Higher Systematic Risk Research Articles

ANALISIS PEMBENTUKAN PORTOFOLIO OPTIMAL DENGAN MEMPERTIMBANGKAN TOLERANSI RISIKO PADA SAHAM INDEKS KOMPAS100 PERIODE 2020-2022

The purpose of this study is to determine the composition of the optimal portfolio on stocks indexed kompas100 based on risk tolerance through systematic risk. This study uses the CAPM and SIM models to form an optimal portfolio by considering risk tolerance through systematic risk. With the results there are 34 stocks in the kompas100 index that can be used as optimal portfolio candidates. And form 3 optimal portfolios based on high systematic risk, low systematic risk, and without considering systematic risk which then provides recommendations for investors in choosing the portfolio they like and expect.

Measuring the Efficiency of State-Owned Stocks Using Capital Asset Pricing Model (CAPM)

Abstract Research aim : This study examines market efficiency using the Capital Asset Pricing Model (CAPM) method on BUMN stocks in Indonesia. Design/Methode/Approach : This model explains the relationship between risk and return in an efficient market. The analysis focuses on using stock beta calculations for 5 years. Research Finding : The research results are as follows: 1) the BUMN stock market in Indonesia is classified as efficient, namely 11 stocks where 5 companies have positive individual returns, namely ANTM, TINS, KRAS, BBNI, and PGAS. There are 6 companies that have negative returns, namely WSKT, ADHI, WIKA, PTPP, SMBR, and BBTN. 2) the analysis was carried out during the covid-19 pandemic period, the basic material sector is a collection of stocks that are classified as resilient during the pandemic showing positive and efficient returns. 3) overall, there is a high systematic risk of BUMN stocks in Indonesia, and actively responds to any changes that occur in market prices. Theoretical contribution/Originality : This contribution is expected to be a reference for investors and market participants. Practitionel/Policy implication : These results provide information for investors to choose efficient State-Owned Enterprises (BUMN) stocks in deciding to invest and still consider the nature and characteristics of each investor. Research limitation : Future research is expected to use other methods in analyzing the level of stock risk such as Arbitrage Pricing Theory (APT) or estimating future stock prices using the ARIMA / GarCH forecasting method and increasing the number of samples in the study or different market indices so that the expected results are more accurate in predicting future stock prices.

Ripple-Spreading Network of China’s Systemic Financial Risk Contagion: New Evidence from the Regime-Switching Model

Ripple-Spreading Network of China’s Systemic Financial Risk Contagion: New Evidence from the Regime-Switching Model

Do changes in star selection criteria affect analyst behaviour?

ABSTRACT This study examines whether the star analyst selection criteria affect analysts’ coverage decisions and the informativeness of their reports. We focus on a change to the star evaluation criteria that increased the importance of quantitative standards. After the reform, analysts tend to cover firms with smaller sizes, lower profitability, lower growth, and higher systematic risk. We find that post-reform analyst coverage is positively associated with both the level of and change in stock price synchronicity, indicating that analyst reports provide market-wide information.

A new systemically important commodity future index in Chinese market

ABSTRACT An eligible commodity futures index should serve as a forward-looking economic indicator and an indispensable investment target for investors. To depict the increasing interdependence of commodity prices and thus higher systemic risk under financialization, we innovatively construct a systemically important commodity futures index (SICFI) which effectively predicts systemic risk for real-time monitoring in the Chinese commodity futures market. Additionally, SICFI outperforms existing indices in terms of information quality, stability, macroeconomic indicators predictability, and investability. Finally, it is available to develop SICFI for the global market under financialization.

Information intensity and pricing of systematic earnings announcement risk

AbstractEarnings announcement (EA) poses a non‐diversifiable risk to investors. This study examines whether investors demand higher returns for stocks with high systematic EA risk. We find evidence that systematic EA risk is priced, however, the premium is realized only during periods with intensified cash‐flow news. Specifically, we construct an ex‐ante measure of expected information intensity (EII) and find that in the subsample of high‐EII firms, those with high systematic EA risk earn significantly higher future returns. Controlling for known risk factors, stocks with high systematic EA risk outperform those with low systematic EA risk by 0.43% in monthly Fama–French five‐factor alpha. We also confirm the well‐documented announcement premium, i.e., high‐EII firms outperform low‐EII firms and show that the EA risk premium is distinct from the announcement premium. To exploit both premiums, a feasible strategy of long stocks with both high‐EII and high systematic EA risk and short stocks with low‐EII yields monthly 0.81% five‐factor alpha.

