Non-crisis Periods Research Articles

A Wavelet Coherence Analysis: Contagion in Emerging Countries Stock Markets

This study aims to investigate the financial contagion during and after Greek Crisis to observe the impact on global economy. Financial contagion may affect the portfolio risk management, the formulation of monetary, fiscal policy, strategic asset allocation and pricing. To analyse the contagion after Greek Crisis, the co-movements of six stock exchange markets have been studied for an 8-year term. For this study between countries’ time series, bivariate wavelet technique called wavelet coherence is employed, and Matlab 2016a wavelet tool is used for the analysis. Daily closing prices of stock market indices of six countries, Greece (ASE), UK (FTSE100), Germany (DAX), Hungary (BUX), Poland (WIG) and Turkey (BIST100) are used in this analysis between 06 March 2009 and 28 February 2017.This paper targets to show if there is a certain sign for a co-movement between markets during and after Greek Debt Crisis. Therefore, it eventually sets out the benefits or harm of integration in the financial markets by using Wavelet Method. This study contributes the literature by analyzing the effects of contagion among stock markets by using wavelet method. This analysis has been filling the gap in the literature by employing a new technique to explain leverage effect with financial time series data. As wavelet tool displays the leverage effect by comparing crisis and non-crisis periods, the study supports the idea that convergence is adversely affecting the connected markets. According to the results of the study, the contagion is high especially during crisis within European financial markets. whereas positive improvements have less impact on markets.

The Informativeness of Micro and Macro Information During Economic Crisis and Non-Crisis Periods: Evidence from Europe

We investigate whether and how the information content of reported profitability and macroeconomic expectations changes when the state of the economy changes from non-crisis to crisis conditions. For this, we analyze data from 16 European countries over the period 2005–2015. We find macroeconomic expectations to be useful in predicting future profitability only during non-crisis periods and mainly for firms facing elastic demand for their products and services and firms without sequential losses. Current profitability as well as its cash flow and accruals components are much more informative predictors of future profitability than macroeconomic expectations in both non-crisis and crisis periods. Market pricing tests suggest that macroeconomic expectations are not informative and thus not priced by market participants during crisis periods and support efficient pricing of current profitability under both non-crisis and crisis periods. However, it is the cash flow component of profitability that is efficiently priced under both economic conditions, while the accrual component of profitability is mispriced during crisis periods. Overall, we provide evidence that reported accounting information is much more useful to stock market investors than macroeconomic expectations in both non-crisis and crisis economic periods.

Depositors’ discipline, banks’ accounting discretion, and depositors’ expectations of implicit government guarantees

In this study, we examine the depositors’ tendency to apply financial discipline to banks that adopt discretionary accounting practices. We use estimates of discretionary loan loss provisions (DLLP)—the difference between an observed provision and a model-determined, notionally correct provision—to quantify the extent to which banks are engaging in discretionary accounting practices. We examine whether depositors perceive that discretionary accounting practices increase credit risk and punish such practices by withdrawing deposits or requiring higher interest rates. We also examine whether depositors’ expectations of implicit government guarantee moderate this relationship by comparing the differences in depositors’ responses depending on whether a bank is large or small. Using US commercial bank data from 2001Q1 to 2010Q4, we find that uninsured deposit growth is negatively associated with banks’ DLLP. The findings suggest that depositors punish banks’ discretionary accounting practices. We also find that within the non-too-big-to-fail (non-TBTF) banks, depositors react sensitively to DLLP practices during both the crisis and non-crisis periods. However, for those too-big-to-fail (TBTF) banks, depositors react sensitively to DLLP practices only during the non-crisis period, but not during the crisis period. In addition, we find that banks subject to US government bailout actions during the 2008–2009 crisis period received less depositor discipline than other banks. In general, our findings suggest that the uninsured depositors’ discipline did exist during the pre-crisis period. Depositors punish banks for their behavior in increasing the information asymmetry between the banks and outsider creditors. However, policies such as rescuing big banks or increasing the deposit insurance coverage may reduce such market discipline.

