Emerald | Journal of Risk Finance, The | Table of Contents http://www.emeraldinsight.com/1526-5943.htm Table of contents from the most recently published issue of Journal of Risk Finance, The Journal en-gb Mon, 19 May 2014 00:00:00 +0100 2013 Emerald Group Publishing Limited editorial@emeraldinsight.com support@emeraldinsight.com 60 Emerald | Journal of Risk Finance, The | Table of Contents http://www.emeraldinsight.com/common_assets/img/covers_journal/jrfcover.gif http://www.emeraldinsight.com/1526-5943.htm 120 157 Shadow credit and the private, middle market: Pre-crisis and post-crisis developments, data trends and two examples of private, non-bank lending http://www.emeraldinsight.com/journals.htm?issn=1526-5943&volume=15&issue=3&articleid=17115754&show=abstract http://www.emeraldinsight.com/10.1108/JRF-01-2014-0004 <strong>Abstract</strong><br /><br /><B>Purpose</B> – The purpose of this paper is to analyze a particular segment of the US “shadow banking” market and its revival since the recent credit crisis, namely, lending to the private Middle Market, defined as financings of $5-100 million to non-public, unrated operating entities or pools of assets with not more than $50 million in earnings before interest, taxes, depreciation and amortization. <B>Design/methodology/approach</B> – The analysis includes a review survey of a segment of capital markets and primary evidence from direct participation in two examples of actual private, non-bank lending between 2011 and 2012 executed by a Middle Market US investment bank. <B>Findings</B> – While there have been considerable challenges, historically, in providing credit for small-and mid-sized businesses in the USA, private Middle Market capital is (post the recent credit crisis) finding opportunities, notwithstanding, constraints imposed by market and other forces, including systemic crises, cyclical forces and changes in regulatory regimes. <B>Research limitations/implications</B> – Any generalization is limited due to the absence of disaggregated survey data for the US capital markets and the limited examples examined. <B>Practical implications</B> – The capital markets segment and non-bank financial institutions examined in this paper are developing as an alternative source of credit/lending from commercial banks for mid-sized companies. <B>Social implications</B> – The mid-sized firms financed by the shadow credit market are a significant source of job creation in the US economy making non-bank credit a lifeline to job growth in the financial crisis. <B>Originality/value</B> – Direct participation is unique to the firms studied. Value is in developing a general framework to analyze different segments of the capital market. Article literatinetwork@emeraldinsight.com (Craig Anthony Zabala, Jeremy M. Josse) Mon, 19 May 2014 00:00:00 +0100 A robust pricing of specific structured bonds with coupons http://www.emeraldinsight.com/journals.htm?issn=1526-5943&volume=15&issue=3&articleid=17115755&show=abstract http://www.emeraldinsight.com/10.1108/JRF-01-2014-0005 <strong>Abstract</strong><br /><br /><B>Purpose</B> – The purpose of this paper is to present an innovative model to evaluate the fair price of a subset of structured products for a hypothetical US structured bond. <B>Design/methodology/approach</B> – The authors assume that interest rates dynamics are described by the Cox–Ingersoll–Ross process. They conduct robustness checks by stress testing against parameter and model uncertainty. <B>Findings</B> – The fair value of the bond is robust under any parameter or model misspecification. In addition, a change in the price seems to be more sensitive to long-term yields rather than short-or mid-term yields. The authors provide a better understanding of the relationship between bond prices and business cycles: a slight change in the current structure would have a significant effect on the bond price only during economic expansions. <B>Social implications</B> – The recent global financial crisis has led policymakers and the financial press to blame financial innovation through accusations of structured products being highly complex. Much of the criticism is based on the fact that investors were not able to properly price and fully understand the risks of their investments. Regulators should ensure proper pricing of these products to protect both the investors and the system. Fair pricing is important for bond issuers, governments or corporations to design their product at an attractive price for investors. <B>Originality/value</B> – This paper fills a gap in the extant literature by providing an innovative model based on an Euler–Maruyama Monte Carlo scheme to price structured products. Article literatinetwork@emeraldinsight.com (Anastasios Evgenidis, Costas Siriopoulos) Mon, 19 May 2014 00:00:00 +0100 Loss reserve variability and loss reserve errors: An empirical analysis of the Ghanaian property and liability insurance industry http://www.emeraldinsight.com/journals.htm?issn=1526-5943&volume=15&issue=3&articleid=17115756&show=abstract http://www.emeraldinsight.com/10.1108/JRF-03-2014-0018 <strong>Abstract</strong><br /><br /><B>Purpose</B> – The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if reserve errors are random or not (i.e. manipulated or not). <B>Design/methodology/approach</B> – It uses information on insurer claim reserve provisions, claims outstanding, claims incurred and claims paid for the period of 2000-2010. Categorizing the sources of variation as endogenous and exogenous, the authors use the panel correlated standard error regression model to determine sources and magnitude of industry reserve error. <B>Findings</B> – The study finds that size, age, lag of loss reserve error, inflation rate and real gross domestic product are significant in determining the degree of reserve error variation. Type of ownership (domestic or foreign) is, however, not a significant source of variation. Further, the authors found that industry reserve errors are random (not manipulated) across firms, suggesting that sampled insurers act independently on reserve error decision making and are not influenced by industry trends and competition. <B>Research limitations/implications</B> – The main research study limitation is the