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Special Issue "Risk Measures with Applications in Finance and Economics"

A special issue of Sustainability (ISSN 2071-1050).

Deadline for manuscript submissions: closed (31 July 2018)

Special Issue Editors

Guest Editor
Prof. Dr. Michael McAleer

University Chair Professor, Department of Finance, College of Management, Asia University, Wufeng 41354, Taiwan
Website | E-Mail
Interests: theoretical and applied econometrics; financial econometrics; financial economics; finance, theoretical and applied statistics; time series analysis; forecasting; risk management; energy economics and finance; applied mathematics
Guest Editor
Prof. Dr. Wing-Keung Wong

Department of Finance, College of Management, Asia University, Wufeng, Taichung, Taiwan
E-Mail
Interests: financial economics; econometrics; mathematical finance; mathematical economics; equity analysis; investment theory; risk management; behavioral finance; behavioral economics; operational research; stochastic dominance theory; time series analysis; Bayesian theory and decision theory

Special Issue Information

Dear Colleagues,

Risk Measures play a vital role in many fields in Economics and Finance.  Using different risk measures could compare the performances of different variables through the analysis of empirical real-world data. For example, risk measures could help to form effective monetary and fiscal policies, and to develop pricing models for financial assets, such as equities, bonds, currencies, and derivative securities.

A Special Issue of “Risk Measures with Applications in Finance and Economics” will be devoted to advancements in the mathematical and statistical development of risk measures with applications in Finance and Economics. This Special Issue will bring together theory, practice and applications of risk measures.

We invite investigators to contribute original research articles in theory and applications of risk measures. All submissions must contain original unpublished work not being considered for publication elsewhere.

Chair Prof. Michael McAleer
Chair Prof. Wing-Keung Wong
Guest Editors

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. Sustainability 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 1400 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.

Published Papers (29 papers)

