Financial Trading Research Articles

Improving Cointegration-Based Pairs Trading Strategy with Asymptotic Analyses and Convergence Rate Filters

AbstractA pairs trading strategy (PTS) constructs a mean-reverting portfolio whose logarithmic value moves back and forth around a mean price level. It makes profits by longing (or shorting) the portfolio when it is underpriced (overpriced) and closing the portfolio when its value converges to the mean price level. The cointegration-based PTS literature uses the historical sample mean and variance to establish their open/close thresholds, which results in bias thresholds and less converged trades. We derive the asymptotic mean around which the portfolio value oscillates. Revised open/close thresholds determined by our asymptotic mean and standard derivations significantly improve PTS performance. The derivations of asymptotic means can be extended to construct a convergence rate filter mechanism to remove stock pairs that are unlikely to be profitable from trading to further reduce trading risks. Moreover, the PTS literature oversimplifies the joint problem of examining a stock pair’s cointegration property and selecting the fittest vector error correction model (VECM). We propose a two-step model selection procedure to determine the cointegration rank and the fittest VECM via the trace and likelihood ratio tests. We also derive an approximate simple integral trading volume ratio to meet no-odd-lot trading constraints. Experiments from Yuanta/P-shares Taiwan Top 50 Exchange Traded Fund and Yuanta/P-shares Taiwan Mid-Cap 100 Exchange Traded Fund constituent stock tick-by-tick backtesting during 2015–2018 show remarkable improvements by adopting our approaches.

Decentralized Data and Artificial Intelligence Orchestration for Transparent and Efficient Small and Medium-Sized Enterprises Trade Financing

The complexities arising from disparate data sources, conflicting contracts, residency requirements, and the demand for multiple AI models in trade finance supply chains have hindered small and medium-sized enterprises (SMEs) with limited resources from harnessing the benefits of artificial intelligence (AI) capabilities, which could otherwise enhance their business efficiency and predictability. This paper introduces a decentralized AI orchestration framework that prioritizes transparency and explainability, offering valuable insights to funders, such as banks, and aiding them in overcoming the challenges associated with assessing SMEs’ financial credibility. By utilizing an orchestration technique involving symbolic reasoners, language models, and data-driven predictive tools, the framework empowers funders to make more informed decisions regarding cash flow prediction, finance rate optimization, and ecosystem risk assessment, ultimately facilitating improved access to pre-shipment trade finance for SMEs and enhancing overall supply chain operations.

Blockchain Technology in International Trade: A Catalyst for Efficiency and Revenue Generation

Background and Aim: The advent of blockchain technology has brought about a significant transformation in the realms of finance and international trade, primarily through the implementation of a decentralized ledger system for conducting transactions. The present study aims to assess the efficacy and economic advantages of employing blockchain technology in the context of international trade financing. Specifically, it focuses on the potential decrease in transaction time and cost savings that Chinese domestic banks may experience as a result of adopting this technology. Materials and Methods: This research employs a quantitative methodology to assess the efficacy of blockchain technology in the context of international trade, with a specific emphasis on banking professionals. The study utilizes a cost-benefit analysis approach to maximize advantages and minimize drawbacks. Results: The research revealed that the implementation of blockchain technology has the potential to improve operational efficiency and mitigate transaction risks. However, it is important to note that this comes at the expense of increased costs, rendering it unsuitable for widespread adoption due to its unfavorable net benefit. Conclusion: The findings of the study indicate that the use of blockchain technology leads to enhanced operational efficiency and decreased transactional risks. However, it is important to note that this implementation also entails elevated costs, rendering it impractical for widespread adoption due to its unfavorable net benefit. The report posits that the advantages of operational efficiency offered by blockchain technology are overshadowed by the accompanying expenses, thereby advocating for a prudent approach to its implementation in the realm of international trade. The recommendations encompass many strategies such as the implementation of trial projects, conducting thorough cost-benefit analyses, using hybrid techniques, ensuring ongoing monitoring, and maintaining strict adherence to legal regulations.

