MBA in Finance

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Testing the Forward Rate Unbiasedness Hypothesis in Lebanon
(2011) Keshishian, Viken Kevork
After November 1998, the adjustable peg of the Lebanese pound to the US dollar played a major role in maintaining financial and price stability in the country. It also helped in the expansion of the economy and in the massive capital inflows to the Lebanese market. Moreover, the high stock of assets in foreign currencies prevented Lebanon from any crisis that may hit the economy. The thesis tests for the unbiased forward rate hypothesis as an optimal predictor of the future spot rate. It also supports the fact that the Lebanese pound became a perfect substitute to foreign currencies during the peg period. The study is conducted for the period January 31, 1991 to October 31. The study is divided into two sub-periods. The first sub-period is prior to December 1998, which is renowned as the dirty float period, whereas the second sub period is after December 1998, which is referred to as the adjustable peg period. The empirical results show that the unbiasedness forward rate hypothesis fails to be rejected during the adjustable peg period, whereas it is rejected in the earlier period. The rejection is due to a bias in the prediction by the forward rate, serial correlation, heteroscedasticity, non-normality of the residuals and a probable presence of a constant and significant risk premium. Moreover, the empirical results reveal that the Lebanese pound became a perfect substitute to foreign currencies during the adjustable peg period.
The Determinants of Gold Rice in US Dollars and Lebanese Pounds
(2012) Karibian, Levon
Gold is a scarce commodity and has become a rare metal; currently, 165,000 metric tons of gold exists above ground. Between 1870 and 1900 all major industrial countries, other than China, switched to the gold standard, linking their currencies to gold; hence, the gold standard was adopted. The present research project aims to study and analyze the relationship between gold prices on one hand, and the Brent oil prices, the Dow Jones Industrial Average (DJIA), Consumer Price Index (CPI), and Euro/USD exchange rate, on the other hand. The study manifests numerous findings as well as the interesting and important relationship of the aforementioned assets. Taking into consideration Toros Sajian’s (2006) empirical study about the price determinants of gold, a comparison was made and unit root tests were carried out on his sample (January 1997-March 2005), as well as on our sample. Elasticities on the log-levels and levels, with and without lagged dependent variables, were calculated and our estimates were found to be close to his estimates. However, the results of Toros were not reliable because of non-stationarity. This was proved by the Durbin-Watson statistics and the Durbin’s h statistics, as well as the Augmented Dickey-Fuller tests. Thus, we rejected the null hypothesis that there is no serial correlation in residuals. Furthermore, we conducted the ADF test on the sample of Toros. All the values and their respective probabilities indicated that we do not reject the null hypothesis that there is a unit root. Therefore, we estimated regressions in first differences of the logs and thus, we conducted a multiple regression of the first difference of the logs of the four independent variables on the sample of Toros. We found that the USD/EUR exchange rate was the only significant predictor of gold prices. We provided the descriptive statistics for his sample and analyzed the regression. We also tested for normality, linearity, and heteroscedasticity. Later, we conducted an ANOVA F-test to examine whether omitting the insignificant variables was a good choice and thus it was proved to be a good choice. Coming to our sample which ranged from September 1985 till November 2010, we used the same steps. We tested for the hypothesis whether there is at least one independent variable that explains gold price in US Dollars. We found the USD/EUR exchange rate and the Brent oil prices to be the significant predictor of gold prices. The DJIA and CPI were proved to be insignificant predictors of gold price. By taking into consideration the F-test and the ANOVA F-test on the R-Squares on removing the insignificant variables, we failed to reject the null hypothesis that the omitted variables have zero coefficients. However, using the same F-test and ANOVA F-test, we found that there is at least one variable that explains significantly the gold prices. In the last section, again a multiple regression was carried out but by using Lebanese Pounds as the base currency instead of the US Dollars. As for the exchange rate, the LBP/EUR exchange rate was used instead of the USD/EUR exchange rate. All the variables were significant predictors for gold prices except for the Dow Jones Industrial Average (in LBP). By taking into consideration the F-test and the ANOVA F-test on the R-Squares on removing the insignificant variables, we failed to reject the null hypothesis that the omitted variables have zero coefficients. However, using the same F-test and ANOVA F-test, we found that there is at least one variable that explains significantly the gold prices. Besides the four independent variables that we used in our study, there are several other indicators that could be taken into consideration in future research, such as world political situation (disturbances, wars, threats, invasions, etc.), supply and demand factors, market interest rates, tax rates, jewelry demand. All these are factors that could, most probably, affect gold prices.
