Implications For Risk Management Research Articles

Reported Occurrence of Multiscale Flooding in an Alpine Conurbation over the Long Run (1850–2019)

This paper deals with the identification of extreme multiscale flooding events in the Alpine conurbation of Grenoble, France. During such events, typically over one to several days, the organization in space and time of the generating hydrometeorological situation triggers the concurrent reaction of varied sets of torrents and main rivers and creates diverse socioeconomic damages and disruptions. Given the limits of instrumental data over the long run, in particular at the torrent scale, we explore the potential of a database of reported extreme flood events to study multiscale flooding over a Metropolitan domain. The definition of Metropolitan events is mainly based on the database built by the RTM (Restauration des Terrains de Montagne, a technical service of the French Forest Administration). Relying on expert reports, the RTM database covers the long lifetime of this French national service for the management of mountainous areas (1850–2019). It provides quantitative information about the time and place of inundation events as well as qualitative information about the generating phenomena and the consequent damages. The selection process to define Metropolitan events simply chronologically explores the RTM database and complements it with historical research data. It looks for concurrence between site events at the same date under a chosen set of criteria. All scales together, we selected 104 Metropolitan events between 1850 and 2019. Exploring the list of dates, we examine the homogeneity of the Metropolitan events over 1850–2019 and their space–time characteristics. We evidence the existence of multiscale flooding at the Metropolitan scale, and we discuss some implications for flood risk management.

The links between gold, oil prices and Islamic stock markets in a regime switching environment

This paper investigates the linkages between gold, oil prices and Islamic stock market for the turbulent period 1996–2020 which covers the recent COVID-19 pandemic crisis. The paper applies standard VAR and Markov switching VAR models. Empirical results can be summarized as follows: (i) There are some significant relationships between the considered markets. (ii) The sign of the links varies significantly according to markets and regimes. (iii) There is a significant and positive link between oil and Islamic stock markets namely during turbulent periods suggesting the financialization of the crude oil market. (iv) The negative or the absence of relationships between gold market and both oil and Islamic stock markets indicate that gold can act as a hedge and safe haven during extreme market conditions. These findings have several practical implications for risk-management and portfolio diversification strategies.

Developing a Global Method for Normalizing Economic Loss from Natural Disasters

AbstractOur understanding of past natural catastrophes has important implications for catastrophe modeling and disaster risk management, mitigation, and adaptation. To assess past events, loss “nor...

Does economic policy uncertainty drive volatility spillovers in electricity markets: Time and frequency evidence

Although the close relationship between economic conditions and electricity price variations has been well documented in previous studies, the issue of how volatility spillovers in electricity markets respond to the uncertainty of economic circumstances remains unclear. Using a novel dataset of 12 European electricity markets from 2009 to 2020, this paper applies recently developed volatility spillover approaches to quantify the time-frequency volatility connectedness of European electricity markets for the first time and, on this basis, investigates the impact of economic policy uncertainty on the cross-market volatility spillover effects. Our first key finding is that the overall connectedness of the European electricity markets is relatively high, but it varies over time and exhibits drastic changes during economic and geopolitical events. Second, volatility spillovers at different frequencies show strong heterogeneity, with the short-term effects accounting for the largest proportion of cross-market volatility spillovers in the European electricity system. Finally, increases in economic policy uncertainty in Europe significantly drive up volatility spillovers in the electricity markets but this effect holds mainly for the medium- and long-term effects, while the short-term spillover effects are almost independent of European economic policy uncertainty. Our results have important risk management implications for participants and regulators in European electricity markets.

Does something change in the oil market with the COVID-19 crisis?

This paper examines the price discovery of three international crude oil futures markets (WTI, Brent, INE) before and after the outbreak of the COVID-19 with the application of the information share and component share model. Our study shows that there is a structural break of the date of March 6, 2020, in each price series with Zivot and Andrew's unit root tests. Using Gregory and Hansen cointegration tests, cointegration relationships with the structural break in May 2020 are detected. According to results of Information Share (IS) and Component Share (CS) measures Brent futures price mainly plays a leading role in WTI and INE futures prices and occupies an absolutely dominant position all the time in the three crude oil futures markets systems. In the post-covid period, the price discovery efficiency of INE has been improved slightly but is still weak compared with other two markets. After the outbreak of COVID-19, the dominant position in price contribution in the relationship with INE has transferred from Brent to WTI. These findings offer practical implications for regulators and portfolio risk managers during the unprecedented uncertainty period provoked by the COVID-19 pandemic.

