Financial Market Research Articles

An Investigation of Predictability of Traders' Profitability Using Deep Learning

Trading in the financial market is a daunting task in spite of the attracting increase of the daily turnover of the Forex financial market from 6.5 trillion USD in 2022 to approximately 7.5 trillion USD in 2024. About 80% of retail investors lose money. However, to minimize the risk of losses, investors explore the possibility of profitable trading by resorting to social trading. In social trading of the financial market, the performance statistics and performance charts of traders with diverse trading strategies, methods and characteristics are showcased by the financial market brokers to enable investors decide on which trader’s signal to adopt or copy for profitable investment. However, investors are often faced with the problem of choosing a set of profitable traders among thousands with different past hypothetical results, in spite of the provision of traders’ performance ranking, made available by the brokers. The investors have serious concern on the stability, sustainability and predictability of a trader’s future performance which will eventually determine the investors profit or loss if the trader’s signals are copied or followed. This paper applies three deep learning models: the multilayer perceptron, recurrent neural network and long short term memory for the prediction of traders’ profitability to provide the best model for investment in the financial market, and reports the experience. The results of the study show that recurrent neural network performs best, followed by long short term memory while multilayer perceptron yields the least results for the prediction. These three models yield a mean squared error of 0.5836, 0.7075 and 0.9285 respectively in a test scenario for a trader.

The impact of judicial prejudice in bankruptcy on creditors and local financial development

In this research, we explore the implication of judicial prejudice in bankruptcy for creditor interests and local financial market development. Based on prefecture-level data, we find compelling evidence that judicial prejudice leads to capital market frictions. Regions with stronger judicial prejudice have higher borrowing costs. Moreover, judicial prejudice is negatively related to local financial market development. In sum, our research sheds light on the impact of judicial prejudice on financial market development.

Research on the Impact of Economic Development on Financial Derivatives

This paper aims to further investigate the impact of economic growth on the demand for financial derivatives, provide effective support to financial market participants and investors, and promote the stable development of financial markets. Firstly, time series analysis models, including autoregressive, mixed autoregressive, and moving average regression, are established by considering various factors in the financial market. Secondly, the basic characteristics of financial derivatives are thoroughly analyzed, and relevant variables are selected for explanation. Finally, the paper elucidates the fundamental functions of financial derivatives and their role in economic growth. The empirical results show that the correlation coefficient between non-financial institution derivatives and enterprise value is 0.2049, and the impact of enterprise economic growth on derivatives demand is 0.0003. Through time series analysis, the study reveals the impact mechanisms of economic cycles, business fluctuations, and other factors on the financial derivatives market, providing effective support for investors and participants.

In Search of Sustainable Finance

Financial market is expected to play an important role in transition towards more sustainable setup of the business environment. The European Commission published the EU’s Strategy for Financing the Transition to a Sustainable Economy in 2021, requiring the inclusion of environmental, social and governance considerations into investment decision making. Yet, small, open EU economies, such as Slovakia, are in a specific position when implementing this legal framework. For instance, Slovakia does not have any meaningful stock market to speak of, although its bond and collective investment markets perform better. To assess the adoption of sustainable finance elements and to assess the convergence on the Slovak bond market towards standard practice, we investigated current practices on the corporate bond market of nonfinancial corporations. We conducted our research through a review of corporate bonds prospectuses published during 2020-22, in which, to assess current market practices, we examined and evaluated selected criteria and indicators related to issuers and bonds and compared them. These criteria include for example issuer´s business and purpose of finance, form, yield, security, or transferability of bonds. We find that relevant variable criteria and indicators related to reviewed bonds, compared in our research, are similar, indicating that the market converged into a standard practice. Finally, we find almost no evidence of adoption of the sustainable finance elements although there are hints of market uptake of sustainable practices.

