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on Corporate Finance |
| By: | Michael McAleer (Econometrisch Instituut (Econometric Institute), Faculteit der Economische Wetenschappen (Erasmus School of Economics) Erasmus Universiteit, Tinbergen Instituut (Tinbergen Institute).); Juan-Ángel Jiménez-Martín (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid); Chia-Lin Chang (NCHU Department of Applied Economics (Taiwan)); Teodosio Pérez-Amaral (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid) |
| Abstract: | The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. McAleer, Jimenez-Martin and Perez- Amaral (2009) proposed a new approach to model selection for predicting VaR, consisting of combining alternative risk models, and comparing conservative and aggressive strategies for choosing between VaR models. This paper addresses the question of risk management of risk, namely VaR of VIX futures prices. We examine how different risk management strategies performed during the 2008-09 global financial crisis (GFC). We find that an aggressive strategy of choosing the Supremum of the single model forecasts is preferred to the other alternatives, and is robust during the GFC. However, this strategy implies relatively high numbers of violations and accumulated losses, though these are admissible under the Basel II Accord. |
| Keywords: | Median strategy, Value-at-Risk (VaR), daily capital charges, violation penalties, optimizing strategy, aggressive risk management, conservative risk management, Basel II Accord, VIX futures, global financial crisis (GFC). |
| JEL: | G32 G11 C53 C22 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1102&r=cfn |
| By: | Eklund , Johan (Jönköping International Business School and Ratio Institute); Poulsen, Thomas (Copenhagen Business School) |
| Abstract: | Shares with more voting rights than cash flow rights provide their owners with a disproportional influence that is often found to destroy the value of outside equity. This is taken as evidence of discretionary use of power. However, concentration of power does not necessarily result from control enhancing mechanisms; it could also be that some shareholders retain a large block in a one share-one vote structure. In this paper, we develop a methodology to disentangle disproportionality, which allows us to test the effect of deviations from one share-one vote more precisely. Our empirical findings add to the existing literature. |
| Keywords: | Ownership structure; one share-one vote; proportionality; performance; entrenchment |
| JEL: | G32 G34 |
| Date: | 2010–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0238&r=cfn |
| By: | Demirguc-Kunt , Asli; Huizinga, Harry |
| Abstract: | For an international sample of banks, the authors construct measures of a bank's absolute size and its systemic size defined as size relative to the national economy. They examine how a bank's risk and return, its activity mix and funding strategy, and the extent to which it faces market discipline depend on both size measures. Although absolute size presents banks with a trade-off between risk and return, systemic size is an unmitigated bad, reducing return without a reduction in risk. Despite too-big-to-fail subsidies, the analysis finds that systemically large banks are subject to greater market discipline as evidenced by a higher sensitivity of their funding costs to risk proxies, suggesting that they are often too big to save. The finding that a bank's interest cost tends to rise with its systemic size can also in part explain why a bank's rate of return on assets tends to decline with systemic size. Overall, the results cast doubt on the need to have systemically large banks. Bank growth has not been in the interest of bank shareholders in small countries, and it is not clear whether those in larger countries have benefited. Although market discipline through increasing funding costs should keep systemic size in check, clearly it has not been effective in preventing the emergence of such banks in the first place. Inadequate corporate governance structures at banks seem to have enabled managers to pursue high-growth strategies at the expense of shareholders, providing support for greater government regulation. |
| Keywords: | Banks&Banking Reform,Debt Markets,Economic Theory&Research,Access to Finance,Bankruptcy and Resolution of Financial Distress |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5576&r=cfn |