|
on Risk Management |
|
Issue of 2023‒04‒03
thirty-two papers chosen by |
| By: | Yuru Sun; Worapree Maneesoonthorn; Ruben Loaiza-Maya; Gael M. Martin |
| Abstract: | This paper explores the implications of producing forecast distributions that are optimized according to scoring rules that are relevant to financial risk management. We assess the predictive performance of optimal forecasts from potentially misspecified models for i) value-at-risk and expected shortfall predictions; and ii) prediction of the VIX volatility index for use in hedging strategies involving VIX futures. Our empirical results show that calibrating the predictive distribution using a score that rewards the accurate prediction of extreme returns improves the VaR and ES predictions. Tail-focused predictive distributions are also shown to yield better outcomes in hedging strategies using VIX futures. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.01651&r=rmg |
| By: | Bert Van Roosebeke (International Association of Deposit Insurers); Ryan Defina (International Association of Deposit Insurers) |
| Abstract: | Drawing on a survey amongst IADI Members, this IADI Survey Brief takes stock of the incorporation of climate related issues in fund management by deposit insurers. It provides a snapshot of current deposit insurer practices, identifies deposit insurers’ expectations, and explores possibilities for future developments. |
| Keywords: | deposit insurance, bank resolution, ESG |
| JEL: | G21 G33 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:awl:surbri:5&r=rmg |
| By: | Stéphane Crépey (UPCité - UFR Mathématiques - Université Paris Cité - UFR Mathématiques [Sciences] - UPCité - Université Paris Cité) |
| Abstract: | Since the 2008 crisis, derivative dealers charge to their clients various add-ons, dubbed XVAs, meant to account for counterparty risk and its capital and funding implications. As banks cannot replicate jump-to-default related cash flows, deals trigger wealth transfers and shareholders need to set capital at risk. We devise an XVA policy, whereby so called contra-liabilities and cost of capital are sourced from bank clients at trade inceptions, on top of the fair valuation of counterparty risk, in order to guarantee to the shareholders a hurdle rate h on their capital at risk. The resulting all-inclusive XVA formula reads (CVA + FVA + KVA), where C sits for credit, F for funding, and where the KVA is a cost of capital risk premium. All these XVA metrics are portfolio-wide, nonnegative and, despite the fact that we include the default of the bank itself in our modeling, they are ultimately unilateral. This makes them naturally in line with the requirement that capital at risk and reserve capital should not decrease simply because the credit risk of the bank has worsened. An application of this approach to a dealer bank reveals, in particular, the XVA implications of the centrally cleared hedging side of the derivative portfolio of the bank. |
| Keywords: | Counterparty risk market incompleteness credit valuation adjustment (CVA) funding valuation adjustment (FVA) capital valuation adjustment (KVA) wealth transfer. central counterparties (CCP) Mathematics Subject Classification: 91B25 91B26 91B30 91G20 91G40 JEL Classification: D52 G13 G24 G28 G33 M41, Counterparty risk, market incompleteness, credit valuation adjustment (CVA), funding valuation adjustment (FVA), capital valuation adjustment (KVA), wealth transfer. central counterparties (CCP) |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03910135&r=rmg |
| By: | Chen Liu; Chao Wang; Minh-Ngoc Tran; Robert Kohn |
| Abstract: | We propose a new approach to volatility modelling by combining deep learning (LSTM) and realized volatility measures. This LSTM-enhanced realized GARCH framework incorporates and distills modeling advances from financial econometrics, high frequency trading data and deep learning. Bayesian inference via the Sequential Monte Carlo method is employed for statistical inference and forecasting. The new framework can jointly model the returns and realized volatility measures, has an excellent in-sample fit and superior predictive performance compared to several benchmark models, while being able to adapt well to the stylized facts in volatility. The performance of the new framework is tested using a wide range of metrics, from marginal likelihood, volatility forecasting, to tail risk forecasting and option pricing. We report on a comprehensive empirical study using 31 widely traded stock indices over a time period that includes COVID-19 pandemic. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.08002&r=rmg |
| By: | Arno Botha; Esmerelda Oberholzer; Janette Larney; Riaan de Jongh |
