Effects Of Financial Crisis Research Articles

A systemic crisis: political consequences of the 1989 Tiananmen square events

The article attempts to revise the understanding of the nature of China’s 1989 Tiananmen Square crisis and its consequences in the context of comparison with Soviet/Russian history of 1980-1990s. Several dozens of studies and op-ed pieces focused on the problem earlier (especially in Russian-language literature) but these papers lacked Chinese sources, intended to liken the Tiananmen Square crisis to the Russian agenda, and simplified complicated cause-effects relations of the Chinese historical process. As a result, the conclusions are limited to the question of the necessity of a decisive crackdown on any turmoil or political manifestation as a sole tool to protect one nation’s stability and prosperity. China’s stability and prosperity after the Tiananmen Square Crisis should not be seen as a result of crackdowns. Paradoxically, despite the conservatives’ victory in 1989, China got back to the path of reforms several years after the Tiananmen Square events. It can be attributed to the complex set of internal and external factors, and the freezing of China’s political reforms was just one of them. Moreover, the process was facilitated not only by overcoming its political crisis but also by observing the revolutions of 1989 in Eastern Europe. Faced with the threat of being ousted from power, China’s elites consolidated – a factor that became crucial for the implementation of systemic market reforms in the 1990s. The author concludes that a similar situation was observed in post-Soviet Russia in 1998-2000: the Russian financial crisis and several events including Second Chechnya Campaign became the ‘backbone crisis’ of Vladimir Putin’s presidency.

Alpha-factor integrated risk parity portfolio strategy in global equity fund of funds

This study proposes a principal alpha-style factor integrated risk parity strategy that can diversify style risk factors and the stock selection risk of external managers in Fund-of-Funds (FoFs) portfolios. First, we separated the style risk factors and stock-specific sources held by each individual fund. Stock-specific sources, referred to as principal alpha portfolios, are extracted through principal component analysis, where the sources are utilized for risk parity in the alpha division. As the parity portfolio was integrated into both the alpha and style factor divisions, we used a Basin-Hopping two-phase optimization technique, which can mitigate the local optimal trap by exploring the surroundings of the sequential quadratic programming solution secondarily. Through this, a more stable integrated risk parity portfolio can be realized. Finally, the suggested integrated risk parity portfolios were simulated with a global fund dataset. The simulation results from 2006 through June 2022 show a more stable risk-return profile than an independently constructed strategy using style risk factors or principal alpha sources, especially in high volatility and down-market periods, such as a global financial crisis or unexpected events like COVID-19. This study can be applied to various areas covering other FoFs and asset allocation strategies by integrating alpha and factor divisions.

Consequence of Financial Crisis on Liquidity and Profitability of Commercial Banks in India: An Empirical Study

In this paper we attempted to investigate impact of Financial Crisis on liquidity and profitability of public and private sector banks in India. Liquidity and profitability are two important parameters among many variables on which strength of banking systems depends. In order to accomplish this study, we have considered from year 2005 to 2018 and empirical evidences were drawn using descriptive statistics, correlation matrix and panel regression model. Mean ROA indicates low profitability for sample banks throughout the period of with substantial variations among banks. The result of correlation indicates that no two variables are highly correlated. ROA is negatively correlated with all the determinants except capital adequacy ratio (CAR) whereas; liquidity is positively correlated with all the determinants except efficiency and bank size. There is an insignificant positive impact of crisis on banks’ profitability and significant positive impact on liquidity. The positive association of liquidity with financial crisis indicating favorable and sound position of banks. The ownership structure indicates public banks are sound in maintaining their liquidity and private banks in earning capabilities during financial crisis.

