Volume 1, Issue 2:
ACRN Journal of Finance and Risk Perspectives
Vol. 1, Issue 2, Dec. 2012, ISSN 2305-7394
TABLE OF CONTENTS
QUALITY AND DETERMINANTS OF RISK REPORTING - EVIDENCE FROM GERMANY AND AUSTRIA
1 Susanne Leitner-Hanetseder, Department of Accounting and Auditing, Kepler University of Linz, Austria
Abstract. While risk reporting disclosures have been required in Germany since 1999, equal requirements have become mandatory in Austria and all member states of the European Union only since 2005. The analysis conducted includes the risk reporting disclosures of all non-financial companies listed in the German prime stock market (DAX-30) and Austrian prime stock market (ATX). The purpose of this study is to investigate information quality of risk reporting disclosures within the annual reports of Austrian and German listed companies by using a scoring model. As most industries (except finance industry) have been affected by the financial crisis in the second half of 2008, also the risk reporting could be affected by the financial crisis. To identify the impact of the financial crisis on risk reporting the study analysis the risk reporting disclosures of the financial years 2007 and 2008. Based on these data, also a multiple regression model was used to identify specific determinants on information quality of risk reporting disclosures. The findings indicate that information quality of risk reporting increases over time and index and quantity of risk information disclosures are a determinant for the information quality of risk reporting.
Keywords: risk reporting, scoring model, regression model, quantity of risk reporting disclosures, quality of risk reporting disclosures
THE EFFECTS OF GLOBAL FINANCIAL CRISIS ON THE BEHAVIOUR OF EUROPEAN BANKS: A RISK AND PROFITABILITY ANALYSIS APPROACH
1 Mehmet Hasan Eken
2 Huseyin Selimler
3 Suleyman Kale
4 Veysel Ulusoy
1 Kadir Has University
2-3 T.C. Ziraat Bank
4 Yeditepe University
Abstract. The effects of global financial crisis have been severe on banks. Many
banks went bankrupt and many are in distress due to their sensitivities, stored in
their balance sheets, to financial risks enlarged by the crisis. Some of banks, on
the other hand, have felt the effects slightly. Recalling that total risk is sum of two
parts of risk namely; volatility and sensitivity and that volatility is not under the
discretion of banks, i.e. externally determined, it is assumed that the degree of
banks getting affected by the global financial crisis is largely dependent on their
sensitivities to risks. Banks’ sensitivities to risks are assumed to be under the
control of banks. Thus, in line with their risk appetite, banks can always change
the structure of their balance sheet to alter their sensitivities to financial and non
financial risks. In this paper it is targeted to analyze and compare the balance
sheet structure banks from 27 European countries in order to find their
sensitivities to different financial risks such as credit risk and liquidity risk. It will
further be analyzed how banks’ balance sheet structures have been altered after
the crisis. To observe the behavioural variations (if there is any) of banks getting
affected by financial crisis, the analysis is widened to include different
characteristics of banks such as; the country where they are operating, region
where they are belong to, scale of their operations, their ownership, their type and
etc..
JEL: G15, G21, G32
Keywords: Global crisis, banking, balance sheet structure.
IS THE PRICE KERNEL MONOTONE?
1 Giovanni Barone-Adesi
2 Hakim DallÒ
3 Volodymyr Vovchak
1 Swiss Finance Institute at University of Lugano
2 University of Lugano
3 Swiss Finance Institute at University of Lugano
Abstract. The pricing kernel based on SPX option prices and GARCH model is derived and tested for monotonicity. Derivation of the risk neutral distribution is conducted based on the result in Breeden and Litzenberger (1978) and the historical density is estimated by means of our asymmetric GARCH model. Applying two statistical tests we are not able to reject null hypothesis of monotonically decreasing pricing kernel, showing that using a large dataset and introducing non-Gaussian innovations solves the pricing kernel puzzle posed in Jackwerth (2000), both in a single day and over an average of different days with the same options' maturity. We also evaluate the price kernel before and during the recent crisis and we look at the change in the shape in order to evaluate the difference.
