Interaction between securitization gains and abnormal loan loss provisions: Credit risk retention and fair value accounting

This study investigates whether managers use asset securitization gains to substitute loan loss provision (LLP) management for earnings management, and, if so, whether the percentage of credit risk retained affects such a relationship. The literature provides evidence that managers have used securitization transactions to boost earnings. Using 2001?2014 data for a sample of bank holding companies, I find that managers use securitization gains and LLPs as partial substitutes and that earnings management from securitization gains grows at an increasing rate to substitute income increasing LLP management as the level of risk retention increases. These findings are consistent with the argument that the higher the level of risk retention, the greater the potential impact on achieving earnings targets, given banks’ exercise of discretion over securitization gains through estimation of fair value of retained interest. In addition, I document that the substitution effect between the two tools is non‐existent in the post‐SFAS 166/167 period. Taken together, the findings have timely implications for accounting standards by informing the effect of risk retention that I measure through earnings management techniques. Moreover, my findings provide additional support for improved disclosures on assets‐backed securities.     

The impact of exchange rate risk on international asset pricing under various market structures

This article derives international equity pricing relations by taking into account inflationary exchange risk under various forms of market segmentation/integration. In a mean-variance framework, a two-country, two-period, two-goods model is analyzed under three different market structures: segmented, mildly segmented and integrated. It is found that as long as investors are consuming imported goods, in the presence of market frictions, inflationary exchange risk is an important determinant of real equity prices. This is the case because inflationary exchange rate affects the real purchasing power of investors.

Risk reporting: A study of risk disclosures in the annual reports of UK companies

The concepts of risk and risk management have received considerable attention lately, but this has yet to be reflected in empirical research examining firms’ risk reporting practices. This study seeks to address this gap in the literature and explores risk disclosures within a sample of 79 UK company annual reports using content analysis. A significant association is found between the number of risk disclosures and company size. Similarly a significant association is found between the number of risk disclosures and level of environmental risk as measured by Innovest EcoValue`21™ Ratings. However, no association is found between the number of risk disclosures and five other measures of risk: gearing ratio, asset cover, quiscore, book to market value of equity and beta factor. The paper also discusses the nature of the risk disclosures made by the sample companies specifically examining their time orientation, whether they are monetarily quantified and if good or bad risk news is disclosed. It was uncommon to find monetary assessments of risk information, but companies did exhibit a willingness to disclose forward-looking risk information. Overall the dominance of statements of general risk management policy and a lack of coherence in the risk narratives implies that a risk information gap exists and consequently stakeholders are unable to adequately assess the risk profile of a company.     

深交所信息披露考评公告的市场效应研究

本文在对深交所信息披露考评进行分析的基础上,采用事件研究方法对考评公告的市场效应进行了实证分析。研究发现,2002～2006年度,市场对信息披露公告未做出显著反应;但2007年度,市场针对不同的信息披露考评等级做出了显著的理性反应。这一变化,反映了投资者对信息披露质量的关注程度和对深交所信息披露考评机制的认可程度在不断提高。     

Investing in gold: Individual asset risk in the long run

This study examines gold’s contribution to portfolio risk over different time scales. The analysis is based on wavelet decompositions of the variances and covariances associated with a portfolio that includes gold, stocks, 10-year government bonds and three-month Treasury bills. The results suggest that gold provides the lowest contribution to portfolio risk only when considered over medium- and long-term investment horizons.     

A framework to measure integrated risk

A framework underlying various models that measure the credit risk of a portfolio is extended in this paper to allow the integration of credit risk with a range of market risks using Monte Carlo simulation. A structural model is proposed that allows interest rates to be stochastic and provides closed-form expressions for the market value of a firm's equity and its probability of default. This model is embedded within the integrated framework and the general approach illustrated by measuring the risk of a foreign exchange forward when there is a significant probability of default by the counterparty. For this example moving from a market risk calculation to an integrated risk calculation reduces the expected future value of the instrument by an amount that could not be calculated using the common pre-settlement exposure technique for estimating the credit risk of a derivative.     

