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J. Risk Financial Manag., Volume 14, Issue 11 (November 2021) – 62 articles

Cover Story (view full-size image): American call prices obtained with regression and simulation-based methods can be significantly improved on using put–call symmetry. This paper demonstrates that the variance of the estimated call price is further reduced by applying variance reduction techniques to corresponding symmetric put options. First, our results show that efficiency gains from variance reduction methods are lower for calls than for symmetric puts. Second, control variates is the most efficient method. Finally, drastic reductions in the standard deviation of the estimated call price are obtained by combining multiple variance reduction techniques in a symmetric pricing approach. This reduces the standard deviation by a factor of over 20 for long maturity call options on highly volatile assets. View this paper
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Article
Simultaneous Analysis of Insurance Participation and Acreage Response from Subsidized Crop Insurance for Cotton
J. Risk Financial Manag. 2021, 14(11), 562; https://doi.org/10.3390/jrfm14110562 - 22 Nov 2021
Cited by 1 | Viewed by 542
Abstract
US crop insurance is subsidized to encourage producers to participate and reduce their risk exposure. However, what has been the impact of these subsidies on insurance demand and crop acres planted? Using a simultaneous system of two equations, we quantify both insurance participation [...] Read more.
US crop insurance is subsidized to encourage producers to participate and reduce their risk exposure. However, what has been the impact of these subsidies on insurance demand and crop acres planted? Using a simultaneous system of two equations, we quantify both insurance participation and acreage response to subsidized crop insurance for cotton-producing counties across the US at the national and regional levels. We also quantify the impact of both the realized rate of return and the expected subsidy per pound, plus the combined effects of expected yield and price while accounting for the adoption of Bacillus thuringiensis (Bt) technology and other factors. Results show that both the rate of return and the expected subsidy per unit of production have a statistically significant and positive effect on the percentage of arable acres planted. Furthermore, the marginal effect of expected price on insurance participation is much more significant for low- than high-yield counties. Results indicate that not all regions respond the same to subsidized crop insurance and that subsidies should be based on dollars per expected unit of production rather than expected production to be less distorting. Overall, US cotton acreage response is estimated to be inelastic (0.58) to insurance participation. Full article
(This article belongs to the Special Issue Agricultural Insurance and Risk Management)
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Article
Complementary Currencies for Humanitarian Aid
J. Risk Financial Manag. 2021, 14(11), 557; https://doi.org/10.3390/jrfm14110557 - 18 Nov 2021
Cited by 2 | Viewed by 2489
Abstract
The humanitarian sector has gone through a major shift toward injection of cash into vulnerable communities as its core modality. On this trajectory toward direct currency injection, something new has happened: namely the empowerment of communities to create their own local currencies, a [...] Read more.
The humanitarian sector has gone through a major shift toward injection of cash into vulnerable communities as its core modality. On this trajectory toward direct currency injection, something new has happened: namely the empowerment of communities to create their own local currencies, a tool known as Complementary Currency systems. This study mobilizes the concepts of endogenous regional development, import substitution and local market linkages as elaborated by Albert Hirschman and Jane Jacobs, to analyze the impact of a group of Complementary Currencies instituted by Grassroots Economics Foundation and the Red Cross in Kenya. The paper discusses humanitarian Cash and Voucher Assistance programs and compares them to a Complementary Currency system using Grassroots Economics as a case study. Transaction histories recorded on a blockchain and network visualizations show the ability of these Complementary Currencies to create diverse production capacity, dense local supply chains, and data for measuring the impact of humanitarian currency transfers. Since Complementary Currency systems prioritize both cooperation and localization, the paper argues that Complementary Currencies should become one of the tools in the Cash and Voucher Assistance toolbox. Full article
(This article belongs to the Special Issue Monetary Plurality and Crisis)
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Article
The Effects of ERM Adoption on European Insurance Firms Performance and Risks
J. Risk Financial Manag. 2021, 14(11), 554; https://doi.org/10.3390/jrfm14110554 - 16 Nov 2021
Cited by 1 | Viewed by 1108
Abstract
We investigate the effects of adopting enterprise risk management (ERM) on the performance and risks of European publicly listed insurance firms. Using a dataset for 24 years, we report new results which show that ERM adopters realize significant ERM premiums after controlling for [...] Read more.
