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Volume 9
Issue 4
share announcement

Int. J. Financial Stud., Volume 9, Issue 4 (December 2021) – 22 articles

Cover Story (view full-size image): The purpose of this study is to investigate the fluctuations that occur in stock returns of US stock indices when there is an increase in the volume of Google internet searches for “quantitative easing” in the US. The EGARCH model was applied, and the result was strong in three of the four stock indices studied. Specifically, the SVI index was statistically significant, with a positive trend for the S&P 500 and Dow Jones indices and a negative trend for the VIX index. Although there is a large body of research using Google Trends as a crowdsourcing method, this paper is the first to examine “quantitative easing” and stock market returns. View this paper.
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15 pages, 326 KiB  
Article
The Role of Ownership Structure and Board Characteristics in Stock Market Liquidity
by Wajih Abbassi, Ahmed Imran Hunjra, Suha Mahmoud Alawi and Rashid Mehmood
Int. J. Financial Stud. 2021, 9(4), 74; https://doi.org/10.3390/ijfs9040074 - 20 Dec 2021
Cited by 14 | Viewed by 4948
Abstract
Corporate governance plays a significant role in the value of shareholders and share prices, hence stock market liquidity is affected. Previous research has mainly focused on the issue in developed markets, whereas in developing countries there is a need to analyze the influence [...] Read more.
Corporate governance plays a significant role in the value of shareholders and share prices, hence stock market liquidity is affected. Previous research has mainly focused on the issue in developed markets, whereas in developing countries there is a need to analyze the influence of corporate governance on stock market liquidity. Therefore, the present study aims to examine the impact of ownership structure and board characteristics on stock market liquidity of non-financial firms of South Asian countries such as Pakistan, Sri Lanka, Bangladesh, and India. The data in the study is collected from the DataStream for the 2011–2020 period. The study uses a fixed effect model for the analysis of the data and hypotheses testing and generalized method of moments (GMM) is used to check the robustness of the results. The findings of the study indicate that institutional ownership, board size, board independence, and CEO duality have a significant and positive impact on stock market liquidity, whereas managerial ownership has a significant and negative effect on stock market liquidity. Full article
(This article belongs to the Special Issue Corporate Finance)
17 pages, 296 KiB  
Article
Adverse Selection in P2P Lending: Does Peer Screening Work Efficiently?—Empirical Evidence from a P2P Platform
by Yao Wang and Zdenek Drabek
Int. J. Financial Stud. 2021, 9(4), 73; https://doi.org/10.3390/ijfs9040073 - 20 Dec 2021
Cited by 3 | Viewed by 4135
Abstract
The rapid development of online lending in the past decade, while providing convenience and efficiency, also generates large hidden credit risk for the financial system. Will removing financial intermediaries really provide more efficiency to the lending market? This paper used a large dataset [...] Read more.
The rapid development of online lending in the past decade, while providing convenience and efficiency, also generates large hidden credit risk for the financial system. Will removing financial intermediaries really provide more efficiency to the lending market? This paper used a large dataset with 251,887 loan listings from a pioneer P2P lending platform to investigate the efficiency of the credit-screening mechanism on the P2P lending platform. Our results showed the existence of a TYPE II error in the investors’ decision-making process, which indicated that the investors were predisposed to making inaccurate diagnoses of signals, and gravitated to borrowers with low creditworthiness while inadvertently screening out their counterparts with high creditworthiness. Due to the growing size of the fintech industry, this may pose a systematic risk to the financial system, necessitating regulators’ close attention. Since, investors can better diagnose soft signals, an effective and transparent enlargement of socially related soft information together with a comprehensive and independent credit bureau could mitigate adverse selection in a disintermediation environment. Full article
(This article belongs to the Special Issue The Financial Industry 4.0 Part 2)
20 pages, 2318 KiB  
Article
Bibliometric Analysis for Working Capital: Identifying Gaps, Co-Authorships and Insights from a Literature Survey
by Vítor João Pereira Domingues Martinho
Int. J. Financial Stud. 2021, 9(4), 72; https://doi.org/10.3390/ijfs9040072 - 16 Dec 2021
Cited by 12 | Viewed by 4198
Abstract
From a financial perspective, working capital represents the liquidity of firms that makes them able to deal with short-term liabilities in current assets (inventories, receivables accounts, and net financial resources). However, this concept is also considered in scientific literature as, among other meanings, [...] Read more.
