Market conditions,risk, and real estate portfolio returns: Some empirical evidence

This research examined the return behavior of a portfolio of American and New York Stock Exchange real estate firms. A dummy variable procedure was used to test for excess return and/or change in risk behavior across market conditions. The findings were as follows. First, no excess return was found for any model specification. Second, no changes in beta were found using the benchmark approach. The beta shifted when an up market was defined as a nonrecessionary period; the beta behaved procyclically. However, the subperiod tests indicated that effect was transitory and period specific.     

Executive compensation and non-financial risk: An empirical examination

Executives face potentially severe (non-financial) personal risks if firm environmental performance is below industry best practice. We examine the relation between CEO compensation and the non-financial risk associated with environmental exposure, and how use of environmental performance as an explicit determinant of compensation affects this relation. We find evidence that CEOs are compensated for exposure to environmental risk, even after controlling for financial risk. We also find that this premium is reduced when the CEO has greater opportunities to improve the firm’s environmental performance.     

Systematic risk and international diversification: An empirical perspective

This paper reports findings from a study that systematically evaluated the nature of the relationship between internationalization and systematic risk. In addition to previous conceptualizations, this study also examined whether the number of foreign countries and segments a firm operates in constitute a part of the information used by market participants to assess a firm's risk exposure. We find that international diversification is significantly and positively associated with systematic risk and that diversification augments systematic risk. Our findings have implications on the stability of foreign expansion and business decisions by managers on the appropriate level of overseas commitment.     

Ratings-based credit risk modelling: An empirical analysis

Banks have recently developed new techniques for gauging the credit risk associated with portfolios of illiquid and defaultable instruments. These techniques could revolutionise banks' management of credit risk and could in the longer term serve as a more risk-sensitive basis for calculating regulatory capital on banks' loan books than in Basel 2, the new regulatory capital framework. In this paper we implement a popular credit risk model that exploits the information in credit ratings to determine a portfolio's value-at-risk. Using price data on large eurobond portfolios, we assess, on an out-of-sample basis, how well the model tracks the risks it is supposed to measure.     

Supply chain risk: empirical research in the automotive industry

Supply chain risk management (SCRM) has become a popular topic over the past decade. It is not a surprise that the automotive industry has been a motivating arena for research within this field; however, the few existing empirical studies reveal that SCRM practices within this industry are still in their infancy. Because the identification of risks can be viewed as the trigger for SCRM, attempts to develop a risk profile for this industry that could serve as a guide to start the SCRM process are needed. This research identifies the main risks along the automotive supply chain by investigating their manifestation in three supply chains in Brazil and offers an initial risk profile for the Brazilian automotive industry. Although the importance of SCRM has been recognised by all analysed companies, the research findings underline the lack of preparedness regarding either identifying risk or considering risk-mitigation strategies and risk assessment. In this context, this study identifies the main risk in which a supply chain can be exposed, through the analysis of real-life manifested risks along different supply chains, as a way to help the supply chain start a SCRM process.     

Consequences,morality, and time in environmental risk evaluation

Environmental risks pose a serious problem to individual and societal decision‐making, and the public debate is often characterized by a conflict between morally‐principled and technically oriented points of view. Drawing on previous work of Böhm and Pfister (), we propose a model on how environmental risks are cognitively represented and how risks are evaluated. The model suggests two evaluative pathways, evaluations of consequences and evaluation of moral considerations, each leading to a distinct set of emotions and action tendencies. Either one of these pathways may become dominant depending on the evaluative focus of the person, which, in turn, depends on the causal structure of the risk. An experimental study yields confirming evidence for this model. Furthermore, the influence of time perspective, that is, the delay of negative consequences caused by an environmental risk, is investigated. Contrary to the common assumption, only weak evidence for temporal discounting effects is found. It is concluded that environmental risks, due to their strong moral component, are partly immune to time perspective.     

Risk minimization in stochastic volatility models: model risk and empirical performance

In this paper the performance of locally risk-minimizing delta hedge strategies for European options in stochastic volatility models is studied from an experimental as well as from an empirical perspective. These hedge strategies are derived for a large class of diffusion-type stochastic volatility models, and they are as easy to implement as usual delta hedges. Our simulation results on model risk show that these risk-minimizing hedges are robust with respect to uncertainty and misconceptions about the underlying data generating process. The empirical study, which includes the US sub-prime crisis period, documents that in equity markets risk-minimizing delta hedges consistently outperform usual delta hedges by approximately halving the standard deviation of the profit-and-loss ratio.     

