Academic literature on the topic 'Disproportionaloity index of portfolio'

The main aim of the study is to select a list of companies from the basic indices of NSE like Nifty50, Next50 and Small Cap 50, to create a portfolio of the companies with respect to the indices selected for the study which results in 3 different portfolios. Portfolio 1 represents 29 scrips selected from Nifty50, Portfolio 2 represents 30 scrips selected from the Next50 index, and Portfolio 3 represents 34 scrips selected from Small Cap index. After creating the portfolios, Each scrip under each portfolio will be invested with Rs.1,00,000, each scrip in each portfolio will be given equal weightage so the total investment will be Rs.29,00,000, Rs.30,00,000 and Rs.34,00,000, under Portfolio 1, 2 and 3 respectively. To prove the factor that the returns of the created portfolio has beaten the index returns the price data of all the scrips for the past 10 years were taken and the returns were computed for the portfolio year on year and from 2008 to 2018. Keywords: Index Returns, Returns of Portfolio, Equal Weight Age Index Method

<p>This study aimed to analyze the investment portfolio in the property sector stocks listed in JII using the Sharpe Index, Treynor Index and Jensen Index. Research carried out by using a different test is based on data about the performance of the portfolio during the period of 2010-2014. Based on the data processing obtained F value Calculate for the return of the portfolio in a row that the BSDE amounted to 23 904, CTRA amounted to 21,250, LPKR amounted to 44 981, and SMRA amounted to 38 729, then to see the F Calculate there, the conclusion that F count&gt; F table is on BSDE 23 904&gt; 3.885294, at CTRA 21,250&gt; 3.885294, on LPKR amounted to 44 981&gt; 3.885294, and the SMRA 38 729&gt; 3.885294, and a significance level of &lt;0.05 then the conclusion is not the differences significant return between BSDE, CTRA, LPKR, and SMRA approach Sharpe Index, Treynor Index and Jensen Index. While in terms of performance, there are differences in the performance of the portfolio using Sharpe Index, Treynor Index and Jensen Index.</p>

Purpose The purpose of the paper is to advance a framework that can assess and analyze the value of patent portfolios. On this purpose, the framework develops a conceptual and comprehensive index, the patent portfolio value index (PPVI), to assess the patent innovation level and suggest economic-strategic guidelines. Design/methodology/approach The authors have designed and applied a framework that synthesizes into a single index the results of a multiple criteria approach, based on information derived from quantitative objective data (claims, citations, and market coverage), information related to qualitative determinants (strategic positioning and economic importance), and information derived from decision makers’ perceptions and judgments. Findings The authors have applied the PPVI to the 3,532 patent portfolio documents in an Italian worldwide player in aerospace and defense market. The combined analysis, provided by the PPVI and a qualitative synoptic representation, has made it possible to understand the strategic positioning and alignment of patents with the core business of the company. The results of the analysis have provided managers with the necessary suggestions regarding action items to be performed: to reinforce, license, try to dismiss, or sell some of the examined patents of the portfolios. Practical implications The PPVI supplies a quick procedure to ascertain the profitability of patents and accounts for the value of a patent portfolio from an internal business perspective. Originality/value As it is built and defined, the PPVI shows elements of novelty compared to the other indexes existing in the literature, in that it follows a multiple criteria approach by merging quantitative and qualitative information.

Includes bibliographical references (leaves 130-130).
In this dissertation we review the Sharpe Index Model and an innovation on this model introduced by Hossain, Troskie and Guo (2005b). These models are extended to the multi index framework. We then empirically investigate the impact of the models on portfolio creation over an extensive data set. Next we extend these models by modelling the regression residuals as ARMA and GARCH(l, 1) processes and investigate the effect on the resulting portfolios. We then introduce the topic of bounded influence regression and apply it to financial data by down weighting extreme returns prior to regression. A new weighting function is introduced in this dissertation and the effects on the efficient frontiers and resulting market portfolios for the chosen set of shares are investigated.

