International diversification and Microfinance |
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Authors: | Rients GalemaRobert Lensink Laura Spierdijk |
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Institution: | a Centre for International Banking, Insurance and Finance (CIBIF), Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands b Development Economics Group, Wageningen University and CREDIT, University of Nottingham, UK |
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Abstract: | International commercial banks, institutional investors, and private investors have become increasingly interested in financing microfinance institutions (MFIs). This paper investigates whether adding microfinance funds to a portfolio of risky international assets yields diversification gains. By using mean-variance spanning tests with short-sale constraints, we find that investing in microfinance may be attractive for investors seeking a better risk-return profile. Specifically, the analysis suggests that investing in MFIs from Latin America, or microfinance and rural banks yields more efficient portfolios. In contrast, adding MFIs from Africa or microfinance NGOs to a portfolio of international assets is not beneficial for a mean-variance investor. |
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Keywords: | Microfinance Mean-variance spanning International diversification |
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