Search results

This paper aims to propose a new method for credit risk allocation among economic agents.

The paper considers a pool of bank loans subject to a credit risk and develops a method for decomposing the credit risk into idiosyncratic and systematic components. The systematic component accounts for the aggregate statistical difference between credit defaults in a given period and the long‐run average of these defaults.

The paper shows how financial contracts might be redesigned to allow for banks to manage the idiosyncratic component for their own accounts, while allowing the systematic component to be handled separately. The systematic component can be retained, passed off to the capital markets, or shared with the borrower. In the latter case, the paper introduces a type of floating interest rate, in which the rate is set in arrears, based on a composite index for the systematic risk. This increases the efficiency of risk sharing between borrowers, lenders and the capital market.

The paper has several practical implications that are of value for financial engineers, loan market participants, financial regulators, and all economic agents concerned with credit risk. It could lead to a new class of structured notes being traded in the market.

The paper also illustrates the potential benefits of risk decomposition. Of course, as with any innovation, the implementation of the structured contracts would raise practical issues not addressed here. The paper also makes several simplifications: market risk is ignored; the level of default is constant and identical among borrowers. These simplifications could be lifted in future research on this theme.

The purpose of this paper is to explore the impact of the mechanisms of corporate governance on the volatility of companies’ financial profitability.

For the period 2002-2014, the authors evaluate the relations linking various indices involved in corporate governance with the systematic risk supported by these companies for a sample of 355 firms domiciled in Europe. To empirically test these relationships, the authors calculated a synthetic index of corporate governance quality (QGI) based on the 53 items of assessment of the companies’ governance proposed by the database ASSET4. Following the method used by Boncori et al. (2016), the authors first reduced the number of dimensions of corporate governance by performing a principal component analysis of the sample, which resulted in the following five components: management’s shareholder commitment, shareholder rights, characteristics of the board of directors, transparency of the financial information and independence of the audit.

The results of the tests indicate that the synthetic index of governance that the authors have built is only significant at the 10 percent threshold. The impact of this variable on the systematic risk of the company is of the order of one-tenth of a point. The decomposition of this index into five variables shows that management’s commitment to shareholders and the effectiveness of the board of directors in carrying out its supervisory tasks are likely to reduce, but again to a limited extent, the risk borne by the company.

This observation guides the future work in introducing variables that reflect the social responsibilities of the companies in the sample in order to distinguish the effects of social responsibility from those of purely shareholder-oriented governance on systematic risk.

This paper demonstrates the interest of good governance on the risk of firms and identifies certain characteristics upon which to act.

Although the relations between corporate governance mechanisms and profitability expectations have been the subject of numerous studies, few authors have examined the influence of governorship on the volatility of this profitability, particularly in Europe. To the best of the authors’ knowledge, the rare work on this topic relates to only a limited number of countries.

The demographic risk is the risk due to the uncertainty in the demographic scenario assumptions by which life insurance products are designed and valued. The uncertainty lies both in the accidental (insurance risk) and systematic (longevity risk) deviations of the number of deaths from the value anticipated for it. This last component gives rise to the risk due to the randomness in the choice of the survival model for valuations (model risk or projection risk). If the insurance risk component can be assumed negligible for well‐diversified portfolios, as in the case of pension annuities, longevity risk is crucial in the actuarial valuations. The question is particularly decisive in contexts in which the longevity phenomenon of the population is strong and pension annuity portfolios constitute a meaningful slice of the financial market – both typical elements of Western economies. The paper aims to focus on the solvency appraisal for a portfolio of life annuities, deepening the impact of the demographic risk according to suitable risk indexes apt to describe its evolution in time.

The financial quantity proposed for representing the economic wealth of the life insurance company is the stochastic surplus, and the paper analyses the impact on it of different demographic assumptions by means of risk indicators as the projection risk index, the quantile surplus valuation and the ruin probability. By means of the proposed models, the longevity risk is mainly taken into account in a stochastic scenario for the financial risk component, in order to consider their interactions, too. In order to furnish practical details significant in the portfolio risk management, several numerical applications clarify the practical meaning of the models in the solvency context.

