Systemic risk spillovers and the determinants in the stock markets of the Belt and Road countries

We construct time-varying tail risk networks to investigate systemic risk spillovers in the Belt and Road (B&R) stock markets during 2008–2021. Network metrics clearly reflect aggregate risk level and individual risk accumulation for the B&R stock markets under extreme events (e.g., 2008 financial crisis and COVID-19 pandemic). Tail-event driven network quantile regression analysis shows that network impacts of the B&R stock markets under different risk levels are asymmetric and regional heterogeneity. Panel analysis on determinants of systemic risk spillovers shows that cross-border investment and international trade are significant contagion channels while economic freedom is potential driver.     

Dependence dynamics of stock markets during COVID-19

Stock markets have exhibited increased returns connectedness during the COVID-19 period. We examine the returns dependence among 42 stock markets classified under various emerging and developed groupings. We apply several dependence measures to examine the returns connectedness among the markets. Our results show that stock markets from the G-7 and Emerging Frontier and Asian (EFA) region exhibit high connectedness with other international markets, while Middle East and North African (MENA) and Latin American (LA) stock markets offer high diversification opportunities through low returns connectedness. The returns coherence of Central and East European (CEE) and G-7 markets increase significantly during the COVID-19 period which supports the hypothesis of contagion. However, during the pandemic MENA stock markets (excluding Greece) and most EFA markets (excluding China, Singapore and Korea) remain less cointegrated with other international equity markets. Our results have implications for individual and institutional investors, fund managers and other financial market stakeholders.     

Tail-event driven NETwork dependence in emerging markets

This paper employs the Tail Event NETwork (TENET) to identify financial markets with greater potential risk, and simultaneously investigate the interdependence between them. We find strong time-varying connectedness across 23 emerging markets during the main crisis episodes, including the most recent COVID-19 pandemic, using data from January 1995 to May 2021. The network analysis revealed that emerging European markets are top risk transmitters, whereas emerging Asian markets are top risk receivers. China showed disconnection from the network, reflecting its diversification potential for investors. Our findings offer several policy and regulatory implications.     

RESILIENCE TO CONTAGION IN FINANCIAL NETWORKS

We derive rigorous asymptotic results for the magnitude of contagion in a large counterparty network and give an analytical expression for the asymptotic fraction of defaults, in terms of network characteristics. Our results extend previous studies on contagion in random graphs to inhomogeneous‐directed graphs with a given degree sequence and arbitrary distribution of weights. We introduce a criterion for the resilience of a large financial network to the insolvency of a small group of financial institutions and quantify how contagion amplifies small shocks to the network. Our results emphasize the role played by “contagious links” and show that institutions which contribute most to network instability have both large connectivity and a large fraction of contagious links. The asymptotic results show good agreement with simulations for networks with realistic sizes.     

Occupations in the European Labour Market During the COVID-19 Pandemic

In order to capture the consequences of the COVID-19 pandemic on the labour market, several aspects need to be taken into account. First, containment measures put in place in member states at different times and with different levels of severity determined the interruption of several economic activities that were considered non-essential. Second, different occupations require varying degrees of physical proximity and social interaction to be carried out; this implies that they can be considered more or less teleworkable, and affected by different levels of epidemiological risk of contagion. This paper shows the labour market impact of the pandemic on different categories of workers in the EU. Occupations are distinguished by three main characteristics: whether they are critical or non-critical, their level of technical teleworkability and the level of social interaction required in the job. We show that the impact of the COVID-19 pandemic on the labour market has been heterogeneous across occupations and that all three dimensions are relevant to determine whether and to what extent the occupations were affected by the pandemic.

     

Foreign to all but fluent in many: The effect of multinationality on shock resilience

The sudden COVID-19 pandemic sent shockwaves through international markets. This paper studies the relation between multinationality and risk. While IB literature agrees that internationalization, in times of relative stability, increases systematic risk, we argue that internationalization also improves resilience against exogenous shocks. Leveraging the sequential COVID-waves as a unique empirical laboratory, we show that although multinationality causes liability of foreignness that increases systematic risk, it also generates an asset of multinationality that enhances shock resilience. Yet this advantage of internationalized firms gradually erodes as less internationalized firms learn about the shock and investors adapt their valuations to the post-shock reality.     

Age-related effects on environmentally sustainable purchases at the time of COVID-19: Evidence from Italy

The present research investigates whether the novel coronavirus disease (COVID-19) pandemic has modified consumers' spending on environmentally sustainable products by focusing on the role of age. An empirical study conducted in Italy during the first wave of the pandemic finds that consumers' age affected their reaction to the COVID-19 outbreak, and such age-related effects may have led to an increased propensity to spend on sustainable products. Indeed, the results show that consumers' age is inversely related to their negative affective reaction to the rise of contagion, which, in turn, is inversely related to their level of optimism experienced when the contagion slowed down due to public health interventions. Furthermore, this level of optimism is positively related to consumers’ pro-environmental attitude and, thus, to their tendency to increase sustainable purchases.     