Esta tese tem foco no tema de otimização de carteiras de investimento modeladas para estratégia de investimento de index tracking. O conteúdo final é composto por três artigos. O primeiro artigo é intitulado “Index Tracking with Controlled Number of Assets Using a Hybrid Heuristic Combining Genetic Algorithm and Non-linear Programming”, e foi aceito para publicação na revista Annals of Operations Research. O segundo artigo é “Index Tracking and Enhanced Indexing using Cointegration and Correlation with Endogenous Portfolio Selection”, e foi aceito para publicação na revista Quarterly Review of Economics and Finance. Por fim, o terceiro artivo é “Investigating the Use of Statistical Process Control Charts for Index Tracking Portfolios”, o qual já foi submetido e está atualmente em processo de revisão. No primeiro artigo, discutimos a estratégia de investimento de index tracking usando programação matemática. Primeiro, usamos uma formulação de programação não linear para o problema de index tracking, considerando um número limitado de ações. Devido à dificuldade de solução do problema em um intervalo de tempo razoável por pacotes matemáticos comerciais, aplicamos uma abordagem de solução híbrida, combinando programação matemática e algoritmo genético. Com a aplicação de testes, demonstramos a eficiência da abordagem proposta comparando os resultados com soluções ótimas, com métodos previamente desenvolvidos, e com dados reais de índices de mercado. Os experimentos computacionais focam no Ibovespa (o mais popular índice do mercado brasileiro), e também apresentamos resultados para mercados consolidados tais quais S&P 100 (Estados Unidos), FTSE 100 (Reino Unido) and DAX (Alemanha). A estrutura proposta apresenta sua abilidade para obter ótimos resultados (resultados com gap em relação às soluções ótimas menores que 5% em 8 minutos de tempo de processamento) até mesmo para índices de mercado com alta volatilidade em um mercado em desenvolvimento. No segundo artigo, a atenção é voltada para a análise de dois métodos alternativos entre si para solução do problema de otimização de index tracking. Esse artigo investiga o desempenho “fora da amostra” dos métodos de correlação e cointegração para as estratégias de index tracking (IT) e enhanced indexing (EIT) aplicadas aos dados de mercado Brasileiro e Norte-americano. Nosso objetivo é comparar ambos os métodos na medida em que exploramos fortemente a cointegração em relação a estudos prévios: nós transformamos a seleção do portfólio endógena ao problema de otimização nessa abordagem. Os testes foram executados utilizando dados de 2004 a 2014 com amostras de 57 ações para dados brasileiros, e 96 ações para dados dos Estados Unidos; carteiras foram construídas usando combinações de no máximo 10 ações. Apesar da realização de testes extensivos, os resultados gerais demonstraram desempenho similar para ambos os métodos. Para IT no mercado brasileiro, foi verificado um trade-off entre melhor erro de tracking e maior turnover com cointegração (com resultados opostos para correlação), sendo que este mesmo padrão não foi encontrado para dados norte-americanos. Os resultados para EIT também não apresentação claro favorecimento para cointegração ou correlação. Por fim, o terceiro artigo é dedicado à discussão a respeito do uso de processo estatístico de gráficos de controle para regulação de carteiras de index tracking. Nesse artigo, nosso objetivo é introduzir uma abordagem baseada em gráficos de controle (SPC) para monitorar o processo de rebalanceamento de carteiras de index tracking. O método de SPC é derivado da Estatística e da Engenharia, como ferramenta para controle de processos de produção. Para cumprir os objetivos, aplicamos gráficos de controle EWMA (do inglês, exponentially weighted moving average) para monitorar carteiras de IT baseadas no uso combinado de dois gráficos de controle: desempenho de carteiras em termos de erro de tracking e em termos de volatilidade. Assim, visamos tornar endógeno o controle do processo de rebalanceamento das carteiras baseado em seu desempenho e em suas condições de risco ao longo do tempo. Testes computacionais foram realizados para avaliar a abordagem desenvolvida em comparação com a estratégia tradicional de rebalanceamento (que consiste no uso de janelas fixas de tempo para atualização das carteiras), usando dados dos mercados brasileiro e norte-americano de 2005 a 2014. Os métodos de cointegração e correlação foram aplicados para otimização das carteiras. Os resultados demonstraram que a abordagem com SPC pode ser uma alternativa viável para o processo de rebalanceamento de carteiras.