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Research

Open AccessArticle The Effects of Health Status on Life Insurance Holdings in 16 European Countries
Sustainability 2018, 10(10), 3454; https://doi.org/10.3390/su10103454
Received: 30 June 2018 / Revised: 13 September 2018 / Accepted: 19 September 2018 / Published: 27 September 2018
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Abstract
This study examines the relationships among three health status indicators (self-perceived health status, objective health status, and future health risk) and life insurance holdings in 16 European countries. Our results show that households with poor self-perceived health status and high future health risk
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This study examines the relationships among three health status indicators (self-perceived health status, objective health status, and future health risk) and life insurance holdings in 16 European countries. Our results show that households with poor self-perceived health status and high future health risk are less likely to purchase life insurance in the entire sample as well as in the subsample for countries with a national health system (NHS). In non-NHS countries, those households that have high future health risk are less inclined to purchase life insurance. In terms of preferences for types of life insurance policies (term life, whole life, both, or none) in the whole sample, poor self-perceived health status and high future health risk are less inclined to hold only term life insurance policy. In addition, poor self-perceived health status and high future health risk have a negative impact on holdings of both types of life insurance. Our findings reveal that there is no adverse selection problem in the life insurance market, especially in European countries with NHS. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Does Sustainability Engagement Affect Stock Return Volatility? Evidence from the Chinese Financial Market
Sustainability 2018, 10(10), 3361; https://doi.org/10.3390/su10103361
Received: 28 July 2018 / Revised: 17 September 2018 / Accepted: 18 September 2018 / Published: 20 September 2018
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Abstract
This paper examines the impact of firms’ sustainability engagement on their stock returns and volatility by employing the EGARCH and FIGARCH models using data from the major financial firms listed in the Chinese stock market. We find evidence of a positive association between
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This paper examines the impact of firms’ sustainability engagement on their stock returns and volatility by employing the EGARCH and FIGARCH models using data from the major financial firms listed in the Chinese stock market. We find evidence of a positive association between sustainability engagement and stock returns, suggesting firms’ sustainability news release in favour of the market. Although volatility persistence can largely be explained by news flows, the results show that sustainability news release has the significant and largest drop in volatility persistence, followed by popularity in Google search engine and the general news. Sustainability news release is found to affect positively stock return volatility. We also find evidence that market expectation can be driven by the dominant social paradigm when sustainability is included. These findings have important implications for market efficiency and effective portfolio management decisions. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle The Social Efficiency for Sustainability: European Cooperative Banking Analysis
Sustainability 2018, 10(9), 3271; https://doi.org/10.3390/su10093271
Received: 31 July 2018 / Revised: 5 September 2018 / Accepted: 8 September 2018 / Published: 13 September 2018
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Abstract
This paper seeks to establish the relationship between economic efficiency and social efficiency to analyze the sustainability of banking in Europe. The type-effect has been analyzed, as stakeholder value banks—cooperatives and saving banks—should not be less socially and economically efficient than commercial banks.
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This paper seeks to establish the relationship between economic efficiency and social efficiency to analyze the sustainability of banking in Europe. The type-effect has been analyzed, as stakeholder value banks—cooperatives and saving banks—should not be less socially and economically efficient than commercial banks. This European analysis was made using the Bankscope database, as it provides a unique insight into the stakeholder view that clarifies, by an analysis of two-stage boundaries, that there is no single model of social and economic efficiency according to the type of financial entity in Europe. These findings contribute to the social cost paradox and shared value perspective, and more broadly to stakeholder theory. It is established that a tradeoff between economic and social efficiency is not needed. There are different behaviors in different European countries. Moreover, our results could lead to the development of social indicators of the sustainability aspects of organizations without resorting to traditional accounting. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Specification Testing of Production in a Stochastic Frontier Model
Sustainability 2018, 10(9), 3082; https://doi.org/10.3390/su10093082
Received: 27 July 2018 / Revised: 9 August 2018 / Accepted: 14 August 2018 / Published: 30 August 2018
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Abstract
Parametric production frontier functions are frequently used in stochastic frontier models, but there do not seem to be any empirical test statistics for the plausibility of this application. In this paper, we develop procedures to test whether or not the parametric production frontier
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Parametric production frontier functions are frequently used in stochastic frontier models, but there do not seem to be any empirical test statistics for the plausibility of this application. In this paper, we develop procedures to test whether or not the parametric production frontier functions are suitable. Toward this aim, we developed two test statistics based on local smoothing and an empirical process, respectively. Residual-based wild bootstrap versions of these two test statistics are also suggested. The distributions of technical inefficiency and the noise term are not specified, which allows specification testing of the production frontier function even under heteroscedasticity. Simulation studies and a real data example are presented to examine the finite sample sizes and powers of the test statistics. The theory developed in this paper is useful for production managers in their decisions on production. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Does Business Group Affiliation Matter for Superior Performance? Evidence from Pakistan
Sustainability 2018, 10(9), 3060; https://doi.org/10.3390/su10093060
Received: 3 July 2018 / Revised: 21 August 2018 / Accepted: 23 August 2018 / Published: 28 August 2018
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Abstract
