Journal of Risk and Financial Management

16 pages, 312 KiB

Open AccessArticle

Dynamics of Funding Liquidity and Risk-Taking: Evidence from Commercial Banks

by Faisal Abbas, Shoaib Ali, Imran Yousaf and Wing-Keung Wong

J. Risk Financial Manag. 2021, 14(6), 281; https://doi.org/10.3390/jrfm14060281 - 21 Jun 2021

Cited by 7 | Viewed by 4320

The purpose of this study is to investigate the impact of funding liquidity risk on the banks’ risk-taking behavior. To test the hypotheses, we apply the two-step system GMM technique on US commercial banks data from 2002 to 2018. We find that funding [...] Read more.

The purpose of this study is to investigate the impact of funding liquidity risk on the banks’ risk-taking behavior. To test the hypotheses, we apply the two-step system GMM technique on US commercial banks data from 2002 to 2018. We find that funding liquidity increases the banks’ risk-taking of US commercial banks. Furthermore, banks with higher deposits are less likely to face a funding shortage, and bank managers’ aggressive risk-taking activity is less likely to be monitored. Our findings infer that increases in bank funding liquidity increase both risk-weighted assets and liquidity creation, and deposit insurance creates a moral risk issue for banks taking excessive risks in response to deposit rises. The relationship between funding liquidity and the banks’ risk-taking varies with their capitalization and market conditions; the impact of funding liquidity on risk-taking is pronounced for well-capitalized banks and the Global Financial Crisis 2007. Our tests are robust for the usage of alternate proxy of funding liquidity and by controlling economic conditions. The findings of this study have implications for regulators to develop guidelines for the level of liquidity and risk-taking of commercial banks. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

11 pages, 777 KiB

Open AccessArticle

Legal Aspects of “White-Label” Banking in the European, Polish and German Law

by Michał Grabowski

J. Risk Financial Manag. 2021, 14(6), 280; https://doi.org/10.3390/jrfm14060280 - 21 Jun 2021

Cited by 3 | Viewed by 6251

Abstract

Offering “White-label” products and services is a well-developed business sector in the European market. At present, this market concept is also increasingly being applied to financial services, as part of a bank–FinTech cooperation. A question arises, however, as to the proper place for [...] Read more.

Offering “White-label” products and services is a well-developed business sector in the European market. At present, this market concept is also increasingly being applied to financial services, as part of a bank–FinTech cooperation. A question arises, however, as to the proper place for such models within the complex system of European financial law. This article reviews the “White-label” frameworks currently operating in the banking sector and the corresponding regulations of the European Union law, based on their application in German and Polish legal system. Purposive, grammatical, and comparative law methods were used to study the content of legal acts. As a result, the principles of two primary models of White-label banking were established. The first model is based on a bank acting only as an outsourcing service provider. In the second model, a bank also operates on the basis of a license it was granted. Both models have a common legal origin in European Union law, but local variations exist depending on the legal system of a given Member State. Full article

(This article belongs to the Special Issue FinTech and the Future of Finance)

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26 pages, 361 KiB

Open AccessArticle

The Effect of Bank Levy Introduction on Commercial Banks in Europe

by Karolina Puławska

J. Risk Financial Manag. 2021, 14(6), 279; https://doi.org/10.3390/jrfm14060279 - 21 Jun 2021

Cited by 4 | Viewed by 2959

Abstract

We evaluated the effects of the bank levy (BL) on the profitability of commercial banks and the balance sheet reconstruction, and the shifting of banks’ activities into countries with lower BL rates after BL introduction. Moreover, we investigated the effects of the Basel [...] Read more.

We evaluated the effects of the bank levy (BL) on the profitability of commercial banks and the balance sheet reconstruction, and the shifting of banks’ activities into countries with lower BL rates after BL introduction. Moreover, we investigated the effects of the Basel III and Single Resolution Fund (SRF) introduction on the amount of BL payment. We compared two different BL designs: the Hungarian and the German versions. The results clearly pointed to the negative effect of BL introduction on the ROA of larger Hungarian commercial banks and of smaller commercial banks in Germany. Moreover, the results showed that the introduction of the BL did not influence loan activity in Hungary. However, it decreased the value of the loans from German commercial banks. The results showed that commercial banks in Hungary prefer to restructure their balance or shift assets among different locations or entities to decrease the bank levy. The research findings also showed that Hungarian commercial banks decreased the value of paid BL after the Basel III introduction. On the other hand, the results also showed that the value of paid BL in German commercial banks increased after the Basel III and SRF introduction, especially in larger banks. Full article

(This article belongs to the Special Issue Banking Regulation and Capital Framework)

19 pages, 1421 KiB

Open AccessArticle

Value Maximizing Decisions in the Real Estate Market: Real Options Valuation Approach

by Andrejs Čirjevskis

J. Risk Financial Manag. 2021, 14(6), 278; https://doi.org/10.3390/jrfm14060278 - 19 Jun 2021

Cited by 9 | Viewed by 5719

Abstract

The real estate market of EU countries has undergone a severe global financial crisis 2008–2009, recovered successfully later, and now experiencing significant uncertainty due to the COVID-19 pandemic event. Significant volatility of the real estate business is once again evident, just as it [...] Read more.

The real estate market of EU countries has undergone a severe global financial crisis 2008–2009, recovered successfully later, and now experiencing significant uncertainty due to the COVID-19 pandemic event. Significant volatility of the real estate business is once again evident, just as it was following the global financial crisis. The paper aims to provide a case study of a real estate project by giving insight into the Latvian real estate project that had been experiencing similar economic uncertainty, to demonstrate hybrid real options valuation (ROV) method to adapt real estate investments to changing circumstances and to develop the decision-making solution to similar EU real estate problems during the pandemic. The paper provides the “step-by-step” ROV application’s methodology in real estate development projects. The presented methodology is a powerful managerial risk management tool for the executives of similar real estate development projects in the EU countries struggling to make investment decisions in the pandemic and post-pandemic period. Since any estimation includes assumptions, ROV results should be interpreted and perceived as approximations only. The future works can provide robust ROV analyses and interpretations regarding the demand for real estate, showing quantitatively how competition can impact strategic investment decisions. Full article

