Risks

14 pages, 686 KiB

Open AccessArticle

Financial Literacy Confidence and Retirement Planning: Evidence from China

by Bingzheng Chen and Ze Chen

Risks 2023, 11(2), 46; https://doi.org/10.3390/risks11020046 - 15 Feb 2023

Cited by 3 | Viewed by 3998

Though ample empirical evidence demonstrates the relationship between objective financial literacy and retirement planning, we have a limited understanding of the role of individuals’ subjective financial literacy in their retirement planning. In this study, we examine how individuals’ financial literacy confidence bias affects [...] Read more.

Though ample empirical evidence demonstrates the relationship between objective financial literacy and retirement planning, we have a limited understanding of the role of individuals’ subjective financial literacy in their retirement planning. In this study, we examine how individuals’ financial literacy confidence bias affects their retirement planning behaviors using survey data in China. Based on the difference between respondents’ subjective and objective financial literacy from survey data, we construct measures of individuals’ financial literacy overconfidence and underconfidence for empirical analysis. Our results document the critical role of individuals’ assessment of financial literacy in their retirement planning. We find that individuals’ financial literacy overconfidence (underconfidence) significantly promotes (demotes) their retirement planning behaviors. Full article

(This article belongs to the Special Issue Frontiers in Quantitative Finance and Risk Management)

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18 pages, 1917 KiB

Open AccessArticle

Towards a More Resilient Festival Industry: An Analysis of the Adoption of Risk Management Models for Sustainability

by Katalin Lorincz, Katalin Formadi and Ildiko Ernszt

Risks 2023, 11(2), 45; https://doi.org/10.3390/risks11020045 - 15 Feb 2023

Cited by 1 | Viewed by 2998

Abstract

The COVID-19 pandemic has had a significant impact on numerous industries, including the event industry, resulting in widespread disruptions. The widespread cancellations of festivals have been a direct consequence of the pandemic, and, following the reopening, those that have taken place have had [...] Read more.

The COVID-19 pandemic has had a significant impact on numerous industries, including the event industry, resulting in widespread disruptions. The widespread cancellations of festivals have been a direct consequence of the pandemic, and, following the reopening, those that have taken place have had to implement changes in response to the new guidelines and regulations created as a result of the pandemic. In this study, we examine the experiences of festivals held in 2021 in the Veszprém–Balaton 2023 European Capital of Culture region (VEB 2023 region). The study aims to adapt the PwC Risk Management Model and identify its four pillars (1: detect; 2: protect; 3: react; 4: restore) in the case of festivals. Our study outlines how festival organizers have faced unprecedented challenges and risks (detect), how they survived in complete uncertainty (protect), what lessons they learned, and what risk management decisions they made as a challenge of the pandemic period from a consumer perspective (react). The present study utilized a qualitative research methodology and involved conducting structured interviews with a total of 19 event organizers from five different events. In addition, to gain a comprehensive understanding of the sustainable consumption habits of festival visitors, a questionnaire survey was administered yielding 1133 responses. The biggest challenges for the organizers during the times of the pandemic were uncertainty and unpredictability, with increased financial, human, and mental risks and burdens. However, the positive benefits of the pandemic period and the future developmental directions of sustainable festivals were also highlighted (e.g., small-scale, family-friendly events). Regarding the future, the aspects of greening aspirations, a need to reflect on the social-environmental criteria of sustainability, and more flexible management decisions to deal with uncertainty have emerged among the festival organizers (restore). The research has revealed that festival visitors themselves will be important allies in the introduction of sustainable measures. The research result helps festival organizers to adapt more effectively to the new socio-economic circumstances caused by the pandemic. Full article

(This article belongs to the Special Issue New Advance of Risk Management Models)

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21 pages, 421 KiB

Open AccessArticle

Feasibility of Establishing Operational Budgeting in Iraqi Public Universities

by Faisal Salman, Seyyed Abbas Hashemi and Daruosh Foroghi

Risks 2023, 11(2), 44; https://doi.org/10.3390/risks11020044 - 15 Feb 2023

Cited by 2 | Viewed by 2000

Abstract

Budgeting is allocating limited resources to unlimited needs and aims to maximise the use of resources that are usually scarce. In the face of these scarce resources, continuous attention to planning, allocating resources, and budgeting is an undeniable necessity. The importance of the [...] Read more.

