Showing papers in "Pacific-basin Finance Journal in 2019"
TL;DR: In this article, the causal relationship between economic policy uncertainty, oil prices, investor sentiment, and stock returns of nine Dow Jones Islamic Market Indices was investigated using the ensemble empirical mode decomposition model.
Abstract: This study investigates the causal relationships between economic policy uncertainty, oil prices, investor sentiment, and stock returns of nine Dow Jones Islamic Market Indices. Specifically, this study analyzes the causal effect of these variables on Islamic stock returns at different time scales using the ensemble empirical mode decomposition model. First, we decompose the economic policy uncertainty proxy, oil prices, and investor sentiment into different independent components called intrinsic mode functions (IMFs): short-term IMFs designate the effects of irregular events; medium-term IMFs present the effects of extreme events; and long-term IMFs capture long-term effects. Second, we employ a nonlinear non-parametric causality model to test the causal relationship between different variables and Islamic stock returns at both the original and decomposed levels. We find causal relationships between the underlying variables and Islamic stock returns in several time frequencies rather than in the whole sample period. Our results suggest that the use of lagged economic policy uncertainty, oil prices, and investor sentiment may improve the predictability of Islamic stock returns. A test of forecast accuracy indicated the robustness of our results.
79 citations
TL;DR: In this article, the authors investigated the dynamic connectedness between gold, sukuk and Islamic equities at multiple investment horizons, and also computes optimal hedge ratios and portfolio weights for these assets.
Abstract: This paper investigates the dynamic connectedness between gold, sukuk and Islamic equities at multiple investment horizons, it also computes optimal hedge ratios and portfolio weights for these assets. Our findings suggest that gold hedges the risk of sukuk in the short and medium terms, and that gold plays an average but stable role in hedging and diversifying Islamic equities across all investment horizons. Moreover, we document a diversification benefits of portfolios combining gold and Islamic equities in the short term. These empirical findings highlight the important role that gold plays in the diversification and hedging of Islamic assets.
75 citations
TL;DR: Wang et al. as discussed by the authors used evidence of the pricing of idiosyncratic skewness (IS), which can represent gambling preferences, and found that the Chinese stock market has a significant gambling pricing anomaly of higher IS and lower subsequent returns.
Abstract: By using evidence of the pricing of idiosyncratic skewness (IS), which can represent gambling preferences, our paper finds that the Chinese stock market has a significant gambling pricing anomaly of “higher IS and lower subsequent returns”. Moreover, this paper discusses the reasons for this strong gambling atmosphere in the Chinese market. We find that (1) individual investor attention and trading behavior are important drivers of gambling behavior and that (2) in addition to the irrational behavior of individual investors, arbitrage restrictions in the market may further exacerbate this gambling atmosphere. Therefore, our study suggests that to increase the market's efficiency, market regulators should strengthen the appropriate guidance and management for individual investors and consider relaxing additional arbitrage limits.
68 citations
TL;DR: In this article, the authors analyzed dynamic return and risk spillovers between commodity futures (energy & precious metals) and the Gulf Cooperation Council (GCC) stock markets, using dynamic equicorrelation models and the spillover index of Diebold and Yilmaz.
Abstract: We analyze dynamic return and risk spillovers between commodity futures (energy & precious metals) and the Gulf Cooperation Council (GCC) stock markets. Utilizing dynamic equicorrelation (DECO) models and the spillover index of Diebold and Yilmaz (2012), we show the existence of significant return and risk spillovers between the commodities and the GCC stock markets, particularly during the onset of the 2008–2009 global financial crisis. In addition, silver, platinum, and energy futures markets are net transmitter of returns to stock markets. Precious metals (except silver) and WTI oil are net transmitter of risk to GCC markets. Abdu Dhabi and Dubai are net transmitter of returns and risk to other markets. Moreover, portfolio management analysis shows that the mix of commodities and GCC equities provides diversification opportunities for different crisis periods. Finally, precious metal markets offer superior hedging effectiveness over energy markets for all GCC markets.