Margin Lending & Factors Influencing Debit Interest Rates: A Case Study of a Lebanese Investment Bank
(2011) Barikian, Annie Sandra
Investment Banking has widely spread in Lebanon during the past decade. Several banks took the lead in this field and attracted many local and international clients to either trade securities or purchase their structured products on the prevailing stock exchange markets. To facilitate the trade transactions of the clients, investment banks offer loans against shares, namely margin loans. The principle condition of the overdraft facilities is the debit interest rate which plays a big role in drawing the clients' attention or on the contrary drive them away. The principal objective of the thesis is to find out what are the factors that the management and the credit committee of an investment bank take into consideration while charging debit interest rates on different overdraft accounts. Specifically, I wanted to identify the nature of the relation between the portfolio riskiness and the debit interest rate. For this purpose, I chose a leading Lebanese investment bank to examine its decision making method in applying debit interest rates on the accounts of the clients benefitting from margin facilities. To achieve the goal of this thesis, I gathered information relating to the clients holding margin accounts with the bank mentioned above for the period staring 2007 and ending 2009. The foremost findings of the research demonstrate that there are many factors other than portfolio riskiness, such as wealth and discount and loans rate that affect the debit interest rates. It turned out that the riskiness of portfolio, measured by beta, is negatively related with the debit interest rates exceptionally during the period of time chosen for this thesis. This negative relation was due to the outburst of the financial crisis which played a big role in affecting the debit interest rates opposite to their normal direction.
Stress Testing of Four Lebanese Banks
(2011) Nadjarian, Ani
Banks are the pillars of the financial system. If one bank fails, the base is threatened and a domino effect might be provoked. Moreover, the failure could expand outside the borders of the country due to the globalization and liberalization of the financial markets. Therefore, the existence of a single regime, the Basel Accord, to safeguard the financial system was crucial. One of the purposes of this thesis is to shed light on the rules and regulations set by the Basel Committee on Banking Supervision. The regular updates of the rules and the regulations reflect the importance of this regime on the economy. The base of these regulations originated by Basel I. the latter was replaced by Basel II, and today, there are serious discussions about Basel III which aims at introducing better risk management approaches. The evolution of these regulations was essential to the global economy. The common international standards helped the banks all over the world to operate towards the same goal, which is complying with the minimum standards set by the Basel Committee on Banking Supervision. From the first day of the evolution of the international standards, the Lebanese banks proceeded in taking measures to apply the minimum required standards. The Lebanese banks' financial ratios show that they essentially comply with the minimum required standards. However, a question perplexed of how the performance of important ratios will be, if a sudden unexpected situation occurs in Lebanon. In other words, will the Lebanese banks be ready to withstand future possible unexpected crashes? To answer this question, stress testing is performed on a sample of four Lebanese banks. Stress testing, the main objective of this thesis, is one of the requirements of Basel rules and regulations. The stress testing is performed by adopting three stress tests. The first is by looking for the effects of increased asset risk for which banks have control. The second is by studying the effects of unexpected adverse stock movements. And the last is by adopting a standardized measure which is Value at Risk, as recommended by Basel II. These three stress tests are based on relatively recent contribution of option pricing to valuing the equity of a financial institution. The results of the stress tests revealed that the sampled Lebanese banks are capable of absorbing unexpected losses for a certain period of time. Additionally, the thesis highlights the importance of the equity of a bank to protect the bank's solvency against the risk of possible losses. The first part of the thesis covers the evolution of the Basel rules and regulations. The second part covers these rules and regulations implemented within the Lebanese banking sector. The third part presents the adopted approaches and the results of performing stress tests on a sample of Lebanese banks under different scenarios.
The Influence of Oil and other Macroeconomic Variables on GCC Stock Markets
(2013) Basmajian, Loucine Khatchig
The Performance of U.S. Equity Mutual Funds in the First Decade of 21st Century with Selected Indexes
(2010) Al Hourani, Mohammed A.
Several studies stated that managers achieve superior returns while others stated they do not. This paper studies the performance of 200 U.S. equity mutual funds in the first decade of 21st century using four Indexes S&P500, DJIA, Russell3000 and NASDAQ as benchmarks which give this study its importance. I found that mutual funds outperformed the market before and after expenses when compared to S&P500 and DIJA; outperformed the market before expenses but do not generate abnormal profit after expenses when compared to Russell 3000; do not generate abnormal profit before expenses and underperformed the market after expenses when compared to NASDAQ. I concluded that estimated beta and actual beta are equal only for S&P500.