Business groups have been described as improving the value of the affiliated firms they control, which is often beyond the capability of standalone firms. The purpose of the current study is to analyze the financial performance of affiliates of diversified Pakistani business groups
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Business groups have been described as improving the value of the affiliated firms they control, which is often beyond the capability of standalone firms. The purpose of the current study is to analyze the financial performance of affiliates of diversified Pakistani business groups relative to standalone firms. The current study employs data from 284 Pakistani listed non-financial firms from 2008–2015. In order to test the hypotheses, two dependent variables are used, namely, accounting (Return on Assets (ROA)) and stock market (Tobin’s Q) measures of performance. Specifically, this study probes and compares the performance measures of group member and standalone firms. The findings of the study suggest that business group memberships have statistically significant effects on accounting and stock market measures of firm performance. In addition, size and sales growth have an increasing effect on the performance of firms. We believe that business groups in Pakistan are efficient economic actors and can be considered responses to high transaction costs and market failures. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle IPO Underpricing After the 2008 Financial Crisis: A Study of the Chinese Stock Markets
Sustainability 2018, 10(8), 2844; https://doi.org/10.3390/su10082844
Received: 16 July 2018 / Revised: 6 August 2018 / Accepted: 9 August 2018 / Published: 10 August 2018
Cited by 1 | PDF Full-text (426 KB) | HTML Full-text | XML Full-text
Abstract
A firm’s capability of raising funding is closely related to its sustainable development. With a more efficient allocation of funding among the whole society, social resources will be better utilized. Initial Public Offering (IPO) can indeed be an effective means of raising capital
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A firm’s capability of raising funding is closely related to its sustainable development. With a more efficient allocation of funding among the whole society, social resources will be better utilized. Initial Public Offering (IPO) can indeed be an effective means of raising capital for corporate ventures. Using 1069 firms which completed IPOs on Chinese stock exchanges between 1st January 2004 and 1st January 2013, we investigate the difference in IPO underpricing before and after the 2008 financial crisis. Based on OLS regression models, we find that the IPOs are less underpriced in the post-crisis period. We examine the moderating effects of firm size on the difference in IPO underpricing between pre- and post-crisis periods, finding that small firms experienced less IPO underpricing than large firms after the financial crisis. After applying different model specifications such as Robust and OProbit regressions, the results remain consistent. Our study contributes to understanding the dynamics and influences of the financial crisis on firms’ IPO cost from the perspective of information asymmetry. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Regime-Switching Determinants for Spreads of Emerging Markets Sovereign Credit Default Swaps
Sustainability 2018, 10(8), 2730; https://doi.org/10.3390/su10082730
Received: 25 June 2018 / Revised: 23 July 2018 / Accepted: 30 July 2018 / Published: 2 August 2018
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Abstract
Using the Markov regime switching approach, we investigate the dependency of short term sovereign credit default swap (SCDS) spread changes on a nation’s country-specific fundamental factors, local, regional and macroeconomic global factors. We find that the significance of the determinants of SCDS spread
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Using the Markov regime switching approach, we investigate the dependency of short term sovereign credit default swap (SCDS) spread changes on a nation’s country-specific fundamental factors, local, regional and macroeconomic global factors. We find that the significance of the determinants of SCDS spread changes differ across the two states of our regime-switching model. Specifically, in the good state, the weekly SCDS spread changes are mainly determined by local, regional and fundamental factors; whereas global variables have a stronger influence in the bad regime. In particular, US market returns play a dominant role in influencing the SCDS spread change in the bad state suggesting loss aversion and flight–to–quality behavior of investors. We then examine the cross-sectional differences of the above regime switching effect based on country-specific characters and find that the regime switching effect is associated with a nation’s country-specific characters such as openness, economic size and so forth. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Generalized Correlation Measures of Causality and Forecasts of the VIX Using Non-Linear Models
Sustainability 2018, 10(8), 2695; https://doi.org/10.3390/su10082695
Received: 7 June 2018 / Revised: 18 July 2018 / Accepted: 30 July 2018 / Published: 1 August 2018
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Abstract
This paper features an analysis of causal relations between the daily VIX, S&P500 and the daily realised volatility (RV) of the S&P500 sampled at 5 min intervals, plus the application of an Artificial Neural Network (ANN) model to forecast the future daily value
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This paper features an analysis of causal relations between the daily VIX, S&P500 and the daily realised volatility (RV) of the S&P500 sampled at 5 min intervals, plus the application of an Artificial Neural Network (ANN) model to forecast the future daily value of the VIX. Causal relations are analysed using the recently developed concept of general correlation Zheng et al. and Vinod. The neural network analysis is performed using the Group Method of Data Handling (GMDH) approach. The results suggest that causality runs from lagged daily RV and lagged continuously compounded daily return on the S&P500 index to the VIX. Sample tests suggest that an ANN model can successfully predict the daily VIX using lagged daily RV and lagged daily S&P500 Index continuously compounded returns as inputs. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle President Trump Tweets Supreme Leader Kim Jong-Un on Nuclear Weapons: A Comparison with Climate Change
Sustainability 2018, 10(7), 2310; https://doi.org/10.3390/su10072310
Received: 10 May 2018 / Revised: 27 June 2018 / Accepted: 28 June 2018 / Published: 4 July 2018
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Abstract
A set of 125 tweets about North Korea’s Supreme Leader Kim Jong-Un by President Trump from 2013 to 2018 are analysed by means of the data mining technique, sentiment analysis. The intention is to explore the contents and sentiments of the messages contained,
