The Journal of Risk Finance

The effects of advertising media on sales of insurance products: a developing-country case : Table of Contents

S.A. Aduloju, A.O. Odugbesan, S.A. Oke — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – Characterized by declining goodwill and exemplified sharp drop in gross premium, the Nigerian insurance industry, in recent times, has experienced turbulent economic challenges that necessitated re-engineering of its core activities. However, advertising and sales are core activities, which are important predictors of stability and growth in the insurance industry. Consequently, the purpose of this paper is to examine the impact of advertising on sales of insurance products. Design/methodology/approach – An empirical investigation is carried out using a survey that utilizes questionnaires, interviews, and field observation as major research instruments. A total of 71 insurance companies in Nigeria, which represent the total operating insurance companies in Nigeria at the time of study, were surveyed. With 100 scientifically selected subjects sampled, descriptive analysis was employed to understand the relationship and the strength of such relationships. Findings – It was found that advertising had effects on sales volume and improved public image. However, the choice of advertising medium, the message, and the format are critical ingredients of a successful advertising program in the insurance industry. Research limitations/implications – The insurance industry in Nigeria was studied from a holistic viewpoint due to the need to present reliable and detailed information for decision makers. However, limitation in achieving this relates to the reluctance of respondents to release information for the study. Practical implications – The implication of this research is that proper control of advertisement budget vis-à-vis the expected sales volume could be made. Thus, organizations could spend budgets more effectively on growth enhancing projects instead of excessive wastage of funds on advertisement. Originality/value – This paper seems to be the first original work that concerns the impact of advertising on sales in the Nigerian insurance industry. As such, it bridges a gap that is opened for investigations. It may be of great value to decision making seeking for control tools.

Control charts for monitoring observations from a truncated normal distribution : Table of Contents

M.A.A. Cox — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – The majority of quality control charts are employed for normally distributed data. In reality this assumption is not always valid. This paper aims to consider an alternative the truncated normal. Design/methodology/approach – Having derived integral equations for the average run length (ARL), a key measure of the performance of a control chart, approximate solutions are derived using Gaussian quadrature. Findings – Polynomials closely approximating the ARL for the three most popular control charts, using their usual parameterization, are obtained. Research limitations/implications – An obvious extension is to other distributions and hopefully this work will encourage real world applications. Practical implications – These charts are widely applicable within engineering, finance, medicine, environmental statistics, and many other fields. These problems are typically said to fall in the domain of risk management. It is hoped that this paper will add to the body of practitioners already employing this technique. Originality/value – Control charts are widely employed, however applications are usually restricted to the normal distribution. This is the first time it has been applied to the truncated normal distribution and original polynomials derived for the ARL.

Effect of 9/11 on the conditional time-varying equity risk premium: evidence from developed markets : Table of Contents

Mahfuzul Haque, Imen Kouki — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – The purpose of this paper is to examine the volatility effects on the returns for six developed market indices factoring in the unprecedented event of September 11, 2001, hereafter referred to as 9/11, in the USA. It also looks at the correlations between the indices and the risk premium when uncertainty in the financial markets affects the investors psyche, eroding confidence as volatility increases. Design/methodology/approach – The volatility of the indices in generalized autoregressive conditional heteroskedasticity (GARCH) framework, employing first the Box and Jenkins ARMA (p, q) to select models is investigated. The chosen models are based on the results obtained from Akaike information criterion and Schwartz Bayesian criterion. GARCH is a mechanism that includes past variances in the explanation of future variances. Findings – The results highlight several findings, the variance of developed market returns appears to have increased after the 9/11 event; the correlation has increased among developed markets following 9/11; 9/11 affects developed markets, holding short-term assets do not provide the investors with the reward they usually seek, but results are mixed in the case of holding long-term assets; for all the period including sub-period, signs of significant volatility clustering are found; but shocks are not explosive throughout. Originality/value – The effect of 9/11 on the markets is different from previous worldwide crashes, such as that of October 19, 1987. This paper will be of value to policy makers and managers/institutional investors and those who have some stakes in international portfolio diversification, as the objective of diversification, is to avail the opportunity to improve portfolio performance on the low correlations across international stock markets.