This paper studies the impact on the portfolio surplus of the systematic demographic risk, taking into account their interaction with the financial risk sources. In this order of ideas, the internal risk profile of a life annuity portfolio is deeply investigated by means of suitable risk indexes: in a solvency analysis perspective, some possible scenarios for the evolution of death rates (generated by different survival models) are considered and this paper evaluates the impact on the portfolio surplus caused by different choices of the demographic model. The first index is deduced by a variance decomposition formula, the other ones involve the conditional quantile calculus and the ruin probability. Such indexes constitute benchmarks, whose conjoined use provides useful information to the meeting of the solvency requirements.

With respect to the recent actuarial literature, in which the most important contribution on the surplus analysis has been given by Lisenko et al. – where the analysis focuses on the financial aspect applied to portfolios of temporary and endowment contracts – the paper considers life annuity portfolios, taking into account the effect of the systematic demographic risk and its interactions with the financial risk components.

The purpose of this paper is to contribute to the existing stock return predictability and idiosyncratic risk literature by examining the relationship between stock returns and components derived from the decomposition of stock returns variance at the portfolio and firm levels.

A theoretical model is used to decompose the variance of stock returns into two volatility and two covariance terms by using a conditional Fama-French three-factor model. This study adopts portfolio analysis and Fama-MacBeth cross-sectional regression to examine the relationship between components of idiosyncratic risk and expected stock returns.

The portfolio analysis results show that volatility terms are negatively related to expected stock returns, and alpha risk has the most significant relationship with stock returns. On the contrary, covariance terms have positive relationships with expected stock returns at the portfolio level. Furthermore, the results of the Fama-MacBeth cross-sectional regression show that only alpha risk can explain variations in stock returns at the firm level. Another finding is that when volatility and covariance terms are excluded from idiosyncratic volatility, the relation between idiosyncratic volatility and stock returns becomes weak at the portfolio level and disappears at the firm level.

This is the first study that examines the relations between all the components of idiosyncratic risk and expected stock returns in equal-weighted and value-weighted portfolios. This research also suggests covariance terms of idiosyncratic volatility as new predictors of stock returns at the portfolio level. Moreover, this paper contributes to the idiosyncratic risk literature by examining whether all the four additional components explain all the systematic patterns included in the unconditional idiosyncratic risk.

The purpose of this paper is to show that subordinated debt regulatory proposals assume that transactions in the secondary market of subordinated debt can attenuate moral hazard on the part of management if secondary market prices are informative signals of the risk of the institution. Owing to the proprietary nature of dealer prices and the liquidity of secondary transactions, the practical value of information provided by subordinated debt issues in isolation is questionable.

A multivariate dynamic risk signal is proposed that combines fluctuations in equity prices, subordinated debt and senior debt yields. The signal is constructed as a coincident indicator that is based in a time series model of yield fluctuations and equity returns. The extracted signal monitors idiosyncratic risk of the intermediary because yields and equity returns are filtered from market conditions. It is also predictable because it is possible to construct a leading indicator based almost entirely on spreads to Treasury.

The signal for the Bank of America and Banker's Trust is implemented. For Bank of America, the signal points mainly to two events of uprising risk: January 2000 when the bank disclosed large losses in its bond and interest‐rate swaps portfolios; and November 2000 when it wrote off $1.1 billion for bad loans. For Banker's Trust, the signal points to October/November 1995 after the filing of federal racketeering charges against Banker's Trust; and October 1998 when the bank suffered substantial losses from its investments in emerging markets.

The signal is a complementary instrument for regulators and investors to monitor and assess in real time the risk profile of the financial institution.

