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TRACKING RISK
Rank: Member Joined: 9/2/2006 Posts: 121
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Scubidu wrote:emlyn ngwiri wrote:@scubidu, is the pinebridge 27 index a good index to value stocks I talked to them. I don't have faith in an institution who can't commit a fund/portfolio tailered it's own index. Even though it incorporates dividend returns it's correlation with NSE 20 is almost 100%. As them for historical index levels and compare to NSE 20. @emlyn and scubidu, My assessment criteria for any index would include suitability and investability. I guess what scubidu is alluding to the second criteria. In my view, the FTSE indices are kinda reliable than both the AIG and NSE 20 based on their criteria for including stocks in their index. In addition, its much easier to ascertain tracking risk from the FTSE indices than the two indices. @ scubidu, have the AIG index ever adjusted their index in light of last year's IPOs and listings by introduction. Regards
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Rank: Member Joined: 9/2/2006 Posts: 121
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emlyn ngwiri wrote:what i mean is arbitrage is sustained only for a short period before the forces of demand and supply regularise the situation.
Assume that a stock is trading in two markets simultaneously Kenya and Uganda. Suppose the stock is trading at kes 100 in the Ugandan market and kesh 98/- in Kenya. We simply buy a share for kesh 98 in Kenya and immediately sell it for kesh 100 in Uganda. We make an easy kes 2 at no risk and we did not have to put up any funds of our own. The sale of the stock at kesh 100 was more than adequate to finance the purchase of the stock at kesh 98.
hope im not too off
rgds Emlyn, Do you think that the Kshs. 2 difference could also be attributed to the relative illiquidity of the Ugandan market compared to Kenya? I also think that the same illiquidity in the NSE bond market is contributing to the 300 bps difference between the NSE and Bloomberg yield curves. Just look at the number of sale/leaseback bond transactions done in any trading day compared to a "market" transaction. Let me know what you think of this. Regards
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Rank: Member Joined: 8/12/2010 Posts: 129 Location: nairobi
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Scooby wrote:emlyn ngwiri wrote:what i mean is arbitrage is sustained only for a short period before the forces of demand and supply regularise the situation.
Assume that a stock is trading in two markets simultaneously Kenya and Uganda. Suppose the stock is trading at kes 100 in the Ugandan market and kesh 98/- in Kenya. We simply buy a share for kesh 98 in Kenya and immediately sell it for kesh 100 in Uganda. We make an easy kes 2 at no risk and we did not have to put up any funds of our own. The sale of the stock at kesh 100 was more than adequate to finance the purchase of the stock at kesh 98.
hope im not too off
rgds Emlyn, Do you think that the Kshs. 2 difference could also be attributed to the relative illiquidity of the Ugandan market compared to Kenya? I also think that the same illiquidity in the NSE bond market is contributing to the 300 bps difference between the NSE and Bloomberg yield curves. Just look at the number of sale/leaseback bond transactions done in any trading day compared to a "market" transaction. Let me know what you think of this. Regards @scooby Many market participants (investors, brokers etc) would do this, which would create downward pressure on the price of the stock in Uganda where it trades for kesh100 and upward pressure on the price of the stock in Kenya, where it trades for kesh 98. Eventually the two prices must come together so that there is but a single price for the stock. Recall the law of one price? Due to information assymetry in uganda, amongst other reasons such as slow trading process, political interference etc illiquidity is bound to be charachteristic of that market. The Nse is not as developed as that in sa of the UK but iliquidity in the bond market stems from the CMA and CBK probably for monetary policy conditions?