Do Investment Funds Audited by the Big Four Firms Exhibit Different Performances? Evidence from Brazil

Investment funds manage a portfolio composed of financial instruments; therefore, their accounting reports should undergo a careful process of preparation and auditing. The main purpose of this study is to analyze the effect of being audited by a Big Four audit company on funds’ risk-adjusted performance. The database is composed of equity funds from the Brazilian financial market, with daily returns spanning from January 2005 to March 2023. The funds’ performance was measured based on three indicators, including the Sharpe Ratio and Jensen’s Alpha. Fama and MacBeth regressions were used to test the hypotheses. The main findings indicate that the benefits of audit quality also include a positive effect on the risk-adjusted performance of investment funds, as the coefficient of the variable “Big Four” was positive and significant based on the proxies for risk-adjusted performance. This study advances this area of research by demonstrating the effects of the type of audit on the risk-adjusted performance indicators of investment funds.

Structural Changes in the Impact of Covid-19 Pandemic on the Performance of Financial Markets. Stock Market by Using Least Squares WHTI Breaks

The global outbreak of COVID-19 in 2020 became unprecedented and sent shockwaves through financial markets worldwide. This study investigates the impact of the pandemic on the performance of the U.S. financial market from March 1, 2020, to April 14, 2022. Utilizing Bai and Perron’s (1998) least squares with breaks during this period. The study’s test findings validate the existence of seven structural changes, signifying the occurrence of eight effects of independent factors on the S&P 500 index. The empirical findings demonstrate a substantial influence of COVID-19 pandemic on the performance of financial markets. Specifically, the impact of the number of COVID-19 cases and new fatalities on financial market performance, exhibits variations in terms of direction, nature, depth, and level. Based on an analysis of the structural changes, it can be inferred that the initial period exhibits the most pronounced negative impact on the number of new COVID-19 cases. Subsequently, the direction and nature of this impact undergo a transformation from the second to the eighth periods. Specifically, the impact of the number of new COVID-19 cases becomes positive in the second, third, sixth, seventh, and eighth periods, gradually diminishing until it reaches its lowest levels of impact in the eighth period. The research further identifies a detrimental impact on the occurrence of new fatalities. However, the periods spanning from the third to the fifth period exhibit very modest levels of influence, which then transition into a beneficial effect during the fifth period. Moreover, the research reveals that the impact of mortality rates on the performance of the United States stock market was greater than that of COVID-19 cases across all periods linked to structural changes. Additionally, the exchange rate of the dollar has a consistent and favorable impact, and the real interest rate has a pronounced negative impact, which gradually reduces over time and eventually transitions into a positive value by the eighth period.

Theory of Regulation of Financial Markets: Reasons and Methods

Financial market regulation serves stability and protection. The purpose of risks and risk management is to prevent the phenomena of too big to fail, too interconnected to fail, and moral hazards at the micro and macro levels that could lead to a cascading impact. Consumer protection is addressed through disclosure requirements and educational initiatives, shielding consumers from predatory practices. The regulations extend to environmental and societal impacts, promoting sustainable and ethical finance, encouraging environmental practices transparency and incentivising green finance. Ethical finance aligns with global ethical standards and religious principles, shaping financial practices. Governments and international bodies collaboratively establish a multi-level regulatory framework, including national, supranational, and international levels. On the one hand, the different levels and binding rules provide flexibility, but at the same time, this makes uniformity difficult; harmony and consistency require careful supervision and oversight. Regional and national variations may exist in regulatory structures.

