Volume 1, Issue 1:
ACRN Journal of Finance and Risk Perspectives
Vol. 1, Issue 1, Oct. 2012, ISSN 2305-7394
TABLE OF CONTENTS
A COMPARISON OF DIFFERENT FAMILIES OF PUT-WRITE OPTION STRATEGIES
1 Lucia Del Chicca
2 Gerhard Larcher
1-2 Institute of financial mathematics, University of Linz, Austria
Abstract: In [5] the authors study and analyze the performance properties
of certain put-write option strategies on the S&P500 index, and they find
that these strategies show a systematic outperformance. This
outperformance is a consequence of the observation that, in the past, the
implied volatility often overestimated the actual volatility of the S&P500
index. The strategies studied in [5] are based on trading put spreads only.
In the discussion following the publication of [5], the question frequently
arose, if whether working with naked put short position instead of put
spreads can even further increase the performance of these strategies. In
this paper we study this question and can answer it in an essentially
negative way.
Keywords: put options, trading strategies, Black-Scholes formula, outperformance, implicite volatility, historic volatility, sharpe ratio.
APPLYING MACRO-PRUDENCE IN FINANCIAL STANDARD SETTING
1 Diana Festl-Pell, PhD Student, University of Zurich, Department of Banking and Finance, Switzerland
Abstract. The systemic crisis has shown that far from being an obscure and
arcane debate about measurement, accounting issues take on a huge significance
for financial stability. This paper presents a macro-prudential model outline of
financial standard setting, i.e. the idea that fair value accounting’s prior aim is no
longer to correctly depict market values but to capture the broader impact of
accounting on economic and financial systems. This approach differs from
current accounting research in two ways: It addresses the possibility that fair
value accounting can be, at least, a partial solution to the problem of systemic
crises, rather than a mere problem contributor or crisis accelerator. Additionally,
it questions the acclaimed role of accounting standard setters to provide decision-useful
information and thereby concentrate solely on ensuring that accounting
values reflect current terms of trade between willing parties rather than
cooperating with the prudential regulators in their endeavor for financial stability.
The paper is thus able to offer a vision for how a new bank accounting regime for
systemic stability could be designed.
Keywords: macro-prudence, bank accounting, systemic, stability, fair value, prudential, regulation
MANAGING RISK IN FINANCIAL MARKET IN SHIPPING INDUSTRY
1 Dimas Mukhlas Widiantoro
2 Vegard Elvenes
1-2 University I Agder, Department of Economics and Business Administration, Norway
Abstract. This paper examines how to manage risk in financial market in shipping
industry by using option strategies instead of investing directly into shipping
stocks. Freight rates play an important role in shipping industry, since they
determine the income to the shipping companies, and thereby the company’s
share price. Based upon the residual earning model of equity valuation of Farstad
Shipping, it appears that a 3 months straddle strategy and a cylinder strategy
seems to be a better strategy than a 1 year straddle strategy, due to the volatility
in the shipping industry.
Key words: risk in shipping, freight rates, equity valuation, option strategies
FIRM’S FINANCING CONSTRAINTS AND INVESTMENT-CASH FLOW SENSITIVITY: EVIDENCE FROM COUNTRY LEGAL INSTITUTIONS
1 Ahmed Marhfor
2 Bouchra M’Zali
3 Jean-Claude Cosset
1 Department of administrative studies, University of Quebec in Abitibi-Témiscamingue
2 Department of Finance, ESG/UQÀM Montréal
3 HEC Montréal
Abstract. In this paper, we investigate whether high investment-cash flow sensitivity
can be interpreted as evidence that firms are facing binding financing constraints.
Using institutional features and an intuitive measure of stock price informativeness to
distinguish between most constrained and least constrained firms, we document that
firms that are supposed to be more financially constrained exhibit greater
investment-cash flow sensitivity. Our findings support the results of Fazzari et al.
(1988) who also find that investment spending of firms with high levels of financial
constraints is more sensitive to the availability of cash flow.
Keywords: Investment decisions, stock price informativeness, investment-cash flow sensitivity, financing constraints
FAIR VALUE ACCOUNTING IN TIMES OF FINANCIAL CRISIS
1 Natascha Jarolim
2 Carina Öppinger
1-2 Department of Accounting and Auditing, Johannes Kepler University, Austria
Abstract. Fair value accounting is an essential feature of International Financial
Reporting Standards. Even though this accounting method did not spark the
financial crisis, it did enhance its impact. As a consequence of the financial crisis
the IASB amended IAS 39 to override the fair value recognition. The amendments
to IAS 39 & IFRS 7 permitted reclassifications of the categories Held for Trading
and Available for Sale, some of which had explicitly been forbidden prior to the
amendment. Critics argue that these modifications to IAS 39 made it possible to
camouflage losses of hundreds of billions of euros. The main goal of this paper is
to evaluate the amendment to IAS 39 & IFRS 7 by conducting a survey of the
banking sector. Furthermore fair value accounting in general is critically
discussed.