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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GGK wrote:Ceinz wrote:youcan'tstopusnow wrote:KiFagio wrote:GGK wrote:This is one of those threads that I can't contribute. But it is enlightening all the same. @GGK U R better off! Its all Martian to me. Pls tell me in simple language, what this lingo/jargon means. And how come only 3 wazuans R contributing? Where R the rest? QW??  Kumbe siko peke yangu. This sounds like language ya watu wa CFA Separating the mboys from river-road speculators.  Someone is doing an MBA research here. Wazua on another level. Sisi tumezoea hesabu ya mashinani @all. pole. didn't see this. Why not ask guys what they mean? “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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@emlyn. the arbitrage is not short lived because of the illiquidity and not everyone is equal on the information curve. your scenario doesn't really play out becoz hardly any1 know the bid/ask spreads. The illiquidity in the bond mart is caused by CBK actions. is it easier to track risk if CBK actions determine the direction of ur bond portfolio? @scooby. Pinebridge haven't included the recent IPOs in their index. I believe the sale/lease backs should not be traded on the NSE (or recorded seperately on the trading platform) or at least a separate OTC repo market should be created. the question is where's market and how do you enhance price discovery in the Kenyan bond mart? That's why some bankers are advocating for an OTC bond mart becoz they believe using platforms like reuters and bloomberg will enhance price discovery. “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Member Joined: 8/12/2010 Posts: 129 Location: nairobi
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@scubidu
my take is that tracking error should be compared to a given index.
If the actions of the CBK have a direct and immediate impact on the portfolio composition of a given bond index, then tracking error would be minimized as evaluated from the bond market line.(clinically simmilar to the CML) X axis being RETURN and Y axis being DURATION.
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Rank: Member Joined: 11/12/2010 Posts: 111 Location: MOMBASA
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It sounds like we are in an industry that we know not.Hii mambo yooootee inayo-ongewa hapa sijaelewa hata nusu percent. One thing I know is, with all this knowledge, the brokers and akina Funds Managers also get burned tena worse than akina sisi. when we get burned no body is spared even the learned are fried...then what is the fun of lerning all these jergons and charts?? Sometimes i think this is just a trial an error industry and a lucky share choice at the right time accept those with 25 years investment duration/plan. Again it's better when u r knowlegeable than when you incvest like me...follow akina BIGCHAIR and the rest blindly.
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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emlyn ngwiri wrote:@scubidu
my take is that tracking error should be compared to a given index.
If the actions of the CBK have a direct and immediate impact on the portfolio composition of a given bond index, then tracking error would be minimized as evaluated from the bond market line.(clinically simmilar to the CML) X axis being RETURN and Y axis being DURATION.
You've lost me mate. That sounds like a complex curve thing (the bond market line thingy u mentioned). There's no working bond index in Kenya (even AIG) hasn't been updated. So my question was what's the benchmark? My suggestion/question for @scooby was whether tracking clean prices can constitute an index of sorts. “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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mzeekijana wrote:It sounds like we are in an industry that we know not.Hii mambo yooootee inayo-ongewa hapa sijaelewa hata nusu percent. One thing I know is, with all this knowledge, the brokers and akina Funds Managers also get burned tena worse than akina sisi. when we get burned no body is spared even the learned are fried...then what is the fun of lerning all these jergons and charts?? Sometimes i think this is just a trial an error industry and a lucky share choice at the right time accept those with 25 years investment duration/plan. Again it's better when u r knowlegeable than when you incvest like me...follow akina BIGCHAIR and the rest blindly. @mzeekijana. Don't follow anyone. Take advice from everyone, but make your decision based on what you uncover. Warren buffet isn't interested in economics but makes decisions based on what he understands (but you have to decide what level of knowledge you require to make a decision... the rest is trial and error). “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Veteran Joined: 5/7/2009 Posts: 1,032 Location: Sea of Transquility
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Scubidu wrote:mzeekijana wrote:It sounds like we are in an industry that we know not.Hii mambo yooootee inayo-ongewa hapa sijaelewa hata nusu percent. One thing I know is, with all this knowledge, the brokers and akina Funds Managers also get burned tena worse than akina sisi. when we get burned no body is spared even the learned are fried...then what is the fun of lerning all these jergons and charts?? Sometimes i think this is just a trial an error industry and a lucky share choice at the right time accept those with 25 years investment duration/plan. Again it's better when u r knowlegeable than when you incvest like me...follow akina BIGCHAIR and the rest blindly. @mzeekijana. Don't follow anyone. Take advice from everyone, but make your decision based on what you uncover. Warren buffet isn't interested in economics but makes decisions based on what he understands (but you have to decide what level of knowledge you require to make a decision... the rest is trial and error). Well put. “small step for man”
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Rank: Member Joined: 11/12/2010 Posts: 111 Location: MOMBASA
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Ceinz wrote:@mzeekijana. Don't follow anyone. Take advice from everyone, but make your decision based on what you uncover. Warren buffet isn't interested in economics but makes decisions based on what he understands (but you have to decide what level of knowledge you require to make a decision... the rest is trial and error).