Spillover and risk transmission between the term structure of the US interest rates and Islamic equities

This study examines the spillover between the US yield curve components and return and volatility spillovers of ten Islamic equity sectoral indices. Our static analysis shows that level factor of the yield curve as well as sectorial equities of Basic Materials, Industrials, Consumer goods and Consumer services are the main transmitter, whereas the slope and curvature factor of the yield curve along with sectorial equities of Oil and Gas, Financials, Healthcare, Technology, Telecom and Utilities are the main recipient of both return and volatility spillover. Our dynamic spillover analysis reveals that the total return and volatility spillovers indices rapidly rise after the start of the different crises and then fall afterward. Our pairwise analysis shows that yield components are main transmitter of volatility spillover to Utilities, Telecom, Technology and Financials. The identification of net transmitter and receiver of spillover has important portfolio choice and risk management implications. These findings are helpful for investors, Shariah advisors, and policy makers in formulating their decisions in terms of portfolio strategy, risk management, Shariah codes, and monetary policy.

A New Model for U.S. Inflation Indices and its Implications For Risk Management and Lower Income Households

A New Model for U.S. Inflation Indices and its Implications For Risk Management and Lower Income Households

Cooperative Behavior and Knowledge Sharing: Interaction of Risk Management

Purpose – This study analyzes the influence of cooperative behavior and organizational risk management on knowledge sharing in Brazilian agricultural cooperatives. Complementarily, it analyzes the interaction of organizational risk management in the relationship between cooperative behavior and knowledge sharing. Theoretical framework – The research is based on the literature on cooperative behavior, organizational risk management, and knowledge sharing with variables derived from previous literature. Methodology – A survey was conducted with strategic level managers in Brazilian agricultural cooperatives, with the sample being composed of 104 valid responses. To test the hypotheses, the structural equation modeling technique was applied. Findings – The results show that cooperative behavior positively and significantly influences risk management and knowledge sharing; however, no statistical significance was found in the relationship between risk management and knowledge sharing. This indicates that higher levels of cooperative behavior are reflected in greater risk management, which helps to mitigate risks, and in greater knowledge sharing in the cooperatives studied. Practical & social implications of research – It presents new information relating to cooperative behavior and risk management in knowledge sharing in cooperatives that integrate strategic alliances. As practical implications, it is highlighted that knowledge sharing should not be perceived as an immediate risk, but as being inherent to cooperation and collaboration between parties. Originality/value – It contributes to the literature by presenting new implications of cooperative behavior and risk management, perceived as enablers of knowledge sharing. Keywords – cooperative behavior; risk management; knowledge sharing; cooperatives.

Time–frequency co-movement and risk connectedness among cryptocurrencies: new evidence from the higher-order moments before and during the COVID-19 pandemic

Analyzing comovements and connectedness is critical for providing significant implications for crypto-portfolio risk management. However, most existing research focuses on the lower-order moment nexus (i.e. the return and volatility interactions). For the first time, this study investigates the higher-order moment comovements and risk connectedness among cryptocurrencies before and during the COVID-19 pandemic in both the time and frequency domains. We combine the realized moment measures and wavelet coherence, and the newly proposed time-varying parameter vector autoregression-based frequency connectedness approach (Chatziantoniou et al. in Integration and risk transmission in the market for crude oil a time-varying parameter frequency connectedness approach. Technical report, University of Pretoria, Department of Economics, 2021) using intraday high-frequency data. The empirical results demonstrate that the comovement of realized volatility between BTC and other cryptocurrencies is stronger than that of the realized skewness, realized kurtosis, and signed jump variation. The comovements among cryptocurrencies are both time-dependent and frequency-dependent. Besides the volatility spillovers, the risk spillovers of high-order moments and jumps are also significant, although their magnitudes vary with moments, making them moment-dependent as well and are lower than volatility connectedness. Frequency connectedness demonstrates that the risk connectedness is mainly transmitted in the short term (1–7 days). Furthermore, the total dynamic connectedness of all realized moments is time-varying and has been significantly affected by the outbreak of the COVID-19 pandemic. Several practical implications are drawn for crypto investors, portfolio managers, regulators, and policymakers in optimizing their investment and risk management tactics.