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A set of 125 tweets about North Korea’s Supreme Leader Kim Jong-Un by President Trump from 2013 to 2018 are analysed by means of the data mining technique, sentiment analysis. The intention is to explore the contents and sentiments of the messages contained, the degree to which they differ, and their implications about President Trump’s understanding and approach to international diplomacy. The results suggest a predominantly positive emotion in relation to tweets about North Korea, despite the use of questionable nicknames such as “Little Rocket Man”. A comparison is made between the tweets on North Korea and climate change, madefrom 2011–2015, as Trump has tweeted many times on both issues. It is interesting to find that Trump’s tweets on North Korea have significantly higher positive polarity scores than his tweets on climate change. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Financial Risk Measurement and Prediction Modelling for Sustainable Development of Business Entities Using Regression Analysis
Sustainability 2018, 10(7), 2144; https://doi.org/10.3390/su10072144
Received: 20 April 2018 / Revised: 1 June 2018 / Accepted: 20 June 2018 / Published: 23 June 2018
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Abstract
The issue of the debt, bankruptcy or non-bankruptcy of a company is presented in this article as one of the ways of conceiving risk management. We use the Amadeus database to obtain the financial and accounting data of Slovak enterprises from 2015 and
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The issue of the debt, bankruptcy or non-bankruptcy of a company is presented in this article as one of the ways of conceiving risk management. We use the Amadeus database to obtain the financial and accounting data of Slovak enterprises from 2015 and 2016 to calculate the most important financial ratios that may affect the financial health of the company. The main aim of the article is to reveal financial risks of Slovak entities and to form a prediction model, which is done by the identification of significant predictors having an impact on the health of Slovak companies and their future prosperity. Realizing the multiple regression analysis, we identified the significant predictors in conditions of the specific economic environment to estimate the corporate prosperity and profitability. The results gained in the research are extra important for companies themselves, but also for their business partners, suppliers and creditors to eliminate financial and other corporate risks related to the unhealthy or unfavorable financial situation of the company. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Market Timing with Moving Averages
Sustainability 2018, 10(7), 2125; https://doi.org/10.3390/su10072125
Received: 7 June 2018 / Revised: 18 June 2018 / Accepted: 20 June 2018 / Published: 22 June 2018
Cited by 1 | PDF Full-text (618 KB) | HTML Full-text | XML Full-text
Abstract
Consider using the simple moving average (MA) rule of Gartley to determine when to buy stocks, and when to sell them and switch to the risk-free rate. In comparison, how might the performance be affected if the frequency is changed to the use
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Consider using the simple moving average (MA) rule of Gartley to determine when to buy stocks, and when to sell them and switch to the risk-free rate. In comparison, how might the performance be affected if the frequency is changed to the use of MA calculations? The empirical results show that, on average, the lower is the frequency, the higher are average daily returns, even though the volatility is virtually unchanged when the frequency is lower. The volatility from the highest to the lowest frequency is about 30% lower as compared with the buy-and-hold strategy volatility, but the average returns approach the buy-and-hold returns when frequency is lower. The 30% reduction in volatility appears if we invest randomly half the time in stock markets and half in the risk-free rate. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle An Improvement of Gain-Loss Price Bounds on Options Based on Binomial Tree and Market-Implied Risk-Neutral Distribution
Sustainability 2018, 10(6), 1942; https://doi.org/10.3390/su10061942
Received: 24 March 2018 / Revised: 20 May 2018 / Accepted: 5 June 2018 / Published: 10 June 2018
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Abstract
This paper investigates the approximated arbitrage bounds of option prices in an incomplete market setting and draws implications for option pricing and risk management. It gives consideration to periods of global financial crisis and European sovereign debt crisis. To this end, we employ
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This paper investigates the approximated arbitrage bounds of option prices in an incomplete market setting and draws implications for option pricing and risk management. It gives consideration to periods of global financial crisis and European sovereign debt crisis. To this end, we employ the gain-loss ratio method combined with the market-implied risk-neutral distribution calculated by binomial tree to investigate the options price bounds. Our implied gain-loss bounds of option prices are preference-free and parametric-free to avoid the misspecification error of subjective choice on the benchmark model of gain-loss ratio, and consequently, greatly reduce model risk and market risk. The empirical results show that there are option prices breaking the gain-loss bounds, even after taking into account the market information. This means that a good risk management technique and good-deal investment opportunities exist if the implied binomial tree is used as a benchmark model in the gain-loss bounds. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Bayesian Approach for Estimating the Probability of Cartel Penalization under the Leniency Program
Sustainability 2018, 10(6), 1938; https://doi.org/10.3390/su10061938
Received: 30 April 2018 / Revised: 8 June 2018 / Accepted: 8 June 2018 / Published: 10 June 2018
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Abstract
Cartels cause tremendous damage to the market economy and disadvantage consumers by creating higher prices and lower-quality goods; moreover, they are difficult to detect. We need to prevent them through scientific analysis, which includes the determination of an indicator to explain antitrust enforcement.
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Cartels cause tremendous damage to the market economy and disadvantage consumers by creating higher prices and lower-quality goods; moreover, they are difficult to detect. We need to prevent them through scientific analysis, which includes the determination of an indicator to explain antitrust enforcement. In particular, the probability of cartel penalization is a useful indicator for evaluating competition enforcement. This study estimates the probability of cartel penalization using a Bayesian approach. In the empirical study, the probability of cartel penalization is estimated by a Bayesian approach from the cartel data of the Department of Justice in the United States between 1970 and 2009. The probability of cartel penalization is seen as sensitive to changes in competition law, and the results have implications for market efficiency and the antitrust authority’s efforts against cartel formation and demise. The result of policy simulation shows the effectiveness of the leniency program. Antitrust enforcement is evaluated from the estimation results, and can therefore be improved. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Toward a More Resilient Financial System: Should Banks Be Diversified?