Well put. [/quote] Mzee Ceinz nimekupata in black & white ..this is what it's all about....making the right decisions at the right time....& the rest is what?...."trial and error'...  u made my day..Ubarikiwe kilaupande.
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Rank: Member Joined: 8/12/2010 Posts: 129 Location: nairobi
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Scubidu wrote:emlyn ngwiri wrote:@scubidu
my take is that tracking error should be compared to a given index.
If the actions of the CBK have a direct and immediate impact on the portfolio composition of a given bond index, then tracking error would be minimized as evaluated from the bond market line.(clinically simmilar to the CML) X axis being RETURN and Y axis being DURATION.
You've lost me mate. That sounds like a complex curve thing (the bond market line thingy u mentioned). There's no working bond index in Kenya (even AIG) hasn't been updated. So my question was what's the benchmark? My suggestion/question for @scooby was whether tracking clean prices can constitute an index of sorts. @Scubidu you are correct we dont have a bond index (except the recent ecobank one) but tracking risk in the context of the kenyan bond market line. if i set up a portfolio that comprises of t/bills corporate bonds and t/bonds in appropriate weights, i expect that it should lie on the bond market line right? what if the action of the cbk has a direct impact on the portfolio composition of say t/bonds based on their performance on the overal portfolio considering different policies regarding duration?
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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emlyn ngwiri wrote:Scubidu wrote:emlyn ngwiri wrote:@scubidu
my take is that tracking error should be compared to a given index.
If the actions of the CBK have a direct and immediate impact on the portfolio composition of a given bond index, then tracking error would be minimized as evaluated from the bond market line.(clinically simmilar to the CML) X axis being RETURN and Y axis being DURATION.
You've lost me mate. That sounds like a complex curve thing (the bond market line thingy u mentioned). There's no working bond index in Kenya (even AIG) hasn't been updated. So my question was what's the benchmark? My suggestion/question for @scooby was whether tracking clean prices can constitute an index of sorts. @Scubidu you are correct we dont have a bond index (except the recent ecobank one) but tracking risk in the context of the kenyan bond market line. if i set up a portfolio that comprises of t/bills corporate bonds and t/bonds in appropriate weights, i expect that it should lie on the bond market line right? what if the action of the cbk has a direct impact on the portfolio composition of say t/bonds based on their performance on the overal portfolio considering different policies regarding duration? Hey. Couldn't find this topic, so I kinda forgot about it. So @emlyn What were the assumptions for creating the right mix in your benchmark portfolio? I figured this would be a good time to re-visit this topic considering the market yield curves are all over the place these days. “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Member Joined: 4/2/2011 Posts: 629 Location: Nai
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Scubidu wrote:[quote=emlyn ngwiri]@scubidu how would mispricing of securities arise yet the we are "semi strong" form efficient?
The yield curve also acts as benchmark for the pricing of other / future security issues. How then can mispricing occur if the Yield curve is derived from weighted average of interest rates of different T/bonds (from the secondary mkt) and T/bills?
rgds @emlyn. The yield curve does act as a benchmark. However, if you look at the debates pipo have on wazua on inflation, ccys, economic data, everyone has so many differing opinions. Macro information is not easily accessible and CBK doesn't make pricing of it's auctions transparent. We have a poor information curve. NSE bond mart is OTC, it's not efficient at all esp when the exchange tells us that 70% of pricing on the market is 'off market' (what they think is 'on' or 'off' market is another debate). ive not seen bid/ask on nellydata, so I assume there must be many arbitrage opps due to peeps using their own pricing curves. This should interest you: http://www.vanguardngr.c...-first-ever-bond-index/[/quote] Scubidu, I a layman do agree with you about the bond market. In fact I cannot think of it in the realm of efficient 'semi strong'. Commenting from an insider perspective, a lot of bond trading falls in the secondary market category(few traders, arbitrary pricing) with may deals being consummated off the books. my 2 cents!
