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1 – 10 of over 21000Joel Telpner and Jamila Piracci
The purpose of this paper is to explain and analyze recent US Congressional, Obama Administration, and financial services industry initiatives to reform and regulate the market…
Abstract
Purpose
The purpose of this paper is to explain and analyze recent US Congressional, Obama Administration, and financial services industry initiatives to reform and regulate the market for OTC derivatives.
Design/methodology/approach
The paper outlines Congressional committee bills, other Obama Administration initiatives, and industry self‐regulatory initiatives and discusses underlying current issues such as which derivatives would and would not have to be cleared through central counterparties (CCPs); how standardized and customized derivatives would be distinguished from each other; potential margin, business conduct, reporting, and recordkeeping standards for OTC derivatives dealers; how fraud, market manipulation, and other market abuses would be policed; possible limitations on the types of parties that may participate in unregulated derivatives; possible resolution of the sometimes confusing and overlapping authority of the SEC and CFTC over OTC derivatives; how and by which federal or state authority credit default swaps (CDS) might be regulated; the potential for regulatory arbitrage; and the danger that stringent regulation in the USA will drive OTC derivatives business offshore.
Findings
Unlike markets for other financial instruments, derivatives market participants, largely through ISDA, have for some time cooperated closely with the New York Fed and engaged in a myriad self‐policing activities. Time will tell whether this existing framework, combined with the redoubled self‐policing efforts of market participants, will cause policymakers to seek appropriate legislation that will not threaten the preservation of the OTC derivatives market in the USA.
Originality/value
The paper presents a clear and detailed guide and explanation of recent regulatory initiatives and underlying issues.
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To better understand corporate risk management practice in Hong Kong and Singapore. To explore popular perception that use of derivatives in Hong Kong and Singapore lags that in…
Abstract
Purpose
To better understand corporate risk management practice in Hong Kong and Singapore. To explore popular perception that use of derivatives in Hong Kong and Singapore lags that in the US. To explore possible speculative use of derivatives in these Asian countries.
Design/methodology/approach
A survey of non‐financial corporations using the format of the 1998 Wharton study. I investigated the extent to which derivatives are used, how they are used, and methods for their oversight.
Findings
Derivatives are used more extensively in Hong Kong and Singapore than in the US. They are particularly popular for managing foreign exchange risk. Their use is more speculative than is common in the US; that is, market predictions play a significant role in the size and timing of hedge trades and derivatives are often used for active management of exposures. A lack of controls and management oversight (such as derivatives policies, regular valuations) is apparent, despite the extent of derivatives use.
Research limitations/implications
Potential bias may have arisen due to the method used for recruiting survey respondents. In this study post‐graduate students contacted and interviewed company staff, often based on their personal contacts. In contrast, the Wharton surveys have been mailed to potential respondents. Students may have been more likely to select companies that traded derivatives. The sample size (131 firms) is smaller than that of the Wharton studies, but probably sufficient to establish common trends.
Practical implications
Need to address poor oversight of derivatives trading in order to prevent further disasters. Need to scrutinise the speculative use of derivatives to ensure that it is value‐adding for firm owners.
Originality/value
To highlight the extent of speculative use of derivatives in Hong Kong and Singapore. To encourage further scrutiny and controls over the use of derivatives by directors of and investors in non‐financial corporations in these countries.
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George Karathanasis, Vasilios Sogiakas and Kenellos Toudas
Nowadays, a very interesting issue that matters both to academics and practitioners is the necessity and/or the usefulness of financial market regulation. This topic has many…
Abstract
Purpose
Nowadays, a very interesting issue that matters both to academics and practitioners is the necessity and/or the usefulness of financial market regulation. This topic has many alternative dimensions, one of which concerns the derivative listing process. The main objective of the derivative's market regulatory authorities is the profitability of its members and the good performance of the exchange. The purpose of this paper is to investigate empirically the specific criteria that have governed the regulation process with respect to the derivative listing in the Athens Derivatives Exchange (ADEX).
Design/methodology/approach
The econometric part of the paper consists of two steps. The first step, deals with the estimation of the volatility, the default probability and the corporate governance provision index for each candidate firm. The second step consists of the utilization of a logit regression for the determination of the regressors and their significance in explaining which firms should be included into the derivatives and non‐derivatives groups. This analysis is extended through a rolling window technique that captures the time varying characteristics of the estimated coefficients of the derivatives listing strategy implemented by the ADEX.
Findings
According to the empirical findings, the ADEX's regulatory authorities have considered mainly the corresponding firms' capitalization while the creditworthiness and the managerial characteristics of the candidates have been adopted only partially.
