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Article
Publication date: 9 March 2021

Dang Luo, Yan Hu and Decai Sun

The purpose of this paper is to establish a grey cloud incidence clustering model to assess the drought disaster degree under 15 indexes in 18 cities of Henan province.

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Abstract

Purpose

The purpose of this paper is to establish a grey cloud incidence clustering model to assess the drought disaster degree under 15 indexes in 18 cities of Henan province.

Design/methodology/approach

The grey incidence degree between each index and ideal index is used to determine the index weight and combined with the subjective weight, the comprehensive weight is given; the traditional possibility function is transformed into grey cloud possibility function by using the principle of maximum deviation and maximum entropy, which fully reflects the coexistence of multiple decision-making conclusions and constructs the grey cloud incidence clustering model.

Findings

The drought disaster degree of Henan province is divided into four grades under the selected 15 indexes. The drought grades show obvious regional differences. The risk levels of the east and southwest are higher, and the risk levels of the north and southeast are lower. This result is consistent with the study of drought disaster grades in Henan province, which shows the practicability and usefulness of the model.

Practical implications

It provides an effective method for the assessment of drought disaster grade and the basis for formulating disaster prevention and mitigation plan.

Originality/value

By studying the method of multiattribute and multistage decision-making with interval grey number information. The objective weight model of index value is designed, and the subjective weight is given by experts. On the basis of the two, the comprehensive weight of subjective and objective combination is proposed, which effectively weakens the randomness of subjective weight and reasonably reflects the practicality of index decision-making. The time weight reflects the dynamic of the index. The traditional possibility function is transformed into the grey cloud possibility function, which effectively takes advantage of the grey cloud model in dealing with the coexistence of fuzzy information, grey information and random information. Thus, the conflict between the decision-making results and the objective reality is effectively solved. The interval grey number can make full use of the effective information and improve the accuracy of the actual information.

Details

Grey Systems: Theory and Application, vol. 12 no. 1
Type: Research Article
ISSN: 2043-9377

Keywords

Article
Publication date: 10 November 2020

Florin Aliu, Artor Nuhiu, Besnik A. Krasniqi and Gent Jusufi

This study aims to compare the diversification risk of the crypto portfolio with those of equity portfolios. For this purpose, the hypothetical index was constructed with…

Abstract

Purpose

This study aims to compare the diversification risk of the crypto portfolio with those of equity portfolios. For this purpose, the hypothetical index was constructed with 20 cryptocurrencies that hold the highest market capitalization in the Coin Market Cap database, named as the Crypto-Index 20.

Design/methodology/approach

The portfolio diversification techniques were used to identify risk linked with the six largest European equity indexes and compared with the Crypto-Index 20. Indexes were considered as an independent portfolio while analysis was completed separately for each of them. Data concerning stock prices and their trade volume were collected from the Thomson Reuters Eikon database while crypto prices and their trade volume from the Coin Market Cap database. The diversification risk of the stock indexes was measured separately for each portfolio with the same risk techniques and the same methodological process.

Findings

Research results indicate that Crypto-Index 20 on average was 76 times riskier than FTSE 100, 55 times riskier than FTSE MIB, 44 times riskier than IBEX 35, 10 times riskier than CAC 40 and 9 times riskier than DAX and MDAX. Crypto-Index 20 comprises a stronger positive correlation and is exposed to higher volatility than six selected European equity indexes.

Originality/value

This research provides practical implications for the investors on the diversification benefits and risks attached to the cryptocurrencies portfolio by comparing it with the traditional equity portfolios. From a policy perspective, regulators might obtain information on the risk properties involved into cryptocurrencies and the possibility of creating an optimal portfolio.

Details

Studies in Economics and Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 5 February 2018

Freya von Negenborn, Ron Weber and Oliver Musshoff

Although the microfinance sector in developing countries has seen an impressive development in recent years, many small-scale farmers in rural areas are still…

Abstract

Purpose

Although the microfinance sector in developing countries has seen an impressive development in recent years, many small-scale farmers in rural areas are still undersupplied with capital. One of the main reasons for this undercapitalization is the exposure to weather risks. Weather index insurance is assumed to bear high potential for accelerating agricultural lending. The index design hereby is of particular importance. The purpose of this paper is to estimate the influence of evapotranspiration and precipitation indices on the credit risk of farmers in Madagascar.