68 citations
TL;DR: In this article, the joint impact of different types of risk, competition in different banking markets and various types of efficiency on bank profitability was investigated using a sample of Chinese commercial banks over the period 2003-2017.
Abstract: The current paper contributes to the empirical literature on bank profitability by testing the joint-impact of different types of risk, competition in different banking markets and different types of efficiency on bank profitability using a sample of Chinese commercial banks over the period 2003–2017 In particular, we fill in the gap of the empirical studies by examining the impact of efficiency on profitability when banks undertake different levels of risk-taking behaviour and face different degrees of competition The results show that competition in the Chinese banking markets (deposit market, loan market and non-interest income market) is stronger over the period 2003–2005 and also 2014–2017 In addition, it is found that bank size, cost efficiency, profit efficiency and inflation are significantly related to bank profitability Finally, we find that the positive impact of cost efficiency on profitability is stronger when banks undertake higher levels of risk and face more competition
63 citations
TL;DR: In this article, the effect of environmental information disclosure and energy product type on Chinese energy firms' cost of debt (COD) was examined, and a significant negative association between EID and the COD was found.
Abstract: This study examines the effect of environmental information disclosure (EID) and energy product type on Chinese energy firms' cost of debt (COD). Using a sample of Chinese energy firms over 2008–2014, we find a significant negative association between EID and the COD. We also observe a significant negative association between several energy product types (hydro power, oil, solar and wind) and energy firms' COD. Finally, we analyze the joint effect of EID and energy product type on energy firms' COD and find that when gas, thermal power generation, and hydro firms increase their level of EID their COD increases, but when solar and wind power firms increase their level of EID, this decreases their COD. Our findings are robust to several endogeneity checks.
63 citations
TL;DR: The authors used an extensive new dataset of 2178 Islamic stocks with historical monthly data (1986-2014) and examined their sensitivity to oil price changes, finding that only around 32% of these stocks react statistically significantly significantly to oil prices, dispelling the common notion that oil prices affect the stock market homogeneously.
Abstract: This paper uses an extensive new dataset of 2178 Islamic stocks with historical monthly data (1986–2014) and examines their sensitivity to oil price changes. We find that only around 32% of these stocks react statistically significantly to oil prices, dispelling the common notion that oil prices affect the stock market homogeneously. We show that trading on oil price sensitivity offers investors annualized profits in the range of 5.8–13.6%. These results pass multiple robustness tests.
61 citations
TL;DR: In this paper, the authors examine the effect of political uncertainty on stock returns, exploiting an exogenous shock to political stability in Brazil, which led to sudden political instability and a collapse in the equity market.
Abstract: This paper examines the effect of political uncertainty on stock returns, exploiting an exogenous shock to political stability in Brazil. In May, 2017, a conversation between Brazil's President and a businessman was bugged by Brazilian Police and leaked to the media. This led to sudden political instability and a collapse in the equity market. We decompose the cross-sectional variation of abnormal returns around this event and investigate whether corporate political connections and exposure to foreign capital were factors in the price falls. Our results show that firms connected with the Brazilian state-owned development bank, BNDES, and firms cross-listed via ADRs (American Depositary Receipts) were most affected by this shock. The evidence suggests that political connections and foreign capital exposure are factors in channeling political risk to asset prices, increasing the cost of equity capital during periods of political instability.
51 citations
TL;DR: Wang et al. as mentioned in this paper examined the relationship between share pledging and firm value using the Heckman selection model, a difference-in-differences model, change models, and employ other additional tests.
Abstract: Share pledging is when shareholdings are used as collateral to obtain loans. While uncommon in many developed economies, the practice is prevalent in the Chinese capital markets. Using a sample of Chinese listed firms over 2003–2015, we find a positive association between share pledges by the largest shareholder and firm value. To alleviate concerns around the robustness of our results, we examine the relationship between share pledging and firm value using the Heckman selection model, a difference-in-differences model, change models, and employ other additional tests. Further, we examine stock price crash risk for the pledged firms and find no evidence of any increase in crash risk, which may partially explain the positive association between share pledging and firm value. Our results provide insights into the controversial practice of share pledging in the developing market of China.