Fourier transform based LSTM stock prediction model under oil shocks

<abstract><p>This paper analyses the impact of various oil shocks on the stock volatility prediction by using a Fourier transform-based Long Short-Term Memory (LSTM) model. Oil shocks are decomposed into five components following individual oil price change indicators. By employing a daily dataset involving S & P 500 stock index and WTI oil futures contract, our results show that different oil shocks exert varied impacts on the dynamics of stock price volatility by using gradient descent. Having exploited the role of oil shocks, we further find that the Fourier transform-based LSTM technique improves forecasting accuracy of the stock volatility dynamics from both statistical and economic perspectives. Additional analyses reassure the robustness of our findings. Clear comprehension of the future stock market dynamics possesses important implications for sensible financial risk management.</p></abstract>

Earthquake Risk Perception in Belgrade: Implications for Disaster Risk Management

Earthquake Risk Perception in Belgrade: Implications for Disaster Risk Management

Investigation of stock return volatility using Shannon entropy - evidence from ASEAN stock markets

This study assesses stock market volatility in ASEAN countries. We use Shannon entropy as an alternative measure to traditional measure of stock return volatility. We utilise daily stock price data of national stock market indices of ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) for the period from August 2001 to December 2016. The results show that the stock returns of Vietnam (VNINDEX) is the most volatile stock index, followed by that of Indonesia, Singapore, Malaysia, Thailand and the Philippines. The study also suggests that entropy is an important alternative to the traditional measure of stock return volatility. The study offers important implication for risk management and portfolio theory.

The implications of dependence, tail dependence, and bounds’ measures for counterparty credit risk pricing

This paper investigates the counterparty credit risk of interest rate swaps positions using the credit valuation adjustment (CVA) measure, and examines the potential dependence relationships between the probability of default (PD) and exposure at default (EAD). We empirically tested, using interest rate swaption implied market volatilities, six tail dependence models: a Basel III Committee independent model, a Gaussian, Student’s t, Gumbel, Clayton, and a wrong way risk (WWR) copula with dependence approach. The results show that the CVA underestimation when using a Clayton copula for modelling the dependence of PD and EAD is about 10%–856% compared to using WWR, and the underestimation between using the standardised Basel independent model and using the Gaussian copula is about 552%–2621%, including the period of the 2007/2008 crisis, signalling that dependence is more important than tail dependence for CVA measurement. This has important implications for regulators, financial institutions, and credit risk managers when calculating counterparty risk.

Dependence dynamics of Islamic and conventional equity sectors: What do we learn from the decoupling hypothesis and COVID-19 pandemic?

The recent COVID-19 pandemic intensification generates a different set of challenges for global financial markets and portfolio management strategies. This paper uses network analysis to investigate the static and dynamic dependence within Islamic and conventional equity sectors. The study focuses on the decoupling hypothesis and how the dependence among sectors changes during COVID19. Empirical findings indicate a higher degree of spillover during the COVID19 sub-period. Islamic and conventional equities behave differently in terms of industry-level dependence during normal and crisis times, thus decoupling. Further, the dependence effect between conventional equity returns is stronger than Islamic equity returns during the COVID-19 pandemic. The finding of this paper has several significant implications for portfolio selection and risk management. Portfolios consisting of Islamic equity sectors including industrials, basic materials, consumer services, and technologies highlight low-diversification benefits across the entire sample period. Also, investment exposure to less connected Islamic and conventional equity sectors provides a good diversification strategy.

Occurrence and distribution of organic ultraviolet absorbents in sediments from small urban rivers, Tianjin, China: Implications for risk management

Organic ultraviolet absorbents (OUVAs) in the environment have been of increasing concern because of their potential hazards. However, the OUVAs in waters is far from being well studied and little is known about their occurrence in small urban rivers. This study investigated the concentrations and distribution of eleven OUVAs in the sediments from five small urban rivers of Tianjin, China, and found total concentrations in the range of 11.6–189 ng/g dry weight. Relative to other rivers and lakes, no high concentrations of sediment OUVAs were observed in the small rivers. Benzophenone, homosalate and octocrylene were the dominant OUVAs, representing medians of 13.3%, 12.4% and 12.3% of the total concentrations, respectively. Our observed composition profiles of these chemicals were different from those found in most of other waters. The sediment OUVAs may originate more from industrial activities than the use of cosmetics and personal care products in this area. The risk to aquatic organisms from exposure to the sediment OUVAs in these small urban rivers was considered low, except for benzophenone. However, more researches are needed to investigate the pollution and associated risks of these chemicals in urban rivers due to the complexity of their toxicity to aquatic organisms.

