US Subprime Mortgage Research Articles

Suggestions on China's Financial Development based on the Actual Situation in the Late Epidemic Period

The epidemic has led to a sharp decline in the global economy. The World Bank predicts that the global economic growth will reach 5.2% by 2020, which is the worst recession since World War II. The International Monetary Fund lowered its global growth forecast for 2020 from 1.0% to 4.9%, including 8.0% in the United States, 10.2% in the Eurozone and 4.5% in India. The economic recovery of major industrialized countries, Latin America and even Africa may take five to ten years. The US subprime mortgage crisis and European debt crisis in 2008-2009 have made many countries' economies not recover to the level of 2008 or 2013-2014 until 2018-2019. Latin American countries reflect that Latin America may face another lost decade.

Impact of Market Information Efficiency on Corporate Listing and Financing: Evidence from China

In this paper, we examine the impact of China’s capital market information efficiency on enterprise listing and financing. The results reveal the following: (1) High-efficiency market information sharing leads reduced enterprise equity financing costs and waiting times for enterprise listing and to an increased willingness of investors to invest. These effects increase the proportion of domestic financing for Chinese companies and the proportion of domestic listings. (2) Compared with non-crisis periods, market information efficiency did not affect the listing and financing of Chinese enterprises during the US subprime mortgage crisis, and its promotion effect declined during the global financial crisis and European debt crisis. (3) The promotion effect of market information efficiency on enterprise listing and financing is strengthened by the cross listing of enterprise AB and AH shares. (4) The impact of market information efficiency is more significant for private enterprises than for state-owned enterprises.

An ocean apart? The effects of US business cycles on Chinese business cycles

This study investigates the economic interdependence between China and the United States. In view of the growing trade and investment between China and the United States, and the reaction of the Chinese economy to the US subprime mortgage crisis, one might reasonably ask, what effect do US business cycles have upon the Chinese economy? We approach this problem by examining various channels of economic interaction, including international trade and foreign direct investment between the two countries. We use regressions, the Markov switching vector autoregressive model, and recursive correlations in an attempt to measure business cycle transmission from the United States to China using annual, quarterly, and monthly data.With both annual and quarterly GDP growth data between 1951 and 2001, business cycles in China and the US are not correlated. Starting in 1978, China undertook significant economic reforms and opened up to the rest of the world. After 1992, trade between the US and China increased, and US firms began to engage in FDI in China. After China's accession to the WTO in 2001, trade accelerated, and the correlation between the GDP growth rates of the US and China increased dramatically. There is evidence that the US has some marginally significant but increasing business cycle transmission effects upon China. Recursive correlations reveal that the synchronization between the two countries is strongest during economic downturns, suggesting that economic downturns and crises are responsible for most of the business cycle synchronization.

Spatial autocorrelation patterns among US commercial banks: before, during and after the subprime mortgage crisis

ABSTRACT We study patterns of spatial autocorrelations of four customary performance measures (return on asset, return on equity, net interest margin, and loan loss reserves to total assets) among 49 commercial banks spread in the continental US from the first quarter of 2000 until the fourth quarter of 2010, before and after the subprime mortgage crisis. We use Moran’s I, Geary’s C, and Conley’s one-metric and two-metric spatial autocorrelation methodologies and discover mostly positive (negative) spatial autocorrelations before (during and after) the US subprime mortgage crisis. We also identify the unique influences of size and risk management practices in these commercial banks on the spatial autocorrelations within the two tested periods. Our findings suggest that among many US commercial banks, unifying economic features were more dominant before the crisis, but they were gradually replaced with dividing economic elements during and after this major financial calamity. Our robust evidence aim to highlight the influence of physical distances among commercial banks on their routine operations.

