Applying Neural Networks for Modeling of Financial Assets

The purpose of this chapter is to develop an analytical system for forecasting prices of financial assets with the use of artificial neural networks technology. Proposed by the authors, the analytical system consists of several neural networks, each of which makes the forecast of financial assets prices. The system includes recurrence (with feedback) neural networks with sigmoidal activation formula. This allows the networks to “remember” a sequence of reactions to the same stimulus. The learning process of neural networks is performed using an algorithm of back propagation of error. The key parameters of forecast for this analytical system are the indicators presented by the terminal MetaTrader 4-broker Forex Club: Average Directional и Movement Index; Bollinger Bands; Envelopes; Ichimoku Kinko Hyo; Moving Average; Parabolic SAR; Standard Deviation; Average True Range; and others.

Predicting Financial Crises in a Globalized World

This chapter highlights the facts about financial crises and their fundamental causes on specific incidents, including the 1929 Great Depression that lasted until the early-1940s, 1997 Asian Financial Crises, 1998 Russian Financial Crises, and the Liquidity Crises of 2008, and makes a comparison among them and their various outcomes. In doing so, the study specifies the cues that emerge in the financial system that may help governments predict upcoming financial crises through those early warning signals. This case study specifically analyses the Turkish Banking System that was restructured after the enormous financial crises in Turkey in 2001, which caused many Turkish banks to collapse. However, the precautions taken in the aftermath of the financial turmoil allowed them to survive the liquidity crises in 2008. The indicators of an upcoming crisis are examined, the lessons learned from this case are analyzed, and important recommendations to overcome banking crises are provided.

Fractal Properties of Financial Assets and Forcasting Financial Crisis

The chapter is aimed at identification of criteria to select financial assets for investment; observing price fluctuations at small time intervals (up to one week) as possible predictors of the future of a significant increase in the price fluctuations amplitude; determining a fractal dimension of the financial markets on the basis of R/S-analysis; constructing a fractal index indicator to identify a bifurcation point, which gives birth to a possibility of crisis phenomena in economy. Therefore, the practical significance of the chapter lies in the idea of equipping academics and practitioners with new methods and tools for analysis and forecasting future development and dynamics of the financial markets.

Volatility Spillover Between Developed and Developing Markets During Crisis Period

The purpose of this chapter is to determine how the volatility spillover between developed and developing markets behaved during times of crisis. For this purpose, daily returns of indices from the Group of Seven countries and the fragile five countries between 2004 and 2016 are used. The volatility spillover between the markets is examined by the Lagrange multiplier-based causality-in-variance test. As a result of the study, it is determined that the volatility of emerging markets is less influenced by the developed markets in the crisis period than before the crisis and after the crisis. Furthermore, in the post-crisis period, an increase in the volatility spillover to the developed markets from the developing markets is detected.

Financial and Economic Security of BRICS Countries

With the growing tension in the global community and the instability of the overall situation, problems with financial centers and regions have arisen, and as a result, the necessity of reforms have appeared in the global governance system and in the financial and economic system. BRICS countries are very interested in solving problems and developing relations within the bloc. Each country pursues its own interest, but the emerging dialogue of countries allows them to find a compromise in complex issues. The current economic situation in the world, where Western countries speak the language of sanctions, makes BRICS countries strengthen their interaction. It concerns the provision of financial and economic security. Increased financial risks in the capital market as well as the dominance of the dollar and the euro level, push BRICS countries to strengthen the financial mechanisms. BRICS countries support the creation of a global network of financial instruments.

Modeling the Impact of Crises on Evolution of Pension Systems

The purpose of this chapter is twofold: to assess the relationship of the nonlinear dynamics of pension systems and economic cycles, and to develop a descriptive evolutionary model of the stages of pension systems. Hodrick-Prescott filter is used to identify cycles in the pension and economic dynamics. The study proved empirically that the evolutionary dynamics of pension systems depends on the cyclicity of national and world economies. In addition, the bifurcation points associate with big Kondratiev cycles, and the fluctuations of the indicators of pension systems correlate with the medium-term Juglar cycles. The crisis starts pension reforms. The results of this study indicate that public pension spending growth is countercyclical and coincident indicator relative to the global business cycle in 13 countries from 21 of the OECD countries studied. The amount and volatility of public pension spending depends on the basic pension model and has higher values in Bismarck-model countries.

The Effects of Behavioral Factors on the Creditworthiness of Small-Scale Enterprises

This chapter uses the relationship between behavioral factors and the creditworthiness of small-scale enterprises to increase access of SMEs to credit facilities. The inability of several small businesses to secure loans cannot be overemphasized. Heuristics affecting entrepreneurs are explained in this chapter, and a regression model showing the dependence of creditworthiness on behavioral factors is proposed. If banks consider using psychometric tools in testing for creditworthiness of small-scale entrepreneurs, access to credit facilities will be significantly increased and businesses will flourish. Regressesion models such as the one explained in this chapter may be imbedded in psychometric tools to enhance creditworthiness testing and improve the quality of loans that banks give.

Neuro-Linguistic-Programming-Based Modeling of Stock Markets

Speaking of the preliminary findings of this chapter and considering empirical data observed in the course of stock exchange trading, it is possible to forge a connection between the actual behavior of the investors and the NLP meta-program classes. In particular, there is a palpable correspondence between the 13 distinct meta-program categories affecting workplace motivation and performance, commonly known as the language and behaviour profile or LAB Profile, of Shelle Rose Charvet, and the behavior patterns of investors. This may represent a development of the idea of “the conventional wisdom” formulated in his time by John Kenneth Galbraith. However, in its new incarnation of collective conscious and collective subconscious, it may affect decision making processes around the globe.

The Use of Fractal Analysis in Assessing the Reliability of Taxpayers Information

Tax authorities often have to make decisions under conditions of incomplete information about the actual situation. The incompleteness and uncertainty of information may arise from the actions of the two sides with distinct interests. One side is the tax authority (local, regional, or national level), and the other is the taxpayers (organizations or individuals). This largely explains the interest of tax authorities in the creation of software capable of providing quantitative and qualitative analysis of the declarations submitted by taxpayers to identify suspicious declarations for their additional inspection. The purpose of this chapter is to carry out a comparative pre-forecast analysis of the time series enterprise performance indicators and time series of its tax payments.

Global Crisis and Financial Distress Likelihood of SMEs

In the aftermath of the global financial crisis, this chapter sheds light on the determinants of the financial distress costs between Italian and German small and medium enterprises (SMEs). The authors propose an innovative formulation of the expected costs originated by financial distress expressed as the product of the expected financial distress likelihood times the total amount of the financial distress costs if insolvency does occur. The model is estimated using panel data methodology on samples from two European countries (Italy and Germany). The results indicate that the amount of ex-post costs depends on derivative financial instruments, intangible assets, and relation with local banks (small local banks rather than large banking groups).