Journal of Risk and Financial Management

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11 pages, 310 KiB

Open AccessArticle

Capabilities and Reputation Risks Towards Firm Performance

by Noraznira Abd Razak, Najihah Hanisah Marmaya, Mohd Zailani Othman, Idris Osman, Suhailah Kassim, Fatin Aqilah Maskuri and Nik Kutina Mat Tahir

J. Risk Financial Manag. 2023, 16(2), 125; https://doi.org/10.3390/jrfm16020125 - 15 Feb 2023

Cited by 2 | Viewed by 1682

Abstract

The effects of firm-specific resources on firm performance has been a quest of many and widely studied worldwide. In today’s business environment, arguments suggesting the relative importance of firm-specific resources in explaining firm performance variation are said to be of the greatest influence [...] Read more.

The effects of firm-specific resources on firm performance has been a quest of many and widely studied worldwide. In today’s business environment, arguments suggesting the relative importance of firm-specific resources in explaining firm performance variation are said to be of the greatest influence on the study of firm behavior. On the other hand, firms with strong, positive reputations can attract and retain crucial talent and often have loyal customers likely to buy a broader range of products and services. It can lead to higher sales generated by satisfied customers and their referrals and can potentially raise capital and share price, and improve the firm performance. An empirical study such as this attempts to investigate the combinations of resources of the firm and focus on reputational risk management concerning firm performance. As such, this study involves variables partially adopted from Donabedian Theory, such as intangible resources, namely capability as an exogenous construct towards endogenous construct and firm performance, as well as proposing a mediation model to analyze the mediated relationship of reputational risk in accelerating the relationship between capabilities and firm performance. This study applies variance-based structural equation modeling via Smart PLS to a sample of 161 listed firms in Malaysia as respondents. A judgment purposive sampling technique has been adopted as the respondents are derived from listed firms under Malaysian Bourse. Overall, the findings of this study reveal how firms may gain competitive advantages in terms of their reputation and eventually be able to sustain their firm’s performances by implementing an integrative model of intangible resources such as capabilities and in their routines and processes within the firms. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

26 pages, 857 KiB

Open AccessArticle

Understanding Organisational Risks and Opportunities Associated with Implementing Australia’s National Disability Insurance Scheme from the Nonprofit Service Provider Perspective—Findings from Quantitative Research

by Hamin Hamin, David Rosenbaum and Elizabeth More

J. Risk Financial Manag. 2022, 15(12), 614; https://doi.org/10.3390/jrfm15120614 - 16 Dec 2022

Cited by 4 | Viewed by 2462 | Correction

Abstract

In this paper, we provide useful lessons from a quantitative analysis across several nonprofit organisations undergoing generational change due to the implementation of the Australian government’s National Disability Insurance Scheme (NDIS). This paper contributes to the field in demonstrating the usefulness of the [...] Read more.

In this paper, we provide useful lessons from a quantitative analysis across several nonprofit organisations undergoing generational change due to the implementation of the Australian government’s National Disability Insurance Scheme (NDIS). This paper contributes to the field in demonstrating the usefulness of the approach in revealing how change has to occur at both the micro and macro levels of the organisations involved, affecting both followers and transforming leadership, whilst simultaneously reinforcing the need to address the strategic and operational risks inherent in such transformational change. It represents a follow-up to an earlier published longitudinal qualitative research and provides further evidence on the key findings associated with the development of the NDIS Implementation Framework. The current paper considers the importance of the risk and opportunity conundrum associated with the implementation of the NDIS among Australian nonprofit service providers. This paper recognises that, as entities operating ostensibly outside the purely commercial realms of service design and delivery, nonprofit service providers are potentially handicapped by an historic lack of relevant and necessary market-based skills. The risks necessitate an accelerated programme of skill development and skill acquisition to enable the full range of opportunities to be realised. The change management processes, identified using the conceptual framework of readiness → implementation commitment → sustainability, as discussed in this paper, highlight the potential financial consequences which have substantial impacts on such nonprofit service providers. Organisations in these settings are challenged by ongoing financial sustainability issues where very small financial margins, resulting directly from the generational business model shift from a supply-driven system to a demand-driven system, may prove the difference between organisational survival and failure. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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19 pages, 712 KiB

