Journal of Risk and Financial Management

Research

17 pages, 324 KiB

Open AccessArticle

Credit Risk, Regulatory Costs and Lending Discrimination in Efficient Residential Mortgage Markets

by David Nickerson

J. Risk Financial Manag. 2022, 15(5), 197; https://doi.org/10.3390/jrfm15050197 - 21 Apr 2022

Cited by 1 | Viewed by 1924

Significant differences in loan terms between demographically distinct groups of borrowers in the United States are often interpreted as evidence of systematic ethnic, racial or gender discrimination by lenders. The appearance and interpretation of such discrimination has long been a controversial issue in [...] Read more.

Significant differences in loan terms between demographically distinct groups of borrowers in the United States are often interpreted as evidence of systematic ethnic, racial or gender discrimination by lenders. The appearance and interpretation of such discrimination has long been a controversial issue in public policy and has significant implications for both the economic efficiency and equity of credit markets. Arising from concern for borrowers disadvantaged by such discrimination, the design and implementation of regulations preventing the disparate treatment of demographically distinct groups by lenders are generally considered to have enhanced the equality of access to credit. Unfortunately, existing research has not examined whether this gain in social equity comes at a cost in efficiency borne by all market participants. The reliance on adverse selection or moral hazard in current models of limited lending and credit rationing poses difficulties in empirical testing for the presence and magnitude of such costs. This paper offers a novel theoretical framework in which lending discrimination can endogenously arise in the presence of value-maximizing lenders competing in an economy with complete markets, common knowledge and arbitrage-free pricing. By avoiding the reliance of current models on the exogenous presence of adverse selection or moral hazard, this framework allows potential efficiency costs to beexamined in a market environment without an ex ante assumption of informational market failure. Owing to the presence of common knowledge among participants, we first show how equilibrium loan terms to borrowers in different demographic classes can diverge in such an efficient environment. We then apply the properties exhibited in market equilibria to measure the potential costs of misallocating credit risk owing to the type of regulations observed in actual credit markets. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

14 pages, 566 KiB

Open AccessArticle

A New Approach for Risk of Corporate Bankruptcy Assessment during the COVID-19 Pandemic

by Katarzyna Boratyńska

J. Risk Financial Manag. 2021, 14(12), 590; https://doi.org/10.3390/jrfm14120590 - 07 Dec 2021

Cited by 12 | Viewed by 3709

Abstract

The consequences of COVID-19 will aggravate existing multidimensional risks and reveal new ones. The research gap allows contributing to recognizing the exogenous risk factors of corporate bankruptcy during the COVID-19 pandemic in EU countries. This study aims at revealing how to evaluate the [...] Read more.

The consequences of COVID-19 will aggravate existing multidimensional risks and reveal new ones. The research gap allows contributing to recognizing the exogenous risk factors of corporate bankruptcy during the COVID-19 pandemic in EU countries. This study aims at revealing how to evaluate the risk of corporate bankruptcy phenomenon in the COVID-19 times. The question arises as to whether Schumpeter’s creative destruction approach is still accurate. The article concentrates on implementing the fsQCA (fuzzy set Qualitative Comparative Analysis) method to identify and evaluate the main exogenous drivers of corporate bankruptcy in EU countries based on Fragile States Index data. This new approach focuses on fuzzy sets theory. The fsQCA method is a globally recognized alternative to quantitative analysis (in which the causal complexity is ignored) and qualitative methods for examining individual cases (which do not have the tools to generalize on their basis). The research indicates and examines the main external factors that would increase the risk of corporate bankruptcy in EU countries: namely, economic decline, uneven economic development, unemployment rate, demographic pressure, and government debt. The study discusses the influence of zombie companies on economies during the COVID-19 pandemic. Identifying risk factors that determine the threat of corporate bankruptcy may constitute practical recommendations for business and restructuring practitioners, financial institutions, and banking and public sector representatives in creating warning and recovery measures during the COVID-19 pandemic. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

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23 pages, 346 KiB

Open AccessArticle

A Novel Measure of Political Risk and Foreign Direct Investment Inflows

by Pavel Jeutang and Kwabena Kesse

J. Risk Financial Manag. 2021, 14(10), 482; https://doi.org/10.3390/jrfm14100482 - 12 Oct 2021

Cited by 3 | Viewed by 2360

Abstract

This paper proposes a novel measure of political risk that confirms some of the findings documented in the Foreign Direct Investments (FDI) literature. Particularly, we confirm the positive relationship between political stability and its components on FDI inflows, and the moderating effect of [...] Read more.

