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Article
Publication date: 9 November 2015

Larry D Wall

The purpose of this paper is to develop an explicitly macroprudential supervisory framework designed to identify threats to financial stability use existing mechanisms to reduce…

Abstract

Purpose

The purpose of this paper is to develop an explicitly macroprudential supervisory framework designed to identify threats to financial stability use existing mechanisms to reduce the risk of these threats and to provide information to the authorities to more efficiently mitigate any instability that does arise.

Design/methodology/approach

This paper begins with an analysis of the limitations of microprudential regulation. It then develops a macroprudential surveillance framework focused on those financial markets that have the potential to undermine financial stability. It concludes with a discussion of how the surveillance results may be used to enhance financial stability.

Findings

The current supervisory focus on microprudential supervision of systemically important institutions is insufficient; an explicitly macroprudential focus is required.

Research limitations/implications

Although this paper’s conceptual framework is applicable to all advanced financial systems the discussion of specific regulatory structures focuses on the USA.

Practical implications

An explicit supervisory focus on the threats posed by major financial markets is feasible and desirable.

Social implications

The probability of a financial crisis and the economic damage caused by a crisis can be significantly reduced by redirecting some regulatory efforts toward in-depth analysis of major financial markets.

Originality/value

The paper emphasizes that macroprudential supervision must include both quantitative and detailed analysis of the qualitative aspects of key markets.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 28 September 2010

Thomas Willett

The purpose of this paper is to discuss implications of the global crisis for economic and financial research and policy.

2261

Abstract

Purpose

The purpose of this paper is to discuss implications of the global crisis for economic and financial research and policy.

Design/methodology/approach

The paper reviews many recent studies on the crisis and offers the author's views on some of the most important lessons to be drawn from the crisis

Findings

The review counters views that the crisis reflected a basic failure of economics, but agrees that it undercuts some particular theories and approaches to economics. More attention needs to be given to imperfections in the operation of both markets and governments, drawing on insights from behavioral and neuro economics and finance and political economy analysis and recognizing the importance of limited information and uncertainty about correct models. The creation of perverse incentive structures explain a large part of the financial excesses that led to the crisis. Financial considerations need to be integrated much more closely with macroeconomic analysis and financial risk analysis needs to pay more attention to economic considerations. Useful insights can be drawn from many different theories and approaches and we should not expect any one theory to have all the answers. The excesses observed in the advanced economies do not imply that there are not enormous benefits to be gained from further financial liberalization in emerging market economies, but they do show that great care must be taken in establishing strong supervision of such liberalizations and highlight many of the dangers to look out for.

Originality/value

The paper offers a guide to the literature for those interested in learning more about the causes and effects of the crisis and policy responses and offers a number of suggestions for fruitful research topics and policy strategies.

Details

Indian Growth and Development Review, vol. 3 no. 2
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 1 January 2006

R. Barry Johnston and Oana M. Nedelescu

The paper seeks to draw lessons for effective policy and regulatory responses to protect financial systems in the face of terrorist attacks.

13140

Abstract

Purpose

The paper seeks to draw lessons for effective policy and regulatory responses to protect financial systems in the face of terrorist attacks.

Design/methodology/approach

The paper presents data on the reaction of financial markets to the terrorist attacks in New York (2001) and Madrid (2004). It describes the authorities' crisis management responses and analyses their effectiveness. The paper describes the subsequent regulatory responses to protect the financial systems from abuse by terrorists.

Findings

Diversified, liquid, and sound financial markets were efficient in absorbing the shocks of terrorist attacks when supported by well organized crisis management responses.

Research limitations/implications

The paper is limited in its coverage to the reaction of the financial markets to the 11 September 2001, terrorist attacks in New York, and 11 March 2004, attacks in Madrid.

Practical implications

The paper highlights the importance of effective contingency planning by the authorities and financial firms in mitigating the risks of disruption from terrorist attacks.

Originality/value

This paper provides an overview of the issues, challenges and responses in dealing with the risks posed by terrorism to financial systems. It combines empirical evidence with an institutional perspective, and notes some of the regulatory challenges in combating terrorist finance.