(This article belongs to the Special Issue Real Estate Economics and Finance)

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22 pages, 4894 KiB

Open AccessArticle

Investigating the Causal Linkages among Inflation, Interest Rate, and Economic Growth in Pakistan under the Influence of COVID-19 Pandemic: A Wavelet Transformation Approach

by Muhammad Azmat Hayat, Huma Ghulam, Maryam Batool, Muhammad Zahid Naeem, Abdullah Ejaz, Cristi Spulbar and Ramona Birau

J. Risk Financial Manag. 2021, 14(6), 277; https://doi.org/10.3390/jrfm14060277 - 18 Jun 2021

Cited by 22 | Viewed by 8952

Abstract

This research is the earliest attempt to understand the impact of inflation and the interest rate on output growth in the context of Pakistan using the wavelet transformation approach. For this study, we used monthly data on inflation, the interest rate, and industrial [...] Read more.

This research is the earliest attempt to understand the impact of inflation and the interest rate on output growth in the context of Pakistan using the wavelet transformation approach. For this study, we used monthly data on inflation, the interest rate, and industrial production from January 1991 to May 2020. The COVID-19 pandemic has affected economies around the world, especially in view of the measures taken by governmental authorities regarding enforced lockdowns and social distancing. Traditional studies empirically explored the relationship between these important macroeconomic variables only for the short run and long run. Firstly, we employed the autoregressive distributed lag (ARDL) cointegration test and two causality tests (Granger causality and Toda–Yamamoto) to check the cointegration properties and causal relationship among these variables, respectively. After confirming the long-run causality from the ARDL bound test, we decomposed the time series of growth, inflation, and the interest rate into different time scales using wavelet analysis which allows us to study the relationship among variables for the very short run, medium run, long run, and very long run. The continuous wavelet transform (CWT), the cross-wavelet transform (XWT), cross-wavelet coherence (WTC), and multi-scale Granger causality tests were used to investigate the co-movement and nature of the causality between inflation and growth and the interest rate and growth. The results of the wavelet and multi-scale Granger causality tests show that the causal relationship between these variables is not the same across all time horizons; rather, it is unidirectional in the short-run and medium-run but bi-directional in the long-run. Therefore, this study suggests that the central bank should try to maintain inflation and the interest rate at a low level in the short run and medium run instead of putting too much pressure on these variables in the long-run. Full article

(This article belongs to the Special Issue The Impact of COVID-19 on Economy, Energy, and Environment)

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13 pages, 765 KiB

Open AccessArticle

Due Diligence and Risk Alleviation in Innovative Ventures—An Alternative Investment Model from Islamic Finance

by Shahzadah Nayyar Jehan

J. Risk Financial Manag. 2021, 14(6), 276; https://doi.org/10.3390/jrfm14060276 - 18 Jun 2021

Viewed by 2452

Abstract

Risk is a big concern for anyone contemplating investing in new, especially innovative ventures. However, if successful, the returns can be extraordinary, serving as an impetus for many venture capitalists to provide greater funding. Still, many new ventures never see the end of [...] Read more.

Risk is a big concern for anyone contemplating investing in new, especially innovative ventures. However, if successful, the returns can be extraordinary, serving as an impetus for many venture capitalists to provide greater funding. Still, many new ventures never see the end of the tunnel, and success stories are scant. The venture capital market is growing, yet many investors feel on edge when investing in new and innovative ventures. This paper is based on field survey data to evaluate the importance of risk and return components of an alternative venture investment approach called diminishing Musharakah (DM). DM has roots in Islamic modes of investment that are more suited for ventures with a higher risk profile. This paper focuses on four key ingredients, i.e., due diligence (DD), flexibility (Flex), moral hazard reduction (MHR), and risk reduction (RR) inherent in this mode of investment. All these components contribute towards the end goal of any investment, i.e., value enhancement (VE). DM is based on investment modes approved by Islamic law, called Shariah, and Islamic jurisprudence, called Fiqh. The analysis and the paper’s results show that the proposed model is perceived as flexible enough to accommodate a wide variety of investment possibilities. The model carries the potential to encourage venture investment through various stages of growth of a venture. The findings are based on original perception data through a field survey across a broad spectrum of banking users who were interested in alternative and Islamic modes of investment. Findings and analysis of the survey data strongly support our connotations. We propose that the Shariah-based investment model presented in this paper will bring a vast new market into play, i.e., the Islamic money market, thus providing greater venture financing possibilities. As a result, we hope that the number of successful venture investment projects will significantly increase over time as we put the proposed investment model into use. Full article

(This article belongs to the Special Issue Islamic Finance II)

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19 pages, 7887 KiB

Open AccessArticle

Time-Varying Nexus between Investor Sentiment and Cryptocurrency Market: New Insights from a Wavelet Coherence Framework

by Hashem A. AlNemer, Besma Hkiri and Muhammed Asif Khan

J. Risk Financial Manag. 2021, 14(6), 275; https://doi.org/10.3390/jrfm14060275 - 18 Jun 2021

Cited by 11 | Viewed by 4287

Abstract

This study attempts to investigate the nexus between investor sentiment and cryptocurrencies prices. Our empirical investigation merges bivariate and multivariate wavelet tools to examine the investor sentiment nexus to inter-cryptocurrencies prices. The study outcomes show that the Sentix Investor Confidence index provides significant [...] Read more.