Stock return drivers: a mix of reasons and emotions

PurposeThe authors study the explanatory power of investor rationality and irrationality for value and momentum portfolios. We also examine the relationships during financial crisis events, namely, the US subprime mortgage crisis (2007–2009) and the European debt crisis (2011–2013).Design/methodology/approachThis study examines the influence of investors’ rationality and irrationality on the US stock market, using the multiple linear regression model and the stepwise regression model. Technically, the stepwise regression uses the machine-learning technique, with specific testing methods — forward selection, backward selection and stepwise selection — to find the best-fit model, according to Akaike’s Information Criterion (AIC). Thus, in this study, we will show the best model, as tested by the stepwise regression model.FindingsOur empirical results contribute to the importance of reasons and emotions for stock-market returns and conclude that rationality and irrationality simultaneously explain the value and momentum portfolios, as well as the ETF portfolios. Also, the rational and irrational explanatory powers differ, depending on portfolios and different periods. Rational factors usually explain the volatility of the return to a greater extent than irrational factors. Moreover, during a financial crisis, the irrational factors remarkably increase their importance in explaining returns, especially for the ETF portfolios.Originality/valueWe expect this study’s contribution will show not only academic contribution but also benefit many stakeholders in the financial market. Investors and traders can identify various irrational factors of trading — for example, taking a long position during the panic in the market following the indicators in the models. Managers also reconsider the cost of the company by adding irrational factors when computing the equity’s expected return. Similarly, stock exchanges can adequately adjust their circuit breaker during a pessimistic-investor period. Finally, regulators can evaluate a complete picture of the stock market by adding irrational factors into their considerations.

The influence of profit, revenues and debt on audit prices in large companies: insights from Slovenia

The global financial crisis that erupted in August 2007 following the collapse of the US subprime mortgage market had a significant impact on the financial markets. Ten years ago, Slovenia was confronted with the outbreak of significant financial and economic turbulence, and only in 2017 did the country’s GDP return to pre-crisis levels. Taking into account the fact that the performance of companies deteriorates to a certain extent during a crisis, this paper examines the influence of selected factors on the price of statutory audits for large companies in Slovenia in the period 2010 to 2014. The final sample consists of 177 large enterprises in Slovenia for each year or a total of 885 units (population). The main factors observed were taken from the financial statements. These are operating revenue, profit (loss), and indebtedness of the enterprise. Three hypotheses were tested by regression analysis, ANOVA, and Independent-Samples Median Test. In the research, we found that statistically significant factors of the price of a statutory audit due to the Slovenian Agency for Public Oversight are only the operating income of the audited enterprise. Over the past 40 years, studies have been conducted worldwide to determine audit fees, with a focus on English-speaking countries. This field of research is still in its infancy in Slovenia, and little research has been done on the determinants of the fees charged by the firms that exist here.

Financial Information Fraudulence and Financial Distress: Evidence from Singapore

We investigate if Singapore listed companies engaged in financial information fraud during financial distressed after two years of US subprime mortgage crisis. We also investigate the impact of financial information fraudulence in bankruptcy prediction and misclassification errors. This study used consumer product companies listed on the main board and the timeframe is from 2011 till 2015. The Altman Z score indicates that 55 out of 110 companies are financially distressed. Meanwhile, the M score shows that 49 out of 351 observations are engaged in financial information fraudulence. However, these results are relatively low because the samples are taken from the main board and fraudulence in their financial statements might be done in lower magnitude in order to avoid sanctions by the Security Exchange Commission. Logistic regression was used to measure the predicting accuracy. The result of the overall accuracy percentage slightly improved by 2.4 after eliminating fraudulent companies. The confusion matrix result i.e. before and after the removal of financial information fraudulent companies, the misclassification errors for type one has improved by 1.7 percent and 3 percent for type two. This result met objective three, as the upward bias of financial information fraudulence is one of the explanations for the decline in financial distress prediction. This research will be beneficial to governments, monitoring agencies, and all involved in the insolvency process.

Impact Of Financial Information Fraudulence To Financial Distress In Malaysia.

We investigate if Malaysian listed companies engaged in financial information fraud during financial distressed after two years of US subprime mortgage crisis.We also investigate the impact of financial information fraudulence in bankruptcy prediction and misclassification errors. This study used consumer product companies listed on the main board and the timeframe is from 2011 till 2015. The Altman Z score indicates that 37 out of 133 Malaysian consumer product companies are financially distressed. Meanwhile, the M score shows that 28 out of 224observations are engaged in financial information fraudulence. However, these results are relatively low because the samples are taken from the main board and fraudulence in their financial statements might be done in lower magnitude in order to avoid sanctions by the Security Exchange Commission. Logistic regression was used to measure the predicting accuracy. The result of the overall accuracy percentage slightly improved by 0.9 after eliminating fraudulent companies. The confusion matrix result i.e. before and after the removal of financial information fraudulent companies, the misclassification errors especially type one has improved. This finding satisfied objective three, whereby one of the reasons for the deterioration in financial distress prediction is due to the upward bias of financial information fraudulence.Governments, monitoring bodies, and all those involved in an insolvency process would benefit from this study.