Keywords: Pricing kernel, State price density per unit probability, Risk neutral, Historical distribution
MEASURING THE IMPACT OF INTANGIBLE ASSET INVESTMENT TOWARD COMPANY FINANCIAL HEALTH AND COMPANY AGENCY PROBLEM
1 Dimas Mukhlas, University Agder, Christiansand Norway
Abstract. The thesis examines the impact of intangible investment toward company’s market value. The scenario is working under 2 conditions. First is detecting the role of intangible asset in moderating company financial health toward company market value. The financial health here is working from 3 perspectives. These indicators of company’s health are company performance, solvency ratio, and debt proportion. The second scenario is detecting the role of intangible asset in moderating policy in corporate governance toward market value. Intangible asset analysis was chosen here because of its special characteristic. The first is the character which gives benefits to company. Secondly is the character that put the company in risky point. Intangible asset as the asset of production has equipped the employee with better skills and knowledge on productions. On the other hand, an intangible asset that does not have physical evidence triggered the liquidity problem of the company. Indonesia was chosen as the place of observation because of their growth in intangible asset investment. Based on OECD, after 2002, either Foreign Direct Investment or Intellectual Asset in Indonesia has increased. The thesis attempts to analyze how the impact of this assets toward company performance during the crisis. The research involves 158 Indonesian stock listed companies where the data has been collected from 2006 until crisis 2011. Looking at market value of company, intangible value of company, the dividend policy, and corporate financial structures, empirical evidence reveals a significant positive relationship between the amount of intangible asset and the market value of company.
A DYNAMIC INFLATION HEDGING TRADING STRATEGY USING A CPPI
1 Nicolas Fulli-Lemaire, Crédit Agricole S.A. ; Paris II Panthéon-Assas University
Abstract. This article tries to solve the portfolio inflation hedging problem by introducing a new class of dynamic trading strategies derived from classic portfolio insurance techniques adapted to the real world. These strategies aim at yielding higher returns on a risk-adjusted basis than regular inflation hedging portfolio allocation while achieving a lower cost than comparable option–based guaranteed real value strategies.
Keywords: ALM, Inflation Hedging, Portfolio Insurance, CPPI.
OPTION MARKET OVERREACTION TO STOCK PRICE CHANGES
1 Eric Gettleman
2 Brandon Julio, Ph.D.
3 Elizabeth A. Risik, Ph.D.
1 Chesapeake Partners
2 London Business School
3 Webster University
Abstract. In this paper we examine the relationship between implied volatility of individual
stocks in the S&P 100 and the ex-post realized volatility of these stocks following weekly
movements of at least 10 percent in the underlying stock prices. When conditioning on these
extreme stock price events, we find that the implied volatility is significantly higher than the
realized volatility. Furthermore, we are able to construct profitable trading strategies based
on this finding. These strategies are successful both in event and calendar time.
Keywords: Investments, Options, Behavioral Investments, Behavioral Finance, Asset Pricing
ACRN Journal of Finance and Risk Perspectives
Vol. 1, Issue 2, Dec. 2012, ISSN 2305-7394
TABLE OF CONTENTS QUALITY AND DETERMINANTS OF RISK REPORTING - EVIDENCE FROM GERMANY AND AUSTRIA 1 Susanne Leitner-Hanetseder, Department of Accounting and Auditing, Kepler University of Linz, Austria
Abstract. While risk reporting disclosures have been required in Germany since 1999, equal requirements have become mandatory in Austria and all member states of the European Union only since 2005. The analysis conducted includes the risk reporting disclosures of all non-financial companies listed in the German prime stock market (DAX-30) and Austrian prime stock market (ATX). The purpose of this study is to investigate information quality of risk reporting disclosures within the annual reports of Austrian and German listed companies by using a scoring model. As most industries (except finance industry) have been affected by the financial crisis in the second half of 2008, also the risk reporting could be affected by the financial crisis. To identify the impact of the financial crisis on risk reporting the study analysis the risk reporting disclosures of the financial years 2007 and 2008. Based on these data, also a multiple regression model was used to identify specific determinants on information quality of risk reporting disclosures. The findings indicate that information quality of risk reporting increases over time and index and quantity of risk information disclosures are a determinant for the information quality of risk reporting.
Keywords: risk reporting, scoring model, regression model, quantity of risk reporting disclosures, quality of risk reporting disclosures
THE EFFECTS OF GLOBAL FINANCIAL CRISIS ON THE BEHAVIOUR OF EUROPEAN BANKS: A RISK AND PROFITABILITY ANALYSIS APPROACH1 Mehmet Hasan Eken
2 Huseyin Selimler
3 Suleyman Kale
4 Veysel Ulusoy
1 Kadir Has University
2-3 T.C. Ziraat Bank
4 Yeditepe University
Abstract. The effects of global financial crisis have been severe on banks. Many
banks went bankrupt and many are in distress due to their sensitivities, stored in
their balance sheets, to financial risks enlarged by the crisis. Some of banks, on
the other hand, have felt the effects slightly. Recalling that total risk is sum of two
parts of risk namely; volatility and sensitivity and that volatility is not under the
discretion of banks, i.e. externally determined, it is assumed that the degree of
banks getting affected by the global financial crisis is largely dependent on their
sensitivities to risks. Banks’ sensitivities to risks are assumed to be under the
control of banks. Thus, in line with their risk appetite, banks can always change
the structure of their balance sheet to alter their sensitivities to financial and non
financial risks. In this paper it is targeted to analyze and compare the balance
sheet structure banks from 27 European countries in order to find their
sensitivities to different financial risks such as credit risk and liquidity risk. It will
further be analyzed how banks’ balance sheet structures have been altered after
the crisis. To observe the behavioural variations (if there is any) of banks getting
affected by financial crisis, the analysis is widened to include different
characteristics of banks such as; the country where they are operating, region
where they are belong to, scale of their operations, their ownership, their type and
etc..
