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J. Risk Financial Manag., Volume 17, Issue 5 (May 2024) – 42 articles

Cover Story (view full-size image): The expectile-based Value at Risk (EVaR) is more sensitive to extreme losses than the traditional quantile-based VaR (QVaR). This study uses expectile regression to evaluate the EVaR of Australian and Japanese stock market indices, considering lagged returns and common risk factors. Our findings reveal that both markets are influenced by past developments and international stock markets. Notably, the ASX 200 index significantly impacts the Nikkei 225 regarding downside tail risk, whereas the Nikkei 225's influence on the ASX 200 is not significant. View this paper
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18 pages, 364 KiB  
Article
Financial Literacy: A Case Study for Portugal
by Luís Almeida, João Chanoca and Fernando Tavares
J. Risk Financial Manag. 2024, 17(5), 215; https://doi.org/10.3390/jrfm17050215 - 20 May 2024
Viewed by 499
Abstract
This work aims at understanding the level of financial literacy in Portugal, identifying the determinants of financial literacy in the Portuguese population, taking as an example certain sociodemographic factors such as gender and age. The aim is to understand whether there is a [...] Read more.
This work aims at understanding the level of financial literacy in Portugal, identifying the determinants of financial literacy in the Portuguese population, taking as an example certain sociodemographic factors such as gender and age. The aim is to understand whether there is a high level of adherence to financial literacy programs and initiatives, as well as the impact of financial knowledge variables on the financial literacy of the Portuguese population. The methodology used was quantitative and based on a questionnaire survey. The sample consisted of 600 individuals, all over 18 years old. It was concluded that individuals in the 26 to 35 age group had the best knowledge and that this sample showed better knowledge of interest rates compared to inflation and risk. The exploratory factor analysis shows five factors that determine the financial literacy of the Portuguese population and the way they manage their finances, which are (1) the perception of their current financial situation; (2) planning and controlling personal finances; (3) the perception of risky financial assets; (4) the perception of risk-free financial assets; and (5) savings. This research contributes to expanding scientific understanding in the field of financial literacy and offering support to the review of financial education policies by formulators, aiming to develop tools that help improve the financial behavior of the Portuguese population. Full article
(This article belongs to the Section Financial Markets)
18 pages, 677 KiB  
Article
South African Real Estate Investment Trusts Prefer Tuesdays
by Oluwaseun Damilola Ajayi and Emmanuel Kofi Gavu
J. Risk Financial Manag. 2024, 17(5), 214; https://doi.org/10.3390/jrfm17050214 - 20 May 2024
Viewed by 545
Abstract
This study examines the day-of-the-week effect on the returns of different classifications of South African REITs. Ordinary least squares regression (OLS), generalized autoregressive conditional heteroskedasticity (GARCH) (1,1) (2,1), and Kruskal–Wallis (KW) tests were performed on data obtained from the IRESS Expert database from [...] Read more.
This study examines the day-of-the-week effect on the returns of different classifications of South African REITs. Ordinary least squares regression (OLS), generalized autoregressive conditional heteroskedasticity (GARCH) (1,1) (2,1), and Kruskal–Wallis (KW) tests were performed on data obtained from the IRESS Expert database from 2013 to 2021. We found statistical differences in the day-of-the-week effects for SAREITs; the best day to invest in office REITs is Friday, for diversified REITs Thursday, and for industrial REITs Friday. Generally, Wednesday was found to be the least profitable day to invest in all REIT classifications because it had the least average daily return. Tuesdays were the most profitable days for all REIT classifications, with the highest average daily return. REITs traded the most on Fridays, while REITs traded the least on Mondays. Returns were the most volatile on Monday, while volume was the least volatile on Thursday. The KW test revealed a statistically significant difference between the median returns across days of the week. Based on the above, profitability is expressed on Tuesdays in South African REITs. By recognizing the day-of-the-week effect, investors can buy and sell South African REITs more effectively. This study, apart from being the first in the context of South African REITs, provides updated evidence of the contested calendar anomaly issues. Full article
(This article belongs to the Section Financial Markets)
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23 pages, 360 KiB  
Article
Working Capital Management and Bank Mergers
by Baoqi Na and Katsutoshi Shimizu
J. Risk Financial Manag. 2024, 17(5), 213; https://doi.org/10.3390/jrfm17050213 - 20 May 2024
Viewed by 423
Abstract
This study investigates the consequences of bank mergers on non-financial borrowers’ working capital management. We find evidence that bank mergers increase corporate cash holdings and decrease receivables and investments in inventories by reducing bank credit availability. Bank mergers also decrease trade credit used [...] Read more.
This study investigates the consequences of bank mergers on non-financial borrowers’ working capital management. We find evidence that bank mergers increase corporate cash holdings and decrease receivables and investments in inventories by reducing bank credit availability. Bank mergers also decrease trade credit used through the reduction in bank credit availability. These findings are new contributions to the literature, suggesting that borrowing firms find it more difficult to manage working capital after bank mergers occur and that bank-dependent firms find it more difficult to manage working capital than their non-dependent counterparts after mergers. Full article
(This article belongs to the Special Issue Financial Markets and Institutions)
13 pages, 703 KiB  
Article
Valuation of Goodwill for an Engineering Firm
by Bhushan Lohar, John Wade and Sean Walker
J. Risk Financial Manag. 2024, 17(5), 212; https://doi.org/10.3390/jrfm17050212 - 19 May 2024
Viewed by 426
Abstract
The concept of valuing personal and enterprise goodwill is a study in the art of quantifying subjective values. Sellers strive to maximize goodwill, while buyers strive to minimize goodwill. No persons are denying the existence of goodwill; rather, the debate is centered around [...] Read more.
