Search results

1 – 10 of over 144000
Article
Publication date: 1 February 1996

PETER CASSON

The growth in derivative activities, and the change in the way financial firms conduct these activities, has led to the development of practices within firms to manage risk

Abstract

The growth in derivative activities, and the change in the way financial firms conduct these activities, has led to the development of practices within firms to manage risk. These practices relate to both the organisational context in which risk management takes place, and the measurement of market risk. Proposals and recommendations have been made in a number of reports in an attempt to encourage firms to adopt best practice, as identified by the Group of Thirty, through public disclosure requirements and rides for determining the amount of regulatory capital to support trading and derivatives activities. The adoption of best practice, together with the benefits of increased transparency and more appropriate methods for determining capital requirements, is seen to lead to a reduction in systemic risk. This paper examines the main proposals and recommendations made in the reports. In particular, the use of market risk measurement models, developed for internal risk management purposes, for public disclosures of market risk and for calculating regulatory capital is critically examined.

Details

Journal of Financial Regulation and Compliance, vol. 4 no. 2
Type: Research Article
ISSN: 1358-1988

Article
Publication date: 1 January 1979

G.H. Lawson and Richard Pike

Though of fairly recent origin, the capital‐asset pricing model (CAPM) is becoming a dominant influence in the analysis of financial and investment decisions. While…

Abstract

Though of fairly recent origin, the capital‐asset pricing model (CAPM) is becoming a dominant influence in the analysis of financial and investment decisions. While continuing to undergo stringent theoretical and empirical examination, the demonstrable explanatory and predictive ability of the CAPM have led to its widespread recognition as the foundation of modern financial management. Though usually attributed to Sharpe, Lintner and Mossin, the origins of the CAPM can be traced back to the celebrated work of Harry Markowitz on portfolio selection.

Details

Managerial Finance, vol. 5 no. 1
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 October 2005

Khaled Elmoatasem Abdelghany

PurposeIn 1997, the Securities and Exchange Commission (SEC) issued Financial Reporting Release No. 48. FFR No. 48 requires that companies disclose both qualitative and…

4363

Abstract

PurposeIn 1997, the Securities and Exchange Commission (SEC) issued Financial Reporting Release No. 48. FFR No. 48 requires that companies disclose both qualitative and quantitative market risk information for risks of loss arising from adverse changes in interest rates, foreign currency rates, commodity prices, and equity prices. This research focuses on the required disclosure of market risk related to equity prices which is commonly known as Beta in the capital asset pricing model (CAPM).Design/methodology/approachA sample of 323 companies listed in NYSE was selected to investigate the relationship between the market risk and the accounting measures of risk in order to determine the accounting variables that should be disclosed as a substitute of market risk, if there is no data, for the companies to fulfill the SEC requirements.FindingsBy identifying the accounting measures most closely associated with market Beta, the financial manager may be able to influence the Beta value by changing the company's structure as summarized in the successful accounting – determined risk measures. Such finding may also be used to estimate a company's Beta value in situations where historical stock market price data is limited or not available. An example of this later circumstance occurs in the case of initial public offer (IPO). Market price data may also be limited in acquisition cases, where the acquisition target is a subsidiary of a larger company.Originality/valueThe results of this study address these finance and accounting practice situations.

Details

Managerial Auditing Journal, vol. 20 no. 8
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 December 1996

Michael A. Sullivan and Krishnan Dandapani

This paper analyzes the special character of currency risks associated with equity investments in emerging capital markets. Such investments are an important and growing…

Abstract

This paper analyzes the special character of currency risks associated with equity investments in emerging capital markets. Such investments are an important and growing source of funds for financing projects which contribute to the rapid pace of growth in emerging markets. While investors in any foreign market face the consequences of possible changes in the value of foreign currency, uncertainty about the terms for currency conversion in emerging markets are aggravated by the interaction of capital flows and currency values, particularly for countries which rely heavily on external sources of financing. In such an environment, it is essential for investors to understand the characteristics of currency risk in order to incorporate them in their investment decisions. This paper analyzes equity market returns and currency fluctuations in a group of emerging markets by comparing them to a set of developed countries. By traditional measures of risk emerging markets appear to have low levels of currency risk. This paper demonstrates that there has also been substantial changes in currency risk in emerging markets which have not occurred in developed markets. This paper also discusses methods of hedging currency risk, taking into account the limitations on hedging strategies in emerging markets and the special characteristics of currency risks in those markets.

Details

Managerial Finance, vol. 22 no. 12
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 July 2005

Michael Nwogugu

The purposes of this article are to evaluate models of stock market risk developed by Robert Engle, and related models (ARCH, GARCH, VAR, etc.); to establish whether…

2215

Abstract

Purpose

The purposes of this article are to evaluate models of stock market risk developed by Robert Engle, and related models (ARCH, GARCH, VAR, etc.); to establish whether prospect theory, cumulative prospect theory, expected utility theory, and marketrisk models (ARCH, GARCH, VAR, etc.) are related and have the same foundations.

Design/methodology/approach

The author critiques existing academic work on risk, decision making, prospect theory, cumulative prospect theory, expected utility theory, VAR and other marketrisk models (ARCH, GARCH, etc.) and analyzes the shortcomings of various measures of risk (standard deviation, VAR, etc.).

