Trade Risk Research Articles

Examining the relationship between international digital trade, green technology innovation and environmental sustainability in top emerging economics

Ensuring preserving a sustainable environment is a crucial concern for individuals worldwide. In previous research, CO2 emissions have been used to measure environmental deterioration. However, in this study, we have expanded the scope to include carbon emissions and several other gases. This comprehensive measure is referred to as the ecological footprint (EFP). More significant international digital trade (IDT) has the potential to achieve several positive results, including reducing EFP (economic frictions and barriers), stimulating economic growth, and minimizing trade risk and volatility. These benefits can be realized by implementing structural reforms in significant production and development sectors. Green technology innovation (GTI) has the potential to make substantial progress in ecological quality and energy efficiency. Nevertheless, previous studies still need to adequately prioritize examining rising economies in terms of international trade diversification and GTI. This study examined the effects of IDT, GTI, and renewable energy consumption (REC) on EFP in BRICST countries. The study utilized data from the period between 1995 and 2022. The cross-sectionally augmented autoregressive distributed lag (CS-ARDL) model demonstrates that EFP negatively correlates with trade diversification, REC, and GTI in the long and short term. These countries have demonstrated a significant presence of eco-friendly products in their trade portfolios, and their manufacturing processes are shifting towards GTI. The objective is to enhance the REC sources and minimize EFP from consumption. Conversely, the increasing economic growth within this economic group has a compounding impact on the environment's decline since it amplifies the carbon emissions from increased consumption. To reduce the EFP level, the paper suggests increasing investment in GTI, promoting worldwide digital trade, and embracing renewable energy sources.

Constructing Optimal Portfolio Rebalancing Strategies with a Two-Stage Multiresolution-Grid Model

AbstractSophisticated predetermined ratios are used to allocate portfolio asset weights to strike a good trade-off between profitability and risk in trading. Rebalancing these weights due to market fluctuations without incurring excessive transaction costs and tracking errors is a vital financial engineering problem. Rebalancing strategies can be modeled by discretely enumerating portfolio weights to form a grid space and then optimized via the Bellman equation. Discretization errors are reduced by increasing the grid resolution at the cost of increased computational time. To minimize errors with constrained computational resources (e.g., grid nodes), we vary the grid resolution according to the probability distribution of asset weights. Specifically, a grid space is first divided into several areas, and each area’s probability is estimated. Then, the discretization error’s upper bound is minimized by inserting an adequate number of grid nodes determined by Lagrange multipliers in a non-uniform fashion. In experiments, the proposed multiresolution rebalancing outperforms traditional uniform-resolution rebalancing and popular benchmark strategies such as the periodic, tolerance-band, and buy-and-hold strategies.

Risk Management of International Trade in the Context of BRI: A Case study of DF Company in China

The study explores the intricate landscape of global commerce, focusing on the evolving challenges and opportunities in international business. The study centers on DF Company, a prominent Chinese engineering contracting firm, and analyzes its risk management practices in the context of the Belt and Road initiative. The Belt and Road strategy, with its goals of policy coordination, infrastructure connectivity, trade facilitation, currency circulation, and people-to-people bonds, presents both historical continuity and new opportunities for international trade. The research adopts a qualitative case study design, delving into DF Company's operations through interviews, document analysis, and direct observation. The findings reveal that DF Company faces multifaceted challenges in managing international trade risks, particularly in the areas of political, policy, social, technological, and cultural risks. The paper concludes with comprehensive recommendations for DF Company, emphasizing proactive risk management, political risk mitigation, adaptation to policy changes, addressing social risks, technological capability enhancement, cultural risk management, and safety measures in conflict-prone areas. These recommendations aim to strengthen DF Company's international trade risk management framework within the Belt and Road initiative.

Exotic pet owners’ preferences for different ectothermic taxa are based on species traits and purchase prices in the United States