Budgeting is allocating limited resources to unlimited needs and aims to maximise the use of resources that are usually scarce. In the face of these scarce resources, continuous attention to planning, allocating resources, and budgeting is an undeniable necessity. The importance of the budget in universities that receive their credits from the government is much greater because of their significant role in society’s scientific and cultural orientation of the younger generations. It is evident that incorrect budgeting will cause mistakes in allocating resources in this critical field and will cause severe damage to the country at the national level. Hence, reforming the methods of budgeting and distribution of resources in Iraqi public universities is one of the primary necessities. Therefore, the current research has investigated the feasibility of establishing operational budgeting in Iraqi public universities based on the PESTEL model. The study period is 2022, and the research community is Iraqi public universities (35 universities), of which 15 top universities were selected as a statistical sample. The research data were collected using 198 questionnaires completed by financial managers, accounting experts in financial affairs, and experts specializing in budgeting in sample universities. The results of hypothesis testing showed that all aspects of the study, including political, economic, social, technological, environmental, and legal, affect the establishment of operational budgeting in Iraqi public universities, and all the research hypotheses are confirmed. In other words, it was found that the political, economic, social, technical, environmental, and legal factors identified in the current research are significant for establishing operational budgeting in Iraqi public universities. It is suggested that legislators and budgeting planners prioritise these factors and rely on them in making decisions since experts approved these stimuli in the field of operational budgeting in the strategic environment of universities and according to the current conditions prevailing in Iraq. Full article

(This article belongs to the Topic Risk and Innovativeness in Education and Schools: Pedagogical, Organizational, Financial and Social Aspects)

19 pages, 2862 KiB

Open AccessArticle

Optimal Structure of Real Estate Portfolio Using EVA: A Stochastic Markowitz Model Using Data from Greek Real Estate Market

by Theofanis Petropoulos, Konstantinos Liapis and Eleftherios Thalassinos

Risks 2023, 11(2), 43; https://doi.org/10.3390/risks11020043 - 12 Feb 2023

Cited by 1 | Viewed by 1787

Abstract

The purpose of this paper is to examine the issue of portfolio optimization. Optimization consists of minimizing the risk for a given rate of return or achieving a bigger return for a given level of risk. We use historical data from the Bank [...] Read more.

The purpose of this paper is to examine the issue of portfolio optimization. Optimization consists of minimizing the risk for a given rate of return or achieving a bigger return for a given level of risk. We use historical data from the Bank of Greece to calculate the net return and the standard deviation (std) for each type of property that is available. The objective is to maximize the economic value added (EVA) of a property’s assets portfolio under a specific rate of standard deviation, following the classic Markowitz model (M-V). The stochastic procedure entry in the model uses the Monte Carlo Simulation method with debt to equity (DTE) following PERT distribution for the portfolio’s invested budget, and the net return for the normal distribution with the mean of the expected return and std are taken from historical data, correspondingly. The returns verify that they follow the base assumption of normality through the Lilliefors test in the Greek real estate market. We observe the maximization of EVA and the expected return maximizing concurrently, but the minimizing risk of EVA is diversified with the minimization of portfolio risk. We observe that the max weight that a residential asset takes is 22.7% because a bigger percent reduces both mean and std. The study provides an explicit portfolio optimization procedure under uncertainty in the real estate market and enriches the academic debate about EVA and revenue. Full article

(This article belongs to the Special Issue Risk Management in Shipping and Industry)

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14 pages, 1998 KiB

Open AccessArticle

Application of the kNN-Based Method and Survival Approach in Estimating Loss Given Default for Unresolved Cases

by Aneta Ptak-Chmielewska, Paweł Kopciuszewski and Anna Matuszyk

Risks 2023, 11(2), 42; https://doi.org/10.3390/risks11020042 - 10 Feb 2023

Viewed by 1730

Abstract

A vast majority of Loss Given Default (LGD) models are currently in use. Over all the years since the new Capital Accord was published in June 2004, there has been increasing interest in the modelling of the LGD parameter on the part of [...] Read more.

A vast majority of Loss Given Default (LGD) models are currently in use. Over all the years since the new Capital Accord was published in June 2004, there has been increasing interest in the modelling of the LGD parameter on the part of both academics and practitioners. The main purpose of this paper is to propose new LGD estimation approaches that provide more effective results and include the unresolved cases in the estimation procedure. The motivation for the proposed project was the fact that many LGD models discussed in the literature are based on complete cases and mainly based on the estimation of LGD distribution or regression techniques. This paper presents two different approaches. The first is the KNN non-parametric model, and the other is based on the Cox survival model. The results suggest that the KNN model has higher performance. The Cox model was used to assign observations to LGD pools, and the LGD estimator was proposed as the average of realized values in the pools. These two approaches are quite a new idea for estimating LGD, as the results become more promising. The main advantage of the proposed approaches, especially kNN-based approaches, is that they can be applied to the unresolved cases. In our paper we focus on how to treat the unresolved cases when estimating the LGD parameter. We examined a kNN-based method for estimating LGD that outperforms the traditional Cox model. Furthermore, we also proposed a novel algorithm for selecting the risk drivers. Full article

(This article belongs to the Special Issue Credit Risk Management: Volume II)

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29 pages, 1138 KiB

Open AccessEditor’s ChoiceArticle

Optimal Investment in a Dual Risk Model

by Arash Fahim and Lingjiong Zhu

Risks 2023, 11(2), 41; https://doi.org/10.3390/risks11020041 - 09 Feb 2023

Cited by 1 | Viewed by 1366

Abstract

Dual risk models are popular for modeling a venture capital or high-tech company, for which the running cost is deterministic and the profits arrive stochastically over time. Most of the existing literature on dual risk models concentrates on the optimal dividend strategies. In [...] Read more.

