Occurrence Of Financial Crisis Research Articles

Do sanctions trigger financial crises?

We investigate the effect of sanctions on the occurrence of financial crises. We use the Classification and Regression Tree (CART) algorithm to check whether binary classification mechanism selects sanctions as a predictive factor for the different types of financial crises. We find that trade sanctions matter for the increased probability of banking crises, while military sanctions are associated with currency crises. We find no evidence of the effect of sanctions on sovereign debt crises. We furthermore indicate which variables and their respective thresholds serve as potential harbingers of financial crises.

THE VAR EVALUATION OF SHARIAH STOCK MARKET IN MALAYSIA DURING COVID-19 PANDEMIC BY USING CONDITIONAL EVT METHOD

In the current financial market, the Islamic stock market faced with a significant challenge to sustain and maintain its stability in intensified market volatility and unexpected extreme events. It can reduce the intensity and occurrence of financial crises by eliminating the primary vulnerabilities of the conventional system. This paper aims to identify the most effective method in risk evaluation by presenting the risk evaluation performance between conventional and Islamic stock market that focusing on extreme events in stock market returns. The data analysis is divided into two periods: normal and crisis COVID-19 periods. The empirical analysis, conducted within the sample employs the conditional extreme value theory (EVT) method that combine the filtered series of GARCH and EGARCH models. This filtered series will be used to generate the threshold by using the peak-over-threshold (POT) method. This threshold then will be used to estimate the generalized Pareto distribution (GPD) distribution to forecast the one-day ahead value-at-risk (VaR). The findings indicate that, in Shariah stock markets, the conditional EVT model demonstrates superior performance in forecasting stock market risk compared to the standard GARCH and EGARCH models.

A Retrieved-Context Theory of Financial Decisions

Abstract Studies of human memory indicate that features of an event evoke memories of prior associated contextual states, which in turn become associated with the current event’s features. This retrieved-context mechanism allows the remote past to influence the present, even as agents gradually update their beliefs about their environment. We apply a version of retrieved-context theory, drawn from the literature on human memory, to explain three types of evidence in the financial economics literature: the role of early life experience in shaping investment choices, occurrence of financial crises, and the effect of fear on asset allocation. These applications suggest a recasting of neoclassical rational expectations in terms of beliefs as governed by principles of human memory.

Economic sanction and global sourcing complexity: A cross‐country analysis

The supply chain disruption drives the firms to source the same inputs from multiple suppliers in low-cost countries. However, the imposition of economic sanctions may prevent firms from enjoying diversification benefits of global sourcing complexity. Using data for more than 127 countries from 1997 to 2014, we uncover the effects of economic sanctions on the global sourcing complexity. After extensive robustness checks, our main findings reveal that economic sanction hampers global sourcing complexity. These effects are conditional on the level of economic development and the occurrence of financial crises in a particular country. Our results are robust for various forms of economic sanction, alternative estimators, and when controlling endogeneity problems. Our findings suggest important foreign policy and managerial implications for the countries and firms in response to economic sanctions.

STRATEGY FOR ENSURING FINANCIAL AND ECONOMIC SECURITY OF INDUSTRIAL ENTERPRISES: DEVELOPMENT, SELECTION AND IMPLEMENTATION

In the article it is determined that in conditions of variability of factors of the external and internal environment, enterprises are faced with the problem of deterioration of the results of financial and economic activity, a decrease in the level of financial and economic security and need the development and implementation of a set of tools for recovery and maintenance of performance indicators. It has been established that under the conditions of the strengthening of the negative influence of the factors of the market environment, the occurrence of financial crises during the long-term period, the use of the system and management mechanism for ensuring financial and economic security is insufficient and the level of financial and economic security is decreasing. The expediency of developing and implementing a strategy to ensure financial and economic security, which will allow to restore activity indicators under the condition of an increase in the number of threats and risks, is substantiated. It is proposed to improve the scientific-methodical approach to the development, selection, and implementation of a strategy for ensuring financial and economic security at industrial enterprises based on the application of complex, strategic, and integration approaches. The use of a scientific and methodical approach made it possible to develop a strategy for ensuring financial and economic security by applying the strategy development mechanism, the strategy selection mechanism, and the strategy implementation mechanism. It was determined that the strategy should function on the basis of interaction with the system and management mechanism for assuring financial and economic security, the general strategy of the enterprise. The application of the scientific and methodical approach made it possible to develop three types of strategy in accordance with the defined parameters, and the implementation of the chosen type of strategy will allow restoring the level of security, which will affect the increase in indicators of financial and economic activity. A feature of the strategy of ensuring financial and economic security is the neutralization of the influence of factors of the market environment, maintenance, restoration and growth of the level of financial and economic security, improvement of financial and economic activity.