JEL: G15, G21, G32
Keywords: Global crisis, banking, balance sheet structure.
IS THE PRICE KERNEL MONOTONE? 1 Giovanni Barone-Adesi
2 Hakim DallÒ
3 Volodymyr Vovchak
1 Swiss Finance Institute at University of Lugano
2 University of Lugano
3 Swiss Finance Institute at University of Lugano
Abstract. The pricing kernel based on SPX option prices and GARCH model is derived and tested for monotonicity. Derivation of the risk neutral distribution is conducted based on the result in Breeden and Litzenberger (1978) and the historical density is estimated by means of our asymmetric GARCH model. Applying two statistical tests we are not able to reject null hypothesis of monotonically decreasing pricing kernel, showing that using a large dataset and introducing non-Gaussian innovations solves the pricing kernel puzzle posed in Jackwerth (2000), both in a single day and over an average of different days with the same options' maturity. We also evaluate the price kernel before and during the recent crisis and we look at the change in the shape in order to evaluate the difference.
Keywords: Pricing kernel, State price density per unit probability, Risk neutral, Historical distribution
MEASURING THE IMPACT OF INTANGIBLE ASSET INVESTMENT TOWARD COMPANY FINANCIAL HEALTH AND COMPANY AGENCY PROBLEM 1 Dimas Mukhlas, University Agder, Christiansand Norway
Abstract. The thesis examines the impact of intangible investment toward company’s market value. The scenario is working under 2 conditions. First is detecting the role of intangible asset in moderating company financial health toward company market value. The financial health here is working from 3 perspectives. These indicators of company’s health are company performance, solvency ratio, and debt proportion. The second scenario is detecting the role of intangible asset in moderating policy in corporate governance toward market value. Intangible asset analysis was chosen here because of its special characteristic. The first is the character which gives benefits to company. Secondly is the character that put the company in risky point. Intangible asset as the asset of production has equipped the employee with better skills and knowledge on productions. On the other hand, an intangible asset that does not have physical evidence triggered the liquidity problem of the company. Indonesia was chosen as the place of observation because of their growth in intangible asset investment. Based on OECD, after 2002, either Foreign Direct Investment or Intellectual Asset in Indonesia has increased. The thesis attempts to analyze how the impact of this assets toward company performance during the crisis. The research involves 158 Indonesian stock listed companies where the data has been collected from 2006 until crisis 2011. Looking at market value of company, intangible value of company, the dividend policy, and corporate financial structures, empirical evidence reveals a significant positive relationship between the amount of intangible asset and the market value of company.
A DYNAMIC INFLATION HEDGING TRADING STRATEGY USING A CPPI 1 Nicolas Fulli-Lemaire, Crédit Agricole S.A. ; Paris II Panthéon-Assas University
Abstract. This article tries to solve the portfolio inflation hedging problem by introducing a new class of dynamic trading strategies derived from classic portfolio insurance techniques adapted to the real world. These strategies aim at yielding higher returns on a risk-adjusted basis than regular inflation hedging portfolio allocation while achieving a lower cost than comparable option–based guaranteed real value strategies.
Keywords: ALM, Inflation Hedging, Portfolio Insurance, CPPI.
OPTION MARKET OVERREACTION TO STOCK PRICE CHANGES1 Eric Gettleman
2 Brandon Julio, Ph.D.
3 Elizabeth A. Risik, Ph.D.
1 Chesapeake Partners
2 London Business School
3 Webster University
Abstract. In this paper we examine the relationship between implied volatility of individual
stocks in the S&P 100 and the ex-post realized volatility of these stocks following weekly
movements of at least 10 percent in the underlying stock prices. When conditioning on these
extreme stock price events, we find that the implied volatility is significantly higher than the
realized volatility. Furthermore, we are able to construct profitable trading strategies based
on this finding. These strategies are successful both in event and calendar time.
Keywords: Investments, Options, Behavioral Investments, Behavioral Finance, Asset Pricing