Dual risk models are popular for modeling a venture capital or high-tech company, for which the running cost is deterministic and the profits arrive stochastically over time. Most of the existing literature on dual risk models concentrates on the optimal dividend strategies. In this paper, we propose to study the optimal investment strategy on research and development for the dual risk models to minimize the ruin probability of the underlying company. We will also study the optimization problem when, in addition, the investment in a risky asset is allowed. Full article

(This article belongs to the Special Issue Emerging Topics in Finance and Risk Engineering—In Memory of Peter Carr)

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15 pages, 896 KiB

Open AccessArticle

Investigating the Determinants of Islamic Mobile FinTech Service Acceptance: A Modified UTAUT2 Approach

by Md. Sharif Hassan, Md. Aminul Islam, Mohd Faizal bin Yusof, Hussen Nasir and Nasrin Huda

Risks 2023, 11(2), 40; https://doi.org/10.3390/risks11020040 - 09 Feb 2023

Cited by 7 | Viewed by 2908

Abstract

Financial technology (FinTech) is leading a worldwide revolution to increase financial access. Bangladesh’s financial sector is entering a new era of innovation due to the country’s rapid embrace of financial technology. Mobile FinTech service (MFS) providers achieve unattainable economic peaks every year. The [...] Read more.

Financial technology (FinTech) is leading a worldwide revolution to increase financial access. Bangladesh’s financial sector is entering a new era of innovation due to the country’s rapid embrace of financial technology. Mobile FinTech service (MFS) providers achieve unattainable economic peaks every year. The growth of conventional banks’ MFS is significant. However, Islamic banks have a good market share but cannot attract more customers to use the Islamic MFS. This study aimed to determine the factors influencing Islamic bank customers to accept the Islamic MFS. This study utilized a modified UTAUT2 model. Data were collected from 310 Islamic bank customers by using online Google Forms. Structural equation modeling was employed to analyze the data by SMART PLS 3.2.9. The results revealed that social influence, facilitating conditions, price, and perceived credibility have a significant positive effect on Islamic MFS acceptance. However, performance expectancy and effort expectancy showed no impact on Islamic MFS acceptance. This research framework is helpful for academicians and researchers to investigate FinTech acceptance in developing countries. Moreover, the study results are beneficial for MFS providers and FinTech firms. Full article

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17 pages, 446 KiB

Open AccessArticle

Firm Risk and Tax Avoidance in Vietnam: Do Good Board Characteristics Interfere Effectively?

by Trung Kien Tran, Minh Tuan Truong, Kim Tu Bui, Phung Duc Duong, Minh Vuong Huynh and Tran Thai Ha Nguyen

Risks 2023, 11(2), 39; https://doi.org/10.3390/risks11020039 - 09 Feb 2023

Cited by 4 | Viewed by 2723

Abstract

This paper investigates the role of board characteristics in the relationship between tax avoidance behavior and corporate risk tolerance to elucidate the importance of corporate governance mechanisms. The applied methodology is System-GMM for 334 listed corporations in Vietnam from 2008 to 2020 to [...] Read more.

This paper investigates the role of board characteristics in the relationship between tax avoidance behavior and corporate risk tolerance to elucidate the importance of corporate governance mechanisms. The applied methodology is System-GMM for 334 listed corporations in Vietnam from 2008 to 2020 to avoid endogenous problems in our models. The main findings are that higher (lower) corporate risk-taking is related to higher (lower) corporate tax avoidance if the size of the board of directors and the supervisory board are larger (lower) than six and three members, respectively. Furthermore, if the board independence ratio is lower than 48.63%, an increase in corporate risk-taking leads to increased tax avoidance. Our results support the argument that the influence of corporate risk-taking on tax avoidance behavior is governed by governance structure. Therefore, the practical implications will be towards building the optimal governance mechanism for enterprises in Vietnam. Full article

(This article belongs to the Special Issue Financial Risk Management in SMEs 2022)

18 pages, 3009 KiB

Open AccessArticle

Dependency Modeling Approach of Cause-Related Mortality and Longevity Risks: HIV/AIDS

by Nicholas Bett, Juma Kasozi and Daniel Ruturwa

Risks 2023, 11(2), 38; https://doi.org/10.3390/risks11020038 - 09 Feb 2023

Viewed by 1065

Abstract

Disaggregation of mortality by cause has advanced the development of life tables for life insurance and pension purposes. However, the assumption that the causes of death are independent is a challenge in reality. Furthermore, models that determine relationships among causes of death such [...] Read more.