Sustainability 2018, 10(6), 1903; https://doi.org/10.3390/su10061903
Received: 28 February 2018 / Revised: 31 May 2018 / Accepted: 5 June 2018 / Published: 7 June 2018
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This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as
[...] Read more.
This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as the system-GMM estimator. We conclude that higher income diversification favors bank profitability. However, our study does not find a significant relationship between revenue diversification and bank risk, even when considering a crisis period. Our results suggest that establishing restrictions in the universal banking model could damage the resilience of the financial system, and thus affect the sustainability of the uneven economic recovery in Europe. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Is Liquidity Risk Priced? Theory and Evidence
Sustainability 2018, 10(6), 1809; https://doi.org/10.3390/su10061809
Received: 12 April 2018 / Revised: 21 May 2018 / Accepted: 28 May 2018 / Published: 30 May 2018
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This study studies a recently proposed measure of liquidity premium (or discount). Specifically, the liquidity premium we utilize is defined as a function of a time discount factor, a relative risk aversion parameter, and the expected return and volatility of the asset, given
[...] Read more.
This study studies a recently proposed measure of liquidity premium (or discount). Specifically, the liquidity premium we utilize is defined as a function of a time discount factor, a relative risk aversion parameter, and the expected return and volatility of the asset, given the risk-free rate. Using U.S. stock market data, our empirical results confirm that the proposed liquidity premium measure is largely comparable to that commonly used in existing studies. Our results also imply that a risk factor based on the liquidity premium measure not only explains cross-sectional stock returns, but also time-series excess returns on portfolios sorted on the commonly used liquidity measure. In addition, our study suggests that better understanding the liquidity risk leads to sustainable trading for investors. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Financial Security and Optimal Scale of Foreign Exchange Reserve in China
Sustainability 2018, 10(6), 1724; https://doi.org/10.3390/su10061724
Received: 18 April 2018 / Revised: 17 May 2018 / Accepted: 17 May 2018 / Published: 25 May 2018
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The study of how foreign exchange reserves maintain financial security is of vital significance. This paper provides simulations and estimations of the optimal scale of foreign exchange reserves under the background of possible shocks to China’s economy due to the further opening of
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The study of how foreign exchange reserves maintain financial security is of vital significance. This paper provides simulations and estimations of the optimal scale of foreign exchange reserves under the background of possible shocks to China’s economy due to the further opening of China’s financial market and the sudden stop of capital inflows. Focused on the perspective of financial security, this article tentatively constructs an optimal scale analysis framework that is based on a utility maximization of the foreign exchange reserve, and selects relevant data to simulate the optimal scale of China’s foreign exchange reserves. The results show that: (1) the main reason for the fast growth of the Chinese foreign exchange reserve scale is the structural trouble of its double international payment surplus, which creates long-term appreciation expectations for the exchange rate that make it difficult for international capital inflows and excess foreign exchange reserves to enter the real economic growth mechanism under the model of China’s export-driven economy growth; (2) the average optimal scale of the foreign exchange reserve in case of the sudden stop of capital inflows was calculated through parameter estimation and numerical simulation to be 13.53% of China’s gross domestic product (GDP) between 1994 and 2017; (3) with the function of the foreign exchange reserves changing from meeting basic transaction demands to meeting financial security demands, the effect of the foreign exchange reserve maintaining the state’s financial security is becoming more and more obvious. Therefore, the structure of foreign exchange reserve assets should be optimized in China, and we will give full play to the special role of foreign exchange reserve in safeguarding a country’s financial security. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Multi-Step Inflation Prediction with Functional Coefficient Autoregressive Model
Sustainability 2018, 10(6), 1691; https://doi.org/10.3390/su10061691
Received: 11 April 2018 / Revised: 9 May 2018 / Accepted: 16 May 2018 / Published: 23 May 2018
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Abstract
Forecasting inflation rate is one of the most important topics in finance and economics. In recent years, China has stepped into a “New Normal” stage of economic development, with a different state from the fast growth period during the past few decades. Hence,
[...] Read more.
Forecasting inflation rate is one of the most important topics in finance and economics. In recent years, China has stepped into a “New Normal” stage of economic development, with a different state from the fast growth period during the past few decades. Hence, forecasting the inflation rate of China with a time-varying model may give high accuracy. In this paper, we investigate the problem of forecasting the inflation rate with a functional coefficient autoregressive (FAR) model, which allows the coefficient to change over time. We compare the FAR model based on the B-splines estimation method with the autoregressive moving average (ARMA) model by extensive simulation studies. In addition, with the monthly CPI data of China, we conduct both in-sample analysis and out-of-sample forecasting. The forecasting result shows that the FAR model based on the B-splines estimation method has a better performance than the ARMA model. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Financial Hazard Map: Financial Vulnerability Predicted by a Random Forests Classification Model
Sustainability 2018, 10(5), 1530; https://doi.org/10.3390/su10051530
Received: 9 April 2018 / Revised: 8 May 2018 / Accepted: 8 May 2018 / Published: 11 May 2018
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This study develops a systematic framework for assessing a country’s financial vulnerability using a predictive classification model of random forests. We introduce a new indicator that quantifies the potential loss in bank assets and measures a country’s overall vulnerability by aggregating these indicators
[...] Read more.