Risk co-movements and portfolio strategies between energy, gold and BRICS markets

This study applies the parametric and nonparametric approach to examine risk comovement between energy, gold, and BRICS equity markets. Our analysis indicates that the risk comovement between these markets varies across financial crisis events. Crude oil and Russian stocks are substantially connected throughout all sub-sample periods, while gold shows a negative relationship with China and Indian stock markets. Moreover, the short-term risk transmission between the stock markets and commodity markets of China, Brazil, Russia, and India is stronger than the gold and oil markets of South Africa during the financial crises. Chinese stock market returns are higher in connectedness than other emerging markets. Further, crude oil and BRICS indices can be utilized as portfolio diversification assets to offset risks, especially during COVID-19. In addition, China and Russia have greater flexibility regarding hedging efficiency for crude oil in crises. Finally, this study offers policymakers insights into how to improve BRICS business convergence among financial and commodity markets to attract domestic and international investments while avoiding the risk of contagion.

Every crisis does matter: Comparing the databases of financial crisis events

AbstractIn this paper we examine the consistency in the timing of crisis events of the most prominent databases of banking and fiscal crises. We calculate Cohen's kappa measure, utilize signaling approach and panel logit models with random effects on selected early warning indicators and identify the most influential crisis observations using the Pregibon's delta‐beta influence statistics. Our results confirm that the degree of commonality across databases is indeed relatively high, especially if introducing a 1‐year lag. However, there is still a significant role played by a few influential observations. This problem is more pronounced in the banking crisis literature.

Measuring systemic risk contribution of global stock markets: A dynamic tail risk network approach

Measuring the systemic risk contribution (SRC) of country-level stock markets helps understand the rise of extreme risks in the worldwide stock system to prevent potential financial crises. This paper proposes a novel SRC measurement based on quantifying tail risk propagation's domino effect using ΔCoVaR and the cascading failure network model. While ΔCoVaR captures the tail dependency structure among stock markets, the cascading failure network model captures the nonlinear dynamic characteristics of tail risk contagion to mimic tail risk propagation. As an illustration, we analyze 73 markets' SRCs using a daily closing price dataset from 1990.12.19 to 2020.9.8. The validity test demonstrates that our method outperforms seven classic methods as it helps early warning global financial crises and correlates to many systemic risk determinants, e.g., the market liquidity, leverage, inflation, and fluctuation. The empirical results identify that Southeast European markets have higher SRCs with time-varying and momentum features corresponding to significant financial crisis events. Besides, it needs attention that South American and African markets have displayed increasing risk contributions since 2018. Overall, our results highlight that considering tail risk contagion's dynamic characteristics helps avoid underestimating SRC and supplement a “too cascading impactive to fail” perspective to improve financial crisis prevention.

Robo-Sukuk pricing for Chinese equities

Sukuks have assumed increasing importance in the global financial industry, with both institutional and retail investors realizing the benefits of Sukuk, both in terms of their adherence to Islamic principles, as well as being more stable and robust. The growing importance of the Sukuk markets has happened simultaneously with the significant development of China. With the financial crisis and other recent events reducing the trust and confidence of investors in the existing financial system structures, Islamic financial products have received great attention due to their connection to real assets and risk-sharing. While Sukuk financial instruments differ significantly from their conventional bond counterparts, pricing has mostly followed conventional bond pricing methodologies. This represents a significant challenge as the characteristics of Sukuk are not considered, misrepresenting the value and associated performance of the Sukuk. An innovative data-driven methodology for the pricing of Sukuk in the Chinese equity market is presented. It overcomes the challenges with conventional bond pricing methodologies applied to Sukuk pricing. The methodology integrates a deep learning framework for the estimation and forecasting of Sukuk prices, considering factors, such as cashflows, net income, and stock price performance, in addition to textual information. Illustrated on thirty major Chinese corporations listed on the Hong Kong Stock Exchange, the framework provides a more market and value-based approach to pricing Sukuk considering the partnership nature of the Islamic financial product.