Does a country’s sovereign credit rating drive capital inflows into emerging European markets? Evidence from Balkan region

This study investigates the impact of sovereign credit ratings on capital inflows and their composition for emerging European economies in the Balkan region. This study sheds light on this nexus by selecting Bulgaria, Croatia, Greece, Romania, and Slovenia between 2006-2018 using panel data analysis. The estimation results underscore that a sovereign credit rating is a significant driver of capital inflows, and a decline in sovereign credit risk leads to increased foreign direct investment and portfolio inflows. Furthermore, the estimation results demonstrate the importance of the country’s specific pull factors and reveal that a country characterized by a larger market size, better institutional quality, a stable macroeconomic environment, and a more developed financial market could attract more capital inflows. Moreover, the results highlight that global risk and liquidity push factors have a significant effect on driving cross-border capital inflows into the Balkan economies. The findings suggest that policymakers should reduce sovereign credit risks and increase the country’s absorptive capacity and competitiveness in order to attract more capital inflows to the investigated Balkan countries.

Sejarah Perkembangan Kebijakan Ekonomi Pada Masa Orde Baru dan Pengaruh Krisis Moneter terhadap Perekonomian Indonesia

The history of economic policy development during the New Order era in Indonesia reflects the political and economic dynamics that shaped the nation's development trajectory. Initially, the New Order government adopted a centralized and authoritarian economic development model, emphasizing industrialization and modernization. While these programs spurred economic growth, they also led to social inequality and political tensions. The late 1990s currency crisis, particularly the 1997 Asian financial crisis, significantly destabilized Indonesia's economy. Economic policies of the New Order era, characterized by dependence on foreign debt and imprudent monetary practices, rendered Indonesia susceptible to global financial market fluctuations. The impact of the crisis was profound, manifesting in a sharp decline in economic growth, a currency crisis, and a banking crisis, which compelled the government to implement urgent economic reforms. These reforms included financial sector restructuring, economic deregulation, and enhanced transparency in public financial management. This study provides an in-depth analysis of the New Order's economic policies and the subsequent impact of the currency crisis on Indonesia's economy.

Central Bank Interventions During Episodes of Financial Market Dysfunction: Lessons for the Future

Central Bank Interventions During Episodes of Financial Market Dysfunction: Lessons for the Future

Impact of Oil Price Shocks on Crypto and Conventional Financial Assets during Financial Crises: Evidence from the Russian Financial Market

Impact of Oil Price Shocks on Crypto and Conventional Financial Assets during Financial Crises: Evidence from the Russian Financial Market

Counteraction of Russian Finance Market Against External Sanctions Pressure

The article shows the impact of external economic sanctions on the Russian financial market. Special attention is paid to the currency, commodity and derivative markets of the Moscow Stock Exchange. The main focus of the work is the analysis of changes in market dynamics and pricing under the influence of political and economic constraints. Methodologically, the study is based on a comprehensive analysis of trade session data, including statistical processing and modeling of market reactions. The use of actual analytical methods made it possible to identify nonlinear dependencies and hidden patterns of behavior of market participants. The results of the study demonstrate that sanctions have had a significant impact on volatility, liquidity and market structure. The authors show the influence of political factors on financial instruments in a crisis, as well as develop new methodological approaches to analyzing financial market data. The results of the work can be used to coordinate trading strategies, develop market regulation policies and assess risks in conditions of political instability. The study also provides a basis for further analysis of the consequences of economic sanctions and the development of strategies to adapt to changing market conditions.

Literasi Perbankan Syariah Untuk Meningkatkan Akselerasi Inklusi Keuangan (Studi pada Bank Syariah Indonesia (BSI) KCP Probolinggo)

This research aims to analyze the literacy used by syariah banking in increasing the acceleration of financial inclusion at BSI KCP Probolinggo. This research explores the impact of the role of syariah banking literacy on accelerating financial inclusion, in the context of inclusive and sustainable syariah banking. This topic was chosen to fill the gap in understanding the contribution of syariah banking literacy to the development of financial inclusion, which is a crucial aspect in building a sustainable syariah financial institutional environment. The qualitative approach used in this research is a case study type. The selection of objects at BSI KCP Probolinggo was based on considerations because the bank is one of the syariah financial institutions that plays an important role in the development of syariah finance in the Probolinggo area. The techniques used to collect research data consist of in-depth interviews, participant observation, and documentation. Where the research data consists of primary data obtained from several research informants, namely the director of BSI KCP Probolinggo, three employees of BSI KCP Probolinggo, five customers of BSI KCP Probolinggo. Meanwhile, secondary data was obtained from national and international journals that were relevant to research. The data analysis techniques used consist of data reduction, data display, and drawing conclusions. The research results show that syariah banking literacy in increasing financial inclusion is carried out by providing financial education, holding promotions and marketing, and conducting outreach through various media. Syariah banking literacy has a significant impact on increasing financial inclusion.