From a financial perspective, working capital represents the liquidity of firms that makes them able to deal with short-term liabilities in current assets (inventories, receivables accounts, and net financial resources). However, this concept is also considered in scientific literature as, among other meanings, stock of productive capital, or variables costs. Considering the importance of working capital in a firms’ dynamics, the principal objective of this study is to highlight the main gaps and insights in literature concerning working capital and to suggest future research. For this purpose, bibliometric analysis was carried out through bibliographic information from both the Web of Science Core Collection and from the Scopus for the topic of “working capital”. These data were first worked through bibliometric approaches, considering the VOSviewer and Gephi software and later surveyed through a literature review. As the main insights, it is worth highlighting that there are several gaps in related literature, where the most worrying is the weak reference to sustainability or sustainable development concepts. Finally, the majority of the networked research was focused on just a few authors, organizations, and countries. Full article
(This article belongs to the Special Issue Corporate Finance)
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15 pages, 2429 KiB  
Article
Has the EU-ETS Financed the Energy Transition of the Italian Power System?
by Massimiliano Caporin, Fulvio Fontini and Samuele Segato
Int. J. Financial Stud. 2021, 9(4), 71; https://doi.org/10.3390/ijfs9040071 - 14 Dec 2021
Cited by 3 | Viewed by 2693
Abstract
This paper focuses on the relationship between the European Union Emission Trading System allowances’ prices and the Italian electricity price, aiming at assessing whether such a mechanism has been a driver for the decarbonization of the power sector. To this aim, we calculate [...] Read more.
This paper focuses on the relationship between the European Union Emission Trading System allowances’ prices and the Italian electricity price, aiming at assessing whether such a mechanism has been a driver for the decarbonization of the power sector. To this aim, we calculate the long-run relationships between energy prices, natural gas prices and allowances’ prices, through a VECM model, distinguishing between peak and off-peak prices. The analysis is carried out for the third phase of the EU-ETS, which started in 2013, and for two-year rolling windows that account for changes over time of the pass-through rates. It is shown that the natural gas price has a high pass-through rate of roughly 70%, which is increasing over time. On the contrary, the pass-through rate of the allowances’ price is as low as 7% for the wholesale electricity price, being slightly more and less for the peak and off-peak prices, respectively. However, this rate has been substantially changing over time, starting from a high level and falling significantly, becoming negative in the recent years. This could signal that the EU-ETS has been increasingly more effective in endogenizing emission costs for power producers, inducing them to reduce their production costs associated with emissions by means of a change in technologies. However, the analysis of the impulse response functions hardly supports this finding, eventually casting doubts on the effectiveness of the EU-ETS in Italy to drive the transition toward a less carbon-intensive power supply. Full article
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16 pages, 2480 KiB  
Article
A Transmission of Beta Herding during Subprime Crisis in Taiwan’s Market: DCC-MIDAS Approach
by Yi-Chang Chen, Hung-Che Wu, Yuanyuan Zhang and Shih-Ming Kuo
Int. J. Financial Stud. 2021, 9(4), 70; https://doi.org/10.3390/ijfs9040070 - 11 Dec 2021
Cited by 1 | Viewed by 3091
Abstract
The aim of this study is to investigate the herding of beta transmission between return and volatility. We have used the dynamic conditional correlation model with the mixed-data sampling (DCC-MIDAS) model for the analysis. The evidence demonstrates that herding is a key transmitter [...] Read more.