| Abstract: | The IFRS 9 accounting standard requires the prediction of credit deterioration in financial instruments, i.e., significant increases in credit risk (SICR). However, the definition of such a SICR-event is inherently ambiguous, given its reliance on comparing two subsequent estimates of default risk against some arbitrary threshold. We examine the shortcomings of this approach and propose an alternative framework for generating SICR-definitions, based on three parameters: delinquency, stickiness, and the outcome period. Having varied these parameters, we obtain 27 unique SICR-definitions and fit logistic regression models accordingly using rich South African mortgage data; itself containing various macroeconomic and obligor-specific input variables. This new SICR-modelling approach is demonstrated by analysing the resulting portfolio-level SICR-rates (of each SICR-definition) on their stability over time and their responsiveness to economic downturns. At the account-level, we compare both the accuracy and flexibility of the SICR-predictions across all SICR-definitions, and discover several interesting trends during this process. These trends form a rudimentary expert system for selecting the three parameters optimally, as demonstrated in our recommendations for defining SICR-events. In summary, our work can guide the formulation, testing, and modelling of any SICR-definition, thereby promoting the timeous recognition of credit losses; the main imperative of IFRS 9. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.03080&r=rmg |
| By: | Martin G\"achter; Elias Hasler; Florian Huber |
| Abstract: | We extend the existing growth-at-risk (GaR) literature by examining a long time period of 130 years in a time-varying parameter regression model. We identify several important insights for policymakers. First, both the level as well as the determinants of GaR vary significantly over time. Second, the stability of upside risks to GDP growth reported in earlier research is specific to the period known as the Great Moderation, with the distribution of risks being more balanced before the 1970s. Third, the distribution of GDP growth has significantly narrowed since the end of the Bretton Woods system. Fourth, financial stress is always linked to higher downside risks, but it does not affect upside risks. Finally, other risk indicators, such as credit growth and house prices, not only drive downside risks, but also contribute to increased upside risks during boom periods. In this context, the paper also adds to the financial cycle literature by completing the picture of drivers (and risks) for both booms and recessions over time. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.08920&r=rmg |
| By: | Yoosoon Chang; Ana María Herrera; Elena Pesavento |
| Abstract: | Using a novel approach to model regime switching with dynamic feedback and interactions, we extract latent mean and volatility factors in oil price changes. We illustrate how the volatility factor constitutes a useful measure of oil market risk (or oil price uncertainty) for policy makers and analysts as it captures uncertainty not reflected in other economic/financial uncertainty measures. Then, in the context of a VAR, we investigate the role of oil price uncertainty in driving inflation expectations and inflation anchoring. We show that shocks to the mean factor lead to higher expected inflation and inflation disagreement among professional forecasters and households. In contrast, shocks to the volatility factor act as aggregate demand shocks in that they result in lower expected inflation, yet they do increase disagreement about future inflation among professional forecasters and, especially, among households. We also provide econometric evidence suggesting the proposed endogenous volatility switching model can outperform other regime switching models. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0113&r=rmg |
| By: | Yaojun Zhang; Lanpeng Ji; Georgios Aivaliotis; Charles Taylor |
| Abstract: | Accuracy and interpretability of a (non-life) insurance pricing model are essential qualities to ensure fair and transparent premiums for policy-holders, that reflect their risk. In recent years, the classification and regression trees (CARTs) and their ensembles have gained popularity in the actuarial literature, since they offer good prediction performance and are relatively easily interpretable. In this paper, we introduce Bayesian CART models for insurance pricing, with a particular focus on claims frequency modelling. Additionally to the common Poisson and negative binomial (NB) distributions used for claims frequency, we implement Bayesian CART for the zero-inflated Poisson (ZIP) distribution to address the difficulty arising from the imbalanced insurance claims data. To this end, we introduce a general MCMC algorithm using data augmentation methods for posterior tree exploration. We also introduce the deviance information criterion (DIC) for the tree model selection. The proposed models are able to identify trees which can better classify the policy-holders into risk groups. Some simulations and real insurance data will be discussed to illustrate the applicability of these models. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.01923&r=rmg |