Analysis of CDS Spread Fluctuations with an Application to the Negative Basis Arbitrage

In this article, we first construct the empirical measure of spread (EMS) to capture the dynamics of quoted CDS spreads. It is the measure of creditworthiness of a company derived from the asset model in Egami and Kevkhishvili [2017]. We then use the information provided by the EMS to derive a refined negative CDS-bond basis trading strategy. Our contributions are twofold. By analyzing the period encompassing the global financial crisis, we find that the EMS is a forward-looking or leading indicator and can explain the movement of near future CDS spreads (20 or 30 days ahead). We then demonstrate that this feature of the EMS is present in non-crisis periods as well: therefore, the EMS could be used to predict future movement of CDS spreads. The second contribution is to improve efficiency in negative basis arbitrage trading. Specifically, we set up a finite-horizon optimal stopping problem for an investor who uses CDS contracts to hedge a long position in a zero-coupon bond. Using this problem, we provide a trading tool for the investor and show that the information obtained from the EMS can enhance the gain from negative CDS-bond basis arbitrage.

Analisis Komparatif Kinerja Reksa Dana Konvensional dan Syariah pada Periode Krisis dan Non Krisis

The purpose of this study was to determine the differences in the performance of conventional and syariah mutual funds in the crisis and non-crisis periods. To measure the performance of mutual funds, the method used is the Sharpe method. The sample in this study was selected using a purposive sampling method. The samples taken in this study is as many as 8 samples of mutual funds consisting of 4 conventional mutual funds and 4 syariah mutual funds in 2008 and 38 samples of mutual funds consisting of 19 conventional mutual funds and 19 syariah mutual funds in 2016. Techniques The analysis used was the Independent Sample T-test. Results of the analysis show that the performance of syariah and conventional mutual funds in 2008 did not differ. In 2016, the results of the Independent T-Test showed that there were differences in performance between syariah and conventional mutual funds.
 Keywords: Performance, mutual funds, conventional, syariah.

The Performance of Exponential Moving Average, Moving Average Convergence-Divergence, Relative Strength Index and Momentum Trading Rules in the Pakistan Stock Market

Objective: To examine the performance of exponential moving average, moving average convergence and divergence, relative strength index and momentum rules in Pakistan stock market. Methods/Statistical Analysis: Exponential moving average, moving average convergence and divergence, relative strength index and momentum rules are applied on the daily closing prices of the KSE -100 index of Pakistan stock market covering the period 1st January 1997 to 31st December 2013. The predictability and profitability of these rules in Pakistan stock market was assessed by using simple t-test and “double or out strategy” respectively. Findings: Whole sample period results obtained by the application of EMA, MACD, RSI and MOM rules provided empirical evidence about EMA and MOM that all the variants of these rules possessed substantial prognostic capability and were able to make earnings superior to position trading. Nonetheless in the presence of transaction costs, only (1, 50, 1) and (1, 50, 0) variants of EMA, (12, 26, 9) and (8, 17, 9) variants of MACD and both variants of MOM were found to be profitable in Pakistan stock market. The division of the whole sample data on the basis of financial crisis and non-crisis eras disclosed that the applied trading rules provided more revenues during crisis than in non-crisis periods. This study is a remarkable contribution to the current literature on Pakistan stock market as previously very little research work has been carried out on this stock market. Application/Improvements: The findings of this study are novel and are hoped to be helpful for investors in Pakistan to earn maximum revenues with minimum risk of losing their hard earned money. Keywords: Exponential Moving Average, Momentum, Moving Average Convergence and Divergence, Pakistan Stock Market, Relative Strength Index

The Effect of Economic and Political Uncertainty on Sovereign CDS Spreads

This study examines the effect of economic and political uncertainty on sovereign CDS spreads using a novel panel index of world uncertainty. We document that sovereign CDS spreads widen with uncertainty. A 1% increase in uncertainty leads to a 0.86% increase in sovereign CDS spreads. Furthermore, the effect of uncertainty on sovereign CDS spreads is stronger for developed countries, countries with investment-grade credit ratings, and during non-crisis periods. The banking sector is a potential channel through which uncertainty increases sovereign risk. Overall, our results suggest that economic and political uncertainty contributes to both local and global components of sovereign CDS spreads.