The aim of this study is to investigate the herding of beta transmission between return and volatility. We have used the dynamic conditional correlation model with the mixed-data sampling (DCC-MIDAS) model for the analysis. The evidence demonstrates that herding is a key transmitter in Taiwan’s stock market. The significant estimation of DCC-MIDAS explains that the herding phenomenon is highly dynamic and time-varying in herding behavior. By means of time-varying beta of herding based on our rolling forecasting method and robustness check of the Markov-switching regression approach using four types of portfolios, the evidence indicates that there are conditional correlations between betas and herding. In addition, it also reveals that herding forms in Taiwan’s markets during the subprime crisis period. Full article
(This article belongs to the Special Issue Explaining Volatility Patterns and Speculation Incentives in Sophisticated Investments by Behavioural Finance)
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18 pages, 1682 KiB  
Article
Impact of MiFID II on Romanian Stock Market Liquidity—Comparative Analysis with a Developed Stock Market
by Marius Cristian Miloș, Laura Raisa Miloș, Flavia Barna and Claudiu Boțoc
Int. J. Financial Stud. 2021, 9(4), 69; https://doi.org/10.3390/ijfs9040069 - 8 Dec 2021
Cited by 1 | Viewed by 2691
Abstract
In light of previous literature that has investigated the effects of MiFID and MiFID II regulation on stock market liquidity, we investigate whether the introduction of MiFID II in Romania has had any effect on the stock market liquidity. Through our empirical analysis, [...] Read more.
In light of previous literature that has investigated the effects of MiFID and MiFID II regulation on stock market liquidity, we investigate whether the introduction of MiFID II in Romania has had any effect on the stock market liquidity. Through our empirical analysis, we were able to estimate a meaningful reduction of liquidity in the Romanian stock market liquidity, in response to MiFID II, in line with the previous empirical literature. We find that the liquidity of the BET index constituents has decreased in the period following MiFID II. We find contradictory results in what concerns the German stock market, which could be explained by the different level of development of the stock markets and of the financial education of investors. Full article
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21 pages, 2542 KiB  
Review
The Effect of Corporate Social Responsibility on Earnings Management: Bibliometric Review
by José Manuel Santos-Jaén, Ana León-Gómez and José Serrano-Madrid
Int. J. Financial Stud. 2021, 9(4), 68; https://doi.org/10.3390/ijfs9040068 - 7 Dec 2021
Cited by 20 | Viewed by 6524
Abstract
This review aims to study the knowledge development and research dissemination on the influence of Corporate Social Responsibility (CSR) on earnings management through a social network approach using a bibliometric review. A systematic bibliometric review was carried out on 329 papers obtained from [...] Read more.
This review aims to study the knowledge development and research dissemination on the influence of Corporate Social Responsibility (CSR) on earnings management through a social network approach using a bibliometric review. A systematic bibliometric review was carried out on 329 papers obtained from the Clarivate Analytics Web of Science (WoS) Core Collection database. The data were analyzed by year, journal, author, institution, country, affiliation, subject area and term analysis. The results reveal the growing interest of researchers in studying the impact of CSR. Although the USA and China dominate publication production, there are a large number of authors from more than 50 countries around the world. The results also show that being prolific does not imply being influential in this area. The keyword patterns showed some interesting potential areas of study on this topic. The findings of this paper provide insight to the research on the analysis of the influence of CSR on earnings management. The most important findings consist of a number of gaps in the literature, such as gender diversity, voluntary disclosure of information and existence of an audit committee, among others, that allow for future fields of research to improve the analysis of the influence of CSR in EM. This research should also prove helpful to managers, owners and auditors. This is the first bibliometric review developed on this topic and it can be extrapolated to any place in the world. Full article
(This article belongs to the Collection Corporate Social Responsibility in Finance)
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16 pages, 1162 KiB  
Article
Consequences of COVID-19 on Banking Sector Index: Artificial Neural Network Model
by Hamzeh F. Assous and Dania Al-Najjar
Int. J. Financial Stud. 2021, 9(4), 67; https://doi.org/10.3390/ijfs9040067 - 3 Dec 2021
Cited by 17 | Viewed by 87368
Abstract
The World Health Organization officially declared COVID-19 a global pandemic on 11 March 2020. In this study, we examine the effect of COVID-19 indicators and policy response on the Saudi banking index. COVID-19 variables that were applied are: new confirmed and fatal COVID-19 [...] Read more.