This study attempts to investigate the nexus between investor sentiment and cryptocurrencies prices. Our empirical investigation merges bivariate and multivariate wavelet tools to examine the investor sentiment nexus to inter-cryptocurrencies prices. The study outcomes show that the Sentix Investor Confidence index provides significant information in explaining long-term changes in Bitcoin and Litecoin prices. Moreover, the findings generated from the multiple wavelet coherence illustrate the simultaneous contribution of cryptocurrencies and the Sentix Investor Confidence index in explaining the Bitcoin index movement across frequencies and over horizons, especially during bubble burst periods. The study also suggests a time-dependent relationship of Bitcoin prices with alternative cryptocurrencies and the Sentix Investor Confidence index, mostly pronounced during the Bitcoin bubble. We discuss our results using GSV-based investor sentiment. Our findings remain robust and confirm the strong predictive power of investor sentiment in cryptocurrencies price movements over time and across scales. Full article

(This article belongs to the Special Issue Wavelet Applications in Finance)

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17 pages, 417 KiB

Open AccessArticle

Price Discovery and Learning during the German 5G Auction

by Thomas Dimpfl and Alexander Reining

J. Risk Financial Manag. 2021, 14(6), 274; https://doi.org/10.3390/jrfm14060274 - 18 Jun 2021

Cited by 1 | Viewed by 2960

Abstract

The auctioning of frequency has to comply with a multitude of requirements in order to guarantee a transparent and efficient process. The German Federal Network Agency (Bundesnetzagentur) has opted for a design that provides participants with information on the highest bid after each [...] Read more.

The auctioning of frequency has to comply with a multitude of requirements in order to guarantee a transparent and efficient process. The German Federal Network Agency (Bundesnetzagentur) has opted for a design that provides participants with information on the highest bid after each round for every band along with information on the bidder. We evaluate the price formation efficiency in this setup to see how fast prices become informative about the final auction value. We find that prices are partially informative right from the beginning which allows us to conclude that participants were able to learn fast from their competitors’ bidding behavior and validates the choice of the agency to implement the auction in the present format. Full article

(This article belongs to the Special Issue Asset Allocation)

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18 pages, 325 KiB

Open AccessArticle

Audit Committee Characteristics and Quality of Financial Information: The Role of the Internal Information Environment and Political Connections

by Omid Mehri Namakavarani, Abbas Ali Daryaei, Davood Askarany and Saeed Askary

J. Risk Financial Manag. 2021, 14(6), 273; https://doi.org/10.3390/jrfm14060273 - 17 Jun 2021

Cited by 18 | Viewed by 5755

Abstract

This study explores the relationship between audit committee characteristics and accounting information quality by justifying the role of the internal information environment and political connections under the theocracy state of Iran with syncretic politics. Using panel data of 558 firms from the Tehran [...] Read more.

This study explores the relationship between audit committee characteristics and accounting information quality by justifying the role of the internal information environment and political connections under the theocracy state of Iran with syncretic politics. Using panel data of 558 firms from the Tehran Stock Exchange (TSE) for 2011–2016, we rank firms using Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) and entropy method for determination of the weight of evaluating indicators. The firms are positioned into high- to low-level political connections, and two proxies for audit committee characteristics are used: independence of audit committee and financial knowledge. Furthermore, three proxies are used for an internal information environment: earning announcement speed, the accuracy of earning forecasting and lack of financial restatements. Our findings show that there is a significant and positive relationship between the audit committee and financial information quality characteristics in high-level political connections, as well as between financial knowledge and financial information quality. Furthermore, the findings of this study suggest that the application of political economy theories could be appropriate for more inquiry. Full article

(This article belongs to the Section Business and Entrepreneurship)

26 pages, 1501 KiB

Open AccessArticle

The Relationship between Risk Perception and Risk Definition and Risk-Addressing Behaviour during the Early COVID-19 Stages

by Simon Grima, Bahattin Hamarat, Ercan Özen, Alessandra Girlando and Rebecca Dalli-Gonzi

J. Risk Financial Manag. 2021, 14(6), 272; https://doi.org/10.3390/jrfm14060272 - 17 Jun 2021

Cited by 18 | Viewed by 6106

Abstract

The purpose of this article is to show the effect of Risk Perception RP and Risk Definition RD on the Risk-Addressing Behaviour RB. To carry out this study secondary data was used from a semi-structured survey administered between February and June 2020, a [...] Read more.

The purpose of this article is to show the effect of Risk Perception RP and Risk Definition RD on the Risk-Addressing Behaviour RB. To carry out this study secondary data was used from a semi-structured survey administered between February and June 2020, a period during the early stages of the COVID-19 pandemic. The study identified six dimensions of risk perception and thus tested six structural models. Risk perception (ξ RP) is defined as an external latent variable in the study. It is also assumed that the risk perception variable may affect the risk definition variable (η RD). The application software SmartPLS was used to analyse data through exploratory factor analysis and partial least squares structural equation modelling on our research model. To achieve Convergent validity of the structural equation model of partial least squares, three criteria were met. In the study, Discriminant Validity was examined using the Fornell-Larcker criterion and Heterotrain-Monotrait Ratio (HTMT) coefficients. Results reveal that there is no direct relationship between the RB and “religion and beliefs”, the “fear level, the experience”, the “peer influences level” and the “openness”. However, we found a positive relationship between the agreement on “knowledge” and on RB and statistically significant relationships between the agreement on the RD and the agreement on the “religion and beliefs”, the “fear level”, the “experience”, the “knowledge”, the “peer influences level” and the RB. Moreover, there is an indirect relationship when controlling for the agreement on the RD between the agreement on the RB and the agreement on the “fear level”, the “experience”, the “knowledge” and the “peer influences level”. However, there is no relationship between the agreement on the “openness” and the agreement on the RB and a statistically significant but moderate relationship between the agreement on the RD and the agreement on the RB. Although, there seems to be abundant research on RP, so far we have found only a few studies on the influencing factors of RP, as effected by RB and RD, especially in distressed times such as during this current pandemic period of COVID-19. This study adds to body of literature and sheds new light on the interaction between RP, RB and RD in a time of distress. It provides important and original information that may be useful for government agencies, businesses, individuals, and the media when setting policies, governance structures, regulations, procedures and determining how to communicate. Full article

(This article belongs to the Special Issue Risk and Financial Management of COVID-19 in Business, Economics and Finance)

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19 pages, 6137 KiB

Open AccessArticle

An Innovative Job Evaluation Approach Using the VIKOR Algorithm

by Hisham Alidrisi

J. Risk Financial Manag. 2021, 14(6), 271; https://doi.org/10.3390/jrfm14060271 - 16 Jun 2021

Cited by 6 | Viewed by 5078

Abstract

Fairness is a key issue that requires the attention of human resource management practitioners. Having a robust methodical procedure for identifying the value of job positions in an enterprise is essential. Consequently, there is a need for a job evaluation system that ensures [...] Read more.