The concept of valuing personal and enterprise goodwill is a study in the art of quantifying subjective values. Sellers strive to maximize goodwill, while buyers strive to minimize goodwill. No persons are denying the existence of goodwill; rather, the debate is centered around the value of that goodwill. This paper seeks to define a holistic approach to fairly quantifying the value of goodwill for an engineering firm. The Graph Model for Conflict Resolution (GMCR), a decision tool grounded in game theory, is used to illustrate the inherent conflict around setting an accurate goodwill value and the inherent negotiation between buyers and sellers. Full article
(This article belongs to the Section Business and Entrepreneurship)
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9 pages, 281 KiB  
Article
Risk Characterization of Firms with ESG Attributes Using a Supervised Machine Learning Method
by Prodosh Eugene Simlai
J. Risk Financial Manag. 2024, 17(5), 211; https://doi.org/10.3390/jrfm17050211 - 19 May 2024
Viewed by 385
Abstract
We examine the risk–return tradeoff of a portfolio of firms that have tangible environmental, social, and governance (ESG) attributes. We introduce a new type of penalized regression using the Mahalanobis distance-based method and show its usefulness using our sample of ESG firms. Our [...] Read more.
We examine the risk–return tradeoff of a portfolio of firms that have tangible environmental, social, and governance (ESG) attributes. We introduce a new type of penalized regression using the Mahalanobis distance-based method and show its usefulness using our sample of ESG firms. Our results show that ESG companies are exposed to financial state variables that capture the changes in investment opportunities. However, we find that there is no economically significant difference between the risk-adjusted returns of various ESG-rating-based portfolios and that the risk associated with a poor ESG rating portfolio is not significantly different than that of a good ESG rating portfolio. Although investors require return compensation for holding ESG stocks, the fact that the risk of a poor ESG rating portfolio is comparable to that of a good ESG rating portfolio suggests risk dimensions that go beyond ESG attributes. We further show that the new covariance-adjusted penalized regression improves the out-of-sample cross-sectional predictions of the ESG portfolio’s expected returns. Overall, our approach is pragmatic and based on the ease of an empirical appeal. Full article
(This article belongs to the Special Issue Financial Valuation and Econometrics)
24 pages, 604 KiB  
Article
Exploring the Nexus of Dividend Policy, Third-Party Funds, Financial Performance, and Company Value: The Role of IT Innovation as a Moderator
by Satria Amiputra Amimakmur, Muhammad Saifi, Cacik Rut Damayanti and Benny Hutahayan
J. Risk Financial Manag. 2024, 17(5), 210; https://doi.org/10.3390/jrfm17050210 - 17 May 2024
Viewed by 494
Abstract
This research investigates the connection between dividend policy, third-party funds, financial performance, and company value, with a focus on IT Innovation as a moderating factor. This research was conducted using a quantitative approach, utilizing Commercial Banks listed on the Indonesia Stock Exchange categorized [...] Read more.
This research investigates the connection between dividend policy, third-party funds, financial performance, and company value, with a focus on IT Innovation as a moderating factor. This research was conducted using a quantitative approach, utilizing Commercial Banks listed on the Indonesia Stock Exchange categorized as BUKU 4 Banks during the period of 2016–2022. This study employed Partial Least Squares (PLS) analysis with WarpPLS 6.0 software as the tool for data analysis. This research concludes that dividend policy does not significantly impact financial performance and company value, while third-party funds have a significant positive effect on both financial performance and company value. Although dividend policy does not directly affect company value, its impact may occur through the mediation of financial performance. Additionally, IT Innovation serves as a moderating factor that strengthens the positive relationship between third-party funds and financial performance towards company value. The novelty of this research lies in the development of a more comprehensive model or concept regarding dividend policy, third-party funds, financial performance as a mediating variable, and company value when considering IT Innovation as a moderating variable. Full article
(This article belongs to the Section Business and Entrepreneurship)
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25 pages, 393 KiB  
Article
The Impact of Stock Price Crash Risk on Bank Dividend Payouts
by Justin Yiqiang Jin and Yi Liu
J. Risk Financial Manag. 2024, 17(5), 209; https://doi.org/10.3390/jrfm17050209 - 15 May 2024
Viewed by 505
Abstract
In this study, we examine whether and how banks employ dividend payout policies in response to the risk of stock price crashes. Using a sample of U.S. banks, we find that banks increase their dividend payouts when faced with a higher risk of [...] Read more.
In this study, we examine whether and how banks employ dividend payout policies in response to the risk of stock price crashes. Using a sample of U.S. banks, we find that banks increase their dividend payouts when faced with a higher risk of stock price crashes. In addition, we find that well-capitalized banks tend to pay more dividends when the risk of a stock price crash is elevated. This aligns with the regulatory pressure theory that banks distribute dividends when they have sufficient capital that meets or exceeds the regulatory standards. This is also in line with the signaling theory that dividend payments reflect a bank’s confidence in its financial health. Furthermore, we find that financially opaque banks tend to make more dividend payments when they are at a higher risk of stock price crashes. This supports the agency cost theory, suggesting that dividends counterbalance the need to monitor bank managers in less transparent reporting environments. Full article
(This article belongs to the Special Issue Financial Accounting)
15 pages, 1364 KiB  
Article
Application of the New Importance–Performance Analysis Method to Explore the Strategies of Rural Outdoor Dining Experiences in Taiwan
by Shang-Pin Li
J. Risk Financial Manag. 2024, 17(5), 208; https://doi.org/10.3390/jrfm17050208 - 15 May 2024
Viewed by 367
Abstract
Taiwan is an island where the city and nature combine to become the most beautiful open-air museum in the world, known as Formosa. With climate change and industrial development as the main changes in consumption behavior, the integration of ecology, the environment, and [...] Read more.