The exotic pet trade has resulted in substantial invasion and disease risks, owing to the release of pets into new environments. Scientists have conjectured that pet owners acquire and release species with undesirable traits because they are imperfectly informed about the traits of these animals. However, few studies have used social science methods to elicit pet owners’ preferences for exotic pets. In 2019 we administered a best-worst choice survey to 1,055 exotic pet owners in the United States (who own pet reptiles, amphibians, fish, or invertebrates) to examine how human preferences and incomplete information may contribute to the risks of the exotic pet trade. Respondents preferred colorful and patterned species. On average, respondents preferred medium-sized amphibians and reptiles, small fish, and large invertebrates, although they demonstrated heterogeneity in preferences with respect to the adult size of pets. Respondents also preferred amphibians and reptiles with medium life expectancies and fish and invertebrates with long life expectancies, although they again demonstrated heterogeneity in preferences with respect to pets’ life span. Respondents preferred docile animals, and were more likely to purchase lower-cost pets. We found some evidence that respondents’ decision to purchase exotic pets depended on whether these animals were native, rare, had unusual morphological features, and breed easily. Respondents’ decision to purchase specific taxa as exotic pets also depended on their age, education, and housing. Most respondents stated that they searched for information on pets’ diet, behavior, adult size, life span, costs of care such as equipment or veterinary costs, and whether the animal was captive bred before purchasing these animals. Excepting pets’ diets, fewer than half of respondents had been offered information on pets’ traits by sellers. On average, respondents rated the information they had been offered as average. Respondents typically obtained additional information about pets from online searches. Our results suggest that certification systems that provide critical information on exotic pets’ behaviors, adult size, longevity, fecundity, and husbandry needs should be implemented to prevent pet owners acquiring animals that they may subsequently abandon.

Transnational Trade Risks of Chinese Small and Medium-Sized Enterprises and Solutions After the Covid-19

Within the context of economic globalization, Chinese enterprises affected by the COVID-19 face a number of difficulties in cross-border trade. Small and medium-sized enterprises (SMEs) play a substantial role in china's economy. These enterprises account for more than 60% of the total GDP, around 50% of the tax revenue generated, create over 79% of employment opportunities, and contribute to approximately 68% of the whole export volume. With the onset of the epidemic, the viability and progress of China's small and medium-sized firms face a significant risk, so causing a further threat to the overall economic advancement of China. Based on previous studies on Chinese SMEs' foreign trade, this paper narrows the time frame of the study to the period between the epidemic and the post-epidemic period, analyses in detail the cross-border trade risks faced by Chinese SMEs from the perspectives of supply and demand, business operations, product price competitiveness and innovation level, and provides relevant measures to address these risks, such as strengthening cooperation among allied countries, enhancing the government's supportive role, utilizing financial instruments to hedge trade risks, and enhancing the innovation capacity of enterprises. By analyzing the foreign trade risks faced by Chinese SMEs in the post epidemic context, SMEs can make more improvements in production, operation, management and innovation. Therefore, these small and medium-sized enterprises can create more value and achieve sustainable development.

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.

Does trade still follow the “flag”? Evidence from the partnership and bilateral trade in China

Partnership is a typical “Flag” of China’s foreign relations, playing a significant role in promoting bilateral trade. This study examines the impact and mechanism of China’s partnerships on trade with empirical evidence, revealing that establishing a partnership increases bilateral trade by 25%; each level-up of the partnership will lead to a 6.8% increase in bilateral trade, with a dynamic impact lasting about five years. Partnership building mainly impacts bilateral trade through political interaction, bilateral investment, and cultural exchange between two countries, with cultural exchange playing a dominant role in the mechanism. Strengthening partnerships with Asia-Pacific, Latin America, African countries, low-income, and low trade size countries can create more potent bilateral trade effects. Furthermore, higher levels of partnership have an exemplary effect, bringing a positive spatial spillover effect on trade. This study affirms the significant role of partnership in foreign relations and trade, providing valuable insights to reduce trade risk and achieve high-quality development.

The Impact of Carbon Emission and Carbon Price on International Trade Volume

In recent years, environmental issues have become an international focus, under the influence of global climate change, greenhouse effect is becoming more severe with each passing day. Therefore, it is urgent to control greenhouse gas emissions and improve the quality of the ecological environment by reducing carbon emissions. However, in the context of the current low-carbon economy, the environmental costs of enterprises are bound to rise, which will inevitably have a more serious impact on enterprises and the national economy. This article will mainly focus on how low carbon economy policies affect a country's international trade over a given period of time based on a concrete example. Regarding the methodology, chose the object to be India's carbon related data which are carbon intensity, carbon emission and carbon price in the period 1990-2020. And mainly based on the regression model using excel. The results of the study show that the Carbon Intensity and Carbon emissions are positively correlated with International Trade while the Carbon Price is negatively correlated. The volume of Indias International Trade will grow steadily as it moves towards Low-Carbon Economy policy. In summary, moving towards low carbon economy can increase the sustainability of international trade and reduce trade risks, while also creating more trade opportunities for countries, especially in the areas of environmental protection.

Congestion Risk, Transmission Rights, and Investment Equilibria in Electricity Markets

Financial instruments that help provide revenue certainty are fundamental for project finance in liberalized electricity markets. Improved management of locational risk caused by network congestion is becoming increasingly important with a growing share of production from geographically remote renewable resources. Nodal markets have financial transmission rights (FTRs) to enable participants to manage locational risk, but there is no evidence that FTRs have been used to support project finance. Through a stochastic equilibrium model in which market participants invest in production assets and trade risk, we show that long-term FTRs promote surplus-maximizing generation investments and reduce the cost of capital. Investors pair them with energy price hedges and thus protect themselves against both types of risk. Our results suggest that altering the definition and allocation of FTRs to match the needs of project finance, e.g., by enabling new generators to procure a long-term right at the time of interconnection, could help ensure a complete risk market and encourage efficient investments.

