Financial Market Research Articles

Identifying policy determinants of bank default risk during the COVID-19 pandemic: empirical evidence from the U.S. and Canada

ABSTRACT This study examines the policy determinants of bank default risk, proxied by credit default swap (CDS) spreads, using quarterly data from the U.S. and Canada for the period 2020 to 2022. The analysis considers four determinant groups: the COVID-19 pandemic shock, aggressive monetary and fiscal policy responses, macroprudential-related bank financial fundamentals, and macroeconomic and market conditions. Utilizing General Least Squares (GLS) and dynamic panel models with system General Method of Moments (GMM), the findings reveal that rising COVID-19 deaths significantly widen CDS spreads. Expansionary monetary policies reduce bank default risk, though the effectiveness under conventional monetary policy is reduced by increasing COVID-19 deaths. In contrast, expansionary fiscal policies and inflation broaden CDS spreads. The combined analysis highlights policy stances as dominant factors, with macroprudential-related fundamentals having minimal impact. The findings are robust using both 5-year and 10-year CDS measures. This study has significant policy implications during health and economic crises. For financial stability, policymakers should prioritize reducing pandemic-related deaths, utilize expansionary monetary policies with health support strategies, balance fiscal support to avoid excessive government spending, and implement measures to control inflation. It is essential to enhance coordination between healthcare, fiscal, and monetary authorities for effective policy implementation.

COMPARATIVE ANALYSIS OF THE GDP STRUCTURE OF THE G7 COUNTRIES: ECONOMIC DEVELOPMENTS AND TRENDS

This research article will examine the gross domestic product (GDP), which is one of the most widely used indicators of national economic performance. GDP represents the total output of a national economy over a specified period, with seasonal fluctuations duly adjusted. The most comprehensive measure of GDP is also adjusted for inflation, thereby enabling the assessment of changes in output rather than changes in the prices of goods and services. The significance of this indicator can be demonstrated by the fact that GDP is frequently employed to assess the relative size of national economies. Governments, financial market participants, and business leaders are most interested in changes in GDP over time, as reflected in annual growth or decline rates, because this allows them to make assumptions and develop plans for the future. The government uses previous years' GDP figures to formulate policies on interest rates, taxes, and trade policy. The study of GDP in the G7 countries is particularly important and relevant, as these countries represent the central government of the whole world, have a great influence on the economy, discuss global problems and develop solutions in the shortest possible time. The object of the study is the 7 members of the G7, namely: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, while the subject is the basic indicators of the national economy of each individual country, analysed in the dynamics over the past 10 years.

Financial stability at risk: evidence from market overreaction and herding behaviour in developed and emerging markets

PurposeThis study examines the relationships between herding behaviour, market overreaction and financial stability in developed and Brazil, Russia, India and China (BRICS) markets from 1 January 2017 to 31 December 2023. It identifies the significant differences in these phenomena across different market types and their implications for financial stability.Design/methodology/approachThis study employs panel data regression, quantile regression, Granger causality tests and the Baron and Kenny mediation model to analyse the data. These methods are used to explore the extent to which herding behaviour exacerbates market overreaction and affects financial stability.FindingsThe results reveal that herding behaviour exacerbates short-term market overreaction, leading to increased financial instability, particularly in BRICS markets. In contrast, herding behaviour does not significantly impact intermediate-term overreactions in developed markets. The study also finds that market overreaction significantly mediates the relationship between herding behaviour and financial stability.Practical implicationsThese findings have practical implications for policymakers. Understanding how herding behaviour and market overreaction impact financial stability can help formulate strategies to enhance market stability and mitigate systemic risks, particularly in more volatile BRICS markets.Social implicationsEnhanced financial stability has broad social implications, including improved investor confidence and economic growth. Policymakers can use these insights to create more stable financial environments, which can lead to more robust economic development and reduced vulnerability to financial crises.Originality/valueThis study provides new insights into the differential impact of herding behaviour and market overreaction on financial stability in developed and BRICS markets. By confirming the mediating role of market overreaction, this study enhances our understanding of financial market anomalies and contributes to the literature on financial stability.