We investigate the effects of adopting enterprise risk management (ERM) on the performance and risks of European publicly listed insurance firms. Using a dataset for 24 years, we report new results which show that ERM adopters realize significant ERM premiums after controlling for other covariates and endogeneity. Several firm characteristics such as size, opacity, and the choice of external monitoring agents such as auditors are significant determinants of adopting ERM. We fill a gap in the literature by assessing the impact of adopting ERM on firm risks and report new findings for our sample, which show that ERM adopters effectively reduce firm total and systematic risks and, to a greater extent, idiosyncratic risk. Firm-level variables such as size, leverage, dividend payments events, and diversification impact firm total risk. Insurers use corporate events such as dividend payments to signal information about reducing risk. Industry and international diversification reduce firm total risk and idiosyncratic risk, respectively. Full article
(This article belongs to the Special Issue Risk and Financial Consequences)
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Article
Return Based Risk Measures for Non-Normally Distributed Returns: An Alternative Modelling Approach
J. Risk Financial Manag. 2021, 14(11), 540; https://doi.org/10.3390/jrfm14110540 - 10 Nov 2021
Viewed by 655
Abstract
Developments in the world of finance have led the authors to assess the adequacy of using the normal distribution assumptions alone in measuring risk. Cushioning against risk has always created a plethora of complexities and challenges; hence, this paper attempts to analyse statistical [...] Read more.
Developments in the world of finance have led the authors to assess the adequacy of using the normal distribution assumptions alone in measuring risk. Cushioning against risk has always created a plethora of complexities and challenges; hence, this paper attempts to analyse statistical properties of various risk measures in a not normal distribution and provide a financial blueprint on how to manage risk. It is assumed that using old assumptions of normality alone in a distribution is not as accurate, which has led to the use of models that do not give accurate risk measures. Our empirical design of study firstly examined an overview of the use of returns in measuring risk and an assessment of the current financial environment. As an alternative to conventional measures, our paper employs a mosaic of risk techniques in order to ascertain the fact that there is no one universal risk measure. The next step involved looking at the current risk proxy measures adopted, such as the Gaussian-based, value at risk (VaR) measure. Furthermore, the authors analysed multiple alternative approaches that do not take into account the normality assumption, such as other variations of VaR, as well as econometric models that can be used in risk measurement and forecasting. Value at risk (VaR) is a widely used measure of financial risk, which provides a way of quantifying and managing the risk of a portfolio. Arguably, VaR represents the most important tool for evaluating market risk as one of the several threats to the global financial system. Upon carrying out an extensive literature review, a data set was applied which was composed of three main asset classes: bonds, equities and hedge funds. The first part was to determine to what extent returns are not normally distributed. After testing the hypothesis, it was found that the majority of returns are not normally distributed but instead exhibit skewness and kurtosis greater or less than three. The study then applied various VaR methods to measure risk in order to determine the most efficient ones. Different timelines were used to carry out stressed value at risks, and it was seen that during periods of crisis, the volatility of asset returns was higher. The other steps that followed examined the relationship of the variables, correlation tests and time series analysis conducted and led to the forecasting of the returns. It was noted that these methods could not be used in isolation. We adopted the use of a mosaic of all the methods from the VaR measures, which included studying the behaviour and relation of assets with each other. Furthermore, we also examined the environment as a whole, then applied forecasting models to accurately value returns; this gave a much more accurate and relevant risk measure as compared to the initial assumption of normality. Full article
(This article belongs to the Special Issue Risk and Financial Consequences)
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Article
An Empirical Investigation into Alarming Signals Ignored by the U.S. Multi-Brand Retailer J. Crew Incorporation during COVID-19 Pandemic
J. Risk Financial Manag. 2021, 14(11), 539; https://doi.org/10.3390/jrfm14110539 - 09 Nov 2021
Viewed by 790
Abstract
This study investigated the financial signals that have been ignored or have failed to be controlled by J. Crew Inc. from 2013 until 2019. Exploratory research is carried out with the help of secondary data which was collected from the downloaded formal documents [...] Read more.
