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Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk

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A special issue of Mathematics (ISSN 2227-7390). This special issue belongs to the section "Financial Mathematics".

Deadline for manuscript submissions: closed (15 July 2023) | Viewed by 32774

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Special Issue Editor

Dr. Larissa Margareta Batrancea

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Guest Editor

Department of Business, Faculty of Business, Babes-Bolyai University, 7 Horea Street, 400174 Cluj-Napoca, Romania
Interests: tax behavior; financial analysis; game theory; neuroeconomics; cognitive neuroscience
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Special Issue Information

Dear Colleagues,

The launch, development, and long-term survival of any business depends on how efficiently an economic agent monitors key aspects such as financial equilibrium, financial performance, and their intertwined relationship. In addition, approaches regarding risks are equally important since the lack of proper risk management tools could compromise the very existence of any business. Moreover, in the global, interconnected, and increasingly digitalized economies of today, with businesses operating on markets with imperfect and incomplete information, risk monitoring and risk modeling can provide vital information about the overall state of the economy. For that matter, public authorities, professionals, businesspeople, and the public alike are particularly interested in the triad of equilibrium–performance–risk.

This Special Issue will closely analyze the most important determinants of financial equilibrium, financial performance, and risk through novel and distinctive statistical advances. Consequently, the Special Issue welcomes articles that tackle (but are not limited to) econometric modeling of financial equilibrium, performance, and risk, insights on portfolio management, risk management on stock markets, risk management in the banking system, risk management in periods of crises, and stock market indices.

Dr. Larissa Batrancea
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 submissions that pass pre-check are 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. Mathematics is an international peer-reviewed open access semimonthly 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 2600 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

econometric modeling
portfolio management
stock markets
stock market index
financial equilibrium
financial performance
risk
risk management
value-at-risk
risky assets
risk-free assets
banking

Related Special Issue

Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk, 2nd Edition in Mathematics (1 article)

Published Papers (13 papers)

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Research

20 pages, 575 KiB

Open AccessArticle

Do the Same Determinants Affect Banks’ Profitability and Liquidity? Evidence from West Balkan Countries Using a Panel Data Regression Analysis

by Boris Radovanov, Nada Milenković, Branimir Kalaš and Aleksandra Marcikić Horvat

Mathematics 2023, 11(19), 4072; https://doi.org/10.3390/math11194072 - 25 Sep 2023

Cited by 2 | Viewed by 1147

Abstract

This study aims to determine whether the same bank-specific and macroeconomic determinants affect banks’ profitability and liquidity. To achieve the set goal, panel data regression analysis was applied with fixed effects or random effects depending on the results of the Hausman test, as explained in the Results. The research is based on the use of aggregate data on bank-specific and macroeconomic determinants of banks’ profitability and liquidity in West Balkan countries during the period from 2007 to 2022. The dependent variables in the study are ROA, ROE used as proxies for banks’ profitability, and banks’ liquid reserves to banks’ total assets as a proxy for banks’ liquidity. The findings confirm that the bank-specific and macroeconomic determinants affect both banks’ profitability and liquidity in the same direction, except for a few variables. The main contribution of this research is a comprehensive and parallel view of banks’ profitability and liquidity determinants that enables a guide for bank management to better understand the significance of bank-specific and macroeconomic determinants’ effects on their business. The obtained results can improve the balance between the two important principles of banking business. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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17 pages, 394 KiB

Open AccessArticle

Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem

by Jaume Belles-Sampera, Montserrat Guillen and Miguel Santolino

Mathematics 2023, 11(18), 3846; https://doi.org/10.3390/math11183846 - 07 Sep 2023

Viewed by 768

Abstract

The capital allocation framework presents capital allocation principles as solutions to particular optimisation problems and provides a general solution of the quadratic allocation problem via a geometric proof. However, the widely used haircut allocation principle is not reconcilable with that optimisation setting. Our study complements and generalises the unified capital allocation framework. The goal of the study is to contribute in the following two ways. First, we provide an alternative proof of the quadratic allocation problem based on the Lagrange multipliers method to reach the general solution, which complements the geometric proof. This alternative approach to solve the quadratic optimisation problem is, in our opinion, easier to follow and understand by researchers and practitioners. Second, we show that the haircut allocation principle can be accommodated by the optimisation setting with the quadratic optimisation criterion if one of the original conditions is relaxed. Two examples are provided to illustrate the accommodation of this allocation principle. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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26 pages, 1802 KiB

Open AccessArticle

The Financial Sustainability of Retail Food SMEs Based on Financial Equilibrium and Financial Performance

by Emilia Herman and Kinga-Emese Zsido

Mathematics 2023, 11(15), 3410; https://doi.org/10.3390/math11153410 - 04 Aug 2023