Design/methodology/approach

The authors base the analysis on a unique borrower data set provided by a commercial microfinance institution in Madagascar and weather data provided by CelsiusPro. In this context, evapotranspiration and precipitation indices both at aggregated bank level and at branch level are identified and their influence on credit risk of small-scale rice farmers is estimated.

Findings

The results show that the weather-related part of the credit risk of farmers can be better explained by an evapotranspiration then by a precipitation index. The precipitation index underestimates the weather influence on credit risk especially during the harvesting season. The results suggest a potential for weather index insurance which is based on an evapotranspiration index. The results are of similar importance for developed and developing countries.

Practical implications

The results suggest that, should insurance be considered as an appropriate risk management instrument for the farmers or the bank, weather index insurance has the potential to mitigate a certain part of the credit risk. The authors also find that the focus on precipitation-based index insurance products would underestimate the weather influence on credit risk. Furthermore, the results suggest that insurance products should be tailored to branches to be most effective.

Originality/value

To the authors’ knowledge, this is the first study that compares the explanatory values of evapotranspiration and precipitation indices in general and for the credit risk of small-scale farmers in particular.

Details

Agricultural Finance Review, vol. 78 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 5 May 2015

Ron Weber, Wilm Fecke, Imke Moeller and Oliver Musshoff

Using cotton yield, and rainfall data from Tajikistan, the purpose of this paper is to investigate the magnitude of weather induced revenue losses in cotton production…

Abstract

Purpose

Using cotton yield, and rainfall data from Tajikistan, the purpose of this paper is to investigate the magnitude of weather induced revenue losses in cotton production. Hereby the authors look at different risk aggregation levels across political regions (meso-level). The authors then design weather index insurance products able to compensate revenue losses identified and analyze their risk reduction potential.

Design/methodology/approach

The authors design different weather insurance products based on put-options on a cumulated precipitation index. The insurance products are modeled for different inter-regional and intra-regional risk aggregation and risk coverage scenarios. In this attempt the authors deal with the common problem of developing countries in which yield data is often only available on an aggregate level, and weather data is only accessible for a low number of weather stations.

Findings

The authors find that it is feasible to design index-based weather insurance products on the meso-level with a considerable risk reduction potential against weather-induced revenue losses in cotton production. Furthermore, the authors find that risk reduction potential increases on the national level the more subregions are considered for the insurance product design. Moreover, risk reduction potential increases if the index insurance product applied is designed to compensate extreme weather events.

Practical implications

The findings suggest that index-based weather insurance products bear a large risk mitigation potential on an aggregate level. Hence, meso-level insurance should be recognized by institutions with a regional exposure to cost-related weather risks as part of their risk-management strategy.

Originality/value

The authors are the first to investigate the potential of weather index insurance for different risk aggregation levels in developing countries.

Details

Agricultural Finance Review, vol. 75 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Book part
Publication date: 26 February 2016

Noel Cassar and Simon Grima

The recent development of the European debt sovereign crisis showed that sovereign debt is not “risk free.” The traditional index bond management used during the last two…

Abstract

Introduction

The recent development of the European debt sovereign crisis showed that sovereign debt is not “risk free.” The traditional index bond management used during the last two decades such as the market-capitalization weighting scheme has been severely called into question. In order to overcome these drawbacks, alternative weighting schemes have recently prompted attention, both from academic researchers and from market practitioners. One of the key developments was the introduction of passive funds using economic fundamental indicators.

Purpose

In this chapter, the authors introduced models with economic drivers with an aim of investigating whether the fundamental approaches outperformed the other models on risk-adjusted returns and on other terms.