Universal banks and stock-market reaction: Some evidence from major announcements : Table of Contents

Harilaos F. Harissis, Andreas Merikas, Stanley Mutenga, Sotiris K. Staikouras — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – The purpose of this paper is to investigate the interface between the banking and insurance sectors. Using capital market data, the paper aims to discover any significant equity returns around the announcement date of these bank-insurance interfaces. Design/methodology/approach – The analysis employs an event study methodology to evaluate the equity performance of these institutions. The empirical findings are based on well-known financial intermediaries taken from an international sample. Findings – The magnitude and sign of equity returns appear to differ among the cases examined. Some firms exhibit considerable abnormal returns, while others remain passive to any corporate restructuring revelation, or even undrape stock market losses. In many cases, the latter is associated with the overall economic environment, and/or with investments that are not compatible with the general banking philosophy of “fast growth within short-term horizons.” Based on equity returns, the bank-insurance interface seems to be the most preferable business restructuring; while insurance divestments and horizontal mergers, among financial intermediaries, do not perform as profitably as expected. Originality/value – The paper will be of value to those interested in capital markets with emphasis on universal banking and insurance. It is suitable for academics as well as practitioners.

Economic rehabilitation programme and the existence of implicit deposit insurance in North Cyprus : Table of Contents

Nil Günsel — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – The purpose of this paper is to investigate the role of implicit deposit insurance in North Cyprus Banking Sector during the period 1984-2002. Design/methodology/approach – A multivariate logit model is an empirical methodology that identifies the probability of bank failure. The model links the probability of banking problems to a set of bank-specific factors, macro-environment and structural weaknesses that may have exacerbated the internal troubles of the financial institutions. Findings – The empirical findings suggest that in addition to the microeconomic variables, high credit expansion to private sector, implicit deposit insurance, existence of economic rehabilitation programmed, financial liberalization, weak regulation and supervision played an important role in the escalation of the 2000-2002 banking distress in North Cyprus. Research limitations/implications – For further research, this paper may extend the time period and include other macroeconomic variables such as inflation, exchange pressure that may have a direct effect on bank failure in North Cyprus. Practical implications – This paper presents a practical application of the deposit insurance policy as a main determinant of bank failure, which would help bank examiners, investors and regulators in their decisions to alert management in time, to prevent bank failure. The ability for early detection of any structural or financial weaknesses in the country will help to minimize financial costs of the island that brought about by financial instability. Originality/value – Overall, the empirical results that are obtained by logit model analysis are quite robust. The logit regression results reveal that the predicted values, i.e. the potential risk levels for Mediterranean Bank was very high in this analysis. Towards 2005 Mediterranean Bank had to close, which prove that the model is robust.

An info-gap approach to managing portfolios of assets with uncertain returns : Table of Contents

Bryan Beresford-Smith, Colin J. Thompson — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – The purpose of this paper is to provide a quantitative methodology based on information-gap decision theory for dealing with (true) Knightian uncertainty in the management of portfolios of assets with uncertain returns. Design/methodology/approach – Portfolio managers aim to maximize returns for given levels of risk. Since future returns on assets are uncertain the expected return on a portfolio of assets can be subject to significant uncertainty. Information-gap decision theory is used to construct portfolios that are robust against uncertainty. Findings – Using the added dimensions of aspirational parameters and performance requirements in information-gap theory, the paper shows that one cannot simultaneously have two robust-optimal portfolios that outperform a specified return and a benchmark portfolio unless one of the portfolios has arbitrarily large long and short positions. Research limitations/implications – The paper has considered only one uncertainty model and two performance requirements in an information-gap analysis over a particular time frame. Alternative uncertainty models could be introduced and benchmarking against proxy portfolios and competitors are examples of additional performance requirements that could be incorporated in an information-gap analysis. Practical implications – An additional methodology for applying information-gap modeling to portfolio management has been provided. Originality/value – This paper provides a new and novel approach for managing portfolios in the face of uncertainties in future asset returns.

Rethinking risk and return: part 2 – some felicitous Fourier frequencies : Table of Contents

Michael R. Powers — Sun May 24 14:15:05 BST 2009

Abstract:
Purpose – This editorial, the second of a two-part series, proposes a new measure of risk for analyzing highly non-normal (i.e. asymmetric and long-tailed) random variables in the context of both investment and insurance portfolios. The proposed measure replaces the p-norm-based definition of “risk” – found wanting in Part 1 – with a cosine-based alternative. Design/methodology/approach – Just as p-norm-based risk measures were derived as generalizations of the standard deviation in Part 1, the paper now extend this approach to a cosine-based risk measure. This involves computing the Fourier transform of the underlying random variable for a given frequency value. Methods for selecting an appropriate frequency are then discussed. Findings – The cosine-based risk measure provides an effective alternative to p-norm-based measures because the Fourier transform is always well defined, even for long-tailed random variables. The frequency parameter necessary for the Fourier transform may be computed according to several interesting criteria, including the maximization of marginal Shannon information, as well as consideration of “Planck boundaries” in human cognition. Originality/value – The editorial explores the use of cosine-based measures in constructing a general definition of “risk” that is equally applicable to asymmetric and long-tailed random variables as to normal random variables.