The purpose of this paper is to provide an extension of the behavioral agency model (BAM) by focusing on the moderating role of CEO gender on the relationship between CEO stock options and risk “systematic vs idiosyncratic” and the performance consequences “positive vs negative” of these option incentives.

Data on CEO’s stock option portfolios are collected from the Standard & Poor’s (S&P’s) ExecuComp. This paper uses a panel data analysis for matched samples of CEOs in S&P’s 1,500 listed firms over the period 2006-2013.

The results indicate a more conservative, risk-averse posture in the case of female CEOs than for male CEOs when they are compensated with stock options for idiosyncratic (firm-specific) risk. The results also confirm that female CEOs in low systematic risk contexts, although more conservative, take more prudent risks that produce better long-term outcomes as compared to their male counterparts.

Important implications for the design of optimal CEO’s compensation packages emanate from this study. Findings provide useful tools for board of directors to design CEO’s pay packages that take into account the different risk behavior of male and female CEOs with the aim of enhancing firm performance.

This paper provides new evidence within the area of stock option-based compensation by focusing on the distinction between systematic and idiosyncratic risk when the effect of CEO stock option is analyzed and performance implications of awarding options to male and female CEOs.

El objetivo de este trabajo es proporcionar una extensión del modelo comportamental de agencia o Behavioral Agency Model (BAM) centrada en el papel moderador del género del CEO en la relación entre la retribución basada en opciones o stock options y los niveles de riesgo –sistemático e idiosincrático– y en las consecuencias –positivas o negativas– sobre el resultado de la empresa.

Los datos sobre stock options de CEOs se recopilan de la base de datos Standard and Poor’s ExecuComp. Este estudio utiliza un análisis de datos de panel para muestras emparejadas de empresas incluidas en S&P 1500 durante el período 2006-2013.

Los resultados indican una postura más conservadora de las mujeres CEO en términos de niveles de riesgo idiosincrático en comparación con la llevada a cabo por los CEOs hombres cuando se les retribuye con stock options. Los resultados también confirman que las mujeres CEO en contextos de riesgo sistemático bajo, aunque más conservadoras, asumen riesgos “de mayor calidad” que producen mejores resultados a largo plazo en comparación con sus homólogos masculinos.

Importantes implicaciones para el diseño de paquetes de retribución óptimos para el CEO emanan de este estudio. Los resultados mostrados proporcionan herramientas útiles para el Consejo de Administración a la hora de diseñar paquetes de retribución para CEOs. Se deben tener en cuenta los diferentes comportamientos relacionados con la asunción de riesgos de CEOs hombres y mujeres con el objetivo de mejorar el resultado de la empresa.

Esta investigación proporciona nueva evidencia dentro del área de la retribución basada en stock options al centrarse tanto en la distinción de riesgos (sistemático e idiosincrático) como en las implicaciones sobre el resultado de la empresa de las stock options dadas como parte de su retribución a hombres y mujeres que ocupan la posición de CEO.

Palabras clave Modelo comportamental de agencia, Opciones sobre acciones, Género, Riesgo sistemático, Riesgo idiosincrático, Resultado

Artículo de investigación

O objetivo deste artigo é fornecer uma extensão da perspectiva do Modelo de Agência Comportamental (BAM) focada nas opções de ações examinando as influências e consequências do desempenho do CEO, considerando a distinção entre risco sistemático e idiossincrático sobre o efeito das opções de ações. em comportamento de risco.

Os dados sobre portfólios de opções de ações do CEO são coletados do Standard and Poor’s ExecuComp. Este documento utiliza uma análise de dados em painel para amostras correspondentes de empresas listadas no S&P 1500 no período 2006-2013.

Os resultados indicam uma postura mais conservadora, avessa ao risco, no caso de CEOs do sexo feminino do que para CEOs do sexo masculino, quando eles são compensados com opções de ações para o risco idiossincrático (específico da empresa). Os resultados também confirmam que as CEOs do sexo feminino em contextos de baixo risco sistemático, embora mais conservadoras, assumem riscos mais prudentes que produzem melhores resultados a longo prazo, em comparação com os seus homólogos masculinos.