Shadow Banking, Stock Market Volatility, and Stock-Money Market Correlation: Evidence from China

ABSTRACT The study on the relationship between shadow banking (SB) and stock market volatility is scarce. Based on sample data from January 2006 to May 2024, this paper dives deep to clarify whether and how China’s SB brings uncertainties to China’s stock market and the impact of SB on the stock-money market correlation. The novelty of this paper is that we connect low-frequency SB with high-frequency financial market information under the framework of mixed-frequency data analysis. Our findings indicate that the expansion of SB could directly enhance China’s stock market volatility. There exists a persistent correlation between China’s stock and money markets in the long run. Furthermore, the rapid development of SB also strengthens the stock-money market correlation in the long run. Since SB could reduce the controllability of China’s monetary policy and increase China’s money market uncertainties, we believe that China’s money market may serve as an important channel for SB to spread risks to the stock market volatility by pushing the two markets to move more closely. We shed new light on the literature regarding the relationship between SB and stock market. This paper makes the first attempt to identify the role of SB in driving the dynamics of stock-money market correlation.

The catalytic effect of digitalization and health measures during COVID-19 on corporate social responsibility in the African context

Purpose This study aims to examine the effect of digitalization and sanitary measures during the COVID-19 pandemic on corporate social responsibility (CSR) in the African context. While CSR has traditionally been analyzed in developed markets, this paper explores how multinational subsidiaries can leverage CSR practices to create financial opportunities and market stability for themselves and their communities in Africa. Design/methodology/approach The authors use a panel of data from six listed African companies for the period ranking from January 2006–2022 to analyze the effect of financial performance (FP), digitalization and health measures on the social responsibility of these companies. The authors provide a robust test that improves the understanding of the impact of pandemics and innovation on CSR, using Machine Learning (ML) linear regression. Findings The results show that the social responsibility of African companies is highly dependent on FP and digitalization. On the other hand, the authors demonstrate that the moderating role of epidemic instability negatively affects social responsibility through FP, but on the other hand strengthens CSR in the presence of digitalization. The results of the initial analysis remain largely unchanged, demonstrating the validity and robustness of the empirical results through ML models. This article highlights some of the obstacles and opportunities for CSR adapted to the crisis context. The authors conclude that adjusting innovation strategies improves the forecasting performance of responsible companies, especially in a context of instability. Research limitations/implications The paper clearly shows that CSR literature varies across different regions. Given that the financial market in Africa is characterized by a lack of opportunity for innovation as well as financial stability, this paper represents an important first step in the elaboration of a CSR development strategy. In light of the results presented above, the study makes an important contribution to the literature on CSR, in particular the CSR practices of multinationals in developing countries and also provides CSR managers with various insights into the types of support they will need to leverage and improve the internal underpinnings of their CSR strategies and collaboration. Practical implications The results of this study contribute to the understanding of digital transformation in responsible business, offering empirical evidence of its benefits in tackling the health crisis. In addition, the study highlights the role of an innovative approach in enhancing reputation and developing sustainable, trusting relationships with stakeholders. Originality/value This research pioneers the academic link between innovation and epidemic crisis in responsible business, filling a notable gap and introducing a new academic perspective. In concrete terms, it provides women entrepreneurs with actionable insights into the digital strategies essential to improving business performance in a context of instability. Methodologically, the study sets a benchmark for research innovation, using ML to provide a reproducible model for exposing robust results and for future research in this evolving field.

Impact of Artificial Intelligence on Financial Markets

Artificial Intelligence (AI) has rapidly transformed financial markets, enhancing efficiency, precision, and scalability in trading, risk management, fraud detection, and personalization. Through advanced machine learning models, AI has enabled high-frequency trading, predictive risk assessment, and robust compliance processes, which streamline operations and improve market responsiveness. However, the complexity and opacity of AI systems introduce ethical concerns and regulatory challenges, especially regarding model interpretability and potential biases. This paper examines the role of AI across financial functions, highlights both advantages and limitations compared to traditional methods, and discusses future directions for integrating hybrid models and adaptive trading strategies. While AI offers considerable benefits, addressing its ethical and regulatory implications will be essential to harnessing its full potential within financial markets.

Market Predictability Before the Closing Bell Rings

This study examines the predictability of the last 30 min of intraday stock price movements within the US financial market. The analysis encompasses several potential explanatory variables, including returns from each 30 min intraday trading session, overnight returns, the federal reserve fund rate decision days and the subsequent three days, the US dollar index, month effects, weekday effects, and market volatilities. Market-adaptive trading strategies are developed and backtested on the basis of the study’s insights. Unlike the commonly employed multiple linear regression methods with Gaussian errors, this research utilizes a Bayesian linear regression model with Student-t error terms to more accurately capture the heavy tails characteristic of financial returns. A comparative analysis of these two approaches is conducted and the limitations inherent in the traditionally used method are discussed. Our main findings are based on data from 2007 to 2018. We observed that well-studied factors such as overnight effects and intraday momentum have diminished over time. Some other new factors were significant, such as lunchtime returns during boring days and the tug-of-war effect over the days after a federal fund rate change decision. Ultimately, we incorporate findings derived from data spanning 2022 to 2024 to provide a contemporary perspective on the examined components, followed by a discussion of the study’s limitations.

