Financial Market Participants Research Articles

Government Interventions and Sovereign Bond Market Volatility during COVID-19: A Quantile Analysis

We test the interaction between governments’ COVID-19 interventions, COVID-19-induced uncertainty, and the volatility of sovereign bonds. Different from previous literature, we investigate the asymmetric response of bond market volatility to both governmental interventions and COVID-19-induced uncertainty. With a focus on the first waves of the pandemic and using a panel quantile approach and a comprehensive dataset of 31 countries worldwide, we document that containment and closure policies tend to amplify volatility. Furthermore, the price variability is augmented by the spread of the pandemic itself. On the contrary, economic support policies have a substantial stabilizing effect on bond price fluctuations. Both phenomena are not subsumed by additional control variables and are robust to multiple considerations. Our findings may serve financial market participants in their risk management decisions, as well as policymakers to better shape their preparedness for future pandemics.

The equity-oil hedge: A comparison between volatility and alternative risk frameworks

This paper investigates alternatives to the conventional minimum-variance framework for hedging equity risks with crude oil. Specifically, the optimal hedge ratios are calculated for various risk objectives such as volatility, semivariance, and tail risk. The hedging efficacy is assessed for BRIC stocks and aggregated market indices. The results show that the optimal hedge ratios differ by strategy, and hedging efficacy varies across risk metrics, equity indices, and time periods. Semivariance and tail risk hedging are more effective than volatility risk hedging, but more expensive. Oil exporters (Brazil and Russia) outperform importers (India and China) in terms of hedging effectiveness. Hedging costs are lower during COVID-19 than during the global financial crisis. It is critical to capture volatility dynamics for hedging volatility, downside, and tail risk. Over-hedging could significantly increase the risk of an equity-oil-hedged portfolio. The findings contribute to a better understanding of oil’s risk hedging capacity for equity indices, which will be of interest to financial market participants, corporations, and regulators.

Financial Market Participation and Retirement Age of the UK Population

Recently, many papers have shown evidence of a positive association between financial market participation and wealth holdings. It is often claimed that individuals with a higher level of financial market participation exhibit a higher propensity for planning retirement. In their planning process, individuals seek to achieve an optimal wealth level before their retirement by considering both their average saving rate and their retirement age. In this paper, we tested whether UK individuals with a higher level of financial market participation and, therefore, with a higher propensity for planning retirement were more likely to delay their retirement age than individuals with lower financial participation. On the basis of regression analyses using the English Longitudinal Study of Aging (ELSA) database for waves 1–6, our results support the hypothesis of a positive relationship between financial market participation and retirement age, reinforcing previous results.

In Search of Sustainability and Financial Returns: The Case of ESG Energy Funds

The world is facing several challenges, and the problem of sustainable development is one of the most important. It is worth considering that European countries are playing a significant role as pioneers in building a sustainable world, such as those promises made by signing the Paris Agreement and European Taxonomy. To achieve ambitious targets within sustainable development, a huge amount of capital is necessary, while financial and capital market participants are expected to demonstrate a high level of engagement in the domain of sustainability. Facing growing interest and demand, a relatively new product—the ESG (environmental, social, and governance) investment fund—was introduced. Scientific literature is providing some controversial views regarding the overall evaluation of this product. Therefore, additional research providing different angles would contribute to a better understanding. This study examines European ESG funds in the energy sector, from the perspective of news flows and investors. It is worth noting that the authors use the word “European” to refer to members of the European Union (EU). The paper consists of the following parts. In the introduction, the current state of this issue is discussed. The following section offers a literature review and a news flow analysis that contributes to a deeper understanding of these issues. A description of the methodology applied for the data analysis follows this, and the final section presents the research results and conclusions. The authors apply statistical analysis and the Carhart model to determine the differences in the performance of the ESG and conventional funds and use their own tool for text analysis to examine the relevance of the topic of ESG to attract client interest. The authors claim that the performance of the European ESG equity funds do not show a statistically significant difference from the non-ESG equity funds in the majority of the periods examined. The application of the adjusted Carhart model demonstrates that the factor of sustainability has a non-significant and negative effect on the fund performance. Finally, the authors highlight the urgent necessity for the unified usage of keywords and terminology, such as “ESG”, “sustainability”, etc., to ensure comparison and attribution possibilities.

