scholarly journals Estimating Dependence Structure and Risk of Financial Market Crash

2016 ◽  
Vol 5 (6) ◽  
pp. 85
Author(s):  
Ogunyiola Ayorinde Joshua ◽  
Peter N. Mwita ◽  
Carolyn N. Njenga
Keyword(s):  
South Africa ◽  
Financial Markets ◽  
Financial Market ◽  
Value At Risk ◽  
Investment Decisions ◽  
Market Value ◽  
Dependence Structure ◽  
Clayton Copula ◽  
International Stock Markets ◽  
Copula Parameter

 In this paper, we estimate the dependence structure between international stock markets using copulas. Different relationships that exist in normal and extreme periods were estimated using Clayton copula.  The Inference Functions for Margins method was used in estimating the clayton copula parameter thereby obtaining dependence estimates used in estimating Value-at-Risk. Extreme events are likely to alter the dependence structure of financial markets.This could have implications for investment decisions and ability to estimate the risk of financial markets crash. Results reveal that during the crisis period (2007-2009), maximum possible loss of market value is 75.9% and 77.6% with a confidence interval of 90% for the Kenya-Nigeria and Kenya-South Africa portfolios respectively. This implies that the Kenya-South Africa portfolio has the highest risk.

scholarly journals Do portfolio managers in South Africa consider human behaviour issues when making investment decisions or advising clients?

2009 ◽  
Vol 6 (3) ◽  
pp. 126-136
Author(s):  
JSG Strydom ◽  
JH Van Rooyen
Keyword(s):  
South Africa ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Cognitive Biases ◽  
Investment Decisions ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Economic Paradigm ◽  
Portfolio Managers ◽  
Available Information

The efficient market hypothesis is based on the assumption that individuals act rationally, processing all available information in their decision-making process. Prices therefore reflect the appropriate risk and return. However, research conducted regarding the ways that investors arrive at decisions when faced with uncertainty, has revealed that this is in fact not always the case. People often make systematic errors, the so-called cognitive biases, which lead them to less rational behavior than the traditional economic paradigm predicts. These cognitive biases have been found to be responsible for various irregular phenomena often observed in financial markets as (turbulence or, volatility, seasonable cycles, "bubbles", etc. Behavioral finance attempts to explain some of the changes in the financial markets that cannot be explained by the efficient market hypothesis. This research reviews some results from the behavioral finance and other related literature. A survey was also done to determine whether the most prominent portfolio managers in South Africa are aware of behavioral finance issues/models and consider the influence of cognitive issues when making investment decisions or giving advice to clients.

scholarly journals Is Gold as an Alternative Investment a Good Solution During Pandemic?

2021 ◽  
Vol 3 (31) ◽  
pp. 79-88
Author(s):  
Alicja Juras
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Pearson Correlation ◽  
Investment Decisions ◽  
Correlation Method ◽  
High Demand ◽  
Factors Influencing ◽  
Price Indexes ◽  
Last Stage ◽  
Alternative Investment

The aim of the article: The crisis, both in the economic and financial markets, can lead to a sudden downturn and a loss of savings. For this reason, during a crisis, safe investments are essential to reduce risks and avoid losses. This year’s coronavirus pandemic has caused a lot of confusion in the financial and investment world as well.The pandemic led to turbulence in the financial market and made investors look for the so-called safe havens. In the literature, these havens often include alternative investments with a high demand for gold. This article aims to check the validity of using gold as an investment during a pandemic. Methodology: In the paper, in order to achieve the formulated aim, the following stages were carried out: critical analysis of the literature regarding the factors influencing investment decisions and the characteristics alternatives instruments. The last stage was based on statistical analysis using the Pearson correlation method. Gold prices were compared with quotations of two price indexes: WIG20 and S&P500. Results of the research: The conducted analysis shows that gold as an alternative investment is a good hedge in times of crisis, therefore, it is also the case during ongoing pandemic. Alternative assets fulfill a hedging function, minimizing the risk of losses. Moreover, thanks to a negative correlation with the market, they give a possibility to increase investors’ capital in times of crisis.

scholarly journals Does the financial market lead the business cycle in South Africa?

2008 ◽  
Vol 2 (1) ◽  
pp. 71-88
Author(s):  
Ilsé Botha
Keyword(s):  
South Africa ◽  
Business Cycle ◽  
Financial Markets ◽  
Financial Market ◽  
Emerging Market ◽  
Business Decisions ◽  
Financial Indicator ◽  
Financial Liberalisation ◽  
The Business Cycle ◽  
The Impact

Financial markets play a significant role in an emerging market economy such as South Africa, especially after financial liberalisation. Financial liberalisation causes economies to interrelate across borders and between different sectors. The impact of this interrelationship can be captured by taking the different components of the financial market into account and relating these to the real sector, using the coincident indicator. It will be useful to identify an indicator representing the major components - equity market, capital market and the domestic financial sector - of the financial market in South Africa. This financial indicator will lead the coincident indicator, because the components of the financial indicator are available at a higher frequency than the components of the coincident indicator. This new indicator for South Africa will be of assistance in making more informed business decisions since it can be used to forecast turning points in the coincident indicator, i.e. the business cycle.

