Fund Risk Research Articles

Impact of international expansion strategy on the performance of Japanese banks

The effect of cross-border diversification on bank performance is part of the broader debate on how multinational banking and financial integration affect the global financial economy. Previous studies that examined this relationship present mixed results - namely that cross-border diversification improves bank performance but also increases bank risks that could lead to systemic failure. Even so, this line of debate has not been examined in the case of Japanese banks conducting international operations. The present study questions whether cross-border diversification improves the performance of Japanese banks and to what extent each cross-border expansion activity affects bank performance. The latter was largely ignored in previous studies. Our results show that cross-border diversification improves cost efficiency but decreases/harms the profit efficiency of the banks analyzed. In addition, we find that the expansion of foreign assets and foreign branch operations present funding risks and operational inefficiency. We offer two important recommendations. First, as a major player in international lending, the current expansion activities of Japanese banks require close monitoring and supervision to prevent systemic risk resulting from aggressive and risky overseas expansion activities. Second, the current expansion strategies of Japanese banks, especially the expansion of overseas assets and branch operations (retail banking), should be re-examined.

Performance and risk of Brazilian equity mutual funds in the context of the covid-19 pandemic

The goal of this research was to analyze how Brazilian equity investment funds behaved during the Covid-19 period. The analysis was divided into 3 sub-periods: (i) pre-crisis (2019-10-03 to 2020-01-31); (ii) crash (2020-02-19 to 2020-03-23); (iii) and recovery (2020-03-24 to 2020-04-30. The main results showed that during the crash period, in all the categories, more than 50% of the funds obtained a return superior to that of the IBRX100. However, in the recovery period, the scenario is reversed and the vast majority of funds start to underperform the index. However, when performance is analyzed from the perspective of multifactor risk models, it is possible to identify positive alpha generation during the pre-crisis period and negative (destruction of value) during the crash period. In addition, when examining fund flows, it can be seen that there was no "run on the fund" phenomenon to redeem the shares. Actually, in the analyzed period, the inflows surpassed the redemptions. This may indicate that the fund investors are financially more educated and that he or she acted with more caution when waiting for a less turbulent moment. The article concludes that the industry was coming from an excellent performance in the pre-crisis period, which was interrupted by a period of value destruction during the moment of the greatest turmoil, and that, finally, during the recovery period, the performance was below the market index, but without generating or destructing significant value.

Factors Affecting Financial Performance of Pension Schemes in Kenya

The major function of pension funds is to provide ways for individuals to build up financial savings during their effective or working life in preparation for the funding of the consumption requires when they retire from active employment. Pension funds are the major sources of retirement income for many individuals worldwide. Despite the pension sub-sector growing, the faster growth in pension liabilities relative to assets as well as increasing life expectancy has elevated funding risks. In the defined contribution schemes, unremitted contributions have increased due to poor economic performance and the insufficient funding of quasi government schemes. This study sought to analyze the factors affecting financial performance of pension schemes in Kenya. The study specific objectives were to determine the influence of risk management, membership age, member contribution and firm size to determine their effect on the financial performance of the pension schemes. The study used 34 individual retirement benefits schemes registered with the Retirement Benefit Authority. The study used data for the period 2012-2021. The results revealed that there was a positive and significant relationship between risk management and financial performance of pension schemes. There was a negative and insignificant relationship between age of scheme members and financial performance of pension schemes. Member contribution had a positive and significant relationship with financial performance of pension schemes. Firm size revealed a positive and significant relationship with financial performance of pension schemes in Kenya. The null hypothesis on risk management, member contribution and firm size were rejected while that of age of the scheme members was not rejected. The study concluded that there is a strong correlation between risk management, age of scheme members, member contributions and firm size on financial performance of pension funds. The study recommended that pension funds should use the increasing value of their funds to generate returns for the pensioners. In addition, there is need to utilize assets to generate income for the pension funds and include the needs of the different age brackets in the management of the pension schemes. Keywords: Risk Management, Membership Age, Member Contribution and Firm Size Financial Performance & Pension Schemes

Economic policy uncertainty and mutual fund risk shifting

This study examines the effect of economic policy uncertainty (EPU) on mutual fund risk shifting. Using Chinese mutual fund data from 2006 to 2020, we find that managers increase risk-shifting activities when uncertainty rises. A one-standard-deviation increase in EPU is associated with a 0.27- to 0.55-standard-deviation increase in risk shifting. Managers’ tendency to shift risk stems from poor performance during high EPU periods. Managers increase the portfolio risk by switching from cash holdings to equities, engaging in sector rotation, and increasing bubble stock holdings.

