|
on Central and Western Asia |
| By: | Souhir Ben Amor; Michael Althof; Wolfgang Karl H\"ardle |
| Abstract: | The fast-growing Emerging Market (EM) economies and their improved transparency and liquidity have attracted international investors. However, the external price shocks can result in a higher level of volatility as well as domestic policy instability. Therefore, an efficient risk measure and hedging strategies are needed to help investors protect their investments against this risk. In this paper, a daily systemic risk measure, called FRM (Financial Risk Meter) is proposed. The FRM-EM is applied to capture systemic risk behavior embedded in the returns of the 25 largest EMs FIs, covering the BRIMST (Brazil, Russia, India, Mexico, South Africa, and Turkey), and thereby reflects the financial linkages between these economies. Concerning the Macro factors, in addition to the Adrian and Brunnermeier (2016) Macro, we include the EM sovereign yield spread over respective US Treasuries and the above-mentioned countries currencies. The results indicated that the FRM of EMs FIs reached its maximum during the US financial crisis following by COVID 19 crisis and the Macro factors explain the BRIMST FIs with various degrees of sensibility. We then study the relationship between those factors and the tail event network behavior to build our policy recommendations to help the investors to choose the suitable market for in-vestment and tail-event optimized portfolios. For that purpose, an overlapping region between portfolio optimization strategies and FRM network centrality is developed. We propose a robust and well-diversified tail-event and cluster risk-sensitive portfolio allocation model and compare it to more classical approaches |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.05398&r=all |
| By: | Adesanya, Babatunde Moses; Adediji, Adebisi Moses; Okenna, Nwabueze Prince |
| Abstract: | The study examined the impact of stock exchange market activities on economic development in Nigerian economy. The study employs multiple regressions as a technique to measure the effect of stock exchange market development on the Nigerian economy. The Secondary Data used were into market capitalization (CAP), all share index (ALLSHARE) and total volume of transaction (TNOV) and were sourced from the Central Bank of Nigeria (CBN) statistical bulletin, 2019. The technique of data analysis used was the ordinary least square (OLS) method of estimation. Findings reveals that the market capitalization (CAP) had a positive relationship with GDP, with the relationship being statistically insignificant. ALLSHARE has a positive and significant relationship with GDP. TNOV has a positive and significant relationship with GDP. Therefore, it was recommended that Government should help to restore confidence to the market through regulatory authorities which will portray transparency, fair trading transactions and dealing in the stock exchange and consequently improve economic development. The SEC and NSE should put a very good advocacy programme in place to encourage and awaken Nigerians’ interest in the capital market as this will boost local participation in the market and as well enable local investors to absorb shares offloaded by foreign investors any time there was perceived economic instability. |
| Keywords: | stock exchange market, economic development, ordinary least square (OLS) |
| JEL: | E44 G10 |
| Date: | 2020–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106973&r=all |
| By: | Ozili, Peterson K |
| Abstract: | This paper examines whether high levels of financial inclusion is associated with greater financial risk. The findings reveal that higher account ownership is associated with greater financial risk through high nonperforming loan and high cost inefficiency in the financial sector of developed countries, advanced countries and transition economies. Increased use of debit cards, credit cards and digital finance products reduced risk in the financial sector of advanced countries and developed countries but not for transition economies and developing countries. The findings also show that the combined use of digital finance products with increased formal account ownership improves financial sector efficiency in developing countries while the combined use of credit cards with increased formal account ownership reduces insolvency risk and improves financial sector efficiency in developing countries. |
| Keywords: | financial inclusion, digital finance, Fintech, financial technology, nonperforming loans, efficiency, financial innovation, insolvency risk, credit card, debit card, formal accounts, account ownership, black swan |
| JEL: | G21 G28 O31 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105529&r=all |
| By: | Cobham, David; Macmillan, Peter; Mason, Connor; Song, Mengdi |
| Abstract: | We first outline the major trends in monetary policy frameworks, which are shifts towards inflation targeting and towards frameworks which offer higher degrees of monetary control. We then examine the economic performance (inflation and growth) associated with different frameworks, presenting unconditional and conditional analyses, running regressions weighted by GDP and population as well as by the number of countries, and using predictions of countries’ monetary policy framework choices to address the issue of endogeneity. We find some differences in performance associated with the different monetary policy frameworks, together with a general improvement over time which is explained in part by the trends towards inflation targeting and more precise monetary control but in part, and perhaps more strongly, reflects a more general trend towards better economic performance. |
| Keywords: | monetary policy framework, exchange rate targeting, inflation targeting, inflation, economic growth, weighted regressions |