Drought cascades across multiple systems in Central Asia identified based on the dynamic space–time motion approach

Abstract. Drought is typically induced by the extreme water deficit stress that cascades through the atmosphere, hydrosphere, and biosphere. Cascading drought events could cause severe damage in multiple systems. However, identifying cascading drought connections considering the dynamic space–time progression remains challenging, which hinders further exploring the emergent patterns of drought cascades. This study proposes a novel framework for tracking drought cascades across multiple systems by utilizing dynamic space–time motion similarities. Our investigation focuses on the four primary drought types in Central Asia from 1980 to 2007, namely precipitation (PCP), evapotranspiration (ET), runoff, and root zone soil moisture (SM), representing the four systems of atmosphere, hydrosphere, biosphere, and soil layer respectively. A total of 503 cascading drought events are identified in this study, including the 261 four-system cascading drought events. Our results show a significant prevalence of the four-system cascading drought pattern in Central Asia with high systematic drought risk, mainly when seasonal PCP droughts with high severity/intensity and sizeable spatial extent are observed. As for the temporal order in the cascading drought events, ET droughts are likely to occur earlier than runoff droughts after PCP droughts, and SM droughts are more likely to occur at last, implying the integrated driven effect of the energy-limited and water-limited phases on the drought progression in Central Asia. Our proposed framework could attain precise internal spatial trajectories within each cascading drought event and enable the capture of space–time cascading connections across diverse drought systems and associated hazards. The identification of cascading drought patterns could provide a systematic understanding of the drought evolution across multiple systems under exacerbated global warming.

PEMETAAN RISIKO SISTEMATIS & PEMBENTUKAN PORTOFOLIO OPTIMAL SAHAM INDEKS LQ45 DENGAN MODEL INDEKS TUNGGAL

Systematic risk is one of the most important aspects of portfolio investment. The market uncertainty has led to systematic risk changes, especially during the Covid-19 outbreak. Systematic risk might not be diversified but it is possible to avoid high systematic risk by choosing low systematic risk stocks. By knowing the beta (systematic risk) distribution, investors can choose low systematic risk stocks for their portfolio. The aim of this research is to build optimal portfolio by considering systematic risk distribution among LQ45 index. This research found that the Financial sector has the highest systematic risk while the Consumer Goods sector has the lowest systematic risk. This study also finds that portfolio risk can be reduced by choosing low-systematic risk stocks.

Capital regulation induced reaching for systematic yield: Financial instability through fire sales

Credit rating-based capital regulation induces financial institutions to take on additional systematic risk. In this paper, we uncover interconnected channels through which this systematic risk hoarding affects financial stability using a proprietary ECB bond holdings dataset. First, banks and insurance corporations effectively reduce their capital buffers by hoarding bonds with high systematic credit risk. Second, this hoarding increases the portfolio concentration of credit rating-constrained and unconstrained financial institutions. Third, in addition to the general tendency of regulated financial institutions to fire sale bonds after rating downgrades, we reveal even larger fire sales precisely when their regulatory advantages of reaching for systematic yield disappear. Using a shock in capital regulation, we establish this causal relationship between the severity of fire sales and the tendencies of regulatory-constrained financial institutions to seek bonds with high systematic credit risk. Such systematic risk hoarding reduces capital buffer by an additional 16% in economic downturns.

Interconnectedness of financial institutions based on pledged shares in China

Influential system-wide events since the Global Financial Crisis of 2008 have exhibited characteristics of risk contagion and spillover that arise from the interconnectedness of financial institutions. Both direct liability relationships and indirect interconnectedness measured by asset similarity can contribute to systemic risk. The present study constructs dynamic networks based on the same pledged shares held by different institutions in China from 2004 to 2021. The results show that policy changes such as transaction standardization and stricter rules on the use of credit can significantly affect stock-pledge transactions. This paper quantifies these effects with regard to different types of financial institutions, and finds that larger indirect interconnectedness could be related to lower stock-return volatility and higher systemic risk.