Research on the Anti-Risk Mechanism of Mask Green Supply Chain from the Perspective of Cooperation between Retailers, Suppliers, and Financial Institutions

Against the background of the pandemic, the mask supply chain faces the risk of pollution caused by discarded masks, the risk of insufficient funds of retailers, and the risk of mask overstock. To better guard against the above risks, this study constructed a two-party game model and a cusp catastrophe model from the perspective of the mask green supply chain, and studied the strategic choices of retailers and suppliers in the supply chain affected by the risk of capital constraints and overstock. The result shows that the risk shocks will lead to the disruption of the mask green supply chain, and the main factors affecting the strategy choice of mask suppliers and retailers are mask recycling rate, deposit ratio, risk occurrence time, etc. In further research, this study involved a mechanism for financial institutions, mask retailers, and the government to jointly deal with the risk of mask overstock, the risk of retailers' insufficient funds, and the risk of environmental pollution from discarded masks. The research path and conclusion of this study reveal the risks in the circulation area of mask supplies during the pandemic, and provide recommendations for planning for future crises and risk prevention.

Bank-specific capital requirements: Short and long-run determinants

This paper studies the determinants of the Pillar 2 capital requirements (P2R) of banks directly supervised by the ECB between 2016 and 2021. Drawing on the ECB's Supervisory Review and Evaluation Process (SREP) to identify the list of potential drivers of P2R, we estimate the impact on P2R by employing a method that separates long-run from short-run determinants. Our results suggest that in (i) the long-run, the P2R is mostly driven by credit risk, funding risk, and governance, whereas (ii) profitability and market risk seem to be the main short-run determinants of P2R. Furthermore, we find evidence that suggests the supervisor incorporates proportionality in the P2R decisions. Effectively, our sensitivity analyses show considerable differences in the long-run determinants of P2R according to the level of capital, size, and access to market funding of supervised entities.

Empirical Research based on the Asset Pricing Model in China's Securities Market under the COVID-19 Epidemic

This paper explores the empirical research based on the asset pricing model in China's securities market under the COVID-19 epidemic. Capital asset pricing model, which are frequently employed in corporate finance and investment decision-making, serve as the foundation for price theory in financial markets. However, the research on asset pricing models in China is still in its infancy, and there is a lack of detailed and profound empirical studies. The COVID-19 epidemic causes some economic damage to China's securities market. Therefore, the empirical research in the era of the epidemic is necessary, and it can help investors find suitable investment portfolios. Using asset pricing models and related indicator formulas, the results of the study show that the risk of bond fonds, blend funds, and stock funds, in addition to monetary funds, increases with the arrival of COVID-19. Among them, blend funds and stock funds have better performances, but the operational risk of these three types of funds outweighs the return.

Based on the ISM-MICMAC model, the risk path identification and factor analysis of the capital operation of small and medium-sized real estate enterprises

In small and medium-sized real estate enterprises, the accurate identification of the main factors affecting the operation of enterprise project funds and the analysis of their influencing process significantly impact the survival and development of small and medium-sized enterprises. Analyze the influence of financing, investment and construction activities on the operation of project funds and identify 16 major risk factors. Based on the calculation of the adjacency matrix and reachable matrix, the interpretive structure model and hierarchical structure diagram (ISM) were constructed, and divide the influencing factors into four categories, namely independent cluster, dependent cluster, linkage cluster, spontaneous cluster, combined with cross influence matrix multiplication (MICMAC). The results show that the driving force of quality management is low, but the dependence is vital. The macro background of financing, investment management, investment policy, and organizational coordination have low driving force and strong dependence. Quality management is an essential factor affecting the regular operation of enterprise project funds. The macro background of financing, investment management, investment policy, and organization coordination are the direct reasons to keep the project fund risk stable. The research of this paper will contribute to the healthy development of SMEs and play a positive role in China's social and economic life.

