European travel and leisure sector and uncertainties: A risk spillover analysis

The study analyzes the impact of uncertainty changes on the European travel and leisure sector stocks. We use economic policy uncertainty, geopolitical uncertainty, financial market uncertainty, and crude oil price uncertainty as uncertainty variables. We also analyze the extreme risk transmission from the uncertainty variables to the European travel and leisure sector stocks using the copula-based conditional Value-at-Risk (CoVaR) approach. The findings provide evidence of a significant impact of uncertainty variables on travel and leisure stocks mainly on the lower quantiles. The findings also indicate the significant downside and upside risk spillover effect from the extreme upside and downside movements in the uncertainty variables, respectively. The findings have implications for individual investors, portfolio managers, and institutional investors.

Indonesia

Indonesia has responded with a bold and comprehensive policy package to cushion the impact of the COVID-19 pandemic. The economy rebounded in the third quarter of 2020, and the economic recovery is projected to strengthen in 2021 and 2022. Strong policy support and an improving global economy will be the main drivers initially, and greater mobility and confidence will follow with the planned vaccination program in 2021. The uncertainty surrounding the growth outlook is larger than usual. Early completion of a widespread vaccination program is an upside risk, while a protracted pandemic remains a downside risk. The macro-financial fallout of the pandemic and economic downturn could be larger than expected, and credit conditions could be slow to improve. Ongoing reforms aimed at promoting investment are expected to help mitigate the scarring effects from the pandemic and put the economy on a sustained growth path that builds on Indonesia’s favorable demographics.

Insurer’s Duty to Obtain Information under the IDD Directive – Threat or Opportunity?

Enacting Directive 2016/97, on insurance distribution (the IDD), has, inter alia, extended the scope of application of regulation, increased the requirements for expertise of the personnel of insurers and insurance intermediaries, and particularised the content of the duty to give information. One of the novelties in the IDD, with regard to the insurer’s duty to provide information, is the duty of the insurer to obtain information from the customer for enabling fulfilment of its own duty to give information. Before the IDD, the balance between the insurer’s duty to give information and the customer’s duty to become acquainted with the information received was customarily understood in many legal systems such that the insurer is obligated to supply comprehensive information on its insurance products in an understandable form while the customer bears the risk of selecting correct and sufficient insurance in reliance on the information received. In other words, the insurer is liable in respect of the information as such, but the customers accept a risk of applying the information incorrectly in their specific circumstances. This background gives rise to the following questions, examined in the article: 1) What is the legislative background of the new duty to obtain information, and what are the objectives behind it? 2) What are the consequences of neglecting this duty? 3) What is the ‘upside risk’ of the reform? That is, in what kinds of cases could the new duty improve matters? 4) What is the ‘downside risk’? In other words, might the new duty cause any problems? The article provides analysis focused on the IDD itself rather than on any national jurisdiction in which the directive has been implemented.

Internal Control Quality and Bank Risk-Taking and Performance

Using a sample of bank-years from 2005 to 2017, we examine the effect of internal control quality on future risk-taking and performance. We find that banks that disclose a material weakness in internal controls have higher risk-taking and worse performance in the future, including having a higher (lower) likelihood of experiencing large losses (gains). These findings suggest that weak controls increase (reduce) downside (upside) risk-taking or conversely that strong controls increase (reduce) upside (downside) risk-taking. Path analyses suggest that 22.3 to 43.7 percent of the effect of internal control quality on future performance is through risk-taking. Additionally, material weaknesses are negatively associated with total asset, loan, interest income, and non-interest income growth, suggesting that internal control quality affects both core and non-core activities of banks. Overall, results suggest that strong internal controls improve bank risk-taking, in part through asymmetrically reducing downside risk-taking while facilitating upside risk-taking, ultimately improving bank performance.

A Study of Risk Spillover in the Crude Oil and the Natural Gas Markets

This article examines the upside and downside risk spillover effects among crude oil (WTI and Brent) and Henry Hub natural gas markets. We consider value-at-risk (VaR) as a measure of risk and model both upside and downside 95 per cent, 99 per cent and 99.5 per cent VaR using various VaR approaches. The VaR models are evaluated using Christoffersen’s (1998) conditional coverage test and Lopez’s loss function approach to select the best-performing VaR model. Finally, we apply Hong, Liu and Wang’s (2009) approach to examine the upside and the downside risk spillover among crude oil and Henry Hub natural gas markets. We find significant two-way as well as one-way upside and downside risk spillover between WTI and Brent crude oil. Our results provide weak evidence of upside risk spillover from natural gas market to crude oil markets for 99.5 per cent VaR.