Taiwan is an island where the city and nature combine to become the most beautiful open-air museum in the world, known as Formosa. With climate change and industrial development as the main changes in consumption behavior, the integration of ecology, the environment, and agriculture into food culture is gradually becoming valued in Taiwan. This study explores the quality of the rural outdoor dining experience in Taiwan; therefore, questionnaires were distributed to outdoor dining attendees from the north, central, south, and east, and we obtained 396 valid questionnaires. The rural outdoor dining satisfaction experience can be improved using the innovative New Importance–Performance Analysis (NIPA) model, which is based on the original IPA methodology but modified by the performance of the risk management judge. Additionally, we applied the zone of tolerance (ZOT) to evaluate the quality of priority and the importance–performance analysis (IPA) to make innovation decisions. The model also encourages decision-makers to consider environmental factors and customer feedback. It has not only been used to measure customer satisfaction, assess customer behavior, identify customer needs, and determine areas where quality needs to be improved, but it can also be used to measure the success of business decisions and identify potential areas for improvement. The results show that rural outdoor dining experiences in Taiwan have led to the development of a low carbon economy and a new business model for operators in order to follow the result of NIPA and develop service marketing strategies. Full article
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15 pages, 327 KiB  
Article
An Inductive Approach to Quantitative Methodology—Application of Novel Penalising Models in a Case Study of Target Debt Level in Swedish Listed Companies
by Åsa Grek, Fredrik Hartwig and Mark Dougherty
J. Risk Financial Manag. 2024, 17(5), 207; https://doi.org/10.3390/jrfm17050207 - 15 May 2024
Viewed by 442
Abstract
This paper proposes a method for conducting quantitative inductive research on survey data when the variable of interest follows an ordinal distribution. A methodology based on novel and traditional penalising models is described. The main aim of this study is to pedagogically present [...] Read more.
This paper proposes a method for conducting quantitative inductive research on survey data when the variable of interest follows an ordinal distribution. A methodology based on novel and traditional penalising models is described. The main aim of this study is to pedagogically present the method utilising the new penalising methods in a new application. A case was employed to outline the methodology. The case aims to select explanatory variables correlated with the target debt level in Swedish listed companies. The survey respondents were matched with accounting information from the companies’ annual reports. However, missing data were present: to fully utilise penalising models, we employed classification and regression tree (CART)-based imputations by multiple imputations chained equations (MICEs) to address this problem. The imputed data were subjected to six penalising models: grouped multinomial lasso, ungrouped multinomial lasso, parallel element linked multinomial-ordinal (ELMO), semi-parallel ELMO, nonparallel ELMO, and cumulative generalised monotone incremental forward stagewise (GMIFS). While the older models yielded several explanatory variables for the hypothesis formation process, the new models (ELMO and GMIFS) identified only one quick asset ratio. Subsequent testing revealed that this variable was the only statistically significant variable that affected the target debt level. Full article
(This article belongs to the Section Mathematics and Finance)
11 pages, 650 KiB  
Article
Impact of COVID-19 Travel Subsidies on Stock Market Returns: Evidence from Japanese Tourism Companies
by Hideaki Sakawa and Naoki Watanabel
J. Risk Financial Manag. 2024, 17(5), 206; https://doi.org/10.3390/jrfm17050206 - 14 May 2024
Viewed by 429
Abstract
This study examines stock market response (SMR) to the Japanese tourism industry (TI) after the government’s announcement of travel subsidies (TRSs) during the COVID-19 pandemic in 2020, using a sample comprising 80 listed Japanese firms in the TI and an event study method [...] Read more.
This study examines stock market response (SMR) to the Japanese tourism industry (TI) after the government’s announcement of travel subsidies (TRSs) during the COVID-19 pandemic in 2020, using a sample comprising 80 listed Japanese firms in the TI and an event study method (ESM) to determine the impact of government policy responses (GPRs) to the pandemic. This study found that investors in the TI reacted positively to the announcement of subsidies; this positive effect persisted for 50 trading days after the announcement but was weaker for transportation firms. The results suggest that TRSs are important for the TI, with a stronger link to travel-related firms, such as airlines and travel agencies, hotels, and amusement services. However, investors in the TI reacted negatively to policies that directly addressed the pandemic, such as social distance policies (SDPs). These results are robustly confirmed when we measure abnormal returns by using a three-factor model. The results offer useful insights for policymakers and practitioners aiming to mitigate economic loss from disasters such as the COVID-19 pandemic. Full article
(This article belongs to the Special Issue Financial Markets and Institutions)
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14 pages, 283 KiB  
Article
Efficiency in Operations of NASDAQ Listed Technology Companies from 2011 to 2023
by Suneel Maheshwari and Deepak Raghava Naik
J. Risk Financial Manag. 2024, 17(5), 205; https://doi.org/10.3390/jrfm17050205 - 14 May 2024
Viewed by 948
Abstract
The performance of technology companies listed on NASDAQ significantly impacts larger economic trends. Investors need specific information to navigate market volatility and make informed decisions in an increasingly complex marketplace. Furthermore, amidst the ongoing digital revolution, legislators and regulatory agencies must comprehend the [...] Read more.
The performance of technology companies listed on NASDAQ significantly impacts larger economic trends. Investors need specific information to navigate market volatility and make informed decisions in an increasingly complex marketplace. Furthermore, amidst the ongoing digital revolution, legislators and regulatory agencies must comprehend the operational dynamics of technology companies to develop frameworks that support innovation while maintaining market stability. Our study assesses the impact on the overall operational efficiency of NASDAQ-listed firms from 2011 to 2023, resulting from the interdependence of critical variables such as selling, general, and administrative expenses (SGA), cost of goods and services sold (COGS), and investments in research and development (R&D). Johansen’s cointegration methodology and pairwise Granger causality tests were employed to unveil long-term relationships, equilibrium adjustments, and causal relationships among the considered variables. The results provide critical insights into the strategic management of operational variables by the listed companies. The economic significance of the results obtained underscores the paramount importance of efficiently managing the cost of goods and services sold to achieve superior operating performance among these leading technology firms. Full article
(This article belongs to the Section Business and Entrepreneurship)
15 pages, 548 KiB  
Article
Actuarial Risk Management Practices and Firm Performance: The Mediating Role of E-Service Innovation
by Dwi Widianto, Muhtosim Arief, Mohammad Hamsal and Elidjen Elidjen
J. Risk Financial Manag. 2024, 17(5), 204; https://doi.org/10.3390/jrfm17050204 - 14 May 2024
Viewed by 405
Abstract
Research on actuarial risk management practices (ARMP) and insurance firm performance has revealed inconsistent results. Therefore, a mediating factor such as innovation is needed to bridge between them. Studies exploring the relationship between ARMP and innovation have been largely qualitative. This study offered [...] Read more.