Fairness is a key issue that requires the attention of human resource management practitioners. Having a robust methodical procedure for identifying the value of job positions in an enterprise is essential. Consequently, there is a need for a job evaluation system that ensures fair compensation for each position. A poorly defined job evaluation system creates the dilemma of mismatches between employees and their competencies for their responsibilities and, accordingly, their wages. This results in employee dissatisfaction, which ultimately exacerbates attrition, which is costly because of the loss of talented employees. This paper proposes a VIKOR algorithm as an innovative approach to job evaluations. Engineering-related positions in an international aviation company were analyzed to illustrate the appropriateness of the proposed approach for managing the job evaluation dilemma. The results indicate that 29 job grades would be appropriate for this firm. In addition, the proposed algorithm was found to be superior to other multiple-criteria decision-making techniques at managing the job evaluation dilemma. Full article

(This article belongs to the Special Issue Decision-Making and Uncertainty in Management)

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30 pages, 4700 KiB

Open AccessArticle

Volatility Spillovers among Developed and Developing Countries: The Global Foreign Exchange Markets

by Walid Abass Mohammed

J. Risk Financial Manag. 2021, 14(6), 270; https://doi.org/10.3390/jrfm14060270 - 16 Jun 2021

Cited by 1 | Viewed by 3440

Abstract

In this paper, we investigate the “static and dynamic” return and volatility spillovers’ transmission across developed and developing countries. Quoted against the US dollar, we study twenty-three global currencies over the time period 2005–2016. Focusing on the spillover index methodology, the generalised VAR [...] Read more.

In this paper, we investigate the “static and dynamic” return and volatility spillovers’ transmission across developed and developing countries. Quoted against the US dollar, we study twenty-three global currencies over the time period 2005–2016. Focusing on the spillover index methodology, the generalised VAR framework is employed. Our findings indicate no evidence of bi-directional return and volatility spillovers between developed and developing countries. However, unidirectional volatility spillovers from developed to developing countries are highlighted. Furthermore, our findings document significant bi-directional volatility spillovers within the European region (Eurozone and non-Eurozone currencies) with the British pound sterling (GBP) and the Euro (EUR) as the most significant transmitters of volatility. The findings reiterate the prominence of volatility spillovers to financial regulators. Full article

(This article belongs to the Special Issue Correlations and Comovements in Financial Markets)

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17 pages, 808 KiB

Open AccessArticle

Construction Cash Flow Risk Index

by Hasan Mahmoud, Vian Ahmed and Salwa Beheiry

J. Risk Financial Manag. 2021, 14(6), 269; https://doi.org/10.3390/jrfm14060269 - 13 Jun 2021

Cited by 8 | Viewed by 4307

Abstract

As investment increases in capital projects, financial risks increase, and cash flow prediction and control become more paramount. Higher risks could hinder project performance and increase the chances of failure in multiple aspects of a project. While there are models that aim to [...] Read more.

As investment increases in capital projects, financial risks increase, and cash flow prediction and control become more paramount. Higher risks could hinder project performance and increase the chances of failure in multiple aspects of a project. While there are models that aim to assess and forecast risks in the construction industry, none present a technique to include the impact of risks on a project’s cash flow. Therefore, cash flow forecasts tend to exceed the actual cash flow of a project due to inaccurate risk assessment. Thus, this paper presents the Cash Flow Risk Index (CFRI) development process quantifying the impact of risks on a project’s cash flow from an owner’s perspective. To that end, the study explored the literature to identify the risk factors that might impact a construction projects’ cash flow and uncovered 44 factors. The study also validated and consolidated these factors to build a CFRI via a Delphi exercise, which reduced the factors from 44 to 36. In further iterations, the 36 factors were also shared with 32 construction industry professionals to rate their relative importance on a five-point Likert scale, from which relative importance index and weights were obtained. As a result, the CFRI was developed to measure the impact of different risk factors on a typical construction project’s cash flow. Full article

(This article belongs to the Section Risk)

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20 pages, 848 KiB

Open AccessReview

Auditor Judgements after Withdrawal of the Materiality Accounting Standard in Australia

by Raul David and Indra Abeysekera

J. Risk Financial Manag. 2021, 14(6), 268; https://doi.org/10.3390/jrfm14060268 - 13 Jun 2021

Cited by 5 | Viewed by 6937

Abstract

The concept of materiality, originating in the accounting domain and applied in the auditing domain, is an essential tool for improving audit quality. A renewed interest in materiality research emerged in Australia after submitting Exposure Draft no. 243 by the Australian Accounting Standards [...] Read more.

The concept of materiality, originating in the accounting domain and applied in the auditing domain, is an essential tool for improving audit quality. A renewed interest in materiality research emerged in Australia after submitting Exposure Draft no. 243 by the Australian Accounting Standards Board (AASB) proposing the withdrawal of AASB 1031 Materiality, which became effective in July 2015. The purpose of this paper is to review the audit literature to examine how the materiality concept is located in the regulatory framework, the standards and guidance that support the application of this concept, and research undertaken using different research methods. As our review reveals significant gaps in recent research on the subject, gaps need to be addressed. The paper concludes by proposing research propositions that fit into the audit triangle for materiality research developed in this paper. Full article

(This article belongs to the Special Issue Advances in International Management Research)

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17 pages, 2928 KiB

Open AccessArticle

Digitization, Epistemic Proximity, and the Education System: Insights from a Bibliometric Analysis

by Ugo Fiore, Adrian Florea, Claudiu Vasile Kifor and Paolo Zanetti

J. Risk Financial Manag. 2021, 14(6), 267; https://doi.org/10.3390/jrfm14060267 - 12 Jun 2021

Cited by 4 | Viewed by 2732

Abstract

Advances in IoT, AI, Cyber-Physical Systems, Computational Intelligence, and Big Data Analytics require organizations and workforce to be able and willing to learn how to interact with digital technology. In organizations, coordination and cooperation between actors with expertise in business and technology is [...] Read more.

