Financial Market Actors Research Articles

THE EFFECT OF FINANCIAL STRESS ON STOCK MARKETS: AN EXAMPLE OF MINT ECONOMIES

Increasing uncertainties due to developments in financial markets lead to uncontrollable financial behaviors. Financial stress indices are created by taking into account many different financial indicators directly related to the financial system. So, it is important to examine the impact of financial stress indices on stock markets, which have an important share in financial markets. The paper aims to investigate the short and long-term effects of emerging markets' financial stress index (EFSI) and global financial stress indices (GFSI) on the stock markets of MINT (Mexico, Indonesia, Nigeria, and Turkey) economies. For this purpose, analyses were made using the ARDL (Autoregressive Distributed Lag) Bounds Test method using weekly data for the period 10/01/2014-26/04/2024. It has been determined that EFSI and GFSI negatively affected the benchmark stock market indices of all MINT economies in the short term and that the negative effect continued in the long term but it has been significant for only EFSI in all MINT economies, as important results of the analysis. It has been determined that following financial stress indices can be a leading indicator for stock market investors. It is hoped that the results of the paper may be useful for financial market actors who are considering investing in these markets.

Dynamics of a Newly Established Agricultural Commodities Market: Financialization, Hedging and Portfolio Diversification in Turkey

The purpose of this study is to investigate the dynamic relationship between financial assets and agricultural commodities market in Turkey. For this purpose, first, this study investigates financialization of agricultural commodities with a newly established agricultural commodities market of Turkey. Second, this paper analyzes hedging and portfolio diversification performances of agricultural commodities. By employing the DCC-GARCH approach of Engle (2002) and spillover index approach of Diebold and Yilmaz (2014), we analyze the financialization of agricultural commodities and calculate optimal hedge ratios and portfolio weights between two classes of assets. The results show the financialization of agricultural commodities at a very early age in Turkey. There exists a low degree of comovements and volatility spillovers between financial assets and agricultural commodities. Second, we show that agricultural commodities do not hedge financial investments sufficiently but they perform very well in terms of diversification and boost portfolio performances. Considering the previous limited literature on the topic, this study contributes to the literature by displaying the dynamics of a newly established agricultural commodities market in an emerging market. The findings of this study have many important implications for farmers and producers of agricultural commodities, and financial market actors such as individual investors, hedge funds and investment banks in terms of risk management and hedging.

Geopolitics and Hong Kong as international financial centre: a dynamic IPE perspective

ABSTRACT This article examines the impact of US–China geopolitical tensions on Hong Kong as an IFC, and how Hong Kong is coping. Utilizing a dynamic IPE perspective, it details how Hong Kong officials, financial market actors and corporations have responded to the punitive US measures against Hong Kong and China in 2020 and 2021, measures that are tantamount to commercial and financial warfare on China and the city, but also that work against the interests of US corporates in Hong Kong. The analysis highlights Hong Kong’s competitive resiliency as an IFC, from 2019 to early-2022, and the sources of its resiliency.

Risking the Planet. How Finance Understands the Natural Environment

This paper employs the concept of cognitive frames to answer the question of how financial market actors understand the natural environment. It argues that financial risk serves as frame making the environment meaningful within finance. Advancing the concepts of frames and framing, the notion of nested frame structures is introduced to show how this risk frame relies on a series of subframes in instructing and shaping financial market actors’ behaviour, action and judgement. While making the natural environment more meaningful within finance, this nested frame structure decouples thinking about the planet’s climate from ideas of environmental sustainability. The paper also shows, however, how the preliminarity of this frame structure can facilitate partially emancipatory interventions into its structure and use. Thus, this paper contributes to the literature mapping the limitations of environmental risk as vehicle for ‘green’ finance.

High frequency volatility forecasting: A new approach using a hybrid ANN‐MC‐GARCH model

AbstractRisk permeates more and more financial markets around the world. It is an essential element that all financial market actors attempt to model and manage. This paper proposes a novel model that improves the predictive accuracy of high frequency volatility forecasts. The ANN‐MC‐GARCH model is therefore developed in this research. The hybrid model enhances the MC‐GARCH conditional variance model by including endogenous market variables in a feed forward network which models volatility in terms of past disturbances and variances. The forecasting accuracy of the novel ANN‐MC‐GARCH is evaluated against the classical MC‐GARCH model. The empirical investigation employs the 1‐min high frequency observations of four exchange rates (USD/EUR, USD/GBP, USD/JPY & AUD/JPY), three market indices (France 40, UK 100 & USA 500) and two metal commodity indices (Spot Gold & Spot Silver). The backtesting method employs the RMSE and MAE performance metrics, the out‐of‐sample , the Diebold‐Mariano test and the Model Confidence Set (MCS) procedure. The empirical findings show that the hybrid model is superior to the MC‐GARCH model for the nine datasets.

