Journal of Risk and Financial Management

Research

24 pages, 1072 KiB

Open AccessArticle

Evaluation of Total Risk-Weighted Assets in Islamic Banking through Fintech Innovations

by Asma S. Alzwi, Jamil J. Jaber, Hani Nuri Rohuma and Rania Al Omari

J. Risk Financial Manag. 2024, 17(7), 288; https://doi.org/10.3390/jrfm17070288 - 8 Jul 2024

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The assessment of total risk-weighted assets (LTRWAs) in the banking sector is of the utmost importance. It serves as a critical component for regulatory compliance, risk management, and capital adequacy. By accurately assessing LTRWAs, banks can effectively meet regulatory requirements, efficiently allocate capital [...] Read more.

The assessment of total risk-weighted assets (LTRWAs) in the banking sector is of the utmost importance. It serves as a critical component for regulatory compliance, risk management, and capital adequacy. By accurately assessing LTRWAs, banks can effectively meet regulatory requirements, efficiently allocate capital resources, and proactively manage risks. Moreover, the accurate assessment of LTRWAs supports performance evaluation and fosters investor confidence in the financial stability of banks. This study presents statistical analyses and machine learning methods to identify factors influencing LTRWAs. Data from Bahrain, Jordan, Qatar, the United Arab Emirates, and Yemen, spanning from 2010 to 2021, was utilized. Various statistical tests and models, including ordinary least squares, fixed effect, random effect, correlation, variance inflation factor, tolerance tests, and fintech models, were conducted. The results indicated significant impacts of the unemployment rate, inflation rate, natural logarithm of the loan-to-asset ratio, and natural logarithm of total assets on LTRWAs in regression models. The dataset was divided into a training group (90% of the data) and a testing group (10% of the data) to evaluate the predictive capabilities of various fintech models, including an adaptive network-based fuzzy inference system (ANFIS), a hybrid neural fuzzy inference system (HyFIS), a fuzzy system with the heuristic gradient descent (FS.HGD), and fuzzy inference rules with the descent method (FIR.DM) models. The selection of the optimal model is contingent upon assessing its performance according to specific error criteria. The HyFIS model outperformed others with lower errors in predicting LTRWAs. Independent t-tests confirmed statistically significant differences between original and predicted LTRWA for all models, with HyFIS showing closer predictions. This study provides valuable insights into LTRWA prediction using advanced statistical and machine learning techniques, based on a dataset from multiple countries and years. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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20 pages, 2011 KiB

Open AccessArticle

Sovereign Credit Risk in Saudi Arabia, Morocco and Egypt

by Amira Abid and Fathi Abid

J. Risk Financial Manag. 2024, 17(7), 283; https://doi.org/10.3390/jrfm17070283 - 5 Jul 2024

Cited by 1 | Viewed by 1069

Abstract

The purpose of this paper is to assess and predict sovereign credit risk for Egypt, Morroco and Saudi Arabia using credit default swap (CDS) spreads obtained from the DataStream database for the period from 2009 to 2022. Our approach consists of generating the [...] Read more.