Methodology

The authors did this by constructing five portfolios composed of the Eurozone sovereigns bonds. The models are the Market-Capitalization RP, GDP model RP, Ratings RP model, Fundamental-Ranking RP, and Fundamental-Weighted RP models. These models were created exclusively for this chapter. Both Fundamental models are using a range of 10 country fundamentals. A variation from other studies is that this dissertation applied the risk parity concept which is an allocation technique that aims to equalize risk across different assets. This concept has been applied by assuming the credit default swap as proxy for sovereign credit risk. The models were run using the Generalized Reduced Gradient (GRG) method as the optimization model, together with the Lagrange Multipliers as techniques and the Karush–Kuhn–Tucker conditions. This led to the comparison of all the models mentioned above in terms of performance, risk-adjusted returns, concentration, and weighted average ratings.

Findings

By analyzing the whole period between 2006 and 2014, it was found that both the fundamental models gave very appealing results in terms of risk-adjusted returns. The best results were returned by the Fundamental-Ranking RP model followed by the Fundamental-Weighting RP model. However, better results for the mixed performance and risk-adjusted returns were achieved on a yearly basis and when sub-dividing the whole period in three equal periods. Moreover, the authors concluded that over the long term, the fundamental bond indexing triumphed over the other approaches by offering superior return and risk characteristics. Thus, one can use the fundamental indexation as an alternative to other traditional models.

Details

Contemporary Issues in Bank Financial Management
Type: Book
ISBN: 978-1-78635-000-8

Keywords

Article
Publication date: 17 August 2021

Antonio Garcia-Amate, Alicia Ramírez-Orellana and Alfonso A. Rojo Ramirez

This study aims to examine the attractiveness of the regional Dow Jones Sustainability Indexes (DJSI) and several renewable energy indexes during December 31, 2010 to…

Abstract

Purpose

This study aims to examine the attractiveness of the regional Dow Jones Sustainability Indexes (DJSI) and several renewable energy indexes during December 31, 2010 to December 31, 2019. This study uses a risk-return analysis and a set of explanatory factors. Lastly, this study conducts a comparative analysis of these indexes with conventional indexes.

Design/methodology/approach

This study uses data from Eikon, a Thomson Reuters database. To analyze the indexes’ behavior, this study uses the indexes’ annual return as of December 31 for each year. Next, this study estimates the Fama and French’s five-factor model using an ordinary least squares regression for regional DJSI and renewable energy indexes.

Findings

The results show that regional DJSIs delivered returns both above and below conventional indexes. In contrast, renewable energy indexes had high betas and negative returns, making them unattractive to investors.

Practical implications

The results imply the need for public financing programs that support the transition to a sustainable economy and reduce risk and increase the return on private investment.

Social implications

This study provides insights for policymakers regarding the importance of sustainability indexes in the transition to a green economy.

Originality/value

This study contributes to the growing literature on Fama and French’s five-factor model of sustainability indexes, especially in the current context characterized by intense green political changes. In particular, this study complements the few studies that have addressed the economic implications of renewable energy indexes in markets.

Details

Sustainability Accounting, Management and Policy Journal, vol. 13 no. 1
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 3 May 2016

Ana Marr, Anne Winkel, Marcel van Asseldonk, Robert Lensink and Erwin Bulte

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance…

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Abstract

Purpose

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance and the existing links between insurance and credit. In this meta-analysis, the authors identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity.

Design/methodology/approach

Following a systematic literature search in Scopus and Web of Science, relevant empirical articles were identified by using the following criteria search algorithm: “insurance” and (“weather” or “micro” or “area?based” or “rain*” or “livestock” or “index”), and ((“empiric*” or “experiment” or “trial” or “RCT” or “impact”) or (“credit” or “loan*” or “debt” or “finance”)). The authors identified 1,133 related papers, 110 of which were selected as closely matching the study criteria. After removing duplicates and analysing each document, 45 papers were included in the current analysis. The framework for addressing insurance and credit issues, in the paper, entails three subsequent themes, namely, adoption of insurance, impact of insurance and links between insurance and credit.