基于多层次模糊综合评价的中小企业信用风险评估

引入多层次模糊评价方法,设计包括行业状况、上下游状况、产品状况、管理水平、财务状况和资信状况的指标体系,构建多层次模糊综合评价的中小企业信用风险评估模型。算例分析表明该方法综合了定性因素和定量因素,能有效地评价中小企业的信用风险。     

Least-squares approach to risk parity in portfolio selection

The risk parity portfolio selection problem aims to find such portfolios for which the contributions of risk from all assets are equally weighted. Portfolios constructed using the risk parity approach are a compromise between two well-known diversification techniques: minimum variance optimization and the equal weighting approach. In this paper, we discuss the problem of finding portfolios that satisfy risk parity over either individual assets or groups of assets. We describe the set of all risk parity solutions by using convex optimization techniques over orthants and we show that this set may contain an exponential number of solutions. We then propose an alternative non-convex least-squares model whose set of optimal solutions includes all risk parity solutions, and propose a modified formulation which aims at selecting the most desirable risk parity solution according to a given criterion. When general bounds are considered, a risk parity solution may not exist. In this case, the non-convex least-squares model seeks a feasible portfolio which is as close to risk parity as possible. Furthermore, we propose an alternating linearization framework to solve this non-convex model. Numerical experiments indicate the effectiveness of our technique in terms of both speed and accuracy.     

The effects of information disclosure regulation on stock markets: Evidence from Vietnam

This paper investigates the effects of regulation pertaining to information disclosure on the Vietnam stock market. Using the event study methodology, we examine sectoral reactions, in terms of risk and return, following the announcements on information disclosure regulation in Vietnam. To validate the results, we also conduct several robustness tests such as the removal of firm-specific information and the use of a wide variety of ARCH models such as GARCH (1,1). We find evidence indicating that when the market anticipates a piece of regulation on information disclosure, most sectors experience negative reactions two and five days before the first announcement. Positive reactions are observed on the event date, as well as two and five days afterwards. Furthermore, we document a difference between the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) in terms of market reaction. The results also show that the sectors experience changes in short-term systematic risk. Our contributions to the literature are threefold. First, we focus on a complete and more updated set of the Vietnam stock market’s information disclosure regulation. Second, our study examines the effects of a series of events on a single regulation at sectoral and firm levels in an emerging market. Third, in addition to sectoral analysis, we analyse the Vietnam stock market reaction at the firm level.     

Interpretable selective learning in credit risk

Forecasting credit default risk has been an important research field for several decades. Traditionally, logistic regression has been widely recognized as a solution because of its accuracy and interpretability. Although complex machine learning models may improve accuracy over simple logistic regressions, their interpretability has prevented their use in credit risk assessment. We introduce a neural network with a selective option to increase interpretability by distinguishing whether linear models can explain the dataset. Our methods are tested on two datasets: 25,000 samples from the Taiwan payment system collected in October 2005 and 250,000 samples from the 2011 Kaggle competition. We find that, for most of samples, logistic regression will be sufficient, with reasonable accuracy; meanwhile, for some specific data portions, a shallow neural network model leads to much better accuracy without significantly sacrificing interpretability.     

A theory of systemic risk and design of prudential bank regulation

Systemic risk is modeled as the endogenously chosen correlation of returns on assets held by banks. The limited liability of banks and the presence of a negative externality of one bank’s failure on the health of other banks give rise to a systemic risk-shifting incentive where all banks undertake correlated investments, thereby increasing economy-wide aggregate risk. Regulatory mechanisms such as bank closure policy and capital adequacy requirements that are commonly based only on a bank’s own risk fail to mitigate aggregate risk-shifting incentives, and can, in fact, accentuate systemic risk. Prudential regulation is shown to operate at a collective level, regulating each bank as a function of both its joint (correlated) risk with other banks as well as its individual (bank-specific) risk.     

