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Int. J. Financial Stud., Volume 4, Issue 3 (September 2016) – 5 articles

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Article
Spatially-Aggregated Temperature Derivatives: Agricultural Risk Management in China
Int. J. Financial Stud. 2016, 4(3), 17; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs4030017 - 05 Sep 2016
Cited by 3 | Viewed by 2691
Abstract
In this paper, a new form of weather derivative contract, namely the climatic zone-based growth degree-day (GDD) contract, is introduced. The objective is to increase the risk management efficiency in the agricultural sector of China and to reduce the model dimension of multi-regional [...] Read more.
In this paper, a new form of weather derivative contract, namely the climatic zone-based growth degree-day (GDD) contract, is introduced. The objective is to increase the risk management efficiency in the agricultural sector of China and to reduce the model dimension of multi-regional temperature-based weather derivatives pricing. Since the proposed contract serves as a risk management tool for all of the cities in the same climatic zone, we compare the risk hedging power between the climatic zone-based and the city-based GDD contracts. As a result, we find that the differences between the two types of temperature-based weather contracts are maintained within a certain range. Full article
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Article
Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan
Int. J. Financial Stud. 2016, 4(3), 16; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs4030016 - 15 Aug 2016
Cited by 30 | Viewed by 4483
Abstract
In response to the global financial crisis of 2007–2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements [...] Read more.
In response to the global financial crisis of 2007–2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements on bank risk-taking behavior is inconclusive. The primary purpose of this paper is to examine the impact of risk-based capital requirements on bank risk-taking behavior, using a panel dataset of 21 listed commercial banks of Pakistan over the period 2005–2012. Purely regulatory measures of bank capital, capital adequacy ratio, and bank assets portfolio risk, risk-weighted assets to total assets ratio, are used for the main analysis. Recently developed small N panel methods (bias corrected least squares dummy variable (LSDVC) method and system GMM method with instruments collapse option) are used to control for panel fixed effects, dynamic dependent variables, and endogenous independent variables. Overall, the results suggest that commercial banks have reduced assets portfolio risk in response to stringent risk-based capital requirements. Results also confirm that all banks having risk-based capital ratios either lower or higher than the regulatory required limits, have decreased portfolio risk in response to stringent risk-based capital requirements. The results are robust to alternative proxies of bank risk-taking, alternative estimation methods, and alternative samples. Full article
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Article
Back to the Future Betas: Empirical Asset Pricing of US and Southeast Asian Markets
Int. J. Financial Stud. 2016, 4(3), 15; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs4030015 - 20 Jul 2016
Cited by 4 | Viewed by 3898
Abstract
The study adds an empirical outlook on the predicting power of using data from the future to predict future returns. The crux of the traditional Capital Asset Pricing Model (CAPM) methodology is using historical data in the calculation of the beta coefficient. This [...] Read more.
The study adds an empirical outlook on the predicting power of using data from the future to predict future returns. The crux of the traditional Capital Asset Pricing Model (CAPM) methodology is using historical data in the calculation of the beta coefficient. This study instead uses a battery of Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) models, of differing lag and parameter terms, to forecast the variance of the market used in the denominator of the beta formula. The covariance of the portfolio and market returns are assumed to remain constant in the time-varying beta calculations. The data spans from 3 January 2005 to 29 December 2014. One ten-year, two five-year, and three three-year sample periods were used, for robustness, with ten different portfolios. Out of sample forecasts, mean absolute error (MAE) and mean squared forecast error (MSE) were used to compare the forecasting ability of the ex-ante GARCH models, Artificial Neural Network, and the standard market ex-post model. Find that the time-varying MGARCH and SGARCH beta performed better with out-of-sample testing than the other ex-ante models. Although the simplest approach, constant ex-post beta, performed as well or better within this empirical study. Full article
Article
Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro
Int. J. Financial Stud. 2016, 4(3), 14; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs4030014 - 01 Jul 2016
Cited by 3 | Viewed by 2470
Abstract
In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium [...] Read more.
In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015. Full article
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Article
Determination of Systemically Important Companies with Cross-Shareholding Network Analysis: A Case Study from an Emerging Market
Int. J. Financial Stud. 2016, 4(3), 13; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs4030013 - 24 Jun 2016
Cited by 11 | Viewed by 3163
Abstract
Systemic risk events constitute an important issue in current financial systems. A leading course of action used to mitigate such events is identification of systemically important agents in order to implement the prudential policies in a financial system. In this paper, a bi-level [...] Read more.
Systemic risk events constitute an important issue in current financial systems. A leading course of action used to mitigate such events is identification of systemically important agents in order to implement the prudential policies in a financial system. In this paper, a bi-level cross-shareholding network of the stock market is considered according to direct and integrated ownership structure. Furthermore, different systemic risk indices are applied to identify systemically important companies in an early warning system. Results of application of these indices on cross-shareholding data from Tehran Stock Exchange show that integrated network indices produce more reliable results. Moreover, results of statistical analysis of the networks indicated the existence of scale-free characteristics in the TSE cross-shareholding network. Full article
(This article belongs to the Special Issue International Financial Markets during Economic Crisis)
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