Special Issue "Risk and Financial Consequences"

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Risk".

Deadline for manuscript submissions: 31 March 2021.

Special Issue Editor

Prof. Dr. George Halkos
Website
Guest Editor
Laboratory of Operations Research, Department of Economics, University of Thessaly, 28hs Octovriou 78, Volos 383 33, Greece
Interests: applied statistics and econometrics; simulations of economic modelling; environmental economics; applied micro-economic with emphasis in welfare economics; air pollution; game theory; mathematical models (non-linear programming)
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Special Issue Information

Dear Colleagues,

Risk is a term that exists in everyone’s life, not only when an unexpected event occurs but in any decision someone has to make. Among those studying or working in the financial sector, there is a well-spread knowledge regarding the rational investor’s preferences. Regardless of the business sector they will choose to invest in, investors’ main goal is to maximize their profits. For that reason, investors are characterized in literature as “risk averters”. Hedging and portfolio diversification may appear to be efficient in reducing the potential loss of an investment. Great attention has been drawn to the advantages of portfolio diversification, while researchers have mentioned the ability of transferring the risk of investment through hedging, underlying that the size of the optimal hedging ratio is one of the main determinants used by decision makers apart from the cash position of the corporation. However, there are some cases which cannot be predicted. Society, which includes nature’s actions and human activities, is characterized by vulnerability and rapid changes. Nature acts independently, and a common example of that independence is tectonic plate movement. Thus, natural actions that cannot be predicted may cause significant losses, both economic and life-related. Economic losses can be due to many factors, such as the partial or total destruction of homes or business premises that will lead to reduced, if not zero, productivity. In the case of businesses, reduced productivity may affect investors’ perceptions, causing fluctuations in the share price or even volatility in the board of directors. Although disasters are associated with risk, investors tend to have a different perspective depending on the source of the disaster. More specifically, if a country is facing a natural disaster, where no one can be blamed, the foreign investors who may hold this country’s bonds will continue to trust the country due to the “innocence” of the country. On the other hand, when a firm causes a technological disaster, such as a nuclear power plant explosion, investors, if this corporation is publicly traded, will “punish” the firm by selling its shares at any price to avoid a bigger loss. Even if we exclude the case of an industrial accident, a possible excess pollution caused through production may lead to adverse publicity for the corporation. Another important issue that may have an impact on investors’ psychology can be political strategies or actions, announcements as well as extreme behaviors, such as terrorist attacks. Those cases not only increase the risk of the citizens of the regions facing those political scenarios but also that on the markets and affecting investors’ decisions. With these in mind, managing risk is an important executive responsibility for corporations and governments. Reputations which may take decades to build can be destroyed in hours or even seconds through decisions, announcements or accidents. Corporate social responsibility (CSR) is an “instrument” that has the potential to reduce these risks. Moreover, shareholders and investors, through socially responsible investing (SRI), tend to use their capital to encourage behaviors they consider responsible. In addition, due to the great attention on climate change globally, eco-friendly investments are made in an attempt to reduce pollution and the general environmental impact. Apart from the CSR strategies that corporations may follow, ISO and IMAS certifications owned by firms appear to create a more reliable environment between corporates, clients, and possible investors due to the fulfillment of the required international standards.

Prof. Dr. George Halkos
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1000 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • unexpected events
  • risk
  • uncertainty
  • CSR
  • panel data analysis
  • applied econometrics
  • applied statistics
  • hedging
  • risk of investment

Published Papers (4 papers)

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Research

Open AccessArticle
CoCDaR and mCoCDaR: New Approach for Measurement of Systemic Risk Contributions
J. Risk Financial Manag. 2020, 13(11), 270; https://doi.org/10.3390/jrfm13110270 - 03 Nov 2020
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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Open AccessArticle
The Implications of Derisking: The Case of Malta, a Small EU State
J. Risk Financial Manag. 2020, 13(9), 216; https://doi.org/10.3390/jrfm13090216 - 18 Sep 2020
Cited by 1
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)
Open AccessArticle
Risk-Sharing and the Creation of Systemic Risk
J. Risk Financial Manag. 2020, 13(8), 183; https://doi.org/10.3390/jrfm13080183 - 17 Aug 2020
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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Open AccessArticle
Is Investors’ Psychology Affected Due to a Potential Unexpected Environmental Disaster?
J. Risk Financial Manag. 2020, 13(7), 151; https://doi.org/10.3390/jrfm13070151 - 12 Jul 2020
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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