In recent years, in all countries - albeit to varying degrees - many changes have taken place in the financial structure which have accompanied the development of new instruments, markets and financial intermediaries. A growing literature describes and analyses these changes, generically grouped together under the label of "financial innovation". In order to clarify the costs and benefits of what is meant by financial innovation, it is necessary to jointly examine both its causes and its effects. To this end, it is first necessary to consider some very general questions that thus far have yet to be answered in any certain or unambiguous way, if they have been considered in the scientific literature at all. The present work examines the current state of the theory of financial innovation, to then illustrate the main features of the innovation process currently taking place. This leads to some considerations on the resulting implications for the modus operandi of monetary policy and, more generally, for the definition of this policy’s transmission mechanisms.

On financial innovation

This paper analyses several volatility models by examining their ability to forecast the Value-at-Risk (VaR) for two different time periods and two capitalization weighting schemes. Specifically, VaR is calculated for large and small capitalization stocks, based on Dow Jones (DJ) Euro Stoxx indices and is modeled for long and short trading positions by using non parametric, semi parametric and parametric methods. In order to choose one model among the various forecasting methods, a two-stage backtesting procedure is implemented. In the first stage the unconditional coverage test is used to examine the statistical accuracy of the models. In the second stage a loss function is applied to investigate whether the differences between the models, that calculated accurately the VaR, are statistically significant. Under this framework, the combination of a parametric model with the historical simulation produced robust results across the sample periods, market capitalization schemes, trading positions and confidence levels and therefore there is a risk measure that is reliable.

A Robust VaR Model under Different Time Periods and Weighting Schemes

The purpose of this paper is to examine the disclosure pattern of corporate sustainability (CS) and the influence of sustainability reporting on firm performance of four countries in Asia – Japan, South Korea, Indonesia and India.,The authors have collected the sustainability reports and annual reports of 111 firms from four Asian countries for a period of six years. Based on the framework of Global Reporting Initiatives (GRI, 3 and 3.1), content analysis is used for calculating the disclosure score of corporate sustainability performance (CSP). These scores are further used to examine the impact on firm performance by employing a panel data regression model.,The study finds that the average level and quality of disclosure are the highest for Japanese firms, followed by India and South Korea. However, in the case of Indonesia, the average score is very low. Further, the study finds a significant difference in the disclosure of overall sustainability as well as components of sustainability between the countries. The regression results indicate the positive impact of CSP (both in terms of level and quality) on MBR. Specifically, the outcome of the regression model reveals that both the level and quality disclosure of CS are crucial for enhancing firm value for both the developed and developing countries of Asia. Moreover, the relative influence of CSP (both in terms of level and quality) on firm performance is found to be more in developed countries than the developing countries of Asia.,This is the first comprehensive study in the Asian context to investigate the disclosure pattern of CSP and also examine the association between CSP and firm performance by employing the panel data model. The outcome of this study is useful for policy implication.

Disclosure of corporate sustainability performance and firm performance in Asia

This study aims to propose a non-linear model to describe the effect of macroeconomic shocks on delinquency rates of three kinds of bank loans. Indeed, a wealth of literature has recognized significant evidence of the linkage between macro conditions and credit vulnerability, perceiving the importance of the high amount of bad loans for economic stagnation and financial vulnerability.,Generally, this linkage was represented by linear relationships, but the strong dependence of bank loan default on the economic cycle, subject to changes in regime, could suggest non-linear models as more appropriate. Indeed, macroeconomic variables affect the performance of bank’s portfolio loan, but such a relationship is subject to changes disturbing the stability of parameters along the time. This study is an attempt to model three different kinds of bank loan defaults and to forecast them in the case of the USA, detecting non-linear and asymmetric behaviors by the adoption of a Markov-switching (MS) approach.,Comparing it with the classical linear model, the authors identify evidence for the presence of regimes and asymmetries, changing in correspondence of the recession periods during the span of 1987–2017.,The data are at a quarterly frequency, and more observations and more extended research periods could ameliorate the MS technique.,The good forecasting performance of this model could be applied by authorities to fine-tune their policies and deal with different types of loans and to diversify strategies during the different economic trends. In addition, bank management can refer to the performance of macroeconomic conditions to predict the performance of their bad loans.,The authors show a clear outperformance of the MS model concerning the linear one.

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Forecasting the macro determinants of bank credit quality: a non-linear perspective

Controlling higher level of non-performing loans (NPLs) has become one of the key objectives of the Reserve Bank of India (RBI), as it may impact banking and macroeconomic stability adverse...

Determining Risk Factors that Diminish Asset Quality of Indian Commercial Banks

Banks are required to maintain an appropriate level of capital which must commensurate with the riskiness of their portfolio. Recently, the Reserve Bank of India (RBI) issued a circular on Prudenti...

Value-at-Risk Estimation of Foreign Exchange Rate Risk in India:

In this article, we try to identify the determinants of adoption of social media, in particular Facebook, among the Indian scheduled commercial banks. We have employed the survival analysis techniq...

Onkar Shivraj Swami

Papers

Determining Risk Factors that Diminish Asset Quality of Indian Commercial Banks

Value-at-Risk Estimation of Foreign Exchange Rate Risk in India:

Facebook Adoption in Indian Banks: An Empirical Investigation: