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18 pages, 1209 KiB

Open AccessFeature PaperArticle

Does Political Risk Affect the Efficiency of the Exchange-Traded Fund Market?—Entropy-Based Analysis Before and After the 2025 U.S. Presidential Inauguration

by Joanna Olbryś

Risks 2025, 13(7), 121; https://doi.org/10.3390/risks13070121 - 26 Jun 2025

Viewed by 231

Abstract

The aim of this research is to thoroughly investigate the influence of the 2025 Donald Trump Presidential Inauguration on informational efficiency of the U.S. exchange-traded fund market in the context of political risk. The data set includes daily observations for twenty U.S. Exchange-Traded [...] Read more.

The aim of this research is to thoroughly investigate the influence of the 2025 Donald Trump Presidential Inauguration on informational efficiency of the U.S. exchange-traded fund market in the context of political risk. The data set includes daily observations for twenty U.S. Exchange-Traded Funds (ETFs). The whole sample comprises the period from 20 October 2024 to 20 April 2025. Since the Presidential Inauguration of Donald Trump took place on 20 January 2025, two sub-samples of an equal length are analyzed: (1) the period before the 2025 U.S. Presidential Inauguration from 20 October 2024 to 19 January 2025 and (2) the period after the 2025 U.S. Presidential Inauguration from 20 January 2025 to 20 April 2025. Since the whole sample period is not long (six months), to estimate market efficiency, modified Shannon entropy based on symbolic encoding with two thresholds is used. The empirical findings are visualized by symbol-sequence histograms. The proposed research hypothesis states that the U.S. ETF market’s informational efficiency, as measured by entropy, substantially decreased during the turbulent period after the Donald Trump Presidential Inauguration compared to the period before the Inauguration. The results unambiguously confirm the research hypothesis and indicate that political risk could affect the informational efficiency of markets. To the best of the author’s knowledge, this is the first study exploring the influence of the Donald Trump Presidential Inauguration on the informational efficiency of the U.S. ETF market. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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18 pages, 699 KiB

Open AccessArticle

Systemic Risk and Commercial Bank Stability in the Middle East and North Africa (MENA) Region

by Rim Jalloul and Mahfuzul Haque

Risks 2025, 13(7), 120; https://doi.org/10.3390/risks13070120 - 24 Jun 2025

Viewed by 382

Abstract

Using panel data spanning 2004–2023 of 21 countries in the MENA (Middle East and North Africa) region, we measure systemic risk and assess its influence on key banking sector performance indicators, including financial stability (proxied by commercial bank branches per 100,000 adults), providing [...] Read more.

Using panel data spanning 2004–2023 of 21 countries in the MENA (Middle East and North Africa) region, we measure systemic risk and assess its influence on key banking sector performance indicators, including financial stability (proxied by commercial bank branches per 100,000 adults), providing evidence from the emerging market context. One of the key findings of the study is the pivotal role played by financial access in promoting banking stability. In particular, the density and outreach of commercial banking branches were shown to have a stabilizing effect on the banking system. Also, findings reveal that systemic risk significantly undermines bank stability and operational efficiency while constraining financial depth. The study contributes to the literature by offering empirical evidence on the adverse effects of systemic risk in a region characterized by financial volatility and structural vulnerabilities. These findings align with existing global evidence that links financial development with reduced systemic risk, yet they also offer new empirical insights that are contextually relevant to the MENA region. The findings provide actionable recommendations for policymakers. Regulatory authorities in the MENA region should consider strategies that not only enhance the robustness of financial institutions but also promote inclusive access to banking services. The dual focus on institutional soundness and outreach could serve as a cornerstone for sustainable financial stability. Tailored policies that encourage branch expansion in underserved areas, coupled with incentives for inclusive banking practices, may yield long-term benefits by reducing the concentration of risk and improving the responsiveness of the financial system to external shocks. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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23 pages, 434 KiB

Open AccessArticle

A Deep Dive into Institutional and Economic Influences on Poverty in Europe

by Dorin Jula, Lavinia Mastac, Diane Paula Corina Vancea and Kamer-Ainur Aivaz

Risks 2025, 13(6), 104; https://doi.org/10.3390/risks13060104 - 28 May 2025

Viewed by 496

Abstract

This study analyzed the evolution of the poverty rate between 2004 and 2023 in 29 European countries, using two categories of variables: institutional variables (Corruption Control Index and Rule of Law Index) and economic variables (unemployment rate, shadow economy, government expenditures on social [...] Read more.