Financial Crisis, Confidence in Financial Markets and Participation in Private Pension Plans in Germany

The financial crisis of 2008/2009 has not only left its mark on the value of retirement savings, but also on savings and investment behaviour. It has led to a loss of confidence in financial markets and its main protagonists. However, trust is a key mechanism for savings and investment decisions. We illustrate the loss of trust by looking at the number of pension plans purchased in the years following the financial crisis. The paper is based on data of the study on ‘Life courses and old-age provisions’ (LeA, Lebensverläufe und Altersvorsorge). The data was gathered in 2016 and provides information on the life histories of people living in Germany who were born between 1957 and 1976, as well as on pension entitlements in all three pillars of the German pension system. The analysis concentrates on so-called Riester pension plans, the most dynamic private pension scheme in Germany. We estimate a panel fixed-effects logit model to examine whether the financial crisis had an impact on the participation in Riester pension plans. Results show that instead of a shock effect relating to the crisis years, we see a negative linear effect following the crisis.

Analysing Financial Market Integration between Stock and Precious Metals Indices

Given the global pandemic in 2020 and the Russian invasion of Ukraine in 2022, there is renewed interest in understanding the integration between the Dow Jones (United States), Amman SE General (Jordan), BLSI (Lebanon), EGX 30 (Egypt), ISRAEL TA 125 (Israel), MASI (Morocco), MOEX (Russia) stock indices and the precious metals Gold Bullion LBM, Silver, Handy & Harman, London Platinum, in the period from 1 January 2018 to 23 November 2023. The study aims to address two key questions: i) Have the events of 2020 and 2022 influenced the integration between the capital markets of MENA countries and precious metals? ii) In the case of a significant increase in integration, will this imply a trend towards efficiency or inefficiency in the markets analysed? The results of the cointegration tests show an increase in integrations between the Tranquil and Stress subperiods; for example, platinum rose from zero integrations to 4, being the market most affected by the events of 2020 and 2022, the MOEX increased from 3 to 6 integrations, the Dow Jones index rose from 1 to 3 integrations, the Amman SE General from 1 to 2 integrations. On the other hand, the ISRAEL TA 125 index decreased from 5 integrations in the Calm period to 1 integration during the Stress period. The EGX also decreased from 2 integrations to one integration, the MASI from three to zero integrations, and gold from 1 integration to zero. The BLSI stock index maintained its 1-1 level of integrations, while silver also followed the same 2-2 trend. These results do not allow acceptance of the first research question since it was found that there were increases/decreases in integrations during the 2020 and 2022 events. The DFA slopes were estimated to answer the second research question since most markets showed significant persistence. However, it was found that this persistence did not coincide with an increase/decrease in the level of integration between the markets analysed. Given these results, the second research question was also partially rejected. In conclusion, the results of this study have significant implications for international investors operating in the financial markets of MENA countries.