Retirement Income and Financial Market Participation in New Zealand

Using New Zealand Household Economic Survey (HES) 2018 data, we examine the impact of direct financial market participation post-retirement on retirement income in New Zealand. Our results demonstrate the importance of post-retirement financial market participation in the enhancement of retirees’ financial well-being. We conclude that retirees who participate in the financial market enjoy a 78% increase in overall annuitised net wealth; further analysis also reveals a substantial 154% increase if government pensions are excluded from calculations of annuitised net wealth. Moreover, these retiree participants also show higher probabilities of financial-situation satisfaction. These results highlight the significant contribution to retirement income of direct financial market participation. Our paper sheds extra light on issues related to retirement financial well-being and has important implications for policy makers in New Zealand.

Impact of Digital Financial Inclusion on Residents’ Income and Income Structure

Digital financial inclusion (DFI) plays an increasingly important role in raising residents’ income levels and optimizing income structures. Using data from the 2015–2019 China Household Finance Survey (CHFS), this paper examines the impact of DFI on residents’ income and income structure from a microeconomic perspective using OLS fixed effects models and panel Tobit models. It was found that (1) DFI significantly raises residents’ income, increasing their total annual per capita household income by CNY4200, and increasing their annual per capita household wage income, business income and property income by CNY2430, CNY1030, and CNY450, respectively. In terms of different functions of DFI, the use of digital payment, digital lending and digital financing can raise the annual per capita household income of residents by CNY4250, CNY10,360 and CNY3050, respectively. (2) DFI increases wage income by enhancing residents’ household employment level, increases business income by promoting residents’ entrepreneurship, and increases property income by improving the financial market participation. (3) DFI has a more significant effect on increasing income for higher income groups as well as rural residents. The findings of this paper provide theoretical and practical support for optimizing the design of financial inclusion policies and exploring new drivers of income growth for residents.

Covid-19 Affects The US Economy Uncertainty?

The economic and social costs of the COVID-19 pandemic affect society, individual investors, policy makers and all financial market participants. The COVID-19 pandemic has created shock waves in financial markets, as well as commodity prices, including oil, and the real economy. This study analyzes the short-term and long-term relations among the number of total COVID-19 cases, USA stock price index, crude oil price and economic policy uncertainty index for USA, based on daily figures between 31.12.2019 and 30.11.2020. The results of the study indicate that there are short-term and long-term cointegration between economic policy uncertainty index determinants in USA. Long-term elasticities project that a 1% increase in the number of COVID-19 cases would lead to an increase of 0.086% in USA economic policy uncertainty index, and an increase of 1% in crude oil price would lead to a decrease of 0.410% in USA economic policy uncertainty index and an increase of 1% in USA stock price index would lead to a 3.167% decrease in USA economic policy uncertainty index.

Organizational approaches to the formation of the financial control system in the activities of financial market participants

Introduction. The modern economy is characterized by the introduction of integrated business process management systems that allow optimizing the process of making and controlling management decisions based on the formation and use of an information-analytical model, which contributes to the optimal use of the company's investment resources in the long term. In this, when regulating financial market processes, there is an urgent need to implement a controlling system that allows you to take into account the above circumstances and build a system of effective management of investment resources. Goal. Based on the generalization of research by scientists and the practical experience of business entities, offer practical recommendations on the formation of a financial controlling system for financial market participants. Method (methodology). The methods of system analysis and theoretical generalization, comparative analysis and synthesis, historical-logical and functional-systemic approach were used to solve the problems. The results. The concept of financial controlling, proposed by the author, defines financial controlling as a process-type system, which is a mechanism of interconnected, mutually complementary elements to realize the goal of the functioning of an economic entity - increasing the efficiency of the functioning of an economic entity in the conditions of a constantly changing external environment, and also maximizing the ownership of its shareholders.

