International equity portfolio allocations and transaction costs

I got an email out of the blue.

Dear Dr. Bhaskar,

Hope this email finds you in best of your health and spirit.

I am Chandra, Sunil Poshakwale’s PhD student and you were one of my external advisors in my MRes. I would like to thank you for all your help and support at the initial stage of my PhD. I have now completed my doctorate and working as a Lecturer at the University of Stirling, Scotland. In fact you were the one to float my doctorate’s idea when you visited Cranfield University as a guest lecturer in 2007. I still remember you saying to me that one of the reasons you do not trade in emerging markets because its not worth it, given the high transaction cost. You then asked me to prove this, if I could and that would be a good PhD project.

Tapping your idea of transaction costs I have now published a paper in Journal of Banking and Finance. Please find attached the article which I published with Sunil.

Once again profound thanks for all your support. I would be very glad to have further research ideas which I can work on, pariticulary those benefiting international investors.

Kind regards

Dr. Chandra Thapa
Lecturer in Finance
University of Stirling
Stirling
FK9 4LA
Scotland
UK
Webpage:http://www.management.stir.ac.uk/people/accounting-and-finance/academic-staff/chandra-thapa
--

Quite a nice man, eh? for him to remember an off the cuff conversation from many years back. This is the paper he has written along with my old friend Sunil Poskakwale. Journal of Banking & Finance 34 (2010) 2627–2638

a b s t r a c t
In spite of the critical role of transaction cost, there are not many papers that explicitly examine its influence
on international equity portfolio allocation decisions. Using bilateral cross-country equity portfolio
investment data and three direct measures of transaction costs for 36 countries, we provide evidence that
markets where transaction costs are lower attract greater equity portfolio investments. The results imply
that future research on international equity portfolio diversification cannot afford to ignore the role of
transaction costs, and policy makers, especially in emerging markets, will have to reduce transaction
costs to attract higher levels of foreign equity portfolio investments.

Interesting article indeed and something that does touch on one of my pet bug bears, the assumption that transaction costs are zero. This is ridiculous to assume that they are zero. They arent zero, this isnt a perfect world. Economics and Finance are applied sciences, what’s the bloody point of putting in an assumption like that? Next thing you know, you will assume that investors are totally rational and follow all economic laws. heh.

Should you friend your parents on Facebook?

Well, my son was a friend on Facebook and then about an year back, he defriended me : ( or whatever the correct term is. Then my mum joined Facebook so i friended her. Bit challenging eh? Here’s a convenient flow chart if faced with this conundrum. Not that it worked for my son who lives at home, isn't planning to move out in the new year and has an apartment of his own..I guess he is now in the “little shit” category, and provides a simple test of when he grows up when he friends me again, eh? lol

What are your kids doing?

A charity funded by the Govt is not a charity #ukpolitics

So there is this charity called as Booktrust Charity. It does good stuff, like giving out books for people to read when they are children. For me as a confirmed bibliophile, I like the idea, get more people to read about it.

But here’s what is confusing me. This is supposed to be a charity? So where is the charitable giving? Relying on the government to fund you means that you arent a charity, you are just another government department. Do you think that the government has some other sources of money other than mandatory extraction of money from your pocket and mine via taxes.

So the government, very rightly, said if you are a charity, then get charitable donations, why are you relying on the govt to fund philanthropic activities?

These charities which are reliant on govt funding screw it up for the other charities like ours. We do not rely on government funding. We rely on our volunteers who go about getting money, running to raise money, etc. etc. So how come they get govt funding while we dont? Because we are based upon the principle that if its charity, then its not going to be based upon forcible extraction of money.

Everybody who is backing this charity to have government funding, you dont want a charity, you want public investment. Bah!, this is intellectual incoherence of the first order.

How Europe is seizing your pension assets

And this is happening all legally. Remember, you chaps, your money is not save from these grasping politicians who will rob the people who scrimp and save to give to the feckless and useless. Bloody thieves. Argentina did the same. And then these buggers want you to increase your pension contribution. Bah!, no wonder pensions are the furthest things from people’s minds.

I quote:

People’s retirement savings are a convenient source of revenue for governments that don’t want to reduce spending or make privatizations. As most pension schemes in Europe are organised by the state, European ministers of finance have a facilitated access to the savings accumulated there, and it is only logical that they try to get a hold of this money for their own ends. In recent weeks I have noted five such attempts: Three situations concern private personal savings; two others refer to national funds.

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.

