Journal of Risk Finance最新文献

{"title":"Comparative analysis of interest rate term structures in the Solvency II environment","authors":"Mariano González Sánchez, S. Rodriguez-Sanchez","doi":"10.1108/JRF-04-2020-0067","DOIUrl":"https://doi.org/10.1108/JRF-04-2020-0067","url":null,"abstract":"PurposeSolvency-II is the current regulatory framework of insurance companies in the European Union. Under this standard, European Insurance and Occupational Pension Authority (EIOPA), as a regulatory board, has established that the Smith–Wilson (SW) model can be used as the model to estimate interest rate curve. This paper aims to analyze whether this model adjusts to the market curve better than Nelson–Siegel (NS) and whether the values set for the parameters are adequate.Design/methodology/approachThis empirical study analyzes whether the SW interest rate curve shows lower root mean squared errors than the NS curve for a sample of daily prices of Spanish Government bonds between 2014 and 2019.FindingsThe results indicate that NS adjusts the market data better, the parameters recommended by the EIOPA correspond to the maximum values observed in the sample period and the current recommended curve for insurance companies underestimates company operations.Originality/valueThis paper verifies that the criterion of the last liquid point does not allow for selecting an optimal sample to adjust the curve and criteria based on prices without arbitrage opportunities are more appropriate.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":" ","pages":""},"PeriodicalIF":3.0,"publicationDate":"2021-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44404290","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"How dark is the dark side of diversification?","authors":"Pedro E. Cadenas, H. Gzyl, Hyunu Park","doi":"10.1108/JRF-07-2020-0161","DOIUrl":"https://doi.org/10.1108/JRF-07-2020-0161","url":null,"abstract":"This paper aims to illustrate, within the context of a well-known linear diversification model, that risk management as exerted by banks and regulators ultimately depends on how risk is assessed and conceptualized. The two risk metrics used are the probability of bank failure and value at risk (VaR). The paper also extends the results of the model by incorporating an explicit analysis of correlation of the bank's portfolios.,The paper is based on a well-known model of linear diversification of two banking institutions developed by Wagner (2010) in the Journal of Financial Intermediation. The authors added considerations that were unexplored by Wagner and derived the corresponding logical and practical implications.,The authors found that depending on which of the two risk metrics being used, the way diversification is perceived and risk is managed may differ. This situation may very well end-up generating different incentives for banks and regulators. The authors suggest a general rationale for considering how to think about the apparent dilemma and the challenges faced by regulators. The authors also offer an explicit analysis of correlation for the bank's portfolios.,The results are dependent on the particular aspects of the model, so the research results may lack generality in other contexts.,Despite the limitations already mentioned, the paper illustrates some relevant points within the open debate about risk measurement and diversification.,This paper contributes to the open discussion of diversification, risk perception and systemic crisis.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"22 1","pages":"44-55"},"PeriodicalIF":3.0,"publicationDate":"2020-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42540771","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"US policy uncertainty and stock returns: evidence in the US and its spillovers to the European Union, China and Japan","authors":"T. Chiang","doi":"10.1108/jrf-10-2019-0190","DOIUrl":"https://doi.org/10.1108/jrf-10-2019-0190","url":null,"abstract":"\u0000Purpose\u0000Recent empirical studies by Antonakakis, Chatziantoniou and Filis (2013), Brogaard and Detzel (2015) and Christou et al. (2017) present evidence, which supports the notion that a rise in economic policy uncertainty (EPU) will lead to a decline in stock prices. The purpose of this paper is to examine US categorical policy uncertainty on stock returns while controlling for implied volatility and downside risk. In addition to the domestic impacts of policy uncertainty, this paper also presents evidence that changes in US policy uncertainty promptly propagates to the global stock markets.\u0000\u0000\u0000Design/methodology/approach\u0000This study uses a GED-GARCH (1, 1) model to estimate changes of uncertainties in US monetary, fiscal and trade policies on stock returns for the sample period of January 1990–December 2018. Robustness test is conducted by using different set of data and modeling techniques.\u0000\u0000\u0000Findings\u0000This paper contributes to the literature in several aspects. First, testing of US aggregate data while controlling for downside risk and implied volatility, consistently, shows that responses of stock prices to US policy uncertainty changes, not only display a negative effect in the current period but also have at least a one-month time-lag. The evidence supports the uncertainty premium hypothesis. Second, extending the test to global data reveals that US policy uncertainty changes have a negative impact on markets in Europe, China and Japan. Third, testing the data in sectoral stock markets mainly displays statistically significant results with a negative sign. Fourth, the evidence consistently shows that changes in policy uncertainty present an inverse relation to the stock returns, regardless of whether uncertainty is moving upward or downward.\u0000\u0000\u0000Research limitations/implications\u0000The current research is limited to the markets in the USA, eurozone, China and Japan. This study can be extended to additional countries, such as emerging markets.