50 citations
TL;DR: Li et al. as discussed by the authors investigated the influence of female CFOs on accounting fraud in Chinese listed firms and found that firms with female chief financial officers are significantly less likely to engage in accounting fraud.
Abstract: We investigate the influence of female chief financial officers (CFOs) on accounting fraud. Using a sample of Chinese listed firms for the period from 2003 to 2015, we find firms with female CFOs are significantly less likely to engage in accounting fraud. Further we find the negative relationship between female CFOs and accounting fraud is less significant in state-owned enterprises (SOEs), where political concerns are more pronounced. Additional tests show that the negative relationship is significant in firms with gender-mixed boards rather than male-only boards. In addition, the relationship is more pronounced when the firm has a less powerful CEO and when the CFO simultaneously holds a directorship in the same firm. Our analysis addresses both the selection and treatment concerns.
47 citations
TL;DR: In this paper, the authors investigated the impact of idiosyncratic volatility on the herd behavior of individual investors in Vietnam stock market covering the period from 2005 to 2016, and employed the herding methods of Christie and Huang (1995) and Chang et al. (2000) and single factor model by Bali and Cakici (2008) to estimate the idiosyncratic variance.
Abstract: This study investigates the impact of idiosyncratic volatility on the herd behavior of individual investors in Vietnam stock market covering the period from 2005 to 2016. We employ the herding methods of Christie and Huang (1995) and Chang et al. (2000) and single factor model by Bali and Cakici (2008) to estimate the idiosyncratic volatility. Empirical results indicate that herding exists in this equity market. However, herding behavior displays distinct patterns under different stock portfolios depending on the levels of idiosyncratic volatility. The results are robust under various timeframes including pre-crisis, during crisis and post-crisis. The finding also reveals the existence of herding under particular industry.
TL;DR: Li et al. as mentioned in this paper used government officials' corporate site visits as a measurement of political connection and examined how political connection affects firm performance, finding that firms obtain more new investment projects and bank loans, improve corporate governance, and decrease information asymmetry as well.
Abstract: This study uses government officials' corporate site visits as a measurement of political connection and examines how political connection affects firm performance. Using a novel dataset on government officials' site visits from 2004 to 2014, we find that firm performance increases following corporate site visits by government officials. This study finds that firms obtain more new investment projects and bank loans, improve corporate governance, and decrease information asymmetry as well. Government officials' site visits are also associated with positive abnormal stock returns, indicating that investors interpret government officials' site visits as a signal of government endorsement and support. Using China's recent anti-corruption campaign as an exogenous shock, we find that political connections are more valuable in the absence of political corruption.
TL;DR: In this paper, the authors examined dynamic spillovers and connectedness between stocks, commodities, bonds, and VIX markets and found that emerging equity markets are net receiver of shocks.
Abstract: •This study examines dynamic spillovers and connectedness between stocks, commodities, bonds, and VIX markets.•Results suggest that emerging equity markets are net receiver of shocks.•Commodity markets provide poor heading opportunity in the short-run.•Portfolio strategy using shock-receiver and shock-transmitter information generates better hedging effectiveness.
TL;DR: In this article, the authors examined the association between efficient working capital management and financial constraints for a sample of Australian firms using a text-based measure of financial constraints, and found that efficient working-capital management is associated with lower financial constraints in firms in the next two to three years.
Abstract: In this paper we examine the association between efficient working capital management and financial constraints for a sample of Australian firms. Using a text-based measure of financial constraints, we show that efficient working capital management is associated with lower financial constraints in firms in the next two to three years. Ours is the first study to use a text-based measure of financial constraints for Australian firms. We also show that the negative association between financial constraints and future share price is significantly weakened for firms with efficient working capital management, suggesting that such firms have higher market valuations despite being financially constrained. Finally, analysts seem take into account working capital management of firms when setting the one year ahead target price.
