Fund Risk Research Articles

Does sustainability affect performance and systematic risk of IPO-focused mutual funds?

ABSTRACT Previous studies have shown that environmental, social, and governance (ESG) commitment affects the underpricing level of new issues. In this study, we argue that ESG’s impact on mutual fund performance could depend on funds’ strategy in investing in initial public offerings (IPOs). We focus on the performance and systematic risk exposure of IPO funds compared to matched non-IPO funds according to their ESG risk ratings. Using a sample of 184 U.S. funds between 2015 and 2021, we find that ESG factors negatively (positively) affect IPO (non-IPO) fund performance during the full period. However, for the pandemic crisis period, our results support the outperformance of low ESG-risk funds, regardless of whether they were focused on IPOs. It appears that investors require a much higher systematic risk premium to invest in high-ESG-risk funds compared to low-ESG-risk funds during crisis periods.

Downside Risk and Hedge Fund Returns

Downside Risk and Hedge Fund Returns

Study on the Efficiency and Complexity of Chinese Energy Market Based on Multiple Events

Energy supports national economic development, and its financial attributes are continuously being enhanced. Analyzing the efficiency and risk of the energy market is of significant importance in energy security and sustainable development. This paper employs the multifractal detrended fluctuation analysis (MFDFA) method to study the efficiency, complexity, and risk of the energy exchange-traded fund (ETF) market in China. Additionally, the market characteristics are investigated under different events. The empirical results indicate that the Chinese energy ETF market is anti-persistence and has not yet reached weak efficiency. The market exhibits multifractal characteristics, with variations in multifractal structures across different stages, reflecting varying degrees of complexity. Particularly, the market displays more complex multifractal characteristics when price fluctuations are caused by supply and demand changes. Furthermore, external policies or information and supply–demand relationships have a certain impact on market prices. Based on the current state of China’s energy ETF market, some suggestions are proposed to provide valuable references for the development of the energy market.

The influence of bank-specific variables on banks’ stability: Evidence from Saudi Arabia

The goal of this study is to find out what makes Saudi Arabian banks unstable by using a panel data analysis with ten banks’ carefully chosen annual data from 2009 to 2022. Based on the fixed effect model, this study indicates that Saudi Arabian bank stability is unaffected by liquidity risk but is statistically and negatively impacted by credit risk and bank size. Conversely, capital adequacy and funding risk positively and statistically impact bank stability in Saudi Arabia. In light of these findings, we strongly recommend making capital adequacy requirements obligatory for bank management, given their beneficial effect on bank stability. This study recommended that bank management adopt practices such as safe loan provision and prompt customer repayment to mitigate credit risk. Bank managers have to guarantee liquidity adequacy in their banks and improve credit standards by increasing client supplemental requirements. While our study found that liquidity risk does not directly affect banks' financial stability, we propose that bank management should also focus on finding effective ways to generate client deposits to enhance financial stability further.

Effect of interbank deposit funding on the financial performance of deposit money banks in Nigeria

Failures of banking institutions have been an ongoing concern in the international banking system often leading to large economic downturns. It is concerning how quickly banks might experience liquidity crises especially when monetary policy is loose and credit is liberal. The speed at which companies experience downturns is worrying although bank failures are not a novel occurrence. Therefore, this study examined how interbank deposit funding influences the financial performance of Deposit Money Banks (DMBs) in Nigeria using dynamic panel analysis of fully modified ordinary least square from 2011-2021. Ten deposit money banks were used. The results indicate that IBR does not have a significant impact on ROE suggesting that the source of funding through interbank deposits does not significantly influence the profitability of DMBs in Nigeria. However, other factors such as Capital Adequacy Ratio (CAR), Gross Domestic Product (GDP), and Firms Age (FAG) have significant effects on ROE. The study highlights the importance of considering multiple factors beyond just funding sources when assessing the financial performance of banks in Nigeria. The study recommended that DMBs should diversify their funding sources. This can include increasing efforts to attract customer deposits, exploring alternative funding mechanisms and reducing reliance on interbank deposits. Diversification can help mitigate funding risks and enhance profitability.

