Business Commons^™

Risk And System-Of-Systems: Toward A Unified Concept, C. Ariel Pinto, Michael K. Mcshane, Rani Kady

Engineering Management & Systems Engineering Faculty Publications

The scope of this paper is the survey of both fundamental and most recent publications in system-of-systems, business and insurance, as well as risk analysis, modeling, and management for the purpose of better describing the concept of risk in recognition of emergence and complexity which characterizes many systems within the concern of engineering and business managers. The ultimate goal is to provide engineering and business managers the necessary perspective on the concept of risk and in its management for the next generation of sustainable systems - including various descriptions of risk and discussion of the relevance of properties of system-of-systems …

Time Varying Risk Aversion: An Application To Energy Hedging, Jim Hanly, John Cotter

Articles

Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying measure of risk aversion that is based on the observed risk preferences of energy hedging market participants. The resulting estimates are applied to derive explicit risk aversion based optimal hedge strategies for both short and long hedgers. Out-of-sample results are also presented based on a unique approach that allows us to forecast risk aversion, thereby estimating hedge strategies that address the potential future needs of …

A Common Eurozone Bond, Erik Welin

WCBT Undergraduate Publications

Introduction

The sovereign bond yields of the Eurozone, or more correctly the euro area, have since the introduction of the Euro undergone a bond yield compression. However, as can be seen in table 1, these bond yields started to diverge considerably around mid 2008 following the recent financial crisis and increased sovereign risk. Yields on Greek, Irish, and Portuguese bond have diverged the most from for example German bonds. Based upon this and the ongoing economic integration within the EU and Eurozone, proposals for a common Eurozone bond have been raised. There are many pros and cons with such a …

Systemic Risk Assessment Using A Non-Stationary Fractional Dynamic Stochastic Model For The Analysis Of Economic Signals, Jonathan Blackledge

Articles

This paper considers the Fractal Market Hypothesis (FMH) for assessing the risk(s) in developing a financial portfolio based on data that is available through the Internet from an increasing number of sources. Most financial risk management systems are still based on the Efficient Market Hypothesis which often fails due to the inaccuracies of the statistical models that underpin the hypothesis, in particular, that financial data are based on stationary Gaussian processes. The FMH considered in this paper assumes that financial data are non-stationary and statistically self-affine so that a risk analysis can, in principal, be applied at any time scale …

Is Regime Switching In Stock Returns Important In Asset Allocations?, Jun Tu

Research Collection Lee Kong Chian School Of Business

The stock market displays regime switching between upturns and downturns. This paper provides a Bayesian framework for making portfolio decisions that takes this regime switching into account, together with asset pricing model uncertainty and parameter uncertainty. The findings reveal that the economic value of accounting for regimes is substantially independent of whether or not model and parameter uncertainties are incorporated: the certainty-equivalent losses associated with ignoring regime switching are generally above 2% per year, and can be as high as 10%. These results suggest that the more realistic regime switching model is fundamentally different from the commonly used single-state model, …

What's On The Menu? Included Versus Excluded Funds For Singapore's Central Provident Fund Investors, Seng Kee, Benedict Koh, Olivia S. Mitchell

Research Collection Lee Kong Chian School Of Business

As one of the oldest and largest national mandatory defined contribution pension systems, Singapore's Central Provident Fund (CPF) permits employees to invest their retirement accumulations in a variety of investment instruments rather than leaving them in a government-managed investment fund. Many plan participants avail themselves of this opportunity, selecting from a menu of more than 200 `included' funds that satisfy specific admission criteria set by the CPF Board. Nevertheless, many other funds are excluded from the list of eligible retirement system investments. This article shows that the `included/non-included' screening criteria have been effective, in that included fund managers earned higher …

Operational Risk In Trading Platforms, M. Thulasidas

Research Collection School Of Computing and Information Systems

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. A trading platform is a system, and therefore comes under the umbrella definition of operational risk.

Executive Compensation And The Maturity Structure Of Corporate Debt, Paul Brockman, Xiumin Martin, Emre Unlu

Department of Finance: Faculty Publications

Executive compensation influences managerial risk preferences through executives’ portfolio sensitivities to changes in stock prices (delta) and stock return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that short-maturity debt mitigates agency costs of debt by constraining managerial risk preferences. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and short-maturity debt. We also find that shortmaturity debt mitigates the influence of vega- and delta-related incentives on bond yields. Overall, our empirical evidence shows that short-term debt mitigates agency costs of debt arising from compensation risk.