Implicações importantes para o projeto de pacotes de remuneração de CEOs ideais emanam deste estudo. Os resultados fornecem ferramentas úteis para o conselho de diretores, a fim de projetar pacotes de remuneração do CEO que levem em conta o comportamento de risco diferente dos CEOs do sexo feminino e masculino, com o objetivo de melhorar o desempenho da empresa.

Este documento fornece novas evidências dentro da área de remuneração baseada em opções de ações, concentrando-se tanto no tipo de risco como determinante do seu efeito de risco quanto nas implicações de desempenho da concessão de opções a CEOs do sexo feminino e masculino.

Palavras-chave Modelo de agência comportamental, Opções de ações, Gênero, risco sistemático, Risco idiossincrático, Atuação

Artigo de pesquisa

This chapter presents a structure within which to think about incorporating managerial decision models and managers' decisions into management research in general and foreign direct investment research more specifically. The thinking builds on Aharoni's initial research in The Foreign Investment Decision Process (1966) while incorporating his most recent call to action around the behavioral models of managers in “Behavioral Elements in Foreign Direct Investment” (2010).

This paper sheds light on the impact of market risk measures on systemic risk. Market risk, which is captured by the volatility of stock market returns, is also decomposed into systematic and idiosyncratic risks.

The author uses the five-factor asset pricing model and systemic risk methodologies to derive market and systemic risk measures, respectively. Using a sample of 2,667 US banks for over 30 years and employing panel data estimation techniques, the author tests the said relationship.

It is shown that idiosyncratic risk can surge systemic risk, while systematic risk plays a less important role. Results survive a battery of tests, including different systemic risk measures, controlling causality and interacting with bank size, market fear and crisis periods.

These findings call for regulatory intervention, especially for large banks with high idiosyncratic risk.

This is the first paper that provides a more granular picture of the relationship between market and systemic risk from the US banking industry for more than 30 years.

Due to the need for the development of person-centred integrated models of care with a population health approach, this paper explored contemporary literature in this arena.

A systematic literature review was conducted using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses. Papers included in this review focused upon person-centred integrated care and a health promotion/public health approach (January 2018–October 2020). Papers were excluded due to not being written in English, not fitting the age criteria and not being peer reviewed.

Eight studies met the inclusion criteria and three overarching themes were identified with regards to person-centred integrated care as a health promotion/public health approach: Core components; Development, implementation, and evaluation of models of care and relationship to population health and wellbeing outcomes.

The need for person-centred integrated care as a health promotion/public health approach, to enhance population health and well-being outcomes requires further research to continue to develop, implement and evaluate models of care.

The international scope of this contemporary review brought together the three concepts of person-centred integrated care and public health, exploring the translation of policy into practice (WHO, 2016). The juxtaposition of public health approaches in the background/consequential or foreground/active agent demonstrates how promotion, prevention and population health can be re-valued in integrated people-centred health services (WHO, 2016).

This chapter analyses the ability of some structural models to predict corporate bankruptcy. The study extends the existing empirical work on default risk in two ways. First, it estimates the expected default probabilities (EDPs) for a sample of bankrupt companies in the USA as a function of volatility, debt ratio, and other company variables. Second, it computes default correlations using a copula function and extracts common or latent factors that drive companies’ default correlations using a factor-analytical technique. Idiosyncratic risk is observed to change significantly prior to bankruptcy and its impact on EDPs is found to be more important than that of total volatility. Information-related tests corroborate the results of prediction-orientated tests reported by other studies in the literature; however, only a weak explanatory power is found in the widely used market-to-book assets and book-to-market equity ratio. The results indicate that common factors, which capture the overall state of the economy, explain default correlations quite well.