Diversification is one of the three most prominent elements of portfolio management with risk and return being the other two. In addition, diversification is a core objective for combining assets and is a central tenet of portfolio construction. It is also widely known that diversification is concerned with the number of unrelated sources of return and in essence the aim of diversification is to eliminate unsystematic risk from an investment portfolio while systematic risk will remain as it can not be diversified away. This study focuses on the concept of diversification in an investment portfolio setting, while specifically investigating a relatively "new" diversification measure, the Portfolio Diversification Index (PDI). The objectives of this study are twofold. First, establishing whether or not the PDI is a good diversification measure compared to the conventional/traditional and widely used residual variance method. The traditional method of measuring diversification remains inexact as this method measures portfolio diversification relative to a market index. When the market index itself is, however, poorly or not appropriately diversified it becomes problematic as the diversification measurement of the residual variance method is influenced. The PDI is a diversification measurement concept which is essentially free from the influences of the overall market index. This relatively "new" measure of diversification, the PDI, is based on the number of independent factors observed in a portfolio. These independent factors are quantified using Principal Components Analysis (PCA). In ascertaining the first objective the PDI battles "head-to-head" against the residual variance method of diversification by comparing fund ranking results of five South African unit trusts. This method of testing is used as no suitable statistical method exists. The fund ranking results of the two diversification measures are compared to a number of risk performance measures, including the Sharpe- and Sortino ratios. Extensive use is also made of the Omega ratio in this study as the Omega emerges as the dominant risk performance measure. The second objective of this study is to determine whether the PDI can be used as a tool by fund managers to assist in constructing funds (or changing the composition of existing fund) to reduce (or minimise) portfolio risk without a concomitant reduction in portfolio return. The PDI is used to determine the most independent factors of a South African unit trust where after' this fund is optimised, using the information of the independent factors, in order to reduce the risk of this fund. The Omega ratio is used to evaluate the results of the PDI while the marginal portfolio diversification concept is also investigated. A thorough literature study also presents the most relevant and important concepts and topics of the theory, management and construction of portfolios. Throughout the literature study the concept of diversification along with the topics most relevant to diversification are extensively focused and elaborated on. The method of testing used not only confirms that the PDI is a good diversification measure compared to the residual variance method, but that the PDI can also be used as a tool when constructing (or changing the composition of an existing portfolio) in order to reduce the portfolio risk without a concomitant reduction in portfolio return.
Thesis (M.Com. (Risk Management))--North-West University, Potchefstroom Campus, 2009.

Extensive empirical evidence shows that passively managed index-tracking mutual funds and exchange-traded funds (ETFs) outperform actively managed portfolios. On the other hand, there are abundant findings that stocks admitted to an index outperform those deleted from the index. This study tests an issue that has been largely ignored in academic studies but is highly related to the above two seemingly disparate areas of researches. The paper examines the long-term performance of non-index individual stocks and stock portfolios relative to the index. The study proposes that the inclusion and maintenance criteria for index component stocks are long-term performance indicators. Therefore, an index can be regarded as a passively managed and highly diversified portfolio of expected outperformers. Using a complete set of H-shares listed on HKEx for the period 2001 to 2017, the study finds that 44.25% (55.75%) of individual stocks have positive alphas (negative alphas) relative to the index. The average alpha for the family of all non-index stock is negative but statistically insignificant, i.e., 77 positive alphas and 97 negative alphas. Most alphas are statistically insignificant, but only 5 are positive, and 2 are negative at 5% significance level. From the risk and return perspective, the index dominates two-third of the non-index H-shares. Regression analyses show that H-index outperforms non-index H-shares in general and the market capitalization and turnover ratio play an important role in determining the long-term performance of H-shares, which are the major factors for the admission and maintenance criteria of H-index. The findings strongly support our conjecture that the index admission and maintenance criteria are the quality assurance of individual constituent stocks of an index. The paper provides incremental evidence on the widely documented result that index trackers outperform actively managed portfolios. Nevertheless, the study extends the recent literature on the long-term performance of stocks that are admitted to (or excluded from) an index. The findings of the study have significant implications for securities markets participants, including index providers and ETF issuers