The Nexus of Financial Stability and Bank Specific Risks: Evidence from the Nepalese Banking Sector

This study examines the correlation between the financial stability of Nepali commercial banks and bank-specific risks by utilizing panel data from 20 commercial banks over a 12-year period from 2011 to 2023. The findings, which were obtained through the use of a fixed-effect model, demonstrate that bank-specific risks – notably liquidity risk and credit risk – present a significant threat to the stability of banks. Conversely, there is no discernible impact of funding risk on financial stability. Furthermore, larger banks have a detrimental effect on stability, while return on assets (ROA) has a beneficial effect on financial resilience. In order to preserve long-term stability, bank management must establish prudent policies that guarantee the safe disbursement of loans and the prompt repayment of the same, thereby mitigating credit risk. Additionally, it is imperative to maintain a proactive approach to liquidity management and effectively mobilize client deposits in order to achieve robust financial stability.

Bank Funding Risk, Reference Rates, and Credit Supply

ABSTRACTCorporate credit lines are drawn more heavily when funding markets are stressed. This elevates expected bank funding costs. We show that credit supply is dampened by the associated debt‐overhang cost to bank shareholders. Until 2022, this impact was reduced by linking the interest paid on lines to a credit‐sensitive reference rate like the London interbank offered rate (LIBOR). We show that transition to risk‐free reference rates may exacerbate this friction. The adverse impact on credit supply is offset if drawdowns are expected to be deposited at the same bank, which happened at some of the largest banks during the global financial crisis and COVID recession.

Risk Prediction and Estimation of Corporate Product Claim Reserve Funds in Insurance Companies Using the Extreme Value Theory

Every human action involves risk, and in the insurance industry, customer claims are the biggest risk that companies face. This risk must be managed effectively through claim prediction, especially for corporate products. This research analyzes the risk of claims at insurance companies using the Extreme Value Theory (EVT) method, which can estimate extreme risks. Identification of extreme values in claims data is done through the EVT approach, namely Block-Maxima (BM). Generalized Extreme Value (GEV) distribution parameter estimation is performed, followed by prediction of claim risk using Value at Risk (VaR) and estimation of claim reserve funds. The results show that the GEV approach with a 95% confidence level is most suitable for predicting claim risk. Based on these results, the company requires a claim reserve fund of IDR 100,798,248,000 to deal with potential losses due to extreme claims.

Implementation of Funding Risk Management in Sharia Banking

Activities in the banking world are very susceptible to risk. Especially in fundraising activities because it is closely related to the bank's operations itself. To minimize risk, risk management is needed. This purpose of this paper to determine the implementation of funding risk management at BSI KCP Kediri Hayam Wuruk. The research method used is qualitative research using field observations to collect relevant data and analyze it comprehensively. Data collection was carried out through interviews with funding officer Bank BSI KCP Kediri Hayam Wuruk, and literature studies taken from literature sources relevant to the topic. The research results show that there are 3 funding risk management, namely liquidity risk, reputation risk and return risk. The ways to manage these risks are, 1. Liquidity risk by identifying funding and asset structures, 2. Reputation risk by improving service and managing customer complaints in a timely manner and complying with regulations according to sharia principles, 3. Return risk by managing customer expectations and improving the best service to customers.

Cryptocurrency, International Aid, and Development: Opportunities and Challenges

In this study, the author focuses on how cryptocurrency and blockchain technology can be used to improve delivery of international aid since traditional methods include problems such as corruption, inefficiency and lack of transparency. The main research question addresses the question of how cryptocurrency could enhance efficiency, enhance transparency, accountability, and fight corruption in the dispensation of aid. The authors performed a qualitative content analysis of data collected from multiple articles, reports, and case studies including World Food Programme and United Nations Children's Fund(UNICEF).The study shows that blockchain’s distributed digital ledger minimizes misappropriation of funds risk, maintains real-time tracking; cryptocurrencies, specifically stablecoins, are more effective in real and low-cost transactions. Nevertheless, the work also points to the threats evident in legal and regulatory frameworks, low levels of digital literacy, and technological constraints. In conclusion, if all the challenges are solved, the cryptocurrency will enable the complete redesign of the distribution of the funds for aid.

Cultures of Activity, Cultivating Resistance.

The problem of antimicrobial resistance (AMR) is often viewed through biomedical and/or behavioral lenses, with the underlying economic principles and "headwinds" shaping resistance less visible. In this paper, we focus on how healthcare funding models structure the ways AMR is perceived and addressed as an institutional priority. Specifically, we explore how activity-based funding reflects and operationalizes ingrained assumptions about what is valuable and/or worthwhile within the organizational ecology of the hospital. Drawing on interviews with 36 executives from several hospital clinical care settings across two Australian states, we illuminate the ways the activity-based funding paradigm works against efforts to combat AMR. Concerningly, we further observe how activity-based funding models can inadvertently position rising rates of resistance as a benefit-at least in the short term-as the new and intensified interventions required to address resistant infections require more "activity" and thus deliver higher reimbursement at the level of annualized budgets. In failing to recognize the (social and economic) value of reduced activity, activity-based funding risks contributing to AMR, rather than working to resolve it.

