Research articles for the 2021-05-06

A Modern Take on Market Efficiency: The Impact of Trump’s Tweets on Financial Markets
Abdi, Farshid,Kormanyos, Emily,Pelizzon, Loriana,Getmansky Sherman, Mila,Simon, Zorka
We focus on the role of social media as a high-frequency, unfiltered mass information transmission channel and how its use for government communication affects the aggregate stock markets. To measure this effect, we concentrate on one of the most prominent Twitter users, the 45th President of the United States, Donald J. Trump. We analyze around 1,400 of his tweets related to the US economy and classify them by topic and textual sentiment using machine learning algorithms. We investigate whether the tweets contain relevant information for financial markets, i.e. whether they affect market returns, volatility, and trading volumes. Using high-frequency data, we find that Trump’s tweets are most often a reaction to pre-existing market trends and therefore do not provide material new information that would influence prices or trading. We show that past market information can help predict Trump’s decision to tweet about the economy.

A Prudential trade-off? Leakages and Interactions with Monetary Policy*
RPS Submitter, Banque de France,Meunier, Baptiste,Pedrono, Justine
While monetary and prudential policies are generally analysed separately, this paper focuses on howthe two interact. Taking an international perspective, we show that monetary policy in a centreeconomy (Euro Area) spill over its borders through bank lending â€" therefore inducing volatility incross-border lending flows. Investigating a sample of 30 advanced and emerging economies, wefind evidence that prudential policy in the receiving-country interact with monetary policy so thata tighter prudential stance in the recipient-country mitigates the volatility of banking flows inducedby monetary policy abroad. But we also show that a tighter prudential stance â€" interactions apart â€"implies a higher growth of cross-border lending. Taken together, these results might suggest atrade-off: while a tighter prudential stance reduces the volatility of cross-border lending flows, italso implies that local borrowers resort more to lending from abroad. Taking advantage of thegranularity of our confidential dataset, we finally explore heterogeneities and show that suchleakages arise only for financially more open economies and only through the financial sector, withevidence that such leakages are driven by intra-group lending.Keywords:

A comprehensive theoretical analysis of the sequence of actions in dynamic contests
László Csató,Dóra Gréta Petróczy

The sequence of moves in a dynamic team tournament may distort the ex-ante winning probabilities and harm efficiency. This paper compares eight different rules, suggested for soccer penalty shootouts, to determine the order of actions. Their fairness is analysed under three possible mathematical models of psychological pressure. We also discuss the probability of reaching the sudden death stage, as well as the complexity and strategy-proofness of the rules. In the case of stationary scoring probabilities, it remains sufficient to use static rules in order to improve fairness. However, it is worth compensating the second-mover by making it the first-mover in the sudden death stage. Our work has the potential to impact decision-makers who can achieve better outcomes in dynamic tournaments by a carefully chosen sequence of actions.

Accuracy of Deep Learning in Calibrating HJM Forward Curves
Fred Espen Benth,Nils Detering,Silvia Lavagnini

We price European-style options written on forward contracts in a commodity market, which we model with an infinite-dimensional Heath-Jarrow-Morton (HJM) approach. For this purpose we introduce a new class of state-dependent volatility operators that map the square integrable noise into the Filipovi\'{c} space of forward curves. For calibration, we specify a fully parametrized version of our model and train a neural network to approximate the true option price as a function of the model parameters. This neural network can then be used to calibrate the HJM parameters based on observed option prices. We conduct a numerical case study based on artificially generated option prices in a deterministic volatility setting. In this setting we derive closed pricing formulas, allowing us to benchmark the neural network based calibration approach. We also study calibration in illiquid markets with a large bid-ask spread. The experiments reveal a high degree of accuracy in recovering the prices after calibration, even if the original meaning of the model parameters is partly lost in the approximation step.