| By: | Matteo Smerlak |
| Abstract: | Returns distributions are heavy-tailed across asset classes. In this note, I examine the implications of this stylized fact for the joint statistics of performance and risk-adjusted return. Using both synthetic and real data, I show that the Sharpe ratio does not increase monotonically with performance: in a sample of price trajectories, the largest Sharpe ratios are associated with suboptimal mean returns; conversely, the best performance never corresponds to the largest Sharpe ratios. This counter-intuitive effect is unrelated to the risk-return tradeoff familiar from portfolio theory: it is a consequence of asymptotic correlations between the sample mean and sample standard deviation of heavy-tailed variables (which are absent in the Gaussian case). In addition to its very large sample noise, the non-monotonic association of the Sharpe ratio with performance puts into question its status as the gold standard of investment quality. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.08829&r=rmg |
| By: | Gianmarco Bet; Francesco Dainelli; Eugenio Fabrizi |
| Abstract: | We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that equilibrium may decay. The estimate of that probability is based on the credibility and uncertainty of the company's financial forecasts. Accordingly, we develop an equilibrium model establishing ranges of interest rates as a function of predictable corporate performance and of its credit supply conditions. As a result, our model estimates idiosyncratic default risk and provides intrinsically forward-looking PD. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.10140&r=rmg |
| By: | Chabakauri, Georgy; Rytchkov, Oleg |
| Abstract: | We theoretically analyze how index investing affects financial markets using a dynamic exchange economy with heterogeneous investors and two Lucas trees. We identify two ef- fects of indexing: lockstep trading of stocks increases market volatility and stock return correlations but reduction in risk sharing decreases them. Overall, indexing decreases market volatility but has an ambiguous effect on the correlations. Also, index invest- ing decreases an investor’s welfare, but indexing by other investors partially offsets the loss. When the introduction of index trading opens financial markets for new investors, the improved risk sharing makes market returns more volatile and stock returns more correlated. |
| Keywords: | indexing; risk sharing; Lucas trees; general equilibrium; heterogeneous investors; Paul Woolley Centre |
| JEL: | G12 D52 D53 |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105749&r=rmg |
| By: | Yoosoon Chang (Indiana University, Department of Economics); Hilde C. Bjornland (BI Norwegian Business School); Jamie L. Cross (BI Norwegian Business School) |
| Abstract: | This paper proposes a new mixed vector autoregression (MVAR) model to examine the relationship between aggregate time series and functional variables in a multivariate setting. The model facilitates a re-examination of the oil-stock price nexus by estimating the effects of demand and supply shocks from the global market for crude oil on the entire distribution of U.S. stock returns since the late 1980s. We show that the MVAR effectively extracts information from the returns distribution that is more relevant for understanding the oil-stock price nexus beyond simply looking at the first few moments. Using novel functional impulse response functions (FIRFs), we find that oil market demand and supply shocks tend to increase returns, reduce volatility, and have an asymmetric effect on the returns distribution as a whole. In a value-at-risk (VaR) analysis we also find that the oil market contains important information that reduces expected loss, and that the response of VaR to the oil market demand and supply shocks has changed over time. |
| Keywords: | Oil market, stock market, oil-stock price nexus, functional VAR. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2023005&r=rmg |
| By: | Congressional Budget Office |
| Abstract: | This report describes the size and nature of the federal government’s credit and insurance portfolios. For this analysis, CBO developed three measures of credit and insurance activity—the covered amount, the net covered amount, and the allowance for losses. |
| JEL: | G10 G18 G21 G22 G28 H12 H81 J32 Q54 |
| Date: | 2023–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:58614&r=rmg |
| By: | Brice Corgnet (Univ Lyon, Emlyon Business School, GATE UMR 5824, F-69130 Ecully, France); Roberto Hernan-Gonzalez (Burgundy School of Business, Dijon, France); Yao Thibaut Kpegli (Univ Lyon, Université Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Adam Zylbersztejn (Univ Lyon, Université Lyon 2, GATE UMR 5824, F-69130 Ecully, France; research fellow at Vistula University Warsaw (AFiBV), Warsaw, Poland) |