Details

Journal of Financial Crime, vol. 13 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 1 January 1996

ATUL K. SHAH

In the wake of substantial losses suffered by derivatives dealers and end users in recent years, questions are being raised about the type of regulatory structure needed to…

Abstract

In the wake of substantial losses suffered by derivatives dealers and end users in recent years, questions are being raised about the type of regulatory structure needed to monitor and control the use of derivatives. Financial institutions believe that the issue can be resolved by tighter internal controls, whereas regulators believe there is a need for more direct oversight. The conventional view is that derivatives are highly useful instruments which simply need to be handled with care. In this paper, it is argued that this belief is misplaced and, although useful for hedging, derivatives are a high risk technology which pose inherent difficulties for regulation and control. As suggested by Perrow, where the environment of such technologies is both complex and tightly coupled, such that any significant failure cannot be contained, the potential for catastrophe is significant. The foregoing analysis shows that derivatives operate in a complex and tightly coupled environment, posing a significant threat to the financial system. Regulatory reform would require much greater cooperation between regulators and a proactive approach to regulation rather than a reactive one.

Details

Journal of Financial Regulation and Compliance, vol. 4 no. 1
Type: Research Article
ISSN: 1358-1988

Article
Publication date: 2 October 2017

Dominic Hess, Roger Moser and Gopalakrishnan Narayanamurthy

The purpose of this paper is to identify and understand the obstacles and drivers of financial investors while deciding upon investment opportunities in emerging markets.

Abstract

Purpose

The purpose of this paper is to identify and understand the obstacles and drivers of financial investors while deciding upon investment opportunities in emerging markets.

Design/methodology/approach

Relevant factors for financial investors in emerging markets were identified through a literature review and a series of expert interviews. Identified factors were broadly grouped into three categories, namely, microeconomic aspects, macroeconomic aspects, and aspects of the functionality of the local banking system. Finally, an expert panel (Delphi) technique is used to validate the findings in cocoa industry in Ivory Coast.

Findings

A decision-making framework that enables the evaluation of the attractiveness of an industry in emerging market from a financial investor perspective is developed and its application is demonstrated on the cocoa industry in Ivory Coast. Probability and consensus of the projections for the individual decision elements are tabulated along with the insights into both encouraging and discouraging aspects.

Research limitations/implications

Current study is a timely contribution to the call for papers in the research literature to develop frameworks that are contextualized in emerging markets. Similar to any other qualitative study, this study lacks the generalizability of results. But, the framework developed can act as a starting point toward the generalizability of the findings in future.

Practical implications

Decision elements identified in this study can act as a checklist for financial investors and top management to choose the elements that are relevant to the investment problem being dealt by them. Also, the study can act as a handy demonstration to practitioners for applying the framework using expert panel.

Social implications

A major challenge of the investment environment in emerging market is the non-availability of quality information on the potential investment opportunities. In this study, the authors suggest a framework to overcome this information asymmetry challenge and expect it to promote financial investments in emerging economies which in turn will improve the quality of life of people in these economies.

Originality/value

First study to present an approach to help financial investors to conduct profound evaluation and gain more in-depth insights into the future investment opportunity attractiveness of a particular industry in an emerging market.

Details

World Journal of Science, Technology and Sustainable Development, vol. 14 no. 4
Type: Research Article
ISSN: 2042-5945

Keywords

Article
Publication date: 12 July 2018

Kyung-Min Kim, Geon Kim and Sotiris Tsolacos

After the Global Financial Crisis in 2008, the impact of expanded liquidity in the financial market has drawn attention. The purpose of this paper is to examine the relationship…

1028

Abstract

Purpose

After the Global Financial Crisis in 2008, the impact of expanded liquidity in the financial market has drawn attention. The purpose of this paper is to examine the relationship between liquidity in financial markets and office markets across Asian countries. In particular, the research not only examines the effect of normal liquidity on real estate markets, but also the effects of excess liquidity are specifically highlighted.

Design/methodology/approach

This paper uses panel estimation utilizing quarterly data from the first quarter of 2007 to the fourth quarter of 2015. Taking both time and location dimensions into account allows for a more precise estimate of the relationship between liquidity and office market’s yields.

