Home About us Contact
|
Home About us Contact | ||
|
|
||
Financial Markets (financial + market)
Kinds of Financial Markets Selected AbstractsFROM DISCRETE-TIME MODELS TO CONTINUOUS-TIME, ASYNCHRONOUS MODELING OF FINANCIAL MARKETSCOMPUTATIONAL INTELLIGENCE, Issue 2 2007Katalin Boer Most agent-based simulation models of financial markets are discrete-time in nature. In this paper, we investigate to what degree such models are extensible to continuous-time, asynchronous modeling of financial markets. We study the behavior of a learning market maker in a market with information asymmetry, and investigate the difference caused in the market dynamics between the discrete-time simulation and continuous-time, asynchronous simulation. We show that the characteristics of the market prices are different in the two cases, and observe that additional information is being revealed in the continuous-time, asynchronous models, which can be acted upon by the agents in such models. Because most financial markets are continuous and asynchronous in nature, our results indicate that explicit consideration of this fundamental characteristic of financial markets cannot be ignored in their agent-based modeling. [source] INFORMATION AND NOISE IN FINANCIAL MARKETS: EVIDENCE FROM THE E-MINI INDEX FUTURESTHE JOURNAL OF FINANCIAL RESEARCH, Issue 3 2008Alexander Kurov Abstract I examine the informational contributions and effects on transitory volatility of trades initiated by different types of traders in three actively traded index futures markets. The results show that trades initiated by exchange member firms account for more than 60% of price discovery during the trading day. These institutional trades appear to be more informative than trades of individual exchange members or off-exchange traders. I also find that off-exchange traders introduce more noise into the prices than do exchange members. My findings provide new evidence on the role of different types of traders in the price formation process. [source] Regulatory Disclosure of Offending Companies in the Dutch Financial Market: Consumer Protection or Enforcement Publicity?LAW & POLICY, Issue 4 2010JUDITH VAN ERP Regulatory disclosure of names of offending companies is increasingly popular as an alternative to traditional command and control regulation. The goals and intended effects of disclosure are not always clear, however. Do regulators wish to increase their transparency, or do they intend to name and shame? This article aims to contribute to a better understanding of the underlying working mechanism of regulatory disclosure of offenders' names through a case study of the Dutch Authority for Financial Markets' disclosure policy. It distinguishes two types of disclosure strategies: consumer oriented and firm oriented. The case study shows that although informing consumers was the primary purpose of disclosure as intended by the Dutch legislature, the purpose in practice has shifted to informing companies about the regulators' enforcement policy. The nature of the disclosed information makes it unlikely that disclosure adequately prevents financial risk taking by consumers. Instead of empowering consumers, disclosure has been incorporated in a traditional deterrence logic, turning out not to be an example of new governance but instead a modern version of command and control enforcement publicity. [source] Competing Rationales for Corporate Governance in France: Institutional Complementarities between Financial Markets and Innovation SystemsCORPORATE GOVERNANCE, Issue 2 2008Soo H. Lee ABSTRACT Manuscript Type: Conceptual Research Question/Issue: This paper identifies the causes and consequences of corporate governance reform with reference to the French case. By disaggregating institutional complementarities into global and domestic dimensions, we analyze the path of institutional change compelled by financial efficiency and cooperative innovation. Research Findings/Results: Our analysis of the French case shows that both converging and diverging forces of institutional change coexist, shaping selective responses to globalization. While the adoption of the shareholder model is necessary for resource acquirement from the global capital markets, resource allocation in the cooperative innovation systems reinforces the stakeholder model. The French case confirms the sustainability of distinctive institutional complementarities, albeit with selective adaptation based on a sense-making social compromise. Theoretical Implications: The French case reminds us of the importance of distinctive institutional traditions and dominant social rationalities to understand the underlying logic of governance reform. The comparative research on corporate governance needs to address not just the cross-country variations in institutional arrangements and practices, but also the clash of competing rationales for reform explicitly in comparative terms within a single country context. Practical Implications: For foreign investors, it is vital to understand the unique institutional environment of state-centred stakeholder economies if they are to negotiate the best terms of return and to avoid unnecessary conflicts. French managers are expected to devise strategic choices responding