This study develops a systematic framework for assessing a country’s financial vulnerability using a predictive classification model of random forests. We introduce a new indicator that quantifies the potential loss in bank assets and measures a country’s overall vulnerability by aggregating these indicators across the banking sector. We also visualize the degree of vulnerability by creating a Financial Hazard Map that highlights countries and regions with underlying risks in their banking sectors. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Balancing Project Financing and Mezzanine Project Financing with Option Value to Mitigate Sponsor’s Risks for Overseas Investment Projects
Sustainability 2018, 10(5), 1498; https://doi.org/10.3390/su10051498
Received: 16 April 2018 / Revised: 3 May 2018 / Accepted: 8 May 2018 / Published: 9 May 2018
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Abstract
Major steel-making companies in Korea have recently been trying to advance into international markets for better profitability and new market shares. Even with strategic partnerships with local organizations, the Korean steel companies are facing and incurring significant risks which impact their ability to
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Major steel-making companies in Korea have recently been trying to advance into international markets for better profitability and new market shares. Even with strategic partnerships with local organizations, the Korean steel companies are facing and incurring significant risks which impact their ability to achieve a sustainable profit. The objective of this research is to determine an optimum combination of financial models, specifically Project (PF) and Mezzanine Financing (MF) with an option (convertible bond and bond with warrant). The results of the proposed model can lower interest rates of financing, thereby increasing the profitability of the project investors. To analyze the MF method’s effectiveness and proper use, the following three steps are applied: (1) Monte-Carlo Simulations (MCS) using Excel and @Risk software are performed for the Net Present Value (NPV) of the project and its volatility; (2) the Black-Scholes model (BSM) is applied to evaluate MF based on project value; and (3) interest rate of MF is calculated from its option value and is reapplied back to the NPV calculation of the project to determine the effects of MF. Assuming a 50% debt/equity ratio, these simulations were performed on five cases (50% senior debt, 0% MF for a base case then increasing MF and decreasing senior debt by 10% four times). Through this process, using the 10%, MF lowered the borrowing size by 20% and using MF continued to lower the borrowing size up to 40% borrowing when using 40% MF. Based on this result, the researchers support the use of MF to optimize Korean steel international financial models. The resultant data will serve as an effective method to increase net cash flow in overseas steel-plant project investments. This research was performed for a steel plant located in Iran as a case-study, but this optimized financing method using MF with an option product can be applied sustainably not only for overseas investment of steel plants but also any other business, such as oil & gas, power generation, and transportation industries. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Efficiency and Risk in Sustaining China’s Food Production and Security: Evidence from Micro-Level Panel Data Analysis of Japonica Rice Production
Sustainability 2018, 10(4), 1282; https://doi.org/10.3390/su10041282
Received: 2 April 2018 / Revised: 17 April 2018 / Accepted: 18 April 2018 / Published: 21 April 2018
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Abstract
Sustainable food production and food security are always challenging issues in China. This paper constructs a multi-element two-level constant-elasticity-of-substitution (CES) model to assess technological progress in, and its contribution to, japonica rice production in China. The results show that the speed of technological
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Sustainable food production and food security are always challenging issues in China. This paper constructs a multi-element two-level constant-elasticity-of-substitution (CES) model to assess technological progress in, and its contribution to, japonica rice production in China. The results show that the speed of technological progress in the production of japonica rice on average was 0.44% per annum in 1985–2013, and technological progress has contributed significantly to the growth of japonica rice production in China. Robustness checks show that the results appear to be sensitive to which sub-sample is used. Labour and some other inputs are found to be significant but negative, especially during the middle sampling period of 1994–2006 and in eastern and western regions. This has important policy implications on the impact of rural-to-urban migration and farmers’ human development. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Risk Profile Indicators and Spanish Banks’ Probability of Default from a Regulatory Approach
Sustainability 2018, 10(4), 1259; https://doi.org/10.3390/su10041259
Received: 25 February 2018 / Revised: 9 April 2018 / Accepted: 16 April 2018 / Published: 19 April 2018
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Abstract
This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks’ probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated Losses (SYMBOL), we calculated the individual probabilities
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This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks’ probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated Losses (SYMBOL), we calculated the individual probabilities of default (PD) of a representative sample of Spanish credit institutions during the period of 2008–2016. Then, panel data regressions were estimated to explore the influence of the risk indicators on the PD. Our findings on the Spanish banking system could be important to regulatory and supervisory authorities. First, the PD based on the SYMBOL model could be used to analyse bank risk from a regulatory approach. Second, the results might be useful for designing new regulations focused on the key factors that affect the banks’ probability of default. Third, our findings reveal that the emphasis on regulation and supervision should differ by type of entity. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Maslow Portfolio Selection for Individuals with Low Financial Sustainability
Sustainability 2018, 10(4), 1128; https://doi.org/10.3390/su10041128
Received: 18 February 2018 / Revised: 22 March 2018 / Accepted: 27 March 2018 / Published: 9 April 2018
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Abstract
In this paper, we extend Maslow’s need hierarchy theory and the two-level optimization approach by developing the framework of the Maslow portfolio selection model (MPSM) by solving the two optimization problems to meet the need of individuals with low financial sustainability who prefer