A Bibliometric Evaluation of Country Risk, Volatility Spillover and Equity market return of BIMSTEC Nation.

Economic globalization and economic regionalization are influenced by country risk, volatility spillovers, and equity market return. The aim of this study is to use bibliometric analytics approaches to evaluate reliable articles on the relationship between country risk, volatility spillovers, and the return of the Bimstec equities market. The present study reviews the peer-reviewed articles available in the Web of Science (WoS), database relating to 1129 publications for the period 1973-2022. The R software is used to graph the bibliographic documents. The following properties were observed during the bibliometric investigation: (1) The major studies investigate the impact of country risk, volatility spillovers, and stock market return on regional trading bloc members. (2) The main authors deal with different types of volatility spillover, different types of country risk, and different patterns of equity market return and their effects on the global economy and regional trade blocks; (3) the most recent trend topics are related to different methods for calculating the weightage of country risk, volatility spillovers, and equity market return of regional trading blocks such as Bimstec. Numerous studies on economic globalization and regional trading blocs have found considerable impact rates. It promotes commerce investment and technological exchange, and it contributes to the peace, progress, and prosperity of the shared region. Overall, this work lays the groundwork for future scientific investigations that will aid in the growth of this research field.

Detecting Informed Trading Risk from Undercutting Activity in Limit Order Markets

Detecting Informed Trading Risk from Undercutting Activity in Limit Order Markets

Regulatory Trade Risk and Supply Chain Strategy

Regulatory Trade Risk and Supply Chain Strategy

Allowance-based Carbon Options Pricing Strategy and Asset Management Research Progress

Under the issue of global warming and environmental protection, low-carbon development has become an unshakable responsibility for governments worldwide. In China, the national carbon emission trading market established in 2021, which promotes the economic development of carbon derivatives. In order to facilitate the trading system, carbon options pricing theory has become a centerpiece of academic attention. This paper reviews the study progress in detail in the area of allowance-based carbon options pricing strategy carbon internationally, and makes an analysis of the application and management in international carbon markets. The mainstream pricing models include the Black-Scholes and the Monte Carlo option pricing models. On this basis, the carbon option prices estimated using the GARCH model and fractal Brownian motion have a higher degree of fitted value. In addition, this paper analyzes the application and management of carbon options in the carbon market. The carbon option helps reduce the carbon trading risk and the spendings on emission reduction for enterprises. This research intends to give a reference for the subsequent theoretical exploration of carbon options and promote the growth of the derivatives market.

Management Accounting of Payment Risks of Online Trade during Military Operations

The rapid development of technologies and intensifying military operations have caused several challenges for online trade, in particular, in terms of payment risks. In this context, management accounting as a key means of monitoring and controlling these risks is assigned a special role. The aim of the article is to identify the key peculiarities of the influence of management accounting on the payment risks of online trade in the area of fraudulent operations during active military operations. The study employed a number of economic and statistical method: an in-depth semi-structured interview using the author’s questionnaire, as well as an economic analysis of losses from fraud according to the methodical approaches of auditing KPMG and Crowe. The practice of identifying fast recurring transactions (78% of respondents) when working with payment risks was distinguished as a result of the research by interviewing respondents from a sample of management accounting specialists. The importance of estimating losses from fraudulent transactions (78% of respondents) in the management accounting system of payment risks is emphasized. Analysis of the results of interviewing respondents showed a positive effect of the systematic application of management accounting tools on reducing the risks of fraud in online trade. Thanks to adequate management accounting, the fraud losses is reduced by an average of 12% compared to the 2022 average industry loss rate. The obtained results revealed the key role of management accounting in overcoming the negative consequences of payment risks, namely in reducing losses from fraudulent transactions. These results can be applied to improve the financial and operational management of online trade in wartime and other crisis situations. Prospects for further research are in-depth analysis of artificial intelligence tools and machine learning in identifying payment risks of online trade.

How do firms perceive and react to extreme weather risk in their supply bases?