Experts versus representatives? Financialised valuation and institutional change in financial governance

ABSTRACT Valuation devices and institutional change are key aspects of financialisation, but have been largely separated in the literature. This article explores the causal link between both concepts. We draw on the linked ecologies framework to argue that financialised valuation, such as market valuation of assets and liabilities, creates opportunities for financial experts to influence policy processes. Making use of their institutional position, experts frame policy problems to advance further financialisation as a solution. So doing, they perform essential boundary work to tie authority over financial knowledge to their social position as financial market actors. The result is a process of endogenous institutional change, whereby financial experts increasingly displace other actors in governance arrangements. We illustrate this argument providing a case study of pension fund governance in the Netherlands. There, financialised valuation requirements led to a crisis of pension funding, to which policymakers responded by strengthening experts’ positions on pension fund boards, thereby eroding century-old corporatist institutions. We show how the infrastructural entanglements between financial markets and the state in the Dutch pension system not only benefited financial actors’ institutional positions, but also point to limits of financial agency as the state increased its own capacity over a formerly corporatist domain.

Looking into bubbles in financial markets and the emotional side of corporate forecast completion through modeling in the structured query language of financial databases

Subject. The study focuses on a set of financial and economic indicators of corporate performance and metrics of the financial market actors’ sentiment, financial indicators in markets and the way they change over time as markets face dramatic events. The article discusses techniques for applying the information of the financial and economic condition in modeling based on structured word language. Objectives. Analyzing key Russian and foreign sentiment measurement means, I try to create a toolkit, which would be applicable to the valuation and provides a balanced view of the financial and economic condition of companies with reference to the market sentiment. Methods. The article applies methods of induction and deduction, modeling. I demonstrate the relationship of methods and the methodology with new technological means of modern IT systems. Results. Modeling the completion of forecasts, plans and measuring the sentiment, I discovered that key statements and behavioral finance mechanisms manifested in the process. Modeling based on two scenarios and two types of models appeared to be the most illustrative. When forecasts, profit and revenue turn to be higher than expected and when they are lower. Studying bubbles in financial markets, I coined a respective model tested with cases of air lines. The applicable tests, such as the quality of revenue, percentage of deferred income in revenue, sentiment index of the companies show that revenue indicators and sentiment indices are on average poorer in companies with the worst indicators on the sample. Conclusions and Relevance. Given new capabilities of modern information systems, financial analysts get more opportunities for programming, creating user models with needed configurations and extensive database. There we have simplified primary data collection and processing when financial analysts use the data. The findings are applicable to practices of modern appraisers, cost and fundamental analysts. The use of models herein supplements and expands a conventional set of valuation tools and improves the quality of valuation.

The politics of welfare state financialisation: the case of Israel’s ‘Saving for Every Child’ programme

ABSTRACT Expanding financialisation of the economy and society represents a constitutive feature of the neoliberal regime. This process is also underway in various domains of state action, including the welfare state. This article uses a case study of financialisation of a cash transfer programme – the establishment of the Israeli ‘Saving for Every Child’ programme – to tackle two main questions: Which political constellations are likely to promote financialisation in social policy? And, what are the ramifications of financialisation for the politics of the welfare state? The study suggests that in a context of conflict between redistributive demands and opposition to the decommodifying effects of universal cash benefits, financialisation provides a political solution which satisfies the former while subordinating it to principles of commodifying social investment. The study further indicates that the financialisation of redistributive policies changes the politics of the welfare state by making financial market actors and considerations an integral part of welfare policy-making processes

The Strategic Logics of State Investment Funds in Asia: Beyond Financialisation

ABSTRACT Financialisation presents a constraint on state power. It also offers opportunities. State-led development, with the Asian experience at the forefront, is increasingly operationalised through different forms of state investment funds. Some of these funds have a strategic development mandate underwritten by a shareholder-value logic. While financialisation as a concept gives meaning to the embrace of the shareholder value model to explain the convergence of sovereign funds with operational practices and guiding norms of conventional financial market actors, it is insufficient in explaining how and why state investment funds differ from conventional financial actors and the underlying political dynamics that drive their emergence and evolution. To address this gap, this article advances three strategic logics: a developmental logic, a logic of regime maintenance, and a geo-political legitimacy logic. Reference to these logics provides a more nuanced understanding of state financialisation, avoiding a potentially narrow reading presented by the convergence dynamics inherent in the adoption of conventional financial practices. As such, this article contributes to emerging debates in political economy on the employment of financial logics in the pursuit of economic and political statecraft. The argument is developed empirically through an analysis of strategic investment funds in Singapore, Malaysia and Kazakhstan.