The Impact of the International Commodities Price Movements on the Stock Markets of the GCC Countries
(2017) Chopurian, Nazo Assador
This research performs an empirical investigation on the impact of Energy, Agricultural and Metal commodities on the GCC stock markets. The study employs data from January 2005 to February 2017 with a weekly frequency. Utilizing Granger Causality, VAR Model, GARCH Model, Lucey and Baur (2010) model to test for the existence of safe haven and hedging effects, and Least Square method to test whether the energy commodities have symmetric or asymmetric impact on the stock markets of the GCC countries. The study finds that Agricultural commodities have safe haven and hedging effect on all the GCC stock indices. Whereas, Metal commodities have safe haven effect only on Saudi Arabia, Qatar, Oman, Kuwait and Abu Dhabi's stock markets but have hedging effect on all the GCC stock market. Moreover, Energy commodities do not have hedging effect on all the GCC stock markets and have asymmetric impact on all the GCC stock markets other than Qatar with Decreasing Energy prices having more significant impact on the GCC stock markets than their increase.
Testing the Sustainability of Lebanon's Fiscal Policy (1971-2015)
(2017) Tchamichian, Ohannes Awadis
This research performs an empirical investigation on the sustainability of Lebanon’s fiscal policy. The study employs yearly data from 1971 to 2015. Using the Hakkio & Rush cointegration model, Modified Azar and Asrawi cointegration model, Original Azar and Asrawi model and accounting approach, the research gave contradicting results due to the differences in the approaches applied and the use of different combinations of data. Hakkio and Rush model included the service on debt in the expenditures variables, while Azar and Asrawi model excluded the service on debt and took the Revenues and Expenditures in terms of LBP deposits interest rates. This research concluded that with the current policy in place, it is still possible to consider sustainable and there is ability to survive based on the results.
Foreign Exchange Reserves and the Macro-economy in GCC Countries
(2017) Abou Khodor, Wael
This research looks into foreign exchange reserves accumulation and macro-economic growth in GCC countries, namely Saudi Arabia, Bahrain, Qatar, Oman, Kuwait, and the United Arab Emirates. Using yearly covering the period from 1996 through 2015, the empirical results show positive relationships between foreign exchange reserves accumulation on one hand, and oil prices, GDP, current account to GDP, and broad money to GDP on the other hand. Moreover, the results point to negative relationships between foreign exchange reserves accumulation on one hand, and real effective exchange rate, debt to GDP, and call money rate on the other hand. However, the results show that the stockpile of foreign exchange reserves in GCC countries is less sensitive to nominal effective exchange rate, imports to GDP, and interest rates on US Dollar. Furthermore, and most importantly, the study shows that both foreign exchange reserves and oil prices appear to spur economic growth in these countries by raising GDP and GDP per capita.
The Relation Between WTI and Brent Crude Oil Prices: Cointegration, Volatility, and Bias
(2016) Salha, Angelic Raja
The main purpose of our thesis is to examine the short term and long term relationship between the spot prices of two crude oil benchmarks, West Intermediate Texas (WTI) crude oil and Brent crude oil. We analyze the daily, weekly, and monthly spot price of WTI and Brent crude oil for the last 30 years in the period starting in May 1986 till May 2016. We start by testing for stationarity and find that the data has one unit root. After that, we test if the prices of WTI and Brent move together with a stable difference between them by applying Johansen, Engle-Granger, and ARDL tests. Then, we test the data for biasness by interpreting the coefficients in the regression equation and GARCH model. The empirical analysis shows that there is high evidence of short term and long term bias. Additionally, we test for volatility and whether good news and bad news affect the prices of WTI and Brent in the same way. We link the results to a tentative theory of production of two firms that produce WTI and Brent crude oils and each act as a monopoly in its product market. We prove the assumptions of the theory to be true and illustrate the results of the tests using it.