The World Health Organization officially declared COVID-19 a global pandemic on 11 March 2020. In this study, we examine the effect of COVID-19 indicators and policy response on the Saudi banking index. COVID-19 variables that were applied are: new confirmed and fatal COVID-19 cases in Saudi Arabia; lockdowns; first and second decreases in interest rates; regulations, and oil prices. We implemented the analysis by running a stepwise regression analysis then building an artificial neural network (ANN) model. According to regression findings, oil prices and new confirmed cases have had a significant positive effect on the Saudi banking index. Nevertheless, the lockdown announcements in Saudi Arabia and the first decrease in interest rates had a significant negative effect on the Saudi banking index. To enhance the performance of the linear regression model, the ANN model was built. Findings showed that the ranking of the variables in terms of their importance is: oil price, number of confirmed cases, lockdown announcements, decrease in interest rates, and lastly, regulations. Full article
(This article belongs to the Special Issue COVID-19 and the Stability of the Financial System)
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29 pages, 522 KiB  
Article
Information Disclosure in China’s Rising Securitization Market
by Xueer Chen and Chao Wang
Int. J. Financial Stud. 2021, 9(4), 66; https://doi.org/10.3390/ijfs9040066 - 1 Dec 2021
Cited by 3 | Viewed by 3653
Abstract
E-commerce and FinTech are currently booming in China. The growing consumer market is accompanied by internet finance, by which consumers can easily borrow money from financial institutions online. As a result, the growing risks of financial institutions are of concern to the government [...] Read more.
E-commerce and FinTech are currently booming in China. The growing consumer market is accompanied by internet finance, by which consumers can easily borrow money from financial institutions online. As a result, the growing risks of financial institutions are of concern to the government and regulatory bodies. Consequently, the securitization market in China is seeing rapid growth that could affect financial stability. Applying FinTech and emerging technologies in securitization might be an effective way to protect against these risks. This paper studies the question of whether China needs a higher standard of information transparency in order to protect against its risks against the background of digital transformation. We analyzed the determinants of securitization in the Chinese banking sector, relying on data on banks for two periods: pre-2017Q4 and post-2017Q4. The main findings of the paper demonstrate that the application of FinTech in China’s banking industry resulted in less information asymmetry. The risk exposure was the most significant determinant in general. Higher risk exposures increased securitization transaction volumes, which reflects securitization with adverse selection problems between the originator and investors. Liquidity and profitability, as important determinants indicating the moral hazard problem, also affected securitization pre-2017Q4, but liquidity and profitability were found to be unimportant determinants after the application of FinTech (the post-2017Q4 period). Moreover, this study finds that the effects of the adverse selection and moral hazard problems varied in different types of banks. Overall, our findings suggest that the Chinese securitization market needs a higher standard of information transparency. Full article
(This article belongs to the Special Issue The Financial Industry 4.0 Part 2)
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33 pages, 423 KiB  
Article
Reliability and Accuracy of Alternative Default Prediction Models: Evidence from Slovakia
by Daniela Rybárová, Helena Majdúchová, Peter Štetka and Darina Luščíková
Int. J. Financial Stud. 2021, 9(4), 65; https://doi.org/10.3390/ijfs9040065 - 30 Nov 2021
Cited by 3 | Viewed by 2555
Abstract
The aim of this paper is to assess the reliability of alternative default prediction models in local conditions, with subsequent comparison with other generally known and globally disseminated default prediction models, such as Altman’s Z-score, Quick Test, Creditworthiness Index, and Taffler’s Model. The [...] Read more.
The aim of this paper is to assess the reliability of alternative default prediction models in local conditions, with subsequent comparison with other generally known and globally disseminated default prediction models, such as Altman’s Z-score, Quick Test, Creditworthiness Index, and Taffler’s Model. The comparison was carried out on a sample of 90 companies operating in the Slovak Republic over a period of 3 years (2016, 2017, and 2018) with a narrower focus on three sectors: construction, retail, and tourism, using alternative default prediction models, such as CH-index, G-index, Binkert’s Model, HGN2 Model, M-model, Gulka’s Model, Hurtošová’s Model, Model of Delina and Packová, and Binkert’s Model. To verify the reliability of these models, tests of the significance of statistical hypotheses were used, such as type I and type II error. According to research results, the highest reliability and accuracy was achieved by an alternative local Model of Delina and Packová. The least reliable results within the list of models were reported by the most globally disseminated model, Altman’s Z-score. Significant differences between sectors were identified. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
21 pages, 869 KiB  
Article
Board Gender Diversity and Cash Holdings: Empirical Evidence from the European Sport and Leisure Sector
by Panagiotis E. Dimitropoulos and Konstantinos Koronios
Int. J. Financial Stud. 2021, 9(4), 64; https://doi.org/10.3390/ijfs9040064 - 26 Nov 2021
Cited by 12 | Viewed by 3475
Abstract
The scope of this study is to examine the impact of board gender diversity on corporate cash-holding decisions within the European sport and leisure sector. A sample of 125 unique firms was selected for the period from 2008 to 2019, and analysis was [...] Read more.