Risk contagion in financial markets based on copula model

Abstract Economic globalisation and the development of financial trade liberalisation lead to a higher probability of financial crises. At the same time, the occurrence of financial crises has a particular risk of contagion. Based on this research background, this paper constructs a dynamic Copula model. It demonstrates the application of this model in financial market risk management based on the correlation changes between the US stock market and the Chinese stock market before and after the financial crisis. The results show that the Standard & Poor’s Index and China before the crisis broke out There is a specific correlation between the stock markets, which shows that the financial crisis has affected both the Chinese and American stock markets. Therefore, risks in the financial market are contagious.

The Research Fronts of Financial Market Risk Prevention in the Background of Big Data Analysis: Scientific Measurement Analysis from Multidisciplinary Literature

Risks are ubiquitous in financial markets, and the occurrence of financial crises has never stopped. In order to provide research fronts for financial market risk prevention in the context of big data analysis, this article is based on 556 articles retrieved from the Web of Science database. Keywords such as “big data” and “development of emerging capital markets” were comprehensively analyzed and visualized. The four key visualization legends were used to obtain the status and impact of the utilization of major institutions and big data resources. The focus of research lies in the research of crisis contagion and the development of early warning systems. In addition, this article also outlines the gaps in the overall research direction of academia on financial market risk prevention.

Risk transmission between banks based on time-varying state network

Aiming at the state transition between bank networks, we propose a time-varying state network model. In this model, we classify the bank networks in each time period by the kmeans method, and use directed minimum spanning tree(DMST) method to describe the topological structure of each kind of bank network. We also construct a time-varying bank state network by the planar maximally filtered graph(PMFG) method. The state network can be used to find the source of bank risk and conduct the time-varying analysis. We put into the model the inter-bank lending data of 15 listed Chinese commercial banks from the fourth quarter of 2007 to the first quarter of 2019. The results show that the short-term continuity jump between the bank states can effectively describe the occurrence of financial crisis. For example, before and after the global financial crisis in 2008, there was a short-term jump between two states. From the “money shortage” in 2013 to the stock market crash in 2015, there were four short-term jumps between states. At the same time, the outgoing degree of each directed bank state network is directly proportional to the contagion effect, and the incoming degree is inversely proportional to the steady degree of the risk faced by the bank. The sequential bank state network has the memory characteristic, which can provide the central bank for decision basis to prevent the systematic risk.

Which factor matters for financial crises: leverage level or leverage growth?

ABSTRACT Prior studies have shown a significant impact of the leverage level on economic outcomes. This study extends the literature by examining the role of leverage growth in predicting the occurrence of financial crises. Based on a dataset of 42 economies over the period 1980–2017, the results indicate a positive and significant association between leverage growth and the likelihood of financial crises. Moreover, leverage level plays no relevant role in predicting the financial crises after leverage growth has been controlled for. Further analysis also confirms the contribution of relative sectoral leverage growth to financial crises. Specifically, both the difference between the private and the government leverage growth, and the difference between the household and non-financial corporate leverage growth are positively associated with the likelihood of financial crises. These findings suggest that we should pay much more attention to leverage growth and its impacts on financial crises.

Loan Loss Provision and Risk-Taking Behavior of Commercial Banks in Pakistan: A Dynamic GMM Approach