Open AccessArticle

Tracing the Optimal Level of Political and Social Change under Risks and Uncertainties: Some Lessons from Ancient Sparta and Athens

by George E. Halkos, Emmanouil M. L. Economou and Nicholas C. Kyriazis

J. Risk Financial Manag. 2022, 15(9), 416; https://doi.org/10.3390/jrfm15090416 - 19 Sep 2022

Cited by 4 | Viewed by 2585

Abstract

The present paper is inspired by the notions of “financial risk” and “financial uncertainties” and transfers their basic reasoning to social science analysis; that is, it develops a theoretical analysis in order to explain social and political change. We know that the degree [...] Read more.

The present paper is inspired by the notions of “financial risk” and “financial uncertainties” and transfers their basic reasoning to social science analysis; that is, it develops a theoretical analysis in order to explain social and political change. We know that the degree of social and political change depends on the set of established institutions in a society. Societies can face two extremes: volatility, e.g., rapid changes that lead to instability, which increases the risk of a system or regime collapsing, or rigidity, which does not permit necessary adaptation and change and thus may again increase the risk of the regime collapsing. Thus, an optimal (or ideal) point of change is between the two extremes, permitting change that is neither too sudden and fast nor too slow and inflexible. To illustrate this, we analyze two cases from ancient Greece: Sparta, as a society and state with too many institutional checks and balances that led to rigidity and collapse, and Athens, which in the 5th century BCE had an institutional setting with very limited checks and balances, which again led to near collapse until the late 5th century BCE, when new institutions that were related to some efficient checks and balances were introduced that enabled the state to survive in a world of changing circumstances and balances of power. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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15 pages, 327 KiB

Open AccessCommunication

Russia’s War in Ukraine: Consequences for European Countries’ Businesses and Economies

by Anatolijs Prohorovs

J. Risk Financial Manag. 2022, 15(7), 295; https://doi.org/10.3390/jrfm15070295 - 2 Jul 2022

Cited by 52 | Viewed by 15781

Abstract

Companies and countries have needed to adapt their activities to the consequences of the Russian war in Ukraine. The analysis in this article shows that both the Russian war in Ukraine and the subsequent trade restrictions have become a powerful trigger, significantly increasing [...] Read more.

Companies and countries have needed to adapt their activities to the consequences of the Russian war in Ukraine. The analysis in this article shows that both the Russian war in Ukraine and the subsequent trade restrictions have become a powerful trigger, significantly increasing the level of inflation and exacerbating the existing issues of economies. As a result, the confrontation between the West and Russia has greatly escalated, which will have a long-term, large-scale negative impact on most European companies and economies. There could also be a lasting restructuring of world trade. The article notes that not only the end date of the war in Ukraine may be important for business and economies, but also which of the trade and financial restrictions can be lifted from Russia, and when. The article also makes recommendations that may help company leaders plan, in a timelier and more accurate fashion, the changes necessary to maintain company sustainability. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

11 pages, 497 KiB

Open AccessArticle

Copula Modelling to Analyse Financial Data

by Paul R. Dewick and Shuangzhe Liu

J. Risk Financial Manag. 2022, 15(3), 104; https://doi.org/10.3390/jrfm15030104 - 25 Feb 2022

Cited by 16 | Viewed by 6546

Abstract

Copula modelling is a popular tool in analysing the dependencies between variables. Copula modelling allows the investigation of tail dependencies, which is of particular interest in risk and survival applications. Copula modelling is also of specific interest to economic and financial modelling as [...] Read more.