The audit of public debt: Auditing as a device for political resistance in a neoliberal era

Most neoliberalism accounting studies present accounting and auditing as tools to reaffirm and rationalize the neoliberal order, but this is not, in fact, universally true: they may also be mobilized within strategies of resistance to neoliberalism (Andrew & Cahill, 2017). However, the ways in which auditing can be used as a tool of resistance to the neoliberal order remains underexplored. The present paper contributes to the auditing literature by studying the case of the public debt renegotiation of Ecuador (2007–2009), in which the government specifically resorted to an audit of its public debt when it tried to renegotiate, at its advantage, an important cutback of said debt; a debt to which neoliberal measures have been tied. By examining the ways auditing was mobilized by the Ecuadorian government and the reactions of financial market actors to the debt audit, this paper provides insights into the role that auditing can play in society as a device of political resistance.

Unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism – A response to Karthik Ramanna

Abstract Karthik Ramanna’s article titled “unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism” provides a critical insight into how Fair Value Accounting (FVA) was incorporated into the conceptual framework for general purpose financial reporting. Karthik reveals that the installation of FVA into the FASBs constitution can be understood through a framework: conceptual veiling. In this framework, the FASB is captured within the logics of financial market economics, assuming investors and capital market actors are best served by financial disclosures that reflect market valuations. Captured by these interests, the FASB needed to modify the narratives contained in the conceptual framework removing reliability and substituting faithful representation because much of what constitutes FVA disclosures are estimates and judgements of questionable reliability. A more forceful critical evaluation of the re-orientation of accounting practise from Historical Cost Accounting to FVA might have located changes in the context of the financialized company.

The politics of creditworthiness: political and policy commentary in sovereign credit rating reports

AbstractHow much do politics and politically sensitive policy choices matter for sovereign credit ratings? We contend that while policy is consistently important for rating decisions, attention to politics varies with perceived uncertainty. Quantitatively analysing the text of 635 sovereign rating reports issued by Standard and Poor’s (S&P) between 1999 and 2012 for 40 European countries, we find that S&P scrutinisespolicywith similar intensity across countries, butpoliticalscrutiny was less intense in developed countries and prospective European Union members (categories formerly associated with lower uncertainty) than in emerging countries until the crisis dispelled illusions of lower uncertainty in these categories. Our findings nuance the common notion that financial market actors allow countries perceived to belong to low-risk categories more “room-to-move” in their political and policy choices, by showing that in rating decisions such permissiveness only applied to politics – but not to policy – and it ended with the global financial crisis.

A Construção Social de uma Corporação Transnacional

O artigo discute as relações Estado-mercado no Brasil a partir da afirmação de um novo regime de governança corporativa (GC) como ordem institucional e seus efeitos de poder sobre os agentes políticos e econômicos. Desse modo, integra as transformações conjunturais na ação de agentes proprietários, gestores e do Estado em uma explicação da mudança institucional em uma corporação de origem brasileira, a Vale S.A., analisando a emergência da “nova governança corporativa” da Vale. Argumenta-se que uma nova estrutura de pressões intra- e inter-corporativas condiciona o enquadramento da corporação ao modelo anglo-americano de GC, com efeitos relevantes para a conformação da firma e de seus agentes. A investigação empregou análise documental, enfocando predominantemente relatórios corporativos e documentos de mídia, além de técnicas de observação participante. Os resultados são consistentes com um processo de reconfiguração da estrutura de poder interna à Vale, com perda relativa de influência dos fundos de pensão, banco público e Governo Federal, mas também retração de autonomia de seu quadro dirigente, em favor de investidores institucionais externos e de agentes do mercado financeiro.

Rating the Raters: Evaluating how ESG Rating Agencies Integrate Sustainability Principles

Environmental, social, and governance (ESG) rating agencies, acting as relevant financial market actors, should take a stand on working towards achieving a more sustainable development. In this context, the objective of this paper is, on the one hand, to understand how criteria used by ESG rating agencies in their assessment processes have evolved over the last ten years and, on the other hand, to analyze whether ESG rating agencies are contributing to fostering sustainable development by the inclusion of sustainability principles into their assessment processes and practices according to the ESG criteria. This research is based on a comparative descriptive analysis of the public information provided by the most representative ESG rating and information provider agencies in the financial market in two periods: 2008 and 2018. The findings show that ESG rating agencies have integrated new criteria into their assessment models to measure corporate performance more accurately and robustly in order to respond to new global challenges. However, a deep analysis of the criteria also shows that ESG rating agencies do not fully integrate sustainability principles into the corporate sustainability assessment process.