Research on actuarial risk management practices (ARMP) and insurance firm performance has revealed inconsistent results. Therefore, a mediating factor such as innovation is needed to bridge between them. Studies exploring the relationship between ARMP and innovation have been largely qualitative. This study offered a quantitative model focusing on the mediating role of e-service innovation between ARMP and firm performance. The hypothesized relationships were tested using a structural equation model (SEM), with a sample from 98 Indonesian insurance companies and WarpPLS 7.0 as the analytical tool. The results indicated that ARMP significantly influenced e-service innovation but was insignificant for firm performance. Furthermore, the findings highlighted the significant role of e-service innovation in insurance firm performance, which implied that e-service innovation acts as a mediator in the relationship between ARMP and firm performance. The practical application of the research findings makes them directly relevant and beneficial to the insurance industry, especially in Indonesia. Full article
(This article belongs to the Section Business and Entrepreneurship)
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9 pages, 247 KiB  
Article
Analysis of Factors Affecting the Loan Growth of Banks with a Focus on Non-Performing Loans
by Se-Hak Chun and Namnansuren Ardaaragchaa
J. Risk Financial Manag. 2024, 17(5), 203; https://doi.org/10.3390/jrfm17050203 - 14 May 2024
Viewed by 459
Abstract
The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending [...] Read more.
The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending behavior due to their short history. Thus, this paper investigates the effect of the non-performing loan ratio on total loan growth using an ordinary least squares (OLS) regression model with panel data. We used bank-related variables such as the loan-to-deposit ratio, provision-to-gross loan portfolio ratio, equity-to-asset ratio, and liquidity ratio, and economic variables such as the real gross domestic product (GDP) growth rate, interest rate, and inflation rate. The results of this paper show that non-performing loans have a significant negative impact on total loan growth. The implication of this result is that non-performing loans affect banking efficiency, which, in turn, affects financial stability and the real economy. Moreover, high non-performing loans reduce banks’ profits. Also, this paper found that loss reserve and the liquidity ratio have a positive effect on total loan growth, while the effects of the loan-to-deposit ratio and the equity capital ratio were not found to be significant. Additionally, from a macro perspective, the inflation rate has a positive effect on the total loan growth rate, while the interest rate has a positive effect on total loan growth rather than a negative effect. And real gross domestic product (GDP) growth does not affect the total loan growth rate. Full article
(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond (Volume III))
18 pages, 293 KiB  
Article
Navigating Real Estate Investment Trust Performance Dynamics: The Role of Style (Equity vs. Mortgage Real Estate Investment Trusts) and Diversification Amidst the COVID-19 Pandemic
by Ankita Damani, Anh Tuan Nguyen and FNU Pratima
J. Risk Financial Manag. 2024, 17(5), 202; https://doi.org/10.3390/jrfm17050202 - 13 May 2024
Viewed by 560
Abstract
In this paper, we investigate the impact of COVID-19 on different performance measures and the risk of US Real Estate Investment Trusts (REITs) with different styles. Our findings suggest a phenomenon with compelling evidence of reduced performance without any significant changes in risk [...] Read more.
In this paper, we investigate the impact of COVID-19 on different performance measures and the risk of US Real Estate Investment Trusts (REITs) with different styles. Our findings suggest a phenomenon with compelling evidence of reduced performance without any significant changes in risk profile amidst the COVID-19 pandemic. Particularly, mortgage REITs (MREITs) appear to be more adversely affected compared to equity REITs (EREITs). We further explore and analyze the performance of specialized REITs in contrast to diversified REITs in the distinctive conditions presented by COVID-19. We find that diversification creates value for the entire sample period, whereas, during the COVID-19 pandemic, property type specialization helps, although the results are weakly significant. The findings on risk suggest investors’ short-run outlook on market reaction. These results remain robust to additional tests. The implications provide insight for investors as a reference to reallocate assets in their portfolios during uncertain times. Full article
(This article belongs to the Special Issue Realizing Economic Diversification from Diverse Economic Perspectives)
9 pages, 563 KiB  
Article
Globalisation of Professional Sport Finance
by Wladimir Andreff
J. Risk Financial Manag. 2024, 17(5), 201; https://doi.org/10.3390/jrfm17050201 - 13 May 2024
Viewed by 538
Abstract
The objective of the present paper is to put a milestone on the roadmap toward a global economic system of professional sport, at least as regards its financial dimension, i.e., its model of finance, its ownership, and some new trends in global sport [...] Read more.
The objective of the present paper is to put a milestone on the roadmap toward a global economic system of professional sport, at least as regards its financial dimension, i.e., its model of finance, its ownership, and some new trends in global sport finance. Professional sport went through a radical change during the 1990s when switching from gate receipts to TV rights revenues as its major source of finance and from local/domestic to internationalised/globalised sources of revenue. This change was more marked in European soccer (football) before spreading throughout other professional sport disciplines. In fact, the whole distribution of sport financing was restructured as shown in this paper. Starting from this evidence of the first stage of sport finance globalisation, it appears that new transformations have been at work in sport finance more recently. In particular, soccer moved from globalisation of flows (revenues, finance) to asset globalisation in terms of club ownership. At last, this paper discusses the emergence of new trends in global sport finance such as treating professional (soccer) players as financial assets and crypto-assets penetrating the sports business. Full article
(This article belongs to the Special Issue Globalization and Economic Integration)
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23 pages, 2176 KiB  
Article
Encoder–Decoder Based LSTM and GRU Architectures for Stocks and Cryptocurrency Prediction
by Joy Dip Das, Ruppa K. Thulasiram, Christopher Henry and Aerambamoorthy Thavaneswaran
J. Risk Financial Manag. 2024, 17(5), 200; https://doi.org/10.3390/jrfm17050200 - 12 May 2024
Viewed by 513
Abstract
This work addresses the intricate task of predicting the prices of diverse financial assets, including stocks, indices, and cryptocurrencies, each exhibiting distinct characteristics and behaviors under varied market conditions. To tackle the challenge effectively, novel encoder–decoder architectures, AE-LSTM and AE-GRU, integrating the encoder–decoder [...] Read more.