to the competing rationales of governance. Managerial sense-making is essential for achieving sound long-term performance, upon which the legitimacy and sustainability of the constellation of selective governance rests. [source] Learning From the Pros: Influence of Web-Based Expert Commentary on Vicarious Learning About Financial Markets,DECISION SCIENCES JOURNAL OF INNOVATIVE EDUCATION, Issue 1 2007Matthew W. Ford ABSTRACT Web-based financial commentary, in which experts routinely express market-related thought processes, is proposed as a means for college students to learn vicariously about financial markets. Undergraduate business school students from a regional university were exposed to expert market commentary from a single financial Web site for a 6-week period. When compared to a control group, students in the experimental group were found to possess higher levels of financial market awareness. Degree of engagement, as approximated by measures of project exposure time and effort, was significantly related to market awareness. Finance majors were found to be more engaged in the process than nonfinance majors. Although this study should be considered exploratory in nature, findings support the notion of using Web-based vicarious learning processes in financial education. Future research can extend the generalizability of these findings, as well as shape vicarious learning mechanisms for use across business disciplines. [source] ,Milking The Elephant': Financial Markets as Real Markets in KenyaDEVELOPMENT AND CHANGE, Issue 2 2004Susan Johnson Financial liberalization policies in the 1990s were intended to raise formal sector interest rates, enhance competition and expand access for users. This article investigates patterns of provision and use in a local financial market in Karatina, Kenya, at the end of the 1990s after a period of financial and economic liberalization. It takes a holistic approach, examining both formal and informal financial arrangements and microfinance interventions. This is because the role of the informal financial sector is particularly important for poor people and has received relatively little attention in the discussion of the consequences of reform. The author does this using a ,real' markets approach that sees markets as socially regulated and structured. Significant provision by the mutual sector (formal and informal), and poor lending performance by the banking sector is explained through an examination of the characteristics of the services on offer and their embeddedness in social relations, culture and politics. [source] Trust in Financial MarketsEUROPEAN FINANCIAL MANAGEMENT, Issue 4 2008Colin Mayer O16 Abstract This paper examines contemporaneous and historical evidence on the structure of ownership and control of corporate sectors in developed countries to draw lessons for development of financial markets. It records the critical role that equity markets played in the ownership and financing of corporations at the beginning of the 20th century. It notes that this occurred in the absence of formal systems of regulation and that equity markets functioned on the basis of informal relationships of trust. These were sustained through local stock markets in the UK, banks in Germany, and business coordinators and family firms in Japan. The paper explores the concept of trust that is required to promote the development of financial markets. [source] A Memory of Arnold William Sametz Former editor of the,Monograph Series in Finance and Economics, now,Financial Markets, Institutions & InstrumentsFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 4 2009Emilia Carulli Szego No abstract is available for this article. [source] Recent Changes in the Regulation of Financial Markets and Reporting in Canada,ACCOUNTING PERSPECTIVES, Issue 1 2007Carla Carnaghan ABSTRACT The regulation of financial reporting and financial markets has undergone significant change in both the United States and Canada since 2000. In Canada, the regulatory regime is particularly complex and politically controversial, with much speculation about possible future directions. This paper's purpose is to explain the current regulatory environment as it stands in mid-2006 to assist those who teach or conduct research in this domain. On the basis of a review of existing regulations and related studies, this paper first provides an explanation of the major jurisdictional issues that affect financial reporting and regulation in Canada, including identifying the roles of the key players. Second, it identifies specific reporting changes that might be of particular relevance to prospective capital market researchers. Where relevant, comparisons are made with regulatory provisions in the United States, because the majority of capital markets research concerns U.S. securities exchanges regulation, and the Canadian regulations themselves often refer to U.S. regulations as a point of comparison. We find that the lack of a single national securities regulator in Canada and overlaps in federal and provincial jurisdiction and among regulatory bodies mean there is a large range of players involved in financial markets regulation. Ongoing efforts to improve integration include the new passport system, improved