SARIMA Model-Based Monte Carlo Simulation of Option Contract Design for Maize Seasonal Heavy Precipitation in Shenyang

Agricultural production is highly dependent on weather conditions such as temperature, light, water and heat. The huge loss caused by extreme disaster weather makes the global insurance and reinsurance market overwhelmed, and seriously affects the enthusiasm of agricultural investment and the development of agricultural economy. With unique topography and vast territory, China is vulnerable to complex and diverse climate disasters. In recent years, the annual average economic loss caused by extreme weather disasters has reached about 200-300 billion yuan, among which floods caused by extreme heavy rainfall are the main agricultural disasters in China. In order to enhance the "farmer - insurance company - government" interest association to resist the risk of flood disaster caused by extreme heavy rainfall, financial hedging derivatives of weather disaster risk have gradually become a new hedging tool besides traditional insurance and reinsurance. This paper takes Shenyang, the main grain producing area in northeast China, as the sample of the study area, and uses the SARIMA model to obtain the distribution characteristics of seasonal rainfall time series. Different seasonal rainfall index option products (call option and put option contracts) are designed respectively, and the final option pricing is obtained by Monte Carlo stochastic simulation. The seasonal rainfall call option and put option contracts have opened up a new hedging model of agricultural extreme weather catastrophe outside the insurance and reinsurance market, which has enriched the varieties of weather financial derivatives market in China, reduced the severe impact of extreme weather disasters on agriculture, and enhanced the ability of agricultural stakeholders to resist the risk of extreme weather disasters.

Neural Networks and the Nonlinear Feynman–Kac Theorem Applied to Financial Options Pricing

The classic financial market model proposed by Black and Scholes allows solving, under a series of simplifying assumptions, the problem of valuing financial derivatives. However, these assumptions deviate from the reality of global markets, particularly assuming perfect liquidity. In this work, a financial market model is proposed in which the illiquidity of the risky asset is stochastic, described by a mean-reversion process. The dynamics of the asset price in this context are established alongside the valuation PDE for derivatives. Additionally, as an approximation method to the solution of this PDE, the implementation of the extension of the Feynman–Kac representation theorem to the nonlinear case using deep neural networks is proposed.

The diffusion of financial technology-enabled innovation in GCC-listed banks and its relationship with profitability and market value

Purpose This study aims to examine the relationship between the diffusion of technology-enabled innovation in financial services (i.e. financial technology [FinTech]) and the financial performance, i.e. profitability and market value of the banks listed in the Gulf Cooperation Council (GCC) countries. Design/methodology/approach An extensive review of the literature was carried out, and a diffusion index of 73 items including was adopted to measure the level of FinTech usage or diffusion for the banks that are listed on the GCC stock exchanges. The study used return on assets (ROA) and Tobin’s Q (TQ) as proxies to measure profitability and market value, respectively. Findings The findings of the empirical results indicate that there is a positive relationship between FinTech implementation and market performance (TQ) in the GCC banks. The results also showed that the highest level of FinTech implementation was 79.7% by United Arab Emirates banks followed by Bahraini banks at 76.7% based on the index developed for this study. Practical implications This study, hence, recommends that policymakers and governments implement supportive policies and initiatives, allowing consumers to embrace technology as part of their way of life. This encourages banks and other organizations to formulate strategies that integrate technology into operations. Originality/value This paper offers new contributions to the GCC literature regarding financial technology and provides recommendations to the GCC financial institutions, financial markets, policymakers and governments.

Understanding Investment Decision-making: A Qualitative Inquiry into High-Frequency Trading, Investment Strategies, and Portfolio Performance in the Financial Market

This qualitative study explores investment decision-making in the context of high-frequency trading (HFT), investment strategies, and portfolio performance within the financial market. The research aims to provide insights into the complex dynamics influencing investment decisions and their implications for market participants. Adopting a qualitative research design, the study conducts a comprehensive review and analysis of existing literature from academic journals, books, and conference proceedings. The data collection process involves synthesizing insights from diverse sources to uncover underlying themes, patterns, and contradictions surrounding investment decision-making. Through thematic analysis and constant comparison, the study identifies key findings related to the role of HFT, diversity of investment strategies, and evaluation of portfolio performance. The results highlight the transformative impact of HFT on market liquidity, efficiency, and stability, while also raising concerns about market fragmentation and systemic risks. Additionally, the study explores the evolution of investment strategies, ranging from traditional approaches like fundamental analysis to emerging techniques such as algorithmic trading and quantitative strategies. It underscores the importance of tailoring investment strategies to individual preferences and market conditions for optimizing portfolio performance. Furthermore, the study evaluates alternative frameworks such as post-modern portfolio theory (PMPT) and factor investing, offering promising avenues for enhancing portfolio resilience and risk-adjusted returns. Overall, the research contributes to a deeper understanding of investment decision-making processes and informs stakeholders in the financial industry about effective strategies for navigating the dynamic landscape of the financial market.