| JEL: | E52 E61 F41 |
| Date: | 2021–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106985&r=all |
| By: | Léleng Kebalo (University of Lome) |
| Abstract: | Less analyzed, the impact of world oil prices on the economy of net oil-importing countries is becoming more significant due to the increase in oil consumption. This paper analyzes the linear and the nonlinear impact of world oil price on Togo's economic sectors based on annual time series from 1970 to 2017, using an unrestricted vector autoregressive (VAR) model. With the linear impact model, the results show that the world oil price shock does not affect the value-added of the economic sectors. As expected, Togo's economic sectors fail to affect the world oil price markets, which confirms that Togo, a small net oil-importing country, has no pricing power in the world oil markets. However, by using the VAR asymmetric impact model proposed by Mork (1989), we find that the impact of world oil price on economic sectors is nonlinear. Thus, positive changes in world oil price do not affect the value-added of economic sectors considered while the negative changes in oil price contribute to improve significantly the value-added of primary and secondary sectors, but not the tertiary sector. Finally, our analysis shows that the value-added of primary and secondary sectors affect respectively the value-added of the tertiary sector. The inverse is not true. This paper recommends that Togo must seek to take benefit from all negative changes in world oil price for boosting the value-added of their economic sectors. |
| Date: | 2020–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03157689&r=all |
| By: | Cristina Herghelegiu (ECARES, Université Libre de Bruxelles, B); Evgenii Monastyrenko (Department of Economics and Management, Université du Luxembourg) |
| Abstract: | Firms are exposed to important risks and costs when trading across borders. Based on a set of standardized rules known as Incoterms, firms decide ex ante how to delimit their responsibilities throughout the shipping process to reduce the inherent contractual frictions. This paper investigates how sellers and buyers share risks and costs in international trade transactions depending on the characteristics of the exchanged product. We rely on a highly detailed dataset involving all Russian exporters and their foreign customers during 2012-2015. Our results suggest that buyers are more likely to bear responsibilities for goods that are (a) more distant from final use and (b) less tailored to their specific needs. These results are reinforced for products that constitute important inputs for buyers but reversed when there is a positive difference between the buyer and the seller size. |
| Keywords: | Risks, Costs, Incoterms, Firms Exports. |
| JEL: | F14 D22 D23 L11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:20-24&r=all |
| By: | Claudia Custodio; Diogo Mendes; Daniel Metzger |
| Abstract: | This paper studies the impact of a course in finance for executives of medium and large enterprises through a randomized controlled trial (RCT) in Mozambique. Survey data and accounting data provide consistent evidence that managers change firm financial policies in response to finance education. The largest treatment effect is on short-term financial policies related to working capital. Reductions in accounts receivable and inventories generate an increase in cash flows used to finance long-term investments. Those changes also improve the performance of the treated firms. Overall, our results suggest that relatively small and low-cost interventions, such as a standard executive education program in finance, can help firms to mitigate financial constraints and potentially affect economic development. |
| JEL: | D4 G30 J24 L25 M41 O1 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unl:novafr:wp2105&r=all |
| By: | Kunal Pattanayak; Vikram Krishnamurthy |
| Abstract: | Are deep convolutional neural networks (CNNs) for image classification consistent with utility maximization behavior with information acquisition costs? This paper demonstrates the remarkable result that a deep CNN behaves equivalently (in terms of necessary and sufficient conditions) to a rationally inattentive utility maximizer, a model extensively used in behavioral economics to explain human decision making. This implies that a deep CNN has a parsimonious representation in terms of simple intuitive human-like decision parameters, namely, a utility function and an information acquisition cost. Also the reconstructed utility function that rationalizes the decisions of the deep CNNs, yields a useful preference order amongst the image classes (hypotheses). |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.04594&r=all |
| By: | Alan de Bromhead; Alan Fernihough; Markus Lampe; Kevin Hjortshøj O’Rourke (Division of Social Science) |
| Abstract: | This paper introduces a new dataset of commodity-specific, bilateral import data for four large Asian economies in the interwar period: China, the Dutch East Indies, India, and Japan. It uses these data to describe the interwar trade collapses in the economies concerned. These resembled the post-2008 Great Trade Collapse in some respects but not in others: they occurred along the intensive margin, imports of cars were particularly badly affected, and imports of durable goods fell by more than those of non-durables, except in China and India which were rapidly industrializing. On the other hand the import declines were geographically imbalanced, while prices were more important than quantities in driving the overall collapse. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nad:wpaper:20210063&r=all |