harmonization of securities regulation, and consideration of mergers between some of the involved organizations. Other changes have led to a greater emphasis in Canada on the regulation of continuous disclosure and corporate governance than was previously the case. Changes in specific reporting regulations and guidelines since 2002 have generally increased the amount of disclosure. [source] Identifying the Role of Moral Hazard in International Financial MarketsINTERNATIONAL FINANCE, Issue 1 2004Steven B. Kamin Abstract Considerable attention has been paid to the possibility that large-scale IMF-led financing packages may have distorted incentives in international financial markets, leading private investors to provide more credit to emerging market countries, and at lower interest rates, than might otherwise have been the case. Yet, prior attempts to identify such distortions have yielded mixed evidence, at best. This paper makes three contributions to our ability to assess the empirical importance of moral hazard in international financial markets. First, it is argued that, because large international ,bail-outs' did not commence until the 1995 Mexican crisis, financial indicators prior to that time could not have reflected a significant degree of this type of moral hazard. Therefore, one test for the existence of moral hazard is that the access of emerging markets to international credit is significantly easier than it was prior to 1995. Second, the paper argues that because private investors expect large-scale IMF-led packages to be extended primarily to economically or geo-politically important countries, moral hazard, if it exists, should lead these countries to have easier terms of access to credit than smaller, non-systemically important countries. Finally, in addition to looking at bond spreads, the focus of earlier empirical analyses of moral hazard, the paper also examines trends in capital flows to gauge the access of emerging market countries to external finance. Looking at the evidence in light of these considerations, the paper concludes that there is little support for the view that moral hazard is significantly distorting international capital markets at the present time. [source] Financial Markets, Development and Economic Growth: Tales of Informational AsymmetriesJOURNAL OF ECONOMIC SURVEYS, Issue 3 2004Salvatore Capasso Abstract., The development of financial systems is very often characterised by the development of innovative financial contracts which allow a more efficient allocation of resources and a higher level of capital productivity and economic growth. By exploiting the microeconomic theory of the optimal financial contract under asymmetric information, economists have recently managed to shed new light on the well studied issue of the relationship between financial market development and economic growth. This paper reviews the most recent progress of this literature which shows that the amount of information asymmetry in the credit market and the degree of heterogeneity between borrowers (typically firms) and lenders (typically workers or savers) determine the nature of the financial system. Differences in endowments and in the level of information distribution can give rise to very different financial contracts which affect, and in turn are affected, by capital accumulation and growth. [source] Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys SayJOURNAL OF ECONOMIC SURVEYS, Issue 1 2000Ronald MacDonald This paper attempts to provide a logical overview of the literature which exploits survey data to examine issues of expectations formation and risk aversion in financial markets. Our survey suggests that: short term expectations are excessively volatile and exhibit bandwagon effects, while longer term expectations appear to be regressive and therefore stabilising; in bond and foreign exchange markets the standard result of forward rate biasedness is due in part to time-varying premia; recent research using disaggregate foreign exchange survey data demonstrates the importance of heterogeneous expectations. [source] Nonlinear Cointegration Relationships Between Non-Life Insurance Premiums and Financial MarketsJOURNAL OF RISK AND INSURANCE, Issue 3 2009Fredj Jawadi The aim of this article is to study the adjustment dynamics of the non-life insurance premium (NLIP) and test its dependence to the financial markets in five countries (Canada, France, Japan, the United Kingdom, and the United States). First, we justify the linkage between the insurance and the financial markets by the underwriting cycle theory and financial models of insurance pricing. Second, we examine the relationship between the NLIP, the interest rate, and the stock price using the recent developments of nonlinear econometrics. We use threshold cointegration models: the switching transition error correction models (STECM). We show that STECM perform better than a linear error correction model (LECM) to reproduce the NLIP dynamics. Our empirical results show that the adjustment of the NLIP in France, Japan, and the United States is rather discontinuous, asymmetrical, and nonlinear. Moreover, we suggest a strong evidence of significant linkages between insurance and financial markets, show two