|
on Corporate Finance |
| By: | Michael McAleer (University of Canterbury); Juan-Ángel Jiménez-Martín; Teodosio Pérez-Amaral |
| Abstract: | A risk management strategy that is designed to be robust to the Global Financial Crisis (GFC), in the sense of selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models, was proposed in McAleer et al. (2010c). The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. Such a risk management strategy is robust to the GFC in the sense that, while maintaining the same risk management strategy before, during and after a financial crisis, it will lead to comparatively low daily capital charges and violation penalties for the entire period. This paper presents evidence to support the claim that the median point forecast of VaR is generally GFC-robust. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. In the empirical analysis, we choose several major indexes, namely French CAC, German DAX, US Dow Jones, UK FTSE100, Hong Kong Hang Seng, Spanish Ibex35, Japanese Nikkei, Swiss SMI and US S&P500. The GARCH, EGARCH, GJR and Riskmetrics models, as well as several other strategies, are used in the comparison. Backtesting is performed on each of these indexes using the Basel II Accord regulations for 2008-10 to examine the performance of the Median strategy in terms of the number of violations and daily capital charges, among other criteria. The Median is shown to be a profitable and safe strategy for risk management, both in calm and turbulent periods, as it provides a reasonable number of violations and daily capital charges. The Median also performs well when both total losses and the asymmetric linear tick loss function are considered. |
| Keywords: | Median strategy; Value-at-Risk (VaR); daily capital charges; robust forecasts; violation penalties; optimizing strategy; aggressive risk management; conservative risk management; Basel II Accord; global financial crisis (GFC) |
| JEL: | G32 G11 C53 C22 |
| Date: | 2011–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:11/05&r=cfn |
| By: | Gulamhussen, M. A.; Piheiro, Carlos; Pozzolo, Alberto Franco |
| Abstract: | Multinational banks are a distinctive feature of today’s globalized economy with some institutions now operating in more than 100 countries. Despite the thorough analyses of bank internationalization over the last decades, the literature has failed to provide clear evidence that cross-border expansion is a profitable process from a firm’s perspective. The analyses of the costs and benefits of focusing or diversifying the activities of a firm have a long tradition in the economic and business literatures. The overall evidence is mixed, due to the opposite effects of scale and scope economies on one side and agency costs on the other. In this paper, we study the value of internationally diversified commercial banks. In our analysis we construct a measure of banks’ excess value using a large sample of more than 500 large banks from 56 countries between 2001 and 2007, and relate it to different measures of the international diversification of their activities. We find robust evidence of a statistically and economically significant diversification premium, suggesting that, in banking, the benefits of geographic scale and scope economies more than offset the agency costs. |
| Keywords: | Geographical diversification, Corporate diversification, Multinational banking, Foreign Direct Investment |
| JEL: | G34 G21 G15 L22 F23 F36 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11057&r=cfn |
| By: | Barba Navaretti, Giorgio; Calzolari, Giacomo; Pozzolo, Alberto Franco |
| Abstract: | This paper examines whether multinational banks have a stabilising or a destabilising role during times of financial distress. With a focus on Europe, it looks at how these banks’ foreign affiliates have been faring during the recent financial crisis. It finds that retail and corporate lending of these foreign affiliates has been stable and even increasing between 2007 and 2009. This pattern is related to the functioning of the internal capital market through which these banks funnel funds across their units. The internal capital market has been an effective tool to support foreign affiliates in distress and to isolate their lending from the local availability of financial resources, notwithstanding the systemic nature of the recent crisis. This effect has been particularly large within the EU integrated financial market and for the EMU countries, thus showing complementarity between economic integration and multinational banks’ internal capital markets. In light of these findings, this paper supports the call for an integration of the European supervisory and regulatory framework overseeing multinational banks. The analysis is based on an analytical framework which derives the main conditions under which the internal capital market can perform this support function under idiosyncratic and systemic stresses. The empirical evidence uses both aggregate evidence on foreign claims worldwide, and firm-level evidence on the behaviour of banking groups’ affiliates, compared to standing alone national banks. |
| Keywords: | Geographical diversification, Corporate diversification, Multinational banking, Foreign Direct Investment |
| JEL: | G2 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11056&r=cfn |
| By: | Avadanei, Anamaria; Ghiba, Nicolae |
| Abstract: | The financial crisis has exposed the weaknesses in national and international economies, the disruption of the financial systems all over the world. The aim of this paper is to point out the importance of systemic risk management in the European Union (EU). Structured on two parts, the study presents the evaluation methods of the systemic risk in the mentioned area and the main proposals for the financial stability reconstruction. To conclude, deep reforms are needed: an adequate financial regulation and supervision, the evaluation of the performance over time, new rules for improving capital and liquidity and a better communication between institutions in order to prevent and neutralize possible distress. |
| Keywords: | Systemic risk; financial crisis; European Union |
| JEL: | G32 |
| Date: | 2010–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28657&r=cfn |