Efficiency and risk in commercial banking: empirical evidence from East Asian countries

This paper analyses the effects of off-balance sheet (OBS) activities and various types of risks on the cost and profit efficiencies of banks in seven East Asian countries between 2001 and 2008. Cost and profit efficiency scores are estimated using the data envelopment analysis approach. The results of this analysis are then used to identify the impact of OBS activities and risk exposures on cost and profit efficiencies using a Tobit regression. Bank insolvency risk (as measured by z-scores) is positively related to profit efficiency, while interest sensitivity, size, equity to total assets and OBS exposures all impact on cost efficiency. The analysis of the impact of input and output slacks illustrates that in around 1 in 5 cases banks’ cost efficiency can be improved by adjusting the former variables, whereas in only around 1 in 100 cases a similar outcome is possible for profit efficiency.     

Intertopical sequencing of examination questions: An empirical evaluation

This research examines whether the ordering of topics within an accounting examination influences either (a) the time necessary to complete the examination, or (b) examination scores. Further, these effects are examined on both introductory students (n=83) and on more advanced accounting students (n=84).Six hypotheses concerning examination time and examination score were tested via two three-factor ANOVAs. It was found that “better” students are disadvantaged by random sequencing of multiple-choice questions and score significantly lower than on an ordered format. Poorer students appear not to be affected. No differences were found relating to time necessary to complete the exam.     

w-MPS risk aversion and the shadow CAPM: theory and empirical evidence

This paper presents the shadow capital asset pricing model (CAPM) of Ma [2011a. Advanced Asset Pricing Theory. London: Imperial College Press] as an intertemporal equilibrium asset pricing model, and tests it empirically. In contrast to the classical CAPM – a single-factor model based on a strong behavioral or distributional assumption – the shadow CAPM can be represented as a two-factor model, and only requires a modest behavioral assumption of weak form mean-preserving spread risk aversion. The empirical tests provide support in favor of the shadow CAPM over the classical CAPM, the consumption CAPM, or the Epstein and Zin [1991. “Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis”. Journal of Political Economy 99, 263–286] model. Moreover, the shadow CAPM provides a consistent explanation for the cross-sectional variations of expected returns on the stocks and for the time-varying equity premium.     

Relative performance evaluation in board cash compensation: UK empirical evidence

This paper presents an empirical examination of whether evidence of the implicit use of relative performance evaluation (RPE) can be found in the cash compensation of boards of directors for 169 UK non-financial listed companies that existed for all of the period from 1971 to 1998. We perform two types of analyses. Initially, we estimate individual firm time series regressions of the change in board cash compensation against measures of firm and peer group performance. The measures of firm performance we use are annual cash stock market returns and pre-tax accounting earnings. Peer group measures of performance are industry value-weighted average cash stock market returns and industry value-weighted average pre-tax accounting earnings. Subsequently, we analyse the data as a balanced panel.We provide evidence that board cash compensation is positively related to accounting earnings and negatively associated with peer group pre-tax accounting earnings. Some evidence suggests that board cash compensation is related to firm stock market returns but none suggests it is related to peer group market returns. This result implies the presence of RPE based on accounting earnings in the design of UK board compensation, with the cash compensation of boards of directors implicitly (partially) protected from industry uncertainties.     

Futures and futures options with basis risk: theoretical and empirical perspectives

Under a no-arbitrage assumption, the futures price converges to the spot price at the maturity of the futures contract, where the basis equals zero. Assuming that the basis process follows a modified Brownian bridge process with a zero basis at maturity, we derive the closed-form solutions of futures and futures options with the basis risk under the stochastic interest rate. We make a comparison of the Black model under a stochastic interest rate and our model in an empirical test using the daily data of S&P 500 futures call options. The overall mean errors in terms of index points and percentage are ?4.771 and ?27.83%, respectively, for the Black model and 0.757 and 1.30%, respectively, for our model. This evidence supports the occurrence of basis risk in S&P 500 futures call options.     

