Financial risk

About: Financial risk is a research topic. Over the lifetime, 11899 publications have been published within this topic receiving 231404 citations. The topic is also known as: economic risk.

Spread of risk across financial markets: better to invest in the peripheries

Abstract: Risk is not uniformly spread across financial markets and this fact can be exploited to reduce investment risk contributing to improve global financial stability. We discuss how, by extracting the dependency structure of financial equities, a network approach can be used to build a well-diversified portfolio that effectively reduces investment risk. We find that investments in stocks that occupy peripheral, poorly connected regions in financial filtered networks, namely Minimum Spanning Trees and Planar Maximally Filtered Graphs, are most successful in diversifying, improving the ratio between returns' average and standard deviation, reducing the likelihood of negative returns, while keeping profits in line with the general market average even for small baskets of stocks. On the contrary, investments in subsets of central, highly connected stocks are characterized by greater risk and worse performance. This methodology has the added advantage of visualizing portfolio choices directly over the graphic layout of the network.

The Role of Experience Sampling and Graphical Displays on One's Investment Risk Appetite

Abstract: Financial professionals have a great deal of discretion concerning how to relay information about the risk of financial products to their clients. This paper introduces a new risk tool to communicate the risk of investment products, and it examines how different risk-presentation modes influence risk-taking behavior and investors' recall ability of the risk-return profile of financial products. We analyze four different ways of communicating risk: i numerical descriptions, ii experience sampling, iii graphical displays, and iv a combination of these formats in the “risk tool.” Participants receive information about a risky and a risk-free fund and make an allocation between the two in an experimental investment portfolio. We find that risky allocations are elevated in both the risk tool and experience sampling conditions. Greater risky allocations in the risk tool condition are associated with decreased risk perception, increased confidence in the risky fund, and a lower estimation of the probability of a loss. In addition to these favorable perceptions of the risky fund, participants in the risk tool condition are more accurate on recall questions regarding the expected return and the probability of a loss. We find no evidence of greater dissatisfaction with returns in these conditions, and we observe a willingness to take on similar levels of risk in subsequent allocations. This paper was accepted by Teck Ho, behavioral economics.

Universal Coverage of Health Services: Tailoring Its implementation/Couverture Universelle Des Services De Sante : Adaptation De Sa Mise En oeuvre/Cobertura Universal De Los Servicios De Salud: Adaptacion De Su Aplicacion

Abstract: Introduction Out-of-pocket payments create financial barriers that prevent millions of people each year from seeking and receiving needed health services (1,2) In addition, many of those who do seek and pay for health services are confronted with financial catastrophe and impoverishment (3-5) People who do not use health services at all, of who suffer financial catastrophe are the extreme Many others might forego only some services, or suffer less severe financial consequences imposed by user charges, but people everywhere, at all income levels, seek protection from the financial risks associated with ill health A question facing all countries is how their health financing systems can achieve or maintain universal coverage of health services Recognizing this, in 2005 the Member States of WHO adopted a resolution encouraging countries to develop health financing systems aimed at providing universal coverage (6) This was defined as securing access for all to appropriate promotive, preventive, curative and rehabilitative services at an affordable cost Thus, universal coverage incorporates two complementary dimensions in addition to financial risk protection: the extent of population coverage (eg who is covered) and the extent of health service coverage (eg what is covered) In some countries it will take many years to achieve universal coverage according to the above-mentioned dimensions This paper addresses a number of key questions that countries will need to address and considers how the responses can be tailored to the specific country context In addition, it highlights the critical need to pay attention to the role of institutional arrangements and organizations in implementing universal coverage Shifting to prepayment A first important observation is that many of the world's 13 billion people on very low incomes still do not have access to effective and affordable drugs, surgeries and other interventions because of weaknesses in the health financing system (1) We investigated 116 recent household expenditure surveys from 89 countries, which allowed calculations of the consequences of paying for health services by those who do use them Up to 13% of households face financial catastrophe in any given year because of the charges associated with using health services and up to 6% are pushed below the poverty line Extrapolating the results globally suggests that around 44 million households suffer severe financial hardship and 25 million are pushed into poverty each year simply because they need to use, and pay for, health services (7) Households are considered to suffer financial catastrophe if they spend more than 40% of their disposable income--the income remaining after meeting basic food expenditure--on health services They are often forced to reduce expenditure on other essential items such as housing, clothing and the education of children to pay for health services Households are considered impoverished if health expenses push them below the poverty line Inability to access health services, catastrophic expenditure and impoverishment are strongly associated with the extent to which countries rely on out-of-pocket payments as a means of financing their health systems These payments generally take the form of fees for services (levied by public and/ or private sector providers), co-payments where insurance does not cover the full cost of care, or direct expenditure for self-treatment often for pharmaceuticals A major challenge, therefore, to the achievement of universal coverage is finding ways to more away from out-of-pocket payments towards some form of prepayment Solutions are complex, and countries' economic, social and political contexts differ, moderating the nature and speed of development of prepayment mechanisms (8) Policy norms in health financing Health financing policy, however, cannot afford to focus just on how to raise revenues …

Default Risk Sharing Between Banks and Markets: The Contribution of Collateralized Debt Obligations

Abstract: This paper contributes to the economics of financial institutions risk management by exploring how loan securitization affects their default risk, their systematic risk, and their stock prices. In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the default losses, and transfers only the extreme losses to other market participants. The size of the first loss piece is largely driven by the average default probability of the securitized assets. If the bank sells loans in a true sale transaction, it may use the proceeds to expand its loan business, thereby affecting systematic risk. For a sample of European CDO issues, we find an increase of the banks%u2019 betas, but no significant stock price effect around the announcement of a CDO issue.

Repoliticizing Financial Risk

Abstract: This article aims to repoliticize modern financial risk management by offering a genealogical reading of its contested religious and cultural history. While identifying, calculating, and selling risk is at the heart of the modern financial markets, the normative commitments of modern financial risk management remain both hidden from view and politically unquestioned. The article argues that the commercialization of risk in finance should not be understood as a reaction to objectively existing danger, but as a profitable cultural process that rests upon gendered constructions of danger and security. The article examines the role of risk in the recent proposals for a new Capital Accord by the Basle Committee for Banking Supervision, and argues that the financial industry is reluctant to accept domains of incalculability in the new Accord.