This study analyzed the evolution of the poverty rate between 2004 and 2023 in 29 European countries, using two categories of variables: institutional variables (Corruption Control Index and Rule of Law Index) and economic variables (unemployment rate, shadow economy, government expenditures on social protection and the Gini index). The methodology adopted included dynamic panel econometric models, applying a technique which involves the elimination of individual effects by a primary differencing of the variables and the use of the generalized method of moments (GMM) to evaluate the estimators. This methodology eliminates endogeneity caused by including the dependent variable with lag among the explanatory variables in the model. The results showed a strong negative correlation between the poverty rate and institutional variables, suggesting that improvements in governance and access to education and health resources are essential for poverty reduction. The shadow economy has also been identified as a poverty buffer, providing support in the absence of formal employment opportunities. The short-term impact of government expenditures on social protection was not significant, indicating the need for further analysis to better understand these dynamics. This research can make a significant contribution to the design of more effective public policies aimed at reducing shocks, reducing inequality and promoting sustainable economic growth. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

20 pages, 495 KiB

Open AccessArticle

The Use of the Fraud Pentagon Model in Assessing the Risk of Fraudulent Financial Reporting

by Georgiana Burlacu, Ioan-Bogdan Robu, Ion Anghel, Marius Eugen Rogoz and Ionela Munteanu

Risks 2025, 13(6), 102; https://doi.org/10.3390/risks13060102 - 22 May 2025

Viewed by 1419

Abstract

This study examines the relevance of the Fraud Pentagon Theory in detecting fraudulent financial reporting among companies listed on the Bucharest Stock Exchange. While financial reporting is essential for informed stakeholder decisions, requiring information to be accurate, reliable, and fairly presented and pressure [...] Read more.

This study examines the relevance of the Fraud Pentagon Theory in detecting fraudulent financial reporting among companies listed on the Bucharest Stock Exchange. While financial reporting is essential for informed stakeholder decisions, requiring information to be accurate, reliable, and fairly presented and pressure to meet expectations can lead to manipulation. The Fraud Pentagon Theory identifies five potential drivers of such behavior: pressure, opportunity, rationalization, capability, and arrogance. This research contributes to the literature by empirically testing the theory in the Romanian context, an emerging market with limited prior analysis, using a sample of 62 listed companies over the 2017–2021 period. Regression analysis was applied, using the Dechow F-score, which combines accrual quality and financial performance to assess the likelihood of fraudulent financial reporting. The findings reveal that not all dimensions of the theory significantly affect the likelihood of fraudulent reporting. Specifically, pressure-related factors (financial performance and financial stability) were found to be statistically significant, while external pressure, opportunity (external auditor quality and nature of industry), rationalization (change of auditor), capability (change of director), and arrogance (number of CEO’s pictures) did not show significant influence in the Romanian framework. These results highlight the importance of contextual factors such as market structure, governance practices, and stakeholder expectations, suggesting that fraudulent reporting risk indicators may vary across different economic environments. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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33 pages, 2866 KiB

Open AccessArticle

Exploring Corporate Capital Structure and Overleveraging in the Pharmaceutical Industry

by Samar Issa and Hussein Issa

Risks 2025, 13(2), 26; https://doi.org/10.3390/risks13020026 - 2 Feb 2025

Viewed by 1755

Abstract

This paper applies an empirical model of corporate capital structure, optimal debt, and overleveraging to estimate overleveraging measured as the difference between actual and optimal debt. Estimated using a sample of the twenty largest pharmaceutical firms, covering the time span from 2000 to [...] Read more.

This paper applies an empirical model of corporate capital structure, optimal debt, and overleveraging to estimate overleveraging measured as the difference between actual and optimal debt. Estimated using a sample of the twenty largest pharmaceutical firms, covering the time span from 2000 to 2018, the model sheds light on an industry-specific default risk. The analysis presented in this paper reveals a concerning trend in the pharmaceutical industry, with corporate excess debt steadily increasing over the past two decades, particularly peaking during the 2008 crisis and after 2013. These findings underscore the critical role of excess debt in exacerbating financial instability and highlight the pharmaceutical sector’s unique challenges, including high R&D intensity and regulatory pressures. By quantifying overleveraging and linking it to financial risk, the paper offers valuable policy implications, emphasizing the need for proactive management of optimal debt levels to mitigate default risks and enhance macroeconomic resilience. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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23 pages, 1798 KiB

Open AccessArticle

Beneath the Surface: Disentangling the Dynamic Network of the U.S. and BRIC Stock Markets’ Interrelations Amidst Turmoil

by Neenu Chalissery, T. Mohamed Nishad, J. A. Naushad, Mosab I. Tabash and Mujeeb Saif Mohsen Al-Absy

Risks 2024, 12(12), 202; https://doi.org/10.3390/risks12120202 - 13 Dec 2024

Viewed by 1322

Abstract

The study examines the time-varying correlation and return spillover mechanism among developed (U.S.) and emerging (BRIC) stock markets during major crises from 2000 to 2023, namely the global financial crisis, COVID-19, and the Russia–Ukraine war. To do so, we used dynamic conditional correlation [...] Read more.