Sudden shock and stock market network structure characteristics: A comparison of past crisis events

Studying the correlation structure of the stock market is crucial for systemic risk and portfolio optimization. We construct the price volatility network of the Shanghai and Shenzhen 300 index components in China's stock market in the period 2007–2020. We select three representative major emergencies: the global financial crisis in 2008, the stock disaster in 2015, and the COVID-19 epidemic in 2020. First, we find that when the stock market is impacted by the major events, the network shows a cluster phenomenon. The cluster effect of the financial crisis events is smallest, while that of the epidemic events occurs most rapidly. Second, the key nodes in the stock market network have greater risk transmission ability. The manufacturing plays a crucial role during the later stages of events, while the financial industry plays an important role during the epidemic's recovery period. Third, the network structure of the stock market has an indicator effect on the systemic risk contributions. Generally, the greater a stock's eigenvector centrality, the greater its systemic risk contribution, while its closeness centrality and clustering coefficient have opposite effects. The study has important enlightenment significance for market regulators to prevent risk diffusion and reduce portfolio risk for market participants.

Indonesian Stock Price Prediction using Deep Learning during COVID-19 Financial Crisis

This research paper aims to use the deep learning model Long Short-Term Memory (LSTM) for the stock prediction model under the financial crisis of COVID-19. The financial impact of the COVID-19 has brought many of the world's indexes down. The impact of the financial crisis is even riskier for an emerging country such as Indonesia where foreign investors tend to take out their investments in emerging countries in financial crisis events. The application of deep learning in financial time series applications such as stock price prediction has been researched extensively. This study used the (Bidirectional LSTM) BiLSTM model which is a variation of the LSTM model to predict stock closing price. The stock prediction is applied to a selected company from the Indonesian stock market using historical prices. The model is then evaluated using metrics Mean Absolute Percentage Error (MAPE) and Symmetric Mean Absolute Percentage Error (SMAPE). A graphical comparison between the actual price and predicted price of the stock is charted to study the stock price movement. To study the impact during COVID-19 on the stock prices, an intervention analysis is conducted along with the Wilcoxon model. The stock price prediction model can forecast the price of stocks before and during the financial crisis with minimal error. The intervention analysis result showed that health sectors have a positive effect while other sectors such as transportation, finance, information technology, and entertainment have a negative effect during the financial crisis of COVID-19. Being able to analyze and study the stock price movement of stocks is beneficial to investors in understanding the impact of the financial crisis on some industries and the behavior of certain stocks or industries under the circumstances which can lead to alternate investment strategies and decision making.

Causal Relationship Between Economic Growth and Energy Consumption in Jordan

Due to the current situation of the Jordanian economy, this paper aims to evaluate the impacts of economic growth on energy consumption in a developing country like Jordan, a country with limited resources such as oil, agricultural land, and water. This study is very important since the energy bill reflects a notable share in the GDP for Jordan, especially in the recent decade that witnessed energy bills rising due to different political and financial crisis events. The study investigates the causal relationship between the per capita energy consumption and economic growth (proxied by real gross domestic product per capita in constant prices) over the 1975-2011 period. A Granger causality test is utilized on annual time series data. The results of the study confirm a neutral relationship between real GDP and energy consumption, indicating that per capita increase in economic growth may not cause any perpetual rise in energy consumption in Jordan.

Causes and consequences of financial crises in 2007–2009

This article provides an asymmetric information framework to understand the nature of financial crisis. It provides the following precise definition of a financial crisis: the best investment opportunities. As a result, a financial crisis could move the economy away from equilibrium with high output, where financial markets perform well to an equilibrium in which output falls sharply.

In Lehman’s Terms - A High Level Review of Causes and Consequences of Financial Crises and Events from the 1980S to 2022 and the Resulting Legacy Implications Today

In Lehman’s Terms - A High Level Review of Causes and Consequences of Financial Crises and Events from the 1980S to 2022 and the Resulting Legacy Implications Today

Overcoming the consequences of financial crisis on the example of Island and Ireland