| By: | Norhanishah Mohamad Yunus (School of Distance Education, Universiti Sains Malaysia, Malaysia Author-2-Name: Noraida Abdul Wahob Author-2-Workplace-Name: Unit Peneraju Agenda Bumiputera, Prime Minister's Department,47810, Petaling Jaya, Selangor, Malaysia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | Objective - The purpose of this study is to investigate both "technology" and "knowledge" effects of foreign direct investment (FDI) on labour productivity in the medium-high manufacturing industries' classification in Malaysia. Methodology/Technique - This study employs a Seemingly Unrelated Regression (SUR) estimator. Findings - The results conclude that diffusion of knowledge, which increases labour productivity, is greater via "learning effects" as compared to the investor countries' capital investments in the medium-high manufacturing industries. Novelty - This study expands the body of knowledge about the benefits of FDI spillovers on labour productivity according to specific investor countries, however, are rarely researched particularly in developing countries and at the industry level. Type of Paper - Empirical. |
| Keywords: | Foreign Direct Investment; Labour Productivity; Technology Spillovers; Knowledge Spillovers |
| JEL: | E60 J24 |
| Date: | 2021–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jber199&r=all |
| By: | Hyungbin Park |
| Abstract: | This study investigates the influence of risk tolerance on the expected utility in the long run. We estimate the extent to which the expected utility of optimal portfolios is affected by small changes in the risk tolerance. For this purpose, we adopt the Malliavin calculus method and the Hansen--Scheinkman decomposition, through which the expected utility is expressed in terms of the eigenvalues and eigenfunctions of an operator. We conclude that the influence of risk aversion on the expected utility is determined by these eigenvalues and eigenfunctions in the long run. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.00911&r=all |
| By: | Andrey Kudryavtsev (Economics and Management Department, The Max Stern Yezreel Valley Academic College, Emek Yezreel 19300, Israel) |
| Abstract: | The study analyzes daily cross-sectional market-wide herd behavior as a potential factor that may help in predicting next day's stock returns. Assuming that herding may lead to stock price overreaction and result in subsequent price reversals, I suggest that for a given stock, daily returns should be higher (lower) following trading days characterized by negative (positive) stock's returns and high levels of herd behavior. Analyzing daily price data for all the constituents of S&P 500 Index over the period from 1993 to 2019, and using two alternative market-wide herding measures, I document that following trading days characterized by high levels of herding, stock returns tend to exhibit significant reversals, while following trading days characterized by low levels of herding, stock returns tend to exhibit significant drifts.This effect is found to be more pronounced for smaller and more volatile stocks. Based on the study's findings, I formulate a trading strategy and demonstrate that it yields significantly positive returns. |
| Keywords: | Behavioral Finance, herd behavior, herding, stock price drifts, stock price reversals, trading strategy. |
| JEL: | G11 G14 G19 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2021-04&r=all |
| By: | David McKenzie; Aakash Mohpal; Dean Yang |
| Abstract: | A randomized experiment among poor entrepreneurs tested the impact of exogenously inducing higher financial aspirations. In theory, raising aspirations could have positive effects by inducing higher effort, but could also reduce effort if unmet aspirations lead to frustration. Treatment resulted in more ambitious savings goals, but nearly all individuals fell far short of reaching these goals. Two years later, treated individuals had not saved more, and actually had lower borrowing and business investments. Treatment also reduced belief in the amount of control over one’s life. Setting aspirations too high can lead to frustration, leading individuals to reduce their economic investments. |
| JEL: | D14 G53 O12 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28607&r=all |
| By: | Virk, Nader (Plymouth Business School); Javed, Farrukh (Örebro University School of Business); Awartani, Basel (Westminster Business School) |
| Abstract: | We employ a battery of model evaluation tests for a broad-set of GARCH-MIDAS models and account for data snooping bias. We document that inferences based on standard tests for GM variance components can be misleading. Our data mining free results show that the gains of macro-variables in forecasting total (long run) variance by GM models are overstated (understated). Estimation of different components of volatility is crucial for designing differentiated investing strategies, risk management plans and pricing of derivative securities. Therefore, researchers and practitioners should be wary of data mining bias, which may contaminate a forecast that may appear statistically validated using robust evaluation tests. |
| Keywords: | GARCH-MIDAS models; component variance forecasts; macro-variables; data snooping |
| JEL: | C32 C52 G11 G17 |
| Date: | 2021–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2021_002&r=all |
| By: | Ozili, Peterson Kitakogelu |
| Abstract: | This study examines the correlation of economic policy uncertainty (EPU) across countries and regions. Using correlation analysis, the findings reveal that some countries have a positive EPU correlation while other countries have a negative EPU correlation. The economic policy uncertainty index is positively correlated and jointly significant for EU member-countries. There is evidence of cross-regional positive correlation. Also, the EPU correlations are significant for Europe, non-EU countries and the region of the Americas during the global financial crisis, which suggest that financial crises are a contributory factor that drives the correlation of economic policy uncertainty in certain regions. |