FinTech and the COVID-19 pandemic: Evidence from electronic payment systems

This paper investigates the effects of the coronavirus disease 2019 (COVID-19) pandemic on financial institutions and on consumers' adoption of Financial Technology (FinTech) for payments. This paper documents the following findings in Kenya. (1) The COVID-19 pandemic accelerated the adoption and increased the payment concentration of FinTech. We document an approximately 54% increase in mobile banking transactions, a 19.56% increase in mobile banking agents, and a 14.56% increase in the number of mobile banking accounts. (2) The use of all types of electronic payment cards declined significantly during the pandemic. (3) The pandemic magnified interbank contagion and liquidity risks and reduced both domestic and international electronic fund transfers via both the Real-Gross Settlement System and the Automated Clearing House. Overall, our results indicate that FinTech not only partially alleviated the negative impact of the COVID-19 pandemic during Q1 of 2021 but also accelerated consumers' adoption of FinTech and digital onboarding, especially in Q3 and Q4 of 2022.     

Systemic risk,Islamic banks,and the COVID-19 pandemic: An empirical investigation

While operating side-by-side with conventional banks, in a dual-banking system, the systemic risk profile of Islamic banks can be different due to their unique business model. The objective of this study is to understand the evolution of systemic risk in dual-banking systems and determine whether there are any differences in the systemic risk profiles of conventional and Islamic banks during the COVID-19 pandemic. This study also identifies the determinants of systemic importance (measured using spillover indices) of financial institutions. The sample includes ten countries where the Islamic banking sector is considered systemically important and covers the period from November 2015 to November 2020. The empirical results indicate a significant increase in systemic risk, in the sample countries, during the first half which is followed by a recovery in the second half of 2020. Comparative analysis shows that Islamic banks have similar systemic vulnerabilities to systematic and idiosyncratic factors during the exogenously induced real economic shock of the COVID-19. However, Islamic banks pose significantly less spillover to others relative to conventional banks while earning abnormal returns. The results are robust to the inclusion of macroeconomic factors and alternate estimation methodologies. The findings of this study provide valuable insights for the regulators of dual-banking systems.     

Guilty by association: The risk of crisis contagion

Crisis contagion, or how a crisis spreads from one company to another, has received very little attention from researchers. This is surprising as the negative consequences of crisis contagion can be significant when customers make assumptions of guilt by association. This article focuses on this important issue and describes four risk factors—country of origin, industry, organizational type, and positioning strategy—that increase the likelihood of crisis contagion. Valuable guidance is also provided on whether a company should issue a denial or remain silent if it faces the risk of crisis contagion.     

How to reduce the default contagion risk of intercorporate credit guarantee networks? Evidence from China

This study uses data from 2011 to 2018 for Chinese small and medium-sized enterprises to construct a weighted directed network to investigate the topology of intercorporate credit guarantee networks. Moreover, based on the DebtRank algorithm, it develops a novel GuaranteeRank model that includes three factors to comprehensively examine default risk contagion and systemic risk in various scenarios. The results demonstrate that (1) credit guarantee network has the topological characteristics of “scale-free” and “small world”; (2) default contagion and systemic risk increase significantly when the macro-external shock and company's off-balance-sheet debt exceed certain threshold values, while continuous bank credit support can notably reduce the risk; (3) credit guarantee network is “robust yet fragile”, such that targeted shocks increase systemic risk much more than do random shocks; (4) in addition to the prevalent “too big to fail” and “too central to fail” phenomena, a “too connected with the central to fail” phenomenon is also identified for the first time. Therefore, this study provides an important reference for regulators and financial institutions to reduce the default contagion risk of intercorporate credit guarantee networks.     

Network to passion or passion to network? Disentangling entrepreneurial passion selection and contagion effects among peers and teams in a startup accelerator

Entrepreneurial passion is socially contagious. However, do entrepreneurs also select whom they interact with based on passion similarity? The complex interdependencies between social networks and entrepreneurial passion remain undertheorized and empirically puzzling. Using a stochastic actor-oriented model (SIENA) and four waves of panel data, we test hypotheses about the co-evolution of social networks and entrepreneurial passion during a 5-month startup accelerator program. We observe that social ties occur more frequently among peer entrepreneurs who are similar in levels of passion for founding. Initial homophily selection explains 34% of this observed similarity whereas social contagion explains 57%. Finally, we find that passion for founding is more contagious among members of startup teams than across other peer ties. Surprisingly, none of these effects are significant for passion for inventing. We discuss the theoretical and practical implications of these findings.     

Do hedge funds time market tail risk? Evidence from option-implied tail risk

This paper focuses on an unexplored dimension of fund managers’ timing ability: Market-wide tail risk implied by information in options markets. Constructing the option-implied tail risk, we investigate whether hedge fund managers can strategically time the tail risk through adjusting their exposure to changes of it. Using an extensive sample of equity-oriented hedge funds, we find strong evidence of tail risk timing ability of hedge fund managers. Furthermore, tail risk timing ability brings significant economic value to investors. Top-ranked funds outperform bottom-ranked funds by 5–7% annually after adjusting for risk factors. Our results are robust to various robustness checks.     