The scope of this study is to examine the impact of board gender diversity on corporate cash-holding decisions within the European sport and leisure sector. A sample of 125 unique firms was selected for the period from 2008 to 2019, and analysis was performed using panel fixed-effects regressions. Empirical evidence documented that the higher the number of women serving on the board of directors, the higher the level of cash the firm holds. This result is attributed to the critical mass theory of governance, suggesting that boards having at least two women directors are associated with higher cash holdings compared to firms with one or no women directors. Additionally, gender diversity leads to increased cash holdings for firms with lower governance quality, suggesting that women on boards perform a monitoring role within those firms with the most severe agency problems. The results remain robust after several sensitivity tests controlling for potential endogeneity among the variables and the model’s functional form. Full article
(This article belongs to the Special Issue Financing Sport and Leisure: Contemporary Issues and Prospects)
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22 pages, 613 KiB  
Article
Validation of Corporate Probability of Default Models Considering Alternative Use Cases
by Michael Jacobs, Jr.
Int. J. Financial Stud. 2021, 9(4), 63; https://doi.org/10.3390/ijfs9040063 - 24 Nov 2021
Cited by 3 | Viewed by 4611
Abstract
In this study, we consider the construction of through-the-cycle (“TTC”) PD models designed for credit underwriting uses and point-in-time (“PIT”) PD models suitable for early warning uses, considering which validation elements should be emphasized in each case. We build PD models using a [...] Read more.
In this study, we consider the construction of through-the-cycle (“TTC”) PD models designed for credit underwriting uses and point-in-time (“PIT”) PD models suitable for early warning uses, considering which validation elements should be emphasized in each case. We build PD models using a long history of large corporate firms sourced from Moody’s, with a large number of financial, equity market and macroeconomic variables as candidate explanatory variables. We construct a Merton model-style distance-to-default (“DTD”) measure and build hybrid structural reduced-form models to compare with the financial ratio and macroeconomic variable-only models. In the hybrid models, the financial and macroeconomic explanatory variables still enter significantly and improve the predictive accuracy of the TTC models, which generally lag behind the PIT models in that performance measure. We conclude that care must be taken to judiciously choose the manner in which we validate TTC vs. PIT models, as criteria may be rather different and be apart from standards such as discriminatory power. This study contributes to the literature by providing expert guidance to credit risk modeling, model validation and supervisory practitioners in controlling the model risk associated with such modeling efforts. Full article
(This article belongs to the Special Issue Corporate Finance)
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21 pages, 561 KiB  
Article
Do CEO Duality and Ownership Concentration Impact Dividend Policy in Emerging Markets? The Moderating Effect of Crises Period
by Anis El Ammari
Int. J. Financial Stud. 2021, 9(4), 62; https://doi.org/10.3390/ijfs9040062 - 7 Nov 2021
Cited by 6 | Viewed by 5098
Abstract
Despite developments of recent theoretical and numerous empirical studies on the policies effectively adopted by companies, the dividend distribution policy (DDP) remains largely unexplained. In this regard, the main purpose of the current study is to empirically examine the effects of both CEO [...] Read more.
