Taming Housing and Financial Market Instability: The Effect of Heterogeneous Banking Regulations

As a response to the latest financial crisis, the Basel Committee published the Basel III accords which intensify micro- and introduce macro-prudential instruments to enhance the resilience of the financial market. One crucial aspect that the regulatory reforms do not address is the diversity of the banking sector. We introduce a heterogeneous agent-based model that develops a housing and a capital market to assess the ability of Basel III rules to mitigate mutual feedback effects and dampen instability. Computational experiments reveal that the most stable markets are achieved if the financial market is diversified and consists of different types of financial intermediaries that need to comply with type-specific capital adequacy requirements. The results point out that capital adequacy requirements are, in principle, effective in stabilizing the banking sector. However, the stability of housing and share prices and the solidity of the banking sector can be increased if capital adequacy requirements are aligned to the individual business models of financial intermediaries and their institutional frameworks. These findings advocate in favor of a diversified banking sector and heterogeneous capital adequacy requirements.

Taming Housing and Financial Market Instability: The Effect of Heterogeneous Banking Regulations

Taming Housing and Financial Market Instability: The Effect of Heterogeneous Banking Regulations

Different Business, Same Regulation: Does Homogenous Regulation Succeed in Taming Housing and Financial Market Instability?

Delay in construction projects is a common phenomenon and a costly problem. This paper addresses the issues of financial-related delays in construction projects. It identifies the root causes and scrutinises the suitable mitigation actions of financial-related project delays. Four main factors were identified in the literature, namely late payment, poor cash flow management, insufficient financial resources and financial market instability. Primary data were collected by way of a preliminary interview, questionnaire survey and in-depth structured interviews. A total of 110 responses were obtained from a combination of clients, contractors, consultants and bankers. The result revealed that poor cash flow management is the most significant factor that leads to a project's delay followed by late payment, insufficient financial resources and financial market instability. Contractors' instable financial background, client's poor financial and business management, difficulties in obtaining loan from financiers and inflation were identified as the most significant underlying causes. The study findings indicate that clients play the most important role in reducing the impact of financial problems towards the extent of project's delay. Several suitable mitigation actions were suggested by the respondents. The study highlights the importance of having more intensive research that give emphasis on clients achieving a well-managed cash flow in order to obtain a prompt payment practice in the construction industry.

The present paper is an attempt to integrate financial market instability and corporate finance in a dynamic setup. The results of the study highlight that financial market instability, tangibility, and profitability have a negative impact on leverage of the firm, whereas assets growth has a positive effect.

Financial market instability has been the focus of attention of both academic and policy circles. Rating agencies have been under particular scrutiny lately as promoters of financial excesses, upgrading countries in good times and downgrading them in bad times. Using a panel of emerging economies, this paper examines whether sovereign ratings affect financial markets. The authors find that changes in sovereign ratings have an impact on country risk and stock returns. They also find that these changes are transmitted across countries, with neighbor-country effects being more significant. Rating upgrades (downgrades) tend to occur following market rallies (downturns). Countries with more vulnerable economies, as measured by low ratings, are more sensitive to changes in U.S. interest rates.

To study the role of elections in financial market instability, we focus on the role of credit risk pricing during elections from 2004 to 2007 in 13 emerging market economies. We use a unique dataset of daily credit default swap (CDS) pricing, with standard macroeconomic controls, to study the role of elections in prompting financial market instability and contagion. Sovereign CDS pricing provides a number of advantages in understanding emerging market instability of previous studies. First, the daily data allows a greater level of specificity than was used in previous credit market and political studies. Second, even though sovereign credit conditions change slowly, CDS pricing changes daily, reflecting sentiment or forward-looking beliefs. Third, the CDS allows us to focus on the perceived public credit risk of an election and the incoming government. Our study reveals a number of unique findings. First, investors price in additional risk for elections regardless of party, incumbency or size of win. Second, long- and short-term investors price risk very differently, with 1-year CDS investors reacting much more strongly to election risk, causing the overall spread between 10- and 1-year swaps to narrow. Third, our results provide continued support for the theory of investor herding in international financial markets, and a focus on a small number of economic variables in determining sovereign creditworthiness. Investors do not study the relative risk factors as much as price in structural risk by the existence of definable benchmarks like elections.

Financial market instability has been the focus of attention of both academic and policy circles. Rating agencies have been under particular scrutiny lately as promoters of financial excesses, upgrading countries in good times and downgrading them in bad times. Using a panel of emerging economies, this paper examines whether sovereign ratings affect financial markets. The authors find that changes in sovereign ratings have an impact on country risk and stock returns. They also find that these changes are transmitted across countries, with neighbor-country effects being more significant. Rating upgrades (downgrades) tend to occur following market rallies (downturns). Countries with more vulnerable economies, as measured by low ratings, are more sensitive to changes in U.S. interest rates.

