-economic variables or buy-sell imbalances) in predicting short-term returns on long-short portfolios based on size or on the book-to-market ratio. An increase of one standard deviation of our market sentiment index in a given month implies a decrease of 1.05% of the return on such a long-short size based portfolio the following month. A simple dynamic strategy driven by our sentiment index delivers a Sharpe ratio higher than that of random dynamic strategies in 99.6% of cases and a much higher Sharpe ratio than the one of a buy-and-hold strategy.

Interest Term Premiums and C-CAPM: A Test of a Parsimonious Model - 25 December 2014

Hubert de la BRUSLERIE, Jessica FOUILLOUX

This paper proposes a consumption-based model that accounts for term premiums of the nominal term structure of interest rates. The model focuses on ex ante term premiums, which depend on the volatility processes of real consumption and inflation. The contribution of the paper is to derive and test a parsimonious model that highlights linear relationship between term premiums and next period conditional volatilities. When calibrated to US data on interest rates, consumption and inflation, the model accounts for the C-CAPM expectations puzzle. Risk aversion coefficients between 2 and 7 are elicited.