This work addresses the intricate task of predicting the prices of diverse financial assets, including stocks, indices, and cryptocurrencies, each exhibiting distinct characteristics and behaviors under varied market conditions. To tackle the challenge effectively, novel encoder–decoder architectures, AE-LSTM and AE-GRU, integrating the encoder–decoder principle with LSTM and GRU, are designed. The experimentation involves multiple activation functions and hyperparameter tuning. With extensive experimentation and enhancements applied to AE-LSTM, the proposed AE-GRU architecture still demonstrates significant superiority in forecasting the annual prices of volatile financial assets from the multiple sectors mentioned above. Thus, the novel AE-GRU architecture emerges as a superior choice for price prediction across diverse sectors and fluctuating volatile market scenarios by extracting important non-linear features of financial data and retaining the long-term context from past observations. Full article
(This article belongs to the Special Issue Machine Learning Applications in Finance)
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17 pages, 790 KiB  
Article
Development of New Products for Climate Change Resilience in South Africa—The Catastrophe Resilience Bond Introduction
by Thomas Mutsvene and Heinz Eckart Klingelhöfer
J. Risk Financial Manag. 2024, 17(5), 199; https://doi.org/10.3390/jrfm17050199 - 12 May 2024
Viewed by 443
Abstract
Climate change has brought several natural disasters to South Africa in the form of floods, heat waves, and droughts. Neighbouring countries are also experiencing tropical cyclones, almost on a yearly basis. The insurance sector is faced with an increased level of climate change [...] Read more.
Climate change has brought several natural disasters to South Africa in the form of floods, heat waves, and droughts. Neighbouring countries are also experiencing tropical cyclones, almost on a yearly basis. The insurance sector is faced with an increased level of climate change risk with individuals, corporates, and even the government approaching it for financial cover. However, with an increased level of competition in the insurance sector, (re)insurers must engage in massive product research and development. Therefore, this paper looks at the possibility of the insurance industry developing new products in the form of catastrophe resilience bonds (CAT R Bonds). A qualitative approach is used following content analysis of (re)insurers’ product development policies, marketing documents, company reports, and risk management reports as well as the Conference of Parties 27 and 28 resolution papers. The findings reveal that (re)insurers’ underwriting capacity, reinsurance protection, and innovative and creative product development increase because of CAT R Bonds. CAT R Bonds enhance the interaction between the capital market and money market, thereby giving speculative investors another investment option. Increased investment into new product development such as CAT R Bonds must continue in South Africa in pursuit of climate change resilience goals. Full article
(This article belongs to the Section Financial Markets)
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20 pages, 959 KiB  
Article
The Impact of CSI SEEE Carbon Neutral Index Launched on Order Aggressiveness
by Zihuang Huang, Xiaoyu Zhang and Kaifeng Li
J. Risk Financial Manag. 2024, 17(5), 198; https://doi.org/10.3390/jrfm17050198 - 11 May 2024
Viewed by 499
Abstract
In the context of carbon peaking and carbon neutrality goals, in order to clarify the investment direction for investors, China Securities Index Co., Ltd. (CSI) has collaborated with the Shanghai Environmental Energy Exchange to develop the CSI SEEE Carbon Neutral Index (CSCNI), which [...] Read more.
In the context of carbon peaking and carbon neutrality goals, in order to clarify the investment direction for investors, China Securities Index Co., Ltd. (CSI) has collaborated with the Shanghai Environmental Energy Exchange to develop the CSI SEEE Carbon Neutral Index (CSCNI), which has also played a leading role in the subsequent preparation of the Green Finance Index. The launch of this index has sparked research interest among scholars in stimulating investor order aggressiveness. This study employs event study methodology to examine the impact of the CSCNI launch on order aggressiveness. The sample companies are categorized into two groups: deep low-carbon and high-carbon reduction, with a focus on studying buy and sale order aggressiveness. The results indicate that the launch of CSCNI has mobilized order aggressiveness but has led to a negative stock price effect as investors anticipate an increase in environmental costs for the sample companies. Furthermore, we reveal that the long-term growth potential of the deep low-carbon field is more promising compared to the high-carbon reduction sector, making stocks in the deep low-carbon field more attractive. The launch of CSCNI has shown contrasting effects on the buy and sale order aggressiveness of investors, with the impact of the index announcement being more significant on the sample companies. This research provides valuable insights for evaluating the impact of green finance indices and contributes to the understanding of internal mechanisms. It provides an important reference for financial regulators to evaluate the development of the current green index. At the same time, it expands the domestic research on order aggressiveness, which studies the action mechanism of the stock price effect of the green stock index from the perspective of order aggressiveness. Full article
(This article belongs to the Special Issue Advances in Macroeconomics and Financial Markets)
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29 pages, 14186 KiB  
Article
Can ESG Integration Enhance the Stability of Disruptive Technology Stock Investments? Evidence from Copula-Based Approaches
by Poshan Yu, Haoran Xu and Jianing Chen
J. Risk Financial Manag. 2024, 17(5), 197; https://doi.org/10.3390/jrfm17050197 - 11 May 2024
Viewed by 583
Abstract
This paper provides an investigation into the dependence structure among different disruptive technology sectors driving the Fourth Industrial Revolution and scrutinizes the impact of ESG integration on shaping investments in different tech stock sectors in the presence of ESG consideration, represented by the [...] Read more.