Banking Crises and Market Timing: Evidence from M&As in the Banking Sector

We investigate whether the gains are greater for banks that conduct mergers and acquisitions (M&As) during banking crises than during non-crisis periods. We contribute to the literature by examining 1984 M&As using global banking sample from 106 countries (areas) during 1994 ~ 2009. We find the synergistic gains of acquiring banks during banking crises are larger than those during non-crisis periods. We further find that such gains are greater when acquiring weak targets, for acquirers in developed countries, and for acquirers in domestic M&As. This study confirms that a banking crisis is an appropriate time for banks to conduct M&As.

Dynamic D-Vine Copula Model with Applications to Value-at-Risk (VaR)

Abstract Vine copulas are multivariate dependence models constructed from pair-copulas (bivariate copulas). In this paper, we allow the dependence parameters of the pair-copulas in a D-vine decomposition to be potentially time-varying, following a restricted ARMA(1, m) process, in order to obtain a very flexible dependence model for applications to multivariate financial return data. We investigate the dependence among the broad stock market indexes from Germany (DAX), France (CAC 40), Britain (FTSE 100), the United States (S&P 500) and Brazil (IBOVESPA) both in a crisis and in a non-crisis period. We find evidence of stronger dependence among the indexes in bear markets. Surprisingly, though, the dynamic D-vine copula indicates the occurrence of a sharp decrease in dependence between the indexes FTSE and CAC in the beginning of 2011, and also between CAC and DAX during mid-2011 and in the beginning of 2008, suggesting the absence of contagion in these cases. We evaluate the dynamic D-vine copula with respect to Value-at-Risk (VaR) forecasting accuracy in crisis periods. The dynamic D-vine outperforms the static D-vine in terms of predictive accuracy for our real data sets. We also investigate the dynamic D-vine copula in a simulation study and the overall results of the Monte Carlo experiments are quite favorable to the dynamic D-vine copula in comparison with a static D-vine copula.

The effects of the Global Financial Crisis on the stock holding decisions of Australian households

The effects of financial crises on the stock market participation and portfolio allocation decisions of Australian households are studied, with special emphasis on the 2008 Global Financial Crisis. An important feature of the empirical model is that the stock holding decisions of households are determined by experienced returns, defined as a weighted sum of past stock market returns over the life of a household, with the weights varying between crisis and non-crisis periods. The empirical results provide strong evidence that financial crises cause households to become more myopic, increase their responsiveness to shocks and focus more on past extreme returns. These results also help to explain differences in the estimates reported for the U.S. and Europe using comparable models but which do not allow for time-variation in the parameters. There is also evidence that older households are more responsive than younger households during financial crises, while high wealth households are less affected by crises.

Financial markets of the LAC region: Does the crisis influence the financial integration?

This paper aims to analyse financial integration in the emerging markets of Latin America in the context of the dot-com and subprime financial crises. To do so, different approaches were adopted to answer two questions, namely: (i) the financial markets of Latin America show significant levels of integration in periods of financial crisis? and (ii) if there are persistent long memories in the data series, will portfolio risk diversification be called into question? The results obtained suggest that the markets are partially integrated in crisis and non-crisis periods. In addition, financial series do not present significant persistent long memories arising from the subprime crisis. The 2008 crisis was found to have a greater impact on the cross correlation coefficients of the Latin American stock markets than the dot-com crisis. In terms of conclusion, it is considered that the financial markets of Latin America were affected by the dot-com and subprime crises. However, there was a re-balance in these regional markets which could create conditions for possible diversification strategies.

Revisiting the Sphere standards: comparing the revised Sphere standards to living standards in three urban informal settlements in Nairobi, Kenya

BackgroundHumanitarian actors have long used the Sphere Handbook and its minimum standards to guide operational practice. The new revision attempts to update these standards partly to address urban crises that have challenged the humanitarian system. Yet, these indicators have never been based on a substantial body of evidence or data from the varied living standards found in cities or specifically informal settlements. This study aims to contextualize the Sphere standards for urban populations by comparing a sample of the revised key indicators to living standards in three urban informal settlements of Nairobi, Kenya, during a non-crisis period to examine their relevance and applicability, and discuss the implications.MethodsRetrospective analysis of data sourced from randomized household surveys of three informal settlements in Nairobi across a range of living standards including a convenience sample of Sphere metrics is quantitatively compared to the newly revised Sphere standards.ResultsThe results show that while some standards are met, many of the urban poor in these settlements live far below the prescribed minimum standards across many key sectors including water, sanitation, shelter, and food security. The data also reveal variations between and within individual informal settlements.ConclusionThe Sphere standards are not informed enough by informality and remain largely aspirational for some populations and consensus rather than evidence-based. The revised handbook has made significant strides in highlighting the need for contextualization, market approaches, and incorporating stakeholder input. The new Sphere standards must be placed into context for use in the new urban agenda realigning humanitarian actions towards more locally contextualized and driven practice.