The purpose of this paper is to assess and predict sovereign credit risk for Egypt, Morroco and Saudi Arabia using credit default swap (CDS) spreads obtained from the DataStream database for the period from 2009 to 2022. Our approach consists of generating the implied default probability and the corresponding credit rating in order to estimate the term structure of the implied default probability using the Nelson–Siegel model. In order to validate the prediction from the probability term structure, we calculate the transition matrices based on the implied rating using the homogeneous Markov model. The main results show that, overall, the probabilities of defaulting in the long term are higher than those in the short term, which implies that the future outlook is more pessimistic given the events that occurred during the study period. Egypt seems to be the country with the most fragile economy, especially after 2009, likely because of the political events that marked the country at that time. The economies of Morocco and Saudi Arabia are more resilient in terms of both default probability and credit rating. These findings can help policymakers develop targeted strategies to mitigate economic risks and enhance stability, and they provide investors with valuable insights for managing long-term investment risks in these countries. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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Methodology to assess and predict credit risk using <a href="#B25-jrfm-17-00283" class="html-bibr">Hull</a> (<a href="#B25-jrfm-17-00283" class="html-bibr">2014</a>), StarMine, <a href="#B42-jrfm-17-00283" class="html-bibr">Nelson and Siegel</a> (<a href="#B42-jrfm-17-00283" class="html-bibr">1987</a>) and Homogeneous Markovian models. Full article ">Figure 2
Evolution of CDS-based implied default probability for different maturities of Egypt from 20 August 2009 to 6 September 2022. Full article ">Figure 3
Evolution of the CDS-based implied default probability for different maturities of Morocco from 1 January 2009 to 6 September 2022. Full article ">Figure 4
Evolution of CDS-based implied default probability for different maturities of Saudi Arabia from 15 February 2011 to 6 September 2022. Full article ">Figure 5
CDS-based implied rating evolution of Egypt, Morocco and Saudi Arabia. Full article ">Figure 6
Nelson–Siegel term structure of the CDS-based implied default probability of Egypt in 2009, 2012, 2015, 2020, 2021 and 2022. Full article ">Figure 7
Nelson–Siegel term structure of the CDS-based implied default probability of Morocco in 2009, 2012, 2015, 2020, 2021 and 2022. Full article ">Figure 8
Nelson–Siegel term structure of the CDS-based implied default probability of Saudi Arabia in 2011, 2012, 2015, 2020, 2021 and 2022. Full article ">

27 pages, 369 KiB

Open AccessArticle

The Impact of Knowledge Capital and Organization Capital on Stock Performance during Economic Crises: The Moderating Role of a Generalist CEO

by Chaeho Chase Lee, Hohyun Kim and Erdal Atukeren

J. Risk Financial Manag. 2024, 17(5), 192; https://doi.org/10.3390/jrfm17050192 - 7 May 2024

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Abstract

This study examines the relationship between intangible capital (IC) and stock performance during the two recent crisis periods, the GFC and COVID-19. By categorizing IC into Knowledge Capital (KC) and Organizational Capital (OC), we analyze the impact of each capital on the crisis [...] Read more.

This study examines the relationship between intangible capital (IC) and stock performance during the two recent crisis periods, the GFC and COVID-19. By categorizing IC into Knowledge Capital (KC) and Organizational Capital (OC), we analyze the impact of each capital on the crisis return in the manufacturing sector. The results show that a greater KC and OC are significantly associated with higher crisis returns during both periods. In addition, we find evidence that generalist CEOs strengthen this relationship while specialist CEOs do not. Within firms led by a generalist CEO, the CEO’s tenure positively moderates the association between each factor of intangible capital and crisis period returns. This study emphasizes the pivotal role of KC and OC as a protective buffer against external shocks, particularly when the market pays more attention to corporate sustainability. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

24 pages, 1443 KiB

Open AccessArticle

The Index of the Cycle of Money: The Case of Switzerland

by Constantinos Challoumis

J. Risk Financial Manag. 2024, 17(4), 135; https://doi.org/10.3390/jrfm17040135 - 22 Mar 2024

Cited by 5 | Viewed by 1793

Abstract

This article focuses on the study of issues related to the functionality and structure of an economy. To achieve this, the theory of the cycle of money is used. The structural features of an economy are reflected in its operational characteristics, and vice [...] Read more.

