Where does the risk lie? Systemic risk and tail risk networks in the Chinese financial market

This paper studies tail risk connectedness and systemic risk in the Chinese financial market in the post-crisis period of 2009–2017. We adopt the conditional value at risk (CoVaR) and complex theory to construct the tail risk connectedness network and identify the systemically important financial institutions during the Chinese financial turbulence. We precisely characterize the dynamic evolution of the tail risk connectedness at the institutional, sector and market levels. We find that, during normal times, the banking sector contributes the most tail risk to the market and that the real estate sector contributes the least. However, during the crisis period, the real estate sector played its role and became the most significant tail risk emitter. In addition, we identify the significant important financial institutions in the Chinese financial market, highlighting the fact that the four state-owned commercial banks and two largest insurance companies dominate. Our results are helpful to both regulators for developing macroprudential supervision policies and investors interested in the Chinese financial market for making risk management strategies.     

Can cryptocurrencies be a safe haven: a tail risk perspective analysis

Cryptocurrencies are one of the most promising financial innovations of the last decade. Different from major stock indices and the commodities of gold and crude oil, the cryptocurrencies exhibit some characteristics of immature market assets, such as auto-correlated and non-stationary return series, higher volatility, and higher tail risks measured by conditional Value at Risk (VaR) and conditional expected shortfall (ES). Using an extreme-value-theory-based method, we evaluate the extreme characteristics of seven representative cryptocurrencies during 08 August 2015–01 August 2017. We find that during the sub-period of 01 August 2016–01 August 2017, there are finite loss boundaries for most of the selected cryptocurrencies, which are similar to the commodities, and different from the stock indices. Meanwhile, we find that left tail correlations are much stronger than right tail correlations among the cryptocurrencies, and tail correlations increased after August 2016, suggesting high and growing systematic extreme risks. We also find that cryptocurrencies to be both left tail independent, and cross tail independent with four selected stock indices, which implies part of the safe-haven function of the cryptocurrencies, indicating their ability to be a great diversifier for the stock market as gold, but not enough to be a tail hedging tool like gold.     

Diamonds and precious metals for reduction of portfolio tail risk

ABSTRACT

We study the performance of diamonds compared to gold and other precious metals in mitigating the tail risk of a diversified equity market portfolio over the period June 2007 to October 2018. Our results display a diversification benefit of some diamond indices, which also improve the portfolio reward-to-risk ratio. To corroborate this evidence, we study the dependence structure and tail dependence of diamonds and a broad equity market portfolio and compare it to the dependence obtained with gold and other precious metals. Results from fitting a bivariate copula show that the average left tail dependence reaches its minimum when diamonds are used. We also show that using shares of diamond-mining companies does not provide the same benefits.     

Time-varying comovement and changes of comovement structure in the Chinese stock market: A causal network method

The driving force for the comovement in stock returns is a long-standing debate between classical asset pricing theory and behavioral finance theory. It has become critically important recently for understanding systemic risk and risk contagion in the market. In this study, we propose complex networks enabled new methods to measure the causal comovement of individual stocks and the comovement structure of the market, which facilitate the examination of all kinds of hypotheses of comovement theories in a unified framework. Using a sample of the Chinese stock market from Jan. 1, 2006 to Dec. 31, 2016, we find that the degree of comovement generally intensifies over time, with a drastic increase from 2011 to 2015, while the comovement structure of the market changes with different market situations. Most importantly, our study reveals the driving force of causal comovement among individual stocks; that is, sentiment-based factors related to the market index indeed induce excess causal comovement in returns beyond that can be justified by fundamental factors including beta coefficient, book-to-market ratio, liquidity, profitability and volatility. Our study also reveals the determinants of comovement structure, which are attributable to the change of investors' behaviors in different periods. It turns out that investors in the Chinese stock market care about risk-return relationship in normal periods, while they seem to care only about risk in crisis periods.     

Time-varying global and local sources of market and currency risks in Russian stock market

In this paper we study international asset pricing models and the pricing of global and local market risks as well as currency risk in the Russian stock market from an international investors' point of view using weekly data from 1999 to 2009. In our empirical specification, we utilize the multivariate GARCH-M framework of De Santis and Gérard (1998). We find currency risk to be priced in the Russian market. The price of currency risk is found to be time-varying and affected for example by the price of oil. Moreover, our results suggest that the Russian market is partially segmented and the local market risk is priced in the market. Our model implies in-sample risk premium for the Russian equity market that is, on average, almost ten times higher than that of the US and that the Russian risk premium is on average caused mostly by the local and currency risk components.     