Cited by 3 | Viewed by 2241

Abstract

The aim of this study was to investigate the financial sustainability of retail food SMEs for the 2016–2021 period, in Romania, from the perspective of financial equilibrium and performance. A multivariate analysis was used, including a correlation analysis, a principal component analysis (PCA), and a cluster analysis. The empirical results show a positive link between the financial performance and financial equilibrium indicators. We employed the PCA in order to build a composite financial index using financial equilibrium indicators (ratios of liquidity, solvency, collection, and payment period) and financial performance indicators (Return on Assets and Return on Equity). The results show that financial equilibrium and performance are the two main dimensions which the financial sustainability index (FSI) was constructed on. Taking into account the dimensions of financial sustainability, the analyzed SMEs were clustered in four homogeneous clusters. The research findings clearly demonstrated that the retail food SMEs with a good/acceptable financial sustainability also have a good/acceptable financial balance and performance situation. Furthermore, a significant part of the analyzed SMEs faces difficulties regarding financial sustainability, being characterized by the lowest values of FSI, determined by both an uncertain situation in terms of liquidity, leading to a financial disequilibrium, and a negative financial performance. Therefore, this research emphasizes some specific measures that need to be taken to boost financial sustainability of these businesses in the retail food sector. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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24 pages, 766 KiB

Open AccessArticle

Optimization of Asset and Liability Management of Banks with Minimum Possible Changes

by Pejman Peykani, Mostafa Sargolzaei, Mohammad Hashem Botshekan, Camelia Oprean-Stan and Amir Takaloo

Mathematics 2023, 11(12), 2761; https://doi.org/10.3390/math11122761 - 18 Jun 2023

Cited by 4 | Viewed by 2848

Abstract

Asset-Liability Management (ALM) of banks is defined as simultaneous planning of all bank assets and liabilities under different conditions and its purpose is to maximize profits and minimize the risks in banks by optimizing the parameters in the balance sheet. Most of the studies `and proposed models in the ALM field are based on an objective function that maximizes bank profit. It is not easy to apply changes in these models in order to reach the optimal values of the parameters in the balance sheet. In this article, an attempt has been made to propose a linear model using constraints to achieve optimal values of balance sheet parameters using ALM objectives and considering balance sheet, system and regulatory constraints. It has also been tried to design the model according to the most possible mode and with the least changes and to minimize the size of the balance sheet. The analysis of the model presented in this article has been conducted using the parameters of the balance sheet and income statement of one of the famous Iranian banks. The results obtained from the proposed model show that the values of cash and receivables from banks and other credit institutions have decreased by 30% and increased by 200%, respectively, compared to the actual values of these parameters. Also, Total Income, Operating Income and Non-Operating Income have grown by 30% compared to the actual values of these parameters. Also, the values of a number of parameters are estimated to be zero after optimization. According to the results, it is obvious that the performance of bank managers, especially in the management of bank assets, is significantly different from the optimal values of the balance sheet, and the results obtained from the proposed model can help the management of banks as much as possible. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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14 pages, 3593 KiB

Open AccessArticle

A Stochastic Analysis of the Effect of Trading Parameters on the Stability of the Financial Markets Using a Bayesian Approach

by Rolando Rubilar-Torrealba, Karime Chahuán-Jiménez and Hanns de la Fuente-Mella

Mathematics 2023, 11(11), 2527; https://doi.org/10.3390/math11112527 - 31 May 2023

Cited by 1 | Viewed by 876

Abstract

The purpose of this study was to identify and measure the impact of the different effects of entropy states over the high-frequency trade of the cryptocurrency market, especially in Bitcoin, using and selecting optimal parameters of the Bayesian approach, specifically through approximate Bayesian computation (ABC). ABC corresponds to a class of computational methods rooted in Bayesian statistics that could be used to estimate the posterior distributions of model parameters. For this research, ABC was applied to estimate the daily prices of the Bitcoin cryptocurrency from May 2013 to December 2021. The findings suggest that the behaviour of the parameters for our tested trading algorithms, in which sudden jumps are observed, can be interpreted as changes in states of the generated time series. Additionally, it is possible to identify and model the effects of the COVID-19 pandemic on the series analysed in the research. Finally, the main contribution of this research is that we have characterised the relationship between entropy and the evolution of parameters defining the optimal selection of trading algorithms in the financial industry. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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26 pages, 842 KiB

Open AccessArticle

Insights on the Statistics and Market Behavior of Frequent Batch Auctions

by Thiago W. Alves, Ionuţ Florescu and Dragoş Bozdog

Mathematics 2023, 11(5), 1223; https://doi.org/10.3390/math11051223 - 02 Mar 2023