Emerging markets and portfolio foreign exchange risk: An empirical investigation using a value-at-risk decomposition technique

The correlation between a portfolio's equity and foreign exchange components plays a role in reducing foreign exchange exposure. Investors must account for this correlation when determining the extent of foreign exchange risk in emerging market equity portfolio investments. This study employs a VaR risk factor mapping technique, under the variance–covariance VaR approach, to decompose portfolio risk in Argentina, Brazil, China, India, Mexico and Russia. For comparison purposes, the same technique is used to decompose portfolio risk in the US. The study is conducted from the perspective of a European equity investor with a portfolio of equities in each country. By employing the VaR decomposition technique, the correlation between a portfolio's equity and foreign exchange components is taken into account and portfolio foreign exchange risk is extracted from portfolio systematic risk. Our results uniquely demonstrate significant variation in foreign exchange risk in emerging markets.     

The world ex ante risk premium: an empirical investigation

A number of recent papers have focused on testing the linearity restrictions implied by international asset pricing models. The tests, however, have not addressed an additional restriction implied by the models; namely, that the risk premium on the world portfolio is positive. This study provides a direct assessment of this restriction. The evidence indicates that the ex ante world market risk premium can be negative. The results are robust to market proxies that are hedged and unhedged with respect to currency risk. Subperiod analysis indicates that the rejection of the positive risk premium restriction is driven by the first half of the sample period.     

Determinants and value of enterprise risk management: empirical evidence from Germany

Enterprise risk management (ERM) has become increasingly relevant in recent years, especially due to an increasing complexity of risks and the further development of regulatory frameworks. The aim of this paper is to empirically analyze firm characteristics that determine the implementation of an ERM system and to study the impact of ERM on firm value. We focus on companies listed at the German stock exchange, which to the best of our knowledge is the first empirical study with a cross-sectional analysis for Germany and one of the first for a European country. Our findings show that size, international diversification and the industry sector (banking, insurance, energy) positively impact the implementation of an ERM system, and financial leverage is negatively related to ERM engagement. In addition, our results confirm a significant positive impact of ERM on shareholder value.     

Bank income structure and risk: An empirical analysis of European banks

The purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the European banking industry. Based on a broad set of European banks for the period 1996–2002, our study first shows that banks expanding into non-interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans. However, considering size effects and splitting non-interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities. A higher share of trading activities is never associated with higher risk and for small banks it implies, in some cases, lower asset and default risks.     

Land Tenure, Investment Incentives, and the Choice of Techniques: Evidence from Nicaragua

The choice of cultivation techniques is a key determinant ofagricultural productivity and has important consequences forincome growth and poverty reduction in developing countries.Household data from Nicaragua are used to show that the choiceof cultivation technique depends on farmers' tenure status evenwhen techniques are observable and contractible. In particular,tree crops are less likely to be grown on rented than on owner-cultivatedplots. Further evidence indicates that the result follows fromlandlords' inability or unwillingness to commit to long-termtenancy contracts rather than from agency costs due to riskaversion or limited liability.     

Accounting information and municipal bond net interest cost: An empirical evaluation

The objective of this study was to test the association between the surplus/deficit of selected Minnesota municipalities and the net interest cost of the general obligation bonds issued by these municipalities. This objective was accomplished by employing a pooled time-series design.A two-way analysis of variance was used to determine if there was a significant difference in the effect of net interest cost between positive and negative forecast errors. The ANOVA results of both tests indicate that the surplus/deficit is not correlated with increases/ decreases in the net interest cost of the bonds issued by a municipality. The results were unaffected by the exclusion of bond ratings as an independent variable.     

外部审计师评价内部审计工作研究评述

注册会计师审计与内部审计同是审计体系的重要组成部分.长期以来,职业界在内部审计与外部审计相互利用工作结果的可能性方面已取得共识.本文就国外外部审计师依赖并利用内部审计工作的有关实证研究进行综述,并对未来研究方向提出建议.     

Alternative models for hedging yield curve risk: An empirical comparison

We test alternative models of yield curve risk by hedging US Treasury bond portfolios through note/bond futures. We show that traditional implementations of models based on principal component analysis, duration vectors and key rate duration lead to high exposure to model errors and to sizable transaction costs, thus lowering the hedging quality. Also, this quality randomly varies from one model and hedging problem to the other. We show that accounting for the variance of modeling errors substantially reduces both hedging errors and transaction costs for all considered models. Additionally, it leads to much more stable weights in the hedging portfolios and – as a result – to more homogeneous hedging quality. On this basis, error-adjusted principal component analysis is found to systematically and significantly outperform alternative models.