Copula modelling is a popular tool in analysing the dependencies between variables. Copula modelling allows the investigation of tail dependencies, which is of particular interest in risk and survival applications. Copula modelling is also of specific interest to economic and financial modelling as it can help in the prediction of financial contagion and periods of “boom” or “bust”. Bivariate copula modelling has a rich variety of copulas that may be chosen to represent the modelled dataset dependencies and possible extreme events that may lie within the dataset tails. Financial copula modelling tends to diverge as this richness of copula types within the literature may not be well realised with the two different types of modelling, one being non-time-series and the other being time-series, being undertaken differently. This paper investigates standard copula modelling and financial copula modelling and shows why the modelling strategies in using time-series and non-time-series copula modelling is undertaken using different methods. This difference, apart from the issues surrounding the time-series component, is mostly due to standard copula modelling having the ability to use empirical CDFs for the probability integral transformation. Financial time-series copula modelling uses pseudo-CDFs due to the standardized time-series residuals being centred around zero. The standardized residuals inhibit the estimation of the possible distributions required for constructing the copula model in the usual manner. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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15 pages, 454 KiB

Open AccessFeature PaperArticle

Fight Alone or Together? The Influence of Risk Perception on Helping Behavior

by Liping Yin and Yen-Chun Jim Wu

J. Risk Financial Manag. 2022, 15(2), 78; https://doi.org/10.3390/jrfm15020078 - 13 Feb 2022

Cited by 2 | Viewed by 2640

Abstract

Will there be a greater sense of solidarity and friendship during public crises? This study aims to determine whether risk perception influences employees’ willingness to assist in times of public crisis, taking COVID-19 as a specific research scenario and based on the theory [...] Read more.

Will there be a greater sense of solidarity and friendship during public crises? This study aims to determine whether risk perception influences employees’ willingness to assist in times of public crisis, taking COVID-19 as a specific research scenario and based on the theory of “tend and befriend”. This study hypothesized that risk perception will influence employees’ helping behavior via the in-group identity, with the degree of impact dependent on the COVID-19 pandemic’s severity. A questionnaire survey of 925 practitioners from various industries in the pandemic area revealed that: risk perception has a positive influence on employees’ helping behavior; in-group identity plays a certain mediating role in the process of risk perception that influences employees’ helping behavior; and the severity of a local pandemic negatively moderates the relationship between risk perception and helping behavior, but positively moderates the relationship between risk perception and in-group identity. Specifically, employees in high-risk areas are more likely to “align” (higher degree of recognition by the in-group) but demonstrate less helping behavior, compared with those in areas with moderate and low risk from the COVID-19. By contrast, employees in low-risk areas display more helping behavior but have less in-group identity, compared with those in areas with moderate and high risk from the COVID-19. This study expands the research on the relationship between risk perception and helping behavior, enriches the research results on risk management theory, and provides a practical reference for risk governance. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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17 pages, 499 KiB

Open AccessArticle

The Effects of ERM Adoption on European Insurance Firms Performance and Risks

by Doureige J. Jurdi and Sam M. AlGhnaimat

J. Risk Financial Manag. 2021, 14(11), 554; https://doi.org/10.3390/jrfm14110554 - 16 Nov 2021

Cited by 10 | Viewed by 4126

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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48 pages, 5207 KiB

Open AccessArticle

Return Based Risk Measures for Non-Normally Distributed Returns: An Alternative Modelling Approach

by Eyden Samunderu and Yvonne T. Murahwa

J. Risk Financial Manag. 2021, 14(11), 540; https://doi.org/10.3390/jrfm14110540 - 10 Nov 2021

Cited by 3 | Viewed by 4137

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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14 pages, 304 KiB

Open AccessArticle

Managing Financial Risks while Performing International Commercial Transactions. Intertemporal Lessons from Athens in Classical Times

by Emmanouil M. L. Economou, Nikolaos A. Kyriazis and Nicholas C. Kyriazis

J. Risk Financial Manag. 2021, 14(11), 509; https://doi.org/10.3390/jrfm14110509 - 22 Oct 2021

Cited by 6 | Viewed by 1893

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)

12 pages, 301 KiB

Open AccessArticle

Utility Indifference Option Pricing Model with a Non-Constant Risk-Aversion under Transaction Costs and Its Numerical Approximation

by Pedro Pólvora and Daniel Ševčovič

J. Risk Financial Manag. 2021, 14(9), 399; https://doi.org/10.3390/jrfm14090399 - 25 Aug 2021

Viewed by 1651

Abstract

Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions solving the system of HJB equations. We [...] Read more.