Violence, Positive Political Developments, and Financial Market Participation: Evidence from the Freedman's Savings Bank

Violence, Positive Political Developments, and Financial Market Participation: Evidence from the Freedman's Savings Bank

Current trends in the development of financial intermediary in the context of military challenges: the Ukrainian case

Introduction. The current situation on the financial market of Ukraine, in the conditions of military challenges, depends not only on financial and economic factors, but also on social, political and security factors. The war defines non-typical rules for the functioning of both financial intermediaries and the financial market in general. Safety of all participants and creation of conditions for access to financial services in conditions of fragility of the financial intermediation system became the main dominant factors. And this, in turn, requires the rapid reorientation of financial intermediaries to remote communication channels, digitization of services, flexible policy in the field of regulation, the search for new alternative sources of replenishment of resources, ensuring financial stability and liquidity, the search for new tools, quick response to challenges related to with wartime activities. All of the above causes considerable pressure on the functioning of financial intermediaries, who are responsible for their financial stability. Goal. Elucidation of the main factors affecting the state of the financial market in the conditions of military challenges; analysis of the real state of financial intermediaries and generalization of factors and reasons for the reduction of market activity and the fragility of systems and financial intermediation; justification of the need to change the policy of prudential supervision; identification of the potential and channels for the introduction of financial innovations to improve the market; outline of the main trends in the development of financial intermediaries in the post-war period. Results. It was found that financial intermediaries in Ukraine work during the period of "shock" challenges caused by wartime. It is shown that their activities are aimed at introducing financial innovations and ensuring stable access of consumers to all financial services. The pragmatism of the functioning of financial intermediaries in the financial services market, their real state, the problems of activity and state regulation are revealed, the challenges faced by financial market participants in the wartime period are emphasized. It is argued that in the conditions of the fragility of the financial intermediation system, ensuring the sustainability and stability of the activity of financial intermediaries, their effective activity, openness and transparency has an important place. The importance of inclusiveness in the activities of financial intermediaries has been demonstrated. It is proven that military challenges became a systemic determinant of the "cleansing" of the financial market, forcing a part of financial intermediaries (usually from the market of non-banking financial institutions) to make a difficult but responsible decision - to leave the market. Under such circumstances, it is important for the state regulator to take preventive measures aimed at supporting this sector of the financial market. Another challenge is operating in conditions of total economic decline and lack of financial resources to fulfill the obligations assumed. Financial intermediaries are ready to make concessions and soften the terms of obligations, however, there should be counter-steps in the system of regulatory policy to create soft rules and requirements in war conditions (reducing the level of provisioning for overdue loans, canceling the norm of the ratio of productive and non-productive assets, the level of profitability and softening of other activity indicators for the period of the war and the determination of a specific and adequate period of recovery in the post-war period). Conclusions. Based on the results of the conducted research, the following conclusions were drawn: new trends are crystallizing in the financial market of Ukraine and in the system of financial intermediation; the issues of introducing technologies for remote and asynchronous access to services provided by financial intermediaries into the activities of financial intermediaries are updated; military challenges cause serious changes in the configuration of the financial market, both in terms of the segmentation of financial intermediaries, and in terms of the introduction of innovations in the financial intermediation system.

Building Long-Term Trust in Sustainable Finance

The article considers the main techniques for establishing the kind of long-term trust that is necessary for making responsible investments that are consistent with the principles of sustainable development and that will produce the long-term value which is the main goal of corporations participating in sustainable finance. The creation of such techniques is being carried out in close cooperation with international financial organizations and market participants. In order to make current thinking about sustainable financing more systematic, especially as it applies to building long-term trust, the author has concentrated on providing useful descriptions. The article describes the current progress toward standards for the disclosure of non-financial information by corporations; creation of taxonomies for sustainable activities and their application in financial markets; introduction of verification that corporate activities comply with the taxonomies for sustainable activities; and the development and use of ESG ratings in responsible investment. The main research method is analysis of documents of international (including financial) organizations, associations of financial market participants, large business associations, development institutions, and rating agencies. The problematic areas of the mechanisms being constructed are identified (primarily with respect to disclosure of non-financial information and the development of ESG ratings), and the article provides recommendations from international financial organizations on how to overcome the problems identified. The process of developing standards for disclosure of non-financial information and ensuring its reliability, both of which are necessary for sustainable investment, is proceeding rapidly. The article is addressed to a wide variety of readers, who should find it useful for learning how sustainable finance principles are being put into practice by corporations and financial markets. The information in this article can be used for developing strategic economic policy where it intersects with sustainable development.