This article focuses on the study of issues related to the functionality and structure of an economy. To achieve this, the theory of the cycle of money is used. The structural features of an economy are reflected in its operational characteristics, and vice versa. The index of the cycle of money indexes how well an economic system can counteract a financial crisis and characterizes how well structured a country’s economy is. Calculations of the index of the cycle of money in Switzerland were compared with the global average index. The results showed that Switzerland is close to the global average; therefore, it has an excellent economy and is equipped to face any economic crisis. The applied methodology abides by theoretical, mathematical, statistical, and econometrical outcomes. This work is significant as it demonstrates the strength of Switzerland’s economy in response to a potential crisis. Prior case studies were reviewed from Latvia, Bulgaria, Serbia, Thailand, Greece, Montenegro, and many other countries. This study postulates that companies with high capital should invest in manufacturing and high technology sectors that should be subject to fewer taxes; this approach facilitates a better distribution of money to the economy by allowing small companies to service the remaining economic activities. The period used for compilations in this study was the global recession of 2007–2017. The reviewed case study results are from a project studying multiple countries, and at present, this article presents the only study about Switzerland’s index of the cycle of money. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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15 pages, 1072 KiB

Open AccessArticle

Analysis of Long-Term Bond Yields Using Deviations from Covered Interest Rate Parity

by Gab-Je Jo

J. Risk Financial Manag. 2024, 17(3), 117; https://doi.org/10.3390/jrfm17030117 - 13 Mar 2024

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Abstract

In this study, the impact of arbitrage resulting from Covered Interest Parity (CIP) deviations on Korea’s long-term interest rates was analyzed, utilizing Vector Error Correction (VEC) models for Granger Causality and Impulse Response Function analyses. This analysis covered the period from February 2002 [...] Read more.

In this study, the impact of arbitrage resulting from Covered Interest Parity (CIP) deviations on Korea’s long-term interest rates was analyzed, utilizing Vector Error Correction (VEC) models for Granger Causality and Impulse Response Function analyses. This analysis covered the period from February 2002 to September 2023, with a comparative analysis of the periods before and after the Global Financial Crisis (GFC). The Granger Causality analysis indicated that changes in the swap basis reflecting CIP deviation presented a significant Granger causal relationship with the variations in domestic long-term interest rates. Notably, in the post-GFC period, when CIP deviations were relatively pronounced, the incentives for arbitrage trading exhibited a stronger leading effect in terms of inducing changes in domestic long-term interest rates. The Impulse Response Function analysis showed that domestic long-term interest rates significantly and negatively responded to the positive shocks in the swap basis. This response was even more pronounced during the period following the GFC. Additionally, foreign long-term interest rates and monetary policy variables also demonstrated a significant impact on domestic long-term interest rates. These findings imply that the adjustment path back to equilibrium from CIP deviations, driven by arbitrage, was developed more through changes in domestic interest rates rather than exchange rate fluctuations, especially after the GFC. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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Structure of arbitrage through swap market. Full article ">Figure 2
The Impulse Response Function results: entire sample period. Note: The figures in all panels illustrate the response of Korean long-term interest rates (R) to a Cholesky one-standard-deviation shock in each endogenous variable. The red dashed lines represent the 95 percent confidence band, which was derived using standard percentile bootstrap with 999 bootstrap repetitions. The X-axes denote months, with t = 0 indicating the month of a shock. Full article ">Figure 3
The Impulse Response Function results: pre-GFC period. Note: The figures in all panels illustrate the response of Korean long-term interest rates (R) to a Cholesky one-standard-deviation shock in each endogenous variable. The red dashed lines represent the 95 percent confidence band, which was derived using standard percentile bootstrap with 999 bootstrap repetitions. The X-axes denote months, with t = 0 indicating the month of a shock. Full article ">Figure 4
The Impulse Response Function results: post-GFC period. Note: The figures in all panels illustrate the response of Korean long-term interest rates (R) to a Cholesky one-standard-deviation shock in each endogenous variable. The red dashed lines represent the 95 percent confidence band, which was derived using Standard percentile bootstrap with 999 bootstrap repetitions. The X-axes denote months, with t = 0 indicating the month of a shock. Full article ">

22 pages, 2274 KiB

Open AccessArticle

Unveiling the Influencing Factors of Cryptocurrency Return Volatility

by Andromahi Kufo, Ardit Gjeci and Artemisa Pilkati

J. Risk Financial Manag. 2024, 17(1), 12; https://doi.org/10.3390/jrfm17010012 - 25 Dec 2023

Cited by 1 | Viewed by 4566

Abstract

The blossoming of cryptocurrencies during the last decade has largely influenced both the financial and the technological world. Bitcoin emerged on the edge of the financial crisis in 2008, signaling the very beginning of a financial and technological innovation, which in continuance would [...] Read more.