Innovation in times of financialization: Do future-oriented innovation strategies suffer? Examples from German industry

Shareholder value, short-term strategies, quarterly financial reports, and performance-based remuneration are strong indicators of a financial market-oriented company. It is questionable whether innovativeness and sustainable innovation capabilities can be maintained in times of financialization focused on short-term efficiency instead of free space for creativity and learning. Using the example of established German industrial companies, I examined the extent to which financialization and financial market actors steer innovation strategies and practices. In-depth interviews with companies, cluster managers and banks and reviews of financing data do not reveal a direct influence of financial investors on innovation activities. On the contrary, companies’ managements still have the power to decide how much financial control and standardization they allow for their companies’ innovation practices. The pressure on these German companies to innovate comes from their strong market orientation rather than from financialization.

Financing a Just Transition

Climate goals can only be realized with a major shift in financing toward low-carbon, climate-resilient assets, notably infrastructure. Progress has been made, but the world is not currently on a viable let alone a just transition pathway. The rules and norms governing the financial system itself are an important factor shaping financial flows. Positively, recent developments highlight a growing receptivity on the part of financial market actors and those governing the financial system to take account of climate and broader sustainable development considerations. Building on such receptivity to reinforce the underlying broader purpose the financial system is a precondition for a just transition.

Financial market actors as urban policy-makers: the case of real estate investment trusts in Brazil

ABSTRACTFocusing on the growth of Real Estate Investment Trusts in Brazil, the paper explores how financializing policy instruments intertwine financial markets and the urban built environment. It studies the career of REITs and questions the role of financial market capital and actors in urban dynamics. The paper uncovers three processes usually considered separately: i) how a network of public and private financial market actors coaxes state bodies into using their regulatory powers and financial resources to transform real estate into an asset class; ii) how the government-run financial market authority and banks lure urban households into liquid real estate through marketing and education campaigns; and iii) how asset managers are “applied economic geographers” insofar as they channel households’ capital into a selected cities and properties. The active role played by financial actors in the design, enhancement and implementation of such a policy instrument leads us to conclude on their role as urban policy-makers.

Financialisation and the Pension System: Lessons from the United States and the Netherlands

Financialisation and the Pension System: Lessons from the United States and the Netherlands The articles explores the financialisation of private pensions in the United States and the Netherlands. It proposes two distinct arguments. First, the article shows that both the American and the Dutch pension systems stand out internationally for their high degrees of capitalisation and the absence of substantive investment restrictions for pension funds. The article posits that both pension systems are highly financialised, yet the process of financialisation has proceeded along different historical paths and within different institutional contexts. Secondly, the article maintains that the financialisation of pension systems is accompanied by its own political dynamics. In both political economies, different groups of actors (employers, labour unions, financial professionals) have made claims over the growing concentration of pension assets. Here, particular emphasis is given to the role of the state. It shows how since the mid-1970s, both American and Dutch pension funds have altered their investment strategies, abandoning public debt as the dominant investment category. The article explains this change in terms of the rising popularity of modern portfolio theory and the immense growth of pension capital in need of new investment options. As austerity politics have made governments more dependent on financial markets, pension funds have become more assertive in leveraging their assets and demanding political reform which are in the interest of the financial industries. Financialisation has thus fundamentally altered the balance of power between the state and financial market actors.

Global finance as a politicized habitat

AbstractPredominant models of financial regulation based on representative agents—in both the public interest and public choice traditions—assume that competitive pressures in financial markets undermine prudential behavior by firms in the absence of regulation. One empirical expectation of these models is behavioral: firms should adjust their risk-taking behaviors in response to the regulatory environment they face but should not over-comply with regulations. That is, the central tendency of bank behaviors should hew closely to regulatory minima and the variance should be small. I first demonstrate that this expectation is not borne out by the empirical record and then advance a theoretical argument that does not rely on a representative agent model. I argue that firms face a range of incentives from markets and governments that condition their risk-taking behaviors, and firms choose a “preferred habitat” within a market structure. Some of these incentives are towards greater risk-taking, while others are in the direction of greater prudence. This framework provides opportunities for examining financial market actors in a realistic context, and offers ways to unify micro-level and structural analyses of the political economy of global finance.

Asymmetry in Empowering and Disempowering Private Intermediaries

This article analyzes the empowerment and disempowerment of credit rating agencies (CRAs) as private regulatory intermediaries. Until the recent financial crisis, regulators heavily relied on private credit ratings to impose risk-sensitive requirements on financial market actors (targets). Regulatory use of credit ratings was instrumental in empowering CRAs because regulatory authority was delegated to them and their own private power was bolstered by public endorsement. But regulators’ subsequent efforts to disempower the CRAs—more recently regarded as dysfunctional “runaway” intermediaries—have proven costly, complicated to do, and hardly consequential in limiting CRAs’ de facto power. This dynamic reveals a path-dependent power shift in favor of private intermediaries that is more pronounced (1) the larger the intermediary’s own sources of power when an RIT arrangement is established, (2) the larger the transfer of authority to the intermediary, and (3) the longer regulators rely on the intermediary.