There has been a lack of a transparent index to compare electricity portfolios against for many years. Most industrial firms hedge the risks for their electricity needs by buying forward contracts which guarantee the price of a certain amount of power for a year or part of a year. The problem is to know if the company has made good deals since the available comparisons are average spot prices. In this thesis the objectives are to construct a relevant index and then evaluate possible portfolios against this index, giving risk measures such as Value-at-Risk and Expected Shortfall. The resulting index buys a small part of the needed power amount to each trading day’s closing price of the forward contracts traded by the portfolio. Thus, the index buys the volume wanted power amount divided by number of trading days of the used forward contracts each trading day the contracts are available. Another objective is to suggest an optimal trading policy that minimise the expected portfolio cost based on historical price data. This is evaluated by constrained optimisation algorithms. Suggestions for the optimal hedge volumes and when to buy the forward contracts are given based on the historical prices. This reveals how expensive different forward contracts are relative to spot prices for the respective period.
Det har länge saknats ett transparent index att jämföra elhandelsportföljer med. De flesta industriföretag säkrar priser för sina elektricitetsbehov genom att köpa terminskontrakt som garanterar ett visst pris för ett år eller för delar av år. Detta görs för att inte utsättas för risker med höga spotpriser. Problemet blir för företaget att veta om det har gjort bra affärer eftersom det saknas relevanta jämförelser, till exempel är det missvisande att jämföra mot spotpriser vilka främst påverkas av väderprognoser. Målen med denna uppsats är att skapa ett relevant index, för att sedan jämföra elhandelsportföljer med index genom att ge riskmått som Value-at-Risk och Expected Shortfall. Indexportföljen handlar en liten och lika stor volym till varje handelsdags stängningspris för respektive terminskontrakt. Alltså, index handlar bestämd effekt delat med antal handelsdagar i varje använt terminskontrakt under varje handelsdag som respektive terminskontrakt finns tillgängligt. Ett ytterligare mål med denna studie är att utvärdera handelsstrategier för dessa kontrakt för att föreslå en optimal strategi som minimerar den förväntade portföljkostnaden utifrån historiska priser. Detta görs genom optimeringsalgoritmer. Förslag till optimala volymer som säkras med terminskontrakt och när kontrakten ska köpas ges utifrån historiska priser. Detta anger hur dyra terminskontrakten är relativt spotpriserna för respektive period.

The focus of this thesis is on index tracking that aims to replicate the movements of an index of a specific financial market. It is a form of passive portfolio (fund) management that attempts to mirror the performance of a specific index and generate returns that are equal to those of the index, but without purchasing all of the stocks that make up the index. Additionally, we consider the problem of out-performing the index - Enhanced Indexation. It attempts to generate modest excess returns compared to the index. Enhanced indexation is related to index tracking in that it is a relative return strategy. One seeks a portfolio that will achieve more than the return given by the index (excess return). In the first approach, we propose two models for the objective function associated with choice of a tracking portfolio, namely; minimise the maximum absolute difference between the tracking portfolio return and index return and minimise the average of the absolute differences between tracking portfolio return and index return. We illustrate and investigate the performance of our models from two perspectives; namely, under the exclusion and inclusion of fixed and variable costs associated with buying or selling each stock. The second approach studied is that of using Quantile regression for both index tracking and enhanced indexation. We present a mixed-integer linear programming of these problems based on quantile regression. The third approach considered is on quantifying the level of uncertainty associated with the portfolio selected. The quantification of uncertainty is of importance as this provides investors with an indication of the degree of risk that can be expected as a result of holding the selected portfolio over the holding period. Here a bootstrap approach is employed to quantify the uncertainty of the portfolio selected from our quantile regression model.