Panel quantile regressions for estimating and predicting the value-at-risk of commodities

Using a flexible panel quantile regression framework, we show how the future conditional quantiles of commodities returns depend on both ex post and ex ante uncertainty. Empirical analysis of the most liquid commodities covering main sectors, including energy, food, agriculture, and precious and industrial metals, reveal several important stylized facts. We document common patterns of the dependence between future quantile returns and ex post as well as ex ante volatilities. We further show that the conditional returns distribution is platykurtic. The approach can serve as a useful risk management tool for investors interested in commodity futures contracts.     

Disclosure of Downside Risk and Investors' Use of Qualitative Information: Evidence from the IPO Prospectus's Risk Factor Section

I use the context of a company's initial public offering (IPO) of equity securities as a capital‐market setting to empirically study the economic consequences of risk factor disclosures. Using data from Australian IPOs, I examine the relation of textual risk disclosures in the prospectus to initial underpricing. I find that the quantity of disclosures in the risk factor section itself has no significant impact on initial underpricing. However, an increase in the informativeness of risk factor disclosures is associated with lower IPO underpricing. My results suggest that IPOs that provide informative risk factor disclosures have less ex ante uncertainty, in the sense that the disclosures help investors estimate the dispersion of secondary market value. The effect of informative risk factor disclosures on IPO underpricing is more pronounced for IPOs with less prestigious lead underwriters and is mainly driven by younger firms, smaller firms, and firms with poorer operating performance prior to their IPOs. Collectively, my findings suggest that informative disclosures of downside risk are useful for investors to evaluate IPOs.     

Correlation risk and international portfolio choice

Variance-covariance risk of the exchange rate is highly relevant for international investors. This paper addresses optimal asset allocation with stochastic variances and covariances in a Wishart Affine Stochastic Correlation (WASC) model in incomplete and complete markets. We show that the (hedging) demand for exchange rate variance-covariance risk can differ significantly between international investors. Local correlations with the exchange rate can affect the utilities of international investors differently while the impact of correlations between stocks can be symmetric. Depending on the current local exchange rate correlations domestic investors can benefit more or less than foreign investors from international trading.     

Business resilience: Lessons from government responses to the global COVID-19 crisis

This study explores the survival of firms across countries, and what factors contribute to their ability to withstand large-scale exogenous shocks, focusing on the COVID-19 pandemic. Using corporate default risk as a measure of non-resilience, our empirical results from 97 countries reveal that stringent COVID-19 containment measures created a significant resilience test for businesses worldwide. Further tests suggest that cash holdings, knowledge assets, international sales, and access to foreign capital markets are crucial for global businesses to pull through exogenous shocks. Country-level institutional qualities also play an essential role in shaping business resilience during a crisis. Our study is the first to comprehensively analyze the drivers of business resilience across diverse countries using the COVID-19 outbreak as a major global crisis, providing a nuanced understanding of this topic in international business.     

Predictive abilities of speculators in energy markets

Using nonparametric methodology, I find that speculators are successful in taking profitable positions in energy futures markets, although the magnitude of this effect is lower than that found previously for agricultural markets. A plausible explanation for this difference is that price forecasting is more difficult for energy commodities. Moreover, I find that the energy speculators’ returns are due to the existence of the risk premiums rather than to speculators’ forecasting abilities. Futures risk premium is highly time-variant; notably, energy investors’ profits have been very limited in the GFC and post-GFC period, which coincided with the financialization of commodity markets.     

Price risk in the NYMEX energy complex: An extreme value approach

We estimate tail parameters and construct risk statistics for unconditional distributions of daily logarithmic price changes of the NYMEX energy complex and apply the conditional extreme value method proposed by A. J. McNeil and R. Frey (2000) for estimating VAR and related risk statistics from the tails of conditional distributions for these commodities. The unconditional distribution of spot market price declines is found to be fat tailed relative to the normal for all commodities examined. Backtesting of candidate conditional risk measurement methods indicates that the conditional extreme value method is significantly more accurate for measuring risk exposure due to price declines for 7 of the 10 price series examined. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:309–337, 2005     

Does playing a video game really result in improvements in psychological well-being in the era of COVID-19?

This study examines the structural relationships between the perceived value dimensions of quality, emotional, price, and social, positive and negative emotions, psychological well-being, and loyalty in the video game context along with the moderating role of the perceived severity of COVID-19. This study collected data from 258 video game consumers in the United States via three waves of surveys. The findings of structural equation modeling revealed significant associations among the perceived value dimensions, emotions, psychological well-being, and loyalty. In addition, the moderating role of the perceived severity of COVID-19 showed that the impact of video game consumers' positive emotions on psychological well-being would be weaker with a high level of perception of the severity of COVID-19. Based on the empirical results, this research proposes theoretical (i.e., extension of the cognitive appraisal theory in a digital environment, and integration of the cognitive appraisal theory with the two-factor theory of motivation) and practical implications (i.e., how to increase levels of users’ psychological well-being and loyalty via video games) for the video game industry during and after the era of COVID-19.