Advances in IoT, AI, Cyber-Physical Systems, Computational Intelligence, and Big Data Analytics require organizations and workforce to be able and willing to learn how to interact with digital technology. In organizations, coordination and cooperation between actors with expertise in business and technology is fundamental, but integration is hard without understanding the terminology and problems of the interlocutor. Epistemic proximity becomes prominent, underlining the importance of an education focused on flexibility, willingness to cope with the unknown, and interdisciplinarity. The main goal of this work is to provide a perspective on how the education system is evolving to support organizations in the digitization era through a quantitative analysis of literature. More than 170,000 papers were selected from the Scopus database, matching a wide set of keywords related with innovation, problem solving, and organizational change. Patterns in the co-occurrence of keywords were studied. In addition, similarities and differences in the distribution of relevant themes across disciplinary areas, as well as their evolution since 2000, were analyzed. Academic interest is found to be generally increasing over the years in all disciplines, although considerable fluctuations can be observed. This variation is found to be nonuniform in the macroareas. Full article

(This article belongs to the Collection Business Performance)

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16 pages, 471 KiB

Open AccessArticle

Financial Stability of European Insurance Companies during the COVID-19 Pandemic

by Karolina Puławska

J. Risk Financial Manag. 2021, 14(6), 266; https://doi.org/10.3390/jrfm14060266 - 12 Jun 2021

Cited by 27 | Viewed by 8425

Abstract

The European Insurance and Occupational Pensions Authority suggests that as the coronavirus disease 2019 (COVID-19) pandemic has caused significant disruption to the economy, businesses, and people’s lives, national supervisory authorities should mitigate the pandemic’s impact on the European insurance sector. The functioning of [...] Read more.

The European Insurance and Occupational Pensions Authority suggests that as the coronavirus disease 2019 (COVID-19) pandemic has caused significant disruption to the economy, businesses, and people’s lives, national supervisory authorities should mitigate the pandemic’s impact on the European insurance sector. The functioning of insurance companies is in danger as they must balance a drastic increase in the number of claims with their capital and solvency stability. In this study, we evaluate the effects of the COVID-19 pandemic on insurance companies using European insurance companies’ financial statement data from 2010 to 2020. The results unambiguously demonstrate that the pandemic has negatively affected the functioning of the insurance sector. In particular, the return on assets decreased in German and Italian insurance companies during the pandemic. Furthermore, the solvency ratio decreased in the Belgian, French, and German insurance sectors. Conversely, the Polish insurance sector was unaffected. Moreover, we did not find any effects on the Z-score ratio in our sample. Lastly, the value of receivables owed to Belgian insurance companies increased. Based on this evidence, we argue that European legislators should discuss how to manage the probable financial problems of insurance companies during the COVID-19 pandemic. Full article

(This article belongs to the Special Issue Banking during the COVID-19 Pandemia)

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19 pages, 1302 KiB

Open AccessArticle

Examining Low-Income Single-Mother Families’ Experiences with Family Benefit Packages during and after the Great Recession in the United States

by Yu-Ling Chang and Chi-Fang Wu

J. Risk Financial Manag. 2021, 14(6), 265; https://doi.org/10.3390/jrfm14060265 - 11 Jun 2021

Cited by 3 | Viewed by 4741

Abstract

The recent economic recession triggered by the global pandemic has renewed scholarly interest in the role of social welfare systems in supporting economically vulnerable families when they experience employment instability. This article unpacks the patterns of the cash and in-kind components of the [...] Read more.

The recent economic recession triggered by the global pandemic has renewed scholarly interest in the role of social welfare systems in supporting economically vulnerable families when they experience employment instability. This article unpacks the patterns of the cash and in-kind components of the monthly family benefit packages that US low-income single mothers accessed during and after the Great Recession. We used the 2008 Survey of Income and Program Participation and an innovative analytic procedure involving family benefit package plots, group-based trajectory modeling, and logistic regression modeling. We found that low-income single mothers more often used in-kind basic-needs packages and less often used packages that bundle a cash benefit or a childcare subsidy, regardless of their dynamic employment status. Our findings challenge the effectiveness of the US work-based welfare system in ensuring the economic security of economically vulnerable families and contribute to the policy discussions on unconditional basic income and President Biden’s American Families Plan. Full article

(This article belongs to the Special Issue Household Finance)

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13 pages, 321 KiB

Open AccessArticle

Foreign Direct Investment in GCC Countries: The Essential Influence of Governance and the Adoption of IFRS

by Costas Siriopoulos, Athanasios Tsagkanos, Argyro Svingou and Evangelos Daskalopoulos

J. Risk Financial Manag. 2021, 14(6), 264; https://doi.org/10.3390/jrfm14060264 - 10 Jun 2021

Cited by 22 | Viewed by 4244

Abstract

This paper presents an analysis of the factors affecting foreign direct investments, focusing on governance quality and adoption of International Financial Reporting Standards on countries of the Gulf Cooperation Council, which are a special case of study due to their idiosyncratic characteristics, rich [...] Read more.

This paper presents an analysis of the factors affecting foreign direct investments, focusing on governance quality and adoption of International Financial Reporting Standards on countries of the Gulf Cooperation Council, which are a special case of study due to their idiosyncratic characteristics, rich natural resources and geographical position. Panel data analysis was conducted, implementing three different models (Fixed Effect, Random Effect, and Arellano Bond Dynamic Model). The results show that the adoption of International Financial Reporting Standards is a strong determinant that promotes foreign direct investments. As regards the governance quality, the block of Gulf Cooperation Council countries has fulfilled the minimum level of governance pre-conditions relative to foreign direct investments. In addition, governance indicators associated with law, rules, and corruption are more influential determinants for foreign direct investments. Full article

(This article belongs to the Special Issue Foreign Direct Investment – Under the Sign of Profit or Sustainable Development?)

22 pages, 1075 KiB

Open AccessArticle

A New Measure of Market Inefficiency

by Christopher R. Stephens, Harald A. Benink, José Luís Gordillo and Juan Pablo Pardo-Guerra

J. Risk Financial Manag. 2021, 14(6), 263; https://doi.org/10.3390/jrfm14060263 - 10 Jun 2021

Cited by 1 | Viewed by 3985

Abstract

Financial crises, such as the Great Financial Crisis of 2007–2009 and the COVID-19 Crisis of 2020–2021, lead to high volatility in financial markets and highlight the importance of the debate on the Efficient Markets Hypothesis, a corollary of which is that in an [...] Read more.