Commodity market risk from 1995 to 2013: an extreme value theory approach

In this article we examine whether extreme risk has increased in the agricultural commodity market during the period 1995–2013. We add to the literature on food price volatility by analysing the tail segment of futures price return distributions. Food price variability is a concern for governments and regulators worldwide, as most nations trade in food. High food price variability can contribute to poverty and malnourishment, in particular for people in less economically developed economies. We find no indications of systematically increasing tail-risk for the commodities in our sample. Analysis of estimated shape-parameters of the Generalized Extreme Value distribution further supports the conclusion that there is no general systematic change in the extreme risk associated with these commodity investments.     

The financial consequences of abolishing a carbon trading system

We investigate the impact of 61 announcements of environmental regulations on the equities listed on the Australian Stock Exchange over the period 2009–2015. In particular, our study focuses on how the stock market reacts to announcements of the abolishment of carbon trading/pricing system. Using event study methodology, we assess whether these announcements create or destroy wealth of equity investors. Furthermore, we estimate changes in systematic risk following the announcements. In general, we find that the abolishment of the carbon pricing system has a positive effect on 18 sectors and the process of removing the carbon pricing system appears to affect the systematic risk of businesses leading to diamond risk structures. We also document negative reactions of polluting sectors to the announcements of green policies.     

A comprehensive study on smart beta strategies in the A-share market

In this article, we explore how smart beta strategies are applied in the Chinese A-share market. Specifically, we empirically examine several popular smart beta strategies, including mean-variance optimization, minimum-variance portfolio, equal weighting, risk parity strategy, and fundamental indexation, and we do so using the Shanghai Stock Exchange (SSE) 50 index and SSE sector indices as our comparison benchmarks. We find that all smart beta strategies outperform these benchmarks from year 2006 to year 2015, and that all smart beta strategies outperform the SSE 50 index by an average of 2.57% per year. In turn, these strategies improve the Sharpe Ratio by 46.2% on average.     

On the role of liquidity in emerging markets stock prices

This paper investigates the impact of liquidity on emerging markets' stock prices. Particular attention is given to the estimation of Jensen's alpha and the quantity of risk. Our empirical analysis gives rise to two main issues. The first is related to the presence of an extra premium, i.e. “alpha puzzle”. The second is the time-varying component of the quantity of risk, i.e. “beta puzzle”. We find that local liquidity factors do not explain the presence of positive and statistically significant alphas. This puzzle is solved by means of transaction costs. In addition, we show that global liquidity factors, such as VIX and Open Interest, statistically affect the market price of risk. Our empirical finding proves the time varying nature of the global risk factors. Finally, we argue that standard asset pricing models cannot solve the two puzzles simultaneously.     

注册会计师真的关注审计风险了吗——基于审计定价视角的经验证据

利用沪深两市上市公司2007年的数据,检验了盈余管理、特定风险、公司治理以及上年度审计意见类型等反映或影响审计风险的因素与审计收费之间的关系,结果发现,风险因素对我国上市公司审计定价的解释力有限。这表明,由于法律和监管环境以及审计市场发育程度与国外有着较大差异,我国注册会计师在决定审计收费时,对于风险因素并不十分关注。它反映出,我国会计师事务所离现代风险导向审计的要求尚有不小的距离。     

Evidence of Stock Returns and Abnormal Trading Volume: A Threshold Quantile Regression Approach

This paper presents a capital asset pricing model‐based threshold quantile regression model with a generalized autoregressive conditional heteroscedastic specification to examine relations between excess stock returns and “abnormal trading volume”. We employ an adaptive Bayesian Markov chain Monte Carlo method with asymmetric Laplace distribution to study six daily Dow Jones Industrial stocks. The proposed model captures asymmetric risk through market beta and volume coefficients, which change discretely between regimes. Moreover, they are driven by market information and various quantile levels. This study finds that abnormal volume has significantly negative effects on excess stock returns under low quantile levels; however, there are significantly positive effects under high quantile levels. The evidence indicates that each market beta varies with different quantile levels, capturing different states of market conditions.     

房地产价格与通货膨胀预期

文章通过构建房地产均衡市场模型,在风险中性的假设前提下,利用无套利均衡定价原理,发展了从房地产价格波动中分离出市场通货膨胀预期的新方法.在此基础上,通过对中国房地产市场的实证研究发现,房地产预期收益率与通货膨胀预期之间确实存在稳定的函数关系.最后,文章提出将房地产价格纳入到居住类消费价格指数中去以减少货币政策认识时滞的政策建议.     

Non-parametric and semi-parametric asset pricing

We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the widely used risk and performance measures, the beta and the alpha, are biased and inconsistent. We deduce semi-parametric measures which are non-constant under extreme market conditions in a single factor setting; on the other hand, they are not significantly different from the linear estimates of the Fama-French three-factor model. If we extend the single factor model with the Fama-French factors, the simple linear model is able to explain the US stock returns correctly.     