TL;DR: In this paper, the authors proposed new jump indexes that are aligned with the jump information on the G7 stock markets to predict the U.S. stock market volatility, and the results are consistent across the direction-of-change test and a variety of robustness tests, showing that this new jump index can contain much more predictive information than jump itself or jump index based on the Principal Component Analysis (PCA).
Abstract: We propose new jump indexes that are aligned with the jump information on the G7 stock markets to predict the U.S. stock market volatility. We present several noteworthy findings. First, in-sample tests indicate that the impacts of the aligned jump indexes on one-step-ahead U.S. stock market volatility are significantly negative. Second, the aligned jump index based on the Partial Least Squares (PLS) approach remarkably exhibits a higher predictive power, showing that this new jump index can contain much more predictive information than jump itself or jump index based on the Principal Component Analysis (PCA). Third, the results are consistent across the direction-of-change test and a variety of robustness tests. Consequently, this research provides a new insight and constructs a powerful predictive variable for the U.S. stock market volatility forecasting.
TL;DR: In this article, Wang et al. examined whether the systematic trading among investors would lead to stock return comovements beyond the usual risk factors, and found that the role of Internet finance investor sentiment index (IFIS) on return coovements was further examined using size portfolios.
Abstract: Since more and more investors are affected by the Internet finance, this paper focuses on examining whether the systematic trading among investors would lead to stock return comovements beyond the usual risk factors. Internet finance investor sentiment index (IFIS) measures the sentiment related to Internet finance investors' behaviors, which is found to be a systematic factor of stock market returns. To clarify the influence mechanism of IFIS, two groups of portfolios are constructed. First, stocks are sorted into three portfolios according to their degrees of relevance to Internet financial products. IFIS has more significant impact on stocks of firms closely linked to Internet financial products. Second, the role of IFIS on return comovements is further examined using size portfolios. Interestingly, IFIS has significant incremental explanatory power, beyond Fama and French (2015) five factors, on return comovements for stocks with larger market capitalization. This phenomenon is contradictory to the findings by using existing stock investor sentiment in the literature. Our findings have strong implications for research on Internet finance and stock return comovements.
TL;DR: In this paper, the authors investigated the role of CSR disclosure in financial transparency in India, where mandatory CSR disclosures are required for firms to meet the thresholds set by the Companies Act 2013.
Abstract: Disclosures are expected to foster financial transparency and improve the quality of information available to investors. Previous research has examined the role of non-financial disclosures in achieving this goal. Corporate social responsibility (CSR) disclosure has been widely employed as representative of non-financial disclosure. Recent legislation in some countries mandating non-financial disclosure makes this debate even more pertinent. We investigate the role of CSR disclosure in financial transparency in India, where mandatory CSR disclosure is required for firms to meet the thresholds set by the Companies Act 2013. Our investigation straddles mandatory disclosure regime and considers different classes of investors. Our findings suggest that CSR disclosure improves financial transparency during mandatory disclosure regime. We also find that ownership by the retail investors strengthens the association between CSR disclosure and financial transparency. However, we fail to document any significant effects of ownership by the institutional investors on the association between CSR disclosure and financial transparency.
TL;DR: In this paper, the authors find that firms with multiple large shareholders are more likely to pay dividends and pay large dividends when the largest shareholder needs the cooperation of other blockholders to exert control over dividend payout policy, and when multiple blockholders are of the same identity.
Abstract: Faccio et al. (2001) find that when East Asian firms have multiple large shareholders, they will collude to expropriate wealth and withhold dividend payouts. However, when it becomes difficult for large shareholders to expropriate wealth through activities like tunneling, large shareholders may then need dividends to fund personal cash flow needs. Thus, they may cooperate to make firms pay dividends and pay large dividends. To test this hypothesis, we study Chinese-listed firms. Consistent with our contention, we find that firms with multiple large shareholders are more likely to pay dividends and pay large dividends. These activities are especially prevalent after restrictions were placed on tunneling. We also find that dividend payouts and large payouts are more likely when the largest shareholder needs the cooperation of other blockholders to exert control over dividend payout policy, and when multiple blockholders are of the same identity.