The study examines the time-varying correlation and return spillover mechanism among developed (U.S.) and emerging (BRIC) stock markets during major crises from 2000 to 2023, namely the global financial crisis, COVID-19, and the Russia–Ukraine war. To do so, we used dynamic conditional correlation (DCC-GARCH) and time-varying parameter vector autoregression (TVP-VAR) models. This study finds that the nature of market crises plays a significant role in the interrelationship and return spillover mechanisms among the U.S. and BRIC stock markets. The interconnectedness of the stock markets was strengthened by crises such as the GFC and the COVID-19 pandemic. On the other hand, the Russia–Ukraine war temporarily disrupted the interrelationships between the markets. The study yields valuable insight to local and international investors in portfolio diversification and risk management strategies during market turbulence. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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25 pages, 1557 KiB

Open AccessArticle

Trading Activity in the Corporate Bond Market: A SAD Tale of Macro-Announcements and Behavioral Seasonality?

by James J. Forest, Ben S. Branch and Brian T. Berry

Risks 2024, 12(5), 80; https://doi.org/10.3390/risks12050080 - 14 May 2024

Cited by 2 | Viewed by 2845

Abstract

This study investigates the determinants of trading activity in the U.S. corporate bond market, focusing on the effects of Seasonal Affective Disorder (SAD) and macroeconomic announcements. Employing the General-to-Specific (Gets) Autometrics methodology, we identify distinct behavioral responses between retail and institutional investors to [...] Read more.

This study investigates the determinants of trading activity in the U.S. corporate bond market, focusing on the effects of Seasonal Affective Disorder (SAD) and macroeconomic announcements. Employing the General-to-Specific (Gets) Autometrics methodology, we identify distinct behavioral responses between retail and institutional investors to SAD, noting a significant impact on retail trading volumes but not on institutional trading or bond returns. This discovery extends the understanding of behavioral finance within the context of bond markets, diverging from established findings in equity and Treasury markets. Additionally, our analysis delineates the influence of macroeconomic announcements on trading activities, offering new insights into the market’s reaction to economic news. This study’s findings contribute to the broader literature on market microstructure and behavioral finance, providing empirical evidence on the interplay between psychological factors and macroeconomic information flow within corporate bond markets. By addressing these specific aspects with rigorous econometric techniques, our research enhances the comprehension of trading dynamics in less transparent markets, offering valuable perspectives for academics, investors, risk managers, and policymakers. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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21 pages, 6920 KiB

Open AccessArticle

Optimising Portfolio Risk by Involving Crypto Assets in a Volatile Macroeconomic Environment

by Attila Bányai, Tibor Tatay, Gergő Thalmeiner and László Pataki

Risks 2024, 12(4), 68; https://doi.org/10.3390/risks12040068 - 17 Apr 2024

Cited by 3 | Viewed by 3588

Abstract

Portfolio diversification is an accepted principle of risk management. When constructing an efficient portfolio, there are a number of asset classes to choose from. Financial innovation is expanding the range of instruments. In addition to traditional commodities and securities, other instruments have been [...] Read more.

Portfolio diversification is an accepted principle of risk management. When constructing an efficient portfolio, there are a number of asset classes to choose from. Financial innovation is expanding the range of instruments. In addition to traditional commodities and securities, other instruments have been added. These include cryptocurrencies. In our study, we seek to answer the question of what proportion of cryptocurrencies should be included alongside traditional instruments to optimise portfolio risk. We use VaR risk measures to optimise the process. Diversification opportunities are evaluated under normal return distributions, thick-tailed distributions, and asymmetric distributions. To answer our research questions, we have created a quantitative model in which we analysed the VaR of different portfolios, including crypto-diversified assets, using Monte Carlo simulations. The study database includes exchange rate data for two consecutive years. When selecting the periods under examination, it was important to compare favourable and less favourable periods from a macroeconomic point of view so that the study results can be interpreted as a stress test in addition to observing the diversification effect. The first period under examination is from 1 September 2020 to 31 August 2021, and the second from 1 September 2021 to 31 August 2022. Our research results ultimately confirm that including cryptoassets can reduce the risk of an investment portfolio. The two time periods examined in the simulation produced very different results. An analysis of the second period suggests that Bitcoin’s diversification ability has become significant in the unfolding market situation due to the Russian-Ukrainian war. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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24 pages, 1773 KiB

Open AccessArticle

Exploring Systemic Risk Dynamics in the Chinese Stock Market: A Network Analysis with Risk Transmission Index

by Xiaowei Zeng, Yifan Hu, Chengjun Pan and Yanxi Hou

Risks 2024, 12(3), 56; https://doi.org/10.3390/risks12030056 - 20 Mar 2024

Viewed by 2430

Abstract

Systemic risk refers to the potential for a disruption in one part of a financial system to trigger a cascade of adverse effects, impacting the functioning of the system. Despite the progress on novel systemic risk measures, research on dynamics of systemic risk [...] Read more.

