Journal of Risk and Financial Management

29 pages, 1411 KiB

Open AccessArticle

Optimizing Energy Storage Profits: A New Metric for Evaluating Price Forecasting Models

by Simone Sbaraglia, Alessandro Fiori Maccioni and Stefano Zedda

J. Risk Financial Manag. 2024, 17(12), 538; https://doi.org/10.3390/jrfm17120538 - 26 Nov 2024

Storage profit maximization is based on buying energy at the lowest prices and selling it at the highest prices. The best strategy must thus be based on both accurately predicting the price peak hours and on rightly choosing when to buy and when [...] Read more.

Storage profit maximization is based on buying energy at the lowest prices and selling it at the highest prices. The best strategy must thus be based on both accurately predicting the price peak hours and on rightly choosing when to buy and when to sell the stored energy. In this aim, price prediction is crucial, but choosing the prediction model by means of the usual metrics, as the lowest mean squared error, is not an effective solution as the mean squared error computation equally weights the prediction error of all prices, while the focus must be on the higher and lower prices. In this paper, we propose a new metric focused on the correct forecasting of high and low prices so as to allow for a more effective choice among price forecasting models. Results show that the new metric outperforms the standard metrics, allowing for a more accurate estimation of the possible profit for storage (or other trading) activities. Full article

(This article belongs to the Special Issue Forecasting, Predictive Analytics and Econometrics in Business Research)

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21 pages, 2778 KiB

Open AccessArticle

Fin-ALICE: Artificial Linguistic Intelligence Causal Econometrics

by Shawn McCarthy and Gita Alaghband

J. Risk Financial Manag. 2024, 17(12), 537; https://doi.org/10.3390/jrfm17120537 - 26 Nov 2024

Abstract

This study introduces Fin-ALICE (Artificial Linguistic Intelligence Causal Econometrics), a framework designed to forecast financial time series by integrating multiple analytical approaches including co-occurrence networks, supply chain analysis, and emotional sentiment analysis to provide a comprehensive understanding of market dynamics. In our co-occurrence [...] Read more.

This study introduces Fin-ALICE (Artificial Linguistic Intelligence Causal Econometrics), a framework designed to forecast financial time series by integrating multiple analytical approaches including co-occurrence networks, supply chain analysis, and emotional sentiment analysis to provide a comprehensive understanding of market dynamics. In our co-occurrence analysis, we focus on companies that share the same emotion on the same day, using a much shorter horizon than our previous study of one month. This approach allows us to uncover short-term, emotion-driven correlations that traditional models might overlook. By analyzing these co-occurrence networks, Fin-ALICE identifies hidden connections between companies, sectors, and events. Supply chain analysis within Fin-ALICE will evaluate significant events in commodity-producing countries that impact their ability to supply key resources. This analysis captures the ripple effects of disruptions across industries and regions, offering a more nuanced prediction of market movements. Emotional sentiment analysis, powered by the Fin-Emotion library developed in our prior research, quantifies the emotional undertones in financial news through metrics like “emotion magnitude” and “emotion interaction”. These insights, when integrated with Temporal Convolutional Networks (TCNs), significantly enhance the accuracy of financial forecasts by capturing the emotional drivers of market sentiment. Key contributions of Fin-ALICE include its ability to perform month-by-month company correlation analysis, capturing short-term market fluctuations and seasonal patterns. We compare the performance of TCNs against advanced models such as LLMs and LSTMs, demonstrating that the Fin-ALICE model outperforms these models, particularly in sectors where emotional sentiment and supply chain dynamics are critical. Fin-ALICE provides decision-makers with predictive insights and a deeper understanding of the underlying emotional and supply chain factors that drive market behaviors. Full article

(This article belongs to the Section Financial Technology and Innovation)

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29 pages, 366 KiB

Open AccessArticle

Pension Risk and the Sustainable Cost of Capital

by Paul John Marcel Klumpes

J. Risk Financial Manag. 2024, 17(12), 536; https://doi.org/10.3390/jrfm17120536 - 25 Nov 2024

Viewed by 232

Abstract

Prior research empirically finds that the systematic equity risk for US firms as measured by beta reflects the risk of their defined benefit pension plans, despite opaque and complicated pension accounting rules. This paper re-examines this question in the context of subsequent clarification [...] Read more.