Analisis Pengaruh Variabel Makroekonomi Terhadap IHSG Setelah Terjadinya Krisis Subprime Mortgage

In the 2008 Indonesia returned to the financial crisis driven by the US Subprime Mortgage Crisis. And this has impact on Indonesian economy, so that 2009 was a start of domestic economic recovery. The purpose of this study is to find out the long term significant influence over the inflation variables, the Exchange Rate and BI Rate for IHSG after Subrime Mortgage Crisis in the period during 2009 to 2019 on quarterly payment time. This research is a quantitative research type, with sample of 44 each variable and using ECM method. From the test, it showed that inflation variable has no effect for the Composite Stock Price Index neither at the short-term (0.7372> 0.05) has positive value (0.0117) nor at the Long-term (0.1650> 0.05) has positive value (0.177274), means linear direction for Composite Stock Price Index movement. The Exchange Rate variable was determined neither at short-term Composite Stock Price Index (0.0012 <0.05) has a negative value (-0.7898) means that the exchange rate has opposite direction, nor at the Long-term (0.0000 <0.05) has positive value(1.055191), means linear direction for Composite Stock Price Index movement. BI variable rate did not have an effect for Composite Stock Price Index neither at the short-term (0.1924> 0.05) has negative value (-0.1577) means that the exchange rate has opposite direction, nor at the long-term (0.0025 <0.05) has positive value (-0.821875), means that the exchange rate has opposite direction for Composite Stock Price Index movement.

What is at the Root of the American Global Crisis?

The rising defaults on subprime mortgages in the US triggered a global crisis for the money markets. The fact is the global financial crisis started with the US policies. What began with elevated losses on US subprime mortgages has spread beyond the borders of the United States and the confines of the mortgage market. Many of the world’s leading investment banks have collapsed as a result. Depression, a thing of the past, has made a striking comeback. Will it come back again in the future? Who is to blame? What should be done to avoid future incidence?

What is at the Root of the American Global Crisis

The rising defaults on subprime mortgages in the US triggered a global crisis for the money markets. The fact is the global financial crisis started with the US policies. What began with elevated losses on US subprime mortgages has spread beyond the borders of the United States and the confines of the mortgage market. Many of the world’s leading investment banks have collapsed as a result. Depression, a thing of the past, has made a striking comeback. Will it come back again in the future? Who is to blame? What should be done to avoid future incidence?

Engineering climate debt: temperature overshoot and peak-shaving as risky subprime mortgage lending

ABSTRACTDespite the ambitious temperature goal of the 2015 Paris Agreement, the pace of reducing global CO2 emissions remains sluggish. This creates conditions in which the idea of temperature ‘overshoot and peak-shaving’ is emerging as a possible strategy to meet the Paris goal. An overshoot and peak-shaving scenario rests upon the ‘temporary’ use of speculative solar radiation management (SRM) technologies combined with large-scale carbon dioxide removal (CDR). Whilst some view optimistically the strategic interdependence between SRM and CDR, we argue that this strategy comes with a risk of escalating ‘climate debt’. We explain our position using the logic of debt and the analogy of subprime mortgage lending. In overshoot and peak-shaving scenarios, the role of CDR and SRM is to compensate for delayed mitigation, placing the world in a double debt: ‘emissions debt’ and ‘temperature debt’. Analogously, this can be understood as a combination of ‘subprime mortgage’ (i.e. large-scale CDR) and ‘home-equity-line-of-credit’ (i.e. temporary SRM). With this analogy, we draw some important lessons from the 2007–2009 US subprime mortgage crisis. The analogy signals that the efficacy of temporary SRM cannot be evaluated in isolation of the feasibility of large-scale CDR and that the failure of the overshoot promise will lead to prolonged peak-shaving, masking an ever-rising climate debt. Overshoot and peak-shaving scenarios should not be presented as a secured feasible investment, but rather as a high-risk speculation betting on insecure promises. Obscuring the riskiness of such scenarios is a precipitous step towards escalating a climate debt crisis.Key policy insightsThe slow progress of mitigation increases the attraction of an ‘overshoot and peak-shaving’ scenario which combines temporary SRM with large-scale CDRFollowing the logic of debt, the role of CDR and SRM in this scenario is to compensate for delayed mitigation, creating a double debt of CO2 emissions and global temperatureUsing the analogy of subprime lending, this strategy can be seen as offering a combination of subprime mortgage and open-ended ‘line-of-credit’Because the ‘success’ of peak-shaving by temporary SRM hinges critically on the overshoot promise of large-scale CDR, SRM and CDR should not be discussed separately