\u0000\u0000\u0000Practical implications\u0000This paper provides a model that uses categorical policy uncertainty approach to explain stock price changes. The parametric estimates provide insightful information in advising investors for making portfolio decision.\u0000\u0000\u0000Social implications\u0000The estimated coefficients of changes in monetary policy uncertainty, fiscal policy uncertainty and trade policy uncertainty are informative in assisting policymakers to formulate effective financial policies.\u0000\u0000\u0000Originality/value\u0000This study extends the existing risk premium model in several directions. First, it separates the financial risk factors from the EPU innovations; second, instead of using EPU, this study investigates the effects from monetary policy, fiscal policy and trade policy uncertainties; third, in additional to an examination of the effects of US categorical policy uncertainties on its own markets, this study also investigates the spillover effects to global major markets; fourth, besides the aggregate stock markets, this study e","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"621-657"},"PeriodicalIF":3.0,"publicationDate":"2020-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/jrf-10-2019-0190","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41744336","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"A Monte Carlo evaluation of non-parametric estimators of expected shortfall","authors":"Julia S. Mehlitz, B. Auer","doi":"10.1108/jrf-07-2019-0122","DOIUrl":"https://doi.org/10.1108/jrf-07-2019-0122","url":null,"abstract":"\u0000Purpose\u0000Motivated by the growing importance of the expected shortfall in banking and finance, this study aims to compare the performance of popular non-parametric estimators of the expected shortfall (i.e. different variants of historical, outlier-adjusted and kernel methods) to each other, selected parametric benchmarks and estimates based on the idea of forecast combination.\u0000\u0000\u0000Design/methodology/approach\u0000Within a multidimensional simulation setup (spanned by different distributional settings, sample sizes and confidence levels), the authors rank the estimators based on classic error measures, as well as an innovative performance profile technique, which the authors adapt from the mathematical programming literature.\u0000\u0000\u0000Findings\u0000The rich set of results supports academics and practitioners in the search for an answer to the question of which estimators are preferable under which circumstances. This is because no estimator or combination of estimators ranks first in all considered settings.\u0000\u0000\u0000Originality/value\u0000To the best of their knowledge, the authors are the first to provide a structured simulation-based comparison of non-parametric expected shortfall estimators, study the effects of estimator averaging and apply the mentioned profiling technique in risk management.\u0000","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"355-397"},"PeriodicalIF":3.0,"publicationDate":"2020-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/jrf-07-2019-0122","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42144009","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Using the Shapley value of stocks as systematic risk","authors":"Haim Shalit","doi":"10.1108/jrf-08-2019-0149","DOIUrl":"https://doi.org/10.1108/jrf-08-2019-0149","url":null,"abstract":"This study aims to propose the Shapley value that originates from the game theory to quantify the relative risk of a security in an optimal portfolio.,Systematic risk as expressed by the relative covariance of stock returns to market returns is an essential measure in pricing risky securities. Although very much in use, the concept has become marginalized in recent years because of the difficulties that arise estimating beta. The idea is that portfolios can be viewed as cooperative games played by assets aiming at minimizing risk. With the Shapley value, investors can calculate the exact contribution of each risky asset to the joint payoff. For a portfolio of three stocks, this study exemplifies the Shapley value when risk is minimized regardless of portfolio return.,This study computes the Shapley value of stocks and indices for optimal mean-variance portfolios by using daily returns for the years 2016–2019. This results in the risk attributes allocated to securities in optimal portfolios. The Shapley values are analyzed and compared to the standard beta estimates to determine the ranking of assets with respect to pertinent risk and return.,An alternative approach to value risk and return in optimal portfolios is presented in this study. The logic and the mechanics of Shapley value theory in portfolio analysis have been explained, and its advantages relative to standard beta analysis are presented. Hence, financial analysts when adding or removing specific assets from present positions will have the true and exact impact of their actions by using the Shapley value instead of the beta.,When computing the Shapley value, portfolio risk is decomposed exactly among its assets because it considers all possible coalitions of portfolios. In that sense, financial analysts when adding or removing specific securities from present holdings will be able to predict the true and exact impact of their transactions by using the Shapley value instead of the beta. The main implication for investors is that risk is ultimately priced relative to their holdings. This prevents the subjective mispricing of securities, as standard beta is not used and might allow investors to gain from arbitrage conditions.,The logic and the methodology of Shapley value theory in portfolio analysis have been explained as an alternative to value risk and return in optimal portfolios by presenting its advantages relative to standard beta analysis. The conclusion is that the Shapley value theory contributes much more financial optimization than to standard systematic risk analysis because it enables looking at the contribution of each security to all possible coalitions of portfolios.