The Alternative Investment Of Equity

Fama and French’s three factor model attempts to explain the variation of stock prices through a multifactor model that includes a size factor and BE/ME factor in addition to the beta risk factor. Fama-French model essentially extended the CAPM (which breaks up cause of variation of stock price into systematic risk which is non-diversifiable and idiosyncratic risk which is diversifiable) by introducing these two additional factors. Fama and French find that stocks with high beta didn’t have consistently higher returns than stocks with low beta and this indicates that beta was not a useful measure under their model. Their model is based on research findings that sensitivity of movements of the size and BE/ME factor constituted risk, and

The extracted data used includes monthly returns from January 1972 to July 2011. The assets are selected so that the portfolio contains the largest, most liquid, and most tradable assets. The choice of such a variety of assets across several markets was used in order to generate a large cross sectional dispersion in average return. It helped to reveal new factor exposure and define a general framework of the correlated value and momentum effects in various asset classes.

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

In Africa for example, savings rates of around 17% of GDP compare to 31% on average for middle income countries. Low savings rates and poorly developed or malfunctioning financial markets make it more expensive for African public and private sectors to get funds for investment as higher borrowing costs impede capital investment. Moreover, in

cash provides an investor with a way to control risk as well as gain a return on their investment

Savings and Loans were specialized banks that used low-interest, but federally-insured, deposits in savings accounts to fund mortgages. However, in the 1980s, money market accounts became more popular by offering higher interest rates on savings. Consequently, investors became pulling money out of savings accounts, depleting the banks' source of funds.

This is the result of commercial and investment banks lending vast sums for housing purchases and consumer loans to borrowers who are ill-equipped to repay. As consumers begin to default on their loans, banks are realizing the horrendous fact that they have no tangible cash to carry out business procedures. These profound errors in risk management are taking disastrous tolls on the economy.

The withdrawal of the liquidity could have caused a misunderstanding. In addition, there were also random events as well as economic conditions, which made people to begin hoarding cash (Bernanke, 2000). As such, the ultimate source of the fragility of the role of the financial institutions. In the end, financial obtained most of the funds from short term loans and then the funds were given out in the long-term. In addition, the business models of the financial institutions made an assumption that the depositors will on average deposit the money in banks; hence as some customers withdraw their money, the funds would be replaced by bank deposits by other customers. As such, the financial institutions, especially the banks could have a permanent pool of replaced money by the bank deposits. Such as in case a run occurred, a financial model would be

In the UK financial system has grown rapidly over the recent decades, it is large in comparison to other advanced economies, such as the U.S, France and Japan; however it is comparable with Switzerland who also has a historic specialisation in financial services. The largest part of the UK financial system is its banking system.

Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unsystematic portion of the total risk can be eliminated at little cost. On the other hand, there are systematic risks that affect all investments. This portion of the total risk of an asset cannot be lavishly

Investment universe is more expansive, diverse and complex, with markets and securities reacting very differently to global forces

Investing in emerging markets offer tempting advantages to investors. The volatile economies of countries considered to be in this category have a potential for extraordinary returns. A caveat to investors considering opportunities in emerging markets are the presence of unstable governments, the chance of nationalization, poor property rights protection, and large swings in prices. Emerging markets are far from a sure thing. But, despite high individual risk, emerging markets can reduce portfolio risk. The volatile economies of these countries have such low correlations compared to the domestic market that they actually provide the greatest degree of diversification.

This chapters focuses on the issues related to a domestic lender of last resort. This chapter further discusses the 'moral hazard ' argument. Although the assertion may have adverse effects on the incentives of investors, it will stop the panic and save the system today.

There are two basic types of securities, stocks and bonds. Although with both of these investments, money in exchanged for a certificate, they are fundamentally different. A stock is evidence of being a shareholder, hence an owner in a company. A bond, on the other hand, while still a certificate, represents a contract and evidence of a loan to a company. Therefore stock is a form of an equity investment and bonds are a form of a debt investment. Although there are a variety of stocks and bonds, this paper will focus on common stock and corporate bonds and highlight the advantages and disadvantages of investing in either of these two financial instruments. Knowing the difference between stocks and bonds will help investors find the right level of risk and return for their portfolios.

In the sources of funds, Deposits contribute the highest proportion as compared to others in 2009 (52.5 & 47.9 respectively) through which it is clearly evident that deposits of foreign banks are growing at rapid rate. In deposits, the term deposits contribute a significant portion of 29 % in 2008 and 27.9% in 2009 which shows that the term deposits are attracting more attention and contribute bulk of deposits of foreign banks over Savings Bank & Demand deposits.