Disaggregation of mortality by cause has advanced the development of life tables for life insurance and pension purposes. However, the assumption that the causes of death are independent is a challenge in reality. Furthermore, models that determine relationships among causes of death such as HIV/AIDS and their impact on mortality and longevity risks seem trivial or inflexible. To address these problems, we aim to determine and build an appropriate copula dependence model for HIV/AIDS against other causes of death in the presence of age, gender, and time. A bivariate copula model is proposed to capture the dependence structure of HIV/AIDS on life expectancy. This approach allows the fitting of flexible and interpretable bivariate copulas for a two-dimensional case. The dataset was derived from the World Health Organization database that constituted annualized death numbers, causes, age, gender, and years (2000 to 2019). Using Kendall’s tau and Pearson linear coefficient values, the survival Joe copulas proved to be a suitable model. The contribution and implication of this research are the quantification of the impact of HIV/AIDS on a life table, and, thus, the establishment of an alternative to the subjective actuarial judgment approach. Full article

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18 pages, 1046 KiB

Open AccessArticle

Dataset Analysis of Pandemic Risks and Risk Management Prospects Based on Management and Marketing in Conditions of COVID-19 Recession

by Anastasiya A. Sozinova and Elena G. Popkova

Risks 2023, 11(2), 37; https://doi.org/10.3390/risks11020037 - 08 Feb 2023

Cited by 2 | Viewed by 1735

Abstract

The motivation for the research was the suddenness of the COVID-19 pandemic and the unavailability of health measures (well-established treatment and vaccination) at the beginning of 2020, which caused an uncontrollable increase in the incidence of disease worldwide and high mortality. The research [...] Read more.

The motivation for the research was the suddenness of the COVID-19 pandemic and the unavailability of health measures (well-established treatment and vaccination) at the beginning of 2020, which caused an uncontrollable increase in the incidence of disease worldwide and high mortality. The research aims to conduct a dataset analysis of pandemic risks and risk management perspectives based on management and marketing during the COVID-19 recession. The dataset aggregated the statistics on management, marketing, and morbidity during COVID-19 for most countries worldwide that provide data for international statistics (141 countries). Using the developed methodological approach, the authors evaluate the contribution of management and marketing in the fight against the viral threat. The authors calculated specific indices that reflect the contribution of each management and marketing factor separately to combat the viral threat in the second and third trimesters of 2020. The novelty of this research lies in the fact that the dataset study provides a systemic coverage of international experience and develops a universal economic approach to pandemic risk management. The theoretical significance of the research findings is that they reveal differences in the capabilities of economic risk management of a pandemic as the viral threat changes. The practical significance of the research lies in the fact that the results obtained in the third trimester of 2020 make it possible to adjust the policy of the state and corporate risk management of the COVID-19 pandemic during the subsequent pandemic waves, in the post-pandemic period, and in future epidemics and pandemics. Economic measures fill the existing gap, making up for the lack of risk management measures in the early phases of the COVID-19 pandemic. Full article

(This article belongs to the Special Issue The COVID-19 Crisis: Datasets and Data Analysis to Reduce Risks)

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15 pages, 2091 KiB

Open AccessReview

A Systematic Literature Review of the Risk Landscape in Fintech

by Ruchika Jain, Satinder Kumar, Kiran Sood, Simon Grima and Ramona Rupeika-Apoga

Risks 2023, 11(2), 36; https://doi.org/10.3390/risks11020036 - 08 Feb 2023

Cited by 6 | Viewed by 5113

Abstract

The current study is primarily concerned with the developments in financial technology, or fintech, that have significantly altered traditional financial systems, focusing on several risk categories that have emerged in the financial technology sector’s digital ecosystem. This paper is a review of existing [...] Read more.

The current study is primarily concerned with the developments in financial technology, or fintech, that have significantly altered traditional financial systems, focusing on several risk categories that have emerged in the financial technology sector’s digital ecosystem. This paper is a review of existing literature related to the risk landscape in fintech, particularly its publication trend, journal productivity, impact, affiliated organizations, and related themes. A bibliometric and content analysis of 84 articles collected through Scopus’ structured database is performed for a comprehensive review. It is revealed that financial technology development has decreased physical crime while simultaneously increasing cybercrime. Another challenge is the asymmetrical technology between financial markets and the relevant supervisors. These current issues necessitate the creation of an Act on Fintech to create a comprehensive legislative framework. The present study’s findings are helpful for academia and industry to aid their existing knowledge about fintech and associated risks, particularly its timeline, geographical spread, and development of coherent themes. Full article

(This article belongs to the Special Issue The Risk Landscape in the Digital Transformation of Finance and Insurance)

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45 pages, 4139 KiB

Open AccessArticle

Formulating MCoVaR to Quantify Joint Transmissions of Systemic Risk across Crypto and Non-Crypto Markets: A Multivariate Copula Approach

by Arief Hakim and Khreshna Syuhada

Risks 2023, 11(2), 35; https://doi.org/10.3390/risks11020035 - 07 Feb 2023

Cited by 1 | Viewed by 1804

Abstract

Evidence that cryptocurrencies exhibit speculative bubble behavior is well documented. This evidence could trigger global financial instability leading to systemic risk. It is therefore crucial to quantify systemic risk and investigate its transmission mechanism across crypto markets and other global financial markets. We [...] Read more.

Evidence that cryptocurrencies exhibit speculative bubble behavior is well documented. This evidence could trigger global financial instability leading to systemic risk. It is therefore crucial to quantify systemic risk and investigate its transmission mechanism across crypto markets and other global financial markets. We can accomplish this using the so-called multivariate conditional value-at-risk (MCoVaR), which measures the tail risk of a targeted asset from each market conditional on a set of multiple assets being jointly in distress and on a set of the remaining assets being jointly in their median states. In this paper, we aimed to find its analytic formulas by considering multivariate copulas, which allow for the separation of margins and dependence structures in modeling the returns of the aforementioned assets. Compared to multivariate normal and Student’s t benchmark models and a multivariate Johnson’s SU model, the copula-based models with non-normal margins produced a MCoVaR forecast with superior conditional coverage and backtesting performances. Using a corresponding Delta MCoVaR, we found the crypto assets to be potential sources of systemic risk jointly transmitted within the crypto markets and towards the S&P 500, oil, and gold, which was more apparent during the COVID-19 period encompassing the recent 2021 crypto bubble event. Full article

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24 pages, 1815 KiB

Open AccessArticle

Risk Factor Disclosures in the US Airline Industry Following the COVID-19 Pandemic

by Daniela Penela and Miguel Palma

Risks 2023, 11(2), 34; https://doi.org/10.3390/risks11020034 - 07 Feb 2023

Cited by 1 | Viewed by 3664

Abstract

This study examines how airlines in the United States report risk at a difficult and uncertain time as a result of the COVID-19 pandemic. The fundamental differences between the years 2019 and 2020 are identified using Leximancer, which is used to locate the [...] Read more.

This study examines how airlines in the United States report risk at a difficult and uncertain time as a result of the COVID-19 pandemic. The fundamental differences between the years 2019 and 2020 are identified using Leximancer, which is used to locate the key ideas and themes addressed in the risk reporting sections. Following the pandemic, the themes that addressed generic and recurring hazards were afforded less weight than themes that highlighted risks particular to day-to-day business and the stock market. The findings also point to the need for corporations to disclose future-oriented risks more fully in post-COVID-19 reporting, with an emphasis on unpredictability, stock volatility, and operational disruption. This study adds to the body of knowledge on risk profiling, particularly as it relates to the airline business, and it offers stakeholders and investors a glimpse into the general concerns of airlines. The inherent information imbalance between management and investors is lessened and transparency is increased because of this improved understanding of the market. Full article

(This article belongs to the Special Issue Accounting, Financial Reporting, and Disclosure)

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23 pages, 5081 KiB

Open AccessArticle

Risk Sharing, SMEs’ Financial Strategy, and Lending Guarantee Technology

by Karima Saci and Walid Mansour

Risks 2023, 11(2), 33; https://doi.org/10.3390/risks11020033 - 07 Feb 2023

Cited by 2 | Viewed by 2274

Abstract

Several governments use the Credit Guarantee Schemes to ease SMEs’ access to funding and support their growth and survival. This paper suggests a lending guarantee technology based on risk sharing through a de facto shareholding agreement to cover potential losses and reduce the [...] Read more.

Several governments use the Credit Guarantee Schemes to ease SMEs’ access to funding and support their growth and survival. This paper suggests a lending guarantee technology based on risk sharing through a de facto shareholding agreement to cover potential losses and reduce the premature default risk. The simulation of a typical entrepreneurial experiment shows that the key SMEs dynamics (value creation, profitability, risk, leverage, and equity multiplier, among others) and other related financial additionality and sustainability indicators are substantially improved. The ideal financial strategy for the SMEs’ entrepreneurs is to keep lower levels of the equity multiplier to transmit positive signals to the market, which improves the business prospects and related creditworthiness. The results indicate that risk sharing alleviates the financiers’ reluctance to increase the SMEs funding and improve their risk management systems. Full article

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25 pages, 3895 KiB

Open AccessArticle

Dependent Metaverse Risk Forecasts with Heteroskedastic Models and Ensemble Learning

by Khreshna Syuhada, Venansius Tjahjono and Arief Hakim

Risks 2023, 11(2), 32; https://doi.org/10.3390/risks11020032 - 01 Feb 2023

Cited by 4 | Viewed by 1817

Abstract

Metaverses have been evolving following the popularity of blockchain technology. They build their own cryptocurrencies for transactions inside their platforms. These new cryptocurrencies are, however, still highly speculative, volatile, and risky, motivating us to manage their risk. In this paper, we aimed to [...] Read more.

