The effects of news events on market contagion: Evidence from the 2007–2009 financial crisis

In this paper, we use the quantile regression technique along with coexceedance, a contagion measure, to assess the extent to which news events contribute to contagion in the stock markets during the crisis period between 2007 and 2009. Studies have shown that, not only the subprime crisis leads to a global recession, but the effects on the global stock markets have also been significant. We track the news events, both in the UK and the US, using the global recession timeline. We observe that the news events related to ad hoc bailouts of individual banks from the UK have a contagion effect throughout the period for most of the countries under investigation. This, however, is not found to be the case for the news events originating from the US. Our findings regarding the evidence of contagion effects in the UK reinforce the argument that spreads and contagion—an outcome of the risk perception of financial markets—are solely a result of the behaviour of investors or other financial market participants.     

Sovereign risk and belief-driven fluctuations in the euro area

Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent self-fulfilling debt crises.     

Semiparametric estimation of multi-asset portfolio tail risk

When correlations between assets turn positive, multi-asset portfolios can become riskier than single assets. This article presents the estimation of tail risk at very high quantiles using a semiparametric estimator which is particularly suitable for portfolios with a large number of assets. The estimator captures simultaneously the information contained in each individual asset return that composes the portfolio, and the interrelation between assets. Noticeably, the accuracy of the estimates does not deteriorate when the number of assets in the portfolio increases. The implementation is as easy for a large number of assets as it is for a small number. We estimate the probability distribution of large losses for the American stock market considering portfolios with ten, fifty and one hundred assets of stocks with different market capitalization. In either case, the approximation for the portfolio tail risk is very accurate. We compare our results with well known benchmark models.     

The going public decision and the structure of equity markets

The industries in which listed firms are concentrated in less developed equity markets are not random, nor entirely explained by the underlying composition of production. Listed firms and market capitalization are disproportionately concentrated in industries with low beta (measured with their beta with the market portfolio in the U.S.). We document a strong positive relationship between the industry-weighted country beta and the degree of market development across countries. Recent IPO activity confirms the result since new listings have higher betas than the average firm already in the market.     

Credibilistic risk aversion

In the probabilistic risk aversion approach, risks are presumed as random variables with known probability distributions. However, in some practical cases, for example, due to the absence of historical data, the inherent uncertain characteristic of risks or different subject judgements from the decision-makers, risks may be hard or not appropriate to be estimated with probability distributions. Therefore, the traditional probabilistic risk aversion theory is ineffective. Thus, in order to deal with these cases, we suggest measuring these kinds of risks as fuzzy variables, and accordingly to present an alternative risk aversion approach by employing credibility theory. In the present paper, first, the definition of credibilistic risk premium proposed by Georgescu and Kinnunen [Fuzzy Inf. Eng., 2013, 5, 399–416] is revised by taking the initial wealth into consideration, and then a general method to compute the credibilistic risk premium is provided. Secondly, regarding the risks represented with the commonly used LR fuzzy intervals, a simple calculation formula of the local credibilistic risk premium is put forward. Finally, in a global sense, several equivalent propositions for comparative risk aversion under the credibility measurement are provided. Illustrated examples are presented to show the applicability of the theoretical findings.     

How locus of control shapes intention to reuse mobile apps for making hotel reservations: Evidence from chinese consumers

This study unveils the cognitive mechanism that locus of control (LOC) dimensions (internal control, chance control, and control by powerful others) predict intention to reuse mobile apps for making hotel reservations. The predictions are assumed through the unified theory of acceptance and use of technology (UTAUT) anchors and perceived risk. Drawn from an online survey with 457 Chinese participants, results show direct positive predictions of intention to reuse from UTAUT anchors including performance expectancy, effort expectancy, social influence, and facilitating conditions. Perceived risk also negatively predicts intention. Effort expectancy mediates the links between internal/chance control and intention, whereas perceived risk mediates only the latter link. Facilitating conditions mediate the relationship between control by powerful others and intention. This study contributes to existing research by distinguishing the mechanisms that underpin LOC dimensions and technology re-adoption. Practitioners are recommended to improve booking apps by addressing the concerns of users with different LOC.     

A strategic planning model for the railway system accident rescue problem

The present study examines the location of emergency rescue problems for urban ambulance and railway emergency systems. The proposed model considers probabilistic rescue demand, independent busy fractions of ambulances, and the corresponding risk levels in railway segments. We formulate the proposed model using fuzzy multi-objective programming and solve it using a generic algorithm and a non-dominated sorting genetic algorithm-II. Computation results are analyzed by applying the model to a real-world Taiwan railway system. Analytical results demonstrate that a proper adjustment of the rescue resource location improves rescue effectiveness for railway rescue and urban medical service demand.     

The composite iteration algorithm for finding efficient and financially fair risk-sharing rules

We consider the problem of finding an efficient and fair ex-ante rule for division of an uncertain monetary outcome among a finite number of von Neumann–Morgenstern agents. Efficiency is understood here, as usual, in the sense of Pareto efficiency subject to the feasibility constraint. Fairness is defined as financial fairness with respect to a predetermined pricing functional. We show that efficient and financially fair allocation rules are in one-to-one correspondence with positive eigenvectors of a nonlinear homogeneous and monotone mapping associated to the risk sharing problem. We establish relevant properties of this mapping. On the basis of this, we obtain a proof of existence and uniqueness of solutions via nonlinear Perron–Frobenius theory, as well as a proof of global convergence of the natural iterative algorithm. We argue that this algorithm is computationally attractive, and discuss its rate of convergence.     

Cost-benefit analysis of airport security: Are airports too safe?

This paper assesses the risks and cost-effectiveness of measures designed to further protect airport terminals and associated facilities such as car parks from terrorist attack in the U.S., Europe, and the Asia-Pacific area. The analysis considers threat likelihood, the cost of security measures, hazard likelihood, risk reduction and expected losses to compare the costs and benefits of security measures to decide the optimal security measures to airports. Monte-Carlo simulation methods were used to propagate hazard likelihood, risk reduction and loss uncertainties in the calculation of net benefits that also allows probability of cost-effectiveness to be calculated. It is found that attack probabilities had to be much higher than currently observed to justify additional protective measures. Overall, then, it is questionable whether special efforts to further protect airports are sensible expenditures. Indeed, some relaxation of the measures already in place may well be justified.     

Wetland mitigation banking: Negotiations with stakeholders in a zone of ecological-economic viability

Wetland mitigation banking (WMB) is an organizational form that attempts to balance the ecological goals of wetland conservation and the economic goals of development with the aim of improving the implementation of wetland offsetting. Given the resulting tension, it is important to understand how the way stakeholders employ the WMB regulatory framework affects the goal of No Net Loss of wetlands. In this study, we interviewed WMB stakeholders in Florida in the United States to identify their strategies during negotiations around different aspects of defining wetland mitigation credits (e.g. service areas, types of credit and credit release schedules). Using the approach of New Institutional Economics, we found that within a framework of well-defined rules that nonetheless allow flexibility, WMB enables a field of action for negotiating within a zone of ecological-economic viability – in part due to the stakeholders’ interest in maintaining a good reputation in this field. Outside of this zone of viability a wetland mitigation bank proposal collapses for economic or ecological reasons.