Prior research empirically finds that the systematic equity risk for US firms as measured by beta reflects the risk of their defined benefit pension plans, despite opaque and complicated pension accounting rules. This paper re-examines this question in the context of subsequent clarification of these rules, and the growing importance of non-defined benefit pension funds. This issue is examined by comparing standard equity-based models with a broader pre-existing shareholder model of the reporting entity to re-examine the relationship between firm equity risk and pension plan risk. The empirical tests are conducted on a sample of S&P 500 firms during the first three years of the introduction of the revised pension accounting rules (2006–2008), based on panel data regression relating firm risk to pension risk and controlling for other variables. In contrast to the prior findings of JMB, the estimated cost of capital is additionally sensitive to the following: (a) alternative explicit versus implicit definitions of pension liability; (b) the nature and scope of long-term deferred compensation arrangements; and (c) the scope and nature of investment-related risks through investment in sponsoring company stock that are associated with these pension arrangements. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

19 pages, 355 KiB

Open AccessArticle

Evaluating the Impact of Geopolitical Risk on the Financial Distress of Indian Hospitality Firms

by Vandana Gupta

J. Risk Financial Manag. 2024, 17(12), 535; https://doi.org/10.3390/jrfm17120535 - 25 Nov 2024

Viewed by 277

Abstract

The study investigates the effect of geopolitical risk (GPR) on the financial distress of tourism & hospitality firms in India. Using two-step GMM, this study evaluates the impact of GPR, GPR Threat, GPR Action and GPR India on financial distress using [...] Read more.

The study investigates the effect of geopolitical risk (GPR) on the financial distress of tourism & hospitality firms in India. Using two-step GMM, this study evaluates the impact of GPR, GPR Threat, GPR Action and GPR India on financial distress using Altman score for emerging markets as proxy for financial distress. Further, robustness is checked using Żmijewski score and financial distress ratio as proxies for financial distress. The study is extended by examining the impact of GPR specifically on firm life cycle (age) and firm size and on private and public firms. Our empirical investigation demonstrates that all measures of geopolitical risk increase the chances of financial distress of hospitality firms and our findings are robust to alternative measures of financial distress. By considering GPR as an alternate measure of uncertainty in the hospitality industry, this study contributes to the emerging literature on the factors influencing financial distress of hospitality firms. The study also identifies three accounting measures for proxies of financial distress. Policymakers, regulators and management can pre-empt the impact of uncertain external factors by formulating suitable plans and measures as also for post recovery measures to safeguard firms against bankruptcy. Firms can plan their financing decisions and cash management proactively to reduce financial risk. Full article

(This article belongs to the Special Issue Tourism Management and Financial Development)

19 pages, 371 KiB

Open AccessArticle

Do Long-Term Institutional Shareholders Always Vote in Favour of Board Recommendations? The Moderating Effect of Cash Holdings

by Abdulaziz A. Alomran

J. Risk Financial Manag. 2024, 17(12), 534; https://doi.org/10.3390/jrfm17120534 - 25 Nov 2024

Viewed by 278

Abstract

This article aims to examine the voting behaviour of long-term institutional shareholders towards board recommendations on management proposals and resolutions and how the potential agency costs could moderate such voting behaviour. This study is conducted using all corporate capital proposals put to vote [...] Read more.

This article aims to examine the voting behaviour of long-term institutional shareholders towards board recommendations on management proposals and resolutions and how the potential agency costs could moderate such voting behaviour. This study is conducted using all corporate capital proposals put to vote by management during the annual general meetings (AGM) of publicly listed firms on the London Stock Exchange over a period of 17 years from 2000 to 2016. Building on agency theory and the concept of the monitoring function of institutional shareholders, this study finds that long-term institutional shareholders do support board recommendations on management proposals, but potential agency concerns linked to excess cash holding can negatively moderate this relationship. Additional analysis reveals that this moderating effect is observed only for management proposals related to cash inflows, specifically after the 2007–2009 financial crisis. This study highlights the importance of long-term institutional shareholders actively monitoring firms’ cash holdings and using voting to address agency concerns while advising corporate managers to optimise cash management and stay attuned to shareholder preferences. For policymakers, the research suggests promoting transparency in corporate governance and strengthening shareholder engagement to reduce agency problems and improve governance. Several robustness tests are conducted, and the results support our predictions. Full article