 Will Ireland share the fate of Iceland? Is this open, small economy with a debt-to-GDP ratio of above 130% on the verge of bankruptcy? Economists argue that if public debt is greater than national income, then smaller economies, heavily involved in the international division of labor are at risk of becoming insolvent. The bankruptcy of Ireland, whose prosperity is based on its reputation for being a good place to do business, could be a catastrophy. Contrary to the countries of southern Europe, the economy of the Green Island has never had problems with paying its liabilities and with solvency. While Greece has gone bankrupt five times since gaining independence in 1826 and Spain as many as thirteen in the past two centuries, Ireland's history in this area is impeccable (Reinhard, Rogoff, 2009, p. 3-6). Since the beginning of the 21st century Ireland's economic development has been based mainly on construction industry and not exports, as it used to be in the 1990s when the country was nicknamed the Celtic Tiger. The boom resulted in a budget surplus and a positive balance in current settlements. But it also resulted in higher prices - the Irish no longer had to accept slow wage growth to stay internationally competitive - which, combined with the low nominal interest rate of the European Central Bank, provided fertile ground for the build-up of the real estate bubble. The aim of the article is to identify the factors that led Ireland to the brink of bankruptcy and to try to answer the question whether the action of recapitalization of failing banks by the government and international financial institutions will bring the expected results in the form of healing the financial system and returning Green Island to the path of economic growth.

Stock return drivers: a mix of reasons and emotions

PurposeThe authors study the explanatory power of investor rationality and irrationality for value and momentum portfolios. We also examine the relationships during financial crisis events, namely, the US subprime mortgage crisis (2007–2009) and the European debt crisis (2011–2013).Design/methodology/approachThis study examines the influence of investors’ rationality and irrationality on the US stock market, using the multiple linear regression model and the stepwise regression model. Technically, the stepwise regression uses the machine-learning technique, with specific testing methods — forward selection, backward selection and stepwise selection — to find the best-fit model, according to Akaike’s Information Criterion (AIC). Thus, in this study, we will show the best model, as tested by the stepwise regression model.FindingsOur empirical results contribute to the importance of reasons and emotions for stock-market returns and conclude that rationality and irrationality simultaneously explain the value and momentum portfolios, as well as the ETF portfolios. Also, the rational and irrational explanatory powers differ, depending on portfolios and different periods. Rational factors usually explain the volatility of the return to a greater extent than irrational factors. Moreover, during a financial crisis, the irrational factors remarkably increase their importance in explaining returns, especially for the ETF portfolios.Originality/valueWe expect this study’s contribution will show not only academic contribution but also benefit many stakeholders in the financial market. Investors and traders can identify various irrational factors of trading — for example, taking a long position during the panic in the market following the indicators in the models. Managers also reconsider the cost of the company by adding irrational factors when computing the equity’s expected return. Similarly, stock exchanges can adequately adjust their circuit breaker during a pessimistic-investor period. Finally, regulators can evaluate a complete picture of the stock market by adding irrational factors into their considerations.

Emerging stock market volatility and economic fundamentals: the importance of US uncertainty spillovers, financial and health crises

This paper studies the US and global economic fundamentals that exacerbate emerging stock markets volatility and can be considered as systemic risk factors increasing financial stability vulnerabilities. We apply the bivariate HEAVY system of daily and intra-daily volatility equations enriched with powers, leverage, and macro-effects that improve its forecasting accuracy significantly. Our macro-augmented asymmetric power HEAVY model estimates the inflammatory effect of US uncertainty and infectious disease news impact on equities alongside global credit and commodity factors on emerging stock index realized volatility. Our study further demonstrates the power of the economic uncertainty channel, showing that higher US policy uncertainty levels increase the leverage effects and the impact from the common macro-financial proxies on emerging markets’ financial volatility. Lastly, we provide evidence on the crucial role of both financial and health crisis events (the 2008 global financial turmoil and the recent Covid-19 pandemic) in raising markets’ turbulence and amplifying the volatility macro-drivers impact, as well.

The Global Finical Crisis from an Islamic Point Of View

When the world economy suffered a new financial economic crisis, it uncovered to the world that there were major failures within the Industrial financial system and it was caused by a number of issues including the practice of interest and the terrible effect it has on the financial crisis events. Issues that will be discussed in this paper are Riba, Gambling, Uncertainty, Derivatives, Saucerization, Sell of debt, Creation of Money, and the Private “Personal” interests. However, the paper will focus on the Islamic financial system and the financial instruments which are based and designed in compliance with Shariah Rules and Regulations, whether if practicing Islamic banking would cause such a crisis to accrue. The Sukuk, of the Islamic mortgage-Backed securities (MBS), and Islamic future contract will be discussed in order to prove why using the Islamic Financial system is better to assure that this kind of global crisis doesn’t come to pass again.

