Accounting for Market Risk in Microfinance Investments

International Journal of Sustainable Economy 7(4), pp. 262-279, 2015

29 Pages Posted: 27 May 2015 Last revised: 18 Jul 2016

See all articles by Lieveke Helwig

Lieveke Helwig

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Date Written: May 25, 2015

Abstract

The financial attractiveness of investing in microfinance is also receiving attention from academics and practitioners, in addition to the social impact it may have. As most microfinance institutions are not publicly listed, existing research relies on accounting-based return series to determine the diversification characteristics of publicly listed microfinance institutions relative to other asset classes. This prior studies use accounting-based risk measures as a proxy for market-based risk measures. We document that for a sample of publicly listed microfinance institutions accounting-based and market-based risk measures have low correlation. Hence, using accounting-based risk measures might underestimate the (market) risk embedded in investing in microfinance institutions. In addition, we show that mean-variance spanning tests using accounting-based returns overstate the added value of microfinance institutions in investment portfolios. Taken together, our results indicate that previous research on the attractiveness of investments in microfinance institutions are exaggerated.

Keywords: Accounting-beta, Market-beta, Microfinance, Responsible investing

JEL Classification: G11, G30, M41

Suggested Citation

Helwig, Lieveke and Swinkels, Laurens, Accounting for Market Risk in Microfinance Investments (May 25, 2015). International Journal of Sustainable Economy 7(4), pp. 262-279, 2015. Available at SSRN: https://ssrn.com/abstract=2593588

Lieveke Helwig

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Quantitative Investments ( email )

Rotterdam, 3000
Netherlands
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

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