Intertemporal Relationship Research Articles

Loan growth and quality over the credit cycle

This study investigates the intertemporal relationship between loan growth and quality using annual data from U.S. commercial banks from 1992 to 2019. Our findings reveal that banks with higher loan growth over the preceding three years incur significant subsequent loan losses. This trend is evident in both real estate loans and commercial/industrial loans. The cross-sectional rolling regressions indicate that this relationship evolves over the credit cycle. Banks that rapidly expanded their loan portfolios before the financial crisis faced higher risks and considerable loan losses. Conversely, banks that deleveraged during and after the crisis experienced lower loan losses in subsequent years.

Analysis of Factors Affecting the Loan Growth of Banks with a Focus on Non-Performing Loans

The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending behavior due to their short history. Thus, this paper investigates the effect of the non-performing loan ratio on total loan growth using an ordinary least squares (OLS) regression model with panel data. We used bank-related variables such as the loan-to-deposit ratio, provision-to-gross loan portfolio ratio, equity-to-asset ratio, and liquidity ratio, and economic variables such as the real gross domestic product (GDP) growth rate, interest rate, and inflation rate. The results of this paper show that non-performing loans have a significant negative impact on total loan growth. The implication of this result is that non-performing loans affect banking efficiency, which, in turn, affects financial stability and the real economy. Moreover, high non-performing loans reduce banks’ profits. Also, this paper found that loss reserve and the liquidity ratio have a positive effect on total loan growth, while the effects of the loan-to-deposit ratio and the equity capital ratio were not found to be significant. Additionally, from a macro perspective, the inflation rate has a positive effect on the total loan growth rate, while the interest rate has a positive effect on total loan growth rather than a negative effect. And real gross domestic product (GDP) growth does not affect the total loan growth rate.

Price-Volume Relationship in Bitcoin Futures ETF Market: An Information Perspective

Bitcoin futures exchange-traded funds (ETFs) are recent innovations in cryptocurrency investment. This article studies the price-volume relationship in this market from an information perspective. We first propose effective mutual information which has better estimation accuracy to analyze the contemporaneous relationship. Using half-hourly trading data of the world’s largest Bitcoin futures ETF, we find that trading volume changes and returns contain information about each other and are contemporaneously dependent. Then, we employ effective transfer entropy to examine the intertemporal relationship. The results show that there exists information transfer from volume changes to returns in most of our sample period, suggesting the presence of return predictability and market inefficiency. However, information transfer in the opposite direction occurs much less frequently, and the amount is typically smaller.

Towards a greener aging society: A dynamic and multilevel analysis of consumption carbon emissions among China's aging population

Climate change and population aging are inevitably the two most significant global challenges. Senior population growth in China is accompanied by an increase in consumption-induced carbon emissions (CCEs). The study's contribution of a deeper understanding of the intertemporal relationship between senior characteristics and multi-category CCEs provides the theoretical foundation for the formulation of mitigation strategies. This study utilizes panel data obtained from the China Health and Retirement Longitudinal Study (CHARLS) surveys in 2013, 2015, and 2018 to compute the per capita CCEs for elderly adults across eight major consumption categories. It also exposes the dynamic influences of individual characteristics on CCEs by estimating the mixed effects model. Based on the findings, accommodation, transportation and communication, and food comprise the top three categories of CCEs. Furthermore, seniors’ consumption preferences have gradually drifted from basic necessities to pleasurable experiences and healthcare services. Notably, seniors’ characteristics (e.g., income, health, education, marital status, residential type, and the degree of urbanization) exert distinctively dynamic impacts on each type of CCEs over time. In pursuit of a greener aging society, this study proposes various implementation strategies for mitigating CCEs among different actors (the government, community, manufacturers, and older individuals) in light of the captured intricate mechanism.

