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Open Access
Article
Publication date: 9 January 2024

Salvador Cruz Rambaud and Paula Ortega Perals

The framework of this paper is financial mathematics and, more specifically, the control of data fraud and manipulation with their subsequent economic effects, namely, in…

Abstract

Purpose

The framework of this paper is financial mathematics and, more specifically, the control of data fraud and manipulation with their subsequent economic effects, namely, in financial markets. The purpose of this paper is to calculate the global loss or gain, which supposes, for the borrower, a change of the interest rate while the contracted loan is in force or, in another case, the loan has finished.

Design/methodology/approach

The methodology used in this work has been, in the first place, a review of the existing literature on the topic of manipulability and abusiveness of the loan interest rates applied by banks; in the second place, the introduction of a mathematical-financial analysis to calculate the interests paid in excess; and, finally, the compilation of several sentences issued on the application of the so-called mortgage loan reference index (MLRI) to mortgage loans in Spain.

Findings

There are three main contributions in this paper. First, the calculation of the interests paid in excess in the amortization of mortgage loans referenced to an overvalued interest rate. Second, an empirical application shows the amount to be refunded to a Spanish consumer when amortizing his/her mortgage loan referenced to the MLRI instead of the Euro InterBank Offered Rate (EURIBOR). Third, consideration has been made to the effects and the possible solutions to the legal problems arising from this type of contract.

Research limitations/implications

This research is a useful tool capable of implementing the financial calculation needed to find out overpaid interests in mortgage loans and to execute the sentences dealing with this topic. However, a limitation of this study is the lack of enough sentences on mortgage loans referenced to the MLRI to get some additional information about the number of borrowers affected by these legal sentences and the amount refunded by the financial institutions.

Originality/value

To the best of the authors’ knowledge, this is the first time that deviations in the payment of interests have been calculated when amortizing a mortgage.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 25 October 2023

Bolortuya Enkhtaivan and Zagdbazar Davaadorj

The purpose of this paper is to explore the role of three different audit characteristics in loan pricing—the most significant credit term for borrowers. Three characteristics…

Abstract

Purpose

The purpose of this paper is to explore the role of three different audit characteristics in loan pricing—the most significant credit term for borrowers. Three characteristics include audit reputation, audit tenure and audit specialization.

Design/methodology/approach

To examine audit characteristics simultaneously to measure their effect on loan pricing, this study uses a full-rank, three-way interaction model and conducts slope difference tests. It also includes the joint effects of these variables to estimate any incremental benefits of possessing multiple qualifications.

Findings

When studying the three qualifications together, none of them alone is strong enough to affect the loan interest. But, a Big 4 auditor with tenure can benefit the client by reducing the interest by about 1.98%. The more expertise the auditor has, the better value it brings to borrowers. A highly qualified auditor with additional expertise can significantly reduce loan pricing further by about 2.96 percent.

Originality/value

Examining the costs and benefits of hiring certified auditors is crucial for borrowers. While the variables are not exhaustive, an understanding of the added value of hiring high-quality auditors with more than one or two qualifications to their potential premium fees helps borrowers in managers' audit selection decisions. At the same time, the results shed some light on which of the auditor's qualifications lenders might prioritize when pricing a borrower's loan.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 16 January 2024

Helder Sebastião, Nuno Silva, Pedro Torres and Pedro Godinho

This work uses survey data from the Portuguese Securities Market Commission (Comissão de Mercado de Valores Mobiliários – CMVM) to examine financial literacy and literacy bias…

Abstract

Purpose

This work uses survey data from the Portuguese Securities Market Commission (Comissão de Mercado de Valores Mobiliários – CMVM) to examine financial literacy and literacy bias. The main objective of this study is to shed light on this issue by identifying the individual characteristics that are associated with financial literacy, namely overconfidence and underconfidence, which in turn might help explain individuals' financial decisions. The study distinguishes two groups, i.e. students and nonstudents, and considers several characteristics that are usually employed in this stream of research.

Design/methodology/approach

The data are based on a survey conducted by a partnership between the CMVM and a consortium of Portuguese universities. This paper has a three-fold aim. First, it studies the main individual features associated with objective financial literacy. Second, it analyzes the relationship between those variables and the bias between self-perceived and objective literacy, distinguishing overconfidence and underconfidence. Third, and most originally, this framework was also used to examine the differences between students and nonstudents. Those aims are pursued using cross-sectional ordinary least squares (OLS) regressions, except for the study of the literacy bias, for which the authors use an ordered probit.

