Macroeconomic Risk Research Articles

ПОДХОД К МОДЕЛИРОВАНИЮ ВЛИЯНИЯ ИНСТИТУТОВ НА СОВОКУПНЫЙ СПРОС

The article presents an original Keynesian-institutional approach to studying the macroeconomic dynamics of a transitional economy (on the example of Russia). The article proposes theoretical provisions related to the inclusion of an assessment of the institutional factor in the distribution of national income, as well as an authorial approach to modeling the relationship between institutions and aggregate demand based on the construction of linear regression equations, including changes in consumption, investment and institutional environment. Currently, economists have a desire to revise the mainstream and increase the requirements for the explanatory ability of macroeconomic models. The views widespread in economic theory are increasingly criticized due to the predominance of econometric analysis over qualitative interpretations, the unrealistic hypotheses of the rationality of economic agents’ behavior and the perfection of market mechanisms based on the assumption that it is possible to predict the future based on an analysis of the past. In order to solve the indicated problems, it is often proposed to use synthetic theories that combine the achievements of several schools of economic thought. One of these synthetic theories is Keynesian-institutional synthesis. The proposed approach is applied to assess the macroeconomic dynamics of the Russian economy, in which a decrease in consumption and investment volatility have been observed over the past five years, which is associated with macroeconomic stabilization and the development of social support institutions. However, the expectations of economic agents are rather unfavorable, and further measures are needed to stabilize aggregate demand. According to the analysis of official statistics, institutional factors significantly affect aggregate demand, but are not of priority. At the same time, the general conditions of the institutional environment have a stronger effect on investment than on consumption. On this basis, it has been concluded that the progress of institutions can not only accelerate economic growth, but also increase macroeconomic risks; therefore, it increases the responsibility of politicians for decisions in the field of economic regulation.

Determinants of stock return of property and real estate companies in the developing market

Macroeconomic risk factors can determine the expected return on property and real estate stocks (Khan, Khan, Ahmad, & Bashir, 2021), in addition to other factors: property prices (Das, Füss, Hanle, & Russ, 2020) and financial performance (Medyawati & Yunanto, 2017). This study aims to empirically prove the effect of interest rates (SB), exchange rates (KURS), commercial property price index (IHPK), return on assets (ROA), debt-to-equity ratio (DER), and current ratio (CR) on stock returns estimated using panel data regression model. The sample of this research is 23 companies from 63 companies in the property and real estate industry which are listed on the Indonesia Stock Exchange (IDX) during the 2015–2019 period. The empirical findings of this study prove that the ROA, CR, IHPK, and KURS variables have a negative effect on stock returns, while the SB variable has a positive effect. The level of corporate debt (DER) was not proven to determine stock returns. The exchange rate has the greatest influence on stock returns, and the fact does show that the Indonesian stock market is dominated by foreign investors, so that every time foreign currencies appreciate because they leave the stock exchange, the stock price immediately declines. The results of this study have implications for investors that investment decisions to buy shares of property and real estate companies must understand the changes that occur, especially macroeconomic variables and also the company’s financial performance

Lease or Borrow? The Case of Small Equipment Contracts

Using a specially-constructed dataset, we are able to compare the costs of leasing or borrowing that heretofore no research exists. With a 15% average yield in our overall sample of small contracts, we show that leases average about 12.5% while loans average 24%. After matching paired-samples of true leases and loans, the differential remains a significant 8.6%, while true and non-true leases show very little difference in yields. Using proxies for economic factors, cross-sectional regressions of yields on leasing contracts are significantly related to transaction costs, cost of capital of lessor, and financial risk of the lessee. In time series analysis, the average lease yields are significantly related to proxies for macroeconomic risk and demand factors. All told, it does appear that leasing can be a less costly form of financing and there are reasonable economic factors that account for the pricing.

A Time-varying Skewness Model for Growth-at-Risk

This paper studies macroeconomic risks in a panel of advanced economies based on a stochastic volatility model in which macro-financial conditions shape the predictive growth distribution. We find sizable time variation in the skewness of these distributions, conditional on the macro-financial environment. Tightening financial conditions signal increasing downside risk in the short term, but this link reverses at longer horizons. When forecasting downside risk, the proposed model, on average, outperforms existing approaches based on quantile regression and a GARCH model, especially at short horizons. In forecasting upside risk, it improves the average accuracy across all horizons up to four quarters ahead. The suggested approach can inform policy makers' assessment of macro-financial vulnerabilities by providing a timely signal of shifting risks and a quantification of their magnitude.