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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accelriskconsult wrote:Scubidu wrote:[quote=emlyn ngwiri]@scubidu how would mispricing of securities arise yet the we are "semi strong" form efficient?
The yield curve also acts as benchmark for the pricing of other / future security issues. How then can mispricing occur if the Yield curve is derived from weighted average of interest rates of different T/bonds (from the secondary mkt) and T/bills?
rgds @emlyn. The yield curve does act as a benchmark. However, if you look at the debates pipo have on wazua on inflation, ccys, economic data, everyone has so many differing opinions. Macro information is not easily accessible and CBK doesn't make pricing of it's auctions transparent. We have a poor information curve. NSE bond mart is OTC, it's not efficient at all esp when the exchange tells us that 70% of pricing on the market is 'off market' (what they think is 'on' or 'off' market is another debate). ive not seen bid/ask on nellydata, so I assume there must be many arbitrage opps due to peeps using their own pricing curves. This should interest you: http://www.vanguardngr.c...-first-ever-bond-index/[/quote] Scubidu, I a layman do agree with you about the bond market. In fact I cannot think of it in the realm of efficient 'semi strong'. Commenting from an insider perspective, a lot of bond trading falls in the secondary market category(few traders, arbitrary pricing) with may deals being consummated off the books. my 2 cents! @accelriskconsult. I agree with you. To an extent the Central Bank has contributed to this esp an auction. I think it's also a dealer issue as well. If participants insist on two-way pricing (like the OTC model) and rely on one accepted yield curve then the opportunities for arbitrary pricing will reduce. But there are a lot of bookies in the mix these days... no different from the lehmans of past... things were always heading there. my 2 cents. “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Member Joined: 8/12/2010 Posts: 129 Location: nairobi
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@accelriskconsult,
How then does one track bond performance if not by the BML? (Bond Mkt Line)Through interest rate anticipation or by analysis and trading effect? or does one analyse sources of return from your portfolio and map that against say the yield curve?
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Rank: Veteran Joined: 2/12/2008 Posts: 1,178
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Eish! Only thing that sounds familiar here is the pine bridge thingy and im not sure it's related to the one i know. The rest makes feel like i have stumbled into 2 Lema Ayanu's heated debate? To those of us used to BUY BUY BUY!!!!!! it's time we went back to school. These from Scooby 'needs based on their experiences (what you are referring to as heuristic judgements), makes me think the stuff is not that technical. 
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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willin2learn wrote:Eish! Only thing that sounds familiar here is the pine bridge thingy and im not sure it's related to the one i know. The rest makes feel like i have stumbled into 2 Lema Ayanu's heated debate? To those of us used to BUY BUY BUY!!!!!! it's time we went back to school. These from Scooby 'needs based on their experiences (what you are referring to as heuristic judgements), makes me think the stuff is not that technical. @willin2learn. what we're discussing here is merely being able to map the prices of stuff you buy at the soko. And the trouble is your finding a way to do this for a basket of stuff you've bought. It's really not technical, but it's hard to put in laymans terms. Essentially ur being asked to make an assumption that prices should behave in a certain way, and the less you deviate from this plan, then the better you are as a manager of money. “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Veteran Joined: 9/4/2009 Posts: 700 Location: Nairobi
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emlyn ngwiri wrote:@accelriskconsult,
How then does one track bond performance if not by the BML? (Bond Mkt Line)Through interest rate anticipation or by analysis and trading effect? or does one analyse sources of return from your portfolio and map that against say the yield curve? @emlyn. essentially @accelriskconsult is saying that you find anomalies which you'll factor into your analysis, which can best be described as noise (outside of the normal operations of matching willing buyer to willing seller). This means the BML can be effective but you'll have to factor in activity outside of normal market operations (such as bookie trades) and deliberate distortions on a macro level. “We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Rank: Member Joined: 8/12/2010 Posts: 129 Location: nairobi
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you mean noise?
well, that might be true but one does need to rebalance their portfolio to adjust to the bml however inconsistent the line might be..
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