Systemic risk, financial markets, and performance of financial institutions

2016 ◽  
Vol 262 (2) ◽  
pp. 579-603 ◽  
Author(s):  
Edward M. H. Lin ◽  
Edward W. Sun ◽  
Min-Teh Yu
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Systemic Risk ◽  
And Performance

scholarly journals Measurement of Systemic Risk in Global Financial Markets and Its Application in Forecasting Trading Decisions

2020 ◽  
Vol 12 (10) ◽  
pp. 4000 ◽  
Author(s):  
Jianxu Liu ◽  
Quanrui Song ◽  
Yang Qi ◽  
Sanzidur Rahman ◽  
Songsak Sriboonchitta
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Decision Model ◽  
Global Financial Crisis ◽  
Joint Models ◽  
Policy Makers ◽  
Trading Decisions ◽  
The Global Financial Crisis ◽  
First Time

The global financial crisis in 2008 spurred the need to study systemic risk in financial markets, which is of interest to both academics and practitioners alike. We first aimed to measure and forecast systemic risk in global financial markets and then to construct a trade decision model for investors and financial institutions to assist them in forecasting risk and potential returns based on the results of the analysis of systemic risk. The factor copula-generalized autoregressive conditional heteroskedasticity (GARCH) models and component expected shortfall (CES) were combined for the first time in this study to measure systemic risk and the contribution of individual countries to global systemic risk in global financial markets. The use of factor copula-based models enabled the estimation of joint models in stages, thereby considerably reducing computational burden. A high-dimensional dataset of daily stock market indices of 43 countries covering the period 2003 to 2019 was used to represent global financial markets. The CES portfolios developed in this study, based on the forecasting results of systemic risk, not only allow spreading of systemic risk but may also enable investors and financial institutions to make profits. The main policy implication of our study is that forecasting systemic risk of global financial markets and developing portfolios can provide valuable insights for financial institutions and policy makers to diversify portfolios and spread risk for future investments and trade.

Banking on Failure

2020 ◽  
Author(s):  
Richard S Collier
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Current Position ◽  
Tax System ◽  
Number Of Factors ◽  
Tax Systems

This book seeks to explain why and how banks ‘game the system’. More specifically, its objective is to account for why banks are so often involved in cases of misconduct and why those cases often involve the exploitation of tax systems. To do this, a case study is presented in Part I of the book. This case study concerns a highly complex transaction (often referred to as ‘cum-ex’) designed to exploit a flaw at the intersection of the tax system and the financial markets settlements system. It was entered into by a very large number of banks and other financial institutions. A number of factors make the cum-ex transaction remarkable, including the sheer scale of the financial amounts involved, the large number of banks and financial institutions involved, the comprehensive failure of the controls infrastructure in this highly regulated sector, and the fact that authorities across Europe have found it so difficult to deal with the transaction. Part II of the book draws out the wider significance of cum-ex and what it tells us about modern banks and their interactions with tax systems. The account demonstrates why the exploitation of tax systems by banks is practically inevitable due to a variety of systemic features of the financial markets and of tax systems themselves. A number of possible responses to the current position are suggested in the final chapter.

scholarly journals Cross-section instability in financial markets: impatience, extrapolation, and switching

2021 ◽  
Author(s):  
Roberto Dieci ◽  
Xue-Zhong He
Keyword(s):  
Financial Markets ◽  
Cross Section ◽  
Asset Price ◽  
Asset Market ◽  
Long Run ◽  
Short Run ◽  
And Performance ◽  
Equilibrium Market ◽  
High Degree ◽  
Fundamental Price

AbstractThis paper presents a stylized model of interaction among boundedly rational heterogeneous agents in a multi-asset financial market to examine how agents’ impatience, extrapolation, and switching behaviors can affect cross-section market stability. Besides extrapolation and performance based switching between fundamental and extrapolative trading documented in single asset market, we show that a high degree of ‘impatience’ of agents who are ready to switch to more profitable trading strategy in the short run provides a further cross-section destabilizing mechanism. Though the ‘fundamental’ steady-state values, which reflect the standard present-value of the dividends, represent an unbiased equilibrium market outcome in the long run (to a certain extent), the price deviation from the fundamental price in one asset can spill-over to other assets, resulting in cross-section instability. Based on a (Neimark–Sacker) bifurcation analysis, we provide explicit conditions on how agents’ impatience, extrapolation, and switching can destabilize the market and result in a variety of short and long-run patterns for the cross-section asset price dynamics.

COVID -19 and Indian Financial Markets: A Review

2020 ◽  
Vol 16 (02) ◽  
pp. 1-8
Author(s):  
Kamaldeep Kaur Sarna
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Financial Services ◽  
Stock Markets ◽  
Global Economy ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Negative Impact ◽  
Management Strategies ◽  
The Impact

COVID-19 is aptly stated as a Black Swan event that has stifled the global economy. As coronavirus wreaked havoc, Gross Domestic Product (GDP) contracted globally, unemployment rate soared high, and economic recovery still seems a far-fetched dream. Most importantly, the pandemic has set up turbulence in the global financial markets and resulted in heightened risk elements (market risk, credit risk, bank runs etc.) across the globe. Such uncertainty and volatility has not been witnessed since the Global Financial Crisis of 2008. The spread of COVID-19 has largely eroded investors’ confidence as the stock markets neared lifetimes lows, bad loans spiked and investment values degraded. Due to this, many turned their backs on the risk-reward trade off and carted their money towards traditionally safer investments like gold. While the banking sector remains particularly vulnerable, central banks have provided extensive loan moratoriums and interest waivers. Overall, COVID-19 resulted in a short term negative impact on the financial markets in India, though it is making a way towards V-shaped recovery. In this context, the present paper attempts to identify and evaluate the impact of the pandemic on the financial markets in India. Relying on rich literature and live illustrations, the influence of COVID-19 is studied on the stock markets, banking and financial institutions, private equities, and debt funds. The paper covers several recommendations so as to bring stability in the financial markets. The suggestions include, but are not limited to, methods to regularly monitor results, establishing a robust mechanism for risk management, strategies to reduce Non-Performing Assets, continuous assessment of stress and crisis readiness of the financial institutions etc. The paper also emphasizes on enhancing the role of technology (Artificial Intelligence and Virtual/Augmented Reality) in the financial services sector to optimize the outcomes and set the path towards recovery.

Loan collaterals and collateral substitutes in rural finance: a review

2015 ◽  
Vol 11 (2) ◽  
pp. 36-56
Author(s):  
MG Maiangwa
Keyword(s):  
Moral Hazard ◽  
Financial Markets ◽  
Financial Institutions ◽  
Farm Households ◽  
Rural Finance ◽  
Traditional Methods ◽  
Limited Availability ◽  
Rural Financial Markets

Poor farm households and other microentrepreneurs have difficulties in obtaining loans from banks and other financial institutions because they are unable to provide securities or collaterals for the loans. Collaterals on loans reduce uncertainty and moral hazard problems for creditors. They also serve as a measure of the seriousness of the borrower. The limited availability of conventional collaterals in rural financial markets has led to the acceptance of non-traditional methods of loan security referred to as collateral substitutes. This paper reviews loan collaterals and collateral substitutes in the rural financial markets of developing countries.Keywords:: Collaterals, collateral substitutes, rural finance.

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