The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system. Since this system does not back its liabilities with stocks or even bonds, the money taken away from the savers will go directly to the state treasury and savers will lose about $2.3bn a year. The Polish government is more generous than the Hungarian one, but only because it wants to seize just 1/3 of the future savings and also allows the citizens to keep the money accumulated so far.

The fourth example is Ireland. In 2001, the National Pension Reserve Fund was brought into existence for the purpose of supporting pensions of the Irish people in the years 2025-2050. The scheme was also supposed to provide for the pensions of some public sector employees (mainly university staff). However, in March 2009, the Irish government earmarked €4bn from this fund for rescuing banks. In November 2010, the remaining savings of €2.5bn was seized to support the bailout of the rest of the country.

The final example is France. In November, the French parliament decided to earmark €33bn from the national reserve pension fund FRR to reduce the short-term pension scheme deficit. In this way, the retirement savings intended for the years 2020-2040 will be used earlier, that is in the years 2011-2024, and the government will spend the saved up resources on other purposes.

It looks like although the governments are able to enforce general participation in pension schemes, they do not seem to be the best guardians of the money accumulated there. 

People born of a virgin..

hmmm, these virgins were quite active, eh?

Economic Activity amongst Black people in UK during 18th Century

While the United Kingdom abolished slavery legally in 1833 and actually banned trading in Slaves back in 1807, there were still slaves during the 18th century. In addition, you end up with many Black slaves who are now freemen (so to say) and their children who are now based in the UK. Which I never considered. As it so happens, the estimates of these ex-slaves is approximately 10,000 in the 18th century. So how did they survive now that their economic activity was no longer driven by the slave owner?

Seems like the researcher found that these black citizens were mostly employed as domestic servants. Post domestic service, they would either go into business of their own or move household. Service of their own was of various kinds, such as teaching sword fighting, buying and selling food items, coal merchants, etc. They could also do apprenticeships. If the black chaps did not do domestic service, then they would usually go into the Navy. Other jobs that the historical record (which is admittedly patchy) relate to being shop assistants, druggists, musicians, ministers of religion, constables and in one case, a lawyer. These were all men and their situation was much better than the Black women whose lives were much more difficult post manumission. Domestic service was obviously high up in the list of occupations, but prostitution seems to be unfortunately high up on the list as well.

So what happened to the second generation? They seem to have moved into a wider set of occupations compared to their parents. Hair dressers, ministers, gardeners, lace makers, cabinet makers, sea captains, engine fitters, and so on and so forth. Seems like this was fairly typical economic behaviour and not so much different from what other poor white folks in the United Kingdom would also see. But what wasn't clear was how did they find the jobs? Besides word of mouth, it would be quite interesting to find out how prospective employers and employees linked up.

And that’s where this second paper comes in handy. I quote one classified advertisement on page five on Tuesday 7 November 1876 edition of the Liverpool
Mercury.

A Coloured Man (from Canada) desires a Situation as SERVANT in
gentleman’s family. Accustomed to horses. Age 50. Miss Cane, 130
Duke-street.

More examples and I quote:

On Monday 18 December 1876 a ‘respectable, well-educated Young Coloured Man’ who had recently arrived in England (although he does not say from where) advertised his availability for work in the Liverpool Mercury. He was specifically looking for a position in a Mercantile Office to start immediately or in the beginning of January 1877. He advertised himself as having a sound knowledge of bookkeeping and a ‘fair legible hand’. He assured future employers that he could produce ‘excellent certificates’ as to sobriety and honesty. His advert was repeated on Saturday 23 December 1876. The Liverpool Mercury also carried two adverts for a ‘Coloured Young Man’ on Tuesday 18 and Saturday 22 November 1879. He was looking to ‘make himself useful’ in a situation in a hotel, billiard room or as a messenger for offices or shops. On 10 November 1900 a ‘Coloured Young Lady’ advertised her desire to find work in a Bazaar or Playhouse as an attendant in The Era. The advertisement was also carried on 17 November 1900.

So looks like that despite the cost involved in placing this classified advertisement, the black men and women would actually place advertisements and would presumably get jobs.

Employers on the other hand would hire black / coloured folks via advertisements for specific purposes. For example, there were quite a lot of advertisements which actually relied on the colour of their skin for the job. This is like becoming an attraction in a bar, on the stage, barmaids, entertainers at hotels, musicians, animal trainers in a circus. Here is one example from The Era 19 October 1889.