TL;DR: Li et al. as mentioned in this paper constructed a portfolio choice model allowing risks in both fixed and financial investments to capture non-financial firms' financialization behavior and found that relatively risk in fixed investment and rates of return gap between financial and fixed investments play significant roles in financialization behaviour for the whole sample firms.
Abstract: This paper constructs a portfolio choice model allowing risks in both fixed and financial investments to capture non-financial firms' financialization behavior. Using firm-level panel data from non-listed non-financial firms in China over the period from 1998 to 2009, we find that relatively risk in fixed investment and rates of return gap between financial and fixed investments play significant roles in financialization behavior for the whole sample firms. Further group-division analysis based on firms' ownership and operating conditions reveal discrepancies between state-owned and private firms and between well-operated and insolvent firms.
TL;DR: Zhang et al. as discussed by the authors investigated the association between tournament incentives and firms' stock price crash risk in China and provided robust evidence that promotion-based tournament incentives, proxied by compensation differences among top executives, are associated with firms's stock price drop risk negatively and significantly.
Abstract: In this study, we investigate the association between tournament incentives and firms' stock price crash risk in China. Incentives for promotion towards the highest level in the corporate hierarchy are important to potential candidates; as such promotion often comes with various desirable privileges. We explore the Chinese setting, where a cash-based compensation system is the primary compensation scheme, as opposed to the equity-based incentive schemes commonly found in the US. We provide robust evidence that promotion-based tournament incentives, proxied by compensation differences among top executives, are associated with firms' stock price crash risk negatively and significantly. We also find that conditional conservatism mediates the negative association between tournament incentives and price crash. Finally, we find that the negative relationship between tournament incentives and price crash is significant for the non-state-owned enterprises only. The findings advance our understanding regarding the corporate governance role of tournament incentives in protecting shareholders' wealth, since the occurrence of stock price crash risk destroys shareholder value.
TL;DR: The authors construct ex ante firm exposure to China Economic Policy Uncertainty (CEPU) index from Baker et al. (2016) and show that high level of policy exposure causes significant value destruction in the capital market.
Abstract: Economic policy uncertainty under political opaqueness imposes great impact in the capital market. We construct ex ante firm exposure to China Economic Policy Uncertainty (CEPU) index from Baker et al. (2016). This measure of policy uncertainty exposure is significantly and negatively predictive to firm's market value and Tobin's Q, suggesting that high level of policy exposure causes significant value destruction in the capital market. The effect is more pronounced when the political opaqueness is higher. The analysis of influence channels shows that the negative effects are stronger for firms operating in less liberated market, with more policy-dependent business, unfavorable competitive status and poor corporate governance.
TL;DR: The replication of Ball and Brown (1968) for a special issue of the Pacific-Basin Finance Journal commemorating the 50th anniversary of its publication is described in this paper.
Abstract: The Editor commissioned this replication of Ball and Brown (1968) for a special issue of the Pacific-Basin Finance Journal commemorating the 50th anniversary of its publication. We also describe the background to the original paper and its research design, and offer observations on its interpretation, its impact on the literature and practice, some negative consequences, and its relation to papers published around the same time. One of the pleasing attributes of our original paper is that its results consistently replicate, the implication being that the research design and its implementation uncovered a universal relation between accounting earnings and changes in firm values. The current replication is in two dimensions: time; and geography, with an emphasis on Pacific Basin countries. In the USA and in a selection of 16 other countries, annual accounting earnings continue to contain a large proportion of the information that investors trade into share prices over the year, though not in a timely fashion. Post earnings announcement drift, the first acknowledged share market anomaly, continues today despite being reported five decades ago. One change is that reporting lags internationally have shortened on average and their range has narrowed. A notable change in USA data is that the proportion of the information incorporated in share prices that is contemporaneously incorporated in annual accounting earnings has declined, though the conclusions we draw from this decline are more cautious than in Lev and Gu (2016).