Monte Carlo–Based Financial Market Value-at-Risk Estimation on GPUs

2012 ◽  
pp. 337-353 ◽  
Author(s):  
Matthew F. Dixon ◽  
Thomas Bradley ◽  
Jike Chong ◽  
Kurt Keutzer
Keyword(s):  
At Risk ◽  
Monte Carlo ◽  
Financial Market ◽  
Value At Risk ◽  
Risk Estimation ◽  
Market Value

scholarly journals Value At Risk, Minimum Capital Requirement And The Use Of Extreme Value Distributions: An Application To BRICS Markets

2014 ◽  
Vol 14 (1) ◽  
pp. 135
Author(s):  
John Muteba Mwamba ◽  
Donovan Beytell
Keyword(s):  
South Africa ◽  
At Risk ◽  
Financial Markets ◽  
Value At Risk ◽  
Risk Model ◽  
Capital Requirement ◽  
Financial Risks ◽  
Minimum Capital ◽  
Minimum Capital Requirement ◽  
Green Zone

This paper uses closing prices of the BRICS (Brazil, Russia, India, China, and South Africa) financial markets to implement a risk model that generates point estimates of both Value at Risk (VaR); and Expected Shortfall (ES). The risk model is thereafter backtested using three techniques namely the Basel II green zone, the unconditional test, and the conditional test. We first filter the log-return data using an Autoregressive Regression model (AR) of order one for the conditional mean and an Exponential Generalised Autoregressive Conditional Heteroscedasticity of order one (EGARCH 1,1) for the conditional variance. We thereafter fit the filtered returns by using the Generalised Pareto Distribution (GPD) model before we compute both VaR and ES estimates. We find that the use of the GPD is well suited to financial markets that are highly exposed to global financial risks. Our results show that both VaR and ES estimates for South Africa are very low when compared with those of other BRICS financial markets. We argue that South Africas credit and loan regulations, pioneered by the National Credit Regulator (NCR), might have decreased its exposure to global financial risks. The resulting minimum capital requirement values are found to be significantly different depending on whether the Variance-Covariance or the GPD methodology is used. The backtesting methodologies show that the VaR model used in the paper is more robust and practically reliable.

scholarly journals Identification of information needs in intellectual capital: exploratory study on the Tunisian financial market

2016 ◽  
Vol 4 (1) ◽  
pp. 64 ◽  
Author(s):  
Jihene Ferchichi ◽  
Robert Paturel
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Intellectual Capital ◽  
Delphi Method ◽  
Exploratory Study ◽  
Information Needs ◽  
Investment Decisions ◽  
Informational Needs ◽  
Research Show

In an economy concretized by the broadening notion of the intellectual capital and its increasing role in investment decisions, it seems appropriate to conceive the intellectual capital by measuring its perception by 22 Tunisian financial professionals. Therefore, the aim of this work consists, firstly, to enable a better understanding of the intellectual capital of the Tunisian financial market. Secondly, by adopting the Delphi method, we determined the information needs and expectations' consensus in terms of intellectual capital. The results from this research show that the concept of intellectual capital appears well known by the financial actors Tunisians. Besides this research, revealed new aspects of intellectual capital. The Tunisian investors consider these dimensions as important criteria that support making their investment decision.Delphi Method; Financial Markets; Informational Needs; Intellectual Capital; Perception.

scholarly journals Comparative Analysis of Investment Decision Models

2017 ◽  
Vol 9 (2) ◽  
pp. 197-208 ◽  
Author(s):  
Ieva Kekytė ◽  
Viktorija Stasytytė
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Portfolio Management ◽  
Financial Risk ◽  
Investment Decision ◽  
Rapid Development ◽  
Investment Decisions ◽  
Decision Models ◽  
Analysis Technique ◽  
New Challenges

Rapid development of financial markets resulted new challenges for both investors and investment issues. This increased demand for innovative, modern investment and portfolio management decisions adequate for market conditions. Financial market receives special attention, creating new models, includes financial risk management and investment decision support systems.Researchers recognize the need to deal with financial problems using models consistent with the reality and based on sophisticated quantitative analysis technique. Thus, role mathematical modeling in finance becomes important. This article deals with various investments decision-making models, which include forecasting, optimization, stochatic processes, artificial intelligence, etc., and become useful tools for investment decisions.