Findings

It is not confirmed yet that demand for insurance is indeed hump-shaped in risk aversion and the functional form of this relationship should be tested in more detail. This also holds for the magnitude of the effect of trust and education on actual demand. Furthermore, it is unclear to what extent other risk mitigation strategies form complements or substitutes to index-insurance. Lastly, the interaction between basis risk and price is important to the design of index-insurance products. If basis risk and price elasticity are indeed highly correlated, products that diminish basis risk are crucial in increasing demand. On the impact of bundled products, e.g. combination of insurance and credit, limited empirical research has been conducted. For example, it is unknown to what extent credit suppliers would react to the insured status of farmers or what the preferences of farmers are when it comes to a mix of financial products. In addition, several researchers have suggested that microfinance institutions or banks could insure themselves against covariate risk, yet no empirical evidence about this insurance mechanism has been conducted so far.

Research limitations/implications

The authors based the research on scientific literature uploaded in Scopus and Web of Science. Other potentially insightful grey literature was not included due to lack of accessibility. Given the research findings, there is plenty of opportunity for further research particularly with regard to the effects of bundled products, e.g. insurance plus credit, on demand for index-insurance, supply of credit, loan conditions and impact on farm productivity and farmers’ well-being.

Practical implications

Microfinance institutions, insurance companies, NGOs, research institutions and universities, particularly in developing countries, will be interested to learn about the systematic review of scientific research done in the area of insurance and credit for agriculture and the possibilities for application in their own practice of supplying these financial products.

Social implications

A rigorous understanding of the potential of index-insurance and credit is essential for identifying the right mix of financial products that help smallholder farmers to increase farm productivity and their own well-being.

Originality/value

The paper is valuable due to its rigorous evaluation of existing theoretical and empirical research around issues explaining the degree of adoption and impact of index-insurance and that of bundled financial products (i.e. index-insurance plus credit). The paper has the potential to become essential reading for academics, practitioners and policy-makers interested in researching and putting in practice the best options leading to greater farm productivity and well-being in developing countries.

Details

Agricultural Finance Review, vol. 76 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Open Access
Article
Publication date: 16 October 2017

Hao Zhang, Bin Qiu and Keming Zhang

The purpose of this paper is to develop a quantitative risk assessment method for agricultural products cold chain logistics to assess the condition of the fresh…

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Abstract

Purpose

The purpose of this paper is to develop a quantitative risk assessment method for agricultural products cold chain logistics to assess the condition of the fresh agricultural products cold chain process objectively and accurately.

Design/methodology/approach

A risk assessment index system of agricultural products cold chain logistics is designed on the basis of the risk identification for the process of agricultural products cold chain logistics. This paper first uses catastrophe progression method and a new maximum deviation method to build an improved catastrophe progression assessment model for agricultural products cold chain logistics. In order to verify the reliability and validity of the model, two representative enterprises are selected as the case in the study.

Findings

The results in the empirical research indicate strong support for the assessment model and coincide with the reality. The risk assessment index system can also reflect the key risk factors from agricultural products cold chain logistics scientifically. In addition, the improved catastrophe progression assessment method proposed in this paper can be scientific and reasonable to predict risk.

Research limitations/implications

This paper contributes to provide a new risk assessment model for agricultural products cold chain logistics. The new model overcomes the limitation of subjective empowerment and it increases the objectivity and scientificity in the process of cold chain logistics risk assessment. This paper also shows that practitioners involved in the field of products cold chain logistics can manage the potential risk by a set of scientific methods for assessing the risk before the accident.

Practical implications

The paper provides a practical guideline to practitioners, especially for cold chain logistics managers, relevant management departments, and cold chain logistics management consultants. It is proved that the new risk assessment method and the risk assessment index system of agricultural products cold chain logistics can help them assess the risk scientifically and reasonably.

Originality/value

Although the calculation is simple, the new model can overcome the limitation of subjective empowerment scientifically and reasonably, and thus has important practical value.