TL;DR: In this paper, the authors examined the impact of Sukuk market development on banks' profitability using a dataset of 71 Islamic banks and 146 conventional banks spanning 13 countries over the 2003-2014 period.
Abstract: This paper examines the impact of Sukuk market development on banks' profitability using a dataset of 71 Islamic banks (IBs) and 146 conventional banks (CBs) spanning 13 countries over the 2003–2014 period. Using a dynamic panel model, we find that the overall bank profitability is negatively impacted by Sukuk market development. However, when we control for whether the bank is Islamic or conventional, important findings emerge. The results suggest that Sukuk development reduces IBs' profitability but has no impact on CBs' performance. In addition, the evidence shows that these adverse effects on IBs' profitability are substantially lower after the 2008 global financial crisis. Accordingly, our findings suggest that IBs were able to overcome Sukuk competition after the crisis.
TL;DR: In this paper, the authors examined the relationship between famine-experienced CEOs and cash holding behavior and found that firms governed by famine experienced CEOs have lower market value and perform better than those governed by non-famine experienced CEOs.
Abstract: This paper examines the relationship between famine-experienced CEO and cash holding behavior. We show that CEOs experienced great famine (1959–1961) hold higher level of cash. The effect is working through increasing cash sensitivity, suggesting that those CEOs immediately to retain cash from operation. The results are weaker in the CEOs who works in SOE, with higher education background and in those experiences economic reform. While, the effect is stronger in the CEOs who experiences political uncertainty. In terms of economic consequences, we find that firms governed by famine experienced CEOs have lower market value. However, during the crisis, firms governed by famine-experienced CEOs have higher market value and perform better. We argue that capital expenditure of those firms is higher and less likely to be affected by financial crisis. The results are consistent in various robustness checks and endogenous tests.
TL;DR: In this paper, the authors studied the impact of shadow banking on the transmission of monetary policy and macro-prudential policy in China and showed that shadow banking negatively affects the transmission and effectiveness of macro-policy.
Abstract: This paper studies the implications of the presence of shadow banking for economic activity and the effectiveness of monetary policy in China. To explore this topic, we develop a model of the Chinese economy using a DSGE framework that accommodates interacting traditional and shadow banks. China's two specific banking regulations, in the form of loan-to-deposit ratio (LDR) and loan quota, only applies to the traditional banks. Our estimates show that regulation shocks have been the major driver of China's rising shadow banking during 2009–2016. Shadow banking leads to a higher amount of credit in the economy by helping escape constraints from traditional intermediaries, however financial frictions in the shadow banking sector create a “dual financial acceleration” mechanism. We show how the presence of shadow banking negatively affects the transmission of monetary policy and the effectiveness of macroprudential policy. We also demonstrate that deleveraging policy, that has been implemented in China tightening shadow banking in the spirit of the “look-through”, may have a contractionary impact on the economy. Efficient policy frontier analysis suggests that coordinating monetary policy and leverage ratio regulation would have helped stabilize the economy while reduce the share of shadow banking.
TL;DR: In this article, the authors examined the relationship between firm efficiency and profitability with a global dataset of over 5000 insurance companies and found a significant industry dependency in the E-P relationship driven by industry idiosyncrasies, whereas efficiency is more critical to the profitability of life insurers than to that of nonlife insurers.
Abstract: We examine the relationship between firm efficiency (E) and profitability (P) with a global dataset of over 5000 insurance companies. Consistent with previous studies in banking and insurance, we document a significantly positive correlation between the efficiency measures and profitability measures. Beyond the extant evidence, we find significant industry dependency in the E-P relationship driven by industry idiosyncrasies, whereas efficiency is more critical to the profitability of life insurers than to that of nonlife insurers. We also show that the E-P relationship is nonlinear: the marginal impact of efficiency on profitability decreases as the insurer's efficiency is close to the best practice.