This paper provides an investigation into the dependence structure among different disruptive technology sectors driving the Fourth Industrial Revolution and scrutinizes the impact of ESG integration on shaping investments in different tech stock sectors in the presence of ESG consideration, represented by the ESG stock index, versus without specific ESG consideration, represented by the general stock index. The results show that (i) C-vine outperforms R-vine and D-vine when modeling the dependence structure of tech sectors. Intelligent infrastructure is the most crucial sector, with substantial reliance on smart transportation and advanced manufacturing. (ii) ESG integration reduces dependence, especially tail dependence, between tech sectors and the stock market, which benefits the future security sector the most and future communication the least. (iii) ESG integration mitigates risk spillover between tech sectors and the stock market, particularly benefiting final frontiers and intelligent infrastructure. The decrease in downside spillover is more significant compared to upside scenarios. For downside risk, spillover from tech sectors to stock indices is more reduced than the reverse, while the opposite holds for upside risk. These sectoral findings offer insights for market participants in financial market investments, financial regulators in risk management, and listed companies in ESG disclosure. Full article
(This article belongs to the Section Mathematics and Finance)
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20 pages, 1355 KiB  
Article
Factors Affecting the Implementation of Risk-Based Internal Auditing
by Abdulwahab Mujalli
J. Risk Financial Manag. 2024, 17(5), 196; https://doi.org/10.3390/jrfm17050196 - 11 May 2024
Viewed by 485
Abstract
This paper aims to investigate the factors affecting risk-based internal audit (RBIA) implementation in public sector organizations in Saudi Arabia. This paper utilized 234 usable answered questionnaires from internal audit managers, internal auditors, accountants, and executives working in Saudi public sector agencies. The [...] Read more.
This paper aims to investigate the factors affecting risk-based internal audit (RBIA) implementation in public sector organizations in Saudi Arabia. This paper utilized 234 usable answered questionnaires from internal audit managers, internal auditors, accountants, and executives working in Saudi public sector agencies. The gathered data were analyzed by applying partial least squares–structural equation modeling (PLS-SEM). Results show that management support, internal auditor role, risk management system, and training in risk management all positively and significantly influence the RBIA. Improved internal auditing procedures and an efficient internal monitoring system will significantly curtail any risks impeding the organization’s goals, diminish the temptation to fabricate financial data or statistics, and enhance the accuracy of financial reporting/statements. Moreover, this study’s results have crucial implications for managers of public sector organizations, heads of internal audit departments, internal auditors, and accountants seeking to improve the reliability of internal audits and other aspects of financial information. Published research on what variables are influencing RBIA implementation is scarce. This study adds to the nascent literature by focusing on Saudi Arabian public sector organizations, establishing empirical variables based on an in-depth review of the relevant research and conducting an empirical investigation of the factors associated with RBIA implementation in the Saudi economy. By concentrating on public sector organizations in Saudi Arabia, this paper sheds light on other nations with comparable systems for governance policies and processes in their government-run entities. Full article
(This article belongs to the Topic Risk Management in Public Sector)
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11 pages, 231 KiB  
Article
Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment
by Dmitriy Chulkov
J. Risk Financial Manag. 2024, 17(5), 195; https://doi.org/10.3390/jrfm17050195 - 10 May 2024
Viewed by 343
Abstract
This article investigates the relationship between the decision-making bias known as escalation of commitment and the turnover of non-CEO executives in top management teams. The phenomenon of escalation of commitment is observed when decision makers persist with business investments that have a low [...] Read more.
This article investigates the relationship between the decision-making bias known as escalation of commitment and the turnover of non-CEO executives in top management teams. The phenomenon of escalation of commitment is observed when decision makers persist with business investments that have a low likelihood of success. Theoretical explanations for the association between executive turnover and escalation include self-justification and reputation protection. Top managers may conceal prior errors, escalate commitment to earlier decisions, and exit the organization before the outcome of decisions is observed. Successor managers do not have a commitment to earlier decisions and have the capability to stop investments that are discovered to be failing. Empirical analysis utilizing a sample of over 1600 U.S. firms confirms that departures by non-CEO executives from top management teams are associated with an increased likelihood of new reporting of discontinued operations and extraordinary items by firms and a reduction in the firms’ performances relative to their industry. These effects reflect de-escalation activities and are amplified in the years concurrent with and following a joint departure of multiple management team members. Prior empirical studies on escalation and de-escalation behavior focused on CEO turnover. The contribution of this article is its documenting of the key role of non-CEO managers and team turnover in the context of escalation. Full article
(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)
27 pages, 1793 KiB  
Article
Action-Based Fiscal Consolidations and Economic Growth
by Markus Brueckner
J. Risk Financial Manag. 2024, 17(5), 194; https://doi.org/10.3390/jrfm17050194 - 8 May 2024
Viewed by 518
Abstract
This paper tests the hypothesis that action-based fiscal consolidations have a negative effect on GDP growth. Using the IMF’s dataset on action-based fiscal consolidations, instrumental variables’ regressions show that action-based fiscal consolidations have a significant positive effect on GDP growth. The instrumental variables’ [...] Read more.
This paper tests the hypothesis that action-based fiscal consolidations have a negative effect on GDP growth. Using the IMF’s dataset on action-based fiscal consolidations, instrumental variables’ regressions show that action-based fiscal consolidations have a significant positive effect on GDP growth. The instrumental variables’ regressions also show that action-based fiscal consolidations significantly increase investment and productivity. The findings presented in this paper thus strongly reject the hypothesis that action-based fiscal consolidations reduce growth. The paper argues that least squares estimates presented in previous literature suffer from negative reverse causality bias: GDP growth has a significant positive effect on both the likelihood and the magnitude of action-based fiscal consolidations. To uncover causal effects of action-based fiscal consolidations, researchers need to use an instrumental variables approach. Full article
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14 pages, 772 KiB  
Article
Price Delay and Market Efficiency of Cryptocurrencies: The Impact of Liquidity and Volatility during the COVID-19 Pandemic
by Barbara Abou Tanos and Georges Badr
J. Risk Financial Manag. 2024, 17(5), 193; https://doi.org/10.3390/jrfm17050193 - 8 May 2024
Viewed by 531
Abstract
The rise of cryptocurrencies as alternative financial investments, with potential safe-haven and hedging properties, highlights the need to examine their market efficiency. This study is the first to investigate the combined impact of liquidity and volatility features of cryptocurrencies on their price delays. [...] Read more.