| Abstract: | The risk-incentives tradeoff (RIT) is a fundamental result of principal-agent theory. Yet, empirical evidence has been elusive. This could be due to a lack of robustness of the theory outside of the standard expected utility framework (EUT) or to confounding factors in the empirical tests. First, we theoretically study the existence of RIT under alternative theories: Rank-Dependent Utility (RDU) and Mean-Variance-Skewness (MVS). We show that RIT is remarkably robust under RDU, but not under MVS. Second, we use a novel experimental design that eliminates confounding factors and find evidence for RIT even in the case of risk-seeking agents, which is a distinct prediction of RDU. Our results provide support for the risk-incentives tradeoff and suggest that it applies to a broad range of situations including cases in which agents are risk-seeking (e.g., executive compensation). |
| Keywords: | Risk-Incentives Tradeoff, Rank-Dependent Utility, Mean-Variance-Skewness, Experiments |
| JEL: | C92 D23 D86 M54 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2305&r=rmg |
| By: | Hilde C. Bjørnland; Yoosoon Chang; Jamie L. Cross |
| Abstract: | This paper proposes a new mixed vector autoregression (MVAR) model to examine the relationship between aggregate time series and functional variables in a multivariate setting. The model facilitates a re examination of the oil-stock price nexus by estimating the effects of demand and supply shocks from the global market for crude oil on the entire distribution of U.S. stock returns since the late 1980s. We show that the MVAR effectively extracts information from the returns distribution that is more relevant for understanding the oil-stock price nexus beyond simply looking at the first few moments. Using novel functional impulse response functions (FIRFs), we find that oil market demand and supply shocks tend to increase returns, reduce volatility, and have an asymmetric effect on the returns distribution as a whole. In a value-at-risk (VaR) analysis we also find that the oil market contains important information that reduces expected loss, and that the response of VaR to the oil market demand and supply shocks has changed over time. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0114&r=rmg |
| By: | Henry Skeoch; Christos Ioannidis |
| Abstract: | Smooth risk transfer is a key condition for the development of an insurance market that is well-functioning and sustainable. The constantly evolving nature of cyber-threats and lack of public data sharing means the economic conditions required for quoted cyber-insurance premiums to be considered efficient are highly unlikely to be met. This paper develops Monte Carlo simulations of an artificial cyber-insurance market and compares the efficient and inefficient outcomes based on the informational setup between the market participants. The existence of diverse loss distributions is justified by the dynamic nature of cyber-threats and the absence of any reliable and centralised incident reporting. We show that the limited involvement of reinsurers when loss expectations are not shared leads to increased premia and lower overall capacity. This suggests that the sustainability of the cyber-insurance market requires both better data sharing and external sources of risk tolerant capital. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.02061&r=rmg |
| By: | Zhou Fang |
| Abstract: | In this paper, we present an extended exploratory continuous-time mean-variance framework for portfolio management. Our strategy involves a new clustering method based on simulated annealing, which allows for more practical asset selection. Additionally, we consider past wealth evolution when constructing the mean-variance portfolio. We found that our strategy effectively learns from the past and performs well in practice. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.02298&r=rmg |
| By: | Dorinel Bastide; Stéphane Crépey (UPCité - UFR Mathématiques - Université Paris Cité - UFR Mathématiques [Sciences] - UPCité - Université Paris Cité); Samuel Drapeau; Mekonnen Tadese |
| Abstract: | We present a one-period XVA model encompassing bilateral and centrally cleared trading in a unified framework with explicit formulas for most quantities at hand. We illustrate possible uses of this framework for running stress test exercises on a financial network from a clearing member's perspective or for optimizing the porting of the portfolio of a defaulted clearing member. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03910144&r=rmg |
| By: | Jaehyuk Choi; Jeonggyu Huh; Nan Su |
| Abstract: | This note improves the lower and upper bounds of the Black-Scholes implied volatility (IV) in Tehranchi (SIAM J. Financial Math., 7 (2016), p. 893). The proposed tighter bounds are systematically based on the bounds of the option delta. While Tehranchi used the bounds to prove IV asymptotics, we apply the result to the accurate numerical root-finding of IV. We alternatively formulate the Newton-Raphson method on the log price and demonstrate that the iteration always converges rapidly for all price ranges if the new lower bound found in this study is used as an initial guess. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.08758&r=rmg |