Impact of External & Internal Factors on Profitability & Net Worth of Commercial Banks in Lebanon
(2016) Kouyoumjian, Christapor Avedis
The aim of this research is to study and analyze the external and internal factors effect on the profitability and net worth of the commercial banks in Lebanon. Treasury bill of 12 months is chosen to represents the market interest rates. The external factors which are chosen in this research study consist of several aspects such as inflation, money supply, growth in coincident indicator and interest rates variability. The Internal factors which are chosen in this research study consist of several aspects such as growth of the bank’s assets, profitability, efficiency, capital adequacy, liquidity, market share, competition, loan to deposit ratio and non-performing loans. This study uses a joint Mathematical Models used by the following researches to test the impact of interest rate fluctuation and external and internal factors on short and long run Profitability of commercial banks. (Godspower, 2012) and (Raharjo, 2014) (Flannery, 1981, 1983) The study applied regression analysis using HAC and Robust least square Huber Type 1, 2 and 3 tests for a data that covers 11 years period from 2003 till 2013. The internal variables that have significant impact on NIM are Capital adequacy ratio, Liquidity, Loan to deposit ratio, competition, market share, operating efficiency, growth in assets and return on assets, and the external factors are Interest rates, Money supply and interest rates variability. Concerning NW, the internal variables that have significant impact on it are Loan to deposit ratio, competition, Market share, return on assets and operating efficiency. The external variables that have significant impact on NW are Interest rates, Money supply and interest rates variability. For large banks the internal variables that have significant impact on NIM are operating efficiency, return on asset, and growth in assets. The external variables that have significant impact on NIM in large banks are Interest rates, money supply and interest rates variability. Concerning NW of large banks the internal variables that have significant impact are Loan to deposit ratio, liquidity, operating efficiency, market share, return on assets and competition. The external variables that have significant impact on NW in large banks are interest rates, money supply and growth in coincident indicator. The internal variables that impact NIM in small banks are loan to deposit ratio, liquidity, competition, operating efficiency and return on asset. The external variables that significantly impact NIM in small banks are interest rates, money supply and interest rates variability. The internal variables that impacts NW in small banks are loan to deposit ratio, operating efficiency, market share, return on assets, competition and growth in assets. The external variables that impacts NW in small banks are, interest rates, and growth in coincident indicator. The variables that are significantly different when comparing large banks to small banks in term of Net interest margin are liquidity, Interest rates and operating efficiency. The variables that are significantly different when comparing large banks to small banks in terms of Net worth are liquidity, loan to deposit ratio, competition, operating efficiency and return on assets.
Integrating the GCC: A Look in to Money Demand Functions
(2015) Gharzuddine, Emad Samir
We construct an individual and panel data for GCC's six countries to estimate the money demand function of the individual countries, while examining the co-integration hypothesis among the different variables of the money demand function using Pedroni's panel co-integration tests. We find strong evidence that the money demand functions are stable, while the scale and interest elasticities signs abide by the theory. Moreover, we find out that the GCC’s money demand function is only a function of income.
Predicting Non-performing Loans Through Financial Ratios of Small and Medium Entities in Lebanon
(2015) Nasr, Marybel Richard
The purpose of the study is to examine the ability of financial ratios in the prediction of the financial state of the Small and Medium Entity in Lebanon. Specifically, the financial state of the company is determined by the classification of the loans of the SME, which can be performing or non-performing. An empirical study was performed using a data analysis conducted on the financial statements of 222 SMEs in Lebanon for the years 2011 and 2012, of which 187 are subject to performing loan and 35 are subject to non- performing loans. The Altman Z-scores were calculated, the independent sample t-test was performed, and models were developed using the logistic regression. Empirical evidence from this study showed first, that the Altman Z-scores were able to predict the solvent state of SMEs having performing loans, but were unable to predict the bankrupt state of the SMEs having non-performing loans. Second, the independent sample t-test revealed five financial ratios that are significantly different between SMEs having performing loans and non-performing loans during the years under study, which are the following: liquid assets/current assets, total liabilities/total assets, total equity/total assets (disregarded subsequently, for being complimentary to the previous ratio), sales/total liabilities, and working capital/total assets. Third, a logistic regression model was developed for each year under study and accuracy results were deducted and displayed in a table showing the percentage of accurately classified companies (solvent and bankrupt), in addition to the type I and type II errors. This study recommended not applying the Altman Z-score models on SMEs in Lebanon due to the low accuracy results registered. Moreover, some financial ratios with predictive ability are worth focusing on during the analysis of the financial health of a company, which are liabilities/assets, liquid assets/current assets, sales/liabilities and working capital/assets. Finally, since the logistic regression models developed in this study using only quantitative variables and a sample of 222 SMEs did not result in high accuracy levels, further research conducted on a larger sample using qualitative variables such as years of experience of the SME in the market, geographical location, history of repayment in the bank, overall macro-economic indicators… could add to the predictive ability of the logistic regression model in Lebanon.
Negative Returns Produce Higher Co-movement and Higher Variance in U.S. and Regional Stock Markets
(2010) Basmadjian, Raffi K.