(This article belongs to the Special Issue Organizational Risk Management)

16 pages, 947 KiB

Open AccessArticle

The Impact of Rebalancing Strategies on ETF Portfolio Performance

by Attila Bányai, Tibor Tatay, Gergő Thalmeiner and László Pataki

J. Risk Financial Manag. 2024, 17(12), 533; https://doi.org/10.3390/jrfm17120533 - 24 Nov 2024

Viewed by 568

Abstract

This research explores the efficacy of rebalancing strategies in a diversified portfolio constructed exclusively with exchange-traded funds (ETFs). We selected five ETF types: short-term U.S. Treasury bonds, U.S. equities, global commodities, U.S. real estate investment trusts (REITs), and a multi-strategy hedge fund. Using [...] Read more.

This research explores the efficacy of rebalancing strategies in a diversified portfolio constructed exclusively with exchange-traded funds (ETFs). We selected five ETF types: short-term U.S. Treasury bonds, U.S. equities, global commodities, U.S. real estate investment trusts (REITs), and a multi-strategy hedge fund. Using a 10-year historical period, we applied a unique simulation model to generate random portfolios with varying asset weights and rebalancing tolerance bands, assessing the impact of rebalancing premiums on portfolio performance. Our study reveals a significant positive correlation (r = 0.6492, p < 0.001) between rebalancing-weighted returns and the Sharpe ratio, indicating that effective rebalancing enhances risk-adjusted returns. Support vector regression (SVR) analysis shows that rebalancing premiums have diverse effects. Specifically, equities and commodities benefit from rebalancing with improved risk-adjusted returns, while bonds and REITs demonstrate a negative relationship, suggesting that rebalancing might be less effective or even detrimental for these assets. Our findings also indicate that negative portfolio rebalancing returns combined with positive rebalancing-weighted returns yield the highest average Sharpe ratio of 0.4328, highlighting a distinct and reciprocal relationship between rebalancing effects at the asset and portfolio levels. This research highlights that while rebalancing can enhance portfolio performance, its effectiveness varies by asset class and market conditions. Full article

(This article belongs to the Special Issue Financial Funds, Risk and Investment Strategies)

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50 pages, 1136 KiB

Open AccessArticle

Flourishing MSMEs: The Role of Innovation, Creative Compliance, and Tax Incentives

by Prianto Budi Saptono, Ismail Khozen, Gustofan Mahmud, Sabina Hodžić, Intan Pratiwi, Dwi Purwanto and Lambang Wiji Imantoro

J. Risk Financial Manag. 2024, 17(12), 532; https://doi.org/10.3390/jrfm17120532 - 22 Nov 2024

Viewed by 319

Abstract

This study explores the interplay between tax incentives, creative compliance, and innovation in enhancing business resilience and sustainability among micro, small, and medium enterprises (MSMEs) in Indonesia, addressing gaps in the existing literature regarding their interrelationships during crises. A cross-sectional survey of 360 [...] Read more.

This study explores the interplay between tax incentives, creative compliance, and innovation in enhancing business resilience and sustainability among micro, small, and medium enterprises (MSMEs) in Indonesia, addressing gaps in the existing literature regarding their interrelationships during crises. A cross-sectional survey of 360 MSMEs was conducted, utilizing the Partial Least Squares Structural Equation Modeling (PLS-SEM) approach to analyze complex relationships among variables. The findings reveal that creative compliance, including tax planning and avoidance, does not directly impact resilience or sustainability. While tax incentives did not significantly enhance resilience during crises, they contributed to long-term sustainability. Innovation emerged as a critical factor linking creative compliance to business success and fully mediating the effects of tax incentives on resilience. This study emphasizes the necessity for MSMEs to prioritize innovation in their strategies, particularly in conjunction with effective tax practices, and highlights the need for government support through simplified regulatory frameworks to foster an innovative business environment. Limitations include the challenges of incorporating control variables in SEM and the need for further research into the long-term effects of these factors on sustainable performance. Full article

(This article belongs to the Special Issue Sustainable Tax and Accounting Reporting in Building a New Tax Culture)

29 pages, 2519 KiB

Open AccessArticle

Fitting the Seven-Parameter Generalized Tempered Stable Distribution to Financial Data

by Aubain Nzokem and Daniel Maposa

J. Risk Financial Manag. 2024, 17(12), 531; https://doi.org/10.3390/jrfm17120531 - 22 Nov 2024

Viewed by 261

Abstract

This paper proposes and implements a methodology to fit a seven-parameter Generalized Tempered Stable (GTS) distribution to financial data. The nonexistence of the mathematical expression of the GTS probability density function makes maximum-likelihood estimation (MLE) inadequate for providing parameter estimations. Based on the [...] Read more.