The blossoming of cryptocurrencies during the last decade has largely influenced both the financial and the technological world. Bitcoin emerged on the edge of the financial crisis in 2008, signaling the very beginning of a financial and technological innovation, which in continuance would eventually create a lot of questions and debate previously unforeseeable. This paper aims to explore the impact of factors such as trading volume, information demand, stock returns, and exchange rates on the volatility of returns for decentralized and unbacked cryptocurrencies from 2016 to 2022 by employing the GARCH model. Based on each coin’s innate functional characteristics and market performance quantified by their respective market capitalization, the selection included Bitcoin, Ether, and XRP as representative crypto coins for the category of decentralized and unbacked cryptocurrencies. The implementation of correlation analysis and the use of the GARCH model on influencing factors for each coin revealed that decentralized and unbacked cryptocurrencies are positively related to trading volume, information demand, and exchange rates while being indifferent to a certain extent to the stock market returns of the world stock index MSCI ACWI. The results of this study provide further insight into the behavior of cryptocurrency return volatility in the new, ever-changing, and highly unpredictable crypto market as well as aid investors in their decision-making process concerning portfolio optimization. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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17 pages, 657 KiB

Open AccessArticle

Post-Acquisition Changes in Agency Cost of Acquirers: Effect of Target Companies

by Prateek Nanda and Arun Kumar Gopalaswamy

J. Risk Financial Manag. 2024, 17(1), 11; https://doi.org/10.3390/jrfm17010011 - 25 Dec 2023

Viewed by 1813

Abstract

Acquisitions constitute substantial corporate investments, often leading to changes in ownership and top management giving rise to possible conflicts of interest. The impacts of such conflicts following an acquisition are absorbed by the acquirer and are referred to as agency costs. This study [...] Read more.

Acquisitions constitute substantial corporate investments, often leading to changes in ownership and top management giving rise to possible conflicts of interest. The impacts of such conflicts following an acquisition are absorbed by the acquirer and are referred to as agency costs. This study focuses on exploring the influence of the target companies on changes in the post-acquisition agency costs of acquiring companies. A panel fixed effects model is used to analyze acquisitions that took place between 2008–09 and 2019–20. The study’s findings indicate that post-acquisition changes in the agency costs of acquirers significantly vary based on the presence of domestic and foreign promoters in the target company. Further promoter groups such as domestic promoters and foreign promoters contribute to conflicting interests, exacerbating post-acquisition agency costs. The monitoring role assumed by foreign promoters of target companies plays a pivotal part in reducing the post-acquisition agency costs of acquirers. Foreign promoters also positively influence post-acquisition profitability by adversely affecting operating expenses, suggesting that they mitigate agency costs by exerting control over management through the monitoring of debt, cash, and profitability. The post-acquisition utilization of the target’s cash reserves positively correlates with the operating expenses of the acquirer. It is observed that the acquisition of larger targets magnifies agency costs. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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20 pages, 1095 KiB

Open AccessArticle

Does FDI Impact the Economic Growth of BRICS Economies? Evidence from Bayesian VAR

by Avisha Malik and Ash Narayan Sah

J. Risk Financial Manag. 2024, 17(1), 10; https://doi.org/10.3390/jrfm17010010 - 25 Dec 2023

Cited by 4 | Viewed by 5159

Abstract

This paper examines the dynamic relationship between foreign direct investment (FDI), economic growth, and trade openness in BRICS countries. Our research aims to address a significant gap in the literature by focusing on this crucial group of emerging nations, given their substantial contribution [...] Read more.