Our goal is to analyze the system of Hamilton-Jacobi-Bellman equations arising in derivative securities pricing models. The European style of an option price is constructed as a difference of the certainty equivalents to the value functions solving the system of HJB equations. We introduce the transformation method for solving the penalized nonlinear partial differential equation. The transformed equation involves possibly non-constant the risk aversion function containing the negative ratio between the second and first derivatives of the utility function. Using comparison principles we derive useful bounds on the option price. We also propose a finite difference numerical discretization scheme with some computational examples. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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12 pages, 1715 KiB

Open AccessArticle

Market Liquidity and Its Dimensions: Linking the Liquidity Dimensions to Sentiment Analysis through Microblogging Data

by Francisco Guijarro, Ismael Moya-Clemente and Jawad Saleemi

J. Risk Financial Manag. 2021, 14(9), 394; https://doi.org/10.3390/jrfm14090394 - 24 Aug 2021

Cited by 3 | Viewed by 2643

Abstract

Market liquidity has an immediate impact on the execution of transactions in financial markets. Informed counterparty risk is often priced into market liquidity. This study investigates whether microblogging data, as a non-financial information tool, is priced along with market liquidity dimensions. The analysis [...] Read more.

Market liquidity has an immediate impact on the execution of transactions in financial markets. Informed counterparty risk is often priced into market liquidity. This study investigates whether microblogging data, as a non-financial information tool, is priced along with market liquidity dimensions. The analysis is based on the Australian Securities Exchange (ASX), and from the results, we conclude that microblogging content in pessimistic periods has a higher impact on liquidity and its dimensions. On a daily basis, pessimistic investor sentiments lead to higher trading costs, illiquidity, a larger price dispersion and a lower trading volume. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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17 pages, 1242 KiB

Open AccessArticle

Benchmarking—A Way of Finding Risk Factors in Business Performance

by Jarmila Horváthová, Martina Mokrišová and Mária Vrábliková

J. Risk Financial Manag. 2021, 14(5), 221; https://doi.org/10.3390/jrfm14050221 - 14 May 2021

Cited by 6 | Viewed by 8513

Abstract

The purpose of this study was to emphasize that the Data Envelopment Analysis (DEA) method is an important benchmarking tool which provides necessary information for improving business performance. To fulfil the abovementioned goal, we used a sample of 48 Slovak companies involved in [...] Read more.

The purpose of this study was to emphasize that the Data Envelopment Analysis (DEA) method is an important benchmarking tool which provides necessary information for improving business performance. To fulfil the abovementioned goal, we used a sample of 48 Slovak companies involved in the field of heat supply. As their position in the economic and social environment of the country is essential, considerable attention should be paid to improving their performance. In addition to the DEA method, we applied the Best Value Method (BVM). We found that DEA is a highly important benchmarking tool, as it provides benchmarks for units that have problems with performance and helps us to reveal risk performance factors. The DEA method also allows us to determine target values of indicators. The originality of this paper is in its comparison of the results of the BVM and the DEA methods. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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13 pages, 304 KiB

Open AccessArticle

Does Risk Disclosure Matter for Trade Credit?

by Issal Haj-Salem and Khaled Hussainey

J. Risk Financial Manag. 2021, 14(3), 133; https://doi.org/10.3390/jrfm14030133 - 20 Mar 2021

Cited by 4 | Viewed by 3614

Abstract

In this paper, we examine the impact of risk disclosure practices on trade credit. We hypothesize that risk information could reduce information opacity that arises between companies and their suppliers. We collected annual reports for Tunisian listed companies for the period 2008–2013. This [...] Read more.