Do the illegal and legal rents of politicians affect municipal election outcomes? Empirical evidence

ABSTRACTThis paper aims to analyse whether illegal (corruption) and legal rent extraction (high politicians’ wages) affect electoral outcomes at municipal level. We use an initial sample of 145 Spanish municipalities over 50,000 for two electoral periods: 2004–2007 (before the crisis) and 2008–2011 (during the crisis). Our findings show that neither illegal nor legal rent extraction impact on re-election in non-crisis times. However, we observe that citizens penalize legal rent extraction in the ballots during the crisis. Regarding the economic performance of the local governments, we find that its effect on re-election is important in non-crisis period. Nevertheless, in time of crisis, given that the economic situation is bad in general in the country, voters pay less attention to economic factors and focus on politicians’ behaviour.

Differences in Sexually Transmitted Infections between the Precrisis Period (2000⁻2007) and the Crisis Period (2008⁻2014) in Granada, Spain.

Objective: To analyze the difference in the prevalence of sexually transmitted infections (STIs) between two time periods (2000–2007 and 2008–2014, with the latter period characterized by the economic crisis), as well as determine differences in sociodemographic factors, clinical care, and risk indicators. Methods: This was a retrospective, observational, and analytical study, reviewing 1437 medical records of subjects attending a specialized center in the province of Granada (Spain) for consultation associated with the presence or suspicion of an STI between 2000–2014. Data were collected on variables relating to the research objective. A descriptive and bivariate statistical analysis was performed by multiple logistic regression. Results: In the analysis comparing the presence of STIs between the crisis and non-crisis periods, the percentage of positive diagnoses reached 56.6% compared to 43.4% negative diagnoses during the non-crisis period, while the percentages were 75.2% and 24.8%, respectively, during the crisis period. This difference was statistically significant (p < 0.001) with an odds ratio (OR) of 2.21 after adjusting for age, sex, days since last unprotected sexual intercourse, and partners in the last year. Conclusions: There are significant differences in the prevalence of STIs between the study periods, which is consistent with the reports of some authors regarding the effect of the financial crisis on these conditions; however, it is worth considering other aspects that might explain the differences.

The heterogeneous linkage of economic policy uncertainty and oil return risks

The recent financial crisis and its aftermath boost the research of economic policy uncertainty and its relevant topics. In this paper, we forecast the oil return risks based on the CAViaR method and further depict the dynamic and heterogeneous features during the crisis (or non-crisis) period, as well as in different markets via DCC-GARCH models. The empirical results show the linkage of economic policy uncertainty and oil return risks, indicating an increasing trend and stronger relationship with major events. Further study shows the heterogeneous feature existing during crisis or non-crisis period, and there is heterogeneity in values and variations of their linkage in different markets. Therefore, policymakers should intervene timely in the crude oil market, release good news, and stabilize oil prices during the crisis period. During the non-crisis period, however, investors need to rationally analyze the price trend of the oil market, thereby preventing possible risks in the market.