Metaverses have been evolving following the popularity of blockchain technology. They build their own cryptocurrencies for transactions inside their platforms. These new cryptocurrencies are, however, still highly speculative, volatile, and risky, motivating us to manage their risk. In this paper, we aimed to forecast the risk of Decentraland’s MANA and Theta Network’s THETA. More specifically, we constructed an aggregate of these metaverse cryptocurrencies as well as their combination with Bitcoin. To measure their risk, we proposed a modified aggregate risk measure (AggM) defined as a convex combination of aggregate value-at-risk (AggVaR) and aggregate expected shortfall (AggES). To capture their dependence, we employed copulas that link their marginal models: heteroskedastic and ensemble learning-based models. Our empirical study showed that the latter outperformed the former when forecasting volatility and aggregate risk measures. In particular, the AggM forecast was more accurate and more valid than the AggVaR and AggES forecasts. These risk measures confirmed that an aggregate of the two metaverse cryptocurrencies exhibited the highest risk with evidence of lower tail dependence. These results are, thus, helpful for cryptocurrency investors, portfolio risk managers, and policy-makers to formulate appropriate cryptocurrency investment strategies, portfolio allocation, and decision-making, particularly during extremely negative shocks. Full article

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22 pages, 1649 KiB

Open AccessArticle

Designing Stress Tests for UK Fast-Growing Firms and Fintech

by Stavros Pantos

Risks 2023, 11(2), 31; https://doi.org/10.3390/risks11020031 - 31 Jan 2023

Cited by 2 | Viewed by 2204

Abstract

This paper captures advances in prudential regulation and supervision for challenger banks and fintech in the UK. It presents a critical analysis of the prudential supervisory approaches towards fintech. The focus is placed on fast-growing firms (FGFs), building on the review performed by [...] Read more.

This paper captures advances in prudential regulation and supervision for challenger banks and fintech in the UK. It presents a critical analysis of the prudential supervisory approaches towards fintech. The focus is placed on fast-growing firms (FGFs), building on the review performed by the Prudential Regulation Authority (PRA) of the Bank of England (BoE) in 2019. Specifically, it comprises a critical examination of the underlying regulatory framework in relation to the robustness of stress testing practices, as part of the review of FGF risk management practices and the weakness identified in the Internal Capital Adequacy Assessment Process (ICAAP). The economic analysis of law comprises the underlying methodology, using economic theory to analyse regulation and its effectiveness regarding fintech regulation and supervision. Recommendations for enhancements towards supervisory practices about the prudential governance and management of FGFs and fintech are included, with advances to the underlying regulatory framework in the UK. Overall, this critical legal research examines the supervisory practices of FGFs and fintech in the UK, under the lens of prudential regulation and risk management approaches, focusing on the design, development and implementation of the stress testing tool and scenario practices. Full article

(This article belongs to the Special Issue The Risk Landscape in the Digital Transformation of Finance and Insurance)

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34 pages, 3929 KiB

Open AccessArticle

The SEV-SV Model—Applications in Portfolio Optimization

by Marcos Escobar-Anel and Weili Fan

Risks 2023, 11(2), 30; https://doi.org/10.3390/risks11020030 - 28 Jan 2023

Cited by 2 | Viewed by 1510

Abstract

This paper introduces and studies a new family of diffusion models for stock prices with applications in portfolio optimization. The diffusion model combines (stochastic) elasticity of volatility (EV) and stochastic volatility (SV) to create the SEV-SV model. In particular, we focus on the [...] Read more.

This paper introduces and studies a new family of diffusion models for stock prices with applications in portfolio optimization. The diffusion model combines (stochastic) elasticity of volatility (EV) and stochastic volatility (SV) to create the SEV-SV model. In particular, we focus on the SEV component, which is driven by an Ornstein–Uhlenbeck process via two separate functional choices, while the SV component features the state-of-the-art 4/2 model. We study an investment problem within expected utility theory (EUT) for incomplete markets, producing closed-form representations for the optimal strategy, value function, and optimal wealth process for two different cases of prices of risk on the stock. We find that when EV reverts to a GBM model, the volatility and speed of reversion of the EV have a strong impact on optimal allocations, and more aggressive (bull markets) or cautious (bear markets) strategies are hence recommended. For a model when EV reverts away from GBM, only the mean reverting level of the EV plays a role. Moreover, the presence of SV leads mainly to more conservative investment decisions for short horizons. Overall, the SEV plays a more significant role than SV in the optimal allocation. Full article

(This article belongs to the Special Issue Stochastic Modelling in Financial Mathematics II)

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18 pages, 1454 KiB

Open AccessArticle

Analysing Quantiles in Models of Forward Term Rates

by Thomas A. McWalter, Erik Schlögl and Jacques van Appel

Risks 2023, 11(2), 29; https://doi.org/10.3390/risks11020029 - 28 Jan 2023

Viewed by 937

Abstract

The class of forward-LIBOR market models can, under certain volatility structures, produce unrealistically high long-dated forward rates, particularly for maturities and tenors beyond the liquid market calibration instruments. This paper presents a diagnostic tool for analysing the quantiles of distributions for forward term [...] Read more.

