Annals of Finance最新文献

Economic sanctions have recently become a prominent tool in international policymaking. However, the mechanisms through which sanctions are transmitted and their impact on the domestic financial sector remain unclear. This paper employs a calibrated New Keynesian small open economy model to analyze the transmission channels of sanctions-induced terms of trade shocks and their impact on the economy. The rise in the domestic prices of imports is a crucial channel through which trade restrictions affect the economy due to the production sector’s reliance on imported investment goods. The findings indicate that both export and import sanctions lead to similar outcomes: a fall in investment caused by a 10% reduction in the price of exported goods or a 10% increase in the price of imported goods results in over a 2% contraction in domestic production, accompanied by a rise in non-performing loan rates among firms and households. Countercyclical lean against the wind (LAW) monetary policy facilitates a quicker recovery in production by encouraging the substitution of imported investment goods with domestically produced alternatives and improves financial stability in the consumer debt market.

We study a market with non-iid returns linked to an ESG (Environmental, Social and Governance) and a market factor. Motivated by empirical evidence, we assume that the investor does not know which part of the return is due to the ESG component, unless he pays a cost. The approach is consistent with risk premia on green assets greater or lower than the ones on market-only related assets. We provide conditions on the persistence, weight and estimation error in the ESG factor, to optimally invest in ESG-assets. By calibrating the model to the German twin Govies 2020–2024, we separate the ESG from the market risk factor and provide conditions for the greenium to be negative. We show that it is rational to invest in green bonds if information costs are below 0.07 bps per day, to abstain if they are greater. Investing in the green German bond without getting informed is always suboptimal.

Does the local banking market structure affect the local labor market? The answer to this question has important social-economic implications. Using a panel dataset covering over 2700 counties from 1994 to 2020 we find that concentrated banking markets are associated with lower county-level unemployment rates. Exploring transmission mechanisms, we find that concentration increases different categories of bank lending, including small business loans. Higher concentration also leads to small business formation and job creation. Our findings lend support to the relative efficient structure paradigm suggesting concentration in local banking markets results in more efficient banks gaining market shares, increasing their local comparative advantage, in turn improving access to credit and leading to stronger local labor market.

We examine whether foreign bank entry enhances the performance of small and medium-sized enterprises (SMEs) in Korea. Using panel data on Korean firms from 1991 to 2019, we first confirm that foreign banks positively influence the amount of bank loans received by Korean SMEs, suggesting that their entry contributes to improving SMEs’ credit access. Additionally, the positive impact of foreign bank entry is more pronounced for SMEs characterized by high information asymmetry and strong growth potential. Further, improved credit access through foreign banks is positively associated with the long-term performance of SMEs. Overall, our study highlights the importance of foreign banks for improving both credit access and the performance of domestic SMEs in a transition economy.

This paper investigates how the 2021 ECB Climate stress test affected the market view on the climate risk exposure of the banking sector. To this end, we set up an event study analysis on stock returns of the banks included in the exercise, whereby at the relevant dates we test for the existence of abnormal returns. The potential hypothesis is that bad/good news on climate risks exposure of banks may negatively/positively impacts their profitability and hence stock returns. Three main results emerge from our analyses. First, the stress test announcement had no significant impact on banks stock returns, a result that can be explained by the type of information given, i.e. only the methodology and some preliminary mainly qualitative evidence. Second, and by contrast, the publication of the final results with quantitative details determined a positive significant reaction, since the market possibly expected banks’ exposure to climate risks to be greater. Third, an event related to the worldwide consensus on the need to manage climate change (COP26), yet not strictly related to the climate stress test, had no significant market impact. Our results, which are robust to various checks, may have policy implications for future climate stress tests and institutional initiatives needed to manage climate risk.

Collateral availability determines secured debt, while creditworthiness determines unsecured debt. Both are relevant for the debt structure. Regardless of the benefits that pledging collateral may offer, firms substitute away from secured debt as financial constraints relax. An increase in the share of unsecured debt leads to an increase in investment. A higher investment and the preference for unsecured debt can be explained by firms’ desire to minimize financing costs, spreads on unsecured debt are on average lower. This novel evidence complements existing literature on the collateral channel.

This paper provides a set of sufficient conditions for special classes of filtration expansions, such that the expanded information introduces no new arbitrage opportunities into a market. The information expansion corresponds to knowledge of the “true” price process. The theorem is based on comparing two distinct markets—the original and a fictitious—each associated with a different filtration, and employs the first fundamental theorem of asset pricing in both of these two markets.

This study explores the implementation and factor integration of diverse factor-based investment strategies in the European market. Specifically, we investigate a contrarian strategy, two value strategies, and a momentum strategy from 2015 to June 2024. Utilising the Python framework Qrumble for efficient experimentation, we integrate evaluation metrics and we consider beyond the commonly used portfolios, equally weighted and value-weighted, two theoretically efficient portfolios - minimum variance and market portfolio. While certain strategies yielded outcomes not entirely in line with state-of-the-art standards, both value strategies showed promising returns with manageable risk. Notably, the combination of factors in a multi-type strategy, named Magical Bambu, demonstrated interesting results, suggesting the potential for effective collaboration between different investment methodologies. This study underscores the nuanced outcomes within theoretically efficient portfolios under specific conditions, prompting further exploration.

Microloans are important to the underprivileged. It helps those in need make ends meet and maintain daily activities. While not yet a life-changing tool, it can significantly impact women’s empowerment in rural areas worldwide. This is a cost-effective method of assisting those in need. The unpredictable behavior of both borrowers and lenders is a major worry in microlending. Especially in terms of borrowers repaying their debts with interest and lenders remaining economically feasible. To accomplish this, we develop a model that explains the wealth dynamics of women selling inexpensive goods from baskets on their heads while incorporating uncertainty. We use a mathematical approach to estimate the probability of no default. We demonstrate that the lender should charge an interest rate based on the lending cost while taking into account the drift and the business’s uncertainties. This will allow them to repay their loan with interest without defaulting, as well as make lending more sustainable.

This paper considers Kolokoltsov’s multiplicative model of market price dynamics witout trading constraints. Under general assumptions and monotonic payoff functions, we show that the guaranteed deterministic approach, having a game-theoretic interpretation, yields the same result in the superhedging problem as in the probabilistic approach. We analyze in detail the superhedging problem for a special monotonic payoff function, i.e., a European-style binary option, within the guaranteed deterministic approach (GDA). Unlike the probabilistic counterpart, GDA allows a direct description of the most unfavorable mixed market strategy. We obtain some interesting analytical properties of the solutions of the corresponding Bellman–Isaacs equations, providing the minimal required reserves (also called the superhedging price) to cover the option payoff at the expiration time. The price process with the conditional distributions corresponding to the most unfavorable market scenarios can be approximated on a logarithmic scale by a random walk with two absorbing barriers. We also prove that, under an appropriate normalization, the price process weakly converges to the geometric Brownian motion with one absorbing barrier at the strike price when the discrete-time model number of steps tends to infinity.