In this paper, we examine the impact of risk disclosure practices on trade credit. We hypothesize that risk information could reduce information opacity that arises between companies and their suppliers. We collected annual reports for Tunisian listed companies for the period 2008–2013. This gives us 146 firm-year observations. We find that risk disclosure has a positive impact on the level of trade credit. Our paper offers a new empirical evidence on the role of risk disclosure in reducing information asymmetry and increase companies’ access to short-term external funds. Our study provides managerial implications for firms, suppliers, and regulatory authorities. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

15 pages, 641 KiB

Open AccessArticle

Plato as a Game Theorist towards an International Trade Policy

by George E. Halkos, Nicholas C. Kyriazis and Emmanouil M. L. Economou

J. Risk Financial Manag. 2021, 14(3), 115; https://doi.org/10.3390/jrfm14030115 - 10 Mar 2021

Cited by 8 | Viewed by 2821

Abstract

In the beginning of the second book of his Politeia (Republic) Plato in passage 2.358e–359a–c raises the issue of the administration of justice as a means of motivating people to behave fairly regarding their relationships and when cooperating with each other because, at [...] Read more.

In the beginning of the second book of his Politeia (Republic) Plato in passage 2.358e–359a–c raises the issue of the administration of justice as a means of motivating people to behave fairly regarding their relationships and when cooperating with each other because, at the end, this is mutually beneficial for all of them. We argue that this particular passage could be seen as a part of a wider process of evolution and development of the institutions of the ancient Athenian economy during the Classical period (508–322 BCE) and could be interpreted through modern theoretical concepts, and more particularly, game theory. Plato argued that there are two players, each with two identical strategies, to treat the other justly or unjustly. In the beginning, each player chooses the “unjust” strategy, trying to cheat the other. In this context, which could be seen as a prisoner’s dilemma situation, both end with the worst possible outcome, that is, deceiving each other and this has severe financial consequences for both of them. Realizing this, in a repeated game situation, with increasing information on the outcome and on each other, they choose the “just” strategy so achieving the best outcome and transforming the game in a cooperative one. We analyze this, formulating a dynamic game which is related to international commercial transactions, after explaining how such a situation could really arise in Classical Athens. We argue that this is the optimal scenario for both parties because it minimizes the risk of deceiving each other and creates harmony while performing financial transactions. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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13 pages, 275 KiB

Open AccessArticle

Risk Perception, Accounting, and Resilience in Public Sector Organizations: A Case Study Analysis

by Mouhcine Tallaki and Enrico Bracci

J. Risk Financial Manag. 2021, 14(1), 4; https://doi.org/10.3390/jrfm14010004 - 24 Dec 2020

Cited by 5 | Viewed by 3546

Abstract

There are various factors that can affect an organization’s ability to overcome a crisis and the uncertainties that arise thereafter. Little is known about the process of organizational resilience and the factors that can help or prevent it. In this paper, we analyzed [...] Read more.

There are various factors that can affect an organization’s ability to overcome a crisis and the uncertainties that arise thereafter. Little is known about the process of organizational resilience and the factors that can help or prevent it. In this paper, we analyzed how public sector organizations build resilience/traits of risks awareness, and in doing that, we derived some elements that could affect the process of resilience. In particular, drawing on the conceptual framework proposed by Mallak we analyzed an in-depth case study in a public sector organization (PSO) identifying some contextual dimensions implicated in the process of building resilience. In our analysis, we identified two main elements that affect resilience: Risk perception and the use of accounting. Results shown how risk perception is perceived as a trigger, while accounting is considered as an enforcer in the process of building resilience capacity. The results also show the way accounting is implicated in the management of austerity programs and supporting the creation of a resilient public sector organization. In our case, the risk has become an opportunity for change. In the face of these budget cuts, management began refocusing the company’s mission from infrastructure maintenance to providing services with a market-based logic. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

18 pages, 858 KiB

Open AccessArticle

CoCDaR and mCoCDaR: New Approach for Measurement of Systemic Risk Contributions

by Rui Ding and Stan Uryasev

J. Risk Financial Manag. 2020, 13(11), 270; https://doi.org/10.3390/jrfm13110270 - 3 Nov 2020

Cited by 3 | Viewed by 2674

Abstract

Systemic risk is the risk that the distress of one or more institutions trigger a collapse of the entire financial system. We extend CoVaR (value-at-risk conditioned on an institution) and CoCVaR (conditional value-at-risk conditioned on an institution) systemic risk contribution measures and propose [...] Read more.

Systemic risk is the risk that the distress of one or more institutions trigger a collapse of the entire financial system. We extend CoVaR (value-at-risk conditioned on an institution) and CoCVaR (conditional value-at-risk conditioned on an institution) systemic risk contribution measures and propose a new CoCDaR (conditional drawdown-at-risk conditioned on an institution) measure based on drawdowns. This new measure accounts for consecutive negative returns of a security, while CoVaR and CoCVaR combine together negative returns from different time periods. For instance, ten 2% consecutive losses resulting in 20% drawdown will be noticed by CoCDaR, while CoVaR and CoCVaR are not sensitive to relatively small one period losses. The proposed measure provides insights for systemic risks under extreme stresses related to drawdowns. CoCDaR and its multivariate version, mCoCDaR, estimate an impact on big cumulative losses of the entire financial system caused by an individual firm’s distress. It can be used for ranking individual systemic risk contributions of financial institutions (banks). CoCDaR and mCoCDaR are computed with CVaR regression of drawdowns. Moreover, mCoCDaR can be used to estimate drawdowns of a security as a function of some other factors. For instance, we show how to perform fund drawdown style classification depending on drawdowns of indices. Case study results, data, and codes are posted on the web. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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31 pages, 335 KiB

Open AccessArticle

The Implications of Derisking: The Case of Malta, a Small EU State

by Simon Grima, Peter J. Baldacchino, Jeremy Mercieca Abela and Jonathan V. Spiteri

J. Risk Financial Manag. 2020, 13(9), 216; https://doi.org/10.3390/jrfm13090216 - 18 Sep 2020

Cited by 5 | Viewed by 3862

Abstract

In this study, we explore the emerging derisking phenomenon by identifying and analysing the main factors that are affected by, and the implications of, the derisking process by focusing on the key drivers and implications of derisking specific to Malta. To do this, [...] Read more.

In this study, we explore the emerging derisking phenomenon by identifying and analysing the main factors that are affected by, and the implications of, the derisking process by focusing on the key drivers and implications of derisking specific to Malta. To do this, we carried out 32 interviews with individuals who have a good or excellent level of expertise in derisking and administered a survey, completed by 296 participants who were filtered to ensure their level of expertise, resulting in 285 valid participant surveys. In total, between the interviews and the survey, we had 317 valid participants. Findings showed that to maximise the effectiveness of derisking, one needs to find the right balance of adequately managing risks without extinguishing business needs. This implies a need for the regulations to be balanced and proportionate. This study is a relevant contributor to future derisking to be conducted in Malta and serves as a benchmark for further studies. Moreover, this research project accentuates the need for increased awareness, knowledge and expertise of derisking in Malta. Consequently, the provision of education to professionals is important so that such professionals are able to keep abreast with all the latest developments regarding derisking and AML/CFT (antimoney laundering and combatting the financing of terrorism). Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

38 pages, 1856 KiB

Open AccessArticle

Risk-Sharing and the Creation of Systemic Risk

by Viral V. Acharya, Aaditya M. Iyer and Rangarajan K. Sundaram

J. Risk Financial Manag. 2020, 13(8), 183; https://doi.org/10.3390/jrfm13080183 - 17 Aug 2020

Cited by 1 | Viewed by 2665

Abstract

We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier. Financial innovations facilitate hedging idiosyncratic risks among agents; however, aggregate risks can be hedged only with liquid assets. When risk-sharing is primitive, agents self-hedge and hold [...] Read more.