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In this paper, we extend Maslow’s need hierarchy theory and the two-level optimization approach by developing the framework of the Maslow portfolio selection model (MPSM) by solving the two optimization problems to meet the need of individuals with low financial sustainability who prefer to satisfy their lower-level (safety) need first, and, thereafter, look for higher-level (self-actualization) need to maximize the optimal return. We illustrate our proposed model with real American stock data from the S&P index and conduct the out-of-sample analysis to compare the performance of our proposed Variance-CVaR (conditional value-at-risk) MPSM with both traditional mean-variance and mean-CVaR models. Our empirical analysis shows that our proposed Variance-CVaR MPSM is not only sustainable, but also obtains the best out-of-sample performance in the sense that the optimal portfolios obtained by using our proposed Variance-CVaR MPSM obtain the highest cumulative returns in the out-of-sample period among the models used in our paper. We note that our proposed model is not only suitable to individuals with low financial sustainability, but also suitable to institutions or investors with high financial sustainability. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle The Study of Utility Valuation of Single-Name Credit Derivatives with the Fast-Scale Stochastic Volatility Correction
Sustainability 2018, 10(4), 1027; https://doi.org/10.3390/su10041027
Received: 6 February 2018 / Revised: 12 March 2018 / Accepted: 20 March 2018 / Published: 30 March 2018
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Abstract
In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the asymptotic
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In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the asymptotic approximation to obtain the solution of the non-linear PDE, and make a comparison of the utility before and after the stochastic volatility modification, and we find that incorporation of fast-scale volatility will lower down the utility. By using the indifference price, we also give the yield spread impacted by the risk adverse valuation. We find that by considering the default risk, yield spread is sloping in a short period and converge in a long run. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Dependence Structures and Systemic Risk of Government Securities Markets in Central and Eastern Europe: A CoVaR-Copula Approach
Sustainability 2018, 10(2), 324; https://doi.org/10.3390/su10020324
Received: 11 December 2017 / Revised: 8 January 2018 / Accepted: 24 January 2018 / Published: 26 January 2018
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Abstract
In this study, we proposed a new empirical method by combining generalized autoregressive score functions and a copula model with high-frequency data to model the conditional time-varying joint distribution of the government bond yields between Poland/Czech Republic/Hungary, and Germany. Capturing the conditional time-varying
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In this study, we proposed a new empirical method by combining generalized autoregressive score functions and a copula model with high-frequency data to model the conditional time-varying joint distribution of the government bond yields between Poland/Czech Republic/Hungary, and Germany. Capturing the conditional time-varying joint distribution of these bond yields allowed us to precisely measure the dependence of the government securities markets. In particular, we found a high dependence of these government securities markets in the long term, but a low dependence in the short term. In addition, we report that the Czech Republic showed the highest dependence with Germany, while Hungary showed the lowest. Moreover, we found that the systemic risk dynamics were consistent with the idea that the global financial crisis not only had spillover effects on countries with weak economic fundamentals (e.g., Hungary, which had the highest systemic risk), but also had contagion effects for both CEEC-3 countries and Germany. Finally, we confirm that three major market events, namely the EU accession, the global financial crisis, and the European debt crisis, caused structural changes to the dynamic correlation. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle e-Purchase Intention of Taiwanese Consumers: Sustainable Mediation of Perceived Usefulness and Perceived Ease of Use
Sustainability 2018, 10(1), 234; https://doi.org/10.3390/su10010234
Received: 27 October 2017 / Revised: 2 January 2018 / Accepted: 11 January 2018 / Published: 17 January 2018
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Abstract
This study proposes a new model by partially combining personality traits (PT) and Technology Acceptance Model (TAM) attributes to examine the influences of personality characteristics (conscientiousness, openness) and perception of technology (perceived usefulness, perceives ease of use) on e-purchase intention. We use truncate
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This study proposes a new model by partially combining personality traits (PT) and Technology Acceptance Model (TAM) attributes to examine the influences of personality characteristics (conscientiousness, openness) and perception of technology (perceived usefulness, perceives ease of use) on e-purchase intention. We use truncate sampling technique and survey questionnaire to target the sample of Taiwanese online consumers and collect data. We find that consciousness (CON) (personality attribute) significantly influences perceived usefulness (PU) (technology perception attributes), perceived ease of use (PEOU) (technology perception attributes) and openness to experience (OPE) (personality attribute). PU, PEOU and OPE have significant impacts on e-purchase intention (INT). PEOU has the strongest positive impact on (INT). In addition, PU, PEOU and OPE combined together mediate the relationship between CON and INT. Further post hoc analysis of the mediation shows that both PU and PEOU are sustainable mediators. However, OPE is not a significant mediator. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Do Sustainable Stocks Offer Diversification Benefits for Conventional Portfolios? An Empirical Analysis of Risk Spillovers and Dynamic Correlations
Sustainability 2017, 9(10), 1799; https://doi.org/10.3390/su9101799
Received: 14 August 2017 / Revised: 27 September 2017 / Accepted: 28 September 2017 / Published: 4 October 2017
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Abstract
This paper explores the potential diversification benefits of socially responsible investments for conventional stock portfolios by examining the risk spillovers and dynamic correlations between conventional and sustainability stock indexes from a number of regions. We observe significant unidirectional volatility transmissions from conventional to