The paper analyzes the determinants of the loan loss provision (LLP) of 22 commercial banks in Pakistan from 2010 to 2017. The motive of the research is that LLP is a measure of credit risk as a proxy for bank risk-taking behavior profits and banks’ sustainability. Especially after the occurrence of a global financial crisis. The quantitative research method of data collection from Bureau Van Dijk’s BankFocus portal and the World Bank’s World Development Indicators. Other than considering specific bank variables such as capital adequacy ratio, return on average equity, and government securities, the effects of macroeconomic variable inflation and lending interest rates are explicitly studied. The model of pooled ordinary least squares (POLS), fixed effect (FE), panel corrected standard error (PCSE), and panel data estimation in the form of a general method of moments (GMM) two-step system is used to find the risk-taking behavior of banks in Pakistan. The results obtained by the use of inflation (INF) as an instrumental variable of LLP are highly dependable with a negative impact on loan loss provision. Lending interest rate (LIR) has a positive and significant relationship with LLP and contribute in the study of macroeconomic variables for bank risk-taking, excessive amount of interest rate was not beneficial for banks to earn profits especially during the economic crises. Return on average equity (ROAE) significantly moderates LLP with a negative interaction and helped the bank with profitable operations and save bank from solvency. Capital adequacy ratio (CAR) and government securities (GOV) are insignificant to LLP. The result is robust by measure of endogeneity, and highlights the important role of commercial banks’ sustainability to explain risk-taking behavior in Pakistan with the intention to increase profits after the occurrence of financial crises. The study further contributes to future research on managerial policy and decision making. In summary, the paper on loan loss provision has the capacity to forecast commercial banks’ credit risk for risk-taking in an emerging country.

A Retrieved-Context Theory of Financial Decisions

Studies of human memory indicate that features of an event evoke memories of prior associated contextual states, which in turn become associated with the current event's features. This mechanism allows the remote past to influence the present, even as agents gradually update their beliefs about their environment. We apply a version of retrieved context theory, drawn from the literature on human memory, to explain three types of evidence in the financial economics literature: the role of early life experience in shaping investment choices, occurrence of financial crises, and the impact of fear on asset allocation. These applications suggest a recasting of neoclassical rational expectations in terms of beliefs as governed by principles of human memory.

Investigating Challenges and Assessing Managers’ Capabilities for Risk Management in Small and Medium-Sized Enterprises at the Time of Financial Crisis in Developing Economies

The occurrence of financial crises in today's world has become a probable issue and no business can ever predict that it will always go on in a quiet sea without storms. This makes it binding for business managers to manage risk, especially in developing economies that are naturally more vulnerable than the advanced economies of the world. Meantime, the role of small and medium-sized enterprises (SME) as stabilizing the economy is highlighted. These enterprises, on the one hand, are more vulnerable to these storms compared to large and well-established enterprises and on the other hand can play a more important role than larger firms in creating employment and stabilizing the economy. This article aims to investigate financing challenges during the downturn for small and medium-sized enterprises and then evaluate the performance of managers in small and medium-sized enterprises with a focus on risk management.

The Research on Factors Which Affect Anti-dumping Investigation: Based on Probit Model

Using country-industry data, this study investigates factors which affect anti-dumping investigation via Probit model. We find that with the increase of trade, GDP per capita, population, exchange rate, accession to WTO and the occurrence of financial crisis, China more likely suffer from anti-dumping investigation，while with the increase of distance, China less likely suffer from anti-dumping investigation. Further, after divided the export into extensive margin and intensive margin, we find that the negative effect of trade on anti-dumping investigation mainly comes from the increase of intensive margin. The increases of extensive margin may reduce the chances of suffering from anti-dumping investigation.

Rządowe instrumenty stabilizacji finansowej – zakres zastosowania i skutki dla sektora finansów publicznych w Polsce

A new macroprudential legal framework for state financial stability instruments was introduced in Poland in 2016. The regulations adopted by the Polish government are aimed at strengthening the stability of the domestic financial system. One new development is the recapitalisation scheme of ailing financial institutions, and the second is temporary take-over of financial institutions by the State Treasury. These instruments legally allow for engaging public funds in the restructuring of financial institutions exposed to the risk of failure. The condition on which the above instruments can be used is the occurrence of financial crisis, defined as a major distortion to the financial system which can have serious negative consequences for the domestic market and economy. The costs of implementation of financial stability instruments are incurred by the state budget, yet after the procedure is complete, equity interests acquired in the institutions aided become state budget revenue.

Forecasting Methods for Safeguarding ASEAN-5 Stock Exchanges during Extreme Volatility.

The main reason for using Bayesian approach and Pickands's dependent function for prediction and estimation in this research is the beginning of the multiplex econometric methods. The multiplex econometric examination resulted that predictive value of the minimum index points on real-time for five stock markets consisting of SGX, KLSE, SET, IDX, and PSE. Comparison of the previous examples should illustrate the wide range of gain or loss values related resulting from changing factors on the economic stimulus policy before the potential occurrence of financial crisis after 2015. As indicated previously, the majority results are only as good as the input data from the selected period, 1987-2015. The results of this research may use to be a signal to present the financial disorder in five ASEAN Exchange markets involving an economic weakening. Moreover, it would be used to guide the defining of any policy for protection of financial disorders.

