scholarly journals The cross-market efficiency of the Italian derivatives market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Izidin El Kalak ◽  
Robert Hudson
Keyword(s):  
Financial Crisis ◽  
Market Efficiency ◽  
Options Market ◽  
Index Options ◽  
Content Type ◽  
No Arbitrage ◽  
Crisis Period ◽  
Ex Post ◽  
The Cross ◽  
The Impact

Purpose This study aims to examine the cross-market efficiency of the FTSE/MIB index options contracts traded on the Italian derivatives market (IDEM) during a period including the financial crisis between 1st October 2007 and 31st December 2012 using daily option prices. Design/methodology/approach Two fundamental no-arbitrage conditions were tested: the lower boundary condition (LBC) and the put–call parity (PCP) condition while taking into account the role of transaction costs in mitigating the number of violations reported. Ex post tests of LBC and PCP revealed a low incidence of mispricing in this market. Furthermore, to check the robustness of the results obtained by the ex post tests, ex ante tests were applied to PCP violations occurring within a one-day lag. Findings The results showed a significant drop in the number of profitable arbitrage strategies. The findings obtained from all these tests generally support the cross-market efficiency of the Italian index options market during the sample period, though some violations were occasionally reported. Overall, the number and monetary value of the violations reported declined during the post-financial crisis period compared to those during the financial crisis period. Research limitations/implications This study can be extended to test the relationships between arbitrage profitability and other factors such as the moneyness (in the money, out of the money, at the money) of options and the maturity of options. Options market efficiency tests can be conducted such as call and put spreads, box spreads and put/call convexities (butterfly spreads). Originality/value There are several factors that influenced the decision to test the Italian index options market. First, the limited number of studies conducted on this market. Second, the fact that the two main studies on this market are relatively old, which makes it interesting to test the efficiency of this market with respect to a new set of data, taking into account the introduction of the Euro and the impact of the recent financial crisis on this market and whether the market efficiency hypothesis holds during the period of crisis. Third, it is important to consider the effect of the new rules applied to this market.

The impact of guaranteed bailout assistance on bank loan overstatement

2016 ◽  
Vol 12 (2) ◽  
pp. 177-210
Author(s):  
Alejandro Hazera ◽  
Carmen Quirvan ◽  
Salvador Marin-Hernandez
Keyword(s):  
Financial Crisis ◽  
Emerging Market ◽  
Balance Sheet ◽  
Bank Loan ◽  
Content Type ◽  
Put Options ◽  
Regulatory Policies ◽  
Ex Post ◽  
Ex Ante ◽  
The Impact

Purpose – The purpose of this paper is to highlight how the basic binomial option pricing model (BOPM) might be used by regulators to help formulate rules, prior to financial crisis, that help prevent loan overstatement by banks in emerging market economies undergoing financial crises. Design/methodology/approach – The paper draws on the theory of soft budget constraints (SBC) to construct a simple model in which banks overstate loans to minimize losses. The model is used to illustrate how guarantees of bailout assistance (BA) (to banks) by crisis stricken countries’ financial authorities may encourage banks to overstate loans and delay the implementation of IFRS for loan valuation. However, the model also illustrates how promises of BA may be depicted as binomial put options which provide banks with the option of either: reporting loan values on poor projects accurately and receiving the loans’ liquidation values; or, overstating loans and receiving the guaranteed BA. An illustration is also provided of how authorities may use this representation to help minimize bank loan overstatement in periods of financial crisis. In order to provide an illustration of how the option value of binomial assistance may evolve during a financial crisis, the model is generalized to the Mexican financial crisis of the late 1990s. During this period, Mexican authorities’ guarantees of BA to the nation’s largest banks encouraged those institutions to overstate loans and delay the implementation of (previously adopted) international “best practices” based loan valuation standards. Findings – Application of the model to the Mexican financial crisis provides evidence that, in spite of Mexico’s “official” 1997 adoption of international “best accounting practices” for banks, “iron clad” guarantees of BA by the country’s financial authorities to Mexico’s largest banks provided those institutions with an incentive to knowingly overstate loans in the late 1990s and early 2000s. Research limitations/implications – The model is compared against only one country in which the BA was directly infused into banks’ loan portfolios. Thus, as conceived, it is directly applicable to crisis countries in which the bailout took this form. However, the many quantitative variations of SBC models as well as recent studies which have applied the binomial model to other forms of bailout (e.g. direct purchases of bank shares by authorities) suggest that the model could be modified to accommodate different bailout scenarios. Practical implications – The model and application show that guaranteed BA can be viewed as a put option and that ex-ante regulatory policies based on the correct valuation of the BA as a binomial option might prevent banks from overstating loans. Social implications – Use of the binomial or similar approaches to valuing BA may help regulators to determine the level of BA that will not encourage banks to overstate the value of their loans. Originality/value – Recent research has used the BOPM to value, on an ex-post basis, the BA which appears on the balance sheet of institutions which have been rescued. However, little research has advocated the use of this type of model to help prevent, on an ex-ante basis, the overstatement of loans on poor projects.

