Risks, Volume 9, Issue 5 (May 2021) – 21 articles

This article focuses on the relationship between Fintech and bank risk-taking behavior. Since Robo-Advisor is one of the mature applications of Fintech, we found that the development of Fintech will have a greater impact on small and medium-sized banks through the establishment of a Robo-Advisor model. This paper uses a benchmark regression model to analyze the municipal digital financial inclusion index compiled by Peking University and the annual report data of 155 small and medium-sized banks from 2011 to 2016. We found that the development of Fintech has significantly reduced bank risk-taking level. This result is still valid after the robustness test of replacing the bank’s risk-taking index and replacing the Fintech development index. We used the urban innovation index as an instrumental variable to deal with the endogenous problem, and obtained consistent estimation results. The test of the intermediary effect shows that the development of Fintech will affect the bank risk-taking through channels such as the bank’s internal interest margin, management capabilities, the bank’s external competition intensity, and residents’ saving willingness. Heterogeneity analysis shows the reduction effect of Fintech on bank risk-taking is more pronounced in banks in eastern and western regions in China, the large banks and the urban commercial banks. Full article

The major focus of this paper is on the sovereign–banks relationship following the COVID-19 pandemic crisis outbreak, with a view to gaining an insight into banks’ exposure to the sovereign. We rely on a series of complementary research approaches, such as desk research, comparative statistical analysis, exploratory learning algorithm, and a deterministic panel regression framework. The analysis reveals that most EU countries were not prepared for the pandemic crisis as they lacked a financial security buffer. The growing fiscal pressure and lockdown restrictions additionally resulted in an increase in banks’ exposure to the government debt market and higher government debt securities exposure on their balance sheets. One of the novelties of the research is the adoption of the gap method in order to measure the changes between banking assets major items (government securities vs. loans) and uncovering the preference for holding a specific type of asset. Additional insight is brought by the clustering solution, which shows increased cross-country heterogeneity in terms of the sovereign–banks relationship. Empirical research shows that banks’ involvement in the sovereign debt market is sensitive mainly to negative information related to pandemic occurrence and, to a lower extent, to positive information reflected by government’s reactions and economic stimulus measures. In addition, our results reveal there is no crowding-out effect triggered by the pandemic, in terms of lending to the sovereign against lending to the real economy. In the pandemic onset banks did not proceed to a sharp portfolio rebalancing in favor of the sovereign. Full article

Economic and financial crime is closely related to the changes and the development of societies. In this paper, we question whether the types of economic and financial crimes change as the society develops or not. For our purpose, we use the sample of 27 European Union member countries, for the 2005–2020 time period, which forms an unbalanced panel dataset. The main econometric method is represented by the Pooled OLS method for panel data. Our findings highlight that higher economic and sustainable development determines a reduction in the levels of corruption, shadow economy, and cybercrime. Additionally, we find that increased economic and sustainable development is related to higher levels of money laundering. These findings help governments to understand the way in which various types of economic and financial crimes unfold within different contexts of economic development, in order to implement specific policies for reducing the general level of crimes. Full article

In this paper we study the effect that mean-reverting components in the arithmetic dynamics of electricity spot price have on the price of a call option on a swap. Our model allows for seasonal effects, spikes, and negative values of the price of electricity. We show that for sufficiently large delivery periods of the swap contract, the error that one makes by neglecting some of the mean-reverting processes affecting the spot price evolution converges to zero. The decay rate is explicitly calculated. This is achieved by exploiting the additive structure of the electricity price process in order to determine an explicit closed-form formula for the price of the call on a swap. The theoretical analysis is then illustrated via a numerical example. Full article

Increasing retirement ages in an automatic or scheduled way with increasing life expectancy at retirement is a popular pension policy response to continuous longevity improvements. The question addressed here is: to what extent is simply adopting this approach likely to fulfill the overall goals of policy? To shed some light on the answer, we examine the policies of four countries that have recently introduced automatic indexation of pension ages to life expectancy–The Netherlands, Denmark, Portugal and Slovakia. To this end, we forecast an alternative period and cohort life expectancy measures using a Bayesian Model Ensemble of heterogeneous stochastic mortality models comprised of parametric models, principal component methods, and smoothing approaches. The approach involves both the selection of the model confidence set and the determination of optimal weights. Model-averaged Bayesian credible prediction intervals are derived accounting for various stochastic process, model, and parameter risks. The results show that: (i) retirement ages are forecasted to increase substantially in the coming decades, particularly if a constant period in retirement is targeted; (ii) retirement age policy outcomes may substantially deviate from the policy goal(s) depending on the design adopted and its implementation; and (iii) the choice of a cohort over period life expectancy measure matters. In addition, the distributional issues arising with the increasing socio-economic gap in life expectancy remain largely unaddressed. Full article

