Modern Finance Research Articles

Ralf Korn and Bernd Luderer, Money and Mathematics: A Conversational Approach to Modern Financial Mathematics and Insurance

Ralf Korn and Bernd Luderer, Money and Mathematics: A Conversational Approach to Modern Financial Mathematics and Insurance

Elasticsearch as a NoSQL Database for Fast Distributed Financial Service Applications

This paper explores the implementation of Elasticsearch as a primary data store for fast, distributed financial service applications. It examines the advantages of Elasticsearch in the context of financial services, including its scalability, high performance, flexible schema, and powerful search and analytics capabilities. The study addresses key challenges encountered during implementation, such as eventual consistency, limited join capabilities, and field limits, providing practical solutions based on real-world experience. The paper also discusses implementation strategies, focusing on data modeling for complex financial instruments, query optimization, and performance tuning. By balancing Elasticsearch's strengths against its limitations, this case study demonstrates how financial service organizations can leverage this technology to build more scalable, performant, and adaptable systems capable of handling the increasing data volumes and real-time processing demands of modern finance.

Analysis of Games Industry during COVID-19 Based on Fama-French Five-factor Model

Since the 1960s, asset pricing model has become the core research field of modern finance. It has been widely used in financial market, consumption and investment decision-making, monetary policy and even macroeconomic estimation and prediction. Scholars have done a lot of research on the theory and application of CAPM model, and achieved dramatic results. With the improvement of the stock market, CAPM model has gradually lost its convincing explanatory power when describing the relationship between stock return rate and risk. In 1992, Fama and French proposed a three-factor model to enhance the explanatory power of CAPM, and proposed that factors such as the total market value of a company and the book-to-market ratio could better explain the difference of stock returns on the cross section. In 2013, Fama and French improved the original three-factor model by adding profitability factor and investment mode factor to the three-factor model, and proposed a five-factor model, so as to better explain the difference in cross-sectional returns of stocks. COVID-19 caused a big black swan event and the impact is very dramatic that the economy has a huge impact. Therefore, this paper takes the game and entertainment industry as an example. Based on the Fama-french five-factor model and multiple linear regression, the changes of factor coefficients before and after the epidemic are analyzed, and some investment suggestions are given for reference. It is found that because of the emergence and outbreak of COVID-19 the game industry is more sensitive to the fluctuations of the market economy, and small businesses with a high book-to-market ratio are worth investing in.

Analisis Fiqh Terhadap Kartu Kredit Syariah

Along with the development of modern finance, the need for safe and efficient means of payment has become a necessity. Credit cards are the solution to answering these needs. The scholars agreed that credit cards are forbidden in Islam because of the interest in the mechanism, so an agreement emerged to create a credit card with a mechanism that is under sharia principles. However, differences of opinion among scholars arose mainly regarding the underlying contracts and the requirements that must be met on Islamic credit cards. This study aims to find out various fiqh analyses of scholars regarding the ability of Sharia credit cards. This type of research is qualitative with the library research method. The results showed that in general, scholars allow sharia credit cards. However, there are differences regarding the taking of fees on the kafalah contract, profit from administrative costs, and ta'widh on late fees.

Data Science in Science: Special Issue on Data Science in Modern Finance

<i>Data Science in Science:</i> Special Issue on Data Science in Modern Finance

The carbon reduction channel through which financing methods affect total factor productivity: mediating effect tests from 23 major carbon-emitting countries.

The development of modern finance has played a catalytic role in the economic transition to renewable and clean energy, which in turn has an impact on total factor productivity (TFP). However, existing studies have not together addressed financing methods, carbon emissions, and TFP. We analyse how different financing methods affect TFP through the carbon reduction channel. Using data from 1995 to 2019 for 23 major carbon emitters, we adopt a mediation effect model with Stata 17.0. We draw three conclusions. First, financing methods have a differentiated impact on TFP. For every unit increase in debt financing relative to equity financing, TFP decreases by 0.058 units (overall level) or 0.056 units (welfare level). Second, financing has a mediating effect on TFP through carbon emissions. Debt financing reduces TFP through the carbon emission reduction mechanism. The greater the scale of debt financing relative to equity financing, the greater the negative impact on TFP through the carbon emission reduction mechanism, while equity financing plays a positive role on TFP through the carbon emission reduction mechanism. Third, a heterogeneity test demonstrates that the mediating effect is most significant in developed countries and weakest in developing countries. The difference-in-difference framework based on the Equator Principles demonstrates that the marginal contribution to TFP of debt financing aimed at carbon reduction is 0.02 (overall level) and 0.012 (welfare level). From the perspective of financing methods, this study provides enlightenment for promoting carbon emission reduction and improving TFP. First, countries should strengthen the development of the green debt financing market, strengthen the disclosure of information on environmental benefits, and reverse the negative effect of debt financing. Second, they should develop the equity market to activate the role of carbon reduction channel, promote the Equator Principles in the banking industry, and encourage more banks to pay attention to environmental risks. All these financial measures can raise TFP.

