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  • Determinants of financial crises—An early warning system based on panel logit regression

    Despite the fact that different types of financial crises are rooted in similar weaknesses of economy or may have common determinants, the very transmission mechanism may determine one category as leading or lagging behind others. We are focused on financial crises that necessarily have the features of systemic banking crises and assess econometric early warning system of 64 systemic banking crises that occurred in the period from 1977 to 2013. The paper employs two different procedures, based on panel logit regression. The dynamic discrete‐choice (binary) early warning model clearly outperformed the static model. The set of significant explanatory variables changed relative to the findings of the static model. The most significant predictor of the crises in the better performing model is deposit insurance system, followed by international reserves, M2‐to‐international reserves ratio, M2 multiplier, bank deposits, and bank reserves ratio. The statistical significance of the lagged variable confirmed the necessity to take the effect of crisis persistence into account.

  • Asset‐Liability Management and bank profitability: Statistical cost accounting analysis from an emerging market

    This paper employs the Statistical Cost Accounting (SCA) model to examine the relationship between profit and Asset‐Liability Management (ALM) structure of 27 banks in Ghana over the period 2007–2015. The findings confirm the central hypothesis of the SCA model and provide evidence that profitability is linked to balance sheet items in Ghana. It also documents evidence that domestic banks have higher rate of return on assets than foreign banks over the study period. In addition, high profit banks were observed to have higher rate of return on assets as well as higher rate of cost on liabilities than low profit banks. These findings provide useful insights to bank management through the identification of the assets items that generate highest return on bank profitability.

  • Analysing time difference and volatility linkages between China and the United States during financial crises and stable period using VARX‐DCC‐MEGARCH model

    The study implies VARX‐DCC‐MEGARCH model to investigate the returns transmission, volatility spillovers, asymmetry effect and the dynamic correlation between China and U.S. stock markets, as well as their local stock markets. We found that daytime returns of U.S. stock markets affect the overnight returns of Chinese stock markets. However, overnight returns transmission from the United States to China (daytime) was insignificant. Returns transmissions from Chinese stock markets to the United States are not significant. Daytime volatility of U.S. stock markets significantly spillovers the overnight volatility of Chinese stock markets and daytime volatility of Chinese stock markets spillovers the overnight volatility of U.S. stock markets. Moreover, during financial crises period, negative daily returns of Chinese stock markets significantly transmit to U.S. stock markets. Additionally, returns and volatility spillovers between local markets of the United States was also significant. During the financial crisis, the volatility spillovers between local stocks market of China was significant on one hand and leverage effect for U.S. and Chinese stock markets were also significant on the other hand.

  • Spillovers and financial integration in emerging markets: Analysis of BRICS economies within a VAR‐BEKK framework

    This study estimates the return and volatility spillovers among the BRICS countries (internal) and between BRICS, gold, oil and US stock markets (external). We find that internal return and volatility spillovers are higher than their external spillover counterparts. Thus, investors would be better off diversifying their investments in gold, oil and US stock markets along with the emerging economies. Interestingly, we also find that the return spillovers are higher than their volatility spillover counterparts, thus presenting investors with an opportunity to diversify their portfolio risk. With respect to portfolio constitution, South Africa emerges as the top choice for investment within the BRICS, whereas gold is the preferred choice for investors outside the BRICS economies.

  • Economic impact of monetary policy: Focus on real estate sector in Italy

    This study investigates the nexus between financial market and real estate (RE) sector against the backdrop of ECB's unconventional monetary policy. A financial dynamic computable general equilibrium (DCGE) model is calibrated on the financial social accounting matrix (FSAM) of Italian economy. The findings confirm that the inclusion of financial intermediation into real economy affects the real estate sector's output, value added, and pricing.

  • Viability of liberal professions' economic effectiveness in the context of the new fiscal changes in Romania

    In the current economic flow generated context, the services provided by liberal professions have become a link between producers and suppliers of products, services and end‐users. The objective of the study is to delineate the fiscal debt sustainability threshold and its impact on liberal professions specific activities. A subsequent objective is to highlight the impact of the independent activities of the liberal professions at the micro and macroeconomic level by developing a model of circular interdependence, between the inputs and outputs of resources, services and the critical point from which it can produce value, continuity and growth in activity. The results of the study are based on the definition of the role of the liberal profession in the context of the current economy in Romania, as well as on the demarcation of the critical point from which the economic spiral can create added value and profitability.

  • The impact of terrorism on formal and informal economy in African countries

    This study examines the impact of terrorist attacks on the formal and informal economy for 47 African countries during the period 1996–2015. Four terrorism indicators are used, namely, domestic, transnational, uncertain and total terrorism. The empirical results are based on the two‐step Generalized Method of Moments in system. Three key findings are established. First, all terrorist indicators affect negatively the formal economy and positively the informal economy. This effect may be due not only to the size and maturity of the African economy, but also to the adoption of less conservative public policies. Second, an aggregate analysis identifying the impact of terrorism on various macroeconomic variables sheds light on the impact of terrorism on the overall situation of the African economy. Third, compared to domestic terrorism, transnational terrorism more significantly and negatively affects the formal economy and positively affects the informal economy. Political implications are discussed.

  • Modelling the volatility of crude oil returns: Jumps and volatility forecasts

    We contribute to the scarce literature on the oil market volatility index (OVX) by examining the presence of time‐varying jumps in OVX and by assessing the ability of OVX to predict the conditional variance of crude oil returns. Using a GARCH‐jump model, we find evidence that OVX is characterized by jump behaviour that tends to vary over time. Further analysis indicates that accounting for the jump behaviour of OVX helps improve the conditional variance forecasts of crude oil returns. Since the studied features of OVX play a crucial role in asset pricing and risk analyses, our findings have policy implications related to refining volatility prediction models and risk measures.

  • Harvesting Islamic risk premium with long–short strategies: A time scale decomposition using the wavelet theory

    The impact of the Islamic screening on the performance of stock and sukuk investments is subject of a serious debate. The aim of this paper is to contribute to the ongoing studies on Islamic markets by giving new insights about characteristics of the Islamic risk premium. To attempt this objective, we adopt a risk premia methodology using long–short strategies and a time scale decomposition to find out the scale and the intensity degree of this effect over time. Furthermore, we consider the Islamic risk premium as a market factor. Wavelet analysis results in Malaysia highlight the presence of the Islamic effect at low frequency bands and a higher intensity among the corporate debt market. However, this approach's effectiveness is conditioned to the existence of Islamic and conventional benchmarks.

  • The term structure of sovereign credit default swap and the cross‐section of exchange rate predictability

    We provide novel evidence on exchange rate predictability by using the term premia of the sovereign credit default swap (CDS). Using a sample of 29 countries, we find that the sovereign CDS term premia significantly predict the exchange rates out‐of‐sample. On average, a steeper CDS spread curve for a country predicts its currency appreciation against the U.S. dollar (USD). Empirically, although the sovereign CDS level mainly reflects global risk, the information in the term premia of the sovereign CDS spreads reveals country‐specific risk. Notably, the predictive power of the term premia is robust after controlling for the sovereign CDS level and other conventional global macroeconomic and financial factors. Further analysis shows that the information in the sovereign CDS term premia is also helpful for forecasting international stock market returns.

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