regimes for the NLIP, and find that the NLIP adjustment toward equilibrium is time varying with a convergence speed that varies according to the insurance disequilibrium size. [source] The Fisher Model and Financial Markets, by Richard D. MacMinnJOURNAL OF RISK AND INSURANCE, Issue 1 2008Article first published online: 5 MAR 200 No abstract is available for this article. [source] Handling Weather Related Risks Through the Financial Markets: Considerations of Credit Risk, Basis Risk, and HedgingJOURNAL OF RISK AND INSURANCE, Issue 2 2007Linda L. Golden The profits of many businesses are strongly affected by weather related events, and insurance against weather related risks (acts of God) has been a traditional domain for transfer of (certain) of these risks. Recent innovations in the capital market have now provided financial instruments to transfer and hedge some of these risks. Unlike insurance solutions, however, using these financial derivative instruments creates a situation in which the return to the purchaser of the instrument is no longer perfectly correlated with the loss experienced. Such a mismatch creates new risks which must be examined and evaluated as part of ascertaining cost effective risk management plans. Two newly engendered risks, basis risk (the risk created by the fact that the return from the financial derivative is a function of weather at a prespecified geographical location which may not be identical to the location of the firm) and credit risk (the risk that the counterparty to the derivative contract may not perform), are analyzed in this article. Using custom tailored derivatives from the over the counter market can decrease basis risk, but increases credit risk. Using standardized exchange traded derivatives decreases credit risk but increases basis risk. Here also the effectiveness of using hedging methods involving forwards and futures having linear payoffs (linear hedging) and methods using derivatives having nonlinear payoffs such as those involving options (nonlinear hedging) for the purpose of hedging basis risk are examined jointly with credit risk. [source] Out of Place and Out of Line: Positioning the Police in the Regulation of Financial MarketsLAW & POLICY, Issue 3 2008JAMES W. WILLIAMS In November of 2003, the Royal Canadian Mounted Police launched a major initiative to combat securities fraud in Canada. Spurred by the Enron scandals in the United States, this involved the establishment of a series of specialized white-collar crime units with the express mandate of investigating serious cases of securities fraud and protecting investors from the worst of the market's abuses. After four years of activity, these units have produced little in the way of tangible results and have been widely criticized in legal, financial, and regulatory communities. Drawing on thirty-five interviews with members of these units, as well as outside stakeholders including Crown Attorneys and private litigators, this article examines the activities of these Integrated Market Enforcement Teams and highlights a number of barriers to the successful execution of their designated mandate. While factors such as procedural restrictions and limited expertise are certainly relevant, this analysis reveals that the IMET teams are more fundamentally constrained by their position in a broader regulatory field. Understanding this field, and its unique structure and politics, is essential in coming to terms with both the possibilities and limitations of securities enforcement in an increasingly complex financial world. [source] A Fundamental Theorem of Asset Pricing for Large Financial MarketsMATHEMATICAL FINANCE, Issue 4 2000Irene KleinArticle first published online: 25 DEC 200 We formulate the notion of "asymptotic free lunch" which is closely related to the condition "free lunch" of Kreps (1981) and allows us to state and prove a fairly general version of the fundamental theorem of asset pricing in the context of a large financial market as introduced by Kabanov and Kramkov (1994). In a large financial market one considers a sequence (Sn)n=1, of stochastic stock price processes based on a sequence (,n, Fn, (Ftn)t,In, Pn)n=1, of filtered probability spaces. Under the assumption that for all n, N there exists an equivalent sigma-martingale measure for Sn, we prove that there exists a bicontiguous sequence of equivalent sigma-martingale measures if and only if there is no asymptotic free lunch (Theorem 1.1). Moreover we present an example showing that it is not possible to improve Theorem 1.1 by replacing "no asymptotic free lunch" by some weaker condition such as "no asymptotic free lunch with bounded" or "vanishing risk." [source] GCC Financial Markets And the Quest for DevelopmentMIDDLE EAST POLICY, Issue 2 2000Mohamed Jaber [source] Common Cultural Relationships in Corporate Governance across Developed and Emerging Financial MarketsAPPLIED PSYCHOLOGY, Issue 2 2008Alex W.H. Chan This study investigates the corporate governance (CG) practice of business organisations in 43 countries with developed and emerging financial markets from the perspective of cross-cultural psychology. We find significant relationships between CG practice and Hofstede's cultural dimensions, and discover that the