Details

Industrial Management & Data Systems, vol. 117 no. 9
Type: Research Article
ISSN: 0263-5577

Keywords

Article
Publication date: 20 September 2019

Mitchell Roznik, Milton Boyd, Lysa Porth and C. Brock Porth

The purpose of this paper is to examine factors affecting the use of forage index insurance. Forage is a difficult crop to insure, and index insurance may be well suited…

Abstract

Purpose

The purpose of this paper is to examine factors affecting the use of forage index insurance. Forage is a difficult crop to insure, and index insurance may be well suited for forage insurance and has been implemented in several countries, including Canada, the USA and France. Despite being a promising risk management tool, forage index insurance participation rates in Canada, and other countries are low relative to crop insurance participation rates for grain and oilseed producers.

Design/methodology/approach

A survey was conducted with 87 beef and cattle producers from Alberta and Saskatchewan, Canada. A probit regression model was used, and a number of variables were included to examine the use of forage index insurance.

Findings

In total, 6 of 11 variables in the model are found to be statistically significant in explaining forage producers’ use of forage index insurance. Results suggest that producers who maintain lower feed reserves are more likely to purchase forage index insurance. Also, producers with higher levels of knowledge of crop insurance and a more positive attitude toward forage insurance are more likely to use forage index insurance. Furthermore, producers are more likely to use forage index insurance if they perceive drought and weather risk as being of greater importance, and if they are younger. The importance of the variable forage index insurance premium price was statistically insignificant. This could be due to the effect of subsidization, reducing the importance of price for the decision to purchase. Similarly, the use of other subsidized risk management policies, including a whole-farm margin policy (e.g. the government program and AgriStability), did not reduce forage index insurance use. A possible explanation for this is that the subsidization of the policies may make it profitable to purchase both, despite the overlapping coverage.

Practical implications

These results may be useful for policy makers interested in increasing forage index insurance participation rates, as forage index insurance participation rates have historically been low relative to grain and oilseed producers.

Originality/value

This study is believed to be one of the first studies regarding the use of forage index insurance by forage producers. Producers can be exposed to catastrophic risks such as drought or other extreme weather events, and forage index insurance may be an effective means to manage these risks. Index insurance determines payments using an index that is correlated to producers’ actual yields. A downside of this method is basis risk, which is the mismatch between the insured index and the producer’s actual yield. Research has focused on basis risk and developing improved methods to reduce basis risk. However, less research has investigated the other important factors that may contribute to forage index insurance use. Producers may have a different risk management environment regarding forage production compared to other farm activities, and these differences have largely not been examined.

Details

Agricultural Finance Review, vol. 79 no. 5
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 7 July 2020

Roman Hohl, Ze Jiang, Minh Tue Vu, Srivatsan Vijayaraghavan and Shie-Yui Liong

Examine the usability of rainfall and temperature outputs of a regional climate model (RCM) and meteorological drought indices to develop a macro-level risk transfer…

Abstract

Purpose

Examine the usability of rainfall and temperature outputs of a regional climate model (RCM) and meteorological drought indices to develop a macro-level risk transfer product to compensate the government of Central Java, Indonesia, for drought-related disaster payments to rice farmers.

Design/methodology/approach

Based on 0.5° gridded rainfall and temperature data (1960–2015) and projections of the WRF-RCM (2016–2040), the Standardized Precipitation Index (SPI) and the Standardized Precipitation Evapotranspiration Index (SPEI) are calculated for Central Java over different time spans. The drought indices are correlated to annual and seasonal rice production, based on which a weather index insurance structure is developed.

Findings

The six-month SPI correlates best with the wet season rice production, which generates most output in Central Java. The SPI time series reveals that drought severity increases in future years (2016–2040) and leads to higher payouts from the weather index structure compared to the historical period (1960–2015).

Practical implications

The developed methodology in using SPI for historical and projected periods allows the development of weather index insurance in other regions which have a clear link between rainfall deficit and agricultural production volatility.

Originality/value

Meteorological drought indices are a viable alternative for weather index insurance, which is usually based on rainfall amounts. RCM outputs provide valuable insights into future climate variability and drought risk and prolong the time series, which should result in more robust weather index insurance products.

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