This paper proposes a novel measure of political risk that confirms some of the findings documented in the Foreign Direct Investments (FDI) literature. Particularly, we confirm the positive relationship between political stability and its components on FDI inflows, and the moderating effect of natural resources on this relationship. The proposed political risk measure contains relevant, unique and incremental information not observed in the literature. For example, although this measure is highly correlated with the political risk rating of the International Country Risk Guide (ICRG), it contains unique information that explains FDI inflows beyond what is explained by the ICRG rating. A link to the database for our political risk rating for 150 countries covering 2000 to 2015 has been provided. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

13 pages, 813 KiB

Open AccessArticle

Market Behavior in the Face of Political Violence: Evidence from Tsarist Russia

by Christopher A. Hartwell

J. Risk Financial Manag. 2021, 14(9), 445; https://doi.org/10.3390/jrfm14090445 - 15 Sep 2021

Cited by 1 | Viewed by 1660

Abstract

Even efficient financial markets may break down under periods of prolonged stress, especially when the ramification of an event is unclear. Political violence is such an event, sending immediate signals about possible impact on firm valuations but unclear information about the future viability [...] Read more.

Even efficient financial markets may break down under periods of prolonged stress, especially when the ramification of an event is unclear. Political violence is such an event, sending immediate signals about possible impact on firm valuations but unclear information about the future viability of existing institutions. This paper examines the effect of political violence in 19th century Russia on its stock market; using a battery of unit root and variance ratio tests, the evidence is that Russian financial markets were mostly efficient in processing short-term information from political violence. However, when violence was at its peak between the assassination of the Tsar in 1881 and the 1905 revolution, large deviations from efficiency can be detected, as markets were unsure about the viability of the existing rules of the game. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

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24 pages, 840 KiB

Open AccessArticle

Do Terror Attacks Affect the Euro? Evidence from the 21st Century

by Stelios Markoulis

J. Risk Financial Manag. 2021, 14(8), 349; https://doi.org/10.3390/jrfm14080349 - 30 Jul 2021

Cited by 1 | Viewed by 2502

Abstract

The objective of this paper is to examine whether terror attacks that took place in the Eurozone in the 21st century had a significant effect on the price of the Euro. Its novelty is twofold: it is the first study that assesses the [...] Read more.

The objective of this paper is to examine whether terror attacks that took place in the Eurozone in the 21st century had a significant effect on the price of the Euro. Its novelty is twofold: it is the first study that assesses the impact of such events on the price of the Euro and employs a relatively large number of these events. The event-study methodology is used to deduce whether, after a terror event, the value of the Euro declines vs. other major currencies. We found that it does not, since following such an event, the decline was seldom over 0.5%. We also found, however, evidence of some diversion to safe-haven currencies, such as the Swiss Franc. Regression analysis revealed that factors such as the ‘number of attacks’, the ‘type of target’ and the ‘type of attack’, but not the number of casualties, affected the price of the Euro. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

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18 pages, 313 KiB

Open AccessArticle

Did Politicians Use Non-Public Macroeconomic Information in Their Stock Trades? Evidence from the STOCK Act of 2012

by Serkan Karadas, Minh Tam Tammy Schlosky and Joshua Hall

J. Risk Financial Manag. 2021, 14(6), 256; https://doi.org/10.3390/jrfm14060256 - 08 Jun 2021

Cited by 2 | Viewed by 3022

Abstract

Existing research shows that members of Congress made informed trades prior to the passage of the STOCK Act of 2012. There is also evidence in the literature to suggest that the STOCK Act was able to deter politicians from trading based on non-public [...] Read more.

