Market risk exposure of merger arbitrage in Australia

Purpose Using capital asset pricing model (CAPM) and the Z-risk index based on weekly data, this study aims to estimate yearly unsystematic, total, three systematic and insolvency risks in the Gulf Cooperation Council (GCC) countries for the period 2010–2018. The findings of CAPM show positive systematic market risk exposure in all GCC countries for all years, which support the contribution of stock markets to bank prices and returns. The mixed signs of systematic interest rate and exchange rate risks in GCC countries provide hedging opportunities, diversification strategies and regional cooperation, which help risk managers to hedge and stabilize their portfolios against interest rate and exchange rate fluctuations. Therefore, it is necessary that managers and policymakers develop a monitoring system on factors affecting bank insolvency risks to avoid bankruptcies and insolvencies. Design/methodology/approach This study uses the three-factor CAPM and Z-risk index to measure six types of risks. The CAPM uses market information to estimate the sensitivity of banks to the fluctuations of equity markets, debt markets and foreign exchange markets. Sharpe (1964), Lintner (1965) and Treynor (1965) developed a single-factor CAPM and the coefficient of the model was called systematic market risk. The single-factor CAPM highlights stock markets as the only non-diversifiable source of systematic risks, whereas Stone (1974) and Jorion (1990) highlighted interest rate and exchange rate fluctuations as the other types of non-diversifiable systematic risks. The following functional form in equation (1) estimates five types of risks using CAPM. Findings The findings of CAPM show positive systematic market risk exposure in all GCC countries for all years, which support the contribution of stock markets to bank prices and returns based on CAPM theory. The mixed signs of systematic interest rate and exchange rate risks in GCC countries support hedging opportunities and diversification strategies which may help risk managers to hedge and stabilize their portfolios against the fluctuations of interest rate and exchange rate. Although, this policy may decrease the profits of banking sectors but at the same time it would stabilize the portfolios and prevent bankruptcies and big losses because of the fluctuations of interest rate. Moreover, a bank has a better chance to have more liquidity position during financial crises because of the diversifications into different regional markets. Research limitations/implications Therefore, this study contributes to the existing literature by using risk measurement by a three-factor CAPM and the Z-risk index as discussed further in methodology. Originality/value It is necessary that managers and policymakers develop a monitoring system on factors affecting bank insolvency risks to avoid bankruptcies and insolvencies.

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Rising Market Risk Exposure of Municipal Water Service Providers in Distressed Cities

Journal of Water Resources Planning and Management ◽

10.1061/(asce)wr.1943-5452.0001506 ◽

2022 ◽

Vol 148 (2) ◽

Author(s):

Erika Smull ◽

Lauren Patterson ◽

Martin Doyle

Keyword(s):

Service Providers ◽

Market Risk ◽

Risk Exposure ◽

Water Service ◽

Municipal Water

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Tempered stable models for Islamic finance asset management

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-10-2012-0096 ◽

2014 ◽

Vol 7 (1) ◽

pp. 37-60 ◽

Cited By ~ 1

Author(s):

Mahmoud Bekri ◽

Young Shin (Aaron) Kim ◽

Svetlozar (Zari) T. Rachev

Keyword(s):