The aim of the study was to compare children with ASD from families with low and medium financial status in terms of quality of life and coping with stress during the SARS-CoV-2 pandemic and the material status of the family related to their financial situation during the pandemic. The diagnostic survey method was used in the research study. A total of 120 children with autism spectrum disorder (ASD) aged 11–14 years participated in the study. The following tools were used to achieve the goal: Quality of Life of Students by S. Kowalik, “Jak Sobie Radzisz” by Z. Juczyński and N. Ogińska-Bulik and a proprietary questionnaire by the author. The research results indicate that during the SARS-CoV-2 pandemic, children with ASD from families with an average financial status are more satisfied with functioning in the family and more satisfied with themselves than children from families with a low financial status. Moreover, children with ASD from low-status families prefer strategies of focusing on emotions, which are not constructive and make functioning difficult, more often than their peers from families with average financial status. The results of the research show a positive correlation between the quality of life in the dimensions of satisfaction with the family, one’s local environment and oneself and active coping (disposition) and seeking social support; and a negative correlation with the strategy of focusing on emotions (disposition). It is advised that families with children with ASD be supported during the pandemic. Full article

Credit risk exposure evaluation is driven by the quality of the information available on the debtors and customers with multiple lending exposures, which could be evaluated differently by different lenders. The existence of an information asymmetry among lenders can be mitigated using private information sharing instruments, such as the credit registers. The paper analyses the effect of information disclosure through credit registers and evaluates the impact of revising the amount of credit offered to customers served also by other lenders. The results show that the information available for each lender is different and after the disclosure of past due or a default status declared by a financial intermediary, all the other lenders react to the new information available. Full article

Forecasting of LME (London Metal Exchange) nickel prices remains an interesting topic but lacks consensus. This study aims to fill knowledge gaps by demonstrating the announcement effect of export bans by the Indonesian government. This article focuses on Indonesia because Indonesia produces more than 60% of global nickel ore. We identified the sequence of two episodes in which Indonesian export bans of nickel ore appeared to increase LME nickel prices. The impact of the Indonesian export ban in 2014 is somewhat larger than that of 2019. The shock on the LME nickel market in 2014 was sustained for a while after the ban was implemented. We believe that this is the first export ban that has had unexpected effects within the market. Full article

The issues related to management control and risk management are related not only to the safe operation of a given organization, but also contribute to ensuring the continuity of its operations. The main purpose of this article is to present the general principles of the organization of the management control and risk management system and to check the knowledge of its essence and principles by the employees of local government units. In the empirical part of the article, the method of desk research was used, as well as a questionnaire, which check the knowledge of rules and procedures by local government units’ employees. The research results show that the understanding of the essence and principles of management control system and risk management by employees is incomplete. Therefore, it is recommended to conduct training in the field, increasing the knowledge of the management control system. This is important because a properly functioning management control system may contribute to the improvement of public service provision, better use of resources, and may also prevent wastage. Full article

In recent years, the soaring prices of heritage properties in Georgetown, Penang have gained the attention of practitioners and investors. The practitioners claim that the prices of heritage properties within the core and buffer zones in Georgetown have increased more than 300% since the city was recognized as a UNESCO World Heritage site in 2008. Such heritage properties containing historical or art elements that lead to forming a diversified portfolio could exert a low correlation of returns with conventional assets. In addition, rehabilitation of heritage properties requires high restoration costs and conversion fees. Despite the above claims, there is an absence of empirical studies relating to heritage investability, particularly to prove whether the heritage properties are truly worth investing in. Thus, this study incorporates a self-developed heritage properties Index (PIHPI_HR) into the conventional investment portfolio for assessing diversification effects. This study has collected 853 units of transacted properties for constructing a 10-year price index (PIHPI_HR). Subsequently, its diversification effect was examined through the Efficient Frontier (EF), derived from the Modern Portfolio Theory (MPT). The findings have proven the optimization of the conventional portfolio by enabling investments in heritage properties where the return is higher than other investment assets at the same risk level. This study also unveiled the price movement of heritage properties together with their investment value, which is deemed to be useful for institutional investors and the public to formulate sustainable investment strategies in the future. Full article

The chain of crises experienced during the first two decades of the 21st century has changed life on Earth and concluded in a list of incredibly difficult challenges. It has become obvious that our traditional ways of acting do not work anymore. We need to search for new ideas and approaches. We want to believe in the potential of education. It manifests itself in different ways in beliefs, declarations, and actions. The work of education systems and institutions is a huge investment of commitment, time, and money. Governments, experts, workers, and service users have high hopes and enormous resources to keep education functioning. Everyone involved in designing solutions and carrying out tasks must understand how to respond to the global context and the challenges that humanity must deal with in order to survive. The environment and problems of public health, diversity and inequalities, technologies and social media, and the crisis of democracy affect the social reality and the world of education today. To be able to respond, both to challenges and to expectations, the human approach to leadership has to be transformed. The main problem for reformers is to define leadership again, using new assumptions and new intellectual tools. The research question worth asking is: what kind of educational leadership is needed? In this article, I propose a paradigm shift in thinking about educational leadership and a departure from the dominant classical paradigm. I propose a new model of educational leadership and adequate activities. Full article