This paper proposes and implements a methodology to fit a seven-parameter Generalized Tempered Stable (GTS) distribution to financial data. The nonexistence of the mathematical expression of the GTS probability density function makes maximum-likelihood estimation (MLE) inadequate for providing parameter estimations. Based on the function characteristic and the fractional Fourier transform (FRFT), we provide a comprehensive approach to circumvent the problem and yield a good parameter estimation of the GTS probability. The methodology was applied to fit two heavy-tailed data (Bitcoin and Ethereum returns) and two peaked data (S&P 500 and SPY ETF returns). For each historical data, the estimation results show that six-parameter estimations are statistically significant except for the local parameter,

μ

. The goodness of fit was assessed through Kolmogorov–Smirnov, Anderson–Darling, and Pearson’s chi-squared statistics. While the two-parameter geometric Brownian motion (GBM) hypothesis is always rejected, the GTS distribution fits significantly with a very high p-value and outperforms the Kobol, Carr–Geman–Madan–Yor, and bilateral Gamma distributions. Full article

(This article belongs to the Special Issue Featured Papers in Mathematics and Finance)

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18 pages, 320 KiB

Open AccessArticle

Evaluation of the Resilience of Real Estate and Property Stocks to Inflation and Interest Rate Uncertainty: Implementation of Two Asset Pricing Models

by Nurdina Nurdina, Nurkholis Nurkholis, Noval Adib and Sari Atmini

J. Risk Financial Manag. 2024, 17(12), 530; https://doi.org/10.3390/jrfm17120530 - 22 Nov 2024

Viewed by 345

Abstract

Property stocks are an attractive alternative investment for investors who want passive income. Investors’ decisions focus not only on maximizing returns but also on reducing risk. This study examines the extent to which macroeconomic factors affect stock performance by comparing the effectiveness of [...] Read more.

Property stocks are an attractive alternative investment for investors who want passive income. Investors’ decisions focus not only on maximizing returns but also on reducing risk. This study examines the extent to which macroeconomic factors affect stock performance by comparing the effectiveness of the Fama–French five-factor model (5FF) and Fama–French seven-factor model (7FF) in estimating returns. This study also verifies Fisher’s theory in the context of property and real estate stocks. The research data used are property and real estate stocks in the Indonesian capital market. The data are processed using the OLS estimation method, and Akaike’s Information Criterion (AIC) is used to choose the optimal model. The results show that property and real estate stocks in Indonesia with negative profitability at all quantiles can hedge inflation and interest rates. However, the interest rates are not the only factor affecting the market risk. The 7FF model is better at explaining the variability of stock portfolio returns. This research makes an essential contribution to the financial literature in Indonesia, particularly in the context of portfolio management in the property and real estate sector. Full article

(This article belongs to the Special Issue Advances in Macroeconomics and Financial Markets)

15 pages, 384 KiB

Open AccessArticle

From Traditional-Ritual Activities to Financial Report: Integrating Local Wisdom in Bantengan Financial Bookkeeping

by Ana Sopanah, Adya Hermawati, Syamsul Bahri and Imanita Septian Rusdianti

J. Risk Financial Manag. 2024, 17(12), 529; https://doi.org/10.3390/jrfm17120529 - 22 Nov 2024

Viewed by 243

Abstract

This study examined the integration of cultural accounting in the conservation of a traditional performing art called Bantengan in Malang Raya, Indonesia, that is rich in local wisdom and spiritual values. The study focused on exploring the values of local wisdom contained in [...] Read more.