Extreme weather events occur frequently and severely as a part of worldwide climate change. Such extreme weather events are macro supply chain risks that pose significant threats to the global supply chain. However, the current literature has provided a limited understanding of how this supply chain risk is changing firms' perception and behavior in global sourcing. In this study, we examined how a supply base's extreme weather risk affects a buying firm's trade risk perception and the sourcing value. We conducted a two-way fixed-effect regression analysis with a panel data set of U.S.-listed manufacturers and their supply bases. Our findings suggest that when the supply base has a higher level of extreme weather risk, the buying firm perceives a higher trade risk and a lower sourcing value with this supply base. We also found that a higher degree of flexibility, indicated by supply flexibility, production flexibility, and inventory slack, can mitigate the buying firm's concern caused by the supply base's extreme weather risk. Our study contributes to the literature on extreme weather, flexibility, and supply chain risk management. We also provide suggestions for supply chain practitioners and policymakers.

Applying Ethereum blockchain and IPFS to construct a multi-party used-car trading and management system

The main causes for the risks of used-car trading lie in the information asymmetry between buyers and sellers and the absence of a trust mechanism. This study proposed applying the Ethereum blockchain and InterPlanetary File System (IPFS) to construct a used-car trading and management information system that supports decentralized data storage services. This mechanism could support the permanent storage, immutability, and traceability of car maintenance data through the operation of smart contracts. Furthermore, car information is stored and managed by IPFS. Slither monitors the security of this system by detecting security bugs in the operation of smart contracts.

Authorized economic operator certification and export stability: Evidence from China's firms

AbstractThis study examines the impact of the Authorized Economic Operator (AEO) certification on export stability. Using a new and unique dataset on AEO certification, combined with the Chinese Customs Enterprise Database and Chinese Industrial Enterprise Database from 2002 to 2013, we find that AEO certification has a positive impact on export stability by employing a staggered difference‐in‐differences empirical strategy. It reduces the likelihood of export failure, enabling certified firms to achieve higher efficiency and maintain competitive advantages in trade risks. The negative effect of AEO certification on export failure is prominent in firms exporting products with higher prices, more physical inspection, and higher requirements of customs clearance time. Along with AEO adoption, certified firms perform better in export stability than non‐certified ones.

Public data access and stock price synchronicity: Evidence from China

This paper investigates how public data facilitates financial market informativeness. The increasing information efficiency in digital economics has raised great attention in extant literature. Using the staggered difference-in-differences approach, we investigate how public data access enhanced by establishing governmental public data platforms affects stock price synchronicity, measured by the relative importance of firm-specific information to market-level information capitalized into stock prices. We find that public data access significantly reduces local firms' stock price synchronicity. The underlying mechanism is that public data access mitigates information-acquisition costs and facilitates the incorporation of firm-specific information into investors' decision-making rather than increased market attention or corporate disclosure quality. Public data platforms’ informational role is magnified when investors face higher informed trade risk or concern about poor corporate governance. Under the urgent need for value realization of data elements, we provide essential implications in promoting public data opening to improve financial market efficiency.

Credibility Theory-Based Information Gap Decision Theory to Improve Robustness of Electricity Trading under Uncertainties

In the backdrop of the ongoing reforms within the electricity market and the escalating integration of renewable energy sources, power service providers encounter substantial trading risks stemming from the inherent uncertainties surrounding market prices and load demands. This paper endeavors to address these challenges by proposing a credibility theory-based information gap decision theory (CTbIGDT) to improve robustness of electricity trading under uncertainties. To begin, we establish credibility theory as a foundational risk assessment methodology for uncertain price and load, incorporating both necessity and randomness measures. Subsequently, we advance the concept by developing the CTbIGDT optimization model, grounded in the consideration of expected costs, with the primary aim of fortifying the robustness of electricity trading practices. The ensuing model is then transformed into an equivalent form and solved using established standard optimization techniques. To validate the efficacy and robustness of our proposed methodology, a case study is conducted utilizing a modified IEEE 33-node distribution network system. The results of this study serve to underscore the viability and potency of the CTbIGDT model in enhancing the effectiveness of electricity trading strategies in an uncertain environment.

On the coexistence of on-exchange and OTC segments in commodity markets

The introduction of exchange trade in Russia is one of the ways to form a competitive commodity price that can act as a benchmark for the over-the-counter (OTC) segment. However, the exchange price may be subject to distortions, which may cause faults in antitrust law. Using the international commodity exchange experience, we aim to identify the risks of exchange trade arising amid the coexisting on-exchange and OTC segments. Methodologically, the paper relies on industrial organization theory and new institutional economics theory. In the research, the case study method was applied and data on the practices of commodity exchange introduced in different countries were used. As a result of the study, we have identified the risks of violating regulatory mechanisms in the market and of distorting effects on national markets, the risks in the areas of infrastructure restrictions and violations of antitrust laws, as well as the risks of price manipulation and distortion of exchange prices. We have proven that in the context of the coexistence of on-exchange and over-the-counter market segments, these risks can emerge even in cases of the successful development of global exchange trading.