Traces of the Multifractal Nature of the Financial Crises in Turkey: Co-Movement of the Hölder Exponents and Large-Scale Forecast

This paper investigates the multifractal behavior of the probability of default (PD) of real sector firms and Turkey sovereign credit default swap (CDS). Moreover, we emphasize the co-movements of Hölder exponents during the financial crisis periods. For this reason, first, it is necessary to figure out the default probabilities of real sector firms. The default probability is evaluated weekly by the methodology of Moody’s Analytics, which is a commonly used approach, in which the market value of a firm is a call option written on its total assets. Multifractal detrended fluctuation analysis (MF-DFA), multifractal detrended cross-correlation analysis (MF-DCCA) and multifractal detrended moving average cross-correlation analysis (MF-X-DMA) techniques are applied to identify the multifractal behavior of the large-scale fluctuations of PDs and CDSs. In this way, we can evaluate the local Hurst exponents. Besides, the oscillation method is employed to estimate the pointwise and local Hölder exponents. In the period between January 2001 and March 2018, the structure of dynamic co-movements of Hölder exponents is determined by applying wavelet coherency methodology and the relations in crisis period are revealed. The selected period covers the crises with structural differences: Turkey banking crisis, the US sub-prime mortgage crisis and the European sovereign debt crisis that occurred in 2001, 2008 and 2009, respectively. Besides, during the periods of financial crises, among the local Hölder exponents, severely correlated large scales show multifractal features, and hence vector fractionally autoregressive integrated moving average (VFARIMA) forecasting provides better results than scalar models.

Residual contagion in emerging markets: \u2018herd\u2019 and \u2018alarm\u2019 effects in informatization

The present study investigates residual contagion of the recent two international crises under the dual functions of “herd effect” and “alarm effects in informatization, focusing on emerging markets. Both the impulse response method and dynamic conditional correlation MGARCH model are used to capture residual contagion from developed markets to emerging markets during the period 2000–2016. The results show that the level of volatility in emerging stock markets was greater than that of developed markets, such as the US and the EU, although they are less integrated with the world. Emerging stock markets are significantly subjected to residual contagion during the US subprime mortgage crisis and Europe’s protracted debt crisis. Moreover, the residual contagion effects of these two crises are noticeably heterogeneous in emerging markets.

Measuring destocking performance of the Chinese real estate industry: A DEA-Malmquist approach

This paper aims to measure the evolution of destocking performance of the Chinese Real Estate Industry based on a DEA (Data Envelopment Analysis)-Malmquist approach, which is seldom used in this industry in existing literature. In 2016, the Chinese government introduced a unified national destocking policy to reduce real estate inventory to save the downturn in the real estate market, but the effect was less than expected and led to soaring house prices in first-tier cities. By analysing the destocking performance over the period from 2005 to 2015, we find the following: (1) It is impossible to use a unified policy to effectively address the national destocking issue because of the difference of DMUs' destocking efficiency, input redundancy and total factor productivity score changes. (2) With the current destocking performance and investment status, the government is still ignoring the existing commercial real estate problems. (3) The redundancy of firm assets and staff indicates that zombie firms may exist and risk future unemployment in the real estate industry. (4) Despite the recently repeated government interventions in this industry, destocking performance remains falling since 2008, and problems in other regions is more severe than in central cities. (5) The financial crisis triggered by the US subprime mortgage crisis has had a great impact on China's real estate industry. The destocking performance dropped sharply in 2008, forcing the Chinese government to introduce policies to stimulate the real estate market. Policy recommendations are also put forward based on the findings.

Research on the Systemic Importance and Prudential Supervision of Listed Commercial Banks―Evidence from 16 Listed Commercial Banks in China

The US subprime mortgage crisis in 2008 made people realize that important financial institutions play an important role in promoting the emergence, spread and diffusion of crises. With the huge changes in the business environment and forms of commercial banks, the factors that affect the vulnerability of financial institutions have become more complex and more harmful. This paper adopts an entropy method to assess systemically important financial institutions, and concludes that Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, and China Construction Bank have even greater importance, Joint-stock commercial banks ranked second, while urban commercial banks scored the lowest. Finally, it proposes corresponding macro-prudential policies for the supervision of systemic commercial banks to avoid the occurrence of systemic risks.