Microfinance For Migrant Workers: Asia's Next New Market Opportunity?, Patsian Low

Social Space

Employment in developed countries is often the main source of income for many people at the bottom of the pyramid in developing countries and has led to the growth of an industry based on remittances. Patsian Low studies the ramifications this has for developing microfinance in host countries and the potential for cross-border collaboration in Singapore and Asia.

Deposit Insurance Coverage, Ownership, And Banks' Risk-Taking In Emerging Markets, Apanard P. Angkinand, Clas Wihlborg

Business Faculty Articles and Research

We ask how deposit insurance systems and ownership of banks affect the degree of market discipline on banks' risk-taking. Market discipline is determined by the extent of explicit deposit insurance, as well as by the credibility of non-insurance of groups of depositors and other creditors. Furthermore, market discipline depends on the ownership structure of banks and the responsiveness of bank managers to market incentives. An expected U-shaped relationship between explicit deposit insurance coverage and banks' risk-taking is influenced by country specific institutional factors, including bank ownership. We analyze specifically how government ownership, foreign ownership and shareholder rights affect the disciplinary …

An Experimental Analysis Of The Demand For Payday Loans, Bart J. Wilson, David W. Findlay, James W. Meehan Jr., Charissa P. Wellford, Karl Schurter

Economics Faculty Articles and Research

The payday loan industry is one of the fastest growing segments of the consumer financial services market in the United States. We design an environment similar to the one that payday loan customers face and then conduct a laboratory experiment to examine what effect, if any, the existence of payday loans has on individuals' abilities to manage and to survive financial setbacks. Our primary objective is to examine whether access to payday loans improves or worsens the likelihood of financial survival in our experiment. We also test the degree to which people's use of payday loans affects their ability to …

Should Individual Investors Use Technical Trading Rules To Attempt To Beat The Market?, Thomas S. Coe, Kittipong Laosethakul

WCBT Faculty Publications

Problem statement: Despite widespread academic acceptance of the Efficient Markets Hypothesis, some stock traders still use technical trading rules in an attempt to beat the market. Approach: This study looked at four trading rules, namely, the arithmetic moving average, the relative strength index, a stochastic oscillator and its moving average. These trading rules compare the relationship of current prices to past price patterns to generate a signal when to buy and sell stocks. The trading rules were tested over the years 2000-2009, a period of time that exhibited bull and bear markets, to determine if traders could actively …

Sp613-B Tools For Money Management - Saving-Spending Plan Worksheet, The University Of Tennessee Agricultural Extension Service

Financial Management

No abstract provided.

Sp613-A Tools For Money Management - Saving-Spending Plan Instructions, The University Of Tennessee Agricultural Extension Service

Financial Management

A spending-savings plan will help you to stay in control of your finances. You can use it to make ends meet, save for emergencies and plan ahead for big expenses. With your spending well under control, you can

• pay your bills.

• have money for the things you need.

• have less stress.

• feel better about yourself.

Use the worksheet (factsheet SP 613-B) to plan your savings and spending. You will estimate both your income and expenses. Use a pencil or erasable pen so that if your income and savings/spending are not in balance, you can make changes.

Crummer/Suntrust Portfolio: Analysis And Recommendations [2010], Kate Morgenier, Eric Bindslev, Chris Maclellan, Sean Warrington, Varun Kumar, Joshua Truitt, Tolu Odulesi, Richard Rankin, Beth Owens

Crummer Truist Portfolios

The team believes that a market-weighted portfolio is the most appropriate strategy for the Crummer/ SunTrust Endowment in the coming year. This is not the time for a more aggressive position because there still are monsters in the market’s closet capable of sending us back into the abyss. This economic and market outlook explains their reasoning.

The Impact Of Groups And Decision Aid Reliance On Fraud Risk Assessment., Anna Alon, Peggy Dwyer

Faculty Publications

The purpose of this paper is to investigate how the brainstorming component of Statement of Auditing Standards (SAS) No. 99 influences decision aid use and reliance, and the effectiveness of fraud risk assessment. The research framework links the influences of the fraud assessment setting and decision aid reliance. The hypotheses are tested in an experiment with two manipulated factors: setting (group or individual) and decision aid (provided or not provided). The results of the study provide insight on how the brainstorming impacts fraud risk assessment, decision aid use and decision aid reliance. The results show that groups using a decision …

Teaching The Budgeting Process Using A Spreadsheet Template, Benoit Boyer

WCBT Faculty Publications

The purpose of this article is to demonstrate how to use a template to teach the budgeting process and how to use the same template to do a sensitivity analysis once the budget process is completed. The template can be used as-is by non-accounting majors. They just have to fill in all of their assumptions by replacing the red numbers. The template can be locked so that students cannot modify the formulas by mistake. Simply protect the worksheet (Review tab > Protect Sheet) and students will be able to only change the assumptions. Accounting majors are shown how to build their …