This study investigated the financial signals that have been ignored or have failed to be controlled by J. Crew Inc. from 2013 until 2019. Exploratory research is carried out with the help of secondary data which was collected from the downloaded formal documents submitted by J. Crew Inc. to the Securities Exchange Commission (SEC). Researchers analyzed these documents and prepared statements on vertical income statement, vertical balance sheet, horizontal income statement, horizontal balance sheet, trend analysis of income statement, and trend analysis of balance sheet, as well as ratio analysis on liquidity, long-term solvency, profitability, and turnover ratios with the help of excel. This paper has identified total of 15 alarming signs that companies either ignored, could not control, or did not act with alertness towards to stop the business being taken out of hands. In this research paper, the establishment of J. Crew Inc. was presented in four sections: Crew Retail Stores, Crew Factory Stores, Crew Mercantile Stores, and Crew Madewell Stores. The results of this study show that it was not the COVID-19 pandemic that pushed this retail giant into bankruptcy, but numerous reasons and financial turbulences. J. Crew’s financial performance gave plenty of alarming signals that the showed the company was not on track, but these were ignored by the company. Right from net profit, operating expenses, total revenue, goodwill, return on assets, liquidity, and solvency, all 15 indicators were not meeting the industry ideal standard for a continuous period of 5 years. Whether or not the organization can rebuild and contend in a post-pandemic world, is not yet clear. Full article
(This article belongs to the Special Issue Risk Analysis for Corporate Finance)
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Article
Can Sustainable Corporate Governance Enhance Internal Audit Function? Evidence from Omani Public Listed Companies
J. Risk Financial Manag. 2021, 14(11), 537; https://doi.org/10.3390/jrfm14110537 - 09 Nov 2021
Viewed by 581
Abstract
With the application of the agency theory and institutional theory, this study is intended towards the measurement of sustainable corporate governance (SCG) impact on internal audit function (IA) within Omani public listed companies. This study will also theoretically consider the Chinese investment in [...] Read more.
With the application of the agency theory and institutional theory, this study is intended towards the measurement of sustainable corporate governance (SCG) impact on internal audit function (IA) within Omani public listed companies. This study will also theoretically consider the Chinese investment in Oman and its potential impact on Oman’s corporate governance. For this study, SCG is an independent variable and IA is the dependent variable. This study used a descriptive cross-sectional survey design. Data is collected by an internet-based tool and analyzed via PLS-SEM and SPSS. Result suggests that SCG has a significant and direct relationship with IA. In order to attract and sustain Chinese investment and to achieve SCG, this study can assist regulators, professional bodies, and organizations in amending their codes of corporate governance and organizational policies by introducing SCG clauses into their policies and codes with emphasis on the protection of foreign investors. To the best of the knowledge of the researcher, this study is unique, as previous studies demonstrate the IA on SCG, whereas this study emphasizes that SCG can impact the control functions within organizations that also include IA. Full article
(This article belongs to the Special Issue Risk Analysis for Corporate Finance)
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Article
Solvency Risk and Corporate Performance: A Case Study on European Retailers
J. Risk Financial Manag. 2021, 14(11), 536; https://doi.org/10.3390/jrfm14110536 - 09 Nov 2021
Cited by 3 | Viewed by 1435
Abstract
This paper proposes a new approach toward understanding the financial performance dynamics in the EU retail sector (pre-pandemic); we focus on the connection between indebtedness and solvency risk and other areas of corporate performance (e.g., liquidity, assets efficiency, and profitability). Its contribution resides [...] Read more.