Risk Management ◽

Stock Market ◽

Empirical Evidence ◽

Market Risk ◽

Market Volatility ◽

Risk Exposure ◽

Islamic Finance ◽

Content Type ◽

Portfolio Manager ◽

Safety First

Purpose – In Islamic finance (IF), the safety-first rule of investing (hifdh al mal) is held to be of utmost importance. In view of the instability in the global financial markets, the IF portfolio manager (mudharib) is committed, according to Sharia, to make use of advanced models and reliable tools. This paper seeks to address these issues. Design/methodology/approach – In this paper, the limitations of the standard models used in the IF industry are reviewed. Then, a framework was set forth for a reliable modeling of the IF markets, especially in extreme events and highly volatile periods. Based on the empirical evidence, the framework offers an improved tool to ameliorate the evaluation of Islamic stock market risk exposure and to reduce the costs of Islamic risk management. Findings – Based on the empirical evidence, the framework offers an improved tool to ameliorate the evaluation of Islamic stock market risk exposure and to reduce the costs of Islamic risk management. Originality/value – In IF, the portfolio manager – mudharib – according to Sharia, should ensure the adequacy of the mathematical and statistical tools used to model and control portfolio risk. This task became more complicated because of the increase in risk, as measured via market volatility, during the financial crisis that began in the summer of 2007. Sharia condemns the portfolio manager who demonstrates negligence and may hold him accountable for losses for failing to select the proper analytical tools. As Sharia guidelines hold the safety-first principle of investing rule (hifdh al mal) to be of utmost importance, the portfolio manager should avoid speculative investments and strategies that would lead to significant losses during periods of high market volatility.

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A New Look at Hedging with Derivatives: Will Firms Reduce Market Risk Exposure?

SSRN Electronic Journal ◽

10.2139/ssrn.934654 ◽

2006 ◽

Author(s):

Turan G. Bali ◽

Susan Hume ◽

Terrence F. Martell

Keyword(s):

Market Risk ◽

Risk Exposure ◽

New Look

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Diversification and market risk exposure of single-listed versus dual-listed ADRs

Managerial Finance ◽

10.1108/mf-02-2016-0043 ◽

2016 ◽

Vol 42 (11) ◽

pp. 1125-1135

Author(s):

Javier Rodriguez ◽

Herminio Romero

Keyword(s):

Design Methodology ◽

Market Risk ◽

Factor Models ◽

Geographical Region ◽

Risk Exposure ◽

American Depository Receipts ◽

Content Type ◽

The Us ◽

Depository Receipts

Purpose The purpose of this paper is to contrast market risk exposure and diversification of single-listed American depository receipts (“ADRs”) with those of dual-listed ADRs from the same geographical region during 2004-2012. Design/methodology/approach The study uses orthogonal returns in two-factor models to infer exposure to the US and ADRs’ home markets. Findings The authors found that both ADR types provide no diversification and are significantly exposed to US market risk. The authors also found that portfolios of both single- and dual-listed ADRs behave significantly differently than their home markets. Originality/value Only several academic papers discuss single-listed ADRs, and to the best of the knowledge, this study is the first to assess their diversification value.

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Effect of operational and market risk exposures on financial performance of DT-Saccos in Kenya

International Journal of Research in Business and Social Science (2147-4478) ◽

10.20525/ijrbs.v10i5.1282 ◽

2021 ◽

Vol 10 (5) ◽

pp. 107-118

Author(s):

Sisimonda Kinya Mwanja

Keyword(s):

Interest Rate ◽

Financial Performance ◽

Foreign Exchange ◽

Market Risk ◽

Interest Rate Risk ◽

Risk Exposure ◽

Operating Efficiency ◽

Operating Expense ◽

Rate Risk ◽

Exchange Risk

The main aim of the investigation was to analyze the effect of operational and market risk exposures on the financial performance of DT-SACCOs in Kenya. The specific objectives of the study were to; assess the effect of operating expense risk exposure on the financial performance of DT-SACCOs in Kenya; To establish the effect of operation efficiency risk exposure on the financial performance of DT-SACCOs in Kenya; Effect of interest rate risk exposure on the financial performance of DT-SACCOs in Kenya; Effect of foreign exchange rate risk exposure on the financial performance of DT-SACCOs in Kenya. Effect of operational and market risk exposure on the financial performance of DT-SACCOs in Kenya. The study used panel data between the years 2010-2019 which was 10 years period. The results revealed that at both bivariate and multivariate regression operating expense risk, operating efficiency and foreign exchange risk exposure had a significant effect on the financial performance of DT-SACCOs in Kenya. Only interest rate risk exposure did not have a significant effect on the financial performance of DT-SACCOs in Kenya.

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