The volatility analysis of stock returns data is paramount in financial studies. We investigate the dynamics of volatility and randomness of the Pakistan Stock Exchange (PSX-100) and obtain insights into the behavior of investors during and before the coronavirus disease (COVID-19 pandemic). The paper aims to present the volatility estimations and quantification of the randomness of PSX-100. The methodology includes two approaches: (i) the implementation of EGARCH, GJR-GARCH, and TGARCH models to estimate the volatilities; and (ii) analysis of randomness in volatilities series, return series, and PSX-100 closing prices for pre-pandemic and pandemic period by using Shannon’s, Tsallis, approximate and sample entropies. Volatility modeling suggests the existence of the leverage effect in both the underlying periods of study. The results obtained using GARCH modeling reveal that the stock market volatility has increased during the pandemic period. However, information-theoretic results based on Shannon and Tsallis entropies do not suggest notable variation in the estimated volatilities series and closing prices. We have examined regularity and randomness based on the approximate entropy and sample entropy. We have noticed both entropies are extremely sensitive to choices of the parameters. Full article

The aim of this work was to test how returns are distributed across multiple asset classes, markets and sampling frequency. We examine returns of swaps, equity and bond indices as well as the rescaling by their volatilities over different horizons (since inception to Q2-2020). Contrarily to some literature, we find that the realized distributions of logarithmic returns, scaled or not by the standard deviations, are skewed and that they may be better fitted by t-skew distributions. Our finding holds true across asset classes, maturity and developed and developing markets. This may explain why models based on dynamic conditional score (DCS) have superior performance when the underlying distribution belongs to the t-skew family. Finally, we show how sampling and distribution of returns are strictly connected. This is of great importance as, for example, extrapolating yearly scenarios from daily performances may prove not to be correct. Full article

Public healthcare organizations usually operate under significant financial strain and frequently strive for survival. Thus, in most cases, financial stability is a “holy grail” of public healthcare organizations in general and hospitals in particular. The financial stability itself is partly dependent upon the ability to manage risk associated with hospital actions. In the paper, we seek to address the question related to the moderating role of stakeholders’ engagement in the relationship between risk management practices and a hospital’s financial stability. To answer this question, we designed and carried out empirical research on a sample of 103 out of 274 Polish public hospitals operating at the first-level (closest to the patient). Results show that risk management practices are positively related to financial stability. Hospitals with well-developed risk management practices are better prepared and find appropriate answers to threats, helping them attain financial stability. We also found that stakeholder engagement acts as a moderator of the relationship between risk management practices and financial stability. Research results indicate that with more sophisticated risk management practices, stakeholder engagement in decision-making leads to statistically lower financial stability. On the other hand, high levels of stakeholders’ engagement help when risk management practices are underdeveloped. Full article

In this paper, we consider a two-dimensional risk process in which the companies split each claim and premium in a fixed proportion. It serves as a classical framework of a quota-share reinsurance contract for a given business line. Such a contract reduces the insurer’s exposure to the liabilities created through its underwriting activities. For the analyzed model, we derive a joint infinite-time ruin probability formula for exponentially distributed claims. To this end, we apply a change of measure technique. We illustrate the admissible range of parameters of the risk process. We also justify our result using Monte Carlo simulations and compare it with Theorem 2 in Avram, Palmowski and Pistorius [Insurance: Mathematics and Economics 42 (2008) 227], which was obtained by explicitly inverting a Laplace transform of the ruin probability. Our formula leads to a correction of that result. Finally, we note that the obtained formula leads to efficient approximation of the ruin probability for other claim amount distributions using De Vylder’s idea. Full article