| Keywords: | economic policy uncertainty, European Union, uncertainty, economic policy, financial crisis, correlation, Asia, Europe, EPU index. |
| JEL: | E5 E52 K00 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105636&r=all |
| By: | Marthinus C. Breitenbach (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Carolyn Chisadza (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Matthew Clance (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | In this study we explore whether more complex economies are better shielded against exogenous shocks. We contribute to the empirical literature on determinants of output volatility by introducing a relatively new index on productive capabilities of export goods, the Economic Complexity Index (ECI), developed by Hausmann et al. (2014). The ECI measures the productive capabilities of countries by explaining the knowledge accumulated in a population based on the goods they produce and export and to which countries they export. As such, not only does this measure capture diversification but also the technology embedded in the products. Using panel data analysis for a cross section of countries from 1984 to 2016, we find variations in the effects of ECI on output volatility between high and low income countries. For high income countries, increases in ECI reduce output volatility in the short to medium term (under 3 years), whereas we observe a longer delay in output volatility moderation for low income countries. The findings suggest that low income countries have less diversified and less complex export goods which leave them open to external shocks and reduce their ability to adjust quickly to the shocks. Furthermore, disaggregation by regions reveals that economic complexity in Asia is relatively more effective at reducing output volatility than in Africa. The difference between the two regions could be due to Africa’s primary production and exports being in relatively homogenous goods with no differentiation and subject to the volatility of world markets. |
| Keywords: | output volatility, export diversification, economic complexity, panel data, high vs low income countries, fixed effects model, ECI |
| JEL: | E32 F10 C23 O57 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202125&r=all |
| By: | Jonas E. Arias; Jesús Fernández-Villaverde; Juan Rubio Ramírez; Minchul Shin |
| Abstract: | We present a general framework for Bayesian estimation and causality assessment in epidemiological models. The key to our approach is the use of sequential Monte Carlo methods to evaluate the likelihood of a generic epidemiological model. Once we have the likelihood, we specify priors and rely on a Markov chain Monte Carlo to sample from the posterior distribution. We show how to use the posterior simulation outputs as inputs for exercises in causality assessment. We apply our approach to Belgian data for the COVID-19 epidemic during 2020. Our estimated time-varying-parameters SIRD model captures the data dynamics very well, including the three waves of infections. We use the estimated (true) number of new cases and the time-varying effective reproduction number from the epidemiological model as information for structural vector autoregressions and local projections. We document how additional government-mandated mobility curtailments would have reduced deaths at zero cost or a very small cost in terms of output. |
| JEL: | C1 C5 I1 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28617&r=all |
| By: | Ho, Hoa |
| Abstract: | I examine whether stochastic contracts benefit the principal in the setting of moral hazard and loss aversion. Incorporating that the agent is expectation-based loss averse and allowing the principal to add noise to performance signals, I find that stochastic contracts reduce the principal's implementation cost in comparison with deterministic contracts. Surprisingly, if performance signals are highly informative about the agent's action, stochastic contracts strictly dominate the optimal deterministic contract for almost any degree of loss aversion. The optimal stochastic contract pays a high wage whenever the principal observes good performance signals, while upon observing bad performance signals it adds a lottery that gives either the high wage or a low wage that serves as a harsh penalty to the agent. In the general case when the agent is both risk and loss averse, I show that if a penalty wage (i.e., a wage level at which the agent feels a substantial disutility) exists, the first best can be approximated closely but not attained. The findings have an important implication for designing contracts for loss-averse agents: the principal should insure the agent against wage uncertainty by employing stochastic contracts that increase the probability of a high wage. |
| Keywords: | loss aversion; moral hazard; stochastic contracts; reference-dependent preferences |
| Date: | 2021–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:75307&r=all |
| By: | Ali Hirsa; Joerg Osterrieder; Branka Hadji Misheva; Wenxin Cao; Yiwen Fu; Hanze Sun; Kin Wai Wong |