Proliferation Of Tail Risks And Policy Responses In The Eu Financial Markets, Lucjan Orlowski

WCBT Faculty Publications

This study draws attention to the proliferation of tail risks in financial markets prior to and during the course of the recent global financial crisis. It examines the level of tail risks in selected equity, interbank lending and foreign exchange markets in selected EU Member States in relation to the United States. The extent of tail risks is assessed by applying general error distribution (GED) parameterization in GARCH volatility tests of the examined variables. The empirical tests prove that tail risks were pronounced across all of the examined European financial markets throughout the crisis. They were also significant prior to …

Financial Liberalization And Banking Crises: A Cross-Country Analysis, Apanard P. Angkinand, Wanvimol Sawangngoenyuang, Clas Wihlborg

Business Faculty Articles and Research

Several studies indicate that financial liberalization contributes to the likelihood of a financial crisis. We focus on banking crises and argue that they are most likely to occur after an intermediate degree of liberalization. Using a recently updated dataset for financial reforms in 48 countries between 1973 and 2005, we find an inverted U-shaped relationship between liberalization and the likelihood of crisis. We ask whether the relationship remains when institutional characteristics of countries and dynamic effects of liberalization are considered. The empirical results indicate that the relationship between liberalization and banking crises depends strongly on the strength of capital regulation …

Could Decision Trees Help Improve Farm Service Agency Lending Decisions?, Benjamin P. Foster, Jozef Zurada, Douglas K. Barney

Faculty Scholarship

This study examines whether a statistically derived decision tree could serve as a means to improve U.S.A. Farm Service Agency lending decisions. The study is a substantial extension and reanalysis of an earlier work by Barney, Graves and Johnson, (1999). Results indicate that a decision tree could be a valuable tool for Farm Service Agency employees in their lending decisions. The decision tree provides as good or better predictive accuracy than neural networks and logistic regression models at reasonable cutoff levels of Type II to Type I costs of lending. The decision tree also meets the transparency criteria for Farm …

Preventing State Budget Crises: Managing The Fiscal Volatility Problem, David Gamage

Articles by Maurer Faculty

Forty-nine of the U.S. states have balanced budget requirements, and every state acts as though bound by such constraints. These constraints create fiscal volatility - the states must either cut spending or raise taxes during economic downturns, while doing the opposite during upturns. This paper discusses how states should cope with fiscal volatility on both the levels of ordinary politics and of institutional-design policy. On the level of ordinary politics, the paper applies principles of risk allocation theory to conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending. States …

Revelations Of Adaptive Technology Hiding In Your Operating System, Kathleen P. King

Leadership, Counseling, Adult, Career and Higher Education Faculty Publications

Pre-publication version of a chapter about the assistive technology tools and resources available for free in Windows OS and Mac OS. Introducing higher education faculty to free resources, features and programs which they can recommend to their students or perhaps use for themselves (for instance for fading eyesight or hearing). In addition, the chapter briefly shares strategies and examples of how they might be used.

The book will have an entire chapter dedicated to assistive technology as well. This is a popularized assistive technology chapter for generalist, NON special education, faculty to become acquainted with readily available and free resources. …

Strategic Financial Management: Evidence From Seasoned Equity Offerings, Michael Barclay, Fangjian Fu, Clifford Smith

Research Collection Lee Kong Chian School Of Business

Extant theories of capital structure assume myopic financial managers. So they have hard time to explain the financing behavior of seasoned equity offering (SEO) firms. In contrast with the pecking order theory, SEO firms typically are financially healthy companies with significant cash balances, low leverage, and unused debt capacity. At odds with the tradeoff theory, SEOs often move firms away from, rather than closer to, their target leverage ratios. SEOs appear to be driven by capital needs associated with large investment projects rather than by market timing considerations. Firms issue debt following the SEO to finance investment further and to …

Long-Term Earnings Growth Forecasts, Limited Attention, And Return Predictability, Zhi Da, Mitchell Craig Warachka

Research Collection Lee Kong Chian School Of Business

Long-term earnings expectations are critically important to stock price valuations. We identify relative optimism and relative pessimism in long-term analyst forecasts by comparing these forecasts with implied short-term earnings growth forecasts across rms within the same industry. Stocks with relatively optimistic and relatively pessimistic long-term analyst forecasts have negative and positive risk-adjusted returns, respectively. This return predictability depends critically on short-term forecasts since relative optimism and relative pessimism originate from the slow diffusion of information from short-term to long-term analyst forecasts. Our results indicate that market participants have limited attention regarding the long-term earnings implications of information.