Evaluating the sovereign and household credit risk in Singapore: A contingent claims approach

This study evaluates the credit risk of the household and government (sovereign) sectors in Singapore using the contingent claims approach (CCA). The CCA model estimates the default probability of both sectors based on the market value of the assets and liabilities of the sectors. Compared to the traditional credit rating system, this model is able to provide numerical estimates of the exposures and default probabilities. We find that from the year 2000 to 2013, variations in the credit risk measures correspond to the economic growth of Singapore. In addition, we suggest that the main factor affecting the credit risks in the government and household sectors in Singapore is the volatility of the assets held by both sectors, given that the asset-to-distress barrier ratios are relatively stable over the past 14 years for both sectors.     

Contagion effect on bond portfolio risk measures in a hybrid credit risk model

This paper illustrates how modelling the contagion effect among assets of a given bond portfolio changes the risk perception associated to it. This empirical work is developed in a hybrid credit risk framework that incorporates recovery rate risk. Dependence structures among firms and between external shocks affecting firms together are considered. The presence of correlations among firm leverage ratios and the interrelation between default probabilities and recovery rates produces clusters of defaults with low recovery rates. This has a major impact on standard risk measures such as Value-at-Risk and conditional tail expectation. Consequently, an appropriate measurement of the contagion has a tremendous effect on the capital requirement of many financial institutions.     

我国银行业信用风险宏观压力测试研究

本文通过实证研究提出并论证了一种宏观压力测试方法,该方法可用于银行业监管和系统性风险的防范.首先采用有序多分类Logistic模型测算行业原始违约概率,再运用MFD违约概率模型将宏观冲击因子引入以求得渗入宏观经济因子的违约概率,然后采用CreditRisk+模型分别测算不同宏观压力情景下与信用风险对应的经济资本变化,经...     

The effects of environmental regulation on the stock market: the French experience

The impact of environmental regulation on the French stock market is investigated by using event study methodology and asset pricing models. The impact of environmental regulation on the stock prices of environmentally friendly businesses and polluters is assessed. Additionally, we estimate the change in systematic risk following the introduction of new regulations. According to the results, the French stock market is particularly sensitive to the environmental regulation embodied in the European Union Emissions Trading System and less so to the regulation on water, soil and air. The chemicals, oil and gas industries exhibit negative reactions, whereas other polluters (such as construction and materials, and industrial transportation) produce positive abnormal returns.     

Liquidity risk in derivatives valuation: an improved credit proxy method

The models used to calculate post-crisis valuation adjustments, market risk and capital measures for derivatives are subject to liquidity risk due to severe lack of available information to obtain market implied model parameters. The European Banking Authority has proposed an intersection methodology to calculate a proxy CDS or Bond spread. Due to practical issues of this method, Chourdakis et al. introduce a cross-section approach. In this paper, we extend the cross-section methodology using equity returns, and show that our methodology is significantly more accurate compared to both existing methodologies, and produces more reliable, stable and robust market risk and capital measures, and credit valuation adjustment.     

Common risk factors in the cross-section of corporate bond returns

We investigate the cross-sectional determinants of corporate bond returns and find that downside risk is the strongest predictor of future bond returns. We also introduce common risk factors based on the prevalent risk characteristics of corporate bonds—downside risk, credit risk, and liquidity risk—and find that these novel bond factors have economically and statistically significant risk premiums that cannot be explained by long-established stock and bond market factors. We show that the newly proposed risk factors outperform all other models considered in the literature in explaining the returns of the industry- and size/maturity-sorted portfolios of corporate bonds.     

商业银行集成风险管理研究

单一的风险管理方式无法应对现代商业银行所面临的风险。集成风险管理成为商业银行风险管理的发展趋势。本文论述了集成风险管理的风险相关性,风险集成技术的研究,并构建了商业银行集成风险管理模型,最后指出了商业银行集成风险管理研究的不足。