Psychological explanations for analysts' herding behavior: A study on the impact of information cascades and reputational concerns

This study investigates the influence of information cascades and reputational concerns on analysts' herding behavior in financial markets. Using a mixed-methods approach combining archival data analysis and surveys of 5,237 financial analysts covering S&P 500 companies from 2014 to 2023, we examine the interplay between these psychological factors. Our findings reveal that both information cascades and reputational concerns significantly impact herding behavior, with a notable synergistic effect when combined. Structural equation modeling demonstrates that information cascade strength positively correlates with herding behavior (β = 0.43, p < .001), partially mediated by perceived market consensus. Reputational concerns also show a strong positive association with herding (β = 0.51, p < .001), moderated by career stage. Importantly, the interaction between information cascades and reputational concerns (β = 0.24, p < .001) suggests that their combined effect is greater than the sum of their individual impacts. This effect varies across analyst characteristics and market conditions, with stronger influences observed in small-cap stocks and high-volatility periods. Time-series analysis reveals dynamic fluctuations in these effects over time, responding to significant market events. These results contribute to the theoretical understanding of financial market behavior by integrating social influence and career concern perspectives, offering insights for both scholars and practitioners in an increasingly complex market landscape.

Is corporate reputation associated with voluntary cybersecurity risk reporting?

Purpose This study investigated the effect of voluntary cybersecurity risk reporting (VCRR) on corporate reputation. By examining the association between VCRR and corporate reputation, this study aims to provide exploratory evidence of how cybersecurity risk is sensitive to a company’s image and reputation. Design/methodology/approach An automated content analysis of VCRR by 95 Bombay Stock Exchange-listed companies was undertaken using Python code. Signaling and legitimacy theories were adopted to interpret the findings, establishing whether VCRR was related to corporate reputation. Findings The results confirm that VCRR improves the corporate reputation in the financial market. The results also confirm the signalling and legitimacy theory that a company can manage reputational risks through higher voluntary risk disclosure. Practical implications The corporation’s managers can gain insights from the study’s findings and proactively address cybersecurity risks through strategic disclosure and management practices. In addition, organizations can recognize that investors value transparency and establish a positive reputation for those who communicate openly. Social implications A significant association between VCRR and corporate reputation implies that such disclosures enhance trust and transparency in the business sector and induce security and accountability among investors engaging with the company. Originality/value To the best of the authors’ knowledge, this study is the first that empirically investigates this issue and adds to the international literature a new explanatory variable, corporate reputation, to explain VCRR practices.

Forecasting Maritime and Financial Market Trends: Leveraging CNN-LSTM Models for Sustainable Shipping and China’s Financial Market Integration

With the acceleration of economic globalization, China’s financial market has emerged as a vital force in the global financial system. The Baltic Dry Index (BDI) and China Container Freight Index (CCFI) serve as key indicators of the shipping sector’s health, reflecting their sensitivity to shifts in China’s financial landscape. This study utilizes an innovative CNN-LSTM deep learning model to forecast the BDI and CCFI, using 25,974 daily data points from the Chinese financial market between 5 May 2015 and 30 November 2022. The model achieves high predictive accuracy across diverse samples, frequencies, and structural variations, with an R2 of 97.2%, showcasing its robustness. Beyond its predictive strength, this research underscores the critical role of China’s financial market in advancing sustainable practices within the global shipping industry. By merging advanced analytics with sustainable shipping strategies, the findings offer stakeholders valuable tools for optimizing operations and investments, reducing emissions, and promoting long-term environmental sustainability in both sectors. Additionally, this study enhances the resilience and stability of financial and shipping ecosystems, laying the groundwork for an eco-friendly, efficient, and sustainable global logistics network in the digital era.