The aim of this study is to analyze the relationship between competition and loan portfolio quality in the Peruvian microfinance sector. To make this analysis the market is segmented into three groups of microfinance microfinance institutions IMFs), considering the average volume of its loans. So that, in the first group (large IMFs) entities of higher average volume of loans are located, in the second group (medium IMFs) entities with an average volume of loans are located and finally, in the third group (small IMFs) are entities with lower average loan volumes.This segmentation reflects the heterogeneity of size for loans between IMFs. The results show the Lerner index decreasing over time, for both the group of large IMFs and the group of small IMFs, showing a decrease of market power and increased competition in these two groups of entities. In the group of medium IMFs behavior Lerner index shows a growing trend in the last months of the period studied thus indicating a greater market power and less competition in this group of microfinance operators. On the other hand, an inverse relationship between the Lerner index over delinquency rate in the three groups of IMFs is found, implying that increased competition in the Peruvian microfinance market has deteriorated the quality of loan portfolio the period analyzed. This result is obtained by controlling the behavior of other important variables to explain the delinquency rate such as the business cycle, credit expansion, efficiency and profitability of institutions, and the effect of the international financial crisis of 2008.
El objetivo de este estudio es analizar la relación que existe entre la competencia y la calidad de cartera en el sector microfinanciero peruano en el periodo 2003-2015. Como indicador de competencia se emplea el poder de mercado estimado por el Índice de Lerner y como indicador de calidad de cartera se utiliza la tasa de morosidad. El análisis segmenta el mercado microfinanciero en tres grupos de instituciones microfinancieras (IMF), considerando el volumen promedio de sus colocaciones, de manera que, en el primer grupo se ubican las entidades con un mayor volumen promedio de colocaciones, en el segundo grupo se encuentran las entidades con un volumenmedio de colocaciones y finalmente, en el tercer grupo se ubican las entidades con menor volumen promedio de colocaciones. Esta segmentación refleja la heterogeneidad de tamaño que existe entre estas entidades. Los resultados muestran un Índice de Lerner decreciente, para el primer y el tercer grupo, evidenciando una mayor competencia. En el segundo grupo, el comportamientodel Índice de Lerner muestra una tendencia creciente en los últimos meses del periodo estudiado, reflejando una menor competencia. Por otro lado, se evidencia una relación inversa entre el Índice de Lerner y la morosidad en los tres grupos, lo que implica que el aumento de competencia en el mercado microfinanciero ha generado un deterioro en la calidad de cartera crediticia. Esteresultado se obtiene controlando el comportamiento de otras variables como son: el ciclo económico, la expansión de los créditos, la eficiencia y la rentabilidad de las instituciones, además del efecto de la crisis financiera internacional del 2008.

Thesis (MBA)--Stellenbosch University, 2012.
This research report is conducted in the field of portfolio optimization. Regarding the existing literature this research paper is set in context of the academic discussion triggered by DeMiguel, Garlappi and Uppal (2009) concerning the perfomance of the naïve investment strategy in comparison to optimized portfolios and extended by the indexing approach. Therefore, it investigates on the question whether the naïve investment strategies outperform the strategy of index investing as well as the minimum and mean variance portfolios in the investment horizon of the EURO STOXX 50 in the timeframe from 03.01.2003 to 02.07.2010. Outperforming is defined via the following measurements, namely return, variance, Sharpe ratio, value at risk, certainty equivalent return and turnover rate. In addition, modifications of the investment strategies are applied such as the rebalancing of the naïve investment strategy and different scenarios are included such as the consideration of transaction costs and costs of index investing as well as the usage of two different data frequencies in order to conduct the robustness test. The two main measurements Sharpe ratio and value at risk are verified regarding their explanatory power by the usage of the robust inference method for the bootstrapping of the Sharpe ratio and the Jarque-Bera test for the normal distribution required for the value at risk measurement. The research in this paper is conducted through MATLAB which is a numerical computing environment and fourth-generation programming language. The aggregated outcome of this research paper in regard to the respective timeframe and investment horizon is that in the main scenario which is based on weekly input data the minimum variance investment strategy outperforms all other investment strategies consistently in all measurements except for the turnover which is compensated by consistent results in case of inclusion of transaction costs and costs of index investing. Furthermore, the rebalanced naïve investment strategy and the index investing strategy share the second place with a slight advantage in the overall perspective for the rebalanced naïve investment strategy as it dominates the index investing strategy in regard of return, Sharpe ratio and certainty equivalent return while it is only outranked by the index investing strategy in the risk related measurements variance and value at risk. All other investment strategies underperform their peers.