Comparative Analysis of Islamic and Conventional Mutual Funds’ Performance during Financial Crisis and Non-crisis Periods in Pakistan

This study aims to analyze and investigates the differences in performance of Islamic and conventional mutual funds in three periods, namely the period during the financial crisis period, dated 2008 to 2009, after crises period 2010 to 2017, and the whole period, dated from 2007 to 2017. More specifically the study aims to investigate whether the Shariah compliant Equity, Income and Assets Allocation Mutual funds performed better in terms of risk adjusted basis as compared to the conventional Equity, Income and asset allocation mutual funds. The risk return behaviors were examined by employing performance measures such as Sharpe, Treynor, and Jensen Alpha. Moreover, their performance in coping of systematic risk is also analyzed by regressing macroeconomic variables on returns. Study concluded that Conventional Income mutual funds perform better in all three periods including (crises and non-crises) compare to its counterpart Islamic income mutual funds in both risks adjusted basis and simple arithmetic mean basis, however their difference is not statistically significant. Study also found that Islamic equity mutual funds perform better in crises period as compare to its conventional equity mutual funds in risk adjusted basis In crises period both funds gave negative return, but Islamic equity mutual funds declined less than conventional mutual funds which shows that Islamic mutual funds provide better hedging in crises period., however there were no significant difference among the two in the other two periods. Similarly, Assets Allocation funds also have no significant difference among themselves, however Islamic asset allocation mutual funds outperform conventional asset allocation mutual funds in all three periods, especially in crises period where Islamic funds showing positive returns as compared to conventional fund that were suffering in loss of about 14%. Overall the whole period performance of Islamic mutual funds is slightly better but not statically difference.

Financial crisis and real earnings management in family firms: A comparison between China and the United States

This paper compares real earnings management (REM) between Chinese family firms and U.S. family firms after the financial crisis of 2008. For the U.S. sample, there is greater REM in family firms than non-family firms, and in the post-financial crisis period than the pre-financial crisis period. For the Chinese sample, there is greater REM in family firms than non-family firms, but REM is lower in Chinese family firms relative to non-family firms in the post-financial crisis period than the pre-financial crisis period. These findings indicate that REM activities differ between U.S. and Chinese family firms in crisis and non-crisis periods.

Fractional Integration and Fat Tails for Realized Covariance Kernels*

We introduce a new fractionally integrated model for covariance matrix dynamics based on the long-memory behavior of daily realized covariance matrix kernels. We account for fat tails in the data by an appropriate distributional assumption. The covariance matrix dynamics are formulated as a numerically efficient matrix recursion that ensures positive definiteness under simple parameter constraints. Using intraday stock data over the period 2001-2012, we construct realized covariance kernels and show that the new fractionally integrated model statistically and economically outperforms recent alternatives such as the multivariate HEAVY model and the multivariate HAR model. In addition, the long-memory behavior is more important during non-crisis periods.

Client importance, bank risk, and systemic risk

PurposeThe purpose of this paper is to investigate the effects of audit client importance on future bank risk and systemic risk in US-listed commercial banks.Design/methodology/approachThe authors use archival research method.FindingsThe authors mainly find that client importance is negatively related with future bank-specific crash risk and distress risk, and also with sector-wide systemic crash risk and systemic distress risk in the future. The authors also report some evidence that these relations become more pronounced during the crisis period than during the non-crisis period. Moreover, the effect of client importance on systemic risk is found to strengthen in banks audited by Big-N auditors, by auditors without clients who restate earnings, and by auditors with more industry expertise.Research limitations/implicationsThese findings contribute to the auditing and systemic risk literature.Practical implicationsThis study has implications for regulating the banking industry.Originality/valueThis study provides original evidence on how client importance affects bank-specific risk and systemic risk of the banking industry.

Do Nonparametric Measures of Extreme Equity Risk Change the Parametric Ordinal Ranking? Evidence from Asia

There has been much discussion in the literature about how central measures of equity risk such as standard deviation fail to account for extreme tail risk of equities. Similarly, parametric measures of value at risk (VaR) may also fail to account for extreme risk as they assume a normal distribution which is often not the case in practice. Nonparametric measures of extreme risk such as nonparametric VaR and conditional value at risk (CVaR) have often been found to overcome this problem by measuring actual tail risk without applying any predetermined assumptions. However, this article argues that it is not just the actual risk of equites that is important to investor choices, but also the relative (ordinal) risk of equities compared to each other. Using an applied setting of industry portfolios in a variety of Asian countries (benchmarked to the United States), over crisis and non-crisis periods, this article finds that nonparametric measures of VaR and CVaR may provide only limited new information to investors about relative risk in the portfolios examined as there is a high degree of similarity found in relative industry risk when using nonparametric metrics as compared to central or parametric measures such as standard deviation and parametric VaR.