Stochastic Neural Networks-Based Algorithmic Trading for the Cryptocurrency Market

Throughout the history of modern finance, very few financial instruments have been as strikingly volatile as cryptocurrencies. The long-term prospects of cryptocurrencies remain uncertain; however, taking advantage of recent advances in neural networks and volatility, we show that the trading algorithms reinforced by short-term price predictions are bankable. Traditional trading algorithms and indicators are often based on mean reversal strategies that do not advantage price predictions. Furthermore, deterministic models cannot capture market volatility even after incorporating price predictions. Thus motivated by these issues, we integrate randomness in the price prediction models to simulate stochastic behavior. This paper proposes hybrid trading strategies that take advantage of the traditional mean reversal strategies alongside robust price predictions from stochastic neural networks. We trained stochastic neural networks to predict prices based on market data and social sentiment. The backtesting was conducted on three cryptocurrencies: Bitcoin, Ethereum, and Litecoin, for over 600 days from August 2017 to December 2019. We show that the proposed trading algorithms are better when compared to the traditional buy and hold strategy in terms of both stability and returns.

Behavior Finance or Financial Behavior?

Conventional and modern finance is related to various theories and concepts that has done respectable job in financial market in providing guidance for strategic financial decisions. Among all, emerging behavior finance has come up with psychological and sociological issues that affects the financial choices and are often ignored by modernized financial theories. This paper will elaborate the concept of behavior finance and its relation with Efficient Market Hypothesis. The paper helps us to known that the loopholes in EMH gave birth to behavior finance but due to lack of clarity of its usage it could not be acceptedfully by the market. It is also observed that the psychological factors or cognitive factors that cannot be incorporated objectively in financial decision making process may make difference in valuation ofsecurity, thus, it is very important to keep such factors into consideration. The paper is primarily based on secondary study of research conducted on behavioral finance and can provide an insight on importance of qualitative factors in financial decision making process.

Виртуализация современных финансов и ее последствия для человеческого общества

The article dwells on the content of the modern finance virtualization, replacement of the real financial sphere with images, titles, simulations with their special space, time, laws and values. Objective reasons for this process are noted: monetary origins of virtualization, equity ownership and issue of securities, derivatives as financial innovations, widespread introduction of modern means of communication and information. Special role of subjective factor in increasing the finance virtualization, when speculation is used to inflate the money supply, is shown. It is emphasized that modern finance has transformed from providing and servicing the economy into dominating the economy. Working primarily for themselves, they operate globally and are constantly in movement. They are characterized by a permanent change of ownership, blurring, diffusion of property rights, loss of control and exclusion from market self-regulation. Virtual finance is strengthening its dominance, sucking the lifeblood from material wealth, nature, man, appropriating the creative potential of society. At the same time, phenomenon of financial property and power is hidden, veiled, fictitious, dispersed throughout the world space. The paper concludes that it is necessary to reduce, to put under democratic control the growing volume of modern virtual finance both at the national and international levels, and channel it to address the socio-economic problems of society. But it cannot be limited to this. The threat to existence of the modern world civilization has necessitated preservation and protection of the basic values of human society, the main of which is the person himself with his knowledge, culture, ethics and morality. He must be a healthy, developing personality, provided with all necessary benefits. Man is at the center of society and the state, society and the state should take care of the person.

“e-breakout”? Weaponised Interdependence and the Strategic Dimensions of China’s Digital Currency

Abstract The government of China has touted the development of a digital version of its currency as a watershed moment in its ongoing financial modernisation processes. The experimental digital renminbi or eCNY is expected to be fully implemented in the next few years, and thus far its initial benefits have been seen primarily on the domestic level. Yet Beijing is also open to the eventual use of the eCNY for international transactions, which in light of the many governments seeking to develop their own central bank digital currencies raises the question of whether or not this e-currency could develop into a global standard. The concept of “weaponised interdependence”, meaning the ability of states to gain bargaining advantages from global networks through the collection of data and to deny others access and benefits, is an ideal method of gauging the potential of the digital renminbi for enhancing Beijing’s power in global financial markets.