Craving money? Evidence from the laboratory and the field.

Continuing to gamble despite harmful consequences has plagued human life in many ways, from loss-chasing in problem gamblers to reckless investing during stock market bubbles. Here, we propose that these anomalies in human behavior can sometimes reflect Pavlovian perturbations on instrumental behavior. To show this, we combined key elements of Pavlovian psychology literature and standard economic theory into a single model. In it, when a gambling cue such as a gaming machine or a financial asset repeatedly delivers a good outcome, the agent may start engaging with the cue even when the expected value is negative. Next, we transported the theoretical framework into an experimental task and found that participants behaved like the agent in our model. Last, we applied the model to the domain of real-world financial trading and discovered an asset-pricing anomaly suggesting that market participants are susceptible to the purported Pavlovian bias.

Multi-level deep Q-networks for Bitcoin trading strategies

The Bitcoin market has experienced unprecedented growth, attracting financial traders seeking to capitalize on its potential. As the most widely recognized digital currency, Bitcoin holds a crucial position in the global financial landscape, shaping the overall cryptocurrency ecosystem and driving innovation in financial technology. Despite the use of technical analysis and machine learning, devising successful Bitcoin trading strategies remains a challenge. Recently, deep reinforcement learning algorithms have shown promise in tackling complex problems, including profitable trading strategy development. However, existing studies have not adequately addressed the simultaneous consideration of three critical factors: gaining high profits, lowering the level of risk, and maintaining a high number of active trades. In this study, we propose a multi-level deep Q-network (M-DQN) that leverages historical Bitcoin price data and Twitter sentiment analysis. In addition, an innovative preprocessing pipeline is introduced to extract valuable insights from the data, which are then input into the M-DQN model. A novel reward function is further developed to encourage the M-DQN model to focus on these three factors, thereby filling the gap left by previous studies. By integrating the proposed preprocessing technique with the novel reward function and DQN, we aim to optimize trading decisions in the Bitcoin market. In the experiments, this integration led to a noteworthy 29.93% increase in investment value from the initial amount and a Sharpe Ratio in excess of 2.7 in measuring risk-adjusted return. This performance significantly surpasses that of the state-of-the-art studies aiming to develop an efficient Bitcoin trading strategy. Therefore, the proposed method makes a valuable contribution to the field of Bitcoin trading and financial technology.

Selected Non – Funded Products and Trade Finance Income among Commercial Banks in Kenya

This study was aimed at determining the effect of selected non-funded products on trade finance income among commercial banks in Kenya. The selected non- funded products investigated in the study included: Guarantees; letters of credit and documentary collections. The research design for the study was descriptive with a target population, hence unit of analysis, comprising of 39 commercial banks in Kenya licensed and regulated by Kenya’s Central Bank in the year 2021. The respondents (unit of observation) were 39, representing a trade finance manager from each of the commercial banks. Therefore, the respondents provided data that was analysed using various statistical tools. The study found a substantial association between these products and Trade Finance income using inferential analysis, which included correlation analysis and regression analysis. Piloting of the study was undertaken using 10% of the sample size. These was important in establishing both the validity and reliability of the data collection instruments. The Cronbach alpha scores were above 0.70, hence, giving confidence that the data collection instrument was reliable. The results of the study show that a component of trade finance revenue is affected by the issuance, handling or management of trade finance instruments. The majority of commercial banks’ non-funded bank products, which include letters of credit, guarantees, and documentary collections, are classified as trade finance solutions in the study’s descriptive analysis. Commercial banks in Kenya are urged to expand their trade finance solutions offerings to electronic trade finance products such as electronic letters of credit and electronic guarantees in order to keep up with international best practices