UKRAINIAN FINANCIAL MARKET DURING THE WAR: REALITIES OF FUNCTIONING

Introduction. The war in Ukraine has a significant impact on the financial sector in general and the financial market, in particular. Without exaggeration, the year 2022 became a turning point for the Ukrainian financial market, as well as an indicator for the entire global financial system regarding its stability and flexibility, speed of response to challenges and adaptability, the ability and readiness to introduce innovations, acceptance of challenges by all market stakeholders. The main triggers of the functioning of the financial market are the rapid and client-oriented digitalization of services; volatility of regulatory policy due to Russia's military actions in Ukraine; immediate response to changes in conditions of limited access to financial resources; quick adaptation to work with clients under conditions of strict limitation of financial transactions. The answers to these challenges were: virtualization of services through cooperation with Fin-Tech companies and, as a result, the emergence of new tools in the financial services sector; forced transition and the inevitability of acceptance of new online offers by financial intermediaries; diversification and hedging of savings by converting them into currency-equivalent deposits and cryptocurrencies; modification of mobile banking applications. The purpose of the article to is analyze the realities of the functioning of the financial market of Ukraine during the war and to scientifically justificate the challenges of the financial sector in the conditions of the isolation of the financial market due to the introduction of martial law; identify the key development challenges, the latest financial and military activity trends; identify the channels of implementation of financial innovations by intermediaries of the financial services market; outline the triggers for the development of the financial market of Ukraine and understand the prospects for the introduction of new business models for financial market participants. Results. It was found that the financial market of Ukraine is a "key financial front" for ensuring the stability of the entire financial system; the war has a huge impact on the functioning of all components of the market and is an "indicative marker" of the mood in the country. It is shown that in conditions of systemic challenges and threats, innovative approaches in the field of financial technologies have a significant impact on the financial market landscape, which are widely implemented in all its areas, expand the functionality of financial intermediaries, offer diversification of tools and work methods, expand opportunities for participants, modernize existing norms and rules and, most importantly, establish new traditions and develop new habits in all participants of the financial market. It is argued that the main reason for radical changes and innovations, both in regulatory policy and in the daily activities of financial market participants, is the war in Ukraine, which became a catalyst for the revision of many policies and approaches to activity. It has been demonstrated that new vectors of financial sector development are crystallizing in the financial environment, which are aimed at: digitization and automation of most financial processes; raising access to financial services to a qualitatively new level; creation of new offers in the field of financial services with an emphasis on their inclusiveness and accessibility through the use of remote customer service channels using virtual communication technologies. It has been proven that during the russian aggression, the financial market developed high loyalty and flexibility when introducing new products; established a network of new partnerships; changed the focus of activity to the effective use of technological solutions in the financial sphere. It is substantiated that the key determinants of the functioning of the financial market in the conditions of martial law are: deep understanding of the essence of market problems; adaptation of the legislative field and flexibility of prudential supervision; introduction of innovations in the development of new financial products and digitization of existing products; creation of favorable conditions for the activity of financial intermediaries in the market. Conclusions. Based on the results of the conducted research, the following conclusions were drawn: new trends regarding the development and introduction of the latest financial tech nologies in the activities of financial intermediaries are outlined in the financial market; in modern realities, changes are taking place in the landscape of the domestic financial market – the war became a catalyst for the "survival" of both institutions and products; repurposing to remote work with clients creates a platform for promoting new products and introducing new business models.

ИНФОРМАЦИОННЫЕ АГРЕГАТОРЫ В ОЦЕНКИ КРЕДИТНОГО РИСКА НА ФИНАНСОВОМ РЫНКЕ

The article describes institutional aspects of creation and functioning of a system for obtaining relevant information for the purpose of credit risk assessment, as well as creation of tools for exchange and consolidation of this information between financial market participants. The article focuses on credit risk, since its assessment might require information that is not publicly available, and proposes a mechanism for exchanging such information. The basic roles of participants in the information exchange system are determined, the most vulnerable participants are identified, and the key role of information data aggregation companies in this system is indicated. In the final part of the article, the main advantages received by consumers of data aggregation companies, data aggregation companies themselves, participants acting as sources of information, as well as financial environment as a whole, are identified.