cultural dimensions of power distance and uncertainty avoidance significantly explain the development of CG practice. These two cultural dimensions fully capture the power of stock market history to explain the development of CG practice across developed and emerging financial markets, which indicates that cultural factors are more important than the length of stock market history in the development of CG. Cette étude se propose d'étudier, dans une perspective de psychologie inter-culturelle, la pratique de la gouvernance d'entreprise dans des organismes d'affaire de 43 pays différents dont les marchés financiers sont développés ou émergents. Nous trouvons une relation significative entre la pratique de la gouvernance d'entreprise et les dimensions culturelles de Hofstede. Nous montrons que les dimensions culturelles de distance du pouvoir et d'évitement de l'incertitude expliquent le développement de la pratique de la gouvernance d'entreprise. Ces deux dimensions culturelles déterminent totalement la puissance de l'histoire du marché boursier pour expliquer le développement de la pratique de la gouvernance d'entreprise sur des marchés financiers développés ou émergents. Les facteurs culturels ont donc plus de poids que la durée de l'histoire du marché boursier dans le développement de la pratique de la gouvernance d'entreprise. [source] From Artificial Hearts to Financial MarketsARTIFICIAL ORGANS, Issue 12 2001Editor-in-Chief, Paul S. Malchesky D.Eng. No abstract is available for this article. [source] Reporting Bias and Information Discrepancy, and Consequences for Volatility in Financial Markets,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 5 2010Jae Joon Han D8; D53; G14 Abstract This paper presents an analytical explanation of price volatility and mispricing in a rational financial market. In the proposed model, specialists might have private interest in manipulating their reports, which can affect the security price. Additionally, traders differ in terms of both rationality and available information. The present study shows that mispricing and price volatility occurs in a rational financial market when specialist reports are incorporated under different trader types. Also analyzed are comparative statics of the magnitude of misreports, the informativeness of the price, and price volatility when the ratio of superior traders to ordinary traders changes. Both price volatility and the potential for extra profit gain by superior traders might increase when they are dominant. [source] Using Markets to Inform Policy: The Case of the Iraq WarECONOMICA, Issue 302 2009JUSTIN WOLFERS Financial market-based analysis of the expected effects of policy changes has traditionally been exclusively retrospective. In this paper, we demonstrate by example how prediction markets make it possible to use markets to prospectively estimate policy effects. We exploit data from a market trading in contracts tied to the ouster of Saddam Hussein as leader of Iraq to learn about financial market participants' expectations of the consequences of the 2003 Iraq war. We conducted an ex-ante analysis, which we disseminated before the war, finding that a 10% increase in the probability of war was accompanied by a $1 increase in spot oil prices that futures markets suggested was expected to dissipate quickly. Equity price movements implied that the same shock led to a 1.5% decline in the S&P 500. Further, the existence of widely-traded equity index options allows us to back out the entire distribution of market expectations of the war's near-term effects, finding that these large effects reflected a negatively skewed distribution, with a substantial probability of an extremely adverse outcome. The flow of war-related news through our sample explains a large proportion of daily oil and equity price movements. Subsequent analysis suggests that these relationships continued to hold out of sample. Our analysis also allows us to characterize which industries and countries were most sensitive to war news and when the immediate consequences of the war were better than ex-ante expectations, these sectors recovered, confirming these cross-sectional implications. We highlight the features of this case study that make it particularly amenable to this style of policy analysis and discuss some of the issues in applying this method to other policy contexts. [source] Financial markets can go mad: evidence of irrational behaviour during the South Sea Bubble1ECONOMIC HISTORY REVIEW, Issue 2 2005RICHARD S. DALE This paper explores investor behaviour during the South Sea Bubble,the first major speculative boom and bust on the stock markets. Previous literature debates whether investors during this episode acted rationally. Newly acquired data involving parallel markets for the South Sea Company's stock and subscription receipts are analysed, and widening valuation gaps are observed between these substitutable financial instruments. Rational explanations do not prove adequate, and the anomalies are explained by the biased decision-making of investors, and their tendency to view financial markets as wagering markets. The implications of these findings for the current debate on rationality in financial markets are identified. [source] Social