| Abstract: | The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the market's expected volatility on the SP 500 Index, calculated and published by the Chicago Board Options Exchange (CBOE). It is also often referred to as the fear index or the fear gauge. The current VIX index value quotes the expected annualized change in the SP 500 index over the following 30 days, based on options-based theory and current options-market data. Despite its theoretical foundation in option price theory, CBOE's Volatility Index is prone to inadvertent and deliberate errors because it is weighted average of out-of-the-money calls and puts which could be illiquid. Many claims of market manipulation have been brought up against VIX in recent years. This paper discusses several approaches to replicate the VIX index as well as VIX futures by using a subset of relevant options as well as neural networks that are trained to automatically learn the underlying formula. Using subset selection approaches on top of the original CBOE methodology, as well as building machine learning and neural network models including Random Forests, Support Vector Machines, feed-forward neural networks, and long short-term memory (LSTM) models, we will show that a small number of options is sufficient to replicate the VIX index. Once we are able to actually replicate the VIX using a small number of SP options we will be able to exploit potential arbitrage opportunities between the VIX index and its underlying derivatives. The results are supposed to help investors to better understand the options market, and more importantly, to give guidance to the US regulators and CBOE that have been investigating those manipulation claims for several years. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.02119&r=all |
| By: | Yasuhiro Sakai (Faculty of Economics, Shiga University) |
| Abstract: | This paper aims to shed some new light on the Hicks-Morishima approach to the interdependence of several markets. In spite of its rather simple and ambitious framework for the interdependence of several markets, it is quite unfortunate that this approach has been rather neglected in the academic circle. I suppose that there are several reasons for this. First, the traditional general equilibrium approach developed by Lionel W. McKenjie, Gerald Debreu and Kenetth W. Arrow exclusively works with the good space rather than the price space. In contrast, the Hicks-Morishima approach based on Hicks' classical bookValue and Capital exclusively operates on the price space, thus against the current main stream of economic theory. Next, the majority of economics readers are usually familiar with the straightforward notion of demand and supply curves, but not with the twisted concept of excess demand curves. It is one of my main purpose to mend such unfortunate tendency, presumably proceeding toward the establishment of a new grand system of social science. We can learn new lessons from old teachings. |
| Keywords: | J.R. Hicks・M. Morishima・Value and Capital・excess demand curves・general equilibrium analysis・comparative statics |
| JEL: | B31 C62 D51 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:shg:dpapea:36&r=all |
| By: | Felbermayr, Gabriel (Kiel Institute, Kiel University); Morgan, T. Clifton (Rice University); Syropoulos, Constantinos (School of Economics); Yotov, Yoto (School of Economics) |
| Abstract: | We review a number of developments and trends in the literature on economic sanctions. We discuss salient contributions to the theoretical literature, data collection, and empirical work on the impact, effectiveness and success of sanctions in Economics and Political Science. Our interdisciplinary perspective highlights the existence of a stark contrast in the ways the two disciplines view and analyze sanctions. Taking advantage of this perspective, we identify potential directions for future work. Most importantly, we argue that moving toward a better understanding of the causes and consequences of economic sanctions requires a much tighter integration of concepts from Political Science and Economics and a more extensive interdisciplinary collaboration |
| Keywords: | Economic Sanctions; Embargoes; Sanction Theories; Sanction Data |
| JEL: | F13 F14 F51 |
| Date: | 2021–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:drxlwp:2021_011&r=all |
| By: | Lemus, Antonio; Pulgar, Carlos |
| Abstract: | Global trends show high levels of households’ indebtedness, not seen before, in developed and emerging economies that could affect countries’ financial stability. This paper develops an approach based on market aspects to estimate households’ debt thresholds, applicable to any economy where household financial survey and interest rate ceilings exist. We use statistical information from the 2017 Chile’s household financial survey. The results state that: The same debt threshold should not be used for all households as variables such as income affect it. Both short-term and long-term debt thresholds increase with households’ income level. The presence of mortgage debt increases debt thresholds. |
| Keywords: | debt thresholds, FBTI, DTI, approach, over-indebtedness |
| JEL: | C51 C58 D14 G21 G28 |
| Date: | 2021–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106958&r=all |
| By: | Anton Korinek (Darden School of Business, University of Virginia); Joseph E. Stiglitz (Columbia University) |
| Abstract: | Progress in artificial intelligence and related forms of automation technologies threatens to reverse the gains that developing countries and emerging markets have experienced from integrating into the world economy over the past half century, aggravating poverty and inequality. The new technologies have the tendency to be labor-saving, resource-saving, and to give rise to winner-takes-all dynamics that advantage developed countries. We analyze the economic forces behind these developments and describe economic policies that would mitigate the adverse effects on developing and emerging economies while leveraging the potential gains from technological advances. We also describe reforms to our global system of economic governance that would share the benefits of AI more widely with developing countries. |
| Keywords: | Artificial Intelligence, inequality, technological development, redistribution. |
| JEL: | E64 D63 O3 |
| Date: | 2021–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp146&r=all |