The question of non-financial and risk disclosures in corporate annual statements has been discussed globally for over a decade. The stakeholders of socially responsible organisations report a constantly growing demand for financial and non-financial information, including that related to threats and risks connected to the organisation’s activity. The aim of this paper is to determine whether companies from the construction and property development sector disclose financial risk in a CSR or integrated reports, and whether it is possible to assess going-concern risks based on the reports. The author analysed the content of selected CSR and integrated reports to describe the scope and structure of going-concern risk information in Polish companies from the construction and property development sector. The author reached two key empirical findings. Firstly, the results may suggest that companies are at different stages of the process of adopting integrated reporting, depending on the year of issue of the first CSR report. Secondly, less than half of the analysed companies disclose their financial data and risk, as well as describe their risk management systems. The study also shows that the ‘soft’ solutions set out in the regulations give companies considerable freedom in disclosing risk information, which is sometimes counterproductive. Therefore, it is of key importance to develop a single integrated standard for risk disclosures. In this paper, the author demonstrates a logical process of reasoning ensuing from the literature review through empirical research down to the implementation stage of conceptual model for disclosures on financial and going-concern risks in CSR and integrated reports. The present study makes a valuable contribution to CSR and integrated reporting theories and constitutes a breakthrough in identifying risks affecting socially responsible companies in Poland. The study fills a research gap in the area of non-financial (including information on risk) disclosures in annual reports of listed companies and other companies from the construction and property development sector. Full article

The focus of this study is to examine the investment project process. Since investment can also be considered as economic interactions, certain risks are associated with their implementation. Risk factors were given a particular priority during the secondary and primary research, while determining the most relevant risk factors of investment project processes in relation to the B2B market. The risk map for investment project processes was created in line with the relevant secondary sources, qualitative and quantitative primary results. This is topical because the importance of investments is unquestionable in a market economy. Therefore, a comprehensive risk assessment might provide results that are useful for both supply and demand side actors in B2B market relations. Based on the results of the primary study, the perceived risks of the project process were defined, and they were structured into a risk hierarchy system. Based on the qualitative results, we performed a quantitative study. Based on the responses of the sample subjects, we determined the perceived risk factors, and on the basis of them, we segmented the service provider (contractor) market. The main socio-demographic characteristics of each segment were also explored in the framework of the research. Full article

The use of personalization mechanisms should allow the insurance distributor to reduce exploration costs and adjust the offered insurance product to the needs, features, and situation of each individual client. This study seeks to examine how liability should be allocated when the process of the personalization of an insurance product does not result in the client’s choice of an optimal product. First, we identify the typical uses of new technologies allowing for an adjustment of insurance contracts. Second, we analyze the interplay between their application and the legal obligations of insurance product distributors. Subsequently, the paper discusses the scope of factors the insurance distributor is liable for when using personalizing tools in contacts with clients. We submit that offering an online personalization of insurance products ought to be regarded as being equivalent to providing advice under Art. 2, Sec. 1, Point 15 of the European Union Insurance Distribution Directive (IDD). From the consumer’s perspective, our analysis makes the case for the insurance distributor’s liability for mispersonalization of an insurance contract. Full article

This study is aimed at estimation of the exchange rate volatility and its impact on the business cycle fluctuations in four central and eastern European countries (the Czech Republic, Hungary, Poland, and Romania). Exchange rate volatility is estimated with the EGARCH(1,1) model. It is found that exchange rate volatility is affected by the components of the Index of Economic Freedom from the Heritage Foundation, besides inflation and crisis developments. The empirical results using GMM estimation technique and comprehensive robustness checks suggest that exchange rate volatility reduces the risk of recession in the Czech Republic while the opposite effect is found for Hungary and Romania, with a neutrality for Poland. These findings continue to hold after controlling for the fiscal and monetary policy indicators. There is evidence that the RER undervaluation prevents sliding into a recession on a credible basis in Poland only, with a neutral stance for other countries. Except in Romania, higher levels of economic freedom is associated with worsening of the cyclical position of output. Among other results, stabilization policies in the recession imply fiscal tightening for the Czech Republic and Romania, higher money supply for the Czech Republic and Poland, and lower central bank reference rate for Hungary. Full article

Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998–2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans. Full article

The aim of this article was to present the current research on coping with coronavirus disease 2019 (COVID-19) and, on this basis, to indicate the implications of risk management in the situation of adaptation to the crisis or re-adaptation after its end. This article considers the psychological significance of the socially experienced situation based on the latest research conducted in Poland during the first wave of the pandemic. It is an attempt to show both the risk and protective factors, as well as possible remedial effects against unfavorable social and health phenomena, which are related to the increase in costs incurred by individuals in the process of experiencing the crisis and adaptation to the conditions after its end. These are considered in the context of the costs of adaptations used by individuals and of re-adaptation in the period of coping with COVID-19. This study conducted a meta-analysis of 13 psychological and sociological studies conducted so far in the first period of the pandemic. The results of the research show that the most difficult issue in the risk situation of the next wave of a pandemic is the lack of definition of its timeframe but also disinformation and fatigue. The results of the conducted analysis may become useful material for risk management professionals. An additional value of the article is that it presents ways of applying the conclusions resulting from the research, not only during the second wave of the pandemic but also in the necessary processes of re-adaptation to life without COVID-19. Full article