Despite developments of recent theoretical and numerous empirical studies on the policies effectively adopted by companies, the dividend distribution policy (DDP) remains largely unexplained. In this regard, the main purpose of the current study is to empirically examine the effects of both CEO duality and ownership concentration on DDP during a crisis period. Furthermore, we test, using an interaction variable, the moderating effect of the crisis period on the association between both the degree of CEO duality and the ownership concentration on the DDP by analyzing panel data on selected listed firms in an emerging economy, namely, Tunisia. Based on a sample made up of 576 firm-year observations over the period 1996–2019, the findings of this research indicate that the crisis period plays an important role in mitigating the positive effect of both CEO duality and ownership concentration on DDP. The findings confirm furthermore that the crisis period on the one hand and both CEO duality and ownership concentration on the other represent two competing forces influencing DDP. Our results also support the agency theory on which DDP depends, among other things, family ownership, board and company size, and ROE. Full article
(This article belongs to the Special Issue Corporate Finance)
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20 pages, 342 KiB  
Article
CEO Compensation in Korea: Is It Different than in the US? A Comparison between Korean Non-Life Insurance Firms and US Property-Liability Insurance Firms
by Sangyong Han and Hyejeong Mun
Int. J. Financial Stud. 2021, 9(4), 61; https://doi.org/10.3390/ijfs9040061 - 3 Nov 2021
Cited by 1 | Viewed by 3326
Abstract
This study investigates the level, structure, and pay-for-performance relationship of CEO compensation in Korean non-life insurance companies. We find that seniority plays an important role in setting CEO compensation practices and that performance-based pay, such as bonus, is more effective than base salary [...] Read more.
This study investigates the level, structure, and pay-for-performance relationship of CEO compensation in Korean non-life insurance companies. We find that seniority plays an important role in setting CEO compensation practices and that performance-based pay, such as bonus, is more effective than base salary in enhancing shareholder value for Korean non-life insurers. Unlike previous studies that show that international differences in executive pay have been diminished considerably since the 2000s, our evidence shows that there is a remarkable difference in CEO compensation between Korean non-life insurers and U.S. property-liability insurers. Furthermore, we provide evidence that the pay-performance relationship is weaker in Korean non-life insurance companies relative to US counterparts, suggesting that it is necessary for Korean non-life insurers to tie performance-based compensation more closely to shareholder value in the design of CEO compensation. Full article
(This article belongs to the Special Issue Corporate Finance)
13 pages, 812 KiB  
Article
The Relation between Intraday Limit Order Book Depth and Spread
by Alexandre Aidov and Olesya Lobanova
Int. J. Financial Stud. 2021, 9(4), 60; https://doi.org/10.3390/ijfs9040060 - 1 Nov 2021
Viewed by 3581
Abstract
Prior studies that examine the relation between market depth and bid–ask spread are often limited to the first level of the limit order book. However, the full limit order book provides important information beyond the first level about the depth and spread, which [...] Read more.
Prior studies that examine the relation between market depth and bid–ask spread are often limited to the first level of the limit order book. However, the full limit order book provides important information beyond the first level about the depth and spread, which affects the trading decisions of market participants. This paper examines the intraday behavior of depth and spread in the five-deep limit order book and the relation between depth and spread in a futures market setting. A dummy-variables regression framework is employed and is estimated using the generalized method of moments (GMM). Results indicate an inverse U-shaped pattern for depth and an increasing pattern for spread. After controlling for known explanatory factors, an inverse relation between the limit order book depth and spread is documented. The inverse relation holds for depth and spread at individual levels in the limit order book as well. Results indicate that market participants actively manage both the price (spread) and quantity (depth) dimensions of liquidity along the five-deep limit order book. Full article
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17 pages, 5104 KiB  
Article
Supply Chain Finance: Cost–Benefit Differentials under Reverse Factoring with Extended Payment Terms
by Hans-Martin Beyer and Bodo Herzog
Int. J. Financial Stud. 2021, 9(4), 59; https://doi.org/10.3390/ijfs9040059 - 25 Oct 2021
Cited by 5 | Viewed by 4948
Abstract
This article studies the effects of reverse factoring in a supply chain when the buyer company facilitates its lower short-term borrowing rates to the supplier corporation in return for extended payment terms. We explore the role of interest rate changes, rating changes, and [...] Read more.