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"459-468"},"PeriodicalIF":3.0,"publicationDate":"2020-10-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/jrf-08-2019-0149","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42759425","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"De-risking or recontracting – the risk dilemma of EU money laundering regulation","authors":"K. Rose","doi":"10.1108/JRF-12-2019-0237","DOIUrl":"https://doi.org/10.1108/JRF-12-2019-0237","url":null,"abstract":"\u0000Purpose\u0000Recent research and market effects within the European Union (EU) show a rising concern toward the de-risking of certain sectors/actors owing to the increased anti-money laundering regulation. Because of the enhanced due diligence and monitoring costs related to anti-money laundering and counter-terrorist financing regulation by the AMLD4 and AMLD5, several financial institutions now turn to de-risking their corporate client base to minimize not only costs from monitoring and onboarding but also the risks of sanctions and reputation. The purpose of this paper is to analyze the incentives behind de-risking and the relevant solution models to the de-risking “crisis.” Overall, to find, to what extend de-risking is efficient and when it is not and how to mitigate the concept.\u0000\u0000\u0000Design/methodology/approach\u0000This paper applies a functional approach to law and economics with the aim of reaching a higher level of efficiency in combatting money laundering through analyzing present regulatory and economic conditions.\u0000\u0000\u0000Findings\u0000It is found that de-risking within the EU opposes the aim of the present regulatory scheme regarding anti-money laundering. The paper finds that it is needed to divide the analysis of de-risking to a national and regional/union level. In addition, this paper establishes that the present strategy of de-risking at national level eventually will result in enhanced regulation to fulfill the aim of the present regulatory framework, which is why a proactive approach by recontracting the client base is recommended. At a regional level, it is found that de-risking is valid, why a solution needs to come from the EU enhancing control, monitoring and sanctions to establish trust and the possibility for financial inclusion.\u0000\u0000\u0000Originality/value\u0000Most of the recent research within the field highlights the problem of de-risking and therefore presents a range of initiatives to regulators and financial institutions at a global level. This paper solely focuses on the EU and shows that the de-risking dilemma demands financial institutions to take a proactive approach to contracting if unnecessary regulation is to be hindered. Furthermore, this paper shows that the concept of de-risking cannot be analyzed nor mitigated as one singular concept, but it needs to be addressed according to different levels of activity and geography.\u0000","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"445-458"},"PeriodicalIF":3.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/JRF-12-2019-0237","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49370978","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Forward-looking financial risk management and the housing market in the United Kingdom: is there a role for sentiment indicators?","authors":"Frederik Kunze, Tobias Basse, Miguel Rodriguez Gonzalez, G. Vornholz","doi":"10.1108/jrf-10-2019-0191","DOIUrl":"https://doi.org/10.1108/jrf-10-2019-0191","url":null,"abstract":"PurposeIn the current low-interest market environment, more and more asset managers have started to consider to invest in property markets. To implement adequate and forward-looking risk management procedures, this market should be analyzed in more detail. Therefore, this study aims to examine the housing market data from the UK. More specifically, sentiment data and house prices are examined, using techniques of time-series econometrics suggested by Toda and Yamamoto (1995). The monthly data used in this study is the RICS Housing Market Survey and the Nationwide House Price Index – covering the period from January 2000 to December 2018. Furthermore, the authors also analyze the stability of the implemented Granger causality tests. In sum, the authors found clear empirical evidence for unidirectional Granger causality from sentiment indicator to the house prices index. Consequently, the sentiment indicator can help to forecast property prices in the UK.Design/methodology/approachBy investigating sentiment data for house prices using techniques of time-series econometrics (more specifically the procedure suggested by Toda and Yamamoto, 1995), the research question whether sentiment indicators can be helpful to predict property prices in the UK is analyzed empirically.FindingsThe empirical results show that the RICS Housing Market Survey can help to predict the house prices in the UK.Practical implicationsGiven these findings, the information provided by property market sentiment indicators certainly should be used in a forward-looking early warning system for house prices in the UK.Originality/valueTo authors’ knowledge, this is the first paper that uses the procedure suggested by Toda and Yamaoto to search for suitable early warning indicators for investors in UK real estate assets.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"659-678"},"PeriodicalIF":3.0,"publicationDate":"2020-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46273950","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Loan fair values and the financial crisis","authors":"Niranjan Chipalkatti, M. DiPierro, Carl F. Luft, John P. Plamondon","doi":"10.1108/jrf-04-2020-0081","DOIUrl":"https://doi.org/10.1108/jrf-04-2020-0081","url":null,"abstract":"\u0000Purpose\u0000In 2009, effective the second-quarter, the financial accounting standards board mandated that all banks need to disclose the fair value of loans in their 10-Q filings in addition to their 10-K filings. This paper aims to investigate whether these disclosures reduced the level of information asymmetry about the riskiness of bank loan portfolios during the financial crisis.