The class of forward-LIBOR market models can, under certain volatility structures, produce unrealistically high long-dated forward rates, particularly for maturities and tenors beyond the liquid market calibration instruments. This paper presents a diagnostic tool for analysing the quantiles of distributions for forward term rates in a displaced lognormal forward-LIBOR model (DLFM). In particular, we provide a quantile approximation that can be used to assess whether the modelled term rates remain within realistic bounds with a high probability. Applying this diagnostic tool (verified using Quasi-Monte Carlo (QMC) simulations), we show that realised forward term rates for long time horizons may be kept within realistic limits by appropriately damping the tail of the DLFM volatility function. Full article

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15 pages, 452 KiB

Open AccessArticle

Effect of Family Control on Earnings Management: The Role of Leverage

by Sri Murni, Rahmawati Rahmawati, Ari Kuncara Widagdo, Eko Arief Sudaryono and Doddy Setiawan

Risks 2023, 11(2), 28; https://doi.org/10.3390/risks11020028 - 25 Jan 2023

Cited by 2 | Viewed by 2281

Abstract

This study aims to examine whether family control has a positive effect on earnings management of manufacturing companies and whether leverage weakens the positive effect of family control on earnings management. This study uses panel data for the 2015–2019 observation year. The research [...] Read more.

This study aims to examine whether family control has a positive effect on earnings management of manufacturing companies and whether leverage weakens the positive effect of family control on earnings management. This study uses panel data for the 2015–2019 observation year. The research population consists of companies listed on the Indonesian capital market. Sample selection was performed with a purposive sampling approach using certain criteria, namely: the company was not delisted during the observation period; the company has complete research data; and that the company is included in the criteria for family companies. The sample of the study consists of 84 companies with a total of 419 observations. We use panel data regression to prove our hypotheses. The findings of our research show that family control has a positive effect on earnings management and leverage weakens the positive effect of family control on earnings management. Additional tests confirm the main test. The implications of our research are expected to be input for determining regulations and policies related to restrictions on majority shareholders to protect minority shareholders. Full article

(This article belongs to the Special Issue Accounting, Financial Reporting, and Disclosure)

16 pages, 425 KiB

Open AccessArticle

Evaluating the Effectiveness of Modern Forecasting Models in Predicting Commodity Futures Prices in Volatile Economic Times

by László Vancsura, Tibor Tatay and Tibor Bareith

Risks 2023, 11(2), 27; https://doi.org/10.3390/risks11020027 - 22 Jan 2023

Cited by 2 | Viewed by 2454

Abstract

The paper seeks to answer the question of how price forecasting can contribute to which techniques gives the most accurate results in the futures commodity market. A total of two families of models (decision trees, artificial intelligence) were used to produce estimates for [...] Read more.

The paper seeks to answer the question of how price forecasting can contribute to which techniques gives the most accurate results in the futures commodity market. A total of two families of models (decision trees, artificial intelligence) were used to produce estimates for 2018 and 2022 for 21- and 125-day periods. The main findings of the study are that in a calm economic environment, the estimation accuracy is higher (1.5% vs. 4%), and that the AI-based estimation methods provide the most accurate estimates for both time horizons. These models provide the most accurate forecasts over short and medium time periods. Incorporating these forecasts into the ERM can significantly help to hedge purchase prices. Artificial intelligence-based models are becoming increasingly widely available, and can achieve significantly better accuracy than other approximations. Full article

(This article belongs to the Special Issue New Advance of Risk Management Models)

16 pages, 813 KiB

Open AccessArticle

Perceived Risks of Autonomous Vehicles

by Kornélia Lazányi

Risks 2023, 11(2), 26; https://doi.org/10.3390/risks11020026 - 21 Jan 2023

Cited by 3 | Viewed by 2320

Abstract

Whilst self-driving cars are not vehicles of the future, but technology that is already available, their acceptance and implementation is heavily limited. People consider them as technology that has a lot of risk—be it technological, IT related, or even ethical. The aim of [...] Read more.

Whilst self-driving cars are not vehicles of the future, but technology that is already available, their acceptance and implementation is heavily limited. People consider them as technology that has a lot of risk—be it technological, IT related, or even ethical. The aim of the present paper is to enrich the existing body of literature of risk perception—and in line with this technology adaption—regarding autonomous vehicles and how they are influenced by demographic and exogenous cultural variables. Whilst the effect of cultural variables on risk perception has already been explored by several researchers, the present paper shall be considered an expansion of those works, striving to address a particular segment of risk perception—the specifics of cultural influence on risk perception regarding autonomous vehicles. Whilst risk perception is of a multifaceted nature, the current paper does not aim to provide a comprehensive understanding of the complex phenomenon under scrutiny, but intends to highlight the potentiality of cultural influences besides the often-explored individual variables when it comes to risk perception and the consequent decisions and indicates that the cultural dimensions of Geert Hofstede use to create a better understanding of perceived risks related to self-driving cars. Full article

(This article belongs to the Special Issue New Advance of Risk Management Models)