This article studies the effects of reverse factoring in a supply chain when the buyer company facilitates its lower short-term borrowing rates to the supplier corporation in return for extended payment terms. We explore the role of interest rate changes, rating changes, and the business cycle position on the cost and benefit trade-off from a supplier perspective. We utilize a combined empirical approach consisting of an event study in Step 1 and a simulation model in Step 2. The event study identifies the quantitative magnitude of central bank decisions and rating changes on the interest rate differential. The simulation computes with a rolling-window methodology the daily cost and benefits of reverse factoring from 2010 to 2018 under the assumption of the efficient market hypothesis. Our major finding is that changes of crucial financial variables such as interest rates, ratings, or news alerts will turn former win–win into win–lose situations for the supplier contingent to the business cycle. Overall, our results exhibit sophisticated trade-offs under reverse factoring and consequently require a careful evaluation in managerial decisions. Full article
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42 pages, 852 KiB  
Article
Artificial Intelligence Approach to Momentum Risk-Taking
by Ivan Cherednik
Int. J. Financial Stud. 2021, 9(4), 58; https://doi.org/10.3390/ijfs9040058 - 21 Oct 2021
Cited by 3 | Viewed by 5571
Abstract
We propose a mathematical model of momentum risk-taking, which is essentially real-time risk management focused on short-term volatility. Its implementation, a fully automated momentum equity trading system, is systematically discussed in this paper. It proved to be successful in extensive historical and real-time [...] Read more.
We propose a mathematical model of momentum risk-taking, which is essentially real-time risk management focused on short-term volatility. Its implementation, a fully automated momentum equity trading system, is systematically discussed in this paper. It proved to be successful in extensive historical and real-time experiments. Momentum risk-taking is one of the key components of general decision-making, a challenge for artificial intelligence and machine learning. We begin with a new mathematical approach to news impact on share prices, which models well their power-type growth, periodicity, and the market phenomena like price targets and profit-taking. This theory generally requires Bessel and hypergeometric functions. Its discretization results in some tables of bids, basically, expected returns for main investment horizons, the key in our trading system. A preimage of our approach is a new contract card game. There are relations to random processes and the fractional Brownian motion. The ODE we obtained, especially those of Bessel-type, appeared to give surprisingly accurate modeling of the spread of COVID-19. Full article
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18 pages, 2278 KiB  
Article
Did Financial Consumers Benefit from the Digital Transformation? An Empirical Investigation
by Soojin Park, Prida Erni Kesuma and Man Cho
Int. J. Financial Stud. 2021, 9(4), 57; https://doi.org/10.3390/ijfs9040057 - 18 Oct 2021
Cited by 2 | Viewed by 3300
Abstract
This study aimed to test, through empirical investigation, how the rapid advancement of digital transformation (DT) has impacted the price of financial services. To this end, we compiled a set of macro-level indicators on the aggregate outcomes of the financial services sector in [...] Read more.
This study aimed to test, through empirical investigation, how the rapid advancement of digital transformation (DT) has impacted the price of financial services. To this end, we compiled a set of macro-level indicators on the aggregate outcomes of the financial services sector in Korea over the last three decades and conducted an analysis to gauge the effects of DT on the country using those indicators. Using the ARDL-ECM (autoregressive distributed lag error-correction model), we show that, over time, the unit cost of financial intermediation in Korea has tended to move in tandem with the growth in economic output, although the profit portion of the unit cost has not exhibited a long-term relationship with the GDP trend. The long-term effect of the DT trend is negative (i.e., cost-saving) for labor input, capital expenditure, and the total unit cost of financial intermediation, which are all shown to be statistically significant. Consequently, we conclude that DT contributed to enhancing consumer benefit, mainly by achieving the operational efficiency of labor and capital, from 1990 to 2019 in Korea. From a policy perspective, our finding implies that DT-driven innovation in the sector can benefit financial customers if excessive levels of profit are restrained through market competition. Full article
(This article belongs to the Special Issue The Financial Industry 4.0 Part 2)
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19 pages, 927 KiB  
Article
The Effect of Quantitative Easing through Google Metrics on US Stock Indices
by Nikoletta Poutachidou and Stephanos Papadamou
Int. J. Financial Stud. 2021, 9(4), 56; https://doi.org/10.3390/ijfs9040056 - 3 Oct 2021
Cited by 5 | Viewed by 4040
Abstract
The purpose of this study is to investigate the fluctuations that occur in stock returns of US stock indices when there is an increase in the volume of Google internet searches for the phrase “quantitative easing” in the US. The exponential generalized autoregressive [...] Read more.