| By: | Pérez, Rafaela; Ruiz, Jesús; Guinea, Laurentiu |
| Abstract: | We examine the asymmetric effects of financial instability shocks and their volatility on the conventional and renewable energy mix. We utilize Chicago Board Options Exchange (CBOE) Volatility Index (VIX) and the Volatility-of-Volatility index (vVIX) in a nonlinear autoregressive distributed lag (NARDL) model to examine the short- and long-term asymmetry effects across energy mix in Europe, the US, and China. Furthermore, we examine the dynamic long-run asymmetry of financial instability shocks on the energy sector and how this relationship evolves over time. Our estimation indicate that the long-term effects over the energy mix are more significant than their short-term effects. The study found that the responses to the volatility of financial instability, vVIX, are different from the responses to financial instability itself, VIX. The impact is more noticeable on changes in the vVIX than on VIX. In the US, there is a higher inclination to adopt renewable energy during periods of lower volatility, whereas Europe tends to rely on natural gas when financial instability is high but decreases its use when volatility is low. China shows symmetrical responses for gas, oil, and coal but has asymmetrical responses for renewable energy, with a negative response to high financial stability and also negative response to high uncertainty volatility. Regarding dynamic asymmetry, we notice that for oil, the long-run asymmetry is similar in both Europe and the US, with the US showing a high level of stability. Similarly, coal demonstrates high stability in both Europe and the US, while China experienced a period of instability from 2017 to 2020. Moreover, in Europe, the stable periods for gas coincide with the unstable ones in the US. However, for renewable sources, the instability periods coincide for Europe and US, but China exhibits high stability in this regard. |
| Keywords: | Asymmetries; Financial Instability; Nardl; Renewable Energy; Vix; Volatility-Of-Volatility |
| JEL: | C12 C32 C58 G01 G13 G17 Q42 |
| Date: | 2023–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:36916&r=rmg |
| By: | Joseph de Vilmarest; Nicklas Werge |
| Abstract: | In this note, we address the problem of probabilistic forecasting using an adaptive volatility method based on classical time-varying volatility models and stochastic optimization algorithms. These principles were successfully applied in the recent M6 financial forecasting competition for both probabilistic forecasting and investment decision-making under the team named AdaGaussMC. The key points of our strategy are: (a) apply a univariate time-varying volatility model, called AdaVol, (b) obtain probabilistic forecasts of future returns, and (c) optimize the competition metrics using stochastic gradient-based algorithms. We claim that the frugality of the methods implies its robustness and consistency. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.01855&r=rmg |
| By: | Nicola Branzoli (Bank of Italy); Raffaele Gallo (Bank of Italy); Antonio Ilari (Bank of Italy); Dario Portioli (Bank of Italy) |
| Abstract: | This paper provides evidence that, by restoring market functioning, central banks' pandemic-related asset purchase programmes lowered payoff complementarities among investors in corporate bond funds, reinforcing asset managers' willingness to hold riskier assets to increase funds' returns. Controlling for potentially confounding factors, we show that funds more exposed to these interventions – i.e. those which immediately prior to the pandemic crisis held a high share of securities eligible for inclusion in purchase programmes – took on more credit and liquidity risks than less exposed ones. Risk-taking was stronger when more exposed funds under-performed their peers or held less liquid assets. We discuss the implications for the design of policy interventions in the aftermath of market stress and the regulation of the investment fund sector. |
| Keywords: | corporate bond funds, market stress, asset purchase programmes, risk-taking |
| JEL: | E50 G01 G11 G23 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1404_23&r=rmg |
| By: | Roberto Fontana; Patrizia Semeraro |
| Abstract: | Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of choosing a risk-neutral measure on convex derivative pricing in incomplete markets. We find analytical bounds for prices of European and American options in the class of all risk-neutral measures, and we also find simulated bounds for given classes of perturbations of the minimal martingale equivalent measure. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.08838&r=rmg |
| By: | Zhou Fang |