WANTED a Steady Man as Animal Keeper. One that will enter the
Lion’s Den and give a performance if required. A Coloured Man
Preferred

other advertising entries show coloured and black folks applying for jobs as a travelling servant, valet or butler, nurse or maid but these were in the minority. Looks like the job opportunities were quite oriented towards the colour of skin itself. As it so happens, having a black or coloured servant was considered to be high class and were sought after. One has to remember that we are talking about a comparatively small number of black and coloured people in the UK which would not have threatened the general public. It was more during the second world war where there was a step change in the number of black people in common society. What also did not help was that 130,000 Black GI’s came over from the USA as part of the Invasion Force. That really changed the dynamic of how white indigenous white people saw the growth of Black communities in the UK. The post world war period with the wholesale importation of workers from commonwealth countries such as Jamaica, India, Pakistan, Bangladesh, Kenya, Uganda, etc. then again changed the dynamic even further.

Quite an interesting view on a long lost part of British life.

Shambling around doing stuff

It is slowly picking up speed on the charity front after the slow down over the summer. So what have I been up to?

1. Well, had a nice session with the SIFE LSE team who were formed for the first time this academic year. The financial trading game is going on fine, the interaction with TeachFirst is good and should pick up speed. Then we had a long chat about potential environmental projects and a shed load of projects popped up during the discussions, ranging from helping ex-convicts to homeless people to ex-soldiers who want to get back into civilian life and and and. Anyway, the chaps have decided to go away and check out the options. Spoke to one of our COO’s and he has kindly offered to sponsor a good sustainability project that has a clear business case (revenue, costs or both). So this promises to be good fun.

2. Help for Hero’s, we had a good quiz night and managed to raise more than £2000 for this charity. Good stuff, I think i will do a bit more for these fellows, lets see, I have some ideas which are brewing away.

3. Meeting somebody for the 100books projects next week which unfortunately sort of got paused because the main pusher of the project had to move jobs. But hopefully we can resurrect it and make something of this. Watch this space.

4. The team from Nottingham University SIFE team have met with Pat Ryan, who is our CEO of the IT4CH charity. They are apparently quite happy and excited to join into the charity and and and. Quite happy with this.

5. Talking about IT4CH, after pimping myself, managed to raise a £1000 cheque for the charity, that should help. We have also got a great volunteer who is speaking to various IT firms in London who could be potential donors of equipment.

6. An interesting project popped up at work during a sustainability meeting, and that’s a proposal to reduce the grammage of our printing paper from 80gsm to 75gsm. This could aim to reduce costs, save 15-12 tons of paper consumption daily. So am sponsoring this at my business unit to see if it works, if the client facing chaps don't object and the printing works. Quite a good idea, eh?

7. Didnt mention this before, but hosted a team from Essex University who were interested in knowing what we are doing with our sustainability piece within the bank. Quite an interesting talk, got two MD’s in as well to speak. This is one of our biggest selling points to graduates who love to join us because we live and breathe sustainability. Its indeed part of the DNA. Have you checked out our sustainability activities and report?? We walk the walk and talk the talk

Another UK freedom of speech issue

This is ridiculous. You remember the Behzti issue? This isnt at the same level but we have a challenge with the British libel laws which screw up freedom of speech. I quote the original article which caused all this problem

 