Return and volatility spillovers in the presence of structural breaks: evidence from GCC Islamic and conventional banks

The dynamics of return and volatility spillover indices were investigated to reveal the strength and direction of transmission that occurred during a financial crisis. The focus of this study was especially placed on the 2007 US subprime mortgage crisis, the global financial crisis, the European sovereign debt crisis, and the dramatic collapse of oil prices since 2014. The paper uses the Diebold and Yilmaz (Economic Journal 119(534): 158–171, 2009, International Journal of Forecasting 28(1): 57–66, 2012) spillover index behavior. Assuming one structural break, return and volatility linkages for Islamic banks in the GCC were stronger than for conventional banks. When multiple breaks were allowed, the spillover index was found to be highly sensitive to various economic events. Overall, the findings of this study provide new insights into the behavior of the Islamic and conventional banks stock returns and volatility spillovers, which may improve investment decisions and the trading strategies portfolio of investors.

The Impact of Liquidity Risk of Commercial Banks on Systematic Risk of Banking Industry: Study of 16 Listed Commercial Banks

The US subprime mortgage crisis erupted in 2007, and the most fundamental reason was the depletion of financial intermediation liquidity. The rapid spread of liquidity crisis in the interconnected financial markets, so financial institutions took excessive risks and collapsed. Then the final liquidity risk evolved into systemic risk. Firstly, this paper studies the development history and the latest progress of systematic risk management, the theory of liquidity risk management and the theory of risk-taking behavior management. The paper constructed two dynamic Division number regression to measures ΔCoVaR of 16 commercial banks. Then the dynamic panel regression model is built, which takes the liquidity risk index of individual commercial bank and the interaction between individual commercial bank liquidity risk index and risk-taking index as the main explanatory variables to analyze the banking systemic risk. The research finds that the greater the liquidity risk of individual commercial banks, the higher the contribution of their systemic risk. The risk-taking of individual commercial bank can play an effective role in regulating and weakening its ΔCoVaR. In addition, the large size of the bank does not mean that the greater the contribution of its systemic risk. In terms of liquidity risk regulation, banks would better use liquidity creation indicators and liquidity ratios, rather than loan-to-deposit ratios. Finally, combined with the results of empirical analysis and theoretical analysis, this paper puts forward some suggestions on bank risk management.

An empirical-deductive model for the assessment of the mortgage lending value of properties as securities for credit exposures

PurposeThis study aims to propose and test an innovative methodology for assessing mortgage lending value. The method tries to improve and rationalize, within the canonical and derivative approach that is generally used by the sector operators, the appraisal of the percentage reduction to be applied to the market value.Design/methodology/approachConsidering that the European Mortgage Federation and the Basel Committee highlight the importance of information about the risks of properties to be loaned on, the value at risk approach has been developed so as to assess the mortgage lending value as a technique of risk analysis. With reference to the Italian context, the method elaborates the historical analysis of the property values in 93 major Italian cities for the residential and commercial intended uses in a significant period (1967-2015) and allows to determine the reduction coefficients of the market value as a function of the central, semi-central and peripheral locations of the property.FindingsThe results include the reduction coefficients of the market value for the derivative appraisal of the mortgage lending value. The coefficients obtained satisfy the need for a rational assessment of the property risk and the appropriate spatial contextualization of the risk components related to the local demand and supply, thus eliminating any inconsistency and danger of determining the mortgage lending value using a simple and lump-sum percentage deduction of the market value.Originality/valueThe global economic crisis in the past decade, triggered by the 2007 US Subprime mortgage crisis and consequent collapse of property values, has highlighted the need for high level professional skills in the appraisal of properties as securities for credit exposures. The method proposed for the assessment of the mortgage lending value allows to overcome the uncertainties underlying the determination of an independent value through indirect methods (income approach, cost approach) and rationalize the appraisal of the risk in the traditional derivative approach through a flexible procedure, with it being possible to adapt it to any territorial context, as well as any intended use.

Macroeconomic Instability Index and Malaysia Economic Performance

The economic performance of Malaysia was affected by a series of financial crises that had induced macroeconomic instability in the country, which in turn had immensely dampened the nation’s economic growth rate. No doubt Malaysia needs an indicator to monitor the nation’s economic performance from time to time. This study attempts to construct such indicator known as Macroeconomic Instability Index (MII). The constructed MII shows two significant spikes at 1998 and 2008, which correspond to the Asian Financial Crisis and US Subprime Mortgage respectively, that had resulted in negative growth rate for GDP of Malaysia in 1999 and 2010. Results obtained from further analysis by the ARDL technique show that MII has negative and significance effects on economic performance. Moreover, MII has predictive power against economic performance as early as two periods in advance. The constructed MII could serve as end-product for policy purposes or intermediate-product for other economic and finance studies.