| By: | Timmer, Yannick |
| Abstract: | We study the implications of information technology (IT) in banking for financial stability, using data on US banks’ IT equipment and the tech-background of their executives. We find that one standard deviation higher pre-crisis IT adoption led to 10% fewer non-performing loans during the global financial crisis. We present several pieces of evidence that indicate a direct role of IT adoption in strengthening bank resilience; these include instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis reveals that high-IT adoption banks originated mortgages with better performance and did not offload low-quality loans. JEL Classification: O3, G21, G14, E44, D82, D83 |
| Keywords: | financial stability, it adoption, non-performing loans, technology |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021117&r=all |
| By: | \"Uzeyir Aydin; B\"u\c{s}ra A\u{g}an; \"Omer Aydin |
| Abstract: | The initial purpose of the study is to search whether the market exhibits herd behaviour or not by examining the crypto-asset market in the context of behavioural finance. And the second purpose of the study is to measure whether the financial information stimulates the herd behaviour or not. Within this frame, the announcements of the Federal Open Market Committee (FOMC), Governing Council of European Central Bank (ECB) and Policy Board of Bank of Japan (BOJ) for interest change, and S&P 500, Nikkei 225, FTSE 100 and GOLD SPOT indices data were used. In the study, the analyses were made over 100 cryptocurrencies with the highest trading volume by the use of the 2014:5 - 2019:12 period. For the analysis, the Markov Switching approach, as well as loads of empiric models developed by Chang et al. (2000), were used. According to the results obtained, the presence of herd behaviour in the crypto-asset market was determined in the relevant period. But it was found that interest rate announcements and stock exchange performances had no effect on herd behaviour. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.00763&r=all |
| By: | Alfred Galichon; Marc Henry |
| Abstract: | We propose a multivariate extension of Yaari's dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves first order stochastic dominance and satisfies comonotonic independence behaves as if evaluating prospects using a weighted sum of quantiles. Both the notions of quantiles and of comonotonicity are extended to the multivariate framework using optimal transportation maps. Finally, risk averse decision makers are characterized within this framework and their local utility functions are derived. Applications to the measurement of multi-attribute inequality are also discussed. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.02578&r=all |
| By: | Greg Philip Hannsgen (Greg Hannsgen's Economics Blog (US)) |
| Abstract: | This paper proposes a formalization of Hyman P. Minsky’s theory of financial instability. The model includes private-sector borrowing, capacity utilization, and the stock of private-sector debt. The model is based on self-reinforcing borrowing and output dynamics that repeatedly come to a sudden stop, with discontinuous downward jumps in the three variables. The paper treats as endogenous the instantaneous probability of a jump and the size distribution of jump vectors. Formally, the model comprises three ordinary differential equations and a compound Poisson process, with jumps drawn from a heavy-tailed stable distribution. The paper shows it can be stated in three equations in the jump differentials and the usual differentials. A section sketches a nonlinear mechanism that can bound the system. The paper analyzes the dynamics of a simplified version of the main model and a more-SFC model with feedbacks from debt to borrowing and capacity utilization via debt-service effects. The paper reports (1) eigenvalues for the linear parts of both the simplified analytical model and a numerical example of the more-SFC model, (2) a phase diagram for the analytical model, and, (3) analytical stability conditions for the more-SFC model. The model replicates the upward instability and abrupt crises of Minsky’s theory. |
| Keywords: | Minsky model, paradox of debt, Poisson process, financial crisis, dynamical macroeconomic model, Hyman P. Minsky, stable distribution, stock-flow consistency, theory of financial instability, dynamical systems, cádlág process, John Maynard Keynes |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2102&r=all |
| By: | Vladim\'ir Hol\'y; Michal \v{C}ern\'y |
| Abstract: | Finding Bertram's optimal trading strategy for a pair of cointegrated assets following the Ornstein-Uhlenbeck price difference process can be formulated as an unconstrained convex optimization problem for maximization of expected profit per unit of time. We generalize this model to the form where the riskiness of profit, measured by its per-time-unit volatility, is controlled (e.g. in case of existence of limits on riskiness of trading strategies imposed by regulatory bodies). The resulting optimization problem need not be convex. In spite of this undesirable fact, we demonstrate that it is still efficiently solvable. We also investigate the problem critical for practice that parameters of the price difference process are never known exactly and are imprecisely estimated from an observed finite sample. We show how the imprecision affects the optimal trading strategy and quantify the loss caused by the imprecise estimate compared to a theoretical trader knowing the parameters exactly. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.04160&r=all |
| By: | ; Andrew F. Haughwout; Haoyang Liu; Xiaohan Zhang |