Market efficiency and the global financial crisis: evidence from developed markets

2018 ◽  
Vol 35 (3) ◽  
pp. 362-385 ◽  
Author(s):  
Omid Sabbaghi ◽  
Navid Sabbaghi
Keyword(s):  
Financial Crisis ◽  
Market Efficiency ◽  
Global Financial Crisis ◽  
Weak Form ◽  
Content Type ◽  
Developed Markets ◽  
The Usa ◽  
Econometric Tests ◽  
The Impact ◽  
Empirical Investigations

Purpose This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis. Design/methodology/approach Using the Morgan Stanley Capital International (MSCI) country indices as proxies for national stock markets, the study conducts a battery of econometric tests in assessing weak-form market efficiency for the developed markets. Findings The inferential outcomes are consistent among the different tests. Specifically, the study finds that the majority of developed markets are weak-form efficient while the USA is the sole equity market to be commonly diagnosed as weak-form inefficient across the different tests when using full period data spanning the January 2008-November 2011 period. However, when basing the analysis on one-year subsamples over the identical time period, this study fails to reject weak-form market efficiency for all of the developed markets and presents evidence consistent with the Adaptive Market Hypothesis as described by Urquhart and Hudson (2013). When applying technical analysis for the case of the USA over the full study period, the results indicate that the return predictabilities can be exploited for some horizon of variable length moving average (VMA) trading rules. Originality/value This study provides one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis using an extended set of econometric tests. The study contributes to the existing body of empirical research that formally assesses the impact of a financial crisis on stock market efficiency and underlines the significance and relevance of examining market efficiency through subsample analysis.

scholarly journals Accruals quality and the cost of debt: the European evidence

2019 ◽  
Vol 27 (2) ◽  
pp. 333-351 ◽  
Author(s):  
Yasser Eliwa ◽  
Andros Gregoriou ◽  
Audrey Paterson
Keyword(s):  
Financial Crisis ◽  
Cost Of Debt ◽  
Content Type ◽  
Crisis Period ◽  
Listed Firms ◽  
National Characteristics ◽  
Accruals Quality ◽  
The Cost ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to investigate the empirical relationship between the cost of debt (CoD) and accruals quality (AQ) of European listed firms during the period of 2005 to 2014. Also, it aims to test the impact of the interrelationship between the financial crisis (2008-2009) and AQ on CoD. Finally, we decompose AQ into two components; the innate (InnateAQ) and discretionary components (DiscAQ); and test their relationships with CoD. Design/methodology/approach To empirically examine the relationship between AQ and CoD, a sample including 15 member states of the EU is constructed. AQ proxy is based on the McNichols (2002) modification of Dechow and Dichev (2002) model. A univariate analysis and a multivariate analysis are conducted to examine the relationship between AQ and CoD after controlling for firm characteristics and institutional variables. Findings We find a significant negative association between AQ and CoD in a vast proportion of the 15 countries under review. Also, the results indicate that during the crisis period, creditors pay relatively more attention to the quality of accounting information than during the pre-crisis period when they determine CoD of firms. Moreover, we report a link between the magnitude of this relationship and national characteristics and provide evidence of the significant effects of national characteristics and market forces on CoD. Finally, we find that InnateAQ drives the relationship with CoD. Practical implications This paper provides up-to-date evidence on the economic consequences of AQ and IFRS in the capital market. The results should, therefore, be of interest to managers, creditors, regulators and standard-setters. Originality/value To the best of the authors’ knowledge, this is the first paper to investigate the effects of AQ on CoD for European listed firms. Also, it examines the impact of financial crisis on the association between AQ and CoD.