Aggregate Implications of Credit Relationship Flows: a Tale of Two Margins
RPS Submitter, Banque de France,Boualam, Yasser,Mazet-Sonilhac, Clément
This paper documents the aggregate properties of credit relationship flows within the commercialloan market in France from 1998 through 2018. Using detailed bank-firm level data from the FrenchCredit Register, we show that banks actively and continuously adjust their credit supply along bothintensive and extensive margins. We particularly highlight the importance of gross flows associatedwith credit relationships and show that they are (i) volatile and pervasive throughout the cycle, and(ii) can account for up to 48 percent of the cyclical and 90 percent of the long-run variations inaggregate bank credit.

Alternate Finance Market: How Does it Fit into Traditional Finance Landscape?
Srivastava, Dr Ashish
Alternative channels of finance have the capacity to fill the gap where formal finance is unable to reach or has proven to be inefficient. It also has the potential to soften the lending rates as a result of lower operational costs and enhanced competition with the traditional lending channels. Therefore, the importance of these methods of financial transactions should be recognized. While financial innovations and technological advancements should not be stifled, the stability of financial system and interests of depositors ought to be protected. The balance of advantage lies in developing an appropriate regulatory and supervisory toolkit that facilitates an orderly growth of this sector.

Alternative Credit Scoring: Concept, Practice and Global Developments
Srivastava, Dr Ashish
A large quantum of technical work is underway in the area of alternative credit scoring to better understand and put in place an effective process of the credit risk measurement and management. However, the traditional and new approaches have their complementarities and inter-dependence. Use of the alternative data and application of the behavioural sciences have added to the scope and utility of the alternative credit analysis and scoring. The alternative credit scoring can act as a very useful bridge between digital footprints and financial footprints and thereby can help both the potential borrowers and financial institutions to achieve their respective goals.

Analytic Short Rate Model with Smile and Skew
Turfus, Colin,Romero-Bermudez, Aurelio
We consider an extension of the Hull-White short rate model which incorporates smile and skew, effectively through a quadratic dependence of the diffusion on the short rate. We derive an asymptotic representation of the pricing kernel for this new model in semi-analytic form, using this to obtain accurate, easily computed, asymptotic formulae for zero coupon bonds and LIBOR options. Unlike comparable models such as SABR, ours appears to be usable even for pricing options with long times to maturity. Further, the same calibrated model can be used for all possible maturities and LIBOR tenors.

Are Asian exchanges outliers? A market quality criterion
Chakravarty, Ranjan R.,Pani, Sudhanshu Sekhar
This paper provides a practical, empirical and theoretical framework that allows investment managers to evaluate stock exchanges’ market quality when choosing amongdifferent plausible international trading venues. To compare trading exchanges, it extends the hypothesis of market microstructure invariance to trading across exchanges.A measure ω, the ratio of the market-wide volatility to microstructure invariance, isintroduced. The paper computes ω for the exchanges around the world. Its value forthe NSE (India) is 24.5%, the Korea Exchange (Korea) is 7.9%, the Shanghai Exchange(China) is 3.5%, and the Shenzhen Exchange (China) is 4.4%, which is significantlydifferent from that of major exchanges in the USA (NYSE â€" 0.8%, NASDAQ â€" 1.3%)and Europe (LSE (UK) â€" 0.4). This country risk dimension clearly identifies whichequity exchanges cannot hold their own direct correlational hedges and therefore mandatorily require derivative positions, and has significant implications for the decisionmaking of global long-short equity asset allocators in the Asian listed equity markets.

Asset-Liability Management of Life Insurers in the Negative Interest Rate Environment
Lin, Yijia,Liu, Sheen,Tan, Ken Seng,Zhang, Xun
This study investigates the asset-liability management (ALM) of life insurers in the markets with negative interest rates. Using a sample of Japanese life insurers between 1999 and 2018, we provide initial evidence that the negative interest rate environment produces a much more serious consequence on insurers than the positive interest rate environment. Given that duration and convexity are two common measures widely used by insurers to manage their assets and liabilities, we highlight that the assumption of flat yield curve underlying the traditional measures (e.g. the Macaulay and modified durations and convexities) is problematic when interest rates turn negative. To address this issue, we propose an ALM framework using the duration and convexity based on the Vasicek stochastic model. Our results show that the strategy based on the Vasicek model outperforms the strategy using the modified duration and convexity in the negative interest rate environment.