Nursing Staff Perceptions of Risk Outcomes in Delivering Preference-Based Person-Centered Care

Effective management of the perceived risks associated with delivering preference-based person-centered care (PBPCC) is historically challenging for nursing home staff. Existing research lacks the granularity needed to guide clinicians who fear negative health and safety outcomes for residents. This study examined direct-care nursing staff perceptions of outcomes associated with delivering PBPCC. Participants (N=27) worked in NHs experiencing 6-12 health citations, were mostly female (85%), and represented diverse ages, race, education, and collective work experience in NHs. Content analysis of verbatim transcripts from 12 focus groups identified an overarching theme of: “person-centered outcomes related to risk engagement”; and sub-themes of: harms to staff (e.g. fear, frustration, guilt); harms to residents (e.g. negative moods and behaviors, physical discomfort); and positive shared outcomes (e.g. building nurse-resident relationships, positive care environment). Implications for risk management that improves quality of care and life outcomes in a post-COVID era will be discussed.

Dynamic and frequency spillovers between green bonds, oil and G7 stock markets: Implications for risk management

This paper examines the dynamic and frequency spillovers between global Green Bonds (GBs), WTI oil and G7 stock markets using the time–frequency spillover index by Baruník and Křehlík (2018) and wavelet coherency approach. The results show that the spilllovers is dynamic and crisis-sensitive. Furthermore, adding GBs and oil futures to stock portfolio reduces the spillover size during turmoil periods. The short-term spillovers (up to five trading days) represent the largest proportion of the total spillovers. A significant jump in spillovers is observed in the early of COVID-19 outbreak (March–April 2020). Interestingly, Canada, France, Germany, Italy, and UK are the net transmitters of spillovers, whereas Japan and GBs are the net recipients of the spillovers, irrespective of time horizons. Oil and US stock market shift from net contributors in short term to net receipts in medium and long terms. Wavelet coherence analysis reveals significant co-movements between G7 stock markets and both oil and GBs. The co-movements are more pronounced in both medium and long terms and during COVID-19 spread where both oil and GBs lead stock markets. GBs provide higher diversification benefits to G7 investors than oil in the short-term. The hedging is expensive at the long term for GBs and intermediate term for WTI oil. Finally, the hedge effectiveness of crude oil is higher than GBs, irrespective of time horizons.

Brand Capital and Stock Price Crash Risk

We examine the relationship between brand capital and stock price crash risk. Crash risk, defined as the negative skewness in the distribution of returns for individual stocks, captures asymmetry in risk, and has important implications for investment choices and risk management. Using a sample of 39,685 publicly listed U.S. firm-year observations covering 1975 to 2018, we show that brand capital is significantly and negatively related to crash risk. We also use an advanced machine learning approach and confirm that brand capital is a strong predictor of future stock price crashes. Our cross-sectional analyses show that this negative relationship is more evident for subsamples with transitory poor earnings performance or persistent good earnings performance, greater corporate tax avoidance, and weak corporate governance structures. The results survive numerous robustness tests, including the use of alternative measures of brand capital, crash risk, and several endogeneity tests. In sum, our findings are consistent with agency theory, suggesting that high levels of brand capital expose firms to investor and customer scrutiny, which reduces managerial opportunistic behavior that may include the accumulation and concealment of negative information. This paper was accepted by Karl Diether, finance.

Will GWAS eventually allow the identification of genomic biomarkers for COVID-19 severity and mortality?

GWAS involve testing genetic variants across the genomes of many individuals to identify genotype-phenotype associations. GWAS have enabled the identification of numerous genomic biomarkers in various complex human diseases, including infectious ones. However, few of these studies are relevant for clinical practice or at the bedside. In this issue of the JCI, Nakanishi et al. characterized the clinical implications of a major genetic risk factor for COVID-19 severity and its age-dependent effect, using individual-level data in a large international multicenter consortium. This study indicates that a common COVID-19 genetic risk factor (rs10490770) associates with increased risks of morbidity and mortality, suggesting potential implications for future clinical risk management. How can the genomic biomarkers identified by GWAS be associated with the clinical outcomes of an infectious disease? In this Commentary, we evaluate the advantages and limitations of this approach.

Internal corporate governance and stock price crash risk: evidence from Vietnam

ABSTRACT This paper investigates the role of internal corporate governance and external audit in preventing future stock price crash risk. By using a sample of 655 non-financial listed firms in the Hanoi and Ho Chi Minh City stock exchange in Vietnam for the period 2010–2019, we find that internal corporate governance is significantly related to future stock price crash risk. Specifically, we find that strong boards are positively associated with the future stock price crash risk. However, the relationship between the effectiveness of audit committees and crash risk is negative. These results indicate that appropriate internal corporate governance can prevent stock price crash risk. In addition, this study provides evidence that an external audit quality enhances the audit committee’s effectiveness in preventing crash risk. The results provide some important implications for portfolio investment and risk management.