“Expropriation of Capitalist by State Capitalist:” Organizational Change and the Centralization of Capital as State Property

State enterprises, sovereign funds, and other state–capital hybrids have become major engines of global capitalism. How can we explain their global rise and organizational transformation into increasingly sophisticated and globally competitive forms? Why do they increasingly emulate the practices and organizational goals of comparable private-sector entities, adopt the techniques of modern finance, resort to mixed ownership, and extend their operations across geographic space? After critically engaging with arguments that emphasize the role of firm strategies, developmentalist logics, financialized norms, and Polanyian double movements, we develop an explanatory model of organizational change grounded in historic–geographic materialism and economic geographies of the firm. We locate the expansion of state ownership (the role of states as owners) in the historic development and geographic remaking of global capitalism and, in particular, the emergence of a new constellation of international divisions of labor. This created the conditions for a massive round of centralization of capital as state property (the mass of capital controlled by states) since the early 2000s. The modern, marketized, globally spread state–capital hybrid emerged as an organizational fix to mediate the geographic contradictions and imperatives associated with this process. Purposive organizational adaption consisted in developing new skills, operational capabilities, and mixed-ownership structures in order to leverage the financial system, allow for the development of liquid forms of state property, and facilitate the expansion of the latter into global circuits of capital. As such, the article contributes to debates on the role of the state in global value chains, the firm-state nexus, and state capitalism.

Information entropy of finance and mechanisms for overcoming it

Aim. The presented study aims to determine the place of big data in modern finance and to analyze its role in the extreme saturation of the financial system.Tasks. The authors briefly overview the current state and prospects of big data use by financial institutions; provide a general description of the causal relationships of information flows and the transformation of the organizational structure of financial institutions in their transition to working with big data; outline the possibilities for assessing the information overload of financial institutions based on the concept of entropy, as well as the conditions and prospects for the transition towards information entropy management.Methods. As a methodological basis, this study uses general scientific research methods (analysis, synthesis, induction, deduction), including analysis of data management in financial institutions and information flows (collection, storage, processing, use, and reuse of data), as well as analysis of processes in the infosphere, elimination of noise problems, and risk accounting.Results. Major strategies and approaches for the transition to working with big data are presented. Methods for overcoming a number of problems hindering efficient management of the rapid growth of information in financial institutions are determined. A set of tools and procedures for analyzing information processes in financial markets and mechanisms for managing the restructuring of data management are proposed. An example of the transition to working with big data is given. The authors recommend applying the concept of entropy, which makes it possible to measure risk, uncertainty, and noise interference in financial markets and transactions and to assess the possibilities and scope of big data use by financial institutions.

Merton Miller's Contribution to Modern Finance

This article sums up the research and writings of the University of Chicago's Merton Miller, winner of the 1990 Nobel Prize in Economics, and widely regarded as the “father of modern finance,” in terms of a single governing principle: the role of arbitrage in ensuring the “efficiency” of financial markets and, more generally, the effectiveness of such markets in promoting economic growth and creating social wealth.Starting with the formulation of Proposition I (also known as the capital structure “irrelevance” proposition) with Franco Modigliani in 1958, Miller's research over the next 40 years is seen as applying—with remarkable clarity and consistency—the principle of arbitrage to the study of many aspects of financial markets. Miller's main accomplishment is seen as making arbitrage arguments the cornerstone of modern finance. The arbitrage proof of Proposition I introduced a new standard in finance—namely, that any finding in financial research deserving serious consideration must have the critical property that it cannot represent opportunities for riskless profit by investors. And arbitrage proves to be a constant theme in Miller's writings, from his work in corporate finance to his later studies of financial innovation, derivatives markets, and financial crashes and crises.Having launched and then presided over the transformation of financial studies from a “glorified apprenticeship system” into a scientific discipline, Miller devoted much of the last 15 years of his life to a different, though clearly related undertaking: the defense of financial markets against the attacks of politicians and regulators, as well as businessmen intent on stifling competition—including hostile takeovers. Whether it was the alleged role of the stock index futures markets in the 1987 market crash, the claims of “overleveraging” in the LBOs of the ‘80s, or the derivatives fiascos in the mid‐'90s, Miller was there to provide careful economic analysis of the problems. In the early ‘90s, he explained why the “myopia” of the U.S. stock market was likely to cause far fewer problems than the “hyperopia” induced by regulatory distortions of the Japanese market. And in one of his last speeches, Miller showed that the primary cause of the recent Asian crisis was not “too much reliance on financial markets,” as claimed by politicians and the popular press, but “too little”—in particular, the heavy dependence on bank financing (particularly state‐owned banks) and the failure to develop alternative sources of capital that continues to depress the Japanese economy.

Banking Ecosystem: What Do Retail Clients Expect from the Modern Financial Services Industry?