democracy and globalisation: the limits of social democracy in historical perspectiveBRITISH JOURNAL OF POLITICS & INTERNATIONAL RELATIONS, Issue 3 2002John Callaghan This article argues that social democratic governments throughout the 20th century faced internal and international constraints arising from the operation of capitalist economies and that the evidence for a qualitative deepening of such constraints since the collapse of the Bretton Woods system is far from unequivocal. Financial markets were already big enough and fast enough to deter such governments from the pursuit of egalitarian policies in the interwar years or to destabilise them if they ignored the warning signs. This article also shows that the efficacy of Keynesian macroeconomic policy in the Golden Age has been exaggerated and that the problem of short,term movements of speculative capital persisted throughout this era in a country such as Britain. Keynesianism never worked in the face of mass unemployment and it is misleading to suggest that its breakdown in the 1970s somehow robbed social democracy of the policy tools that had maintained full employment in the 1950s and 1960s. A host of additional problems have indeed beset social democratic governments since 1973, but the analysis of such problems is hindered rather than helped by much of the literature which invokes economic globalisation. Globalisation theory is in need of further specification before it can be useful and arguments about the economic consequences of globalisation since 1973 need to distinguish its effects from those of the many conjunctural problems of the period as well as the policies that important agencies have pursued in search of solutions to them. [source] Why Adopt Codes of Good Governance?CORPORATE GOVERNANCE, Issue 1 2008A Comparison of Institutional, Efficiency Perspectives ABSTRACT Manuscript Type: Empirical Research Question/Issue: Given the global diffusion and the relevance of codes of good governance, the aim of this article is to investigate if the main reason behind their proliferation in civil law countries is: (i) the determination to improve the efficiency of the national governance system; or (ii) the will to "legitimize" domestic companies in the global financial market without radically improving the governance practices. Research Findings/Insights: We collected corporate governance codes developed worldwide at the end of 2005, and classified them according to the country's legal system (common or civil law). Then, we made a comparative analysis of the scope, coverage, and strictness of recommendations of the codes. We tested differences between common law and civil law countries using t-tests and probit models. Our findings suggest that the issuance of codes in civil law countries be prompted more by legitimation reasons than by the determination to improve the governance practices of national companies. Theoretical/Academic Implications: The study contributes to enriching our knowledge on the process of reinvention characterizing the diffusion of new practices. Our results are consistent with a symbolic perspective on corporate governance, and support the view that diffusing practices are usually modified or "reinvented" by adopters. Practitioner/Policy Implications: Our results support the idea that the characteristics of the national corporate governance system and law explain the main differences among the coverage of codes. This conclusion indicates the existence of a strong interplay between hard and soft law. [source] ,Milking The Elephant': Financial Markets as Real Markets in KenyaDEVELOPMENT AND CHANGE, Issue 2 2004Susan Johnson Financial liberalization policies in the 1990s were intended to raise formal sector interest rates, enhance competition and expand access for users. This article investigates patterns of provision and use in a local financial market in Karatina, Kenya, at the end of the 1990s after a period of financial and economic liberalization. It takes a holistic approach, examining both formal and informal financial arrangements and microfinance interventions. This is because the role of the informal financial sector is particularly important for poor people and has received relatively little attention in the discussion of the consequences of reform. The author does this using a ,real' markets approach that sees markets as socially regulated and structured. Significant provision by the mutual sector (formal and informal), and poor lending performance by the banking sector is explained through an examination of the characteristics of the services on offer and their embeddedness in social relations, culture and politics. [source] Do Upgradings and Downgradings Convey Information?ECONOMIC NOTES, Issue 3 2006An Event Study of the French Bond Market This study has two purposes: 1To present an alternative method for the study of events related to bond spreads applicable when only a small number of events is available; 2To analyse the impact of downgradings and upgradings on the French financial market. A small number of events can render the use of traditional methods based on the analysis of abnormal returns difficult. We suggest examining the stationarity of relative spreads and dating a possible