Findings

Prospect theory, cumulative prospect theory, expected utility theory, and marketrisk models are conceptually the same and do not account for many facets of risk and decision making. Risk and decision making are better quantified and modeled using a mix of situation‐specific dynamic, quantitative, and qualitative factors. Belief systems (a new model developed by the author) can better account for the multi‐dimensional characteristics of risk and decision making. The marketrisk models developed by Engle and related models (ARCH, GARCH, VAR, etc.) are inaccurate, do not incorporate many factors inherent in stock markets and asset prices, and thus are not useful and accurate in many asset markets.

Research limitations/implications

Areas for further research include: development of dynamic marketrisk models that incorporate asset‐market psychology, liquidity, market size, frequency of trading, knowledge differences among market participants, and trading rules in each market; and further development of concepts in belief systems.

Practical implications

Decision making and risk assessment are multi‐criteria processes that typically require some processing of information, and thus cannot be defined accurately by rigid quantitative models. Existing marketrisk models are inaccurate – many international banks, central banks, government agencies, and financial institutions use these models for risk management, capital allocation, portfolio management, and investments, and thus the international financial system may be compromised.

Originality/value

The critiques, ideas, and new theories in the article were all developed by the author. The issues discussed in the article are relevant to a multiplicity of situations and people in any case that requires decision making and risk assessment.

Details

The Journal of Risk Finance, vol. 6 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 1 February 1976

Jack Broyles and Julian Franks

Managerial finance has become a modern professional discipline with a coherent theory and a growing body of statistical research in support of the theory. Finance faculty…

Abstract

Managerial finance has become a modern professional discipline with a coherent theory and a growing body of statistical research in support of the theory. Finance faculty in leading business schools around the world are now actively engaged in making the modern theory accessible to executive participants in post‐experience educational programmes. What makes the modern theory of finance exciting is the simplicity and the authority with which issues of concern to management today can be resolved. One of the areas of interest where answers to old questions are being found is in the estimation of discount rates or required rates of return for capital projects.

Details

Managerial Finance, vol. 2 no. 2
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 10 October 2022

Anh Ngoc Quynh Le

The purpose of this study is to show the presence of market discipline and provide an explanation for bank risk nondisclosure behavior, specifically market risk (MR)…

Abstract

Purpose

The purpose of this study is to show the presence of market discipline and provide an explanation for bank risk nondisclosure behavior, specifically market risk (MR), credit risk (CR), operational risk (OR) and counterparty credit risk (CCR). The response of market discipline when banks comply with Basel III capital and liquidity restrictions is also investigated in this study.

Design/methodology/approach

The study used the Lasso regression method to give accurate results with the lowest error when using small observational data with a large number of features.

Findings

First, theoretically, the study points to the presence of market discipline and its sensitivity to the risks disclosed by the bank, especially when applying capital regulations under Basel III. In addition, the study also shows differences between the developed and emerging countries in the sensitivity of market discipline to factors when considering banking regulations. Finally, an interesting result that the study shows is that the higher the index of economic freedom, the weaker the market discipline is, especially for emerging countries.

Practical implications

The study’s findings have several important implications: (1) help regulators devise policies to manage banks' risk and meet liquidity and capital requirements according to the Basel III framework. The effectiveness of market discipline is reduced, and banking regulators need to compensate by strengthening their supervisory functions. (2) Showed the reasons why banks ignore the disclosure of bank risks according to the provisions of the third pillar of the Basel III framework. Because when following the Basel III framework, depositors demand higher interest rates or increase market discipline towards riskier banks.

Originality/value

This study is the first attempt to assess market discipline under the new capital and liquidity regulations using the Lasso regression model as suggested by Tibshirani (1996, 2011), Hastie et al. (2009, 2015). This is also the first study to look at the impact of four different forms of risk on market discipline (as required by the Basel regulatory framework to improve disclosure).

Details

The Journal of Risk Finance, vol. 23 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 29 December 2016

Alberto Burchi and Duccio Martelli

The recent 2008–2009 financial crisis has led international financial authorities to review the existing regulation; the Basel Committee on Banking Supervision has been…

Abstract

The recent 2008–2009 financial crisis has led international financial authorities to review the existing regulation; the Basel Committee on Banking Supervision has been thus induced to review the pillars of the Basel Accord (Basel II) in order to strengthen the risk coverage of capital framework (Basel 2.5 and III). These reforms will help to raise capital requirements for the trading book, which represents a major source of losses for internationally financial institutions, especially during crisis periods. In particular, the Committee has introduced a Stressed Value-at-Risk (SVaR) capital requirement, as a new methodology to evaluate market risk.

This chapter aims to shed some lights on the issues major banks have to face when calculating SVaR in the context of emerging markets, pointing out the differences in adopting an estimation model with respect to another one. Our results show a considerable increase in capital requirements especially when new rules are applied to financial markets with high-risk parameters, such as emerging markets are. The increased cost due to higher capital requirements could be a disincentive to investment in markets with higher risk profiles than the developed markets, taking also into account that diversification benefits deriving from investing in emerging economies have shown a decrease over time. The reduction of institutional investors can thus represent a brake on the process of innovation and evolution of emerging markets.

Details

Risk Management in Emerging Markets
Type: Book
ISBN: 978-1-78635-451-8

Keywords

Abstract

Details

The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

Abstract

Details

Tools and Techniques for Financial Stability Analysis
Type: Book
ISBN: 978-1-78756-846-4

1 – 10 of over 144000