Retail Central Bank Digital Currencies (CBDC), Disintermediation and Financial Privacy: The Case of the Bahamian Sand Dollar

The fast-growing, market-driven demand for cryptocurrencies worries central banks, as their monetary policy could be completely undermined. Central bank digital currencies (CBDCs) could offer a solution, yet our understanding of their design and consequences is in its infancy. This non-technical paper examines how The Bahamas has designed the Sand Dollar, the first real-world instance of a retail CBDC. It contrasts the Sand Dollar with definition-based specifications. The author then develops a scenario analysis to illustrate commercial bank risks. In this process, the central bank becomes a deposit monopolist, leading to high funding risks, disintermediation risks, and solvency risks for the commercial banking sector. This paper argues that restrictions and caps will be the new specifications of a regulatory framework for CBDCs if disintermediation in the banking sector is to be prevented. The anonymity of CBDCs is identified as a comparative disadvantage that will affect their adoption. These findings provide insight into governance problems facing central banks and coherently lead to the design of the Sand Dollar. This paper concludes by suggesting that combating cryptocurrencies is a task that cannot be solved by a CBDC.

Risk and Return Analysis of Selected Flexi Cap Mutual Funds

Mutual funds are considered by the investors as an ideal investment for people who are not having huge sum of money and wish to invest in a portfolio of stocks wherein the share price is quite high. The investors may or may not be aware about the ways investment could be done in stock market and there are different investment options which are available in the market based on a different risk and return. Flexi cap mutual funds offerfund managers a freedom for investing across themes/ sectors and market capitalizations. In Flexi Cap mutual funds, the fund managers could invest on the basis of outlook of market. These schemes generally recommended to the moderate investors for creating wealth over long time period. This study is based on the evaluation of risk and return of different flexi cap mutual funds and compares the performance of these funds so as to find the best flexi cap fund based on different measures of return and risk. Based on the average of the monthly returns, though it is negative, the lowest average negative return is of Aditya Birla and Parag Parikh Flexi Cap mutual funds. The maximum times the highest return has been of Parag Parikh Flexi Cap mutual fund during different quarters. Based on the average Annual return, highest return is of Parag Parikh Flexi Cap mutual fund, followed by UTI Flexi Cap fund, SBI Flexi Cap fund, PGIM Flexi Cap fund and Aditya Birla Flexi Cap mutual fund.

Moveable Voice Activated Self Driven Medicine Box Kit Traveler for Disability

The mutual funds are one of the important classes of financial intermediaries enabling tens of thousands small and large savers across India to participate in and get the benefits of the capital market. The involvement of mutual funds in the transformation of India’s economy makes it all the more important to review their services for their role in mobilization and allocation of funds in the markets. The mutual funds have a lot of potential to grow but to capitalize the potential fully, however, the need is to create and market innovative products and frame distinct marketing strategies. Moreover, the equity culture has not yet developed fully in India as such, investor education would be equally important for greater penetration of mutual funds. As such mutual funds are expected to perform better than the market, therefore calls for a continuous evaluation of the performance of funds. In an academic perspective, the goal of identifying superior fund managers is of great interest due to the challenges it provides to the efficient market hypothesis. The present study looks into the risk and return analysis of the select mutual funds in India. Keywords: Mutual funds, risk, returns

COVID-19 pandemic relief funding—a lifeline for equity

COVID-19 relief programs have been instrumental in supporting large-scale testing, vaccination, and treatment efforts over the past year; however, the recent dwindling of federal funding risks a backslide in pandemic protection, with disproportionate effects on the most vulnerable Americans. Despite urging from the White House, Congress has stalled on passing a multi-billion-dollar COVID-19 relief funding bill, with funding for existing programs having run out since March 2022. The impact of these funding cuts has since begun to manifest, with the suspension of the Provider Relief Fund and the Uninsured Program: enacted in March 2020 and August 2020 respectively, these programs ameliorated financial barriers to accessing COVID-19 medical care.

P70 Improving safety and efficiency of biologic and DMARD therapy prescribing through development of a multi-disciplinary virtual clinic

P70 Improving safety and efficiency of biologic and DMARD therapy prescribing through development of a multi-disciplinary virtual clinic

Discussion on the Risk and Avoidance of the Basic Endowment Insurance Fund for Urban Employees

Discussion on the Risk and Avoidance of the Basic Endowment Insurance Fund for Urban Employees

Risks, Bank Concentration and their Impact on Stability in Jordanian Commercial Banks

The aim of this paper is to examine the effect of risks and financial concentration on the stability of Jordanian commercial banks based on annual data from 2012-2019. Using panel data based on the pooled effects model, the results indicate that funding risk and concentration are positively and statistically significant affects the stability, while credit risk and profitability have a negative and statistically significant impact on the bank's stability. Stability of Jordanian commercial banks is negatively affected by liquidity risk and size but they are not statistically significant. The study recommends bank managers to improve funding risks through the use of greater financing for deposits, which has a positive impact on increasing bank stability, while the credit standards have to be high quality because they reduce the risks of instability. Finally, managers have to make a balance between profitability and the stability of banks.
 