Viewed by 1083

Abstract

This paper extends previous research performed with the SHIFT financial market simulation platform. In our previous work, we show how this order-driven, distributed asynchronous, and multi-asset simulated environment is capable of reproducing known stylized facts of real continuous double auction financial markets. Using the platform, we study a pricing mechanism based on frequent batch auctions (FBA) proposed by a group of researchers from University of Chicago. We demonstrate our simulator’s capability as an environment to experiment with potential rule changes. We present the first side-by-side comparison of frequent batch auctions with a continuous double auction. We show that FBA is superior in terms of market quality measures but we also discover a potential problem in the technical implementation of FBA. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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30 pages, 1778 KiB

Open AccessArticle

Modeling Synchronization Risk among Sustainable Exchange Trade Funds: A Statistical and Network Analysis Approach

by Nicolás Magner, Jaime F. Lavín and Mauricio A. Valle

Mathematics 2022, 10(19), 3598; https://doi.org/10.3390/math10193598 - 01 Oct 2022

Cited by 2 | Viewed by 1772

Abstract

We evaluate the environment, society, and corporate governance rating (ESG rating) contribution from a new perspective; the highest ESG rating mitigates the impact of unexpected change in the implied volatility on the systemic stock market risk. For this purpose, we use exchange-traded funds (ETF) classified by their ESG rating into quartiles to estimate the synchronization as a proxy by systemic risk. Then, for each ETF quartile, we study the effect of the implied volatility over the synchronization. Our study is the first to model sustainable ETFs’ synchronization by combining econometric modeling and network methods, including 100 ETFs representing 80% of the global ETF market size between 2013 and 2021. First, we find that a higher ESG rating mitigates the effect of implied volatility over ETF synchronization. Surprisingly, the effect is the opposite in the case of ETFs with lower ESG ratings, where an increase in the volatility expectation increases the synchronization. Our study depicts the effect of sustainable ETFs on lessening the systemic risk due to returns synchronization, this being a novel contribution of this asset class. Finally, this paper offers extensions to deepen the contribution of other asset classes of ETFs in terms of their synchronization behavior and impact on risk management and financial performance. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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22 pages, 2665 KiB

Open AccessArticle

Minimalistic Logit Model as an Effective Tool for Predicting the Risk of Financial Distress in the Visegrad Group

by Michal Pavlicko and Jaroslav Mazanec

Mathematics 2022, 10(8), 1302; https://doi.org/10.3390/math10081302 - 14 Apr 2022

Cited by 5 | Viewed by 2255

Abstract

Predicting financial distress is one of the most well-known issues in corporate finance. Investors and other stakeholders often use prediction models as relevant tools for identifying weaknesses to eliminate potential threats to business partners. This paper aims to present an effective logistic regression model for a one-year-ahead prediction of financial distress with the minimum set of predictors as a part of risk management. The paper is motivated by various works dealing with the curse of dimensionality phenomenon and the observation that the increasing number of logit-model predictors does not improve the prediction—on the contrary. Monitoring the significance of improvement in the stepwise growth of the predictor set is used to identify the minimal set. Logistic regression with cross-validation is involved in the modelling process. The proposed model is compared with other logit-based models used regionally or globally on the same large dataset, which underlines the model validity and robustness. The proposed logit model contains only two significant predictors and achieves excellent performance metrics compared to other models. The added value of the article lies in a simple application for managers, investors, creditors, financial institutions, and others with a reliable classification of companies into healthy and unhealthy company groups. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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22 pages, 324 KiB

Open AccessArticle

An Econometric Approach on Performance, Assets, and Liabilities in a Sample of Banks from Europe, Israel, United States of America, and Canada

by Larissa M. Batrancea

Mathematics 2021, 9(24), 3178; https://doi.org/10.3390/math9243178 - 09 Dec 2021

Cited by 34 | Viewed by 2769

Abstract

The 2008 financial crisis had a major impact on financial markets, especially on the banking system. Mortgage-backed security investments were among the causes that determined the tremendous shortage of cash. Before the crisis, American banks were considered important investors on these markets, as indicated by the structure of their assets and liabilities. How grounded were their investment decisions? To answer this question, the study examined the influence of financial performance on bank assets and liabilities of the most important 45 banks from Europe and Israel, United States of America, and Canada during the period 2006–2020. Through a panel generalized method of moments approach, empirical results indicated a strong impact of bank assets and liabilities ratios on financial performance indicators. The study emphasizes that bank managers, researchers, regulators, and supervisors should consider investment policies, especially for bank assets and liabilities. Therefore, a high level of interest income is an important tool for increasing assets and liabilities. At the same time, fees are other levers that could improve bank benefits and ultimately develop the lending activity when interest income enters a descending trend. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

21 pages, 327 KiB

Open AccessArticle

Mathematical Modeling of Intellectual Capital and Business Efficiency of Small and Medium Enterprises

by Wadim Strielkowski, Aida Guliyeva, Ulviyya Rzayeva, Elena Korneeva and Anna Sherstobitova