interruption in the series by carrying out tests in increasingly wider time windows. This method has been applied to assess the role of rating agencies in the French financial market. The results obtained are, in general, not only similar to those previously obtained in other markets, but also more accurate. The aggregate analysis shows an absence of reaction for upgradings while downgradings determine reaction on financial markets. However, if we expand the analysis to single issuers we find that downgradings had no relevant effect on financial markets in most cases. Only two issuers (France Telecom and Vivendi), with initially good, but rapidly deteriorating, credit reputation, experienced a significant rise of their spreads. In these cases, financial markets reacted prior to the downgrading by the agency. Tests based only on the analysis of the whole events would have led us, in the case of downgradings, to partially flawed conclusions. [source] Securitization of taxes implicit in PAYG pensionsECONOMIC POLICY, Issue 42 2005Salvador Valdés-Prieto SUMMARY Pay-as-you-go securities To preserve solvency, a pay-as-you-go (PAYG) pension system needs to adjust contribution rates and pension promises over time. Currently, it is not possible to hedge in the financial market against politically determined uncertainty as regards these parameters. I consider a policy reform whereby property rights are established on the implicit lifetime tax levied by PAYG finance, and are assigned to the pension institution. These property rights are well defined if the reform also features rule-based allocation of aggregate risk, in the form of defined-contribution or defined-benefit schemes. I show that a PAYG pension system may indeed be instantly restructured so as to minimize political risk and allow financial-market diversification of risk. A side benefit is securitization of human-capital flows, which are not traded in existing financial markets. The new securities, if traded in appropriately competitive financial markets, are complementary to the Notional Account reforms of the 1990s. However, fiscal instability can increase if securitization is implemented in the absence of initial solvency and credible adoption of rule-based methods to allocate aggregate risk. , Salvador Valdés-Prieto [source] An early warning system for detection of financial crisis using financial market volatilityEXPERT SYSTEMS, Issue 2 2006Kyong Joo Oh Abstract: This study proposes an early warning system (EWS) for detection of financial crisis with a daily financial condition indicator (DFCI) designed to monitor the financial markets and provide warning signals. The proposed EWS differs from other commonly used EWSs in two aspects: (i) it is based on dynamic daily movements of the financial markets; and (ii) it is established as a pattern classifier, which identifies predefined unstable states in terms of financial market volatility. Indeed it issues warning signals on a daily basis by judging whether the financial market has entered a predefined unstable state or not. The major strength of a DFCI is that it can issue timely warning signals while other conventional EWSs must wait for the next round input of monthly or quarterly information. Construction of a DFCI consists of two steps where machine learning algorithms are expected to play a significant role, i.e. (i) establishing sub-DFCIs on various daily financial variables by an artificial neural network, and (ii) integrating the sub-DFCIs into an integrated DFCI by a genetic algorithm. The DFCI for the Korean financial market is built as an empirical case study. [source] How Theories of Financial Intermediation and Corporate Risk-Management Influence Bank Risk-Taking BehaviorFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 5 2001Michael S. Pagano This paper examines the rationales for risk-taking and risk-management behavior from both a corporate finance and a banking perspective. After combining the theoretical insights from the corporate finance and banking literatures related to hedging and risk-taking, the paper reviews empirical tests based on these theories to determine which of these theories are best supported by the data. Managerial incentives are the most consistently supported rationale for describing how banks manage risk. In particular, moderate/high levels of equity ownership reduce bank risk while positive amounts of stock option grants increase bank risk-taking behavior. The review of empirical tests in the banking literature also suggests that financial intermediaries coordinate different aspects of risk (e.g., credit and interest rate risk) in order to maintain a certain level of total risk. The empirical results indicate hedgeable risks such as interest rate risk represent only one dimension of the risk-management problem. This implies empirical tests of the theories of corporate risk-management need to consider individual sub-components of total risk and the bank's ability to trade these risks in a competitive financial market. This finding is consistent with the reality that banks have non-zero expected financial distress costs and bank managers cannot fully diversify their bank-related personal investments. [source] | ||||||||||||||||||||||||||||||||||||||||