Findings

Per the empirical outcome, an increasing excess liquidity tends to decelerate the value of office yields in six major Asian office market centers due to the positive effect on commercial real estate value. This effect is also identified by comparing the difference between the level of fitted yields and actual yields.

Practical implications

The results enhance the understanding of commercial real estate yield determinants. Furthermore, the results can be used to assess the impacts of liquidity on major office markets in Asia.

Originality/value

This paper attempts to uncover the impact of liquidity in financial markets on the office market yields. To better understand the relationship, the concept of excess liquidity is adopted and further exploration of each office market is conducted by comparing the fitted yields, which is computed considering the effects of excess liquidity on yield levels and actual yields.

Details

Journal of Property Investment & Finance, vol. 37 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 21 October 2013

Jan Fichtner

– The purpose of this paper is to examine in which ways hedge funds contribute to financialization.

Abstract

Purpose

The purpose of this paper is to examine in which ways hedge funds contribute to financialization.

Design/methodology/approach

Two already identified conduits through which financialization operates are applied to hedge funds.

Findings

The paper finds that hedge funds drive the phenomenon of financialization in two major ways, i.e. the financialization of corporations, and the financialization of markets. Hence, hedge funds can be conceived as agents of change for financialization.

Research limitations/implications

There are indications that hedge funds possess disciplinary power. Future research should address this pivotal point, even though such power will be difficult to prove empirically.

Social implications

Hedge funds have been found to potentially increase market volatility. In times of crisis, stricter regulation of these investors that take excessive risks seems prudent.

Originality/value

Through linking “hedge funds” with “financialization” this paper closes a research gap. In addition, the so far rather structural debate about financialization benefits from the actor-centered approach of this paper.

Details

critical perspectives on international business, vol. 9 no. 4
Type: Research Article
ISSN: 1742-2043

Keywords

Article
Publication date: 15 June 2020

Sruti Mundra and Motilal Bicchal

The purpose of this study is to assess alternative financial stress indicators for India in terms of tracing crisis events, mapping with the business cycle and the macroeconomic…

1531

Abstract

Purpose

The purpose of this study is to assess alternative financial stress indicators for India in terms of tracing crisis events, mapping with the business cycle and the macroeconomic effect of stress indices.

Design/methodology/approach

The study constructs the composite indicator of systemic stress of Hollo, Kremer and Lo Duca (2012) for India using two different methods for computing time-varying cross-correlation matrix, namely, exponentially weighted moving average (EWMA) and dynamic conditional correlation-generalized autoregressive conditional heteroscedasticity (DCC-GARCH). The derived indices are evaluated with widely used, equal variance and principal component weighting indices in terms of tracing stress events, mapping with the business cycles and the macroeconomic effect. For this purpose, the study identifies various episodes of financial stress and uses the business cycle dates in the sample covering from January 2001 to October 2018.

Findings

The results suggest that stress indices based on EWMA and DCC-GARCH accurately identify the well-known stress periods and capture the recession dates and show an adverse effect on economic activity. Primarily, the DCC-GARCH-based stress index emerges as a better indicator of stress because it efficiently locates all the major-minor events, traces the build-up of stress and reverts to the normal level during stable times.

Practical implications

The DCC-GARCH-based stress index is a very useful indicator for policymakers in regularly monitoring India’s financial conditions and providing timely identification of systemic stress to avoid adverse repercussion effects of the financial crisis.

Originality/value

The 2007–2008 financial crisis and subsequent recurrent instability in the financial markets highlighted the requirement for an appropriate financial stress indicator for a timely assessment of the system-wide financial stress. To the authors’ knowledge, this is the first study that incorporates the systemic nature of financial stress in the construction of stress indices for India and provides a holistic evaluation of the financial stress from an emerging country’s perspective.

Details

Journal of Financial Economic Policy, vol. 13 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 20 July 2015

Andrea Paltrinieri

The purpose of this paper is to give an overview of UAE Stock Exchange industry. In particular this paper aims to assess a potential merger between Dubai Financial…

1198

Abstract

Purpose

The purpose of this paper is to give an overview of UAE Stock Exchange industry. In particular this paper aims to assess a potential merger between Dubai Financial Markets-Nasdaq-Dubai and Abu Dhabi Securities Exchange, evaluating risks, rewards, policy and business implications.