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This paper explores the potential diversification benefits of socially responsible investments for conventional stock portfolios by examining the risk spillovers and dynamic correlations between conventional and sustainability stock indexes from a number of regions. We observe significant unidirectional volatility transmissions from conventional to sustainable equities, suggesting that the criteria applied for socially responsible investments do not necessarily shield these securities from common market shocks. While significant dynamic correlations are observed between sustainable and conventional stocks, particularly in Europe, the analysis of both in- and out-of-sample dynamic portfolios suggests that supplementing conventional stock portfolios with sustainable counterparts improves the risk/return profile of stock portfolios in all regions. The findings overall suggest that sustainable investments can indeed provide diversification gains for conventional stock portfolios globally. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA
Sustainability 2017, 9(10), 1789; https://doi.org/10.3390/su9101789
Received: 28 July 2017 / Revised: 14 September 2017 / Accepted: 19 September 2017 / Published: 2 October 2017
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Abstract
Recent research shows that the efforts to limit climate change should focus on reducing the emissions of carbon dioxide over other greenhouse gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. The
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Recent research shows that the efforts to limit climate change should focus on reducing the emissions of carbon dioxide over other greenhouse gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. The largest source of carbon emissions from human activities in some countries in Europe and elsewhere is from burning fossil fuels for electricity, heat, and transportation. The prices of fuel and carbon emissions can influence each other. Owing to the importance of carbon emissions and their connection to fossil fuels, and the possibility of [1] Granger (1980) causality in spot and futures prices, returns, and volatility of carbon emissions, crude oil and coal have recently become very important research topics. For the USA, daily spot and futures prices are available for crude oil and coal, but there are no daily futures prices for carbon emissions. For the European Union (EU), there are no daily spot prices for coal or carbon emissions, but there are daily futures prices for crude oil, coal and carbon emissions. For this reason, daily prices will be used to analyse Granger causality and volatility spillovers in spot and futures prices of carbon emissions, crude oil, and coal. As the estimators are based on quasi-maximum likelihood estimators (QMLE) under the incorrect assumption of a normal distribution, we modify the likelihood ratio (LR) test to a quasi-likelihood ratio test (QLR) to test the multivariate conditional volatility Diagonal BEKK model, which estimates and tests volatility spillovers, and has valid regularity conditions and asymptotic properties, against the alternative Full BEKK model, which also estimates volatility spillovers, but has valid regularity conditions and asymptotic properties only under the null hypothesis of zero off-diagonal elements. Dynamic hedging strategies by using optimal hedge ratios are suggested to analyse market fluctuations in the spot and futures returns and volatility of carbon emissions, crude oil, and coal prices. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Risk Measurement and Risk Modelling Using Applications of Vine Copulas
Sustainability 2017, 9(10), 1762; https://doi.org/10.3390/su9101762
Received: 8 August 2017 / Revised: 10 September 2017 / Accepted: 13 September 2017 / Published: 29 September 2017
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Abstract
This paper features an application of Regular Vine copulas which are a novel and recently developed statistical and mathematical tool which can be applied in the assessment of composite financial risk. Copula-based dependence modelling is a popular tool in financial applications, but is
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This paper features an application of Regular Vine copulas which are a novel and recently developed statistical and mathematical tool which can be applied in the assessment of composite financial risk. Copula-based dependence modelling is a popular tool in financial applications, but is usually applied to pairs of securities. By contrast, Vine copulas provide greater flexibility and permit the modelling of complex dependency patterns using the rich variety of bivariate copulas which may be arranged and analysed in a tree structure to explore multiple dependencies. The paper features the use of Regular Vine copulas in an analysis of the co-dependencies of 10 major European Stock Markets, as represented by individual market indices and the composite STOXX 50 index. The sample runs from 2005 to the end of 2013 to permit an exploration of how correlations change indifferent economic circumstances using three different sample periods: pre-GFC (January 2005–July 2007), GFC (July 2007– September 2009), and post-GFC periods (September 2009–December 2013). The empirical results suggest that the dependencies change in a complex manner, and are subject to change in different economic circumstances. One of the attractions of this approach to risk modelling is the flexibility in the choice of distributions used to model co-dependencies. The practical application of Regular Vine metrics is demonstrated via an example of the calculation of the VaR of a portfolio made up of the indices. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Adoption of Falsified Medical Products in a Low-Income Country: Empirical Evidence for Suriname
Sustainability 2017, 9(10), 1732; https://doi.org/10.3390/su9101732
Received: 10 August 2017 / Revised: 13 September 2017 / Accepted: 19 September 2017 / Published: 26 September 2017
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Abstract
Based on detailed shipping figures for Suriname’s main harbour in Paramaribo, we estimate the total shipments (in kilograms) of original and falsified medical products for 1996–2008 across five product categories. Using various time series techniques and diffusion models, we document that total cumulative
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Based on detailed shipping figures for Suriname’s main harbour in Paramaribo, we estimate the total shipments (in kilograms) of original and falsified medical products for 1996–2008 across five product categories. Using various time series techniques and diffusion models, we document that total cumulative shipments of falsified products make about 40% of total shipments. We observe that there are apparently two distinct sets of consumers for original and for falsified products. Subsequently, we survey more than 300 citizens of Suriname from various demographics and ask questions about their potential adoption of falsified medicines. We find that income, age, and family size have no correlation, while the way people are insured does. Hence, the two sets of consumers can roughly be identified and clear-cut policy suggestions are presented. “The World Health Organization (WHO) estimates that up to 1% of medicines available in the developed world is likely to be counterfeited. This figure rises to 10% globally, although in some developing countries they estimate one third of medicines are counterfeit” (Various internet sites consulted January 2010 and the best estimate we have). Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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