Global financial crisis, foreign portfolio investment and volatility

2020 ◽  
Vol 32 (2) ◽  
pp. 177-195
Author(s):  
Abdelkader Derbali ◽  
Ali Lamouchi
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Emerging Markets ◽  
Global Financial Crisis ◽  
Portfolio Investment ◽  
Content Type ◽  
Foreign Portfolio Investment ◽  
Crisis Period ◽  
Asian Emerging Markets ◽  
The Impact

Purpose The purpose of this paper is to understand and compare the extent and nature of the impact of foreign portfolio investment (FPI) on the stock market volatility, particularly in the Southeast Asian emerging markets, and compare that against the corresponding experience of Indian economy, in the context of a global financial crisis of the recent past. Design/methodology/approach The Asian emerging markets are now being perceived as becoming financially more and more vulnerable to international events because of their growing exposure to unstable foreign investment flows. The daily net FPI inflow and the daily leading stock market composite index of four countries, namely, Thailand, the Philippines, Indonesia and India, have been analyzed using autoregressive conditional heteroscedasticity (ARCH)-generalized ARCH group of models dividing the study period from 2000 to 2014 among pre-crisis, crisis and post-crisis period separately. Findings The study reveals that the net inflow of FPI has been a significant determinant of stock market returns in all countries. The impact of volatility spillover from the FPI market to the stock market in the sample countries has been found to be different under different market conditions. The past information and volatility clustering have been significantly influencing the stock market return volatilities of all these Southeast Asian countries on average. Originality/value However, there are significant country-wise differences in the relative importance and direction of the relationship of each of these effects with the volatility of the FPI and the stock markets. These effects have been different in these four different markets and they have significantly altered in strength and significance during the global financial crisis and in the post-financial crisis period.

Linking ISO 9000 certification to firm performance and financial crisis: a matched sample longitudinal analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Efrosini Siougle ◽  
Sophia Dimelis
Keyword(s):  
Firm Performance ◽  
Financial Crisis ◽  
Financial Performance ◽  
Iso 9000 ◽  
Matched Sample ◽  
Firm Level ◽  
Content Type ◽  
Crisis Period ◽  
Technological Differences ◽  
The Impact

PurposeThis is a longitudinal study exploring the effect of ISO 9000 certification on firm's financial performance in the pre-crisis period and the 2008 financial crisis period.Design/methodology/approachThe empirical analysis is based on a 22-year dataset with balance sheet data from 136 Greek listed firms covering the period 1992–2013. A matching technique is applied to properly estimate potential differences in the impact of ISO 9000 on firm's financial performance between the groups of certified and matched non-certified (control) firms in the entire period but, most importantly, in pre-crisis vs crisis periods, using the difference-in-differences econometric approach.FindingsThe findings indicate that certified firms exhibit significantly higher financial performance relative to the matched non-certified group in both the pre-crisis and crisis periods, which tends to persist for several years post-certification. The financial crisis has a negative and statistically significant effect on firm performance in both the certified and matched non-certified groups, which nevertheless did not differ significantly between them. Controlling for sectoral and technological differences did not harm the higher performance of certified firms relative to the matched control peers. The results remain in the same direction when the authors test the ISO 9000 effect in the sub-group of certified firms that obtained the certification at the firm-level.Originality/valueThe study is original in its sample design and hypothesis testing. The matched sample created from a sufficiently long and continuous time dataset enabled the authors to properly estimate firm performance differences of ISO 9000 between pre-crisis and crisis periods. Of additional value is the testing of sectoral/technological differences and the distinction between firm-level and plant-level certification.