Mathematics 2021, 9(18), 2305; https://doi.org/10.3390/math9182305 - 18 Sep 2021

Cited by 12 | Viewed by 2267

Abstract

Our paper aims at testing the impact of separate elements of the intellectual capital (IC) represented for instance by the human, structural, and customer capital, on the functioning and performance of the small and medium-sized enterprises (SMEs) using mathematical modeling. We assess the intellectual capital with respect to the resource-based view theory. Our study is based on the data obtained from the 206 surveys with the representatives of small and medium-sized enterprises from Commonwealth of Independent States (CIS) countries. We employed a mathematical modeling approach as well as the SPSS application package in order to test our hypotheses about the influence of intellectual capital on the enterprise’s efficiency. Our results helped us to determine that the concept of intellectual capital is practically not used in the management of small and medium-sized enterprises in CIS countries. It becomes apparent that individual techniques for managing intellectual resources can only be identified intuitively, based on an in-depth analysis of the current tasks facing managers. These findings confirmed the positive impact of intellectual capital on the performance of small and medium-sized enterprises in the conditions of the economies in transition represented hereinafter in our paper by CIS countries, but only with the availability of financial resources and with some important reservations. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

15 pages, 292 KiB

Open AccessArticle

The Influence of Liquidity and Solvency on Performance within the Healthcare Industry: Evidence from Publicly Listed Companies

by Larissa Batrancea

Mathematics 2021, 9(18), 2231; https://doi.org/10.3390/math9182231 - 11 Sep 2021

Cited by 33 | Viewed by 7277

Abstract

Any lucrative economic activity implies aiming at obtaining a profit, including companies in the healthcare industry. The present study analyzes the extent to which financial liquidity and financial solvency influenced the performance of 34 healthcare companies that are publicly traded on the New York Stock Exchange. The period of analysis spanned from Q4 2005 to Q4 2020. The research methodology favored a complex approach by running econometric models with two-stage least squares (2SLS) panel and panel generalized method of moments (GMM). Empirical evidence showed that the financial indicators current liquidity ratio, quick liquidity ratio, and debt to equity ratio significantly influenced company performance measured by return on assets, gross margin ratio, operating margin ratio, earnings before interest, tax, depreciation, and amortization. Strategies intended to improve business performance based on liquidity and solvency insights are also addressed. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

12 pages, 281 KiB

Open AccessArticle

The Link between Corporate Reputation and Financial Performance and Equilibrium within the Airline Industry

by Andreas-Daniel Cocis, Larissa Batrancea and Horia Tulai

Mathematics 2021, 9(17), 2150; https://doi.org/10.3390/math9172150 - 03 Sep 2021

Cited by 11 | Viewed by 3290

Abstract

This study examines how corporate reputation is perceived by investors through the financial performance and equilibrium of several airline companies. We used a sample of 22 companies. Nineteen are listed in the World Airline Awards 2018 ranking based on client satisfaction, and three companies are included in the Fortune ranking and enjoying the best corporate reputations in the airline industry. The analyzed period was 2016–2018. The purpose of this study was to rank airline companies based on financial indicators by means of the TOPSIS method to see whether the companies included in the Fortune ranking would keep a similar hierarchy. Results indicated that companies maintained a similar order in the TOPSIS ranking after considering financial performance and equilibrium indicators. The overall conclusion was that companies with a good financial performance and equilibrium enjoyed a good corporate reputation from investors’ point of view. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

30 pages, 522 KiB

Open AccessArticle

Calibrating the CreditRisk⁺ Model at Different Time Scales and in Presence of Temporal Autocorrelation †

by Jacopo Giacomelli and Luca Passalacqua

Mathematics 2021, 9(14), 1679; https://doi.org/10.3390/math9141679 - 16 Jul 2021

Cited by 5 | Viewed by 2097

Abstract

The CreditRisk

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model is one of the industry standards for the valuation of default risk in credit loans portfolios. The calibration of CreditRisk

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requires, inter alia, the specification of the parameters describing the structure of dependence among default events. This work [...] Read more.

The CreditRisk

^{+}

model is one of the industry standards for the valuation of default risk in credit loans portfolios. The calibration of CreditRisk

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requires, inter alia, the specification of the parameters describing the structure of dependence among default events. This work addresses the calibration of these parameters. In particular, we study the dependence of the calibration procedure on the sampling period of the default rate time series, that might be different from the time horizon onto which the model is used for forecasting, as it is often the case in real life applications. The case of autocorrelated time series and the role of the statistical error as a function of the time series period are also discussed. The findings of the proposed calibration technique are illustrated with the support of an application to real data. Full article

(This article belongs to the Special Issue Statistical Methods of Analyzing Financial Equilibrium, Performance and Risk)

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