The rise of cryptocurrencies as alternative financial investments, with potential safe-haven and hedging properties, highlights the need to examine their market efficiency. This study is the first to investigate the combined impact of liquidity and volatility features of cryptocurrencies on their price delays. Using a wide spectrum of cryptocurrencies, we investigate whether the COVID-19 outbreak has affected market efficiency by studying price delays to market information. We find that as liquidity increases and volatility decreases, cryptocurrencies demonstrate stronger market efficiency. Additionally, we show that price delay differences during the COVID-19 outbreak increase with higher levels of illiquidity, particularly for highly volatile quintiles. We suggest that perceived risks and high transaction costs in illiquid and highly volatile cryptocurrencies reduce active traders’ willingness to engage in arbitrage trading, leading to increased market inefficiencies. Our findings are relevant to investors, aiding in improving their decision-making processes and enhancing their investment efficiency. Our paper also presents significant implications for policymakers, emphasizing the need for reforms aimed at enhancing the speed at which information is incorporated into cryptocurrency returns. These reforms would help mitigate market distortions and increase the sustainability of cryptocurrency markets. Full article
(This article belongs to the Special Issue Blockchain Technologies and Cryptocurrencies​)
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27 pages, 369 KiB  
Article
The Impact of Knowledge Capital and Organization Capital on Stock Performance during Economic Crises: The Moderating Role of a Generalist CEO
by Chaeho Chase Lee, Hohyun Kim and Erdal Atukeren
J. Risk Financial Manag. 2024, 17(5), 192; https://doi.org/10.3390/jrfm17050192 - 7 May 2024
Viewed by 519
Abstract
This study examines the relationship between intangible capital (IC) and stock performance during the two recent crisis periods, the GFC and COVID-19. By categorizing IC into Knowledge Capital (KC) and Organizational Capital (OC), we analyze the impact of each capital on the crisis [...] Read more.
This study examines the relationship between intangible capital (IC) and stock performance during the two recent crisis periods, the GFC and COVID-19. By categorizing IC into Knowledge Capital (KC) and Organizational Capital (OC), we analyze the impact of each capital on the crisis return in the manufacturing sector. The results show that a greater KC and OC are significantly associated with higher crisis returns during both periods. In addition, we find evidence that generalist CEOs strengthen this relationship while specialist CEOs do not. Within firms led by a generalist CEO, the CEO’s tenure positively moderates the association between each factor of intangible capital and crisis period returns. This study emphasizes the pivotal role of KC and OC as a protective buffer against external shocks, particularly when the market pays more attention to corporate sustainability. Full article
(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)
17 pages, 379 KiB  
Article
Can Crisis Periods Affect the ESG Reporting Scope? The Portuguese Euronext Entities Case
by Catarina Cepeda
J. Risk Financial Manag. 2024, 17(5), 191; https://doi.org/10.3390/jrfm17050191 - 6 May 2024
Viewed by 691
Abstract
Portuguese companies are increasingly responding to the demand of stakeholders for transparent information about companies’ environmental, social, and governance (ESG) performance by issuing non-financial reports (NFRs). While the number of NFRs published annually has been increasing over the last two decades, their quality [...] Read more.
Portuguese companies are increasingly responding to the demand of stakeholders for transparent information about companies’ environmental, social, and governance (ESG) performance by issuing non-financial reports (NFRs). While the number of NFRs published annually has been increasing over the last two decades, their quality and companies’ ESG performance have been questioned, especially in times of crisis. To address these concerns, several jurisdictions have introduced mandatory NFR rules, such as the European Directive 2014/95/EU. Employing an institutional theory lens, this paper’s research objective is to evaluate whether the last decade’s crises and whether the fact that NFRs became mandatory for certain entities positively affected companies’ activities covered in the ESG reporting scope. We used panel data regression models on 45 listed companies in Portugal during the period 2008–2021. Our results show that the ESG reporting scope is not positively influenced by the transition from NFRs to a mandatory and global financial crisis (GFC). However, the COVID-19 crisis positively affected NFR quality. These results have major implications for practitioners, reflecting the importance of promoting these tools in an organization to improve non-financial performance and companies’ sustainability. Full article
(This article belongs to the Special Issue Financial Reporting and Auditing)
19 pages, 7727 KiB  
Article
Which Should Be Your Top Pick, Separately Managed Accounts or ETFs?
by Xianwu Zhang, Tao Guo, Yuanshan Cheng and Haiyan Wang
J. Risk Financial Manag. 2024, 17(5), 190; https://doi.org/10.3390/jrfm17050190 - 5 May 2024
Viewed by 643
Abstract
This paper examined a large sample of equity SMAs (separately managed accounts, hereafter) from 1999 to 2023. This paper found that separate accounts have much higher expenses than ETFs and may outperform or underperform ETFs in terms of gross return and net return [...] Read more.
This paper examined a large sample of equity SMAs (separately managed accounts, hereafter) from 1999 to 2023. This paper found that separate accounts have much higher expenses than ETFs and may outperform or underperform ETFs in terms of gross return and net return depending on their investment styles. However, this paper found that separate accounts consistently outperform ETFs in terms of risk-adjusted gross and net return alphas across different investment styles using the Fama and French Three Factor Model. Additionally, this paper found no significant evidence that tax is proactively managed within separate accounts. Lastly, this paper found that on average SMAs’ risk-adjusted alphas do not persist over time. Full article
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17 pages, 870 KiB  
Article
Downside Risk in Australian and Japanese Stock Markets: Evidence Based on the Expectile Regression
by Kohei Marumo and Steven Li
J. Risk Financial Manag. 2024, 17(5), 189; https://doi.org/10.3390/jrfm17050189 - 2 May 2024
Viewed by 690
Abstract
The expectile-based Value at Risk (EVaR) has gained popularity as it is more sensitive to the magnitude of extreme losses than the conventional quantile-based VaR (QVaR). This paper applies the expectile regression approach to evaluate the EVaR of stock market indices of Australia [...] Read more.