The impact of IFRS introduction by listed Moroccan companies on financial performance: The mediating role of the cost of capital

This study aims to examine the direct and indirect impact of IFRS adoption on the financial performance of Moroccan companies listed on the Moroccan financial market. The analyses are based on data drawn from the financial statements of 21 Moroccan companies listed on the Casablanca Stock Exchange. By measuring financial performance using three stock market measures, namely the Mariss ratio, the Price Earnings Ratio, and the Tobin Q ratio, and using the structural equation method with SPSS AMOS software, the results indicate that before the introduction of the cost of capital variable, IFRS significantly affect financial performance, with an estimated coefficient of 0.395 significant at the 5% threshold. By introducing the cost of capital variable, the results show that the direct and significant relationship between IFRS and performance disappears, recording an estimated coefficient of 0.241 with a non-significant probability level of 0.243. On the other hand, the results show that the estimated coefficients for the indirect effect of IFRS on financial performance are negative, i.e., a coefficient of –0.099 estimating the direct effect of IFRS on the cost of capital and a coefficient of –2.621 estimating the direct effect of the cost of capital on financial performance, significant at the 1% and 5% thresholds, respectively. This confirms the hypothesis that the transition to IFRS indirectly and totally influences financial performance via the cost of capital variable.

ANALYSIS OF OPTIMAL PORTFOLIO ON FINITE AND SMALL-TIME HORIZONS FOR A STOCHASTIC VOLATILITY MODEL WITH MULTIPLE CORRELATED ASSETS

In this paper, we consider the portfolio optimization problem in a financial market where the underlying stochastic volatility model is driven by [Formula: see text]-dimensional Brownian motions. At first, we derive a Hamilton–Jacobi–Bellman equation including the correlations among the standard Brownian motions. We use an approximation method for the optimization of portfolios. With such approximation, the value function is analyzed using the first-order terms of expansion of the utility function in the powers of time to the horizon. The error of this approximation is controlled using the second-order terms of expansion of the utility function. It is also shown that the one-dimensional version of this analysis corresponds to a known result in the literature. We also generate a close-to-optimal portfolio near the time to horizon using the first-order approximation of the utility function. It is shown that the error is controlled by the square of the time to the horizon. Finally, we provide an approximation scheme to the value function for all times and generate a close-to-optimal portfolio.

Paths for the development of financial intermediation in industry 5.0: Opportunities for developing economies (On the example of former USSR republics)

Currently, there is a unique situation in the global economy, industrial eras coexist together, there is interaction and transformation of financial systems simultaneously within the framework of Industry 4.0 and Industry 5.0. New, digital resources are entering the economy, intellectual capital is becoming virtual, artificial intelligence is increasingly finding its application in the structure of financial support. Financial intermediation in developing countries is also subject to global trends, the active development of new instruments for developing economies is especially important. The aim of the study is to identify effective ways to develop financial intermediation in Industry 5.0 for the economies of developing countries. Based on the results of the study on the development of financial institutions mediation revealed a problem related to the lack of reasonable tools that could be used to improving the efficiency of the financial intermediaries market, proposed the main directions of such a process: mobilization of savings, distribution financial assets, payment system, risk management and control over market agents involved in financial operations.

An archaeology of European financial market integration - Troels Krarup, The Knowledge Problems of European Financial Market Integration: Paradoxes of the Market, Routledge, 2023.

An archaeology of European financial market integration - Troels Krarup, The Knowledge Problems of European Financial Market Integration: Paradoxes of the Market, Routledge, 2023.

Assessing the Effects of Cyber Attacks on Financial Markets

Cyber-attacks on financial markets have emerged as a significant threat to global economic stability, disrupting market operations, compromising sensitive data, and undermining investor confidence. This study explores the multifaceted impact of cyber-attacks on financial markets, examining both the immediate and long-term effects on market performance, regulatory response, and overall market resilience. By analyzing recent incidents, this research highlights how cyber-attacks influence stock prices, trading volumes, and market volatility, shedding light on the vulnerabilities within financial systems. Findings suggest that cyber threats not only impact individual institutions but also ripple through interconnected markets, amplifying financial risk on a broader scale. The study concludes with recommendations for strengthening cybersecurity measures in financial markets to enhance resilience and mitigate potential losses from future cyber incidents.

The Outlook of Financial Consumer Protection in China: Learning from the American Approach

In China, the range of financial derivative products has expanded considerably in recent years, with a corresponding increase in the complexity of these instruments. Financial institutions now offer a diverse array of financial products to consumers. There is a considerable disparity between financial consumers and financial institutions in a number of areas, including economic strength, social status, professional composition, negotiation ability and even judicial resources. Consequently, the topic of financial consumer protection is receiving increasing attention, and this issue is also a matter of considerable concern to countries around the world. A unified and effective system for the protection of financial consumers has yet to be established in China. In the event of a dispute regarding the consumption of financial products, it is often challenging for consumers to pursue appropriate redress, resulting in a situation where they have no recourse. The question of whether China should enact a unified Financial Consumer Protection Law, establish an independent financial consumer protection agency, and integrate the measures and regulations for protecting financial consumers in the financial services market in order to provide a convenient and fair mechanism for handling financial consumption disputes is a key area of study.