An analysis of extreme movements of exchange rates of the main currencies traded in the Foreign Exchange market

This article analyses the extreme movements of exchange rates of the seven main currencies traded in the Foreign Exchange market against the US dollar: Euro, British pound, Canadian dollar, Japanese Yen, Swiss franc, Australian dollar and New Zealand dollar by using tail index indicators. Payaslio?lu (2009) considers the case of the Turkish exchange rate using the traditional Hill (1975) estimator as a tool. In this article, we employ also an alternative estimator proposed in Iglesias and Linton (2009) that is shown to have, in some cases, improved finite sample properties and it provides substantially different results versus the Hill estimator. We find that for the Euro, Japanese Yen, Swiss franc, Canadian, Australian and New Zealand dollars, the Hill estimator provides a better measure to analyse the extreme behaviour; while for the British pound, the Iglesias and Linton alternative estimator is superior by using Hausman-type tests of misspecification. Measures of value at risk are also provided for the seven markets. We also find that the largest estimated value at risk by far is for the Japanese Yen, followed by the Swiss franc, the Canadian dollar, the Euro, the New Zealand dollar and the Australian dollar. The UK pound has the smallest value at risk when extreme movements occur.     

GARCH模型下的美式期权模拟定价——来自中国权证市场的经验

分别运用GBM模型和GARCH模型对我国市场上的股票价格进行参数估计,并使用最小二乘蒙特卡罗模拟方法对我国具有百慕大性质的权证进行蒙特卡罗模拟定价,发现GARCH模型的定价效果明显优于GBM假设下的定价,虚值程度越高的权证,定价误差越大。定价误差的对数与上证综合指数的对数之间存在明显的协整关系,权证没有卖空机制,使得套利无法实现,投机气氛较浓,是我国权证的市场价格明显高估的重要原因。实证对GARCH条件下的定价误差更加具有解释力。     

The pricing of time-varying beta

We generalize an asset pricing model based on the Arbitrage Pricing Theory (APT) allowing beta to be time-varying. Making beta a random variable adds flexibility to the model because permits a non-linear relation between individual returns and the set of factors, and accounts for the effect of possible omitted variables. We integrate the conditional APT with a general linear stochastic process for beta. We analyze the behavior of the conditional expected return, the conditional variance and conditional covariance of individual asset returns as functions of the conditional moments of beta. On considering time-varying betas we introduce another source of uncertainty (risk) independent of the factors. We need to disentangle if this extra risk is systematic or non-systematic. To this end, we introduce a modified conditional APT model that rationalizes why the time variation of beta may represent extra systematic risk. For a sample of individual stocks, we test the hypothesis of time-varying beta and the feasibility of the modified conditional APT. We present a test for time-varying beta based on the conditional second moments of returns. We find that there is strong evidence against constancy of betas in favor of a random coefficient model, and that the time variation of beta is due to non-systematic behavior of the firms and investors should be able to diversify this risk away.     

股权分置的解决方案研究

中国资本市场的股权分置问题制约着股市的良性发展,破解这个难题的核心是流通方式,关键是定价机制。本文讨论了股权分置对中国资本市场发展的影响,并在此基础上提出以送股方式对流通股股东进行补偿,以市场定价为全流通定价方案的股权分置解决方案。     

Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market

This paper aims to extend the existing literature on foreign exchange rate risk pricing. Unlike the existing studies on Canada, we use six alternative bilateral and one multilateral exchange rate proxies. Furthermore, using both a two-factor and a three-factor capital asset pricing model (CAPM), we test for the presence of a long-run relationship among exchange rate risk pricing, herding behavior, term structure and the interest rate. The estimated results based on both the ordinary least squares (OLS) and generalized least squares (GLS) estimation techniques confirm that exchange rate risk in the Canadian equity market is priced and that the pricing of this risk is time-varying. This result holds for all seven exchange rate proxies. Our empirical analysis also suggests the presence of a long-run relationship among exchange rate risk pricing, herding behavior, term structure and the interest rate. This relationship is found to be insensitive to variations in the world market return.     

Evidence of price discovery on the Indonesian stock exchange

The Indonesian stock market is emerging and very little is known about price discovery mechanisms. This paper addresses this research gap by compiling and utilizing a unique stock-level dataset (consisting of 342 stocks) to examine existence and behaviour of price discovery processes. Using the Indonesian sectoral spot price index, and the Bloomberg Markit iTraxx Asia and the CDX high yield index, we test for price discovery. Our findings suggest that pricing behaviour on Indonesian stock exchange is contributed by the credit risk market. We also note that our findings are robust to a different measure of credit risk.