| Abstract: | Housing represents the largest asset owned by most households and is a major means of wealth accumulation, particularly for the middle class. Yet there is limited understanding of how households view housing as an investment relative to financial assets, in part because of their differences beyond the usual risk and return trade-off. Housing offers households an accessible source of leverage and a commitment device for saving through an amortization schedule. For an owner-occupied residence, it also provides stability and hedges for rising housing costs. On the other hand, housing is much less liquid than financial assets and it also requires more time to manage. In this post, we use data from our just released SCE Housing Survey to answer several questions about how households view this choice: Do households view housing as a good investment choice in comparison to financial assets, such as stocks? Are there cross-sectional differences in preferences for housing as an investment? What are the factors households consider when making an investment choice between housing and financial assets? |
| Keywords: | housing; homeownership; financial assets |
| JEL: | D14 G11 G21 |
| Date: | 2021–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:90654&r=all |
| By: | Pratyush Muthukumar; Jie Zhong |
| Abstract: | Stock price forecasting is a highly complex and vitally important field of research. Recent advancements in deep neural network technology allow researchers to develop highly accurate models to predict financial trends. We propose a novel deep learning model called ST-GAN, or Stochastic Time-series Generative Adversarial Network, that analyzes both financial news texts and financial numerical data to predict stock trends. We utilize cutting-edge technology like the Generative Adversarial Network (GAN) to learn the correlations among textual and numerical data over time. We develop a new method of training a time-series GAN directly using the learned representations of Naive Bayes' sentiment analysis on financial text data alongside technical indicators from numerical data. Our experimental results show significant improvement over various existing models and prior research on deep neural networks for stock price forecasting. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.01290&r=all |
| By: | Andrew Clark (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Conchita Ambrosio (University of Luxembourg [Luxembourg]); Anthony Lepinteur (University of Luxembourg [Luxembourg]) |
| Abstract: | We here use panel data from the COME-HERE survey to track income inequality during COVID-19 in France, Germany, Italy, Spain and Sweden. Relative inequality in equivalent household disposable income among individuals changed in a hump-shaped way over 2020. An initial rise from January to May was more than reversed by September. Absolute inequality also fell over this period. As such, policy responses may have been of more benefit for the poorer than for the richer. |
| Keywords: | COVID-19,COME-HERE,Income Inequality |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03185534&r=all |
| By: | Falco J. Bargagli Stoffi; Kenneth De Beckker; Joana E. Maldonado; Kristof De Witte |
| Abstract: | Despite their popularity, machine learning predictions are sensitive to potential unobserved predictors. This paper proposes a general algorithm that assesses how the omission of an unobserved variable with high explanatory power could affect the predictions of the model. Moreover, the algorithm extends the usage of machine learning from pointwise predictions to inference and sensitivity analysis. In the application, we show how the framework can be applied to data with inherent uncertainty, such as students' scores in a standardized assessment on financial literacy. First, using Bayesian Additive Regression Trees (BART), we predict students' financial literacy scores (FLS) for a subgroup of students with missing FLS. Then, we assess the sensitivity of predictions by comparing the predictions and performance of models with and without a highly explanatory synthetic predictor. We find no significant difference in the predictions and performances of the augmented (i.e., the model with the synthetic predictor) and original model. This evidence sheds a light on the stability of the predictive model used in the application. The proposed methodology can be used, above and beyond our motivating empirical example, in a wide range of machine learning applications in social and health sciences. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.04382&r=all |
| By: | Livia Paranhos |
| Abstract: | This paper applies neural network models to forecast inflation. The use of a particular recurrent neural network, the long-short term memory model, or LSTM, that summarizes macroeconomic information into common components is a major contribution of the paper. Results from an exercise with US data indicate that the estimated neural nets usually present better forecasting performance than standard benchmarks, especially at long horizons. The LSTM in particular is found to outperform the traditional feed-forward network at long horizons, suggesting an advantage of the recurrent model in capturing the long-term trend of inflation. This finding can be rationalized by the so called long memory of the LSTM that incorporates relatively old information in the forecast as long as accuracy is improved, while economizing in the number of estimated parameters. Interestingly, the neural nets containing macroeconomic information capture well the features of inflation during and after the Great Recession, possibly indicating a role for nonlinearities and macro information in this episode. The estimated common components used in the forecast seem able to capture the business cycle dynamics, as well as information on prices. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.03757&r=all |