Climate change and fiscal sustainability: Risks and opportunities

Both the physical and transition-related impacts of climate change pose substantial macroeconomic risks. Yet, markets still lack credible estimates of how climate change will affect debt sustainability, sovereign creditworthiness, and the public finances of major economies. We present a taxonomy for tracing the physical and transition impacts of climate change through to impacts on sovereign risk. We then apply the taxonomy to the UK’s potential transition to net zero. Meeting internationally agreed climate targets will require an unprecedented structural transformation of the global economy over the next two or three decades. The changing landscape of risks warrants new risk management and hedging strategies to contain climate risk and minimise the impact of asset stranding and asset devaluation. Yet, conditional on action being taken early, the opportunities from managing a net zero transition would substantially outweigh the costs.

CLIMATE CHANGE AND FISCAL SUSTAINABILITY: RISKS AND OPPORTUNITIES

Both the physical and transition-related impacts of climate change pose substantial macroeconomic risks. Yet, markets still lack credible estimates of how climate change will affect debt sustainability, sovereign creditworthiness and the public finances of major economies. We present a taxonomy for tracing the physical and transition impacts of climate change through to impacts on sovereign risk. We then apply the taxonomy to the UK’s potential transition to net zero. Meeting internationally agreed climate targets will require an unprecedented structural transformation of the global economy over the next two or three decades. The changing landscape of risks warrants new risk management and hedging strategies to contain climate risk and minimise the impact of asset stranding and asset devaluation. Yet, conditional on action being taken early, the opportunities from managing a net zero transition would substantially outweigh the costs.

Макроекономічні ризики бюджетної політики України в умовах кризи

Макроекономічні ризики бюджетної політики України в умовах кризи

Jednofaktorski model za stope neizmirenja po tipovima kredita

This paper investigates the link between default rates by loan types and the systemic credit risk component. This link is described by a linear model that combines systemic and idiosyncratic contributions. The systemic component is a latent factor that depends directly on the aggregate loan default rate, while the idiosyncratic component drives specific variations of default rates across loan types. By transforming observable risk measures, the model can be econometrically represented as a mixed-effects model, where the systemic and idiosyncratic components represent, respectively, the slope and the intercept that are specific for each loan type individually. The proposed model is illustrated on a panel of defaulted loans of the Association of Serbian Banks. The obtained results show the model's very high power in explaining average default rates for all loan types. Thus, the aggregate default rate plays the role of a unique systemic component that mimics the influence of fundamental macroeconomic risk factors easily, without the necessity to model this relationship explicitly.

Target Capital Structure of Egyptian Listed Firms: Importance of Growth and Risk Factors

This paper investigates the determinants and adjustment speed to the target capital structure of the Egyptian Listed firms over the period of 2009 – 2018. We use panel regression analysis to examine role of growth factors as well as risk factors in explaining the dynamics of target leverage. The main findings of the growth factors model (GFM) reveal that political risk, profitability and stock market return are negatively affect the target leverage of Egyptian firms. In contrast, investment opportunities, non-debt tax shield, firm size have significant positive effect on the target leverage. On the other hand, the results of risk factors model (RFM) indicate that political risk, size and profitability lose their significant effects for the account of firm risk, stock return, investment and asset tangibility. The business risk captures the effect of political risk on the target leverage. Interestingly, both the investment opportunities and the non-debt tax shield preserve their positive effects and thereby they are considered as the most important firm-specific determinants of the target leverage. We find no significant effects of the economic growth, macroeconomic risk and stock market volatility on the target leverage in Egypt. Regarding the adjustment speed and in the presence of growth (risk) factors, the Egyptian firms take 2.7 (4.4) years to adjust their current leverage toward the target leverage.

The global fiscal response to COVID-19: Risks and repercussions

Governments around the world responded to the COVID19 crisis (CVC) by aggressively deploying fiscal policy to boost health expenditure, income transfers and increased welfare payments, as well as wage subsidies to firms to retain employees to minimize short term unemployment. A fiscal response was in principle both necessary and timely, but the nature of the responses adopted by governments differed markedly around the world. After describing the global macroeconomic impact of the CVC and its effect on budget deficits and public debt levels, this paper critically evaluates the global fiscal response with reference to comparable historical episodes. The analysis suggests some fiscal responses were too expansive and of the wrong form. The paper then highlights the future macroeconomic risks arising from the highly elevated public debt levels the CVC has caused, concluding that fiscal consolidation rather than further fiscal ‘stimulus’ will be needed to address the parlous fiscal legacy of the crisis.