Existing research shows that members of Congress made informed trades prior to the passage of the STOCK Act of 2012. There is also evidence in the literature to suggest that the STOCK Act was able to deter politicians from trading based on non-public information. However, the question of whether politicians made informed trades at the market level (using non-public macroeconomic information, not just firm-specific information) in the first place and whether they continued to do so even after the passage of the STOCK Act remains unexamined. We analyze 101,191 individual stock transactions covering the 2004–2014 period and find that the STOCK Act adversely affected the ability of politicians’ aggregated stock trades to predict the stock market returns. Our results imply that politicians used non-public macroeconomic information prior to the STOCK Act, and this legislation was influential in deterring politicians from using non-public macroeconomic information in their stock trades. Our findings also provide input on the current debate on the need for the STOCK Act 2.0. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

24 pages, 2929 KiB

Open AccessArticle

The Impact of Israeli and Saudi Arabian Geopolitical Risks on the Lebanese Financial Market

by Layal Mansour-Ichrakieh

J. Risk Financial Manag. 2021, 14(3), 94; https://doi.org/10.3390/jrfm14030094 - 28 Feb 2021

Viewed by 3564

Abstract

Hezbollah is best defined in geopolitics as the Iranian ideology proxy that aims to grow the Persian footprint and to gain geopolitical strategic depth in the region. Its role continuously requires geopolitical conflicts, mainly against Saudi Arabia and Israel—for resistance, ideological, and geopolitical [...] Read more.

Hezbollah is best defined in geopolitics as the Iranian ideology proxy that aims to grow the Persian footprint and to gain geopolitical strategic depth in the region. Its role continuously requires geopolitical conflicts, mainly against Saudi Arabia and Israel—for resistance, ideological, and geopolitical purposes. Being a state within a state, Hezbollah militia makes sovereign geopolitical decisions and forces Lebanon to pay for the consequences. This is the first economic study that empirically investigates under vector autoregression (VAR) models the dynamic causal relationship between Saudi Arabia and Israel’s geopolitical risks and Lebanon’s financial stability and economic activity. The results show that Saudi Arabia and Israel’s geopolitical risks affect Lebanon’s economy differently. Economic and financial stability cannot be promoted independently of regional geopolitical conflict. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

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16 pages, 2626 KiB

Open AccessArticle

Different Measures of Country Risk: An Application to European Countries

by Guido Bonatti, Andrea Ciacci and Enrico Ivaldi

J. Risk Financial Manag. 2021, 14(1), 19; https://doi.org/10.3390/jrfm14010019 - 04 Jan 2021

Cited by 3 | Viewed by 2714

Abstract

Country Risk (CR) is a relevant instrument to analyze and understand economic performances and relationships between different countries in the actual economic and political international globalized context. The present work develops indexes for the European Union countries by applying three different methods in [...] Read more.

Country Risk (CR) is a relevant instrument to analyze and understand economic performances and relationships between different countries in the actual economic and political international globalized context. The present work develops indexes for the European Union countries by applying three different methods in the field of formative approach. Our aim is to show how robust CR measurements can be developed by operational and easily computable methods. We identify a set of significant variables included in the reference literature. Then, we propose three simple aggregative processes in order to obtain CR measures, at a precise time and over time. As a result, if we compare the outcomes, similar CR rankings emerge. In other words, there are no relevant differences in results also due to different methods of applications. The findings demonstrate that the choice of the aggregation method depends on the willingness of the researcher to baste the analysis with or without weighing and, therefore, on the semantic content that is assigned to the entire research structure. Each analysis should follow a disinterested theoretical–methodological consistency, knowing that the choice of a particular indexing process in the field of aggregation does not significantly alter the nature of the results compared to what would result by applying a different method. Full article

(This article belongs to the Special Issue Political Risk in Financial Markets)

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