Risk Governance and Control: Financial Markets and Institutions

Journal Information
ISSN / EISSN : 2077-429X / 2077-4303
Current Publisher: Virtus Interpress (10.22495)
Total articles ≅ 454
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Oksana Kim
Risk Governance and Control: Financial Markets & Institutions, Volume 10, pp 62-74; doi:10.22495/rgcv10i3p5

This work is licensed under a Creative Commons Attribution 4.0 International License. Abstract Over the past decade, the Russian government
Risk Governance and Control: Financial Markets and Institutions; doi:10.22495/rgc

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Betchani Tchereni, Songezo Mpini
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 50-61; doi:10.22495/rgcv10i3p4

This paper examines the effect of monetary policy decisions on stock markets in emerging economies particularly South Africa for the period 2000Q1 to 2016Q4. This is important as the monetary authorities would understand how their decisions may cause reactions to the stock market. Monetary policy directly shocks money supply and repo rate and indirectly GDP and inflation among many macroeconomic variables. A hypothesis that stock markets do not respond to monetary policy determinations is formulated and tested using a two-stage approach by employing first the vector error correction model to determine the long-run relationship of the variables and secondly GARCH (1, 2) model to determine the volatility. And the results suggest that about 5.2% variations in the Johannesburg Stock Exchange (JSE) volatility are due to monetary policy shocks. Overall, there is a negative relationship between M2 and stock market volatility. However, there is a positive link between repo rate and JSE volatility, which is not economically preferable because variations in repo rate influence the aggregate demand of investment on securities. The study recommends that the Monetary Policy Committee an expansionary monetary policy of keeping the repo rate lower must be pursued in order to increase borrowing that makes the public to have money to make transactions in securities on the financial market.
João Imaginário, Maria João Coelho Guedes
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 34-49; doi:10.22495/rgcv10i3p3

This work is licensed under a Creative Commons Attribution 4.0 International License. Abstract The continuous increase in debt ratios raises
Aldo Taranto, Shahjahan Khan
Risk Governance and Control: Financial Markets & Institutions, Volume 10, pp 20-33; doi:10.22495/rgcv10i3p2

Whilst the gambler’s ruin problem (GRP) is based on martingales and the established probability theory proves that the GRP is a doomed strategy, this research details how the semimartingale framework is required for the grid trading problem (GTP) of financial markets, especially foreign exchange (FX) markets. As banks and financial institutions have the requirement to hedge their FX exposure, the GTP can help provide a framework for greater automation of the hedging process and help forecast which hedge scenarios to avoid. Two theorems are adapted from GRP to GTP and prove that grid trading, whilst still subject to the risk of ruin, has the ability to generate significantly more profitable returns in the short term. This is also supported by extensive simulation and distributional analysis. We introduce two absorption barriers, one at zero balance (ruin) and one at a specified profit target. This extends the traditional GRP and the GTP further by deriving both the probability of ruin and the expected number of steps (of reaching a barrier) to better demonstrate that GTP takes longer to reach ruin than GRP. These statistical results have applications into finance such as multivariate dynamic hedging (Noorian, Flower, & Leong, 2016), portfolio risk optimization, and algorithmic loss recovery.
Antonia Patrizia Iannuzzi, Elisabetta D’Apolito, Simona Galletta
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 8-19; doi:10.22495/rgcv10i3p1

This paper analyzes the relationships between mutual guarantee institutions (MGIs) and the development of firms’ internationalization. As a result, a theoretical framework consists of 20 items grouped into four areas of the investigation was formulated. This model, in the form of a questionnaire, was submitted in December 2017 to the universe of Italian supervised MGIs asking them to provide answers for the period 2014-2016. The empirical pieces of evidence reveal a still wholly embryonic role of Italian supervised MGIs to support the firms’ internationalization processes. Indeed, the paper reveals an informative and training gap to which one could cope with more intense involvement of the national federations, banks, and the government structures, providing simplified mechanisms of access to the public guarantee by those who are most involved in these entrepreneurial strategies. The present research identified some important behavioral requirements, that were not emphasized in existing literature, able to disclose the most virtuous approach adoptable by MGIs in order to strengthen the firms’ internationalization processes.
Nadia Cipullo
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 4-6; doi:10.22495/rgcv10i2editorial