Financial crises, such as the Great Financial Crisis of 2007–2009 and the COVID-19 Crisis of 2020–2021, lead to high volatility in financial markets and highlight the importance of the debate on the Efficient Markets Hypothesis, a corollary of which is that in an efficient market it should not be possible to systematically make excess returns. In this paper, we discuss a new empirical measure—Excess Trading Returns—that distinguishes between market and trading returns and that can be used to measure inefficiency. We define an Inefficiency Matrix that can provide a complete, empirical characterization of the inefficiencies inherent in a market. We illustrate its use in the context of empirical data from a pair of model markets, where information asymmetries can be clearly understood, and discuss the challenges of applying it to market data from commercial exchanges. Full article

(This article belongs to the Special Issue European Financial Market Efficiency: Investors' Behaviour, Efficient Market Hypothesis and Behavioural Finance)

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5 pages, 197 KiB

Open AccessBook Review

Book Review “Cultural Finance: A World Map of Risk, Time and Money” by Thorsten Hens, Marc Oliver Rieger, and Mei Wang. Singapore: World Scientific Publishing Co. Pte. Ltd., 2020; ISBN 9789811221958

by Anh Ngoc Quang Huynh and Toan Luu Duc Huynh

J. Risk Financial Manag. 2021, 14(6), 262; https://doi.org/10.3390/jrfm14060262 - 10 Jun 2021

Viewed by 2919

Abstract

This is book review of “Cultural Finance, A World Map of Risk, Time and Money” edited by Thorsten Hens, Marc Oliver Rieger and Mei Wang. This book review’s focus point is on how “Cultural Finance, A World Map of Risk, Time and Money” [...] Read more.

This is book review of “Cultural Finance, A World Map of Risk, Time and Money” edited by Thorsten Hens, Marc Oliver Rieger and Mei Wang. This book review’s focus point is on how “Cultural Finance, A World Map of Risk, Time and Money” develops, based on the book’s content, in the current studies of prospect theory preferences in 53 different countries. The book review starts with a literature review on studied research in “Cultural Finance, A World Map of Risk, Time and Money”, follows with short summaries of each chapter, and finally sums up its practical implication. This book greatly demonstrates the greatest care and thoroughness regarding the growth of cultural finance. Full article

(This article belongs to the Section Applied Economics and Finance)

14 pages, 348 KiB

Open AccessArticle

Univariate and Multivariate GARCH Models Applied to Bitcoin Futures Option Pricing

by Pierre J. Venter and Eben Maré

J. Risk Financial Manag. 2021, 14(6), 261; https://doi.org/10.3390/jrfm14060261 - 10 Jun 2021

Cited by 3 | Viewed by 2996

Abstract

In this paper, the Heston–Nandi futures option pricing model is applied to Bitcoin futures options. The model prices are compared to market prices to give an indication of the pricing performance. In addition, a multivariate Bitcoin futures option pricing methodology based on a [...] Read more.

In this paper, the Heston–Nandi futures option pricing model is applied to Bitcoin futures options. The model prices are compared to market prices to give an indication of the pricing performance. In addition, a multivariate Bitcoin futures option pricing methodology based on a multivatiate GARCH model is developed. The empirical results show that a symmetric model is a better fit when applied to Bitcoin futures returns, and also produces more accurate option prices compared to market prices for two out of three expiry dates considered. Full article

(This article belongs to the Special Issue Recent Developments in Digital Currency: Time Series Analysis, Theory and Practice)

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15 pages, 324 KiB

Open AccessArticle

A Panel Data Analysis of Economic Growth Determinants in 34 African Countries

by Larissa Batrancea, Malar Mozhi Rathnaswamy and Ioan Batrancea

J. Risk Financial Manag. 2021, 14(6), 260; https://doi.org/10.3390/jrfm14060260 - 9 Jun 2021

Cited by 33 | Viewed by 6971

Abstract

The research study investigated the economic determinants of economic growth in 34 countries across Africa during a two-decade period (2001–2019). For this purpose, the sample included a wide range of economies, from low income to high income and from low human development to [...] Read more.

The research study investigated the economic determinants of economic growth in 34 countries across Africa during a two-decade period (2001–2019). For this purpose, the sample included a wide range of economies, from low income to high income and from low human development to high human development, according to recent international rankings provided by the World Bank and the United Nations Development Programme. By means of a multimodal approach centered on panel data modelling, we showed that economic growth, proxied by the GDP growth rate, was substantially influenced by economic indicators such as imports, exports, gross capital formation, and gross domestic savings. We also showed that foreign direct investment inflows and outflows play an important role for capital and savings. Our empirical results offer insights on strategies that national authorities could implement to boost economic growth and development across the African continent. Full article

(This article belongs to the Special Issue Financial and Panel Data Econometrics)

12 pages, 474 KiB

Open AccessArticle

A Deep Learning Integrated Cairns-Blake-Dowd (CBD) Sytematic Mortality Risk Model

by Joab Odhiambo, Patrick Weke and Philip Ngare

J. Risk Financial Manag. 2021, 14(6), 259; https://doi.org/10.3390/jrfm14060259 - 8 Jun 2021

Cited by 4 | Viewed by 3843

Abstract

Many actuarial science researchers on stochastic modeling and forecasting of systematic mortality risk use Cairns-Blake-Dowd (CBD) Model (2006) due to its ability to consider the cohort effects. A three-factor stochastic mortality model has three parameters that describe the mortality trends over time when [...] Read more.