The Sikh Times article from 23 August 2007 by Hardeep Singh
Recently a division due to the influence of an accused Cult leader called Jeet Singh has disturbed the peace in the Sikh community in High Wycombe, Buckinghamshire. The police and local MP are aware of the situation and have offered considerable support in finding an appropriate resolution to the crisis.
The Gurdwara 'Sikh Temple' was set up in 1991 by members of the Sikh community with the hope to join the local Sikh congregation and work to provide religious services and guidance for the community members. Wycombe is one of 3 affiliated Gurdwara's which was set up with the blessings of a Holy Saint Sant Baba Gian Singh Maharaj from Gurdwara Nirmal Kutia in Johla, Jullunder, Panjab.
The Origin of the lineage of true Saints from this ecclesiastical institution began with a man called Sant Baba Karam Singh from Hoti Mardan (1826 - 1903). Upon the dissolution of the Sikh army after the annexation of the Punjab to British India in 1849, Karam Singh joined the Corps of Guides which had been raised by the British in the Sutlej territory in 1846 to defend British interests in the region against the formidable Pashtun/Afghan tribesman, and which was later reorganised as the 5th (Guides) Battalion of the 12th Frontier Force Regiment, with Mardan near Peshawar.
During the famous 'Sepoy Mutiny' in 1857 Karam Singh along with his regiment, the 'Guides' helped the British defeat the mutineers in the British India forces in the Historic battle for Delhi on the 20th of September 1857. He later took official leave from his services to the British army and spent many years in solitude and deep meditation.
The fifth and present successor to Karam Singh the Historical Saint Soldier figure, is Sant Baba Roshan Singh who has set up Hospitals and Schools for the poor in the Panjab and is working to tackle deprivation and social/Health inequalities in the state.
The current conflict effecting Wycombe's Sikh community started in 2003 when the last of the lineage of Saints in the Gurudwara Nirmal Kutia, Jullunder passed away, without inaugurating a 'legally appointed successor' to the assets and position as head authoritarian of Nirmal Kutia.
In Wycombe, the catalyst for the division is the split over the allegiance to the cult leader who is currently contesting his claim over successorship to Nirmal Kutia in the Indian High courts, the matter is still pending.
Cults are by no means a new phenomenon affecting the Sikhs globally and Jeet Singh is one of several high profile accused Cultists who are causing difficulties for the community worldwide.
He has asserted that the place known as Gurudwara Nirmal Kutia, India is not in fact a Sikh Gurudwara at which an offertory is maintained. It has been stated that Nirmal Kutia is a 'Dera' (abode or residence) of Jeet Singh and any offerings made there are offerings made to him personally.
Only last month July 24 in Sirsa, district of Haryana, Six persons were injured when a Dera Sacha Sauda (cult) follower fired at Sikhs in a village in Sirsa district of Haryana, leading to tension in the area. According to official sources in Chandigarh, the six persons, belonging to Sikh community, had received minor injuries on their legs after the shooting incident in Mallewala village, about 10 kms from Sirsa, and were treated in a local hospital.
The area was tense following the stand off between the Cult followers and members of the Sikh community after the recent alleged blasphemous act of the Cult Chief Sant Gurmit Ram Rahim Singh following his appearance in dress similar to that of 10th Guru, Guru Gobind Singh.
Colonel GS Sandhu, Chairman of a Non Governmental organisation and Human Rights front called 'Aapna Panjab' www.aapnapunjab.org, is alarmed by the increase in Cultist activities in India,
'Simple Sikh men and women are being exploited by some of the ever increasing numbers of so-called sants and babas who have established dera's (cults) where many have sexually exploited and abused the women followers.'
He stated that the Sikh community needs to be aware of the nefarious activities of these anti-panthic (religious) people. He exhorted the Sikhs all over the world to seek the guidance and follow the teaching of only Sri Guru Granth Sahib and not from these self styled Babas. He gave examples of three such Bababs 'Johlanwala Babu' 'Ram Rahim Singh' and finally the Mann Singh of Pehowa and the latters exploitation of followers.
The Management Committee and Trustees of an affiliate Gurdwara to Wycombe, APDD Birmingham, Oldbury are fully aware of the APDD Wycombe situation which has also had a detrimental impact on their congregation, trustees and fellow management committee members.
In Oldbury, Birmingham the Cult leader attempted to even go as far as producing counterfeit trust deeds with an Attorney from India and remove the incumbent trustees and management committee in order to take over. These aggressive tactics and underhand operations demonstrate the influence these Cult leaders have both in India and abroad, tentacles which have now spread as far as Wycombe, Buckinghamshire.
We advise the Whole Sikh community which is 850,000 strong in the United Kingdom and in particular now those in Wycombe to stand up to these Cult leaders and we urge them to follow the true Guru Sri Gurur Granth Sahib Jee, The holy Scriptures of the Sikhs.
Members of the Sikh community in Wycombe will be looking to work with the local authorities and police to maintain peace within the community in light of this recent difference of opinion with reference Cultist activities which has divided the congregation and caused a bitter demarcation between those who oppose the Cult and those who support it.

Here’s a recent report on this issue. Ridiculous indeed. How on earth is the UK going to hold its head up high when shenanigans like this are allowed? But looking at the Simon Singh saga, one is encouraged that there will be justice

Judge: Indonesia needs death penalty for graft

An interesting view. China regularly executes people found guilty of corruption. Now I do not like the idea of the death penalty, its a bit too final for me, but to actually treat white collar crime more seriously is something that i would support, across the world, there is an impression that white collar crime is victimless and doesn't really hurt anybody. But it does, it is a slow cancer and ruins the broader society and economy. I am not really sure how much of a deterrent this death penalty business is.