International stock market efficiency and integration

2015 ◽  
Vol 12 (2) ◽  
pp. 88-106 ◽  
Author(s):  
Neha Seth ◽  
A. K. Sharma
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Market Efficiency ◽  
Stock Markets ◽  
Research Work ◽  
Abnormal Returns ◽  
Content Type ◽  
Stock Market Efficiency ◽  
Recent Financial Crisis ◽  
The Impact

Purpose – The purpose of this paper is to examine the informational efficiency and integration simultaneously for select Asian and US stock markets while considering the impact of recent financial crisis. Design/methodology/approach – Daily stock market data from 13 world markets covering the period of ten years (from January 1, 2000 to December 31, 2010) is tested using Run test, Unit root test, GARCH(1, 1) model, Pearson correlation coefficient, Johansen’s cointegration test and Granger causality test. Findings – It is concluded that the markets under study are inefficient in weak form which creates the chances of earning abnormal returns for the investors. Furthermore, the markets are found to be correlated and integrated in long-run, which makes the international fund diversification insignificant. The degree of inefficiency, in general, is not affected by the recent financial crisis but the level of integration among stock markets is reduced with the effect of recent financial crisis. Practical implications – Individual/institutional investors, portfolio managers, corporate executives, policy makers and practitioners may draw meaningful conclusions from the findings of this type of researches while operating in stock markets. They can use such studies for the management of their existing portfolios as their portfolio management strategies may be, up to some extent, dependent upon such research work. Originality/value – The originality of the present study lies in the fact that this paper is an attempt to fill the time gap of comprehensive researches on Asian and US markets and an effort to test stock market efficiency and integration simultaneously.

Can speed kill?

2016 ◽  
Vol 17 (5) ◽  
pp. 562-584 ◽  
Author(s):  
Doriana Cucinelli
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Bank Lending ◽  
Ordinary Least Squares ◽  
Policy Implications ◽  
Content Type ◽  
Crisis Period ◽  
Lending Activity ◽  
Lending Behavior ◽  
The Impact

Purpose This study aims to analyze bank lending behavior before and during the most recent financial crisis. Banks are more willing to grant loans during economic expansion. However, this behavior can result in reduced portfolio asset quality. The analysis tries to facilitate understanding of whether this relationship is always true. A second aim of the study is to highlight whether the impact of credit risk on bank lending behavior during a financial crisis is greater for banks that grew faster during the pre-crisis period than for other banks. Design/methodology/approach The analysis is based on a sample of banks in Italy, an example of a country undergoing a credit crunch without a lending bubble burst. The methodology is based on a panel regression and author uses different models to test his hypothesis: an ordinary least squares, a fixed effect, a least absolute regression and a Generalized Method of Momentum (GMM). This allows to mitigate some of the endogeneity problems. Findings The essay shows that effectively, most of the banks that grew faster during a pre-crisis period show a higher growth of non-performing loans and a greater reduction in lending activity during a financial crisis. However, 34 per cent of banks that grew faster during a pre-crisis period have a low growth of non-performing loans in the subsequent years. Finally, the results suggest that credit risk negatively affects bank lending behavior, but a higher impact relative to fast banks with respect to other banks cannot be emphasized. Practical implications Findings have some policy implications. First, given the adverse effect of the increase of non-performing loans (NPLs) on the bank’s lending activity and on the broad economy in general, there is merit to strengthen supervision to prevent a further increase and accumulation of NPLs in the bank’s credit portfolio. In addition, the supervisors could require that banks take always high credit standard when extend credit, both during positive economic cycle and during period of contraction. The using of higher credit standard could be helpful in the reduction of the pro-cyclicality of bank’s lending behavior and credit risk. Furthermore, the fact that high level of NPLs continues to impact on the bank’s lending activity and that this activity is very important for the economic recovery underlines that banks should clean-up their credit portfolios as soon as possible. Originality/value This paper contributes to the literature in various ways. The study analyzes the cyclical effect of credit growth, i.e. banks increase their bank lending behavior during good times, which leads to an increase in bad loans and a high credit risk in their portfolio. These cyclical effects are not knowingly studied together, but the literature usually analyzes the single steps of the cycle. Second, studying listed and unlisted banks allows to have a more representative sample and to analyze better the real bank lending activity considering both commercial than cooperative banks.