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7 pages, 209 KiB

Open AccessEditorial

Acknowledgment to the Reviewers of Risks in 2022

by Risks Editorial Office

Risks 2023, 11(2), 25; https://doi.org/10.3390/risks11020025 - 18 Jan 2023

Viewed by 1316

Abstract

High-quality academic publishing is built on rigorous peer review [...] Full article

5 pages, 342 KiB

Open AccessOpinion

A Generalized Model for Pricing Financial Derivatives Consistent with Efficient Markets Hypothesis—A Refinement of the Black-Scholes Model

by Jussi Lindgren

Risks 2023, 11(2), 24; https://doi.org/10.3390/risks11020024 - 17 Jan 2023

Viewed by 2319

Abstract

This research article provides criticism and arguments why the canonical framework for derivatives pricing is incomplete and why the delta-hedging approach is not appropriate. An argument is put forward, based on the efficient market hypothesis, why a proper risk-adjusted discount rate should enter [...] Read more.

This research article provides criticism and arguments why the canonical framework for derivatives pricing is incomplete and why the delta-hedging approach is not appropriate. An argument is put forward, based on the efficient market hypothesis, why a proper risk-adjusted discount rate should enter into the Black-Scholes model instead of the risk-free rate. The resulting pricing equation for derivatives and, in particular, the formula for European call options is then shown to depend explicitly on the drift of the underlying asset, which is following a geometric Brownian motion. It is conjectured that with the generalized model, the predicted results by the model could be closer to real data. The adjusted pricing model could partly also explain the mystery of volatility smile. The present model also provides answers to many finance professionals and academics who have been intrigued by the risk-neutral features of the original Black-Scholes pricing framework. The model provides generally different fair values for financial derivatives compared to the Black-Scholes model. In particular, the present model predicts that the original Black-Scholes model tends to undervalue for example European call options. Full article

(This article belongs to the Special Issue Frontiers in Quantitative Finance and Risk Management)

13 pages, 398 KiB

Open AccessArticle

Size-Threshold Effect in the Capital Structure–Firm Performance Nexus in the MENA Region: A Dynamic Panel Threshold Regression Model

by Eman Fathi Attia, Hamsa hany Ezz Eldeen and Sameh said Daher

Risks 2023, 11(2), 23; https://doi.org/10.3390/risks11020023 - 17 Jan 2023

Cited by 6 | Viewed by 1852

Abstract

This paper investigates the nonlinear relationship between capital structure and firm performance in the MENA region using a sample of 499 listed firms over the 2007–2020 period, or 6986 firm-year observations. Specifically, we examine the size-threshold effect in the capital structure–firm performance nexus. [...] Read more.

This paper investigates the nonlinear relationship between capital structure and firm performance in the MENA region using a sample of 499 listed firms over the 2007–2020 period, or 6986 firm-year observations. Specifically, we examine the size-threshold effect in the capital structure–firm performance nexus. To do so, this study applies a dynamic panel threshold regression model (DPTR). The findings show that there is a nonlinear relationship between debt and firm performance (Tobin’s Q, ROA, and ROE). Specifically, the threshold values of firm size for the three models are estimated at 9.126 (about $1 million), 15.48 (about $5 million), and 16.816 (about $20 million), respectively, between the low- and the high-sized regimes. In the lower regime, the firm’s value (Q) increases when debt increases; however, in the higher regime, this value decreases when debt increases. Furthermore, in the lower regime, the performances (ROA and ROE) of small firms decrease when debt increases; however, in the upper regime, when debt increases, the performances of large firms increase. The results are several robustness tests. These results support the predictions of signal, pecking order, and trade-off theories. Managers of large (small) MENA firms should increase (decrease) the use of debt to improve performance. Full article

(This article belongs to the Special Issue Accounting, Financial Reporting, and Disclosure)

13 pages, 543 KiB

Open AccessArticle

The Effects of Direct Democracy on Stock Market Risk and Returns: An Event Study from Switzerland

by Bruce Morley

Risks 2023, 11(2), 22; https://doi.org/10.3390/risks11020022 - 17 Jan 2023

Viewed by 1458

Abstract

The aim of this study was to determine whether referendums affect stock price risks and returns, using an event study approach. Daily end period data for the Swiss stock market index, the STOXX European market index, and the Swiss/US exchange rate running from [...] Read more.

The aim of this study was to determine whether referendums affect stock price risks and returns, using an event study approach. Daily end period data for the Swiss stock market index, the STOXX European market index, and the Swiss/US exchange rate running from the beginning of 2004 to June 2021, along with the EGARCH model, were applied to determine the effects on both the market’s return and volatility. The results suggest that the day after the referendum, there was little evidence of a positive effect on stock returns. However, using a longer window of three days before and after the referendum, there was evidence of a positive effect from the referendum on the market’s returns and a negative effect on its volatility. Analysing the effects of referendums on both asset returns and risks allows for a more comprehensive assessment of how they impact on the economy, with these results supporting previous studies that found a positive effect on economic returns, and also showing they can reduce risks. Full article

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Risks, Volume 11, Issue 2 (February 2023) – 25 articles

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