The expectile-based Value at Risk (EVaR) has gained popularity as it is more sensitive to the magnitude of extreme losses than the conventional quantile-based VaR (QVaR). This paper applies the expectile regression approach to evaluate the EVaR of stock market indices of Australia and Japan. We use an expectile regression model that considers lagged returns and common risk factors to calculate the EVaR for each stock market and to evaluate the interdependence of downside risk between the two markets. Our findings suggest that both Australian and Japanese stock markets are affected by their past development and the international stock markets. Additionally, ASX 200 index has significant impact on Nikkei 225 in terms of downside tail risk, while the impact of Nikkei 225 on ASX is not significant. Full article
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21 pages, 650 KiB  
Article
Revolutionizing Banking: Neobanks’ Digital Transformation for Enhanced Efficiency
by Riris Shanti, Hermanto Siregar, Nimmi Zulbainarni and Tony
J. Risk Financial Manag. 2024, 17(5), 188; https://doi.org/10.3390/jrfm17050188 - 1 May 2024
Viewed by 1146
Abstract
Changes in customer behaviors after the COVID-19 pandemic have encouraged the transformation of banking systems. Neobanks have emerged as an innovation and entered the banking system to compete with traditional banks by offering new customer experiences. Neobanks transform traditional banking products and services [...] Read more.
Changes in customer behaviors after the COVID-19 pandemic have encouraged the transformation of banking systems. Neobanks have emerged as an innovation and entered the banking system to compete with traditional banks by offering new customer experiences. Neobanks transform traditional banking products and services which are delivered through physical interactions into those delivered via digital channels. This paper analyzes traditional banks that have transformed into neobanks, specifically their efficiency after digital transformation. Efficiency was measured using Stochastic Frontier Analysis (SFA), as it is highly accurate in estimating efficiency scores. This study also used a Pooled Mean Group (PMG) estimation of the Panel ARDL (Autoregressive Distributed Lag), as this approach is useful for analyzing the relationship between variables in panel data, to investigate digital transformation as a determinant of neobanks’ efficiency and examine the existence of short-term and long-term relationships between digital transformation and efficiency. We found that the efficiency of neobanks increases after digital transformation. Furthermore, it can be concluded that digital transformation is a determinant of efficiency and that there is long-term relationship between digital transformation and efficiency. In the short term, digital transformation has a significant negative correlation with efficiency, but in the long term, it has a significant positive relationship; this is because the cost of digital transformation initially decreases the profit efficiency, but afterwards, it increases the efficiency. Full article
(This article belongs to the Special Issue Banking during the COVID-19 Pandemia)
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21 pages, 328 KiB  
Article
What Is the Relationship between Corporate Social Responsibility and Financial Performance in the UK Banking Sector?
by George Giannopoulos, Nicholas Pilcher and Ioannis Salmon
J. Risk Financial Manag. 2024, 17(5), 187; https://doi.org/10.3390/jrfm17050187 - 1 May 2024
Viewed by 793
Abstract
This study rigorously investigates the intricate dynamics between Corporate Social Responsibility (CSR), quantified through Environmental, Social, and Governance (ESG) scores, and financial performance (FP), measured via the return on assets (ROA) and return on equity (ROE), within the UK banking sector. Our analysis [...] Read more.
This study rigorously investigates the intricate dynamics between Corporate Social Responsibility (CSR), quantified through Environmental, Social, and Governance (ESG) scores, and financial performance (FP), measured via the return on assets (ROA) and return on equity (ROE), within the UK banking sector. Our analysis is based on a comprehensive dataset from Bloomberg. This research encapsulates data from 32 banks publicly listed on the London Stock Exchange over a six-year span from 2017 to 2022. Employing panel data regression models while controlling leverage and bank size, we delve into the relationship between banks’ CSR engagements, as reflected in their ESG scores, and their financial outcomes. Our findings indicate a negative correlation between the ESG score and both the ROA and ROE, suggesting that elevated CSR commitments may inversely impact short-term financial returns. This finding not only challenges prevailing narratives within the sector but also fosters a crucial discourse on the balance between ethical banking practices and profitability. The implications of this research study are manifold, extending to policymakers, banking executives, and investors, suggesting a revaluation of CSR strategies in alignment with long-term value creation and sustainable banking. This study not only enriches academic discourse on CSR within the financial sector but also serves as a beacon for future inquiries into the evolving landscape of responsible banking, advocating for a nuanced understanding of CSR’s role in shaping the financial and ethical contours of the banking industry. Full article
21 pages, 680 KiB  
Article
Decrypting Cryptocurrencies: An Exploration of the Impact on Financial Stability
by Mohamed Nihal Saleem, Yianni Doumenis, Epameinondas Katsikas, Javad Izadi and Dimitrios Koufopoulos
J. Risk Financial Manag. 2024, 17(5), 186; https://doi.org/10.3390/jrfm17050186 - 30 Apr 2024
Viewed by 998
Abstract
This study aims to empirically examine the relationship between cryptocurrency and various facets of the financial system. It seeks to provide a comprehensive understanding of how cryptocurrencies interact with, and influence, the stock market, the U.S. dollar’s strength, inflation rates, and traditional banking [...] Read more.
This study aims to empirically examine the relationship between cryptocurrency and various facets of the financial system. It seeks to provide a comprehensive understanding of how cryptocurrencies interact with, and influence, the stock market, the U.S. dollar’s strength, inflation rates, and traditional banking operations. This is carried out using linear regression models, Granger causality tests, case studies, including the collapse of the Futures Exchange (FTX), and the successful integration of Binance. The study unveiled a strong positive correlation between cryptocurrency market capitalization and key financial indicators like the Dow Jones Industrial Average, Consumer Price Index, and traditional banking operations. This indicates the growing significance of cryptocurrencies within the global financial landscape. However, a mild association was found with the U.S. dollar, suggesting a limited influence of cryptocurrencies on traditional fiat currencies currently. Despite certain limitations such as reliance on secondary data, methodological choices, and geographic focus, this research provides valuable insights for policymakers, financial industry stakeholders, and academic researchers, underlining the necessity for continued study into the complex interplay between cryptocurrencies and financial stability. Full article
(This article belongs to the Special Issue Digital Banking and Financial Technology)
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