Financial Advisor Compensation Structure and Client Equity Allocations

Investment advice is a difficult-to-value service and aligning incentives between financial advisors and investors is imperative. A compensation structure that pays advisors primarily through up-front commissions creates a potential short-term relationship, while a trailing commission arrangement better aligns with an intertemporal relationship. This paper explores this effect using a dataset of approximately 120,000 variable annuities from a single insurance company sold from January 1999 to December 2020. We find that clients of financial advisors who are paid higher up-front commissions have greater recent return bias compared to clients of advisors who receive higher trailing commissions. These findings indicate that a nuanced approach to compensation may be needed to balance investor protection with the proper incentives for financial advisors to provide unbiased and high-quality advice.

Average skewness in global equity markets

AbstractThis paper examines the predictive power of average skewness, defined as the average of monthly skewness values across stocks, documented by the prior literature for US market returns in an international setting. First, we confirm the validity of the results in the original study and show that the intertemporal relation between average skewness and aggregate returns becomes weaker in an alternative sample period. Second, when we repeat the analysis in 22 developed non‐US markets, we find that average skewness has no robust predictive power for future market returns. The loss of forecasting power in the international sample does not depend on the method used to calculate average skewness or the regression specification and is supported by additional out‐of‐sample tests and subsample analysis.

How are economic policy uncertainty shocks transmitted to capital structure? Chinese evidence

PurposeThe purpose of this paper is to investigate the mechanism of transmitting economic policy uncertainty (EPU) shocks to capital structure.Design/methodology/approachThe authors adopt a novel approach that bridges the asset pricing implications of EPU and the debt-financing decisions of Chinese firms by introducing a variable “policy-risk-induced equity return” (PRER). PRER is the product of the EPU beta and the EPU shock. Differentiating firms as per the signs of the EPU beta helps to shed light on the deep questions of whether their respective leverage targets and speeds of adjustment are different and how the targets and speeds are determined.FindingsThe empirical evidence shows that it is the equity market that channels EPU shocks to capital structure through PRER in China. Firms with positive (negative) EPU betas have PRER impact negatively (positively) the leverage target, conforming to the market-timing theory. EPU and non-policy uncertainty shocks cause the speed of adjustment to change over time. Overall, the intertemporal relation between EPU and leverage is negative. These results are robust to alternative leverage measures and after controlling for non-policy uncertainty shocks and conventional firm characteristics and have implications for academic research, policymaking, market stability, and corporate financing.Originality/valueThis study is the first to probe for, and provide insights into, the underlying reason why EPU impacts capital structure by connecting asset pricing to corporate financing for a large sample of Chinese publicly traded firms.

Downside risk and the cross-section of cryptocurrency returns

This paper investigates whether investors can earn higher profits by holding cryptocurrencies with higher downside risk. Both portfolio-level analyses and cryptocurrency-level cross-sectional regressions suggest a positive cross-sectional relation between downside risk and future returns in the cryptocurrency market. In addition to the risk-return tradeoff theory, the limits-to-arbitrage theory also has some explanatory power for these results. Moreover, we examine the source of downside risk premium, the existence of upside risk premium, as well as the intertemporal relation between downside risk and future returns. Collectively, our findings highlight the important role of downside risk in determining cryptocurrency prices.

Nonlinearity in the relationship between COVID-19 cases and carbon damages: controlling financial development, green energy, and R&D expenditures for shared prosperity.

The world faces a high alert of coronavirus disease 2019 (COVID-19), leading to a million deaths and could become infected to reach a billion numbers. A sizeable amount of scholarly work has been available on different aspects of social-economic and environmental factors. At the same time, many of these studies found the linear (direct) causation between the stated factors. In many cases, the direct relationship is not apparent. The world is unsure about the possible determining factors of the COVID-19 pandemic, which need to be known through conducting nonlinearity (indirect) relationships, which caused the pandemic crisis. The study examined the nonlinear relationship between COVID-19 cases and carbon damages, managing financial development, renewable energy consumption, and innovative capability in a cross section of 65 countries. The results show that inbound foreign direct investment first increases and later decreases because of the increasing coronavirus cases. Further, the rise and fall in the research and development expenditures and population density exhibits increasing coronavirus cases across countries. The continued economic growth initial decreases later increase by adopting standardized operating procedures to contain coronavirus disease. The inter-temporal relationship shows that green energy source and carbon damages would likely influence the coronavirus cases with a variance of 17.127% and 5.440%, respectively, over a time horizon. The policymakers should be carefully designing sustainable healthcare policies, as the cost of carbon emissions leads to severe healthcare issues, which are likely to get exposed to contagious diseases, including COVID-19. The sustainable policy instruments, including renewable fuels in industrial production, advancement in cleaner production technologies, the imposition of carbon taxes on dirty production, and environmental certifications, are a few possible remedies that achieve healthcare sustainability agenda globally.