The Impact of Regulatory Framework on Risk Management in China's Securities Market: A Case Study of Investment Funds

This study focuses on the impact of the regulatory framework on the risk management practices of investment funds in China. By analysing key regulatory policy changes between 2018 and 2023, we explore how these changes have shaped the risk management strategies and performance of investment funds. The study adopts a mixed-method approach, combining policy text analysis and empirical studies of fund performance, to assess the regulatory effects and make policy recommendations. The study finds that changes in the regulatory framework have significantly affected the risk management practices of investment funds. Specifically, 1) enhanced liquidity risk management requirements have prompted funds to adopt more advanced risk assessment models; 2) regulations on the use of derivatives have led to the development of more complex hedging strategies; and 3) improvements in the information disclosure system have increased the transparency of fund risks, but also increased compliance costs. The main contributions of this study include: 1) proposing an analytical framework for assessing the impact of regulatory policies on fund risk management; 2) quantifying the impact of regulatory changes on fund risk-adjusted returns; and 3) providing an in-depth analysis of how fund managers have adapted to the new regulatory environment. These findings not only have important implications for the regulation of China's securities market, but also provide practical guidance for investors and fund managers.

Assessing the Pandemic Aviation Crisis: Speculative Behavior, Government Bail Outs, and Accommodative Monetary Policy

The COVID-19 pandemic was a health, economic, and financial crisis. The aviation sector was one of the most severely hit. Despite the extensive literature on this, COVID-Finance has been focused on stock returns, neglecting what could be learnt from the spreads of airlines’ credit default swaps (CDSs). This would seem of the utmost importance, given the epicenter of the crisis within the credit market. In this paper, an in-depth analysis of airlines’ CDS spreads is conducted. It is found that they were severely hit, for all airlines studied. However, the results of the PSY test showed that speculative trading led the surge, as explosive roots were found in the spreads of all these aviation firms. The dramatic increase in CDS spreads has contributed to already high borrowing costs for airlines. Our results suggest that aviation bail outs have helped to mitigate spreads’ explosiveness. Monetary policy measures have also limited, albeit indirectly, the funding risk posed by the government bail outs. By the end of March 2021, spreads were no longer explosive, and were approaching, at highly heterogeneous paces, their pre-pandemic values. Notwithstanding, airlines’ stock prices have been notably resistant to recovery.

Tail risk and excess return of mutual funds: loss-premium balance hypothesis

ABSTRACT This paper studies the relationship between tail risk exposure and mutual fund returns using samples from January 2007 to December 2022. The T R jl calculated by Generalized Extreme Value Distribution captures the negative correlation between returns and tail risk, with a one-standard-deviation increase (0.0119) leading to 0.24% decrease in three-factor alpha quarterly. T R jl also captures the nonlinear effect in short term, yet the nonlinearity diminishes due to the reversal of the return-risk exposure curve of equity funds in long term. We propose Loss-Premium Balance Hypothesis, positing that risk loss and premium effect are dominant under different tail risk exposures, respectively.

Effect of Macroeconomic Factors on Mutual Funds Risk and Return: An Empirical Study from Bangladesh

This study aims to identify the influence of macroeconomic factors on the risk and return of mutual funds in Bangladesh. Monthly closing price data of 27 mutual funds from Bangladesh are collected from December 2015 to December 2022. Additionally, monthly data of 6 macroeconomic variables, i.e., deposit rate, export, import payments, remittance, broad money (M2) and GDP growth rate, are gathered for this study. This study utilized standard deviation and beta as risk measures, and the Sharpe and Treynor ratios are applied as risk-adjusted return (RAR) measures. All the risk and risk-adjusted return measures are computed using 12-months rolling window method. The random effect model of panel data analysis is applied to find the influence of macroeconomic variables on the risk and return of mutual funds. Overall findings indicate that macroeconomic factors significantly influence mutual fund risk exposure. On the other hand, risk-adjusted return (RAR) is also significantly influenced by the macroeconomic variables. This empirical evidence helps practitioners and institutional investors in their decision-making in the situation of market asymmetric. Keywords: Risk-Adjusted Return, Bangladesh, Mutual Fund, Standard Deviation, Beta, Sharpe Ratio, Treynor Ratio