The profitability of algorithmic trading systems based on football sentiment

2020 ◽  
Vol 42 (1) ◽  
pp. 33-46
Author(s):  
Raúl Gómez-Martínez ◽  
Camila Marqués-Bogliani ◽  
Jessica Paule-Vianez
Keyword(s):  
Financial Markets ◽  
Investment Decisions ◽  
Futures Market ◽  
Algorithmic Trading ◽  
Investment Strategies ◽  
Measurable Effect ◽  
Behavioural Finance ◽  
Trading Systems ◽  
European Football

Behavioural finance has shown that investment decisions are the result of not just rational but also emotional brain processes. On the assumption that emotions affect financial markets, it would seem likely that football results might have a measurable effect on financial markets. To test this, this study describes three algorithmic trading systems based exclusively on the results of three top European football teams (Juventus, Bayern München and Paris St Germain) opening long or short positions in the next market season of the futures market of the index of each country (MIB (Milano Italia Borsa), DAX (Deutscher Aktien Index) and CAC (Cotation Assistée en Continu). Depending on the outcome of the last game played a long position was taken after a victory and a short position after a draw or defeat. The results showed that the algorithmic systems were profitable in the case of Juventus and Bayern whereas in the case of PSG, the system was profitable, but in an inverse way. This study shows that investment strategies that take account of sports sentiment could have a profitable outcome.

scholarly journals Valuing Peace: The Effects of Financial Market Exposure on Votes and Political Attitudes

Econometrica ◽  
2019 ◽  
Vol 87 (5) ◽  
pp. 1561-1588 ◽  
Author(s):  
Saumitra Jha ◽  
Moses Shayo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Political Attitudes ◽  
Peace Process ◽  
Superior Performance ◽  
Financial Assets ◽  
Material Incentive ◽  
Nonfinancial Information ◽  
Political Messages ◽  
Economic Risks

Can participation in financial markets lead individuals to reevaluate the costs of conflict, change their political attitudes, and even their votes? Prior to the 2015 Israeli elections, we randomly assigned Palestinian and Israeli financial assets to likely voters and incentivized them to actively trade for up to 7 weeks. No political messages or nonfinancial information were included. The treatment systematically shifted vote choices toward parties more supportive of the peace process. This effect is not due to a direct material incentive to vote a particular way. Rather, the treatment reduces opposition to concessions for peace and changes awareness of the broader economic risks of conflict. While participants who were assigned Palestinian assets are more likely to associate their assets' performance with peace, they are less engaged in the experiment. Combined with the superior performance of Israeli stocks during the study period, the ultimate effects of Israeli and Palestinian assets are similar.

Heuristic biases in investment decision-making and perceived market efficiency

2018 ◽  
Vol 10 (1) ◽  
pp. 85-110 ◽  
Author(s):  
Syed Zulfiqar Ali Shah ◽  
Maqsood Ahmad ◽  
Faisal Mahmood
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Negative Impact ◽  
Investment Decisions ◽  
Sampling Technique ◽  
Investment Strategy ◽  
Individual Investors ◽  
Content Type ◽  
Specific Investment ◽  
The Relationship

Purpose This paper aims to clarify the mechanism by which heuristics influences the investment decisions of individual investors, actively trading on the Pakistan Stock Exchange (PSX), and the perceived efficiency of the market. Most studies focus on well-developed financial markets and very little is known about investors’ behaviour in less developed financial markets or emerging markets. The present study contributes to filling this gap in the literature. Design/methodology/approach Investors’ heuristic biases have been measured using a questionnaire, containing numerous items, including indicators of speculators, investment decisions and perceived market efficiency variables. The sample consists of 143 investors trading on the PSX. A convenient, purposively sampling technique was used for data collection. To examine the relationship between heuristic biases, investment decisions and perceived market efficiency, hypotheses were tested by using correlation and regression analysis. Findings The paper provides empirical insights into the relationship of heuristic biases, investment decisions and perceived market efficiency. The results suggest that heuristic biases (overconfidence, representativeness, availability and anchoring) have a markedly negative impact on investment decisions made by individual investors actively trading on the PSX and on perceived market efficiency. Research limitations/implications The primary limitation of the empirical review is the tiny size of the sample. A larger sample would have given more trustworthy results and could have empowered a more extensive scope of investigation. Practical implications The paper encourages investors to avoid relying on heuristics or their feelings when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating expensive errors, which occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in a more efficient market. So, it is necessary to focus on a specific investment strategy to control “mental mistakes” by investors, due to heuristic biases. Originality/value The current study is the first of its kind, focusing on the link between heuristics, individual investment decisions and perceived market efficiency within the specific context of Pakistan.

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