Many actuarial science researchers on stochastic modeling and forecasting of systematic mortality risk use Cairns-Blake-Dowd (CBD) Model (2006) due to its ability to consider the cohort effects. A three-factor stochastic mortality model has three parameters that describe the mortality trends over time when dealing with future behaviors. This study aims to predict the trends of the model,

k_{t}^{(2)}

by applying the Recurrent Neural Networks within a Short-Term Long Memory (an artificial LSTM architecture) compared to traditional statistical ARIMA (p,d,q) models. The novel deep learning (machine learning) technique helps integrate the CBD model to enhance its accuracy and predictive capacity for future systematic mortality risk in countries with limited data availability, such as Kenya. The results show that Long Short-Term Memory network architecture had higher levels of precision when predicting the future systematic mortality risks than traditional methods. Ultimately, the results can be implemented by Kenyan insurance firms when modeling and forecasting systematic mortality risk helpful in the pricing of Annuities and Assurances. Full article

(This article belongs to the Special Issue Quantitative Risk)

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22 pages, 598 KiB

Open AccessArticle

Solvency Regulation—An Assessment of Basel III for Banks and of Planned Solvency III for Insurers

by Peter Zweifel

J. Risk Financial Manag. 2021, 14(6), 258; https://doi.org/10.3390/jrfm14060258 - 8 Jun 2021

Viewed by 3348

Abstract

Basel III, regulating the solvency of banks, is to be fully implemented by 2027 while Solvency III directed at insurers is being prepared. In view of past experience, it will be closely modelled after Basel III. This raises two questions. (i) Will Basel [...] Read more.

Basel III, regulating the solvency of banks, is to be fully implemented by 2027 while Solvency III directed at insurers is being prepared. In view of past experience, it will be closely modelled after Basel III. This raises two questions. (i) Will Basel III and Solvency III be more successful than their predecessors? (ii) Is it appropriate to continue regulating the solvency of banks and insurers in the same way? The first question is motivated by an earlier finding that Basel I and II risked inducing more rather than less risk-taking by banks, which also holds for Solvency I and II w.r.t. insurers. The methodology applied was to determine the slope of an endogenous perceived efficiency frontier (EPEF) in (

\hat{μ}, \hat{σ}

)-space derived from banks’ and insurers’ optimal adjustment to exogenous changes, in expected returns

d \bar{μ}

and volatility

d \bar{σ}

on the capital market. Both Basel I and II and Solvency I and II neglected the impact of these developments on banks’ and insurers’ EPEF. This neglect had the effect of steepening the EPEF, causing senior management to opt for an increased rather than reduced value of

\hat{σ}

, and hence a lower solvency level. This issue is resolved by Basel III (Principle 5), which requires banks to take developments in the capital market into account in the formulation of their business strategies designed to ensure solvency. In combination with increased capital requirements, this is shown to result in a reduced slope of their EPEF and hence a reduced risk exposure. However, planned Solvency III may cause the EPEF of highly capitalized insurance companies to become steeper, with a concomitant decrease in their risk-taking and an increase of their solvency level. The second question, concerning the appropriateness of the uniformity of solvency regulation directed at banks and insurers, arises because the parameters determining the slope of the respective EPEF are found to crucially differ. Therefore, the uniformity of Basel and Solvency norms creates the risk of a mistaken regulatory focus. Full article

(This article belongs to the Special Issue Bank Regulation and Risk Management)

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15 pages, 334 KiB

Open AccessArticle

Financial Performance of Iranian Banks from 2013 to 2019: A Panel Data Approach

by Pejman Ebrahimi, Maria Fekete-Farkas, Parisa Bouzari and Róbert Magda

J. Risk Financial Manag. 2021, 14(6), 257; https://doi.org/10.3390/jrfm14060257 - 8 Jun 2021

Cited by 1 | Viewed by 2996

Abstract

It is widely believed that the financial system is dependent on the banking industry, and its strength and development are vital for economic prosperity. This paper tried to show the financial performance of Iranian banks listed on the Tehran Stock Exchange (TSE) during [...] Read more.

It is widely believed that the financial system is dependent on the banking industry, and its strength and development are vital for economic prosperity. This paper tried to show the financial performance of Iranian banks listed on the Tehran Stock Exchange (TSE) during 2013–2019, as the research population. The statistical population included 18 banks listed on the TSE from 2013 to 2019, which were sampled using a screening method. The results indicated a significant relationship between explanatory variables of capital ratio and the financial performance of banks in all models. However, a significant negative relationship was found between the inflation rate and the financial performance of banks in all models. Furthermore, it seems that banks with high asset strength are more profitable than the others. Regulators should guarantee that banks remain highly capitalized for a viable banking sector in Iran. Full article

(This article belongs to the Special Issue Financial Development and Economic Growth)

18 pages, 313 KiB

Open AccessArticle

Did Politicians Use Non-Public Macroeconomic Information in Their Stock Trades? Evidence from the STOCK Act of 2012

by Serkan Karadas, Minh Tam Tammy Schlosky and Joshua Hall

J. Risk Financial Manag. 2021, 14(6), 256; https://doi.org/10.3390/jrfm14060256 - 8 Jun 2021

Cited by 2 | Viewed by 3625

Abstract

Existing research shows that members of Congress made informed trades prior to the passage of the STOCK Act of 2012. There is also evidence in the literature to suggest that the STOCK Act was able to deter politicians from trading based on non-public [...] Read more.

Existing research shows that members of Congress made informed trades prior to the passage of the STOCK Act of 2012. There is also evidence in the literature to suggest that the STOCK Act was able to deter politicians from trading based on non-public information. However, the question of whether politicians made informed trades at the market level (using non-public macroeconomic information, not just firm-specific information) in the first place and whether they continued to do so even after the passage of the STOCK Act remains unexamined. We analyze 101,191 individual stock transactions covering the 2004–2014 period and find that the STOCK Act adversely affected the ability of politicians’ aggregated stock trades to predict the stock market returns. Our results imply that politicians used non-public macroeconomic information prior to the STOCK Act, and this legislation was influential in deterring politicians from using non-public macroeconomic information in their stock trades. Our findings also provide input on the current debate on the need for the STOCK Act 2.0. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

17 pages, 303 KiB

Open AccessArticle

Women’s Economic Empowerment in Vietnam: Performance and Constraints of Female-Led Manufacturing SMEs

by MinhTam Bui and Trinh Q. Long

J. Risk Financial Manag. 2021, 14(6), 255; https://doi.org/10.3390/jrfm14060255 - 7 Jun 2021

Cited by 2 | Viewed by 3374

Abstract

This paper identifies whether there was a performance difference among micro, small and medium enterprises (MSMEs) led by men and by women in Vietnam during the period 2005–2013 and aims to provide explanations for the differences, if any, in various performance indicators. The [...] Read more.