Bankruptcy Costs and the Design of Preventive Restructuring Procedures
RPS Submitter, Banque de France,Epaulard, Anne,Zapha, Chloé
A European directive requires Member States to give firms access to preventive restructuringprocedures. This paper assesses the interest of a procedure distinct from that for insolvent firms. Itis based on the French experience, where a preventive procedure has coexisted with the morecommon restructuring procedure since 2006. The spatial and temporal heterogeneity of theCommercial Courts' decisions allows the identification of the causal impact of the conversion fromthe preventive procedure to the common one on the firm's survival chances. Using an (almost)exhaustive sample of preventive bankruptcy fillings over 2010-2016, we show that conversionreduces the probability of firm survival by 50 p.p., which corresponds to indirect bankruptcy costsof around 20% of the firm assets. Our interpretation is that the low restructuring rate under thecommon bankruptcy procedure may alarm some of the firm's stakeholders, especially its customers.This in turn aggravates the firm's difficulties and reduces its chances of restructuring under thecommon procedure. We provide some empirical evidence to support this interpretation. A distinctpreventive procedure helps prevent this spiral.3

Bond Power Exchange Options
Blenman, Lloyd P.
We study power exchange options written on zero-coupon bonds under a stochastic string frame- work. We obtain closed-form expressions for pricing and hedging bond power exchange options and, as particular cases, the corresponding expressions for call power options and constant un- derlying elasticity in strikes (CUES) options. Suffi cient conditions for the equivalence of the European and the American versions of bond power exchange options are provided and the put- call parity relation for this kind of option is also stated. Finally, we consider several applications of our results including duration and convexity measures for bond power exchange options, pric- ing extendable/accelerable maturity zero-coupon bonds, options to price a zero-coupon bond off of a shifted term-structure, and options on interest rates and rate spreads.

Climate sensitivity and mutual fund performance
Ho, Thang
In the presence of rising concern about climate change that potentially affects risk and return of investors’ portfolio companies, active investors might have dispersed climate risk exposures. We compute mutual fund covariance with climate change news index and find that high (positive) climate beta funds outperform low (negative) climate beta funds by 0.24% per month on a risk-adjusted basis. High climate beta mutual funds tilt their holdings towards stocks with high potential to hedge against climate risk. Such stocks yield higher expected returns in the cross section, which are driven by stronger demand and better financial performance over our sample period.

Combining multi-asset and intrinsic risk measures
Laudagé, Christian,Sass, Jörn,Wenzel, Jörg
The risk of a future payoff is commonly quantified by calculating the costs of a hedging portfolio such that the resulting position is acceptable, i.e. that it passes a capital adequacy test. A multi-asset risk measure describes the minimal external capital which has to be raised into multiple eligible assets to make a future risky position acceptable. Recently, the alternative methodology of intrinsic risk measures was introduced in the literature. These ask for the minimal proportion of the risky position which has to be reallocated to pass the capital adequacy test, i.e. only internal capital is used.We combine these two concepts and call this new type of risk measure a multi-asset intrinsic risk measure. It allows to secure the risky position by external capital as well as reallocating liquid parts of the portfolio as an internal rebooking. We investigate several properties to demonstrate similarities and differences to the two aforementioned classical types of risk measures. We find that diversification reduces risk only under an additional but economically motivated assumption on the risky positions. With the help of Sion’s minimax theorem we also prove a dual representation for multi-asset intrinsic risk measures. Finally, we determine capital requirements in a model motivated by the Solvency II methodology.