Dieses Papier untersucht die Sinnhaftigkeit von Fine Wine als Alternatives Investment unter besonderer Berücksichtigung der Kosten eines Fine Wine Investments. Ist Fine Wine zur weiteren Diversifizierung und damit zur Verbesserung des Risikio-Return-Profils von global in Aktien und Anleihen investierenden Portfolios geeignet? Die Analyse erfolgt in einem ersten Schritt auf Indexbasis und in einem zweiten Schritt auf Basis von realen Investitions-möglichkeiten. Die Referenzwährungen sind der US-Dollar und der Euro. Für die Indexbetrachtung werden auf der Aktienseite der MSCI-World-Index und für die Anleihen der JPM-World-Government-Bond-Index verwendet. Bei den Daten für die Investition in Fine Wine liegt der Fokus auf dem Liv-ex-50-Index der im Jahre 1999 gegründeten Londoner Weinbörse Liv-ex. Bei der realen Investition werden für die Datenanalyse bei Aktien und Anleihen Indexfonds verwendet. Da es für die Investition in Fine Wine keinen Indexfonds gibt, wird der Liv-ex-50-Index inklusive aller Kosten einer realen Investition berechnet. Es werden verschiedene Portfoliozusammensetzungen verglichen. Zum einen wird ein Portfolio aus 50% Aktien und 50% Anleihen einem Portfolio aus 45% Aktien, 45% Anleihen und 10% Fine Wine gegenübergestellt. Zum an-deren wird ein Portfolio aus 25% Aktien und 75% Anleihen gegen ein Portfolio aus 20% Aktien, 70% Anleihen und 10% Fine Wine gemessen. Als Vergleichsmaßstab werden die annualisierte Rendite, die Standardabweichung sowie das Sharpe-Ratio der jeweiligen Portfolios berechnet. Die Ergebnisse für die genannten Zeiträume sind ernüchternd. Die Beimischung von Fine Wine führt auf Indexebene lediglich zu einer leichten Verbesserung der annualisierten Rendite aber zu einer markanten Erhöhung des Risi-kos. Bei der Betrachtung der realen Investition kommen die hohen Kosten eines Investments in Fine Wine zum Tragen. Die annualisierte Rendite ist im Vergleich zu den Portfolios ohne Beimischung von Fine Wine niedriger bei gleichzeitig höheren Risikowerten. Lediglich bei der Betrachtung auf Indexbasis in Euro kann bei einem Portfolio eine leichte Verbesserung der Sharpe-Ratio verzeichnet werden. Bei der Betrachtung nach Kosten führt in allen Fällen die Beimischung von Fine Wine zu einer Verschlechterung der Sharpe-Ratios.

The site of Artiom Vasilyevich Gaponenko (https://www.gaponenko.info/) is intended to give a holistic view of the personality and the results of the scientific and pedagogical activity of the author. The site contains an autobiography, a list of scientific and pedagogical works, a link to the developed educational system MLESYS (https://mlesys.ru/), as well as information about advanced training, professional retraining and participation of A.V. Gaponenko. in competitions. At the bottom of the site page there is a personal Science Index counter (RSCI), there is a link to the author's portfolio.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.