difficulty involved in obtaining annual statements from insurance companies in Ghana. Reluctance of companies to make statements available impeded on the smooth flow of the study during data collection. <B>Practical implications</B> – Policy-wise, this suggest that regulatory bodies can uniquely set reserve error levels for existing firms with little influence on competition. Further, the Ghanaian insurance regulator does not to focus on the type of ownership (foreign or local) when setting regulatory standards. However, size of the company and age (length of operation) should be considered. <B>Originality/value</B> – This paper is the first empirical study to examine the loss reserve error and loss reserve variability of Ghanaian property and liability insurance companies. Article literatinetwork@emeraldinsight.com (Enoch Nii Boi Quaye, Charles Andoh, Anthony Q.Q. Aboagye) Mon, 19 May 2014 00:00:00 +0100 Fundamental indexation for bond markets http://www.emeraldinsight.com/journals.htm?issn=1526-5943&volume=15&issue=3&articleid=17115757&show=abstract http://www.emeraldinsight.com/10.1108/JRF-05-2014-0060 <strong>Abstract</strong><br /><br /><B>Purpose</B> – The purpose of this paper is to build alternative indices weighing using a measure of fundamental value rather than debt size. The official bond indices built to reflect general price trends are market weighted, meaning that the bonds are weighted by their debt size. The more indebted, the more weight in the index, which mechanically increments the investment risks that are inherent. Those market indices are shown to be return-to-risk inefficient in recent studies compared to indices with alternative weighting schemes. The authors contribute to this growing literature, which mostly focuses on equities, by testing on bonds. <B>Design/methodology/approach</B> – The authors build alternative indices weighing using a measure of fundamental value rather than debt size. The authors have done this for sovereign bonds using gross domestic product (GDP) figures and for corporates taking sales revenues. <B>Findings</B> – The authors find in empirical tests that the fundamental indices build tend to outperform the market-weighted indices. <B>Originality/value</B> – This article builds on two articles by Arnott <IT>et al.</IT> (2005, 2010), in the Financial Analysts Journal and Journal of Portfolio Management, respectively, and adds value in the sense that – it takes an appreciation-free fundamental measure, – tests on the European as opposed to the US bond markets. Article literatinetwork@emeraldinsight.com (Marielle de Jong, Hongwen Wu) Mon, 19 May 2014 00:00:00 +0100 Operational drivers affecting credit risk of mutual guarantee institutions http://www.emeraldinsight.com/journals.htm?issn=1526-5943&volume=15&issue=3&articleid=17115758&show=abstract http://www.emeraldinsight.com/10.1108/JRF-12-2013-0087 <strong>Abstract</strong><br /><br /><B>Purpose</B> – The purpose of this paper is to investigate the drivers influencing the risk of default on mutual guaranteed loans. The authors aim to verify whether default is influenced by the specific business policies of mutual guarantee institutions (MGIs) and to recommend guidelines for directing their operating management. <B>Design/methodology/approach</B> – The authors analyse the guaranteed portfolios of 19 Italian MGIs and investigate the determinants of the defaulted positions at the end of June 2011. The sample consists of 167,777 guaranteed loans, of which 11,349 are in default. Using regression models, we identify the variables related to the business model of MGIs that are significantly associated with default on their positions. <B>Findings</B> – The defaulted positions of MGIs are significantly correlated with the type of issued guarantees. This condition should be considered in defining product and price policies. <B>Practical implications</B> – The authors identify some critical issues in the risk-taking processes of MGIs. The tested hypothesis highlights the opportunities for the optimisation of guaranteed loan portfolios, which is necessary for reducing the profitability/liquidity pressures of these financial institutions and enhancing their efficiency as instruments for mitigating the effects of credit rationing and promoting the revitalisation of small-and medium-sized enterprises. <B>Originality/value</B> – The results are based on an original and reserved dataset, which is not available in public financial statements or public statistics, but is collected directly from the MGIs that are part of the study. Article literatinetwork@emeraldinsight.com (Lorenzo Gai, Federica Ielasi) Mon, 19 May 2014 00:00:00 +0100 Tail events in the FX markets since 1740 http://www.emeraldinsight.com/journals.htm?issn=1526-5943&volume=15&issue=3&articleid=17115759&show=abstract http://www.emeraldinsight.com/10.1108/JRF-04-2014-0041 <strong>Abstract</strong><br /><br /><B>Purpose</B> – The purpose of this paper is to explore the extent of the so-called “small-sample problem” within quantitative exchange-rate risk management. <B>Design/methodology/approach</B> – The authors take a closer look at the frequency distribution of nominal price changes in the European foreign exchange markets. <B>Findings</B> – The analysis clearly illustrates the risk of seriously underestimating the probability and magnitude of tail events when frequency distributions are derived from fairly short data samples. <B>Practical implications</B> – The authors suggest that financial institutions and regulators should have an eye for the long-term historical perspective when designing sensitivity tests or “worst case” scenarios in relation to risk assessments and stress tests. <B>Originality/value</B> – The authors add to the literature by analysing the distribution of nominal exchange-rate fluctuations on the basis of a unique quarterly data set for ten European exchange-rate pairs covering a time span of 273 years constructed by the authors. To the best of the authors' knowledge this is the first study on nominal exchange-rate changes for a large number of exchange-rate pairs based on quarterly data spanning almost three centuries. Article literatinetwork@emeraldinsight.com (Kim Abildgren) Mon, 19 May 2014 00:00:00 +0100