Cyclic Arbitrage in Decentralized Exchange Markets
Ye Wang,Yan Chen,Shuiguang Deng,Roger Wattenhofer

In May 2020, Uniswap V2 was officially launched on Ethereum. Uniswap V2 allows users to create trading pools between any pair of cryptocurrencies, without the need for ETH as an intermediary currency. Uniswap V2 introduces new arbitrage opportunities: Traders are now able to trade cryptocurrencies cyclically: A trader can exchange currency A for B, then B for C, and finally C for A again through different trading pools. Almost surely, the three floating exchange rates are not perfectly in sync, which opens up arbitrage possibilities for cyclic trading.

In this paper, we study cyclic arbitrages in Decentralized Exchanges (DEXes) of cryptocurrencies with transaction-level data on Uniswap V2, observing 285,127 cyclic arbitrages over eight months. We conduct a theoretical analysis and an empirical evaluation to understand cyclic arbitrages systematically. We study the market size (the revenue and the cost) of cyclic arbitrages, how cyclic arbitrages change market prices, how cyclic arbitrageurs influence other participants, and the implementations of cyclic arbitrages.

Beyond the understanding of cyclic arbitrages, this paper suggests that with the smart contract technology and the replicated state machine setting of Ethereum, arbitrage strategies are easier implemented in DEXes than in Centralized Exchanges (CEXes). We find that deploying private smart contracts to implement cyclic arbitrages is more resilient to front-running attacks than applying cyclic arbitrages through public (open-source) smart contracts.

Digital euro, monetary objects and price stabilityâ€"A legal analysis
Zellweger-Gutknecht, Corinne,Geva, Benjamin,Grunewald, Seraina N.
The Eurosystem is mandated to safeguard price stability according to Article 127 TFEU. Based on a theoretical and policy-oriented approach, this article sheds light on a second public good with enormous practical relevance both for financial markets and institutions as well as for the general public that the Eurosystem, and ultimately the European Central Bank (ECB), must safeguard according to Article 128 TFEU: the availability of optimal monetary objects for the public. While monetary policy constitutes the instrument used to keep prices stable, the availability of optimal monetary objects is ensured through the issuance of ‘cash’ that serves as both money with selected properties and an anchor for other monies of the same currency, including sight deposits at commercial banks. Today, the role of optimal monetary objects is (still) primarily fulfilled by tangible banknotes. As the use of tangible banknotes declines, however, a digital equivalent and complementâ€"a digital euroâ€"becomes increasingly necessary. Accordingly, the article concludes that the ECB is both entitled and obliged de lege lata to issue a digital euro on the basis of Article 128 TFEU. It further explains that neither tangible cash nor a digital euro can simultaneously be used as instruments in themselves to maintain price stability.

Does Market's Assessment of Systemically Important Banks Differ from Regulators' Rankings?
Vioto, Davide,Tunaru, Radu,Jokivuolle, Esa
This paper tests how closely the three leading market-based systemic risk measures (SRM) agree with the list of global systemically important banks (G-SIB) from the Financial Stability Board (FSB) and how closely they match the categorization of G-SIBs into the five systemic risk buckets used by the FSB to assign capital surcharges to G-SIBs. In addition, we investigate the concordance among these SRMs and with the FSB's designation methodology for G-SIBs. Finally, we test how these SRMs incorporate the information from high volatile events between 2015 to 2018. Our results show that alternative measures produce different estimates of systemic risk, systemically important banks and categories, with the SRISK ranking having the highest concordance with the FSB's classification of G-SIBs. In contrast, the three measures all promptly react to high volatile events.

Epidemics in modern economies
Torsten Heinrich

How are economies in a modern age impacted by epidemics? In what ways is economic life disrupted? How can pandemics be modeled? What can be done to mitigate and manage the danger? Does the threat of pandemics increase or decrease in the modern world? The Covid-19 pandemic has demonstrated the importance of these questions and the potential of complex systems science to provide answers. This article offers a broad overview of the history of pandemics, of established facts, and of models of infection diffusion, mitigation strategies, and economic impact. The example of the Covid-19 pandemic is used to illustrate the theoretical aspects, but the article also includes considerations concerning other historic epidemics and the danger of more infectious and less controllable outbreaks in the future.