A premise of this issue seems appropriate. The coronavirus epidemic has caused an abrupt economic and social disruption and markets are reacting accordingly. Many economies around the world could suffer from falling GDP, due to growing lockdown measures and the millions of people absent from work, the closure of schools and thousands of restaurants and other closed businesses. Therefore, financial markets are experiencing levels of extreme volatility, while investors are grappling with the various consequences that this virus could bring with it. In this regard, on March 11th, 2020 the European Securities and Market Authority (ESMA) published recommendations addressed to participants in the financial markets, precisely in consideration of the spread of COVID-19 and the related impacts on the European Union economy (ESMA, 2020). In particular, after examining the market situation and the emergency measures adopted by the various participants in the financial markets, ESMA made 4 recommendations on the following areas: 1) business continuity planning; 2) market disclosure; 3) financial reporting; 4) fund management.
Nicola Bianchi, Umberto Filotto, Xenia Scimone
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 71-78; doi:10.22495/rgcv10i2p6

This work studies the effect of Italian regulation D.Lgs. No. 141/2010 (Law 141), introduced to transpose Directive 2008/48/EC of the European Parliament into the performance of credit intermediaries. Law 141’s entry into force provides an opportunity to study the effect of greater market entry barriers on sector profitability. The Italian case is particularly significant because it is characterized by strict application of the directive, a low level of financial literacy, and a distribution model that, for some kinds of personal loans, allows agents and brokers a significant role (Canales & Nanda, 2012). We study a panel of Italian agents and credit brokers, using a panel and difference-in-differences regression. The results show that, from 2009 to 2017, firm profitability was driven not by the increase in market entry requirements introduced by Law 141 but, rather, by firms’ size, efficiency, and business model.
Abdulkader Aljandali, Christos Kallandranis
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 53-70; doi:10.22495/rgcv10i2p5

Despite rising interest in African economies, there is little prior research on the determinants of exchange rate movements in the region. This paper examines the monthly exchange rates of the country members of the Southern African Development Community (SADC) from 1990 to 2010 inclusive. Long-run equilibrium exchange rate models are established, exchange rate determinants are identified, and ex-post forecasts are generated for a period of 18 months (Sekantsi, 2011). The autoregressive distributed lag (ARDL) cointegration model is used in this paper, given its statistical advantages over commonly, applied cointegration techniques. Findings show that the ARDL method generates accurate forecasts for eight out of 11 sampled exchange rates. In keeping with earlier literature (e.g., Redda & Muzindusti, 2017; Zerihun & Breitenbach, 2017; etc.), findings suggest that the chances of SADC member countries fulfilling the requirements of a currency union are quite low. This paper marks one of the first attempts in the literature to forecast exchange rates in SADC using the ARDL approach (Pesaran & Shin, 1995). The results would be of interest to policy-makers, researchers and investors.
Federico Beltrame, Luca Grassetti, Maurizio Polato, Giulio Velliscig
Risk Governance and Control: Financial Markets and Institutions, Volume 10, pp 45-52; doi:10.22495/rgcv10i2p4

This paper delves into the implications for the bank behaviour about firm loan pricing conditions of the new direction undertaken by supervisory and regulatory authorities in the aftermath of the deterioration of the loan portfolio quality that hit EU banks. The 2014 AQR exercise embraces the new direction and extensively uses debt service coverage measures to assess a firm’s loan quality. We, therefore, check whether the DSCR has influenced debt pricing conditions by analysing a panel of 655 listed EU firms from 2009 to 2017. Our findings show that Z-score is unable to discriminate between high and low credit risk firms. The DSCR becomes significant only after 2014, highlighting the incremented importance of this ratio in the bank’s loan pricing determination. Our work contributes to the literature investigating third-party interdependencies with the interplay between lender-borrower relationship and loan pricing and further extends the literature on creditworthiness metrics beyond their mere default-prediction ability (Beaver, 1966; Houghton & Woodliff, 1987). Our results highlight the relevance of the DSCR in the bank’s loan pricing determination and inform firm managers about the drivers that influence the cost of debt thereby enhancing their operational and financial planning.
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