Financial Linkage via Idiosyncratic Shocks: A Case in an Emerging Market

ABSTRACT Slow diffusion of information in inefficient markets can lead to the transmission of idiosyncratic shocks and make some financial linkages among firms. Using monthly data from 250 firms on Tehran Stock Exchange, we predict the links originated from the idiosyncratic shocks. We use the extracted links for two purposes. In the first step, we examine whether considering the idiosyncratic shocks can lead to a positive abnormal return. In addition, we investigated how the idiosyncratic shocks can help to solve the puzzle of idiosyncratic volatility in the Tehran Stock Exchange. The results show that a portfolio with more shocks yields a significant positive abnormal return. The results also show that using the average idiosyncratic shocks cannot help to solve the puzzle of idiosyncratic volatility. Since the first step results show the significant effect of slow information diffusion on asset returns, we can examine the idiosyncratic shocks as a risk propagation channel in the financial network. Using the network theory, we investigate the idiosyncratic shocks contagion in the financial market. We consider the centrality measures to identify the most vulnerable and systemically important firms and sectors in the financial system. The results show that the portfolios consisting of vulnerable firms can make an abnormal positive alpha with the expense of high systemic risk.

Economic uncertainty and investor attention

This paper develops a multi-firm equilibrium model of information acquisition based on differences in firms’ characteristics. The model shows that heightened economic uncertainty amplifies stock price reactions to earnings announcements via increased investor attention, which varies by firm characteristics. Firms with higher systematic risk or more informative announcements attract more attention and exhibit stronger reactions to earnings announcements. Moreover, heightened investor attention caused by high economic uncertainty leads to a steeper CAPM relation and higher betas for announcing firms. Empirical analyses using firm-level attention measures and CAPM tests on high- versus low-attention days support the model’s predictions.

Particle size distribution in the evaluation of the inhalation toxicity of cosmetic spray products

While applying cosmetic sprays (pump sprays and propellant-based sprays) intended for use on the skin or hair, consumers may unintentionally inhale sprayed droplets/particles. Thus, it is essential to analyze the size distribution of sprayed droplets/particles because those less than 10 μm are considered to be respirable and may present a high systemic and local exposure risk. In this study, we investigated the droplet/particle size distribution of 78 cosmetic sprays by laser diffraction. Our results showed that the level of respirable droplets/particles released by pump sprays averaged 0.5% of all particles measured (0.00%–2.23%) and that released by propellant-based sprays averaged 15.25% (0.15%–32.27%). Dry shampoos (powder) released the highest percentage of respirable droplets/particles (16.66%–32.27%). A default value of 25% of respirable droplets/particles can also be suggested for dry shampoos. Droplet/particle size distribution was influenced by the spray dispensing system (pump or propellant-based), the product type (hairspray, sunscreen, etc.) and the galenic form (powder, oil, emulsion, etc.). However, it should be noted that more confidence is placed in the pump spray data due to the larger sample size. This study provides data on droplet/particle size, which may be used in a modelling approach to predict inhalation exposure. Therefore, it must be known and used, together with assessments of intrinsic and local toxicities to determine the margin of safety of the product by inhalation route, and to assess the risk of cosmetic sprays.

ESG and the U.S. stock market equity returns – take the pharmaceutical industry as an example

It is commonly accepted that market participants use ESG (Environment, social and governance) scores as an indicator of a company’s sustainability performance in terms of finances and reputations. Pharmaceutical industry is highly social related and increasingly exposed to climate change risks. In this study, 251 pharmaceutical companies and three leading enterprises are chosen to make out how ESG scores affect pharmaceutical industry?s stock returns and other financial performance. Using data from Wind and Bloomberg, we do an empirical analysis combined with theoretical analysis. We establish a linear regression model, to make regression of stock returns of the overall industry and ESG scores. The E, S and G scores are also analyzed respectively. Through the regression results, we find that better ESG performance doesn?t increase stock returns, which might due to a lagged effect of ESG performance on financial indicators. Also, higher systematic risks would decrease stock returns. As for specific companies, there are difference between their result and the overall industry. Higher ESG scores do effect stock returns of big companies, for instance, AbbVie and Pfizer, of which the stock returns are positively correlated to ESG scores, while Merck?s fact is negative but better suit for the model.

Portfolio homogeneity and systemic risk of financial networks

The present study argues that systemic risk can be understood from two different perspectives, the homogeneity of asset portfolios held by different financial institutions and contagion mechanism. Existing works only emphasize contagion as the basic mechanism of financial crisis. Portfolio homogeneity increases the positive correlations among institutions and therefore the probability of simultaneous collapses of a considerable part of the network. When the contagion was fairly weak, a high portfolio homogeneity would lead to high systemic risk. But, if the contagion is considerably strong, the systemic risk would quite likely be negatively correlated to portfolio homogeneity.