This paper identifies whether there was a performance difference among micro, small and medium enterprises (MSMEs) led by men and by women in Vietnam during the period 2005–2013 and aims to provide explanations for the differences, if any, in various performance indicators. The paper adopts a quantitative approach using a firm-level panel dataset in the manufacturing sector in 10 provinces/cities in Vietnam in five waves from 2005 to 2013. Fixed effect models are estimated to examine the influence of firm variables and demographic, human capital characteristics of owners/managers on firms’ value added, labor productivity and employment creation. We found that men led MSMEs did not outperform those led by women on average. Although the average value added was lower for female-led firms in the informal sector, the opposite was true in the formal sector where women tend to lead medium-size firms with higher value added and labor productivity. The performance disparity was more envisaged across levels of formality and less clear from a gender perspective. Moreover, while firms owned by businessmen seemed to create more jobs, firms owned by women had a higher share of female employees. No significant difference in business constraints faced by women and by men was found. Full article

(This article belongs to the Special Issue Risk Analysis for Corporate Finance)

18 pages, 3998 KiB

Open AccessArticle

A Comparison of Artificial Neural Networks and Bootstrap Aggregating Ensembles in a Modern Financial Derivative Pricing Framework

by Ryno du Plooy and Pierre J. Venter

J. Risk Financial Manag. 2021, 14(6), 254; https://doi.org/10.3390/jrfm14060254 - 7 Jun 2021

Cited by 7 | Viewed by 2699

Abstract

In this paper, the pricing performances of two learning networks, namely an artificial neural network and a bootstrap aggregating ensemble network, were compared when pricing the Johannesburg Stock Exchange (JSE) Top 40 European call options in a modern option pricing framework using a [...] Read more.

In this paper, the pricing performances of two learning networks, namely an artificial neural network and a bootstrap aggregating ensemble network, were compared when pricing the Johannesburg Stock Exchange (JSE) Top 40 European call options in a modern option pricing framework using a constructed implied volatility surface. In addition to this, the numerical accuracy of the better performing network was compared to a Monte Carlo simulation in a separate numerical experiment. It was found that the bootstrap aggregating ensemble network outperformed the artificial neural network and produced price estimates within the error bounds of a Monte Carlo simulation when pricing derivatives in a multi-curve framework setting. Full article

(This article belongs to the Special Issue Artificial Neural Networks in Business)

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18 pages, 937 KiB

Open AccessArticle

Evaluating the Unconventional Monetary Policy of the Bank of Japan: A DSGE Approach

by Rui Wang

J. Risk Financial Manag. 2021, 14(6), 253; https://doi.org/10.3390/jrfm14060253 - 7 Jun 2021

Cited by 7 | Viewed by 4075

Abstract

When the nominal interest rate reaches the zero lower bound (ZLB), a conventional monetary policy, namely, the adjustment of short-term interest rate, may become impractical and ineffective for central banks. Therefore, quantitative easing (QE) is one of the few available policy options of [...] Read more.

When the nominal interest rate reaches the zero lower bound (ZLB), a conventional monetary policy, namely, the adjustment of short-term interest rate, may become impractical and ineffective for central banks. Therefore, quantitative easing (QE) is one of the few available policy options of central banks for stimulating the economy and dealing with deflationary pressure. Since February 1999, the Bank of Japan (BoJ) has conducted several unconventional monetary policy programs. Considering the scarce research in this field from a structural macroeconomic model approach, a medium-scale New Keynesian DSGE model with government bonds of different maturities was developed to check the portfolio rebalancing channel of quantitative qualitative easing (QQE) conducted by the BoJ from April 2013 on the basis of the assumption of imperfect asset substitutability. The model was calibrated on the basis of the structure of the Japanese economy in April 2013. The main conclusion is that the BoJ’s asset purchase has a real effect on pushing output and inflation higher, and long-term interest rates lower. Sensitivity simulation analysis shows that, given the same size of asset purchase, the persistence of asset purchase determines the peak effect in the short run. A long-lasting asset purchase can push up inflation higher, and long-term interest rates lower for a relatively longer period, but the long-run effect on output and investment does not have much difference. The policy implication for BoJ is just to announce a long-lasting QE program and make it credible to the market. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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23 pages, 315 KiB

Open AccessArticle

Expatriate Management of Emerging Market Multinational Enterprises: A Multiple Case Study Approach

by Yifan Zhong, Jiuhua Cherrie Zhu and Mingqiong Mike Zhang

J. Risk Financial Manag. 2021, 14(6), 252; https://doi.org/10.3390/jrfm14060252 - 7 Jun 2021

Cited by 7 | Viewed by 9183

Abstract

Expatriate management has evolved through the practices of developed economy multinational enterprises (DMNEs), with the aim of improving expatriate adaptability, cross-cultural adjustment, and performance. However, most of these studies focus on expatriates from developed countries and try to help DMNEs instead of emerging [...] Read more.

Expatriate management has evolved through the practices of developed economy multinational enterprises (DMNEs), with the aim of improving expatriate adaptability, cross-cultural adjustment, and performance. However, most of these studies focus on expatriates from developed countries and try to help DMNEs instead of emerging market MNEs (EMNEs). In a turbulent global economy, how EMNEs manage their expatriates when conducting business through their outward foreign direct investment (FDI) is understudied. This empirical study aims to address this research gap by utilising a qualitative approach and a multiple case study. It has conducted semi-structured interviews with expatriates, executives, and middle managers of Chinese MNEs in 2014. It contributes as one of the few to systematically examine expatriate related issues in the context of EMNEs with first-hand empirical evidence. The findings show that EMNEs are leapfrogging with their internationalisation and hence their expatriate policies are often ad hoc without systematic planning. Moreover, this study has contributed to practice, especially to EMNEs, regarding the way they need to improve their expatriate policies and practices. Full article

(This article belongs to the Special Issue Internationalization of Emerging Market Multinational Enterprises in a Volatile Environment)

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J. Risk Financial Manag., Volume 14, Issue 6 (June 2021) – 51 articles

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