Do ESG metrics reflect crisis resilience of equities during the COVID-19 pandemic?

We examine the role of ESG metrics in explaining crisis resilience during the COVID-19 pandemic. ESG refers to Environmental, Social, and Governance aspects of companies, collectively known as ESG factors, and has gained popularity in investments. Our empirical tests cover a database of 971 company members of the MSCI World Index and examine the COVID Crisis period from February 2020 – May 2020. We performed linear regression and Owen-Shapley decomposition in our study, like the literature. Our results show that ESG is not an “equity vaccine” but is a statistically significant and economically important variable in explaining returns during the pandemic. Our findings highlight the increasing importance of sustainability aspects in finance and in investing.

Financial life after LIBOR

The introduction of the study outlines the need for a reference interest rate and introduces one of its most well-known type, the LIBOR (London Interbank Offered Rate) as well as attempts to manipulate it. After this, the paper assesses and provides an overview of the regulatory attempts aimed at reforming the index. In addition, the European and global regulatory environment is also discussed, as well as the tasks to be completed prior to regulation. Finally, recommendations are provided on the Hungarian reference interest rate framework and the establishment of a dedicated working group is also suggested.

Debt cap regulations in mortgage lending

In this paper I study debt cap regulations in retail mortgage lending in Hungary introduced by the National Bank of Hungary. I believe the introduction of debt cap regulations was justified, but the toolkit applied should be reviewed. After studying international examples and reviewing the literature, I have concluded that LTV (loan-to-value) regulation correspond to European practice and researchers’ findings. While the introduction of LTI (loan-to-income) ratio should be considered to replace PTI (payment-to-income) ratio, as it is more stable in time and there is no incentive to switch between the increase of risk factors and the increase of the maximum amount regulated by law by PTI regulation.

Uncertainity of risk and increasing risk of uncertainty in business decisions

Our paper follows the development of theory regarding the position of risk and uncertainty in economics from the publication of works by Knight (1921) and Keynes (1921) until the recent past. The starting point is presented by the relevant remarks of the thinkers of classical economics. Next, we describe the turning point related to Knight and Keynes and reveal the theoretical roots of risk taking. In the core chapter of the paper the authors make an attempt to re-interpret “animal spirits” as the intention for risk taking. A separate chapter is devoted to the relationship of rational choice and risk, and another one about the canonisation of risk in economics. In further parts of the paper, we examine the intentions to relativize the difference between risk and uncertainty, the negligence of uncertainty in the neo-classical system, the attempts to merge risk and uncertainty and the disruption of the unity of risk taking and risk bearing. Finally, the authors come to the conclusion that Knight’s and Keynes’ doctrines of risk and uncertainty have stood the test of time.

An analysis of the Hungarian unsecured interbank market before and after the COVID-19 pandemic

In this article, I examine the structure of the Hungarian unsecured interbank forint market and the change of its network in time between 2019 and 2020, the years before and after the pandemic. I introduce the general characteristics of the market, such as turnover and interest rate, as well as the basic network and structural features. It can be established that, following the COVID-19 pandemic, the unsecured interbank turnover has increased by nearly 30%, which is partly attributable to the liquidity-providing measures taken by the central bank. In March, there was a spike in the interest weighed according to daily turnover, and it had higher level and volatility for the rest of the year 2020 than in 2019. Compared with the period following the bankruptcy of Lehman Brothers, the shock resistance of the unsecured interbank market was much more favourable than in 2020. As far as borrowers are concerned, there was some increase in concentration due to the events, but it was far less significant than during the previous crisis. At the same time, the polarisation of the market became stronger, as there were more participants who provided liquidity than those who absorbed a considerable amount of liquidity. Despite increased liquidity, the aforementioned strong polarisation may have been related to the higher level and the volatility of interest rates in 2020.