Findings

Literacy is higher in individuals of the male gender who are older, have higher incomes, live in metropolitan areas, are highly educated, have a field of study related to finance and have high self-perceived literacy. Younger people are more overconfident. Unconditionally, women are less overconfident than men, but conditionally, they overestimate their knowledge. People holding securities and with a field of study related to finance are more overconfident. The gender effect is mainly driven by students, and the impact of a field of study and of holding securities on overconfidence decreases and increases, respectively, for students. The results highlight the importance of financial education.

Research limitations/implications

Due to the way that the questionnaire was made available, there is no guarantee that the sample is representative of the Portuguese general population, or, for that matter, representative of the typical Portuguese retail investors or households. Also, there is no guarantee that the same individual did not answer the questionnaire more than once, although this is highly improbable. The link to the online questionnaire was only transmitted within e-mail databases owned by the CMVM and Portuguese universities, so the authors cannot guarantee its unbiasedness.

Practical implications

The authors' results may help the National Plan for Financial Education (the acronym in Portuguese is PNFF) fine-tune the required actions towards different target groups and, most importantly, highlight that different groups may require different approaches aiming to narrow the gap between objective and perceived literacy. The first step should be creating procedures to provide feedback on the objective and perceived literacy of those who enroll in financial formation programs.

Social implications

The study distinguishes two groups, students and nonstudents, providing additional insights that might guide policymakers on how to structure financial education to enhance individual financial behavior. This is especially important in a country such as Portugal which has the lowest objective financial literacy in the Eurozone.

Originality/value

This study contributes to the financial literacy literature, in particular to the stream of research that focuses on psychological biases, by shedding light on the factors associated with both individual overconfidence and underconfidence. Differentiating between students and nonstudents provides additional insights, which might guide policymakers on how to structure financial education to enhance individual financial behavior.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 21 March 2024

Maria Inês Sá, Paulo Leite and Maria Carmo Correia

This paper aims to investigate not only the performance of Portuguese mutual funds investing in domestic and international equities but also which fund characteristics, such as…

Abstract

Purpose

This paper aims to investigate not only the performance of Portuguese mutual funds investing in domestic and international equities but also which fund characteristics, such as age, size, family size, expense ratios and flows, influence future performance.

Design/methodology/approach

Fund performance is evaluated over the 2005–2022 period by a robust six-factor model, while the impact of fund characteristics on performance is assessed by a set of fixed-effects panel data regressions with two-way cluster-robust standard errors.

Findings

The results show that, while funds investing in domestic equities predominantly exhibit neutral performance, most international equity funds have significantly negative alphas. The authors document a negative and statistically significant relationship between fund age and performance for all fund categories. Total expense ratios have an inverse relationship with domestic equity fund performance but do not impact the performance of international equity funds significantly. Though fund flows have a neutral effect on performance across the overall period, they are important determinants of both domestic and international funds’ performance in more recent years.

Originality/value

The authors contribute to the literature by carrying out a comprehensive analysis, based on recent and robust methodologies, of the impact of mutual fund characteristics on the future performance of Portuguese equity funds. The research findings serve as a premise for advising investors on how to choose the top-performing funds.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

Keywords

Open Access
Article
Publication date: 28 October 2022

Szymon Stereńczak

The positive illiquidity–return relationship (so-called liquidity premium) is a well-established pattern in international developed stock markets. The magnitude of liquidity…

Abstract

Purpose

The positive illiquidity–return relationship (so-called liquidity premium) is a well-established pattern in international developed stock markets. The magnitude of liquidity premium should increase with market illiquidity. Existing studies, however, do not confirm this conjecture with regard to frontier markets. This may result from applying different approaches to the investors' holding period. The paper aims to identify the role of the holding period in shaping the illiquidity–return relationship in emerging and frontier stock markets, which are arguably considered illiquid.

Design/methodology/approach

The authors utilise the data on stocks listed on fourteen exchanges in Central and Eastern Europe. The authors regress stock returns on liquidity measures variously transformed to reflect the clientele effect in a liquidity–return relationship.

Findings

The authors show that the investors' holding period moderates the illiquidity–return relationship in CEE markets and also show that the liquidity premium in these markets is statistically and economically relevant.

Practical implications

The findings may be of great interest to investors, companies and regulators. Investors and companies should take liquidity into account when making decisions; regulators should employ liquidity-enhancing actions to decrease companies' cost of capital and expand firms' investment opportunities, which will improve growth perspectives for the entire economy.

Originality/value

These findings enrich the understanding of the role that the investors' holding period plays in the illiquidity–return relationship in CEE markets. To the best knowledge, this is the first study which investigates the effect of holding period on liquidity premium in emerging and frontier markets.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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