TL;DR: In this article, the authors examined whether a firm's corporate social responsibility (CSR) activities influence Merger and Acquisition (M&A) deal characteristics, target choice and acquisition performance and found that targets with CSR activities are more likely to be acquired by CSR-oriented bidder firms.
Abstract: This paper extends our knowledge of acquisition decisions by examining whether a firm's corporate social responsibility (CSR) activities influence Merger and Acquisition (M&A) deal characteristics, target choice and acquisition performance. Our empirical results reveal several new insights. First, we find that targets with CSR activities are more likely to be acquired by CSR-oriented bidder firms. Second, we also examine the deal characteristics of CSR firms and find that they choose deal features such as cash payment, domestic targets, and single bids. Third, we show that socially responsible firms are more likely to pay a lower bid premium when they pay for acquisitions. Finally, we find that the announcement period abnormal return is positive and significant when CSR-oriented bidding firms announce an acquisition decision in the market. Overall, we show that CSR firms make acquisition decisions which align shareholders with other stakeholders of the firm. Our results are robust to a number of alternative proxies and sensitivity tests.
TL;DR: This paper examined the effectiveness of crowdfunding ventures related to social movements and found that social-movement-related projects exhibit significantly higher crowdfunding success than general projects, while projects with a public orientation also exhibit high crowdfunding success.
Abstract: We examine the effectiveness of crowdfunding ventures related to social movements. We document that social-movement-related projects exhibit significantly greater crowdfunding success than general projects. Further tests reveal that projects with a public orientation also exhibit high crowdfunding success. During periods of pronounced social movements, we document a lower success rate for general projects but an even more pronounced impact on crowdfunding success for social movement related ventures. Our study centers on crowdfunding success and failure in Asia, demonstrating the importance of environmental elements and social context in funding new ventures.
TL;DR: In this article, the authors presented analytical models for optimizing firm's cybersecurity spending and cyber insurance based on the effectiveness of spending in reducing cyber threats, vulnerability and impact, respectively, and showed how private-sector contribution toward countering cyber-crimes can reduce the overall cyber loss and create economic value.
Abstract: This paper presents analytical models for optimizing firm's cybersecurity spending and cyber insurance based on the effectiveness of spending in reducing cyber threats , vulnerability and impact , respectively. At the macro-level, the paper shows how private-sector contribution toward countering cybercrimes can reduce the overall cyber loss and create economic value. At the micro level, a firm's effectiveness of security spending in addressing specific cyber threats can be reduced when other co-dependent security measures are not put in place. The paper derives an optimal mix of cybersecurity investments in “knowledge and expertise” versus “deploying mitigation measures”. The paper proposes customizing cyber insurance for firms with itemized threat-specific coverage with a portion of the premium used to help clients with risk knowledge and nudge clients in implementing risk mitigation measures. Small and Mid-sized Enterprises can stand benefit the most from such innovative cyber insurance.
TL;DR: In this paper, the authors investigated on what drives the different determinants of systemic risk contribution in different countries, based on a dataset for commercial banks in a bank-based system (the BRICs and Japan) and a market-based one (the US).
Abstract: This paper investigates on what drives the different determinants of systemic risk contribution in different countries, based on a dataset for commercial banks in a bank-based system (the BRICs and Japan) and a market-based system (the US). In both separate and pooled systems, the determinants of systemic risk contribution are found to be conditional on the financial structure whether a country has a bank-based or market-based financial system. The impact of non-traditional banking activities on systemic risk contribution is enlarged when the markets rather than banks are more important to the economy. The systemic risk contribution is generally larger for banks in a market-based system. The findings remain robust to linearity of size, different lags, different exchange rate levels and risk measures. Our study provides insights on understanding the differences in systemic risks determinants in different countries, and justifies country-specific macro-prudential regulations by providing country-level determinants of systemic risks.