Department of Economics, University of Toronto, Ontario, Canada
Mini Review
Optimizing Portfolio Performance and Risk Mitigation: An Econometric Analysis of Safety-First Approach in the Banking Sector
Author(s): Smith Johnson*
A Safety-First Principle is used to derive models of the portfolio composition of the commercial banking sector in Pakistan. For econometric
estimation we use data and for forecasting various models are estimated, with and without restrictions implied by the theory, such as symmetry on
asset characteristics and the equivalent of Engel conditions. The best specification of the system of asset demand equations is a dynamic version
which allows for adjustment costs or adjustment constraints in the alignment of the portfolio and which also disaggregates the various types of bank
loans rather than treating them as perfect substitutes. That model provides information on the complements and substitutes amongst the assets
that conforms to economic intuition. It also fits the data well and is a good forecaster and is shown to provide information that can assist the SBP
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DOI:
10.37421/2162-6359.2023.12.695
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