This study examined the integration of cultural accounting in the conservation of a traditional performing art called Bantengan in Malang Raya, Indonesia, that is rich in local wisdom and spiritual values. The study focused on exploring the values of local wisdom contained in Bantengan and analyzing accounting records in its financing, especially post-COVID-19 pandemic. Using a qualitative approach with an ethnomethodological paradigm, data were collected through observation, in-depth interviews, and documentation from the Sukopuro Bantengan Association. This study revealed the importance of accountability in the management and conservation of traditional arts to ensure transparency, sustainability, and relevance of cultural values in an ever-evolving social context. Accounting, often associated with technical aspects, in this context also reflects humanistic and cultural values. The findings of this study are expected to provide a new perspective in the field of cultural accounting, especially related to the conservation and development of traditional arts in Indonesia, as well as provide a useful framework for the management of cultural assets in other regions that have similar contexts. Full article

(This article belongs to the Section Economics and Finance)

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23 pages, 1225 KiB

Open AccessArticle

Accounting Outsourcing in Tourism SMEs and Financial Risk Mitigation

by Ioulia Poulaki, Anna Kyriakaki and Eleni Mavragani

J. Risk Financial Manag. 2024, 17(12), 528; https://doi.org/10.3390/jrfm17120528 - 21 Nov 2024

Viewed by 513

Abstract

This paper aims to investigate the characteristics of outsourcing in accounting services for tourism SMEs as a choice to mitigate their financial risk. The research was carried out in summer 2022, during tourism recovery from the COVID-19 pandemic crisis, while the findings indicate [...] Read more.

This paper aims to investigate the characteristics of outsourcing in accounting services for tourism SMEs as a choice to mitigate their financial risk. The research was carried out in summer 2022, during tourism recovery from the COVID-19 pandemic crisis, while the findings indicate that the majority of tourism SMEs choose to outsource their accounting services in order to reduce operating costs; to save their funds by exploiting a partner’s information systems; to take advantage of a partner’s accounting knowledge; to achieve greater flexibility in their core activities; and to speed up the processing of the accounting tasks in order to deal with any arising problems and/or difficulties. Furthermore, it is evident that in a constantly changing and complex tax system and a changing economic landscape, accounting outsourcing provides tourism SMEs with advantages such as already established processes, expertise, technology, consulting support, and pathways for dealing with the various accounting issues that may arise. Full article

(This article belongs to the Special Issue Financial Accounting)

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28 pages, 1770 KiB

Open AccessArticle

Unlocking the Path to Sustainability: A Hierarchical Model for Understanding Corporate Barriers to ESG Reporting Adoption

by Paridhi, Ritika, Hitesh Arora, Padmasai Arora and Neha Saini

J. Risk Financial Manag. 2024, 17(12), 527; https://doi.org/10.3390/jrfm17120527 - 21 Nov 2024

Viewed by 573

Abstract

Environmental, social, and governance (ESG) reporting is a vital force behind the advancement of sustainable corporate practices and goes beyond simple compliance. In order to better understand the elements influencing this process, this study looks at the obstacles that prevent corporations from adopting [...] Read more.

Environmental, social, and governance (ESG) reporting is a vital force behind the advancement of sustainable corporate practices and goes beyond simple compliance. In order to better understand the elements influencing this process, this study looks at the obstacles that prevent corporations from adopting ESG reporting. Using total interpretive structural modeling (TISM), an empirical model was created to show the hierarchical relationships between the main obstacles found by a literature research and expert survey. We identified barriers at the strategic level, such as resource shortages, unclear stakeholder demand, and structural limits; at the functional level, such as governance issues and cultural resistance; and at the efficiency level, which directly impacted adoption. Matrice d’Impacts Croisés Multiplication Appliquée à un Classement (MICMAC) analysis clarified the driving and dependence relationships among these barriers. The findings contribute to refining theoretical perspectives on ESG adoption and offer practical insights for corporate managers, policymakers, and organizations striving for effective sustainability practices. Recommendations aim to enhance sustainability policy formulation, operational practices, and governance frameworks, ultimately supporting organizations in their efforts to adopt ESG reporting sustainably and resiliently. Full article

(This article belongs to the Special Issue Corporate Sustainability and Firm Performance: Models, Practices and Policy Perspective)

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J. Risk Financial Manag., Volume 17, Issue 12 (December 2024) – 12 articles

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