Factors Influencing Subscription of IPO in Bangladesh
Rahman, Md. Tahidur,Hossain, Syed Zabid,Omar, Normah
Due to huge loss in the secondary market during the 2010-2011 stock market crash, small investors in Bangladesh involved themselves in IPO investment. This study, based on secondary data, depicts the IPO market in Bangladesh and also identifies the factors influencing IPO subscription times. The study documented 85% growth in the listed companies on the Dhaka Stock Exchange (DSE) through IPO during the last decade with an average number of 14.80 IPOs per year. Fixed price method was followed in most of the IPOs; whereas the book building method was followed in only 2.70% of IPOs. Earnings forecast, a very common phenomenon of IPO prospectus in developed countries, was hardly ever found in the IPO prospectus in Bangladesh. Multiple regression model indicates that market lot has significant positive, whereas EPS and offer price have insignificant negative influence on IPO subscription times. The current study has explored the existing scenario of IPOs in Bangladesh that will help regulators to undertake proper course of action in developing the stock market in Bangladesh. The study will help issuers assessing the potential subscription condition of an IPO candidate company and also contribute to the existing stock of knowledge.

Financial Crises and the Prudential Regulations: Theory, Practice and the Way Forward
Srivastava, Dr Ashish
Inadequate regulations or failure of regulations to keep pace with financial innovations could have been reasons for financial crises but equally critical contributing factors for financial distress have been inadequate internal control, false assumptions about market and liquidity, and lack of due diligence processes. It is obvious, therefore, that the regulations may strengthen but cannot substitute the internal controls and risk management framework at the level of the financial institution.It is a challenge is to incentivize the financial market participants to join the regulators in pursuit of effective risk optimization and strengthening of the financial stability. Collaboration and coordination are needed between the regulators and the regulated entities for achieving the common good of a stable and efficient financial system.

Fintech For The Poor: Do Technological Failures Deter Financial Inclusion ?
Balasubramanian, Padmanabhan ,Chandra, S V Ravi ,Murlidharan, Aditya,Tantri, Prasanna L.
We examine the impact of transaction failures on the working of a biometric-enabled payment system introduced in India to facilitate banking by the poor. On average, nearly one-third of transactions fail. However, the proportion of failures decline steeply with user experience. The usage of the system, especially on the intensive margin front, increases significantly with experience. Finally, using the revealed preference framework, we find that transaction failure does not deter the users from using the biometric platform. Further tests reveal that convenience offered by technology seems to score over other conventional banking channels, despite a high failure rate.

Fractional Barndorff-Nielsen and Shephard model: applications in variance and volatility swaps, and hedging
Nicholas Salmon,Indranil SenGupta

In this paper, we introduce and analyze the fractional Barndorff-Nielsen and Shephard (BN-S) stochastic volatility model. The proposed model is based upon two desirable properties of the long-term variance process suggested by the empirical data: long-term memory and jumps. The proposed model incorporates the long-term memory and positive autocorrelation properties of fractional Brownian motion with $H>1/2$, and the jump properties of the BN-S model. We find arbitrage-free prices for variance and volatility swaps for this new model. Because fractional Brownian motion is still a Gaussian process, we derive some new expressions for the distributions of integrals of continuous Gaussian processes as we work towards an analytic expression for the prices of these swaps. The model is analyzed in connection to the quadratic hedging problem and some related analytical results are developed. The amount of derivatives required to minimize a quadratic hedging error is obtained. Finally, we provide some numerical analysis based on the VIX data. Numerical results show the efficiency of the proposed model compared to the Heston model and the classical BN-S model.