VAT/GST harmonisation challenges for digital assets such as bitcoin and NFTs in the EU following Case C-264/14 (Skatteverket v David Hedqist)

The verdict in the case of Skatteverket v. David Hedqvist (Kokott, Advocate General (2015) Opinion delivered on 16 July 2015, Case C-264/14. ECLI:EU:C:2015:498. Available via TandF Online. https://doi.org/10.1080/20488432.2015.1096631.) is crucial for understanding how the EU treats virtual currencies, such as Bitcoin, in terms of Value-added Tax (VAT). This case involved the Swedish citizen David Hedqist who was seeking clarity from the Swedish Tax Authority Skatteverket on exchanging money for Bitcoins. The case set a precedent exempting such services from VAT under the EU’s VAT Directive (Council Directive 2006/112/EC (2006) On the common system of value added tax. OJ L347. Available via EUR-Lex. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32006L0112. Accessed 3 January 2024.). Specifically, Article 135(1)(e) of the EU’s VAT Directive excludes those transactions from VAT that include money-related transactions, that include deals or negotiations about different kinds of money, including cash and coins that are officially legal tender, i.e., used for buying things, except for collectable items like special coins or notes that people collect but do not use as a means of payment. Skatteverket (Kokott, Advocate General (2015) Opinion delivered on 16 July 2015, Case C-264/14. ECLI:EU:C:2015:498. Available via TandF Online. https://doi.org/10.1080/20488432.2015.1096631.) clarified that cash transactions are not subject to VAT, even though they are considered services for VAT purposes.Despite this clarity, the evolving landscape of digital assets’ uniqueness, including Non-Fungible Tokens (Alawadhi KM, Alshamali N (2022) NFTs Emergence in Financial Markets and their Correlation with DeFis and Cryptocurrencies. Applied Economics and Finance 9:108. https://doi.org/10.11114/aef.v9i1.5444. Available at CORE. https://core.ac.uk/download/pdf/524752899.pdf. Accessed 3 January 2024.), continues to challenge VAT frameworks across member states.Using insights from the European Commission’s Working Paper 1060, this article advocates for a unified approach tailored to digital and crypto services, addressing complexities in NFT taxation to reduce uncertainty and foster market cohesion. The findings highlight the importance of legislative changes and increased cross-border collaboration, as well as provide recommendations for policymakers and stakeholders in the digital finance and platform sector (European Commission (2024) Working Paper 1060. Available at: https://ec.europa.eu/info/publications/working-paper-1060_en. Accessed 3 March 2024.). By proposing strategic harmonisation of VAT enforcement, the research helps to improve tax compliance and support long-term growth in the EU’s digital market (Cappai M (2023) The role of private and public regulation in the case study of crypto-assets: The Italian move towards participatory regulation. Computer Law & Security Review 49:105831. Available at: https://www.sciencedirect.com/journal/computer-law-and-security-review/vol/49/suppl/C.; Hasa J (2021) Digitaalisten palvelujen rajat ylittävä kuluttajakauppa ja laajeneva arvonlisäveron erityisjärjestelmä. Licentiate thesis. University of Lapland, Faculty of Law. Available at: https://lauda.ulapland.fi/bitstream/handle/10024/64771/Hasa_Juho.pdf?sequence=1. Accessed 1 March 2024.).