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TRACKING RISK
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mzeekijana
#51 Posted : Sunday, January 15, 2012 8:45:42 PM
Rank: Member

Joined: 11/12/2010
Posts: 111
Location: MOMBASA
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.d'oh!
[/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'...Applause u made my day..Ubarikiwe kilaupande.
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emlyn ngwiri
#52 Posted : Monday, January 16, 2012 6:30:10 PM
Rank: Member

Joined: 8/12/2010
Posts: 129
Location: nairobi
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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Scubidu
#53 Posted : Thursday, May 17, 2012 10:54:22 PM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
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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accelriskconsult
#54 Posted : Friday, May 18, 2012 10:50:16 AM
Rank: Member

Joined: 4/2/2011
Posts: 629
Location: Nai
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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Scubidu
#55 Posted : Friday, May 18, 2012 1:22:13 PM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
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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emlyn ngwiri
#56 Posted : Friday, May 25, 2012 7:58:23 AM
Rank: Member

Joined: 8/12/2010
Posts: 129
Location: nairobi
@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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willin2learn
#57 Posted : Friday, May 25, 2012 1:02:47 PM
Rank: Veteran

Joined: 2/12/2008
Posts: 1,178
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.smile
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Scubidu
#58 Posted : Friday, May 25, 2012 9:08:58 PM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
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.smile


@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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Scubidu
#59 Posted : Friday, May 25, 2012 9:14:57 PM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
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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emlyn ngwiri
#60 Posted : Wednesday, May 30, 2012 7:59:34 AM
Rank: Member

Joined: 8/12/2010
Posts: 129
Location: nairobi
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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