Hypertension in women: the role of adolescent childbearing

BackgroundAdolescent childbearing is associated with various health risks to the mother and child, and potentially with adverse socioeconomic outcomes. However, little is known about the role of adolescent childbearing in maternal health outcomes in adulthood. This study investigates the link between childbirth in adolescence and later-life risk of hypertension among women in India.MethodsWe obtained nationally representative data on demographic and health outcomes for 442,845 women aged 25 to 49 from the India National Family Health Survey (NFHS) 2015-16. We assessed the difference in hypertension prevalence between women who gave birth in adolescence (age 10 to 19) and those who did not, for the full sample and various sub-samples, using linear probability models with controls for individual characteristics, hypertension risk factors, and geographic fixed effects.ResultsNearly 40% of the women in the sample gave birth in adolescence. The adjusted probability of being hypertensive in adulthood was 2.3 percentage points higher for this group compared to women who did not give childbirth in adolescence. This added probability was larger for women who gave birth earlier in adolescence (4.8 percentage points) and for women who gave birth more than once in adolescence (3.4 percentage points).ConclusionsAdolescent childbearing was strongly associated with a higher probability of adult female hypertension in India. This finding illustrates the intertemporal relationship between health risk factors during the life cycle, informing the importance of addressing adverse early life events (e.g. child marriage and adolescent childbirth) for hypertension outcomes among women in India.

Export pricing and exchange rate expectations under uncertainty

This paper contributes to the literature on firms’ export pricing by assessing whether and to what extent firms take into account the expected future evolution of the exchange rates while setting their prices. Using French micro-level trade data, our empirical analysis reveals that by adjusting their export prices, firms partly absorb information about future exchange rate variations. The extent to which individual exporters absorb future exchange rate fluctuations is found to depend on their market power, in accordance with theoretical dynamic demand-side models encompassing mechanisms creating an inter-temporal relationship between current market shares and future profits. The analysis also shows that the strength of such expectation-related mechanism is considerably reduced with greater future exchange rate uncertainty, in line with an interpretation of pricing-to-market as an investment decision under uncertainty. In a comparative perspective our results are shown to drive asymmetric responses across destinations of aggregate bilateral export flows to expected exchange rate movements.

NON PERFORMING FINANCING AND EFFICIENCY OF ISLAMIC BANKS IN INDONESIA

This research objective is to empirically investigate factors that decisively affect Non Performing Financing (NPF) of Islamic banks partially and simultaneously; the performance of Islamic banks through observing the efficiency by applying Data Envelopment Analysis (DEA) approach; and the intertemporal relationship between NPF and efficiency of Islamic banks by employing VAR model to test the hypothesis of 'Bad Management' and 'Bad Luck'. This research uses purposive sampling method and panel data where data collected from official website of each bank and Bank Indonesia. This study adopts quantitative research and has 72 observations from four banks in five quarterly years. An empirical evidence of this research indicates that partially FDR, ROA, and Exchange rate has negative significant influence towards NPF, while BI rate has the positive significant influence towards NPF. However, CAR and inflation has an insignificant effect to NPF. Simultaneously, all of the independent variables have the significant effect towards NPF which described by the value of 74.92%. The findings of DEA show the average value of Islamic banks in Indonesia is 92.85% which means Islamic Banks in Indonesia are not fully efficient. The finding also indicates that Islamic banks in Indonesia support the “Bad Luck” hypothesis, that the NPF and inefficiency of Islamic banks in Indonesia can be linked to external factors that are beyond management control rather than internal factors.