We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier. Financial innovations facilitate hedging idiosyncratic risks among agents; however, aggregate risks can be hedged only with liquid assets. When risk-sharing is primitive, agents self-hedge and hold more liquid assets; this buffers aggregate risks, resulting in few correlated failures compared to when there is greater risk sharing. We apply this insight to build a model of a clearinghouse to show that as risk-sharing improves, aggregate liquidity falls but correlated failures rise. Public liquidity injections, for example, in the form of a lender-of-last-resort can reduce this systemic risk ex post, but induce lower ex-ante levels of private liquidity, which can in turn aggravate welfare costs from such injections. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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24 pages, 1332 KiB

Open AccessArticle

Is Investors’ Psychology Affected Due to a Potential Unexpected Environmental Disaster?

by George Halkos and Argyro Zisiadou

J. Risk Financial Manag. 2020, 13(7), 151; https://doi.org/10.3390/jrfm13070151 - 12 Jul 2020

Cited by 4 | Viewed by 3274

Abstract

The purpose of this paper is to approach the way investors perceive the risk associated with unexpected environmental disasters. For that reason, we examine certain types of natural and technological disasters, also known as “na-tech”. Based on the existing relevant literature and historical [...] Read more.

The purpose of this paper is to approach the way investors perceive the risk associated with unexpected environmental disasters. For that reason, we examine certain types of natural and technological disasters, also known as “na-tech”. Based on the existing relevant literature and historical sources, the most common types of such disasters are geophysical and industrial environmental disasters. After providing evidence of the historical evolution of the na-tech events and a brief description of the events included in the sample, we estimate the systematic risk of assets connected to these events. The goal is to capture possible abnormalities as well as to observe investors’ psychology of risk after the occurrence of an unexpected event. Finally, we examine whether macroeconomic factors may affect those abnormalities. The empirical findings indicate that the cases we examined did not cause significant cumulative abnormal returns. Moreover, some events caused an increase in systematic risk while surprisingly some others reduced risk, showing that investors tend to support a country and/or corporation due to their reputation. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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29 pages, 1328 KiB

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Energy Crisis Risk Mitigation through Nuclear Power and RES as Alternative Solutions towards Self-Sufficiency

by George Halkos and Argyro Zisiadou

J. Risk Financial Manag. 2023, 16(1), 45; https://doi.org/10.3390/jrfm16010045 - 11 Jan 2023

Cited by 12 | Viewed by 5717

Abstract

This paper reviews the case of nuclear energy. Currently, the worldworld is facing one of the greatest energy crises due to the Russo-Ukrainian war. This conflict has lead to limited sources of gas, causing a dramatic decrease in energy supply, leading to emerging [...] Read more.

This paper reviews the case of nuclear energy. Currently, the worldworld is facing one of the greatest energy crises due to the Russo-Ukrainian war. This conflict has lead to limited sources of gas, causing a dramatic decrease in energy supply, leading to emerging energy crisis risks. This is one on the main purposes of reviewing nuclear energy as a possible energy alternative in the future. Apart from presenting the basis of nuclear energy and nuclear reactors, we attempt to compare this source of electricity with other renewable energy forms, such as solar, wind and hydroelectric power. Furthermore, we illustrate the benefits and drawbacks that have been observed regarding nuclear power as well as its contribution to economic growth and the impact it has had on the environment. It has been said that, with the use of nuclear power, air pollution will be reduced because of the elimination of greenhouse gases. However, nuclear power, apart from the final product, generates waste that in this case is radioactive, meaning that the management and disposal techniques are of the utmost importance. Of course, unfortunate events that involved nuclear power do exist and are unfortunately engraved in our memories. Both the nuclear accidents, such as Three Mile Island, Chernobyl and Fukushima, and nuclear weapons usage by military forces, the well-known atomic bombing of Hiroshima and Nagasaki, bring great controversy regarding the adaptation of nuclear power. As is presented in the paper, since the beginning of the new millennium the scheme of energy production and electricity production appears to have changed drastically. By using available data reported by BR, we illustrated that the production of energy and electricity has increased over the last 22 years (2000–2021) due to excessive demand; however, what is more important to mention is the share of both electricity and energy derived from renewable forms such as solar, wind and hydroelectric power. It is shown that more and more countries adopt those sources of energy than did in previous decades. It is crucial to note that it is not the science that causes catastrophic events, but rather the errors of humans. Full article

(This article belongs to the Special Issue Risk and Financial Consequences)

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