Originality/value
To the best of the authors' knowledge, the existing literature is confined to US markets and nothing has been done with respect to European Derivatives Markets. This paper investigates the Greek case, the Athens Derivatives Exchange. In addition to the factors investigated by Mayhew and Mihov and Jennings and Starks, the authors have extended their analysis to include such factors as creditworthiness and managerial characteristics of firms.
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Per Alkebäck, Niclas Hagelin and Bengt Pramborg
The purpose of this paper is to investigate Swedish non‐financial firms’ use of derivatives in 2003 and to compare the results with an earlier study investigating Swedish firms in…
Abstract
Purpose
The purpose of this paper is to investigate Swedish non‐financial firms’ use of derivatives in 2003 and to compare the results with an earlier study investigating Swedish firms in 1996. This comparison is motivated by our interest in if and how the derivative practices of firms have changed over the seven years that passed between the two surveys.
Design/methodology/approach
Surveys are used to make comparisons between years. For this study, the authors used a similar questionnaire as Alkebäck and Hagelin, and investigate a similar sample of firms. Firms are classified according to firm size and industry to study changes in derivative usage for different types of firms.
Findings
The results show among other things that: 59 per cent of the Swedish firms use derivatives today compared to 52 per cent in 1996; this relatively modest change for the total sample hides significant increases in derivatives usage for small and medium sized firms; the use of derivatives for hedging the balance sheet among Swedish firms in 2003 is higher than for other countries but lower than for Swedish firms in 1996 suggesting that Swedish firms conform to international practice; and the issue of greatest concern to Swedish firms in 1996, lack of knowledge about derivatives within the firm, concerns Swedish firms little today.
Research limitations/implications
As with other survey research, a major caveat is that responses represents opinions. It cannot be verified that the opinions coincide with actions. Further research could improve on the understanding of firms derivatives use by including more detailed data, different time spans, and larger samples.
Originality/value
Provides evidence of the changes in the use of derivatives of Swedish firms.
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Helen Xu, Eric C. Lin and John W. Kensinger
Previous studies show that crude oil is negatively correlated with stocks but has almost the same rate of return as stocks, and so adding crude oil into a portfolio with equities…
Abstract
Previous studies show that crude oil is negatively correlated with stocks but has almost the same rate of return as stocks, and so adding crude oil into a portfolio with equities can provide significant diversification benefits for the portfolio. Given the diversification benefit of crude oil mixed with equities, we examine the value effect of crude oil derivatives transactions by oil and gas producers. Differing from traditional corporate risk management literature, this study examines corporate derivatives transactions from the shareholders' diversification perspective. The results show that crude oil derivatives transactions by oil and gas producers do impact value. If oil and gas producing companies stop shorting crude oil derivatives contracts, company stock prices increase significantly. In contrast, if oil and gas producing companies initiate short positions in crude oil derivatives contracts, stock prices tend to drop (still significant, but less so). Thus, hedging by producers is not necessarily good. Transaction limitation is shown to be one of the possible sources of the value effect of corporate derivatives transactions.
Jenny N. Lye and Joseph G. Hirschberg
In this chapter we demonstrate the construction of inverse test confidence intervals for the turning-points in estimated nonlinear relationships by the use of the marginal or…
Abstract
In this chapter we demonstrate the construction of inverse test confidence intervals for the turning-points in estimated nonlinear relationships by the use of the marginal or first derivative function. First, we outline the inverse test confidence interval approach. Then we examine the relationship between the traditional confidence intervals based on the Wald test for the turning-points for a cubic, a quartic, and fractional polynomials estimated via regression analysis and the inverse test intervals. We show that the confidence interval plots of the marginal function can be used to estimate confidence intervals for the turning-points that are equivalent to the inverse test. We also provide a method for the interpretation of the confidence intervals for the second derivative function to draw inferences for the characteristics of the turning-point.
This method is applied to the examination of the turning-points found when estimating a quartic and a fractional polynomial from data used for the estimation of an Environmental Kuznets Curve. The Stata do files used to generate these examples are listed in Appendix A along with the data.
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Harvey Arbeláez and E.K. Gatzonas
The 2007 BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity Report shows a substantial increase in turnover in foreign exchange and OTC…
Abstract
The 2007 BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity Report shows a substantial increase in turnover in foreign exchange and OTC derivatives markets. Turnover in traditional FX markets increased to reach $3.2 trillion. The largest contributor to this 71% increase between April 2004 and April 2007 occurred in FX swaps. It was like a prelude to the financial crisis of 2007–2008 driven by transactions carried out between banks and other financial institutions due to the significance of hedge funds and major engagement of emerging market currencies which have sought new configurations of portfolio diversification worldwide.