On sparsity of eigenportfolios to reduce transaction cost

Purpose Transaction cost becomes significant when one holds many securities in a large portfolio where capital allocations are frequently rebalanced due to variations in non-stationary statistical characteristics of the asset returns. The purpose of this paper is to employ a sparsing method to sparse the eigenportfolios, so that the transaction cost can be reduced and without any loss of its performance. Design/methodology/approach In this paper, the authors have designed pdf-optimized mid-tread Lloyd-Max quantizers based on the distribution of each eigenportfolio, and then employed them to sparse the eigenportfolios, so those small size orders may usually be ignored (sparsed), as the result, the trading costs have been reduced. Findings The authors find that the sparsing technique addressed in this paper is methodic, easy to implement for large size portfolios and it offers significant reduction in transaction cost without any loss of performance. Originality/value In this paper, the authors investigated the performance the sparsed eigenportfolios of stock returns in S&P500 Index. It is shown that the sparsing method is simple to implement and it provides high levels of sparsity without causing PNL loss. Therefore, transaction cost of managing a large size portfolio is reduced by employing such an efficient sparsity method.

Group Lending Model - A Panacea to Reduce Transaction Cost?

Microfinance institutions (MFIs) have stepped up towards commercialization and sustainability yet they face challenges in terms of transaction cost that limit their growth prospects. Transaction cost is incurred in forming the group of members, searching for the potential clients, monitoring, and administration, in providing training to the clients etc. Group lending has emerged as an effective tool in reducing this cost by transferring its burden on the group. Though the concept of group lending is not new in micro finance but in India it was introduced by NABARD in 2004-05 owing to its key advantage of income generation. This paper aims to analyze whether group lending programme has some role to play in reducing transaction cost of MFIs. It also discusses the concept of transaction cost, characteristics of group lending as well as process of forming a group. The results reveal that internal management of small and medium MFIs is not working efficiently which results in increased costs. Large MFIs do not face such problems.

A Review on the Importance of E-Commerce for SMEs in Pakistan

E-commerce becomes important factor of success for both large organizations andSmall and Medium Enterprises (SMEs) as it helps to reduce transaction cost, approach largeruntapped markets and avoid intermediaries. However, the published research has mainlyfocused on the role of e-commerce in large organizations compared with SMEs. Based on acomprehensive review of the past literature, we have highlighted the importance of e-commercein the SMEs, especially how it is important in the setting of developing countries and its potentialrole in the SMEs of Pakistan. Given the lack of scholarly discussion on the topic, the presentpaper will enhance the understanding on the importance of e-commerce in SMEs of Pakistan.Recommendations for future research are proposed.

A MAXIMAL PREDICTABILITY PORTFOLIO SUBJECT TO A TURNOVER CONSTRAINT

The authors demonstrated in earlier papers that a maximal predictability portfolio (MPP) using a dynamic strategy leads to a significantly better ex-post performance than the one based on a static strategy and the index. In this paper, we will consider a maximal predictability portfolio subject to transaction cost. To reduce transaction cost, we employ turnover constraint. It will be shown that this approach leads to a significantly better performance than the standard MPP and the index.