Digital financial assets: definition and classification

Introduction. The digitization of the economy began back in the 50s and 60s of the 20th century, but the term "digital assets" began to be actively used by financial market participants and scientists only after 2008, the impetus for which was the appearance of the so-called distributed ledger technology and the creation of the first cryptocurrency - bitcoin. However, today there is no comprehensive definition of the concept of "digital financial asset" that would fully reveal the essence of this term. Moreover, there is sometimes terminological uncertainty and confusion regarding the terms "cryptocurrency", "digital assets", "cryptoassets" and "virtual assets", which can lead to gaps in their regulation. Therefore, clarification of the definition and types of digital financial assets is relevant. The purpose of the article is to clarify the definition of digital financial assets by revealing the essence and characteristics of digital assets and financial assets, as well as justify the classification of certain types of digital assets as financial assets. The research method (methodology) is based on the systematic use of methods of analysis, synthesis, generalization and comparison, using a complex approach to studying the problem. The results. It was determined that such a new type of assets as digital financial assets arose at the stage of digitalization of the economy associated with the emergence of distributed ledger technology. It is clarified that according to IAS, digital financial assets can be represented by instruments such as cash, equity instruments or contractual rights. It was determined that the concept of "digital assets" is identical to the concept of "electronic assets" or "virtual assets" in the domestic legal framework. The classification of types of digital assets according to various criteria is generalized. It is substantiated that digital financial assets include such groups of digital assets, which are represented by payment tokens and tokens in securities, and utilitarian tokens are not financial assets.

ЦИФРОВА ПАРАДИГМА ФУНКЦІОНУВАННЯ ГЛОБАЛЬНОГО ФІНАНСОВОГО РИНКУ

The article examines trends in the development of the global financial market under the influence of the development of digital technologies. It is emphasized that the development of digital technologies quantitatively and qualitatively changes the global financial market. First of all, its scaling is taking place, and financial capital is being transformed into the main driving force of the global economy. Digital technologies contribute to the quantitative growth of the global financial market, and capital mobility is becoming an extremely important factor in economic development at the level of nations. Along with this, the prerequisites for the active use of financial innovations are being formed. However, innovations that are diverse in nature cannot always be evaluated exclusively positively because some of them often increase imbalances in financial development. It is emphasized that the format of functioning of financial institutions is fundamentally changing, especially in terms of their interaction with financial services' consumers and participants in financial transactions. The formation of the FinTech sector is taking place, the activity of which represents the technological component of the development of the global financial market. Activity of FinTech companies in fact impersonates the digitalisation of the financial market. And velocity and dynamics of the development gradually transform FinTech companies into key participants of the global financial market, which form trends at its key segments. At the same time, digitalization leads to the emergence of new challenges for the global financial market participants. Among other things, the mentioned problems are related to the poor effectiveness of state regulation and the inability of the state regulator to provide supervision over specific segments of the global financial market. It is argued that today the financial market of the digital economy is forming, which determines the need to update the strategies of all its participants. However, it is extremely difficult to predict what will be the outlines of the digital economy’s financial market and its key parameters in the medium term.

ФИНАНСИРОВАНИЕ УСТОЙЧИВОГО РАЗВИТИЯ: НОВЫЕ ВИДЫ РИСКОВ И ВОЗМОЖНОСТИ АДАПТАЦИИ УЧАСТНИКОВ ФИНАНСОВОГО РЫНКА

This article reveals the main results of the discussion that took place within the framework of the scientific and practical conference “Sustainable Development Financing: New Types of Risks and Adaptation Opportunities for Financial Market Participants” on the platform of the V International Moscow Academic Economic Forum (MAEF-2023). The review focused on emerging trends and existing problems inherent in the current stage of sustainable development financing. Much attention was paid to the issues of changing the rules for organizing financial and economic relations.

Credit Rating Agencies in the Face of the War in Ukraine

The aim of this study was to find evidence of whether the ratings prior to Russia’s reinvasion of Ukraine in 2022 reflected the geopolitical risks, and if the rating actions taken in response to the aggression accurately informed the financial market participants of the conflict’s spillover impacts, transmitting them to the credit risk assessment. The rating actions in response to the Russia’s reinvasion in 2022 indicate a considerable shock from the underestimation of geopolitical and political risks in Russia, including autocracy risks. The pattern of the rating actions differed from those in response to the invasion in 2014, and also varied from those used over the past two decades during the outbreak of crises with underlying economic drivers. The CRAs signalled a high level of geopolitical uncertainty which may involve a necessary shift to ‘point-in-time’ ratings, as ‘through-the-cycle’ ratings could have little relevance due to the lasting geopolitical risk.