This paper examines the dynamic relationship between foreign direct investment (FDI), economic growth, and trade openness in BRICS countries. Our research aims to address a significant gap in the literature by focusing on this crucial group of emerging nations, given their substantial contribution to the global economy. Annual data for these economies from 1991 to 2020 were collected from various secondary sources. This study employed the Bayesian VAR framework to investigate the panel data. The Pedroni residual cointegration test was used to check the existence of a long-run relationship between FDI and economic growth. The results provided evidence that foreign direct investment (FDI) does exhibit a substantial correlation with economic growth in the short run. However, no long-run relationship was found in the case of BRICS economies. This research contributes to methodological innovation by introducing the Bayesian VAR framework, offering a deeper understanding of the dynamic interactions among these key variables. The incorporation of this framework yields estimates that are both stable and reliable, which is certainly a novelty of this paper. The findings of this study have implications suggesting that policymakers from these emerging economies should establish mechanisms that will monitor the short-term impacts of FDI and adjust policies accordingly to maximize economic gains. The government should tailor policies to the specific circumstances of each country for sustainable economic development. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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29 pages, 1772 KiB

Open AccessArticle

Determinants of Access to Bank Financing in SMEs in Mexico

by Artemio Jiménez-Rico, Claudia Susana Gómez-López and Johanan Zamilpa

J. Risk Financial Manag. 2023, 16(11), 477; https://doi.org/10.3390/jrfm16110477 - 9 Nov 2023

Viewed by 2397

Abstract

Several empirical studies indicate that the lack of financing is one of the main barriers that affects the economic growth of small and medium enterprises (SMEs). The main objective of this investigation was to determine to what extent the economic sector, the enterprise [...] Read more.

Several empirical studies indicate that the lack of financing is one of the main barriers that affects the economic growth of small and medium enterprises (SMEs). The main objective of this investigation was to determine to what extent the economic sector, the enterprise size, the characteristics inherent to the enterprise, the legal status, the variables linked to the performance of the enterprise, and the attributes of the owner influence the access to the bank financing of SMEs in Mexico. Using a discrete-response probit regression model, the impact of enterprise characteristics on the probability of obtaining a bank loan was determined. The data collected are from the Enterprise Surveys of Mexico, carried out by the World Bank. The sample of 1480 enterprises is representative by enterprise size, by economic sector, and by region. The research has a quantitative approach with a correlational scope, and a nonexperimental and transectional design. One of the main results highlights that the determinants with the greatest influence on access to bank financing are: the age, the small size, foreign participation, and the manufacturing sector. These results are consistent with other empirical studies, as well as with the pecking-order theory and the financial life-cycle theory. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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13 pages, 712 KiB

Open AccessArticle

How Does Market Cap Play Its Role in Returns during COVID-19? The Case of Norway

by Minh Thi Hong Dinh

J. Risk Financial Manag. 2023, 16(9), 414; https://doi.org/10.3390/jrfm16090414 - 19 Sep 2023

Viewed by 1831

Abstract

This research investigates the role of the large, medium, and small market cap portfolios in returns during the COVID-19 pandemic, around the ‘lockdown’ policy in March 2020 based on the Norwegian market. The main results suggest that during the event window, the medium [...] Read more.

This research investigates the role of the large, medium, and small market cap portfolios in returns during the COVID-19 pandemic, around the ‘lockdown’ policy in March 2020 based on the Norwegian market. The main results suggest that during the event window, the medium and small portfolios are impacted more negatively than the large. During the before-event days, the large portfolio is slightly negatively affected, but it tends to be better after the event. The medium and small portfolios are not adversely affected during before the event, but they are considerably negatively affected after the event. The small portfolio is affected more severely negatively than the medium. The small portfolio is the most volatile of the three during the event window. In addition, there are opportunities to earn extremely positive abnormal returns (from 2.5%) after the event by holding the small and medium portfolios, but not for the large. It seems that more opportunities to earn extremely positive abnormal returns for the small portfolio than the medium. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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18 pages, 919 KiB

Open AccessArticle

Measuring the Performance of Private Pension Companies in Türkiye by Gray Relational Analysis Method

by Muharrem Umut

J. Risk Financial Manag. 2023, 16(9), 396; https://doi.org/10.3390/jrfm16090396 - 6 Sep 2023

Viewed by 1560

Abstract

The private pension is a system designed to maintain an income level during passive periods by utilizing the income earned during active working years. It complements the mandatory retirement systems of the public sector and is based on a voluntary participation structure. Additionally, [...] Read more.