| By: | Ch V V S N V Prasad (BITS Pilani K K Birla Campus, Zuarinagar, 403726, Goa, India Author-2-Name: Sankalp Naik Author-2-Workplace-Name: BITS Pilani K K Birla Campus, Zuarinagar, 403726, Goa, India Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | Objective - In an enhanced climate of risk complexities, the firm's stakeholders desire a risk management framework that promises the benefits of efficiencies, transparencies, and solutions for interrelated risks. Enterprise risk management (ERM) is widely seen as a suitable instrument to address these issues. However, not all are convinced of ERM's benefits. This necessitates a review of extant literature and collating it to generate interrelated insights. This paper reviews articles on ERM from the management and finance domain and catalogs the benefits of ERM. Methodology/Technique: – This paper reviews 129 articles addressing ERM benefits. It examines the academic disciplines of journals publishing ERM studies by looking into their H Indices, SJR scores, and ABDC rankings to assess ERM's impact and acceptability among scholars. The research articles are analyzed for their subject domains, geographic scope, and methodology used in exploring the relationship between ERM adoption and its benefits to the firm. Collating and reviewing these articles enables the mitigation of data gaps. These studies were primarily from accounting, finance, management, corporate governance, and strategy domains. Findings – Improved cost-effectiveness, earnings stability, increased profitability, improved decision making, better risk communication, competitive advantage, better resource allocation, enhanced firm value, and performance are the key benefits of ERM adoption identified in this study. A knowledge gap is presented around assessing ERM benefits and extending ERM research scope to developing countries like India. Novelty – The study catalogs the benefits of ERM and makes a strong case for ERM adoption among firms. Type of Paper - Review |
| Keywords: | Enterprise risk management (ERM); firm value; firm performance; ERM benefits; Covid19 |
| JEL: | M10 M14 G30 G32 |
| Date: | 2021–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr181&r=all |
| By: | Tiago V. Cavalcanti; Joseph P. Kaboski; Bruno S. Martins; Cezar Santos |
| Abstract: | Most aggregate theories of financial frictions model credit available at a single cost of financing but rationed. However, using a comprehensive firm-level credit registry, we document both high levels and high dispersion in credit spreads to Brazilian firms. We develop a quantitative dynamic general equilibrium model in which dispersion in spreads arises from intermediation costs and market power. Calibrating to the Brazilian data, we show that, for equivalent levels of external financing, dispersion has more profound impacts on aggregate development than single-price credit rationing and yields firm dynamics that are more consistent with observed patterns. |
| JEL: | E44 O11 O16 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28635&r=all |
| By: | Sang Hu; Jan Obloj; Xun Yu Zhou |
| Abstract: | We develop an approach to solve Barberis (2012)'s casino gambling model in which a gambler whose preferences are specified by the cumulative prospect theory (CPT) must decide when to stop gambling by a prescribed deadline. We assume that the gambler can assist their decision using an independent randomization, and explain why it is a reasonable assumption. The problem is inherently time-inconsistent due to the probability weighting in CPT, and we study both precommitted and naive stopping strategies. We turn the original problem into a computationally tractable mathematical program, based on which we derive an optimal precommitted rule which is randomized and Markovian. The analytical treatment enables us to make several predictions regarding a gambler's behavior, including that with randomization they may enter the casino even when allowed to play only once, that whether they will play longer once they are granted more bets depends on whether they are in a gain or at a loss, and that it is prevalent that a naivite never stops loss. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.03157&r=all |
| By: | Jorino van Rhijn; Cornelis W. Oosterlee; Lech A. Grzelak; Shuaiqiang Liu |
| Abstract: | Generative adversarial networks (GANs) have shown promising results when applied on partial differential equations and financial time series generation. We investigate if GANs can also be used to approximate one-dimensional Ito stochastic differential equations (SDEs). We propose a scheme that approximates the path-wise conditional distribution of SDEs for large time steps. Standard GANs are only able to approximate processes in distribution, yielding a weak approximation to the SDE. A conditional GAN architecture is proposed that enables strong approximation. We inform the discriminator of this GAN with the map between the prior input to the generator and the corresponding output samples, i.e. we introduce a `supervised GAN'. We compare the input-output map obtained with the standard GAN and supervised GAN and show experimentally that the standard GAN may fail to provide a path-wise approximation. The GAN is trained on a dataset obtained with exact simulation. The architecture was tested on geometric Brownian motion (GBM) and the Cox-Ingersoll-Ross (CIR) process. The supervised GAN outperformed the Euler and Milstein schemes in strong error on a discretisation with large time steps. It also outperformed the standard conditional GAN when approximating the conditional distribution. We also demonstrate how standard GANs may give rise to non-parsimonious input-output maps that are sensitive to perturbations, which motivates the need for constraints and regularisation on GAN generators. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.01437&r=all |