| Abstract: | We propose a virtual bidding strategy by modeling the price differences between the day-ahead market and the real-time market as Brownian motion with drift, where the drift rate and volatility are functions of meteorological variables. We then transform the virtual bidding problem into a mean-variance portfolio management problem, where we approach the mean-variance portfolio management problem by using the exploratory mean-variance portfolio management framework |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.02303&r=rmg |
| By: | Martin Chorzempa (Peterson Institute for International Economics); Nicolas Veron (Peterson Institute for International Economics) |
| Abstract: | China's reshuffle of its financial supervisory architecture announced in March, like previous changes, appears incremental rather than radical. It will not, however, resolve the main challenge hobbling China's financial system, which is not linked to specific choices of supervisory architecture but rather to the unfinished transition from a state-directed to a market-based financial system and the way the Chinese Communist Party's pervasive role creates obstacles to good corporate governance of individual financial firms and to the independence of supervisory authorities. Too often, political authorities and sometimes the supervisors themselves intervene directly in financial firms' decisions to allocate capital and credit, occasionally resulting in failures of risk control and risk management. The authors argue that Chinese reformers should aim at a clearer and more rigorous division of responsibilities, in which financial firms manage financial opportunities and risks, and supervisors are exclusively focused on their respective public policy mandates. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb23-1&r=rmg |
| By: | Cole, Harold L.; Krueger, Dirk; Mailath, George J.; Park, Yena |
| Abstract: | We analyze efficient risk-sharing arrangements when the value from deviating is determined endogenously by another risk sharing arrangement. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any coalition formed (joined) after deviations rely on a belief in future cooperation which we term "trust". We treat the contracting conditions of original and deviation coalitions symmetrically and show that higher trust tightens incentive constraints since it facilitates the formation of deviating coalitions. As a consequence, although trust facilitates the initial formation of coalitions, the extent of risk sharing in successfully formed coalitions is declining in the extent of trust and efficient allocations might feature resource burning or utility burning: trust is indeed a double-edged sword. |
| Keywords: | Coalitions, Limited Enforcement, Risk Sharing |
| JEL: | E21 G22 D11 D91 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:697&r=rmg |
| By: | Manuela M. Dantas; Kenneth J. Merkley; Felipe B. G. Silva |
| Abstract: | We propose four channels through which government guarantees affect banks' incentives to smooth income. Empirically, we exploit two complementary settings that represent plausible exogenous changes in government guarantees: the increase in implicit guarantees following the creation of the Eurozone and the removal of explicit guarantees granted to the Landesbanken. We show that increases (decreases) in government guarantees are associated with significant decreases (increases) in banks' income smoothing. Taken together, our results largely corroborate the predominance of a tail-risk channel, wherein government guarantees reduce banks' tail risk, thereby reducing managers' incentives to engage in income smoothing. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.03661&r=rmg |
| By: | Jad Bazih (ESC [Rennes] - ESC Rennes School of Business); Dieter Vanwalleghem (ESC [Rennes] - ESC Rennes School of Business) |
| Abstract: | This paper examines the determinants of the emerging market banks' derivative usage and the impact of derivative usage on bank value, total risk and bank stability. Our empirical evidence first suggests that derivative usage is driven primarily by net interest margin, bank concentration and institutional strength. In addition, although derivative usage appears to reduce emerging market bank value, it does not affect total risk. Moreover, emerging market banks can reduce bank instability using derivatives. Our findings have important implications for investors and policy makers focusing on emerging derivatives markets. |
| Keywords: | Banks, Derivatives, Emerging markets |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03329217&r=rmg |
| By: | Elie Bouri (School of Business, Lebanese American University, Beirut, Lebanon); David Gabauer (Software Competence Center Hagenberg, Hagenberg, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Harald Kinateder (School of Business, Economics and Information Systems, University of Passau, Germany) |