Descuento de flujos de fondos, inflación, tipo de cambio y COVID-19: un modelo aplicado en el mercado argentino

<p>La actual crisis sanitaria se traduce en un cisne negro que impactó en todas las economías. A diferencia de otras crisis cuyo impacto fue general, esta afectó determinados segmentos de negocios. En particular aquellos con mercados enfocados al transporte, ocio y consumo discrecional, con uso intensivo de factor humano para operaciones y significativo apalancamiento financiero aplicado a significativos stocks de capital. En esa línea los modelos de valuación de empresa, más que nunca, deben apoyarse en los fundamentos de valor y los riesgos macroeconómicos. Argentina, como mercado emergente, suma la dificultad del importante proceso inflacionario. El trabajo propone un modelo de valuación donde los riesgos propios y fundamentos de valor son incorporados en los flujos proyectados y los riesgos sistémicos son contenidos en las tasas. El modelo plantea la valuación en dos monedas, curso legal y dólares EE.UU., en el marco de las teorías de paridad de tipos de interés y poder adquisitivo. El valor de la firma será función del crecimiento real de los ingresos y la vuelta a niveles de márgenes operativos prepandemia, variables analizadas con método de simulación Monte Carlo. El funcionamiento del modelo se ilustra mediante la valuación de las empresas cotizantes en el mercado local al 12 de junio del 2020, exponiendo una destrucción de valor intrínseco medido en dólares del 38%.</p>

Macroeconomic Risk and Its Effect on Income of Insurance Companies in Nigeria

Macroeconomic Risk and Its Effect on Income of Insurance Companies in Nigeria

The impact of the global stock and energy market on EU ETS: A structural equation modelling approach

Abstract The industrial revolution has brought about great development in the economy, but it has also increased the dependence on fossil energy. The emissions of CO2 and other greenhouse gases have contradicted economic development and the ecological environment. The establishment of the EU Emission Trading System (EU ETS) has improved the global carbon emission price mechanism, but as a new commodity, its price trend will affect buyers’ risk evaluation. Therefore, it is influential to master the driving factors behind carbon emission prices and make effective predictions. First, the paper points out that the driving factors are divided into macroeconomic risk factors and energy factors. Second, the Bayesian Network is used to select variables and make prediction of carbon prices. The results show that its accuracy exceeds other machine learning algorithms. Third, a structural equation model is used to study the impact of the selected markets on the carbon market. Finally, from the perspective of global carbon emission reduction, the relationship between driving factors and the carbon futures market is explained. The empirical results show that Cotation Assistee en Continu 40, natural gas and Brent crude oil will directly affect the yield of European Union Allowances and Certified Emission Reduction futures, and the Standard Poor 500 and Global Clean Energy Index will indirectly affect the yield of European Union Allowances and Certified Emission Reduction futures. The energy market will affect the carbon market through the intermediary effect of the stock market, in which the clean energy index is the most relevant factor. From the perspective of how to improve the carbon trading system, this paper proposes suggestions for the sustainable development of the world to promote the virtuous cycle of the global carbon emission market and the high-quality development of the global economy.

Exploring the underlying relationship among risks in BOT transportation projects in developing countries: the case of Vietnam

PurposeDespite the fact that extensive studies on public-private partnerships have focused on risk identification and classification, research still lacks concentration on studying the latent structure of risks in build operate transfer (BOT) transportation projects, especially in developing countries. The research was carried out in Vietnam and this paper aims to explore the underlying relationships among risks in the context of BOT transportation projects.Design/methodology/approachA questionnaire survey was conducted to investigate the perception of stakeholders regarding the probability of occurrence and the severity of the impact of risks related to BOT transportation projects. Factor analysis was performed based on a total of 40 risks.FindingsSeven risk groups were formed as a result of factor analysis, namely, “projects’ viability and political-regulatory risks”, “macroeconomic risks”, “projects’ feasibility study and market risks”, “financial risks”, “organization/coordination and force majeure risks”, “tolling, contractual, approvals risks” and “media and land expropriation risks”.Originality/valueThe research contributes to the current body of knowledge by providing deep insight into the structure of risks in BOT transportation projects in Vietnam through exploring the underlying relationships among risks, to form a latent risk structure from practical viewpoints. The findings are beneficial for involved stakeholders and policymakers to set up and propose suitable management strategies and related policies.