Keywords: amendment, banking sector, fair value, financial assets, financial crisis, IAS 39, IFRS 7, IFRS 9, OCI, reclassification.
THE NEXUS OF ENTERPRISE RISK MANAGEMENT AND VALUE CREATION: A SYSTEMATIC LITERATURE REVIEW
1 Verena Kraus
2 Othmar M. Lehner
1 University of Applied Sciences Upper Austria
2 University of Jyväskylä, Finland
Abstract. Enterprise risk management (ERM) has emerged as a new paradigm for managing the portfolio of risks that face organizations and delivers syner-gic value by exploiting natural hedges. Proponents of ERM claim that ERM is designed to enhance the shareholder value (SHV). Increasing numbers of re-searchers have studied the impact of ERM on a firms’ value (value creation) and found a positive correlation, but ultimately fail to enlighten the entire pic-ture because of the yet to be fully understood field of ERM as well as a missing conceptualization of the nexus between ERM and Value Creation (VC). The lit-erature on ERM is still in a pre-paradigmatic state and executed quantitative studies are too early in the stage of the research field. This study proposes an updated research agenda to examine the nexus of ERM and VC and determines which quality articles and proxies for ERM and VC currently exist in litera-ture. Therefore, the authors systematically reviewed 25 articles regarding the ERM and VC nexus by coding the articles and later using a qualitative themat-ic analysis. First, the study provides an overview of theoretical background re-garding ERM development, frameworks and regulation. Then the authors de-scribe the empirical methodology and introduce the findings of the study. The study found a lack of reliable proxies, authors struggling to find the influencing ERM determinants and, thus, the inability to make a general statement on the value creating effect of ERM programs. Resulting of the findings, the authors proposes the identification of specific components and processes of ERM that contribute to firm value and evaluation of added benefit of ERM, compared to TRM. The authors further suggest the solicitation of a same base and scrutini-zation of profitability based VC measures towards a cash flow based approach.
Keywords: Risk, Finance, Enterprise Risk Management, ERM, Value Creation
ACRN Journal of Finance and Risk Perspectives
Vol. 1, Issue 1, Oct. 2012, ISSN 2305-7394
TABLE OF CONTENTS A COMPARISON OF DIFFERENT FAMILIES OF PUT-WRITE OPTION STRATEGIES1 Lucia Del Chicca
2 Gerhard Larcher
1-2 Institute of financial mathematics, University of Linz, Austria
Abstract: In [5] the authors study and analyze the performance properties
of certain put-write option strategies on the S&P500 index, and they find
that these strategies show a systematic outperformance. This
outperformance is a consequence of the observation that, in the past, the
implied volatility often overestimated the actual volatility of the S&P500
index. The strategies studied in [5] are based on trading put spreads only.
In the discussion following the publication of [5], the question frequently
arose, if whether working with naked put short position instead of put
spreads can even further increase the performance of these strategies. In
this paper we study this question and can answer it in an essentially
negative way.
Keywords: put options, trading strategies, Black-Scholes formula, outperformance, implicite volatility, historic volatility, sharpe ratio.
APPLYING MACRO-PRUDENCE IN FINANCIAL STANDARD SETTING1 Diana Festl-Pell, PhD Student, University of Zurich, Department of Banking and Finance, Switzerland
Abstract. The systemic crisis has shown that far from being an obscure and
arcane debate about measurement, accounting issues take on a huge significance
for financial stability. This paper presents a macro-prudential model outline of
financial standard setting, i.e. the idea that fair value accounting’s prior aim is no
longer to correctly depict market values but to capture the broader impact of
accounting on economic and financial systems. This approach differs from
current accounting research in two ways: It addresses the possibility that fair
value accounting can be, at least, a partial solution to the problem of systemic
crises, rather than a mere problem contributor or crisis accelerator. Additionally,
it questions the acclaimed role of accounting standard setters to provide decision-useful
information and thereby concentrate solely on ensuring that accounting
values reflect current terms of trade between willing parties rather than
cooperating with the prudential regulators in their endeavor for financial stability.
The paper is thus able to offer a vision for how a new bank accounting regime for
systemic stability could be designed.