| Abstract: | In this paper, we examine the spillover across the monthly inflation rates (measured by the CPI) covering the USA, Canada, UK, Germany, France, Netherlands, Belgium, Italy, Spain, Portugal, and Greece. Using data covering the period from May 1963 to November 2022 within a time-varying spillover approach, we show that the total spillover index across the inflation rates spiked during the war in Ukraine period, exceeding its previous peak shown during the 1970s energy crisis. Notably, we apply a quantile-on-quantile regression and reveal that the total spillover index is positively associated with the level of global geopolitical risk (GPR) index. Levels of GPR are positively influencing high levels of the inflation spillover index, whereas the GPR Acts index is positively associated with all levels of inflation spillover index. Given that rising levels of inflation are posing risks to the financial system and economic growth, these findings should matter to the central banks and policymakers in advanced economies. They suggest that the policy response should go beyond conventional monetary tools by considering the political actions necessary to solve the Russia-Ukraine war and ease the global geopolitical tensions. |
| Keywords: | Inflation spillovers; geopolitical risk; TVP-VAR; dynamic connectedness |
| JEL: | C32 C5 G15 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202304&r=rmg |
| By: | H. T. Shehzad; M. A. Anwar; M. Razzaq |
| Abstract: | This paper presents a novel approach to predicting stock prices using technical analysis. By utilizing Ito's lemma and Euler-Maruyama methods, the researchers develop Heston and Geometric Brownian Motion models that take into account volatility, interest rate, and historical stock prices to generate predictions. The results of the study demonstrate that these models are effective in accurately predicting stock prices and outperform commonly used statistical indicators. The authors conclude that this technical analysis-based method offers a promising solution for stock market prediction. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.07796&r=rmg |
| By: | Dan A. Black; Jeffrey Grogger; Tom Kirchmaier; Koen Sanders |
| Abstract: | Domestic abuse is a pervasive global problem. Here we analyze two approaches to reducing violent DA recidivism. One involves charging the perpetrator with a crime; the other provides protective services to the victim on the basis of a formal risk assessment carried out by the police. We use detailed administrative data to estimate the average effect of treatment on the treated using inverse propensity-score weighting (IPW). We then make use of causal forests to study heterogeneity in the estimated treatment effects. We find that pressing charges substantially reduces the likelihood of violent recidivism. The analysis also reveals substantial heterogeneity in the effect of pressing charges. In contrast, the risk-assessment process has no discernible effect. |
| Keywords: | domestic abuse, charges, risk assessment, propensity score weighting , Crime |
| Date: | 2023–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1897&r=rmg |
| By: | Hanif, Mustufa |
| Abstract: | To great disappointment I must say that KSE was no more than a CASINO, infact it was even worse than a casino because in casino the liability of person is limited but here during crisis traders could even square their positions leading to bankruptcy and failures. This is the reason why foreign investors are not willing to participate in our market because we don’t rely on fundamentals and this is all due to our fault (the traders, government and the regulators).Regulators play a very fundamental role in our market and according to me these regulators are the main culprits behind the crisis because they have shake hands with market regulators ultimately creating a monopoly in market. When the market was in bullish trend the regulators set an easy flow of rules and procedures to boost and support the market but as market started declining the regulators acted as a policeman imposing more and more implications and rules causing a further decline in market.” What could one do if the gate keeper is self is a thief?” After the unfortunate decline witnessed in mid March, it is imperative that the investors preserve and retain strong positive economic fundamentals intact. This can only be done by taking clear cut steps on strict risk management issues concerning future liquidity and price sensitivity issues. At this point, investors must heighten concern on speculative moves, and the regulatory authority as well as the management of KSE should insure reforms that limit such moves. Opportunity to invest in future on a margin of 10%, implementing rules without prior notices, eleventh hour decision and investments, retrieval of information by big brokers through CDC …These all factors are also to be taken into consideration for further avoid such a catastrophic feature of the past to re-emerge. |
| Keywords: | Market Crash |
| JEL: | G1 |
| Date: | 2022–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116558&r=rmg |