Does Islamic Mutual Fund Bear Higher Risk than Conventional Mutual Funds? An Empirical Analysis from Bangladesh

This study aims to identify whether Islamic mutual funds bear higher risk exposure than conventional mutual funds due to implementing their shariah screening criteria to select assets on the portfolio. For this purpose, monthly closing price data of Islamic and conventional funds operated in Bangladesh are collected from January 2016 to August 2023. A total of 2320 observations of each risk measure (e.g., standard deviation, semi-standard deviation, semi-standard deviation, and beta) are computed using a 12-month rolling window method to compare risk exposure between Islamic and conventional funds using univariable and multivariate analysis. The univariate analysis is conducted by performing an independent samples t-test, which confirms that overall, Islamic funds bear lower risk exposure than conventional funds. In multivariate analysis, the Feasible Generalized Least Square (FGLS) method, a dynamic panel data analysis model, is applied where the effects of macroeconomic variables such as deposit rate, GDP growth rate, exports, imports, broad money, and remittances are controlled. The results of the multivariate analysis also confirm that Islamic mutual fund risk exposure is lower than that of conventional mutual funds. This study will be helpful for practitioners and institutional investors in decision-making.

Precise assessment of flood risk and accurate allocation of disaster relief funds through a fuzzy set approach

Precise assessment of flood risk and accurate allocation of disaster relief funds through a fuzzy set approach

The Nexus Between Investors’ Sentiment and Hedge Funds Risk Premiums

Abstract In this study, we analyzed how the systematic risk of hedge funds affects different portfolio strategies. Using monthly returns data from a sample of developed market hedge funds grouped by five strategies, we identified the systematic factors influencing returns variation from January 2003 to December 2023. Market, size effect, momentum, investment effect, and bond spread were found to be the main risk factors explaining hedge fund returns dynamics. We proposed an enhanced version of the Fung and Hsieh (2004a) model, which demonstrated improved representativity with Baker and Wurgler sentiment index included as a risk premium. The quantile regression revealed that for most strategies, the estimated models performed better for the bottom quantiles.

Analysing the characteristics of post-disaster funding that make it susceptible to the risk of economic crime: a South African frame of reference

PurposeResearch indicates a significant risk of economic crime associated with post-disaster funding. The purpose of this paper is to assess the characteristics of post-disaster funding that make it susceptible to the risk of economic crime and to analyse how the statutory and regulatory disaster risk management instruments of South Africa aim to manage post-disaster events.Design/methodology/approachThis paper uses secondary sources such as, but not limited to, legislation, institutional reports, textbooks and peer-reviewed academic journal articles.FindingsPost-disaster funding is inherently susceptible to economic crime due to characteristics identified such as time pressure; substantial inflow of money, goods and services; inadequate needs assessment, large-scale reconstruction and the involvement of contractors or suppliers; power imbalance; and the responsibility of governments. The Disaster Management Act and National Disaster Management Framework provide an extensive regulatory framework for mitigating post-disaster funding risks by attempting to find a balance between quick aid distribution and financial controls. This paper finds that even though South Africa is known to have some of the best disaster risk management laws, the pervasive nature of the characteristics could still render post-disaster funding structures susceptible to the risk of economic crime.Originality/valueThere is limited scientific research on this topic. The expected prevalence of future disasters requires the regulatory and legislative disaster risk management instruments to evolve concomitantly. Research on this topic must continue to ensure that risks associated with post-disaster funding and its susceptibility to economic crime can be mitigated as far as possible.

Determinants of Bank’s Financial Stability in Pakistan

The purpose of this study is to investigate the role of both internal and external factors in achieving better stability in context of Pakistani banking industry. The internal determinants that this research study have used are bank size, funding risk, liquidity risk, credit risk and return on assets while external variables utilized includes money supply and unemployment rate. The study contains 10 years secondary data over the period 2013-2022 of 24 commercial banks of Pakistan. This study conducted correlation analysis and GMM model estimation for analysis. The findings show that liquidity risk, bank profitability, funding risk and bank size have positive and significant impact on bank stability. On the other hand, credit risk effects negatively bank stability. The result showed that money supply positively affects the stability of banks in Pakistan. On the contrary, unemployment is negatively affecting banks stability. The findings of this study have important implications for policymakers, regulators, banks, investors, and other stakeholders in the Pakistani banking sector. By enhancing the understanding of the factors influencing bank stability, the research contributes to identifying the importance of development of evidence-based policies, risk management strategies, and regulatory reforms aimed at development of a stable and resilient banking system in Pakistan.