ПОБУДОВА СИСТЕМИ ОЦІНЮВАННЯ РИЗИКІВ ДЛЯ АНТИКРИЗОВОГО УПРАВЛІННЯ ТЕРИТОРІАЛЬНИХ ГРОМАД

The article further develops the system of early warning and response to crisis situations in the local community through the consideration of risks. At the same time, the list of external and internal risks for ensuring effective anti-crisis management at the enterprises of territorial communities is defined. The methods of prevention of internal risks of occurrence of financial crisis at participants of territorial community are offered. In this context, it is justified that the system of early warning and response to crises in the local community will include methods to prevent the risks of financial crisis in the members of the local community. The article presents theoretical aspects of taking into account the risk of investing funds of members of the territorial community in the enterprise, which is in danger of crisis, actualizes the assessment and analysis of the implementation of a new direction of enterprise development, which requires additional financial resources in adverse (crisis). In the study, effective methods of preventing external risks in members of the local community are substantiated. It is established that the external risks that affect the management of crisis phenomena in the territorial community will include: a) economic; b) political; c) social. It is established that diversification is reflected as an influential factor in crisis management. It is substantiated that effective regulation of external risks affecting the management of crisis phenomena includes government regulation. According to the authors, the study of the theoretical foundations for building a risk assessment system to ensure effective crisis management in the enterprises of territorial communities will ensure the effective functioning of various participants in territorial communities.

PARADIGMATIC PERSPECTIVES ON INCOME DISTRIBUTION AND FINANCIAL CRISES

The role of the income distribution and inequality among individuals and factors of production on the occurrence of financial crises has long been a controversial issue in economics literature and the stance of the economists on this debate is mainly rooted in their different views on the distributional mechanism in the economic system. By conducting an extensive literature review, this paper attempts to illustrate the views of the different schools of economic though on role of income distribution and inequality as a cause of the financial crises with a special focus on the subprime crisis in 2008.

Foreign exchange reserve adequacy and exogenous shocks

ABSTRACTOne of the traditional benchmarks in international macroeconomics is that a country should maintain reserves that can cover at least 12 weeks of imports. The notion of reserve adequacy, however, is not static and is intimately associated with the occurrence of financial crises as well as exogenous shocks, with many observers using the reduction in reserves below this benchmark as a sign of fragility. This article provides a benefit-cost type approach to evaluating reserve adequacy. The benefits of holding reserves are evaluated using a dynamic random effects probit model of financial crises while the cost of reserve holdings (output loss due to an over-investment in reserves) is obtained from a panel growth equation. Using the methodology outlined above, the study finds that in small states, the optimal holding of foreign exchange reserves is approximately 25 weeks of imports, approximately 13 weeks higher than the international rule-of-thumb. This estimate of optimal reserve holdings is interrelated with the economic characteristics of the country, particularly its fiscal stance. Indeed, this article finds that countries with a prudent public expenditure management framework in place are able to hold a smaller stock of reserves without necessarily impacting the expected growth for the country.

The Impact of Domestic Public Debt on Financial Development in Malaysia

When the government heavily borrows domestically from the banking sector to finance its expenditures, there is possibility that public debt will lead to a crowding out effect on private investment since bank credit is a primary funding source for the private sector. This study examines the linkages between domestic public debt and financial development in Malaysia for the period of 1980 to 2010. Our analysis suggests that domestic public debt from banks has a negative relationship with financial development. Meanwhile, the crowding out effect is evident during the occurrence of financial crises.

Debt Sustainability and Financial Crises in South Africa

ABSTRACTIn this study, we use a long historical data series to assess debt sustainability in South Africa allowing for possible nonlinearities in the form of threshold behavior by fiscal authorities conditional on the recent history of indebtedness and the occurrence of financial crises. First, the results reveal that fiscal consolidation is maintained when a debt-to-GDP ratio of around 56 percent is reached with evidence of a statistically insignificant fiscal consolidation below this threshold level. Second, the results reveal that fiscal adjustment takes into account past levels of debt to allow for smoother corrective action. Third, fiscal consolidation occurs at a higher debt-to-GDP ratio during financial crises.