DO INTERNATIONAL GOLD PRICES AND NSE NIFTY 50 MOVE TOGETHER?

With gold’s persistence performance over erratic periods since the catastrophic event of global financial crisis in 2008, attention is focussed on gold to substitute stock market investments in the times of crisis. Exploring such causal nexus between NSE NIFTY 50 index and Gold prices in Indiapost 2008 crisis is the main focus of the present research. The daily data of International Bloom berg Gold prices and NSE NIFTY 50 Index series has been used over the time period of November 13, 2008 to January 24, 2020. By applying unit root and Toda-Yamamoto granger causality test, study primarily shows stationarity of the variables at different order. The study evidenced the significant bidirectional short-run causal relationship in between NSE NIFTY 50 prices and International Gold prices. Hence, International Gold prices hold significant information which can be used to predict NSE NIFTY 50 returns and vice-versa. The results of present study can be used by Indian stock market policymakers to implement new structural restructuring to augment efficiency of Indian equity sector. Present study is limited in scope to account for gold’s nexus with only stock market index which in future can be furthered by establishing association with other commodity markets, mutual funds, exchange rate, derivative, etc.

Financial Crises and Human Development

This study examines the impact of financial crises on human development over a panel of 113 countries for the years 1980-2017. Special attention is given to the effects of different types of financial crises on overall human development and its components: health, education, and income. Relying on a System-GMM estimator, this study finds that financial crises are more important than political, institutional, and economic factors to explain the human development dynamics. Moreover, all types of financial crises have both short- and long-run adverse effects on human development and its components. Such deteriorations are permanent and increase the burden for future generations, especially for low-income households. Nevertheless, education is less affected by financial crises than health and income. Furthermore, low- and middle-income countries pay a higher price, in terms of human development loss, than developed countries as consequences of financial crises.

The Influence of Economic and Institutional Factors on the Development of Entrepreneurship in the Regions of Russia

The article presents an empirical analysis of the impact of the political and economic consequences of financial crises on the development of entrepreneurship in the regions of Russia. Entrepreneurship development contributes to economic growth and can play an important role in stimulating long-term sustainable development, as well as reducing unemployment by creating jobs. The data sample of the study covers the period from 2006 to 2016. Two groups of indicators are considered: institutional and economic. The first group includes indicators of the effectiveness of the judicial system and the level of criminality. The second group includes indicators characterizing the degree of integration of the Russian companies into the global economy. In addition, the indicators of the quality of social infrastructure, the degree of intercompany competition, market density and some others are taken into account. Model assessment is based on the OLS method. This paper shows that the effectiveness of the judicial system in resolving disputes related to non-compliance with contracts and non-payment of debts does not affect the business development in Russia. However, one of the main problems faced by Russian business owners is the high level of corruption. Moreover, the weak diversification of the Russian economy is a key factor in the negative impact of external economic shocks. We found a significant role of factors like the size of the internal regional market and the share of residents connected to the Internet. The latter factor shows that at present information technologies play an important role in modern Russian business, creating additional opportunities for expanding existing businesses as well as creating new ones. We came to the conclusion that the problem of corruption is growing, as a significant barrier to companies entering the market.

After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade

Are financial crises a negative shock to aggregate demand or supply? This is a fundamental question for research and policy making. Arguments for stimulus usually presume demand-side shortfalls; arguments for tax cuts or structural reform look to the supply side. Resolving the question requires models with both mechanisms, and empirical tests to tell them apart. We develop a small open economy model, where a country is subject to deleveraging shocks that impose binding credit constraints on households and/or firms. These financial crisis events leave distinct statistical signatures in the time series record that divide sharply between each type of shock. Empirical analysis reveals a clear picture: after financial crises the dominant pattern is that imports contract, exports hold steady or even rise, and the real exchange rate depreciates. History shows financial crises are predominantly a negative shock to demand. (JEL F14, F31, F41, G01, N10, N20, N70)