The purpose of this study is to investigate the fluctuations that occur in stock returns of US stock indices when there is an increase in the volume of Google internet searches for the phrase “quantitative easing” in the US. The exponential generalized autoregressive conditional heteroscedasticity model (EGARCH) was applied based on weekly data of stock indices using the three-factor model of Fama and French for the period of 1 January 2006 to 30 October 2020. The existence of a statistically significant relationship between searches and financial variables, especially in the stock market, is evident. The result is strong in three of the four stock indices studied. Specifically, the SVI index was statistically significant, with a positive trend for the S&P 500 and Dow Jones indices and a negative trend for the VIX index. Investor focus on quantitative easing (QE), as determined by Google metrics, seems to calm stock market volatility and increase stock returns. Although there is a large body of research using Google Trends as a crowdsourcing method of forecasting stock returns, this paper is the first to examine the relationship between the increase in internet searches of “quantitative easing” and stock market returns. Full article
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21 pages, 2109 KiB  
Article
Buy Now and Pay (Dearly) Later: Unraveling Consumer Financial Spinning
by Olivier Mesly
Int. J. Financial Stud. 2021, 9(4), 55; https://doi.org/10.3390/ijfs9040055 - 29 Sep 2021
Cited by 2 | Viewed by 4471
Abstract
In this challenging and innovative article, we propose a framework for the consumer behavior named “consumer financial spinning”. It occurs when borrowers-consumers of products with high financial stakes accumulate unsustainable debt and disconnect from their initial financial hierarchy of needs, wealth-related goals, and [...] Read more.
In this challenging and innovative article, we propose a framework for the consumer behavior named “consumer financial spinning”. It occurs when borrowers-consumers of products with high financial stakes accumulate unsustainable debt and disconnect from their initial financial hierarchy of needs, wealth-related goals, and preferences over their household portfolio of assets. Three behaviors characterize daredevil consumers as they spin their wheel of misfortune, which together form a dark financial triangle: overconfidence, use of rationed rationality, and deceitfulness. We provokingly adapt some of the tenets of the Markowitz and Capital Asset Pricing models in the context of the predatory paradigm that consumer financial spinning entails and use modeling principles from the data percolation methodology. We partially test the proposed framework and show under what realistic conditions the relationship between expected returns and risk may depart from linearity. Our analysis and results appear timely and important because a better understanding of the psychological conditions that fuel intense speculation may restrain market frictions, which historically have kept reappearing and are likely to reoccur on a regular basis. Full article
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17 pages, 469 KiB  
Article
Corporate Social Practices and Firm Financial Performance: Empirical Evidence from France
by Sonia Boukattaya and Abdelwahed Omri
Int. J. Financial Stud. 2021, 9(4), 54; https://doi.org/10.3390/ijfs9040054 - 28 Sep 2021
Cited by 9 | Viewed by 4943
Abstract
The present work aimed to examine the association between Corporate Social performance (CSP) and corporate financial performance (CFP) taking into account corporate social irresponsibility. Here, we used a sample of French non-financial firms listed on SBF 120 between 2011 and 2016. Our findings [...] Read more.
The present work aimed to examine the association between Corporate Social performance (CSP) and corporate financial performance (CFP) taking into account corporate social irresponsibility. Here, we used a sample of French non-financial firms listed on SBF 120 between 2011 and 2016. Our findings provided evidence that corporate social responsibility (CSR) and corporate social irresponsibility (CSI) exert opposite effects on the CFP. Using an estimation of the vector autoregressive (VAR) model for panel data, we showed that the CSI has a greater and more lasting impact on CFP than CSR. Full article
(This article belongs to the Collection Corporate Social Responsibility in Finance)
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18 pages, 342 KiB  
Article
Uncovering Real Earnings Management: Pay Attention to Risk-Taking Behavior
by Samar Alharbi, Md Al Mamun and Nader Atawnah
Int. J. Financial Stud. 2021, 9(4), 53; https://doi.org/10.3390/ijfs9040053 - 23 Sep 2021
Cited by 11 | Viewed by 4997
Abstract
We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, [...] Read more.
We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm. Full article
(This article belongs to the Special Issue Corporate Finance)
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