German banks are experiencing harsh times due to rising costs and declining profits. On the one hand, acquisition costs for new customers are increasing because of the rise of innovative FinTechs, which entered the market with one specific goal: disrupting the whole financial services industry by occupying parts of the value-chain. On the other hand, the Covid-19 pandemic as well as an overall low level of interest rates cause the traditional source of bank income to still drain. Consequently, traditional banks must rethink their strategies or their identity, so to speak, because they go beyond their traditional offering of products and services. Having said that, banks may create new sources of income to stabilize their economic situation and replenish profits. The given paper aims to research the opportunities of establishing an ecosystem model. In doing so, the paper contributes to the current literature debate and provides reference points for traditional banks to start. Firstly, a systematic literature-review introduces a selection of research works the author regards as significant. In the following step, quantitative data from an online survey with bank clients is analysed by means of descriptive statistics to show the perspective of Germans with regards to an ecosystem offering. The final research findings indicate that the surveyed retail banking clients express interest in the new offer, whereas non-financial products and services are of lower interest than their financial pendants.

Increasing Firm Value Based On External Governance And Modern Finance theory

It is based on the theory of firm and external agency that through investment, funding, and dividend decisions to achieve max firm value. The purpose of this study is to re-examine this model for cases in Indonesia. The sample population of this study comprised 18 companies listed on the Indonesia stock exchange that become the members of LQ-45 index from 2016-2019. The samples were selected by purposive sampling. This study used panel data regression analysis program with Eviews-9 application to answer the research objectives. The results indicated that investment decisions had a significant positive effect, funding decisions had a significant negative effect and dividend decisions had no significant negative effect on firm value.

Building (on) Trust: The Architecture of Debt in the Late Ottoman Empire

The Ottoman Public Debt Administration (OPDA), a multinational financial cooperation with semi-governmental privileges, was founded in 1881 following the Ottoman government’s declaration of bankruptcy. Acting within a complex inter-imperial setting, the OPDA’s headquarters constituted the center of an expansive material network engendered by debt, operationalizing a system of resource extraction across a wide economic geography. Focusing on the concept of trust underlying the financial instrument of debt, this paper considers architecture to be both a medium and a product of the logics of modern finance developed in the late nineteenth century. The building’s methodical ordering of space, modest yet specific ornamentation, and unique façade design did not simply mirror the financial activities it housed, rather it actively mobilized them to regain creditors’ trust following financial collapse. I argue that the OPDA building’s design—in its incorporation of past, “traditional” forms—materialized an ongoing process of borrowing from the future, naturalizing the debt system’s stability and thus enabling its endurance.

Using genetic algorithm to construct a momentum-based stock fund

Portfolio optimization is an important research field in modern finance. An important goal in portfolio optimization is to maximize risk-adjusted returns. In addition, momentum investing has gained a wide acceptance by asset managers. Besides, genetic algorithms (GA), which are based on the ideas of evolution and the concepts of Darwin’s natural selection, have been widely used to generate high-quality solutions to optimization problems. In this paper, we propose an approach using genetic algorithms to construct a momentum-based 130-30 stock fund. We use the Sharpe Ratio as the fitness function for portfolio evaluation and a Mean-Variance Model with Monte Carlo simulation to optimize the portfolio’s long and short positions. Using 2020 market data for the S&amp;P500, our fund outperforms a variety of stock portfolios as well as the S&amp;P500 ETF Fund SPY measured by Total Return, Sharpe Ratio, and Information Ratio.

Research on the Causes and Economic Consequences of Factor Crowding in China's Capital Market ——Take the Phenomenon of Grouping of Public Funds as an Example

The factors driving stock returns in investment activities have been a hot topic of research in modern finance. Previous researchers have proposed several multi-factor models for the drivers of stock returns in investment activities to improve the decision models of specific influencing factors in investment decisions. Based on research on public funds' grouping behavior in investment decision-making, this paper analyzes a series of decision behaviors of fund managers in the context of factor strategy crowding. Therefore, we identify the specific influences and behavioral contexts in which fund managers make investment decisions and provide a specific analysis of fund managers' investment decision opinions under factor strategy crowding, illustrating the economic mechanisms involved.

ON THE DEVELOPMENT OF FINANCIAL AND LEGAL RELATIONS IN MODERN CONDITIONS OF RUSSIA

ON THE DEVELOPMENT OF FINANCIAL AND LEGAL RELATIONS IN MODERN CONDITIONS OF RUSSIA. The article discusses the features and analyzes the prospects for the development of financial legal relations in the Russian Federation.

Human Flourishing and the Self-Limiting Assumptions of Modern Finance

Current models in finance make strong, self-limiting assumptions about the nature of human utility, human relationships, human flourishing, and human growth. These assumptions facilitate tractable solutions to financial problems but ignore subjective determinants of human well-being and value creation within the firm. The philosophical and theological traditions of Catholic teaching, as well as evidence on human flourishing from model social science, call us beyond these models. This paper focuses on three specific areas where a “disconnect” exists between Catholic teaching and current finance models, highlights the relevance of Catholic teaching, and sketches a framework for more fully integrating human flourishing into finance models.