This paper proposes a new approach toward understanding the financial performance dynamics in the EU retail sector (pre-pandemic); we focus on the connection between indebtedness and solvency risk and other areas of corporate performance (e.g., liquidity, assets efficiency, and profitability). Its contribution resides in identifying the drivers behind solvency risk in a sector that went through significant transformations in recent decades, as well as the links between the various areas of performance of retailers, and their impacts on solvency risk, using the machine-learning random forest methodology. The results indicate a declining trend for solvency risk of EU food retailers after the global financial crisis and up until the beginning of the pandemic, which may reflect their maturity on the market, but also an adjustment to legal changes in the EU, meant to equalize the tax advantages of debt versus equity financing. Solvency risk accompanied by liquidity risk is a mark of the retail sector, and our results indicate that the most critical trade that EU retailers face is between solvency risk and liquidity, but is fading over time. The volatility of liquidity levels is an important predictor of solvency risk; hence, sustaining a stable and good level of liquidity supports lower risks of financial distress, and may mitigate the shock impacts for EU retailers. A higher solvency risk was accompanied by increased efficiency of asset use, but reduced profitability levels, which led to higher returns available to shareholders for high solvency risk retailers. Overall, retailers should focus on operational performance evidenced by financial indicator levels than on the volatility of these indicators as predictors of solvency risk. Full article
(This article belongs to the Special Issue Risk Analysis for Corporate Finance)
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Editorial
Alcohol Consumption Pre and Post COVID-19. Implications for Health, Underlying Pathologies, Risks and Its Management
J. Risk Financial Manag. 2021, 14(11), 533; https://doi.org/10.3390/jrfm14110533 - 08 Nov 2021
Cited by 1 | Viewed by 535
Abstract
Research indicates that individuals who experience increased levels of stress often report increased alcohol consumption and consequently misuse [...] Full article
Article
A Neutrosophic Fuzzy Optimisation Model for Optimal Sustainable Closed-Loop Supply Chain Network during COVID-19
J. Risk Financial Manag. 2021, 14(11), 519; https://doi.org/10.3390/jrfm14110519 - 01 Nov 2021
Cited by 4 | Viewed by 963
Abstract
In this paper, a sustainable closed-loop supply chain problem is modelled in conditions of uncertainty. Due to the COVID-19 pandemic situation, the designed supply chain network seeks to deliver medical equipment to hospitals on time within a defined time window to prevent overcrowding [...] Read more.
In this paper, a sustainable closed-loop supply chain problem is modelled in conditions of uncertainty. Due to the COVID-19 pandemic situation, the designed supply chain network seeks to deliver medical equipment to hospitals on time within a defined time window to prevent overcrowding and virus transmission. In order to achieve a suitable model for designing a sustainable closed-loop supply chain network, important decisions such as locating potential facilities, optimal flow allocation, and vehicle routing have been made to prevent the congestion of vehicles and transmission of the COVID-19 virus. Since the amount of demand in hospitals for medical equipment is unknown, the fuzzy programming method is used to control uncertain demand, and to achieve an efficient solution to the decision-making problem, the neutrosophic fuzzy method is used. The results show that the designed model and the selected solution method (the neutrosophic fuzzy method) have led to a reduction in vehicle traffic by meeting the uncertain demand of hospitals in different time windows. In this way, both the chain network costs have been reduced and medical equipment has been transferred to hospitals with social distancing. Full article
(This article belongs to the Special Issue COVID-19’s Risk Management and Its Impact on the Economy)
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Article
Managing Financial Risks while Performing International Commercial Transactions. Intertemporal Lessons from Athens in Classical Times
J. Risk Financial Manag. 2021, 14(11), 509; https://doi.org/10.3390/jrfm14110509 - 22 Oct 2021
Cited by 1 | Viewed by 498
Abstract
In this paper, we mainly focus on two institutional aspects that are related to financial risk, that is, profiteering and the use of non-fraudulent coins when performing financial transactions. We argue that these two prerequisites were important for the success of the commercially [...] Read more.
In this paper, we mainly focus on two institutional aspects that are related to financial risk, that is, profiteering and the use of non-fraudulent coins when performing financial transactions. We argue that these two prerequisites were important for the success of the commercially oriented economy of the Athenian state in comparison with its allies in the East Mediterranean during the classical period. In particular, we briefly explain the structure of the Athenian economy, and then we focus on the agoranomoi and the dokimastai, the two main financial institutions related to (i) measures against profiteering and (ii) ensuring the purity of the currency when performing commercial transactions. Then, following a game theoretical approach, we provide a fictional example as to how the two institutions functioned in practice. Our findings confirm that these institutions were crucial in reducing financial risk when performing international commercial transactions, since they provided symmetrical information on the quality and purity of the currencies circulating in the Athenian economy. In the case of the Athenian state, we further convey that measures against profiteering and the use of unadulterated currency comprise intertemporal axioms, in the sense that their importance is not merely a phenomenon of modern times, but rather, on the contrary, one that dates back to much earlier times. Full article
(This article belongs to the Special Issue Risk and Financial Consequences)
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