The dynamics between voluntary safety reporting and commercial aviation accidents

Since 1975, the Aviation Safety Reporting System (ASRS) has collected over 1.6 million reports from aviation community members and contributed to the efficiency and safety improvement of the National Airspace System (NAS) of the United States. Despite a large number of studies using ASRS data, the dynamics between safety reporting and aviation accidents remains unclear. Focusing specifically on the Part 121 air carriers of the U.S., this paper addresses the temporal relationship between voluntary safety reporting and the occurrence of commercial aviation accidents. Due to the uncertain and potentially mixed order of integration of the time-series data, this study uses Autoregressive Distributed Lag (ARDL) bounds testing and a special Vector Autoregressive (VAR) model based on Toda and Yamamoto (1995) for data analysis and cross-validation of the results. The ARDL bounds testing finds a long-run relationship from aviation accidents to safety reporting. This finding is confirmed by the estimation results of the VAR model that aviation accidents Granger cause voluntary safety reporting. Short-run relationships identified in ADRL bounds testing and impulse-response function (IRF) of the VAR model reveal that the response of safety reporting to aviation accidents peaks in the 4th and 5th quarter after the occurrence of accidents. Understanding the inter-temporal relationship between safety reporting and aviation accidents could facilitate the interpretation of reporting data for government agencies or safety departments of airlines overseeing safety reporting systems. The short-run and long-run relationships between voluntary safety reporting and aviation accidents identified in this study for U.S. air carriers could be used as benchmarks for other national aviation safety agencies or airlines to assess their safety reporting cultures.

Is there a risk-return tradeoff in the corporate bond market? Time-series and cross-sectional evidence

We provide time-series and cross-sectional evidence on the significance of a risk-return tradeoff in the bond and equity markets. We find a significantly positive intertemporal relation between expected return and risk in the bond market. We also propose novel measures of systematic and idiosyncratic risk for individual corporate bonds and find a significantly positive cross-sectional relation between systematic risk and expected bond returns, whereas there is no significant link between idiosyncratic risk and future bond returns. We provide an explanation for the significance of systematic (idiosyncratic) risk based on different investor preferences and informational frictions in the bond (equity) market.

Reconnoitering the Sustainable Relationship between Revenue Income and GDP: A Comparative Study of Asymmetric Countries in the World

This paper applies panel unit root test, country Pedroni cointegration test (PCT), Phillips-Peron cross section test (PPCST), vector error correction test and Johansen normalized cointegrating test (JNCT) for estimates the coefficients in the short-run and in the long-run to examine the inter-temporal relationship between the government revenues income and GDP. The paper took into account fifteen asymmetric countries with three income groups over the period from 2001 to 2016. The study justified the long run relationship between the articulated variables in the country PCT and the test results unearthed that four statistics out of seven on different indexes exhibited one percent level of significance. In the upper middle income country category, other than Brazil and Sri Lanka, rest of three countries showed a long run relationship, i.e. the study outcome reconnoitered the existence of a long run relationship between the two articulated variables. Decisively, the outcome of JNCT suggests that in the long run if the government revenue upsurge one percentage point then GDP growth rate will rise 0.037 and 0.28 percentage point for the countries that belong to high income and the upper middle income respectively. Meanwhile, the test find a negative result that allied to lower middle income nations, GDP growth rate will plummet 0.039 percent point due to one percent rise in revenue income.

Determinants of nonperforming loans after recapitalization in the Nigerian banking industry: Does efficiency matter?

We examine the intertemporal relationship between nonperforming loans, efficiency and bank recapitalization in the Nigerian banking industry between 2011 and 2018. Using system generalized method of moments (SGMM) and stochastic frontier analysis (SFA), we document the importance of bank efficiency for addressing escalating nonperforming loans in the industry after recapitalization policies and the channels pass‐through between efficiency and the nonperforming loans‐recapitalization nexus. Our results validate the roles of firm‐level and macroeconomic variables: bank size, efficiency, profitability, capitalization, economic growth, inflation, and money supply for addressing nonperforming loans. Also, efficiency passes through recapitalization and bank size to address nonperforming loans. We recommend prudential policies for managerial and profit efficiency and lend supports for CBN's new round of recapitalization policy to address escalating nonperforming loans in the industry.