ЦИФРОВИЗАЦИЯ ТОРГОВОГО ФИНАНСИРОВАНИЯ

Trade finance plays an important role in achieving the Sustainable Development Goals set out in the UN program for the period 2015–2030 and aimed at solving the following tasks: stimulating sustainable economic growth, productive employment and job creation, strengthening and reviving international cooperation, etc. Cross-border trade finance is based on the general principles and documents developed by the Wolfsberg Group, the International Chamber of Commerce and the International Association of Banks for Finance and Trade, which became the sources of information for the article. Its purpose is to assess the current state of trade finance, identify trends in its digital transformation and justify the advantages and limitations of using smart contracts in the field. Currently, efforts to digitalize trade finance are fragmented due to the scale and complexity of the issue. At the same time, by using innovative digital technologies, it is possible to achieve a significant reduction in the transaction costs of financial institutions, and thereby increase the availability of trade finance for applicant companies. Authors substantiate the advantages of using digital technologies for the development of the trade finance market, describe the stages of using smart contracts for those purposes and indicate the current limitations of digital trade finance solutions.

Trading in Foreign Exchange and its Influence on Trade Finance Income Among Commercial Banks in Kenya

This study sought to determine the effect of trading in foreign exchange on trade finance income among commercial banks in Kenya. Hence, the unit of analysis for the research were all the registered and fully operational 39 commercial banks in Kenya. The participants for the study were each trade finance manager for the 39 commercial banks. Data was collected using structured questionnaire which were distributed through the emails and followed by telephone calls from the researcher in order to expedite the response process. These resulted in a response rate of 77%, which is considered good enough for such a study. The research adopted a descriptive research design with data being analysed using the statistical package for social sciences ( SPSS) and the results represented as percentages, mean, median and variances. The study’s inferential analysis, which included correlation analysis and regression analysis, led to the conclusion that there is a significant correlation between trading in foreign exchange and trade finance income. Based on these conclusions, commercial banks are advised to concentrate on trade financing and trade facilitation since foreign exchange will be required at the time that settlement must be carried out. Banks should be aware that fees gained from trading in foreign exchange are in addition to whatever fees they may have earned from other trade finance activities

Da Vinci Medal Address: Material Political Economy.

On the occasion of the award of the author's da Vinci Medal in 2022, this article sketches a perspective, material political economy, employed by the author, explaining it by drawing on Marc Bloch's classic account of the dispute in European feudalism between milling grain on watermills or windmills controlled by feudal superiors, who could exact fees, and common people's use of hand mills. It considers the material political economy aspects of two modern technologies. The first is automated high-frequency trading in finance, where there are typically conflicts with incumbents and material efforts to favor "market-making" over "aggressive" algorithms. The second is the automated auctioning of digital display advertising opportunities, showing tension between two forms of these auctions' material organization: centralized auctioning via Google's systems and decentralized "header bidding."

Application of blockchain technology in trade finance

Application of blockchain technology in trade finance

Application of blockchain technology in trade finance

Application of blockchain technology in trade finance

Imputing Mutual Fund Trades

Imputing Mutual Fund Trades

절충교역 관점에서 본 한국의 방위산업 및 무기체계 국제거래 현황과 과제

South Korea has established the base for self-reliant defense and grown into an emerging defense exporter in 40 years since it first introduced a offset trade system in 1983, and aims to become the world's fourth-largest defense exporter by 2027. The purpose of this study is to draw implications for the development of Korea's defense industry and the expansion of defense exports from the perspective of offset trade. To this end, (1) the development process and status of Korea's defense industry were examined based on recent statistical data, and (2) the status of Korea's overseas purchase of weapons systems and defense exports were examined. Also, (3) after examining the current status of Korea's offset trade system, implications for the development of defense industry and the expansion of defense exports were drawn. In import offset trade, it is necessary to re-apply offset trade obligation to overseas purchase through FMS from the U.S.A., settle down the banking system, expand the offset value multiplier for SMEs, and strengthen the industrial cooperation quota system. In export offset trade, it needs to establish a cooperation system between government ministries by a strong control tower, form a consortium of government-defense companies for a proactive response system, introduce a mandatory reporting system for export offset trade, expand the policy support for defense export such as trade finance, and introduce a value offset system (SWAP).