Systemic risk refers to the potential for a disruption in one part of a financial system to trigger a cascade of adverse effects, impacting the functioning of the system. Despite the progress on novel systemic risk measures, research on dynamics of systemic risk network structure and its community effect is still in its initial state. In this study, we utilize price data from 107 representative Chinese stocks spanning the period from 2017 to 2022. A systemic risk network is derived from the Risk Transmission Index based on TENET and the QR–Lasso model. By utilizing DBSCAN, HITS and community detection algorithms on the network, we aim to propose a more suitable definition of systemically important companies, explore the interrelationships between companies, and discuss its plausible reasons for dynamics structural changes. The empirical findings demonstrate a substantial involvement of insurance companies in both contributing to and receiving systemic risk within the analyzed context. We identify prominent risk output and input centers, and emphasize the profound impact of the COVID-19 pandemic on the dynamics of systemic risk. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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35 pages, 669 KiB

Open AccessArticle

Capital Structure Models and Contingent Convertible Securities

by Di Meng, Adam Metzler and R. Mark Reesor

Risks 2024, 12(3), 55; https://doi.org/10.3390/risks12030055 - 18 Mar 2024

Viewed by 3189

Abstract

We implemented a methodology to calibrate capital structure models for banks that have issued contingent convertible securities (CoCos). Typical studies involving capital structure model calibration focus on non-financial firms as they have lower leverage and no contingent convertible securities. From a theoretical perspective, [...] Read more.

We implemented a methodology to calibrate capital structure models for banks that have issued contingent convertible securities (CoCos). Typical studies involving capital structure model calibration focus on non-financial firms as they have lower leverage and no contingent convertible securities. From a theoretical perspective, we found that jumps in the asset value process were necessary to obtain a satisfactory fit to the market data. In practice, contingent capital conversion triggers are discretionary, and there is considerable uncertainty around when regulators are likely to enforce conversion. The market-implied conversion triggers we obtain indicate that the market expects regulators to enforce conversion while the issuing bank is a going concern, as opposed to a gone concern. This fact is presumably of interest to potential dealers, regulators, issuers, and investors. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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Review

Jump to: Research

21 pages, 2473 KiB

Open AccessFeature PaperReview

Economic Fraud and Associated Risks: An Integrated Bibliometric Analysis Approach

by Kamer-Ainur Aivaz, Iulia Oana Florea and Ionela Munteanu

Risks 2024, 12(5), 74; https://doi.org/10.3390/risks12050074 - 30 Apr 2024

Cited by 5 | Viewed by 3237

Abstract

This study offers a comprehensive insight into the realms of economic fraud and risk management, underscoring the necessity of adaptability to evolving technologies and shifts in financial market dynamics. Through the application of bibliometric methodologies, this study meticulously maps the relevant literature, delineating [...] Read more.

This study offers a comprehensive insight into the realms of economic fraud and risk management, underscoring the necessity of adaptability to evolving technologies and shifts in financial market dynamics. Through the application of bibliometric methodologies, this study meticulously maps the relevant literature, delineating influential works, notable authors, collaborative networks, and emerging trends. It reviews key research contributions within the field, alongside reputable journals and institutions engaged in academic research. The examination highlights the logical, conceptual, and social interconnections that define the landscape of economic fraud and associated risks, elucidating how these findings inform the understanding, mitigating, and combating of the risk of fraud. Our bibliometric analysis methodology is grounded in the utilization of the Scopus database, employing rigorous filtering and extraction processes to obtain a substantial corpus of pertinent articles. Through a fusion of performance analysis and science mapping, our investigation elucidates central themes and visually represents the interrelationships between studies. Our research outcomes underscore the frequency of paper publications across diverse regions, with particular emphasis on the predominant scientific output from the US and China. Additionally, trends in academic citations are identified, indicative of the significant impact of papers on academic research and the formulation of public policies. By means of bibliometric analysis, this study not only consolidates existing knowledge but also catalyzes the exploration of future research trajectories, emphasizing the imperative of addressing these issues with heightened scientific rigor. Full article

(This article belongs to the Special Issue Risk Analysis in Financial Crisis and Stock Market)

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