Investment Consultant and Member of Parliament for the Nyiaeso constituency in the Ashanti region, Dr. Stephen Amoah, has combed through works of notable economic theorist and has discovered a most suitable formula that could raise Ghana out of its current economic doldrums.
According to the member of the parliamentary committee on Finance in Parliament, the challenges confronting the economy now is that “The higher the risk, the higher expected returns in the investment principles of Risk and Return is being undermined continuously,” and that his formula (published), developed in 2020, integrates all the relevant variables and give conditions and recommendations to enable banks and portfolio managers reduce risk of industry collapse.
Speaking at a day’s seminar at the International Conference Centre in Accra on Monday to a packed-to-capacity audience, both local and global economists, themed: “identifying and Redefining the Economic Fundamentals of Developing Economic: Anomalies and Challenges – The Case of Ghana,” Dr Stephen Amoah, assured that his organisation, Financial Economic Seminar-Ghana “FES is not ending with this seminar. We are going to work hard through stakeholder engagement especially Bank of Ghana. The banking industry, AGI, GUTA, the Finance Ministry and other relevant policy making bodies,” to see to ensuring that Ghana becomes a global icon.
Dr. Stephen Amoah, explained that there were global formulas used in pricing risky assets like Capital Assets Pricing Model in 1964 and Arbitrage Pricing Theorem (APT) in 1976 by Sharp and Ross respectively.
“The former stipulates that assets expected returns are influenced just by the market risk but in case of APT, returns are influenced by a variety of risk factors.
“The optimal formulas developed I. 1993 and 2015 respectively by Hannah & Liang and Dermine which are optimal tools for the market are revealed to have had shortfalls as well,” he said.
He indicated that Hannan and Liang’s formulas does not integrate the reserve component policy by central banks which he indicated that Dermine corrected.
He said Dermine also failed to realise that after the reserve component deduction not all the remained deposit goes into the market but a proportion go into risky investment portfolios.
“This risky investment generates premium which must be integrated into the model. The errors in their formulas indicate that they are not good pointers in competitive markets in which banks invest in other profit bearing opportunities which yield higher returns than the markets,” he said.
Dr.Amoah said the shortfalls in both Hannah & Liang and Dermine’s formulas are rectified by the improved optimal pricing model for risky assets Ina competitive market.
He stressed that conditions such as risk premium for more than one and proposed proportions for interbank market and risky investments are recommended by the formula.