Does COVID-19 Still Affect Liquidities and Returns in Indonesia?

Most investors need useful information for investment decisions to obtain optimum returns. Based on this assumption, information obtained by investors will influence investment decisions. Information related to the continuation of the COVID-19 pandemic has tended to be a psychological factor affecting investors since 2020. The objective of this study is to analyze whether market liquidity still has an impact on abnormal returns in Indonesia. Logistic regression is used to test the relationship between market liquidity and abnormal returns on 661 firms listed on the Indonesia Stock Exchange over the period of January 1, 2020, to December 31, 2021. By combining systematic and unsystematic risks, illiquidity in 2021 has a positive impact on abnormal returns, although some combinations show insignificant results. This study finds that during 2021, investors tend to have low sentiment, which may be due to the continued threat of the COVID-19 pandemic, especially for stocks of firms that have high abnormal returns but low systematic risk. On the other hand, illiquidity does not have a significant impact on the stock of firms that have high abnormal returns but also high systematic risk from 2020 to 2021. This result indicates that investors in that stock are still optimistic and not influenced by the continuation of the COVID-19 pandemic.

Terrorist attacks and bank financial stability: evidence from MENA economies

This study examines the impact of terrorism on bank stability, represented by bank risk and financial performance. We consider banks from 14 countries located in the Middle East and North Africa region for the period 2010–2018 using both the three-stage least-square and the generalised method of moments. The results provide strong evidence that banks located in countries with high exposure to terrorist attack exhibit low financial stability, due to high bank risk (i.e., high credit and insolvency risk). However, these banks show high financial performance (i.e., high profitability and cost efficiency), on average. Our results also show differential impacts on bank stability for countries marked as more (less) exposed to risk of attacks. For banks located in high-income-generating countries, we find that exposure to terrorism is associated with low financial performance and high credit risk, which is the opposite case for low-income-generating countries. Our results also indicate high systemic risk for listed banks operating under high terrorism risk exposure.

Can independent directors with macro vision relieve debt default – from the perspective of independent director’s ‘advisory’ function

ABSTRACT The phenomenon of corporate debt default has broken out in recent years, which highlights the importance of the macro situation to the stability of business operations. In this paper, the debt default of A-share listed companies in Shanghai and Shenzhen Stock Exchange from 2008 to 2018 are used as a sample to conduct a research from the perspective of independent directors with macro vision. The empirical results show that the larger the number and the higher the proportion of macro-background independent directors in bond issuing companies, the less debt default will be found; moreover, the relationships are stronger when enterprises face more economic uncertainty and higher systemic risk. Meanwhile, independent director with macro vision mainly reduces the company’s default risk. The above results not only provide new evidence for the advisory role of independent directors, but also supplement the influencing factors of debt default.

LEISURE INDUSTRY & INVESTMENT STRATEGIES. THE CASE OF EUROPEAN COMPANIES

The objective of the present research is to investigate whether the investment strategies based on: a) the systematic risk of a company, b) the dividend yield of a company, and c) the momentum of a stock as it is measured by the price performance over the previous calendar year, can produce above market returns. The sample consisted of all listed companies that operate within the leisure industry on a European level from 2009 to 2019. The results showed that investors in the leisure industry companies: a) are compensated for assuming low systematic risk (low beta portfolios) against to high systematic risk (high beta portfolios), b) must choose portfolios consisting of stocks with high dividend yield stocks rather than portfolios consisting of low dividend yield stocks, and c) are better off by choosing stocks that had a positive momentum in the previous year than stocks that had a low price performance in the previous year

Research on Financial Systemic Risk in ASEAN Region.

The research of financial systemic risk is an important issue, however the research on the financial systemic risk in ASEAN region lacks. This paper uses the minimum density method to calculate the interbank network of ASEAN countries and uses the node centrality to judge the systemically important banks of various countries. Then the DebtRank algorithm is constructed to calculate the systemic risk value based on the interbank network. By comparing the systemic risk values obtained through the initial impact on the system important banks and non-important banks, we find that the systemic risk tends to reach the peak in the case of the initial impact on the system important banks. Furthermore, it is found that countries with high intermediary centrality and closeness centrality have higher systemic risk. It suggests that the regulatory authorities should implement legal supervision, strict supervision, and comprehensive supervision for key risk areas and weak links.