Design/methodology/approach

The paper presents a theoretical framework and a literature review of M & As in financial sector. It then carries out a case study on a potential merger between the UAE Stock Exchanges and a discussion on the implications for the actors involved.

Findings

The contraction both in market capitalization and in trading value in the three UAE Stock Exchanges caused by subprime financial crisis and market fragmentation could be a key factors in implementing a merger between them. Because of high-fixed costs and trading platform, a single consolidated stock exchange may benefit from significant economies of scale, particularly network effects, and economies of scope.

Practical implications

This paper could be useful to Security and Commodity Authority, in order to support a merger between Dubai and Abu Dhabi Stock Exchange. Given that UAE capital market regulator has tried to improve efficiency in UAE stock market over the last years, a merger between UAE Stock Exchanges could have positive effects on overall efficiency.

Originality/value

It is the first paper that analyze UAE Stock Exchange industry. It is the first study that focusses on a potential merger between emerging markets’ stock exchanges. It is one of the first contributions that relates stock exchanges belonging to emerging and developed countries.

Details

International Journal of Emerging Markets, vol. 10 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 5 October 2015

Sherrena Buckby, Gerry Gallery and Jiacheng Ma

Communication of risk management (RM) practices are a critical component of good corporate governance. Research, to date, has been of little benefit in informing regulators…

3719

Abstract

Purpose

Communication of risk management (RM) practices are a critical component of good corporate governance. Research, to date, has been of little benefit in informing regulators internationally. This paper seeks to contribute to the literature by investigating how listed Australian companies disclose RM information in annual report governance statements in accordance with the Australian Securities Exchange (ASX) corporate governance framework.

Design/methodology/approach

To address this study’s research questions and related hypotheses, the authors examine the top 300 ASX-listed companies by market capitalisation at 30 June 2010. For these firms, the authors identify, code and categorise RM disclosures made in the annual according to the disclosure categories specified in ASX Corporate Governance Principles and Recommendations (CGPR). The derived data are then examined using a comprehensive approach comprising thematic content analysis and regression analysis.

Findings

The results indicate widespread divergence in disclosure practices and low conformance with the Principle 7 of the ASX CGPR. This result suggests that companies are not disclosing all “material business risks” possibly due to ignorance at the board level, or due to the intentional withholding of sensitive information from financial statement users. The findings also show mixed results across the factors expected to influence disclosure behaviour. While the presence of a risk committee (RC) (in particular, a standalone RC) and technology committee (TC) are found to be associated with some improvement in disclosure levels, the authors do not find evidence that company risk measures (as proxied by equity beta and the market-to-book ratio) are significantly associated with greater levels of RM disclosure. Also, contrary to common findings in the disclosure literature, factors such as board independence and expertise, audit committee independence and the usage of a Big-4 auditor do not seem to impact the level of RM disclosure in the Australian context.

Research limitations/implications

The study is limited by the sample and study period selection as the RM disclosures of only the largest (top 300) ASX firms are examined for the fiscal year 2010. Thus, the findings may not be generalisable to smaller firms or earlier/later years. Also, the findings may have limited applicability in other jurisdictions with different regulatory environments.

Practical implications

The study’s findings suggest that insufficient attention has been applied to RM disclosures by listed companies in Australia. These results suggest RM disclosures practices observed in the Australian setting may not be meeting the objectives of regulators and the needs of stakeholders.

Originality/value

The Australian setting provides an ideal environment to examine RM communication as the ASX has explicitly recommended RM disclosures areas in its principle-based governance rules since 2007 (Principle 7). This differs from other jurisdictions where such disclosure recommendations are typically not provided and provides us with a benchmark to examine the nature and quality of RM disclosures. Despite the recommendation, the authors reveal that low levels and poor RM communication are prevalent in the Australian setting and warrant further investigation.

Details

Managerial Auditing Journal, vol. 30 no. 8/9
Type: Research Article
ISSN: 0268-6902

Keywords

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