Blockchain technology and international countertrade

We illustrate the concept of using a Turing complete consortium blockchain (TCCB) to facilitate international countertrade. Physical goods and services would be linked to the blockchain by associating them with corresponding non-fungible tokens (NFTs). TCCBs could help small or new companies, particularly those in less developed countries, reduce the counterparty risk and transaction costs related to logistic chain management and contract arbitration. They could also supplement trade financing that often requires a mature banking system and developed financial market. We analyze the concept using a hypothetical example to illustrate the potential efficiencies over traditional countertrade transactions.

Trade finance evolution: a comparative study of regulatory reforms in factoring policies for SMEs in India and China

This paper evaluates the effectiveness of the Factoring Regulation (Amendment) Bill 2021 in stabilizing the economic situation of micro, small, and medium-sized enterprises (MSMEs) in India using doctrinal research methods and comparative study. It compared the factoring regulations of India and China. The authors analyse the ramifications of the recent amendments to the Factoring law via a comprehensive literature review, legal frameworks, and comparative analysis of India and China. This study seeks to cast light on the potential of the Factoring Law in addressing the financial challenges encountered by SMEs in India. The findings provide policymakers, stakeholders, and researchers with vital insights into the regulatory framework's effectiveness and potential improvement areas. The research concluded that factoring is an important worldwide trade financing tool for economic development and financial inclusion since it promotes entrepreneurship, private enterprise, and supply chain finance. In order to raise its standing, India may consider adopting features from the Chinese Civil Code, setting regulations for factoring rights transfer, and prioritising creditor interests.

An Exploration of the Risk Management of Financial Derivatives in Chinese Commercial Banks

Financial derivatives are products based on the innovation of financial products, which can be used for risk avoidance, investment management, etc. In recent years, with the rapid development of the financial market, the development of financial derivatives has become more and more diversified in Chinese commercial banks, ushering in new development opportunities. This paper introduces financial derivatives, discusses the risk management of financial derivatives in Chinese commercial banks, and compares the financial derivatives of commercial banks in China with those in the United States. According to the analysis, it can be concluded that the existing problems in risk management include the lack of rational consumers in China's financial trading market, the unregulated market system, the high risk of purchasing financial derivatives products, and the internal management problems of Chinese banks. In view of these problems, three effective methods are proposed for optimization, namely strengthening the training of human resources, establishing a sound financial regulatory system, and enhancing the internal management of banks.

Innovation Framework for Financial Excellence: Banks, FinTech and the Regulators

Financial innovations like peer-to-peer payment and digital currency, mostly introduced by FinTech companies, are perceived as disruptions to Financial Institutions (FIs). For banks, transformation to digital banking helps initially but quickly intensifies the challenge to change with speed and scale given the diversity of such disruptions. Who are banks competing with? What will banking be competing on? Interesting questions like these, which were not even relevant a decade ago, are pushing banks to innovate about the products, services, branches, and operations, if not the very core model of banking. For example, applying pay cuts into the profit margin but emerging innovation of Blockchain raises the questions of whether banks should accept Bitcoin or re-invent the trade finance service. Consumers do seem to benefit initially as competition encourages banks to lower the service fees and design new products in the quest of enhancing customer experience. Nevertheless, all come with a price, for instance digital frontier becomes a fertile ground for fraud and Regulators may jump in at calculated moment. This helps to level the competition or curtail intrusion into the space of customer privacy. Reluctantly, however, regulators, FinTech companies and banks now enter the impossible trinity, or what economists call the trilemma, which is the core issue our research focuses on. This paper develops an empirical framework for banks to embrace disruptive innovation from FinTech start-ups and associated legal or regulatory changes and to create competitive advantage through strategic use of enterprise data that are originated in the bank or acquired by the bank. Lab works in multiple North American banks have been first anonymized to protect the interest of all engaged parties and then harmonized to mature the empirical models based on first-hand evidence in three directions: Customer Experience Enhancement, Digital Product Design and Fraud Management. Foundation of the framework, however, builds on research works in digital banking, social engineering, data science, decision modeling, fraud detection algorithms, digital currency, and regulations adaptive to societal transformations enabled by application of artificial intelligence and Internet of Things. Rather than locking in rigid industry trend, often heavily depend on hence limited by technology, the framework focuses on translating theory or strategy into product and actionable steps that have direct and measurable impact. Data is the key enabler. Data monetization is a good example. Results from Banking Labs work are the proof, and the value will be even more pronounced as expected results come by to validate and optimize the framework and its implementation.