Inefficiency of Financial Markets and Paths to the Development of a Modern Financial Theory

The purpose of this work is to examine new avenues for developing financial theory, including the role of ethics and cognitive psychology. This paper explains the Inefficiency of the financial markets and the paths to the development of a modern financial theory. Compliance with Islamic ethics means embarking on a far-reaching reform to transform the dominant financial model and tackle socio-economic objectives; it means pursuing life's broader aspirations, such as cooperation and solidarity. Similarly, investor emotions, such as over-confidence and optimism, affect investor behaviour and are implicated in their investment choices. Exploring these new avenues of finance means deciphering the behaviour of financial market participants, and thus shedding light on the decision-making process of financial investors. The aim is to see how psychological appeals and ethical attitudes have come to occupy an undeniable place in finance. More specifically, the aim is to explain the factors contributing to the emergence of Islamic finance and behavioural finance and to analyse how the limited efficiency of financial markets marks the starting point for these approaches and thus the development of modern finance. By allowing the use of financial capital, this finance makes itself available to the real economy and serves it. Its growth and development will have favourable repercussions on the entire socio-economic system. The key is to focus on projects and investments that are in line with the prerogatives of behavioural finance and ethics. This is a solution to the inefficiency of the financial markets, as it will result in better performance.

Rozwój sztucznej inteligencji i jej wpływ na rynek finansowy

The purpose of this article. The aim of the article is to analyze selected issues related to artificial intelligence and its development, particularly its impact on the financial market, taking into account the opportunities and threats that artificial intelligence and its areas, such as machine learning or deep learning, pose to financial market participants. The research methods utilized in the study were used to evaluate the phenomenon on a macroeconomic scale. Methodology. The results of the research were based on the analysis of secondary data, such as source literature – both domestic and foreign, systems analysis of European Union legal acts, as well as the review of reports on the use of AI within the financial market. The paper is theoretical. The result of the research. The development of artificial intelligence in financial markets may provide an opportunity to gain competitive advantage, especially for financial market participants who aptly implement AI-based solutions in its initial phase. However, this entails both benefits and risks, the possible occurrence of which depends on many other factors.

THE ACTIVITIES OF CONSULTANTS-METHODOLOGISTS ON THE FORMATION OF FINANCIALLY LITERATE BEHAVIOR OF RUSSIANS

The purpose of the research. This article presents the results of an all-Russian survey of consultants-methodologists who carry out activities to educate the population in financial matters. The study was conducted by the Institute of Financial Literacy of the Financial University under the Government of the Russian Federation together with the educational and scientific sociological laboratory of the Department of Sociology of the Financial University. Both quantitative (questionnaire mass survey of students of the advanced training program “Financial Consulting”) and qualitative methods (in-depth semi-structured interviews with students of the advanced training program “Financial Consulting”) are involved. More than 1,200 students who successfully completed the training program in 2022 took part in the questionnaire survey. The data collection method is online surveys. Geography of the questionnaire survey: consultants-methodologists from 55 regions of the Russian Federation. 34 certified consultant-methodologists took part in the interview. The data collection method is telephone interviews. Geography of the interview: methodologist consultants from 34 regions of the Russian Federation. The scientific novelty of the research is the development of a tool for measuring the satisfaction of students of the Institute of Financial Literacy with the advanced training program “Financial consulting”, building a map of the problems of professional activity of consultants-methodologists with the identification of specific qualities of the Russian population, manifested in financial behavior. Results. Measuring the effectiveness of the work carried out by the state to increase the level of competent behavior of citizens must be supported by additional expertise and methods of sociological measurement of financially literate behavior. This will allow measuring various practices of financial behavior in various areas, assessing them, predicting the consequences and costs for all financial market participants. Currently, such a methodology is in the process of being discussed, created, however, methods for measuring financial literacy are widely popular in scientific communities.