 Received: 3 May 2022 / Accepted: 25 August 2022 / Published: 2 September 2022

Risk in Risk Aversion

Behind every investment portfolio, there are sources and uses of its funds, each with their own risks. Though funding risks are pervasive, their implication for setting appropriate risk aversion for portfolio construction is too little exploited. In this article, the authors extend single-period decision making to combine risk in assumed funding supply and uses with risk in investment returns to provide a joint optimization. Their approach uses expected utility maximization based either on the constant relative risk aversion property or on the generalized logarithmic utility model, the latter somewhat sharper in controlling tail risk. Mathematics is greatly simplified by matrix calculation using discrete preference states. The authors also employ investment leverage on surplus over subsistence requirements to estimate the need for conservatism. Examples are given for both the generic moderate errors in judging appropriate risk aversion and the more extreme funding risk arising from uncertainty as to retirement longevity.

The sovereign wealth funds risk premium: Evidence from the cost of debt financing

We build on recent SWF literature that documents an equity discount for SWF investments and extend it to bond markets to investigate whether SWFs represent a threat or an opportunity to bondholders. We find robust evidence supporting the political agenda hypothesis which points to the existence of a “SWF bond risk premium”. Compared to other government shareholding types, we also find that SWF ownerships present higher risk to bondholders and result in higher increase in the target firm's cost of debt. Furthermore, this SWF bond risk premium is larger during non-crisis periods and for SWFs originating from autarchic countries. Interestingly, we show strong evidence that SWFs may signal a passive investment stance and reduce the SWF bond risk premiums by: i) investing through separate investment vehicles, ii) targeting firms with an existing major shareholder, iii) improving their internal governance, and iv) increasing their transparency.

Morningstar Star ratings and the performance, risk and flows of European bond mutual funds

In this paper we evaluate the relation between Morningstar Star ratings and the performance, risk and flows of European bond funds over the period 2006–2019 based on a comprehensive and survivorship-free dataset comprising 939 mutual funds. Fund performance is evaluated by net and gross returns, as well as alphas based on single and multi-factor models. Our results show that well-rated mutual funds exhibit superior performance even after controlling for differences in fund characteristics although they exhibit high risks both in terms of volatility and value-at-risk. We also find strong evidence of fund performance persistence and rating persistence. Finally, Morningstar Star ratings are also useful for explaining inflows and outflows. Funds with higher ratings attract more flows even if we control for prior performance.

Fund performance and social responsibility: New evidence using social active share and social tracking error

Using a sample of 2,516 U.S. mutual funds over the 2010–2017 period, we examine the effects of socially responsible investing (SRI) on mutual fund performance. We use two proxies for deviations from SRI: social active share (SAS), and social tracking error (STE). Respectively, they capture the differences in holdings and returns between a fund and a socially responsible index, the MSCI KLD 400. In univariate analyses, the SAS results align with more socially responsible funds outperforming less socially responsible funds, while the STE results provide mixed evidence. In multivariate analyses, both SAS and STE show that more socially responsible funds outperform their less socially responsible peers. We also find that socially responsible funds exhibit lower risk. Taken together, our results provide evidence that SRI does not damage fund performance but can reduce fund risk.

A Particle Swarm Optimization Copula-Based Approach with Application to Cryptocurrency Portfolio Optimisation

Blockchain and cryptocurrency are gradually going mainstream with new cryptocurrencies introduced every single day. The speculative nature of these digital assets expose their prices to large fluctuations. Trading these crypto-assets necessitate an adequate understanding of this emerging market as well as adequate tools to model the market risk and efficient allocation of funds. This may assist crypto investors in taking advantage of the highly volatile aspects of these assets. The portfolio consider in this study consists of six cryptocurrencies: four traditional cryptocurrencies (BTC, ETH, BNB and XRP) and two stablecoins (USDT and USDC). We examine the copula particle swarm optimization (CPSO) portfolio strategy against three other portfolio strategies, namely, the global minimum variance (GMV), the most diversified portfolio (MDP) and the minimum tail dependent (MTD). CPSO appears to be a promising strategy during extreme market conditions while GMV seem favorable during normal market conditions. Most importantly, hedge and safe-havens ability of the two stablecoins is clearly exhibited with CPSO, while their diversification property is inhibited.