COMESA Customs Union Commitments and the Impact on Kenya: Using the Wits-Smart Simulation Model

This research article included quantitative estimations of the likely outcomes of the welfare effects, trade diversion effects, changes in export and import quantities, revenue effects, and trade creation effects resulting from the Common Market for Eastern and Southern Africa Customs Unions Commitments (COMESA CU). Kenya was used as the case study in this research project, which utilized the Software for Market Analysis and Restrictions on Trade (SMART) and Pan-Euro-Mediterranean tools (PEM). The World Integrated Trade Solution (WITS)/SMART software has access to the most recent data on Kenya and uses databases and records of trade-related information, including those maintained by the United Nations Conference on Trade and Development (UNCTAD), the World Trade Organization (WTO), the Common Format for Transient Data Exchange for Power Systems (COMTRADE), and the Transportation Reporting and Accounting Information System (TRAINS). The results of the analyses show that COMESA CU has no indication of trade diversion and had a trade-creation impact of US$310.50 million. Further analysis revealed that the COMESA CU procedure is expected to record losses in the amount of US$327 million. Additionally, a US$56.27 million consumer welfare effect was projected for COMESA CU. Imports increased by 2.8% at COMESA CU, but exports fell. The research recommends that export-boosting actions be taken, including bolstering export processing zones, offering export subsidies, developing supply-side infrastructure, offering trade financing, and enhancing export-supporting institutions. Kenya and other developing countries now have the ability to implement policies that will make sure they benefit the most from the various regional trade agreements, thanks to the findings of this study.

Examination of Leverage effect among India and Global GOLD Exchange Traded Funds

Examination of Leverage effect among India and Global GOLD Exchange Traded Funds

Gambling, cryptocurrency, and financial trading app marketing in English Premier League football: A frequency analysis of in-game logos.

The gamblification of UK football has resulted in a proliferation of in-game marketing associated with gambling and gambling-like products such as cryptocurrencies and financial trading apps. The English Premier League (EPL) has in response banned gambling logos on shirt-fronts from 2026 onward. This ban does not affect other types of marketing for gambling (e.g., sleeves and pitch-side hoardings), nor gambling-like products. This study therefore aimed to assess the ban's implied overall reduction of different types of marketing exposure. We performed a frequency analysis of logos associated with gambling, cryptocurrency, and financial trading across 10 broadcasts from the 2022/23 EPL season. For each relevant logo, we coded: the marketed product, associated brand,number of individual logos, logo location, logo duration, and whether harm-reduction contentwas present. There were 20,941 relevant logos across the 10 broadcasts, of which 13,427(64.1%) were for gambling only, 2,236 (10.7%) were for both gambling and cryptocurrency, 2,014 (9.6%) were for cryptocurrency only, 2,068 (9.9%) were for both cryptocurrency and financial trading, and 1,196 (5.7%) were for financial trading only. There were 1,075 shirt-front gambling-associated logos, representing 6.9% of all gambling-associated logos, and 5.1% of all logos combined. Pitch-side hoardings were the most frequent marketing location (52.3%), and 3.4% of logos containedharm-reduction content. Brand logos associated with gambling, cryptocurrency, and financial trading are common within EPL broadcasts. Approximately 1 in 20gambling and gambling-like logos are subject to the EPL's voluntary ban on shirt-front gambling sponsorship.