Keywords: macro-prudence, bank accounting, systemic, stability, fair value, prudential, regulation
MANAGING RISK IN FINANCIAL MARKET IN SHIPPING INDUSTRY 1 Dimas Mukhlas Widiantoro
2 Vegard Elvenes
1-2 University I Agder, Department of Economics and Business Administration, Norway
Abstract. This paper examines how to manage risk in financial market in shipping
industry by using option strategies instead of investing directly into shipping
stocks. Freight rates play an important role in shipping industry, since they
determine the income to the shipping companies, and thereby the company’s
share price. Based upon the residual earning model of equity valuation of Farstad
Shipping, it appears that a 3 months straddle strategy and a cylinder strategy
seems to be a better strategy than a 1 year straddle strategy, due to the volatility
in the shipping industry.
Key words: risk in shipping, freight rates, equity valuation, option strategies
FIRM’S FINANCING CONSTRAINTS AND INVESTMENT-CASH FLOW SENSITIVITY: EVIDENCE FROM COUNTRY LEGAL INSTITUTIONS 1 Ahmed Marhfor
2 Bouchra M’Zali
3 Jean-Claude Cosset
1 Department of administrative studies, University of Quebec in Abitibi-Témiscamingue
2 Department of Finance, ESG/UQÀM Montréal
3 HEC Montréal
Abstract. In this paper, we investigate whether high investment-cash flow sensitivity
can be interpreted as evidence that firms are facing binding financing constraints.
Using institutional features and an intuitive measure of stock price informativeness to
distinguish between most constrained and least constrained firms, we document that
firms that are supposed to be more financially constrained exhibit greater
investment-cash flow sensitivity. Our findings support the results of Fazzari et al.
(1988) who also find that investment spending of firms with high levels of financial
constraints is more sensitive to the availability of cash flow.
Keywords: Investment decisions, stock price informativeness, investment-cash flow sensitivity, financing constraints
FAIR VALUE ACCOUNTING IN TIMES OF FINANCIAL CRISIS1 Natascha Jarolim
2 Carina Öppinger
1-2 Department of Accounting and Auditing, Johannes Kepler University, Austria
Abstract. Fair value accounting is an essential feature of International Financial
Reporting Standards. Even though this accounting method did not spark the
financial crisis, it did enhance its impact. As a consequence of the financial crisis
the IASB amended IAS 39 to override the fair value recognition. The amendments
to IAS 39 & IFRS 7 permitted reclassifications of the categories Held for Trading
and Available for Sale, some of which had explicitly been forbidden prior to the
amendment. Critics argue that these modifications to IAS 39 made it possible to
camouflage losses of hundreds of billions of euros. The main goal of this paper is
to evaluate the amendment to IAS 39 & IFRS 7 by conducting a survey of the
banking sector. Furthermore fair value accounting in general is critically
discussed.
Keywords: amendment, banking sector, fair value, financial assets, financial crisis, IAS 39, IFRS 7, IFRS 9, OCI, reclassification.
THE NEXUS OF ENTERPRISE RISK MANAGEMENT AND VALUE CREATION: A SYSTEMATIC LITERATURE REVIEW1 Verena Kraus
2 Othmar M. Lehner
1 University of Applied Sciences Upper Austria
2 University of Jyväskylä, Finland
Abstract. Enterprise risk management (ERM) has emerged as a new paradigm for managing the portfolio of risks that face organizations and delivers syner-gic value by exploiting natural hedges. Proponents of ERM claim that ERM is designed to enhance the shareholder value (SHV). Increasing numbers of re-searchers have studied the impact of ERM on a firms’ value (value creation) and found a positive correlation, but ultimately fail to enlighten the entire pic-ture because of the yet to be fully understood field of ERM as well as a missing conceptualization of the nexus between ERM and Value Creation (VC). The lit-erature on ERM is still in a pre-paradigmatic state and executed quantitative studies are too early in the stage of the research field. This study proposes an updated research agenda to examine the nexus of ERM and VC and determines which quality articles and proxies for ERM and VC currently exist in litera-ture. Therefore, the authors systematically reviewed 25 articles regarding the ERM and VC nexus by coding the articles and later using a qualitative themat-ic analysis. First, the study provides an overview of theoretical background re-garding ERM development, frameworks and regulation. Then the authors de-scribe the empirical methodology and introduce the findings of the study. The study found a lack of reliable proxies, authors struggling to find the influencing ERM determinants and, thus, the inability to make a general statement on the value creating effect of ERM programs. Resulting of the findings, the authors proposes the identification of specific components and processes of ERM that contribute to firm value and evaluation of added benefit of ERM, compared to TRM. The authors further suggest the solicitation of a same base and scrutini-zation of profitability based VC measures towards a cash flow based approach.
Keywords: Risk, Finance, Enterprise Risk Management, ERM, Value Creation