Corporate Sustainability Reporting and Financial Performance: An Empirical Analysis of Indian Listed Companies

This empirical analysis examines the relationship between corporate sustainability reporting and financial performance among Indian listed companies. In recent years, sustainability has gained prominence in corporate strategy due to increasing regulatory requirements, investor interest, and stakeholder expectations. The study explores how sustainability reporting, as disclosed through corporate sustainability reports (CSR), affects the financial performance of companies. Using a sample of Indian companies listed on major stock exchanges, the study analyzes data on sustainability disclosures, financial performance indicators (such as return on assets, return on equity, and market valuation), and various control variables. The analysis employs statistical methods, including regression models, to identify the correlation and potential causal linkages between sustainability reporting and financial performance. The findings suggest a positive relationship between comprehensive sustainability reporting and financial performance, indicating that companies with better sustainability practices tend to experience higher financial returns and market valuation. The results also highlight the role of regulatory frameworks, industry-specific factors, and company size in shaping the strength of this relationship. This study contributes to the growing body of literature on corporate sustainability by providing insights specific to the Indian context, where sustainability reporting practices are evolving. It suggests that companies engaging in transparent and detailed sustainability reporting may achieve not only environmental and social benefits but also financial gains, making sustainability a strategic priority for long-term value creation.

BIBLIOMETRIC ANALYSIS OF BRAZILIAN SCIENTIFIC PRODUCTION ON DERIVATIVES

After the 2008 American crisis, the topic of Derivatives gained prominence in the media and the financial market became the focus of research, mainly due to issues of sustainability of the global economy. This work aims to conduct an academic bibliometric research on the topic of Derivatives and Financial Markets. As a result, it was possible to verify that there is a gap between 2000 and 2007, where there were no publications on this topic on the CAPES portal. It was also possible to make a comparison with the educational institutions (IES) that published the most on these topics and to classify the topics most addressed by the authors.

Overview of retail investment instruments of the Russian economy

Features of the current stage of development of Russia increase the relevance of studying problems associated with the expansion of internal sources of financing economic growth, one of which may be citizens’ savings. To attract private capital more widely, the national financial system can and should provide a large range of tools for private investors that meet the needs of citizens in terms of profitability and safety of funds. The paper has considered the key tools of retail investment, which are currently widely used in domestic practice. Alternative ways of private investment have also been explored. They can be applied depending on the needs of specific actors, market participants, or citizens. The development of a line of instruments for the retail investment – deposits, long-term individual investment accounts, products of research and production associations, insurance products, etc., their availability is one of the conditions for the effective functioning of the domestic financial market and, as a consequence, the Russian economy as a whole. The analysis of the essence, trends, opportunities, and risks of the retail investment instruments will allow us to assess the effectiveness of the activities of financial regulators in this area and identify promising and appropriate areas for its improvement.

State and trends in the development of the microfinance market in Russia

The relevance of the article is due to the insignificant contribution of microfinance to the development of the Russian economic system, especially in the context of supporting small and medium-sized businesses. However, the regulator sees it as a promising sector of the financial market and considers its progressive development necessary. The purpose of the work is to study the current state and identify trends in the development of the microfinance market in Russia. The methodological basis of the study includes empirical observation and analysis. During the work, official statistical data and scientific publications on the topic of microfinance have been used. The article provides a review of current legislative documents regulating the microfinance sector, and analyses the state of the market based on statistical data. It is substantiated that some elements of the monetary and financial policies pursued in the Russian Federation can be applied for the successful development of the microfinance sector, contribute to its effective and balanced work, and improve accessibility and sustainability. In the course of the work, key directions for the development of the microfinance market are formed: improving regulation and supervision; promoting financial literacy of the population; application of digital technologies; expansion and diversification of the product portfolio, development of partnerships, social entrepreneurship, which contribute to the sustainable development of this segment of the financial market. Particular attention is paid to a detailed analysis of improving the regulatory framework for microfinance in Russia from the point of view of legislation on bankruptcy of individuals, stimulating innovation and digitalisation, and supporting social entrepreneurship.