The impact of financial and economic crisis on leverage: the case of Icelandic private firms

2019 ◽  
Vol 16 (3) ◽  
pp. 297-315
Author(s):  
Twahir Khalfan ◽  
Stefan Wendt
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
Cash Flow ◽  
Fixed Effects ◽  
Generalized Method Of Moments ◽  
Private Firms ◽  
Data Set ◽  
Content Type ◽  
Crisis Period ◽  
The Impact

Purpose The purpose of this paper is to provide empirical insight into the impact of a financial crisis on capital structure of private firms. Specifically, the authors use the example of the systemic Icelandic financial crisis from 2008 to 2010 and analyze the influence of internally generated funds on leverage during the financial crisis compared to the non-crisis period. Design/methodology/approach The authors use a fixed-effects dynamic model to examine the impact of internally generated funds – measured as cash flow – with a data set that includes non-listed Icelandic firms. In addition, generalized method of moments is used to address potential endogeneity issues. Findings The authors find that internally generated funds have a different effect on capital structure during the financial crisis compared to the non-crisis period. While cash flow has an overall negative association with leverage, a positive relationship appears to exist during the crisis. However, when analyzing changes in cash flow from one year to the other, the sample firms appear to rely more on internally generated funds to adjust leverage during the financial crisis than in the non-crisis period. Originality/value Analyzing the extreme case of the Icelandic financial crisis allows us to shed light on capital structure effects in situations when both debt financing and internal financing opportunities are heavily curtailed.

Time-varying beta during the 2008 financial crisis – evidence from North America and Western Europe

2017 ◽  
Vol 18 (4) ◽  
pp. 398-431
Author(s):  
Ikrame Ben Slimane ◽  
Makram Bellalah ◽  
Hatem Rjiba
Keyword(s):  
Financial Crisis ◽  
North America ◽  
Risk Premium ◽  
Western Europe ◽  
Global Financial Crisis ◽  
Subprime Crisis ◽  
Content Type ◽  
Crisis Period ◽  
Beta Risk ◽  
The Impact

Purpose This paper aims to analyze the impact of the global financial crisis on the conditional beta in the region of North America and Western Europe and the effect on the behavior and decisions of the investor. Design/methodology/approach The authors model the variations of volatility in financial markets during crisis using the bivariate GARCH model of Engle and Kroner (1995). Findings The empirical investigation identifies an additional effect of the crisis over the period of the test. Results indicate a rise in the beta in some cases and a fall in others. This rise had a direct impact on the systematic beta risk, which increased for the majority of the companies during the crisis period. The increase in beta during the crisis period has an effect on the behavior of the investor and his decisions. Research limitations/implications The increase in the beta during the period of crisis due to a high volatility returns has an effect on the behavior and decisions of the investor. Originality/value This paper examines the effects of the “subprime crisis” on the risk premium of companies in several sectors of activity.

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