The study of cross-border links in stock market returns is a key issue in specialized finance. The existing literature studies the effect of volatility on stock index co-movement, the relation between the tail returns of two financial assets and the stock index co-movement in post-crisis events, all of which lead to a higher correlation in stock returns. In this paper, we analyze the effects of negative returns of 18 US and 40 regional stock indexes on the magnitude of the co-movement of these stock indexes and on the magnitude of their total variances. We find empirical evidence that negative returns increase the co-movement of these stock indexes as well as the variance of returns. Then we relate this differential correlation of negative returns to behavioral finance, in particular to loss aversion, and specifically the disposition effect, in the sense that the fear of investors in realizing losses leads to a smaller volume of trading, which results in less liquidity and hence higher transaction risk on one hand, and more volatility and hence higher variance of returns on the other hand.
The Process of Going Public: Incentives and Obstacles: Case of Lebanon
(2008) Kazandjian, Sebouh A.
A privately held firm, which is concerned about the disadvantages of using too much debt, will sometimes resort to going public. The process of selling shares to the public is known as an Initial Public Offering (IPO). Upon going public, the firm's ownership structure gets diluted and pressure is imposed on management in order to achieve projected or targeted results. Any underperformance by the firm will result in decreasing the stock price, thus, lowering the overall value of the firm and the investor's confidence. This study intends to provide an understanding of the initial public offering (IPO) process in Lebanon. The objective is to highlight the IPO process, its benefits, obstacles and disincentives. The methodology used is a survey of privately held companies in Lebanon in addition to statistical and financial analysis. We have found that the IPO process in Lebanon is still in its infancy when compared to most developed countries or even most Arab countries that have active stock markets. The political and economic instability of the country has not been encouraging many businesses to go through the IPO adventure. The number of IPO's has remained muted in recent years. The Beirut Stock Exchange (BSE), the only stock exchange in the country, was established in the 1920s and was the first in the Middle East. The BSE is currently characterized by a limited number of listed domestic companies with a low daily volume of trading. Beirut Stock Index is highly volatile due to the instability in the country. Upon examining a number of listed Lebanese companies, I found that their stock prices are not strongly affected by the political and economic conditions which currently govern the country. These companies are performing well and are generally closely held, which means that the majority of the shares are under the control of management. On the other hand, these companies have a high level of reliance on their businesses outside Lebanon. These two reasons together with others, have made these companies immune to many changes or troubling events in the country. The study proceeds as follows: Section I provides an overview of the Lebanese economy and the different components of the economy. Section II describes the common forms of business in Lebanon with the brief understanding of rules and regulations related to these businesses.. Section III discusses the history of the Beirut Stock Exchange, the administration, the listing requirements, the costs of going public, the rules concerning foreign investors and the correlation with other stock markets. Section IV analyses the pros and cons of going public in Lebanon through a survey conducted for this reason. Section V includes a financial analysis of four Lebanese publicly traded companies. Section VI concludes this paper.
Assessment of Small and Medium Size Enterprise (SME) Environment in Lebanon
(2005) Hagopian, Alexan Edgar
While SME or Small and Medium Size Enterprises is a widespread term echoed assertively in globalized and highly integrated world economies as a catalyst for real and rapid economic transformation, it remains of limited echo in the Lebanese economy even though much of Lebanon's businesses are SMEs. The underlying study aims at assessing the fundamental and environmental foundation upon which the Lebanese SMEs rest with the aim arriving at recommendations that would create a favorable environment for SMEs in Lebanon. In such an attempt, this project aims to define SMEs in Lebanon, to conduct an exploratory research at the micro- and macro-environmental levels, to highlight environmental obstacles, and to raise recommendations for developing a more enabling environment for these SMEs. After arriving at an appropriate definition of the SMEs in Lebanon as business enterprises with workforce sizes not exceeding forty employees, the study reviews the Lebanese macroeconomic environment embodying the SMEs along with the legal and financial frameworks within which these SMEs operate to highlight a set of descriptive hypotheses revolving around the influential factors on the employment decisions, the business investment decisions, the registration patterns, the past performance, and the future expectations. In addition and in light of the data gathered from the field survey of fifty four SMEs, the research examines the possibility of a relationship between these decisions on one hand and the demographics - gender, age, educational background, experience - of the SME owners, and location, size, sector, date and manner of establishment, and legal status or business type of the SME, on the other hand. At the end, recommendations to develop an enabling environment for the Lebanese SMEs are briefly presented based on the observations noted throughout this preliminary research.

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