Overreaction to hunger in India

This news item was sent around on a list.

More hungry in India than in Sudan

Rukmini Shrinivasan, TNN, Oct 12, 2010, 03.30am IST

http://timesofindia.indiatimes.com/india/More-hungry-in-India-than-in-Sudan/articleshow/6733033.cms

NEW DELHI: India dropped two ranks to 67th among 84 developing countries in the International Food Policy Research Institute's annual " Global Hunger Index" for 2010. Even Sudan, North Korea and Pakistan rank higher than India.

While the report, released on Monday, shows that the proportion of undernourished in India is decreasing, the worsening ranking indicates that other developing countries have done better in tackling hunger. India is home to 42% of the underweight children under the age of five in the world.

The policymakers in India, who are are still fighting over the need to have an expansive National Food Security Act, should look at the following data more closely: in 2005-06, about 44% of Indian children — below five years — were underweight, and nearly half — 48% — were stunted.
The food insecurity is so rampant across the country that India is clubbed with minor economies like Bangladesh, Timor-Leste and Yemen, recording the highest prevalence of underweight in children under five.
At the beginning of the liberalization era in the early 90s, 24% of the population was undernourished. The situation marginally improved to 22% between 2004 and 2006. Almost 60% of children below five were recorded as underweight in 1988-92. The condition has remained dismal as the latest figure shows 43.5% between 2003-08.
The GHI ranks countries on a scale of 100, with 0 being the best score (no hunger) and 100 the worst. It is composed of three equally weighted indicators: the proportion of undernourished in the population, the prevalence of those underweight in children under five and the under-five mortality rate.

The figures for India are 22% (as of 2004-6), 43.5% (2003-8) and 6.9% as of 2008, respectively. These give India a composite GHI of 24.1, which is classified as alarming in terms of the food security situation.
The strife-torn Democratic Republic of Congo ranks at the bottom of the list of 84 countries with significant levels of hunger. The data has been compiled for 122 countries in all; the remaining 38 countries have a GHI of less than 5 and are not included in the rankings. No data has been recorded for highly developed countries.

South Asia has the highest GHI for any region in the world, at 22.9. The region has, however, made greater progress since 1990 than sub-Saharan Africa, the report adds. India is ranked below all other major South Asian countries — Sri Lanka is ranked 39th, Pakistan 52nd and Nepal 56th.
India's hunger is not purely a product of its middle-income status. While economic progress and hunger levels tend to be inversely correlated (countries with higher gross national income typically have lower GHI scores), some countries are exceptions to the norm. China has lower hunger levels than its GNI per capita would suggest, while India has higher hunger levels than would be expected from its income per capita, calculations made by the report's authors show.

The 2010 report focuses on child malnutrition, which is the biggest component of hunger worldwide. In India, high 2010 GHI scores are driven by high levels of underweight children, resulting from the low nutritional and social status of women in the country, the report says.

And the respondent went haywire. So I responded so

Here's an experiment you can do. Go check out the gini coefficients of the world and see where we are in terms of inequality. You will be surprised.

See this graph:

India isn't doing that badly, eh? But this was bothering me, so went back to check. And I responded back again.

This was bothering me but going deeper into this, looks like we are making some remarkable progress here. The silly point about India breaking up is frankly silly so wont touch it at all.
But here's the basic question which one asks. We have been showing a significant improvement over the past 20 years. So obviously we are doing something right in the first place. The places where we have touched relate to agriculture, nutrition, education, women's empowerment, income generation. These and other aspects helped us to improve this much. The report does not go into too much depth for Indian operations so had to go elsewhere to look deeper. Across all the dependent factors, we are showing strong and steady improvement in terms of agricultural productivity, increase in nutrition, increase in education, women's empowerment, income levels in the rural and urban areas, etc. etc.
Here's my point, there is nothing that we arent doing that we need to be doing. We just have to keep on doing what we have been doing and doing it better and perhaps more. We are on the right path.
The alarmist headlines and silly sod comments do not help at all because these are just whines, no basic understanding of the underlying issue, no analysis of what has been done or what needs to be done. So until and unless one gets some specific point of improvement, we dont need to get that much excited.
Lage raho munnabhai.

So the next time somebody whines that India has huge numbers of hungry and poor people, tell them yes, and we are doing something about it.

Also, check out this post, turns out the numbers themselves are a bit dodgy.