\u0000\u0000\u0000Design/methodology/approach\u0000The paper examines the impact of these disclosures on the bid-ask spread of a panel of 246 publicly traded bank holding companies. The spread serves as a proxy for information asymmetry and the ratio of the fair value of a bank’s loan portfolio to its book value is a proxy for the credit and liquidity risk associated with the same. The reaction to the first-quarter filing serves as a control to assess the reaction at the time of the second-quarter filing.\u0000\u0000\u0000Findings\u0000There is a significant negative association between bid-ask spread and the ratio indicating that the fair value information was useful in reducing information asymmetry during the financial crisis. A pattern was observed in the information dissemination related to the fair value of loans that is consistent with the literature that documents a delayed investor reaction to complex financial information.\u0000\u0000\u0000Originality/value\u0000Investors may use the fair value information to better assess the risk profile of a BHC’s loan portfolio. Also, loan fair values provide managers with data to better implement stress test models and determine optimal capital buffers.\u0000","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"559-576"},"PeriodicalIF":3.0,"publicationDate":"2020-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/jrf-04-2020-0081","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46336397","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Forecasting the macro determinants of bank credit quality: a non-linear perspective","authors":"Mariagrazia Fallanca, A. Forgione, E. Otranto","doi":"10.1108/jrf-10-2019-0202","DOIUrl":"https://doi.org/10.1108/jrf-10-2019-0202","url":null,"abstract":"This study aims to propose a non-linear model to describe the effect of macroeconomic shocks on delinquency rates of three kinds of bank loans. Indeed, a wealth of literature has recognized significant evidence of the linkage between macro conditions and credit vulnerability, perceiving the importance of the high amount of bad loans for economic stagnation and financial vulnerability.,Generally, this linkage was represented by linear relationships, but the strong dependence of bank loan default on the economic cycle, subject to changes in regime, could suggest non-linear models as more appropriate. Indeed, macroeconomic variables affect the performance of bank’s portfolio loan, but such a relationship is subject to changes disturbing the stability of parameters along the time. This study is an attempt to model three different kinds of bank loan defaults and to forecast them in the case of the USA, detecting non-linear and asymmetric behaviors by the adoption of a Markov-switching (MS) approach.,Comparing it with the classical linear model, the authors identify evidence for the presence of regimes and asymmetries, changing in correspondence of the recession periods during the span of 1987–2017.,The data are at a quarterly frequency, and more observations and more extended research periods could ameliorate the MS technique.,The good forecasting performance of this model could be applied by authorities to fine-tune their policies and deal with different types of loans and to diversify strategies during the different economic trends. In addition, bank management can refer to the performance of macroeconomic conditions to predict the performance of their bad loans.,The authors show a clear outperformance of the MS model concerning the linear one.","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"423-443"},"PeriodicalIF":3.0,"publicationDate":"2020-08-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/jrf-10-2019-0202","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46771496","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"CDS-based implied probability of default estimation","authors":"A. Abid, Fathi Abid, Bilel Kaffel","doi":"10.1108/jrf-05-2019-0079","DOIUrl":"https://doi.org/10.1108/jrf-05-2019-0079","url":null,"abstract":"\u0000Purpose\u0000This study aims to shed more light on the relationship between probability of default, investment horizons and rating classes to make decision-making processes more efficient.\u0000\u0000\u0000Design/methodology/approach\u0000Based on credit default swaps (CDS) spreads, a methodology is implemented to determine the implied default probability and the implied rating, and then to estimate the term structure of the market-implied default probability and the transition matrix of implied rating. The term structure estimation in discrete time is conducted with the Nelson and Siegel model and in continuous time with the Vasicek model. The assessment of the transition matrix is performed using the homogeneous Markov model.\u0000\u0000\u0000Findings\u0000The results show that the CDS-based implied ratings are lower than those based on Thomson Reuters approach, which can partially be explained by the fact that the real-world probabilities are smaller than those founded on a risk-neutral framework. Moreover, investment and sub-investment grade companies exhibit different risk profiles with respect of the investment horizons.\u0000\u0000\u0000Originality/value\u0000The originality of this study consists in determining the implied rating based on CDS spreads and to detect the difference between implied market rating and the Thomson Reuters StarMine rating. The results can be used to analyze credit risk assessments and examine issues related to the Thomson Reuters StarMine credit risk model.\u0000","PeriodicalId":46579,"journal":{"name":"Journal of Risk Finance","volume":"21 1","pages":"399-422"},"PeriodicalIF":3.0,"publicationDate":"2020-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1108/jrf-05-2019-0079","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42249561","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}