The private pension is a system designed to maintain an income level during passive periods by utilizing the income earned during active working years. It complements the mandatory retirement systems of the public sector and is based on a voluntary participation structure. Additionally, it serves as an investment and savings tool with the ability to provide long-term funds. The legislation for the private pension system was enacted in Türkiye in 2001, and it was implemented in 2003. In addition, a government contribution program was initiated to promote the system in 2013. An automatic enrollment system was introduced in 2017. The effectiveness and performance of individual pension companies play significant roles in the system. This study aims to measure the performance of individual pension companies operating in Türkiye using the gray relational analysis method, which is an effective measurement method, for the years 2016–2022. Subsequently, based on the measurement results, recommendations will be provided. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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22 pages, 1345 KiB

Open AccessArticle

Moored Minds: An Experimental Insight into the Impact of the Anchoring and Disposition Effect on Portfolio Performance

by Riya Arora and Madhumathi Rajendran

J. Risk Financial Manag. 2023, 16(8), 349; https://doi.org/10.3390/jrfm16080349 - 25 Jul 2023

Viewed by 2040

Abstract

This study investigates the anchoring bias and disposition effect in investor trading decisions under different market volatility conditions (stable and volatile markets) and examines their impact on portfolio performance. Employing a quasi-experimental design, participants engage in interactive trading with four securities—two with potential [...] Read more.

This study investigates the anchoring bias and disposition effect in investor trading decisions under different market volatility conditions (stable and volatile markets) and examines their impact on portfolio performance. Employing a quasi-experimental design, participants engage in interactive trading with four securities—two with potential negative returns and two with positive returns—within a simulated asset market. The findings reveal the presence of both the disposition effect and the anchoring bias among individual investors in India. Notably, market volatility influences these behavioral biases, with the disposition effect more pronounced in volatile markets, while the anchoring bias is significant in stable markets. Furthermore, investors exhibiting the disposition effect tend to have lower portfolio performance, while those influenced by the anchoring bias achieve relatively better results. These insights can aid individual investors in recognizing their behavioral biases and making informed trading decisions to enhance portfolio performance. Additionally, this study presents valuable suggestions to financial institutions and regulatory government agencies engaged in similar experiments, with the goal of improving financial decision-making and investment behavior. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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20 pages, 332 KiB

Open AccessArticle

The Impact of Integrated Reporting on the Cost of Capital: Evidence from an Emerging Market

by Burak Pirgaip and Lamija Rizvić

J. Risk Financial Manag. 2023, 16(7), 311; https://doi.org/10.3390/jrfm16070311 - 27 Jun 2023

Cited by 2 | Viewed by 2718

Abstract

The aim of this study is to investigate the influence of integrated reporting (IR) on the cost of financing within the Turkish capital market. Specifically, we analyze the effects of IR on the weighted average cost of capital (WACC), cost of equity (COE), [...] Read more.

The aim of this study is to investigate the influence of integrated reporting (IR) on the cost of financing within the Turkish capital market. Specifically, we analyze the effects of IR on the weighted average cost of capital (WACC), cost of equity (COE), and cost of debt (COD) for companies listed on Borsa Istanbul. Additionally, we explore how IR moderates the relationship between environmental, social, and governance (ESG) scores and the cost of financing. Our panel data analysis reveals a positive association between IR and both WACC and COD, while the impact on COE is not statistically significant. However, the findings suggest that the utilization of IR by companies to enhance the communication of their value-creating activities can mitigate WACC and COD, thus indicating a moderating effect on the relationship between ESG factors and the cost of financing. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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