To study the role of elections in financial market instability, we focus on the role of credit risk pricing during elections from 2004 to 2007 in thirteen emerging market economies. We use a unique dataset of daily credit default swap (CDS) pricing, with standard macroeconomic controls, to study the role of elections in prompting financial market instability and contagion. Sovereign credit default swap pricing provides a number of advantages in understanding emerging market instability of previous studies. First, the daily data allows a greater level of specificity than was used in previous credit and political studies. Second, even though sovereign credit conditions change slowly, CDS pricing changes daily, reflecting sentiment or forward looking beliefs. Third, the CDS allows us to focus on the perceived credit risk of an election and the incoming government. Our study reveals a number of unique findings. First, investors price in additional risk for elections regardless of party, incumbency, or size of win. Second, long and short term investors price risk very differently, with 1 year CDS investors reacting much more strongly to election risk, causing the overall spread to narrow. Third, our results provide continued support for the theory of investor herding in international financial markets, and a focus on a small number of economic variables in determining sovereign credit worthiness. Investors do not study the relative risk factors as much as price in structural risk by the existence of definable benchmarks like elections.

The instability of financial market will have a great impact on money, bonds, and stocks and affect the economic development of society and people's lives. Therefore, it is very necessary for us to study and predict the financial stability. According to the forecast results, we will analyze and make a series of preparatory measures. First, we make a series of analyses on the structure and significance of policy uncertainty and financial stability. This paper introduces the advantages and disadvantages of the P/L model, the KLS signal method, and the BP neural network model for financial stability early warning, It is clearly pointed out that the BP neural network is more reliable and accurate, Then, the BP neural network, the ant colony algorithm, and the genetic algorithm are used to predict the opening price, closing price, highest price, and lowest price of KDJ index of Cathay Pacific Group's 5-day data. Compared with the real value, we find that the BP neural network is almost the smallest in forecasting the opening price and closing price, or the lowest price and the highest price, and has good stability, which once again proves the feasibility of applying the BP neural network to the research and prediction of financial stability.

Transmission of the global financial crisis to Korea

A baseline integration of commercial banks into the disequilibrium framework with behavioral traders of Charpe et al. (2011, 2012) is presented. At the core of the analysis is the impact the banking sector exerts on the interaction of real and financial markets. Potentially destabilizing feedback channels in the presence of imperfect macroeconomic portfolio adjustment and heterogeneous expectations are investigated. Given the possible financial market instability, various policy instruments have to be applied in order to guarantee viable dynamics in the highly interconnected macroeconomy. Among those are open market operations reacting to the state-of-confidence in the economy and Tobin-type capital gain taxes. The need for policy intervention is even more striking, as the banking sector is modeled in a rather stability enhancing way, fulfilling its fundamental tasks of term transformation of savings and credit granting without engaging in investment activities itself.

This research investigates the impact of climate challenges on financial markets by introducing an innovative approach to measure climate risk, specifically the aggregate climate change concern (ACCC) index. The study aims to assess and quantify the potential influence of climate change and risk-related factors on the performance and dynamics of financial markets. In this paper, concern is defined as the attention paid to the risk of climate change and the associated negative consequences. The findings demonstrate that the aggregate index exhibits robust predictability of market risk premiums, both within the sample and out-of-sample. By comparison, the index contains additional information beyond 14 economic predictors and 12 risk/uncertainty indexes in forecasting stock market return. In addition, the index proves valuable for mean-variance investors in asset allocation, leading to significant economic gains. The study identifies the index's ability to capture the reversal of temporary price crashes caused by overreactions to climate change risk. Furthermore, it exhibits stronger return forecasting capability for green stocks, non-state-owned enterprise (non-SOE) stocks, and stocks in regions with low air pollution. Particularly during periods of low air pollution and relaxed regulation, the index displays an enhanced ability to forecast returns. The study's findings provide valuable insights for policymakers and financial institutions as they address 21st-century environmental challenges. Moreover, these findings can inform the design of adaptive measures and interventions aimed at mitigating ecological risks and promoting sustainable economicgrowth.

This paper examines the impact of profitability on the financial leverage of firms operating in an unstable macroeconomic environment such as Nigeria. Using fixed and dynamic panel models, it finds consistent evidence that the profitability of a firm significantly and negatively affects its short-term debt, but not its long-term debt capital. It attributes this to the unstable nature of the Nigerian business environment and the relative inefficiency of its financial markets. It signals that Nigerian firms could be over-relying on short-term debt and external equity to fund long-term investments – a trend that is capable of increasing cost of capital to a level above any plausible limit.