Risk, efficiency and capital in a dual banking industry: evidence from GCC banks

PurposeThis study aims to extend the literature by simultaneously investigating the relationship between risk, efficiency and capital in the Gulf Cooperation Council (GCC) dual banking system.Design/methodology/approachThe study employs the simultaneous-equation modeling technique with a three-stage least square estimator on 60 listed GCC commercial banks from 2005 through 2018.FindingsAlthough GCC Islamic banks are more capitalized and liquid, they are riskier and less efficient than GCC conventional banks. Moreover, a higher level of capital reduces the insolvency and credit risk of GCC banks for both types of banks. However, it enhances the cost efficiency of GCC conventional banks only. GCC conventional banks also exhibit skimping behavior, while for GCC Islamic banks, cost efficiency is negatively associated with bank risk. This implies that the risk-taking behavior in Islamic banks is prompted by the incentives of the shareholders following the risk-sharing nature of Islamic banking.Originality/valueThis study differs from previous studies in many aspects. First, it relies on a recent long data set that covers the implementation of the accords of Basel II (introduced in 2004) and Basel III (introduced in 2010). Second, it estimates the efficiency of GCC banks based on separate frontiers for Islamic and conventional banks, ensuring the robustness of the results. In conclusion, to the best of the author's knowledge, this is the first study to investigate the intertemporal relationship between risk, efficiency and capital in the GCC dual banking industry.

Some Shocking Stories: The Behavioral Response Of Cancer Mortality To Spikes In Alcohol And Tobacco Consumption

Tobacco and alcohol have long been acknowledged as carcinogens holding a critical role in the progression of a various cancers. Identifying the degree to which tobacco and alcohol can impact cancer mortality is necessary to developing effective public health strategies and mitigating risks with preventative measures. The goal of this study is to characterize the behavior of cancer mortality in response to shocks in alcohol and tobacco consumption utilizing aggregate U.S. data. This is the first study of its kind to examine the intertemporal relationship between cancer mortality and its determining factors within a dynamic system. Our results indicate cancer mortality displays persistence and its path dependency varies considerably between the shock factors. An unexpected shock to alcohol consumption results in cancer mortality taking about 17 years to return to its pre-shock level, whereas tobacco consumption shocks recover the original cancer mortality level in about 10 years. Alcohol has a more dominant effect on cancer mortality regardless of time dimension. As a result, policies that have been previously emphasized toward mitigating tobacco consumption may prove prudent in addressing alcohol as a public health concern with respect to cancer mortality.

Liquidity risk and expected cryptocurrency returns

AbstractThis paper examines how liquidity risk is priced in the cross‐section of cryptocurrency returns. In doing so, we use the Amihud measure as a liquidity proxy. By employing the univariate portfolio analysis, the bivariate portfolio analysis, and the Fama‐MacBeth regression analysis, we document a negative relationship between liquidity and cryptocurrency returns. Additional tests demonstrate that this finding is robust to alternative liquidity measurement as well as size screens and show no evidence of a significant intertemporal relationship between liquidity and expected returns for three leading cryptocurrencies. Our conclusions add to the understanding of how markets price cryptocurrencies.

Average Skewness in Global Equity Markets

This paper examines the predictive power of average skewness, defined as the average of monthly skewness values across stocks, documented by Jondeau et al. (2019, JFE) for US market returns in an international setting. First, after confirming the validity of the US results for the sample period between 1990 and 2016, we find that the intertemporal relation between average skewness and future market returns becomes either insignificant or marginally significant when the sample period is extended. Second, when we repeat the analysis in 22 developed non-US markets, we find that average skewness has no robust predictive power. The inability of average skewness to forecast market returns does not depend on the method used to calculate average skewness or the regression specification.