A Global Macroeconomic Risk Model for Value, Momentum, and Other Asset Classes

AbstractValue and momentum returns and combinations of them across both countries and asset classes are explained by their loadings on global macroeconomic risk factors. These loadings describe why value and momentum have positive return premia, although being negatively correlated. The global macroeconomic risk factors also perform well in capturing the returns on other characteristic-based portfolios. The findings identify a global macroeconomic source of the common variation in returns across countries and asset classes.

THE DEBT OF MUNICIPALITIES IN BULGARIA - THREAT OR OPPORTUNITY

In times of high liquidity in the credit markets and low interest rates, debt financing is an attractive opportunity both for expanding the municipal investment program and for meeting short-term temporary current needs. The purpose of this article is to review the debt financing of local authorities in Bulgaria for the period 2008 -2018, to assess whether the macroeconomic risk is currently present on municipal debt in Bulgaria, to analyze the potential risks of rising local debt levels. The change in the municipal debt of EU countries is presented, the examples of the implementation of local debt control and monitoring systems are given.

Do Risk Disclosures Matter When It Counts? Evidence from the Swiss Franc Shock

ABSTRACTWe examine the relation between disclosure quality and information asymmetry among market participants following an exogenous shock to macroeconomic risk. In 2015, the Swiss National Bank abruptly announced that it would abandon the longstanding minimum euro‐Swiss franc exchange rate. We find evidence suggesting that firms with more transparent disclosures regarding their foreign exchange risk exposure ex ante exhibit significantly lower information asymmetry ex post. The information gap in bid‐ask spreads appears within 30 minutes of the announcement and persists for two weeks, during which new information gradually substitutes for past disclosures. We validate the information dynamics of past risk disclosures with three field surveys: (1) Sell‐side analysts emphasize the importance of existing (risk) disclosures in evaluating the translational and transactional effects of the currency shock. (2) Lending banks’ credit officers rely on past disclosures as the primary information source available for smaller (unlisted) firms in the immediate aftermath of the shock. (3) Investor‐relations managers use existing financial filings as a key resource when communicating with external stakeholders. The results suggest that historical disclosures help investors attenuate information asymmetry in light of unexpected news.

Internal vs. External Corporate Social Responsibility at U.S. Banks

This study analyzes the effect that banks’ investments in corporate social responsibility (CSR) have on bank performance. I find that banks’ investments in CSR have a positive impact on financial performance, measured in terms of both accounting performance and stock market value. However, not all CSR investments are the same. I distinguish between internal CSR and external CSR. This distinction is based on which constituents are most directly affected by the CSR initiatives. Separating bank CSR activities into internally focused and externally focused ones provides evidence on how different constituents value bank CSR activities. I find that CSR-related value creation is primarily a result of banks’ external investments and not a result of their internal investments. I also consider how internal and external CSR activities influence bank risk. I find that banks with higher CSR scores are less risky. This is driven by their external CSR investments and not by their internal CSR investments. Banks with a larger gap between internal and external CSR investments have worse performance, lower valuations, and greater risk than banks with a more balanced distribution between internal and external CSR investments. Banks which are committed to long-term structural CSR investments that benefit a broad community of stakeholders are rewarded by the financial markets. Moreover, from a regulatory policy perspective, these same banks are less risky and less likely to contribute to systemic macroeconomic risk.

Forecasting equity returns: The role of commodity futures along the supply chain

AbstractThis paper examines equity return predictability using the returns of commodity futures along the supply chain in China's financial market. We find that a considerable number of commodities exhibit significant in‐sample forecasting ability at the daily horizon, especially for supplier‐side equity returns. The macroeconomic risk premium effect, captured by the aggregate commodity prices, is an important source for this predictability. The out‐of‐sample results show that for most commodities, the predictability remains both statistically and economically significant, and the forecasting performance improves substantially during recessions or with economic constraints.

Household Financial Distress and the Burden of “Aggregate” Shocks

The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their FD-intensity, measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as in nature hit geographic areas quite differently, and (iii) FD is an economic pre-existing condition: the share of an aggregate shock borne by a region is positively correlated with the level of FD present at the time of the shock. Using an empirically disciplined and institutionally rich model of consumer debt and default, we show that in the shocks dealt by the Great Recession and in the initial months in the COVID-19 pandemic, FD mattered. Our model implies that the uneven distribution of FD creates widely varying consumption responses to shocks. This is true even when subjecting regions (with differing levels of FD) to the same shocks, which highlights the importance of FD independently of its correlation with shocks.