Generating unfavourable VaR scenarios with patchwork copulas
Dietmar Pfeifer,Olena Ragulina

The central idea of the paper is to present a general simple patchwork construction principle for multivariate copulas that create unfavourable VaR (i.e. Value at Risk) scenarios while maintaining given marginal distributions. This is of particular interest for the construction of Internal Models in the insurance industry under Solvency II in the European Union. The method is exemplified with a 19-dimensional real-life data set of insurance losses.

Impact of digital economic activity on regional economic growth: A Case study from northern Minas Gerais between 2009 To 2018
Dr. Cesar R Salas-Guerra

At present, the economic measurement of the national statistical offices has not defined or captured the benefits of the digital economy activity due to the low quality or inexistence of methodologies. Currently, there is a relevant debate on the capacity of the digital economy activity to generate productivity, economic growth, and well-being through innovation and knowledge. For this reason, this research identified and studied specialized knowledge, human settlement, and digital economic activity as the factors that influence regional economic growth. As a result, the impact generated by a new business operating models based on information technology was measured. Furthermore, this research used an empirical measurement model that made it possible to identify certain phenomena such as regional poles of regional economic development (PRDE) that surround economically flourishing regions. In addition, it showed that municipalities with high degrees of economic growth were impacted by digital economic activity and specialized knowledge. This finding is consistent with economic growth theories that point to technological evolution as the main factor of modern economic growth. Consequently, this study contributed beneficial results to the local government to develop strategies framed in solving industrial cooperation of economically flourishing regions with their neighbors, facing the problem of agglomeration of resources and capital reflected in human settlement promote an imbalance in economic growth and social development.

Innovación en modelos de inversión y finanzas para tiempos de crisis
Al Janabi, Mazin A. M.
A raíz de la crisis financiera surgida en el sector inmobiliario de los Estados Unidos de América en 2008-2009, que desencadenó una grave falta de liquidez, y con ello, un efecto dominó que alcanzó otros aspectos de la economía global, y que generó crisis también en el mercado bursátil y a nivel alimentario, los mercados han tenido que aprender y evolucionar. Ante este escenario, las técnicas de Liquidity-Adjusted Value-at-Risk (LVaR) se han convertido en herramientas críticas para monitorear y pronosticar el riesgo de mercado y liquidez de portafolios de inversión. La principal ventaja de estos modelos LVaR es que su enfoque está basado en el riesgo de los resultados de rentabilidad negativa.

La importancia de medir el riesgo de liquidez con aplicaciones inteligentes
Al Janabi, Mazin A. M.
En los últimos días, se han encendido todas las alarmas ante el riesgo de recesión de algunas de las principales economías del mundo (Alemania, Reino Unido, Italia, Brasil y México). La desaceleración afecta a varias regiones del mundo y puede llegar generalizarse, agravando la desconfianza de los inversores y la inestabilidad de los mercados financieros provocada por la guerra comercial entre EE. UU. y China, entre otros factores de incertidumbre. Los inversores han trasladado parte de sus carteras de inversión a activos considerados refugio, como los bonos soberanos; la desconfianza de los inversores se encuentra en mínimos históricos de los últimos años. Gestionar tu cartera de inversión cuando se avecina un final de ciclo económico puede ser peliagudo. Si bien hay expertos que recomiendan reequilibrar la distribución de tus activos, comprar bonos del tesoro, enfocarte en materias primas, productos básicos o inversión inmobiliaria, lo realmente importante es aprender a gestionar el riesgo. En el actual contexto de incertidumbre y condiciones de mercado adversas, evaluar la optimización del desempeño de las carteras de inversión, así como el riesgo de liquidez, es esencial, como explico en el capítulo “Theoretical and practical foundations of liquidity-adjusted value-at-risk (LVaR): optimization algorithms for portfolio selection and management”, el cual está incluido en el libro Expert Systems in Finance. Smart Financial Applications in Big Data Environments (Routledge, Taylor & Francis Group, 2019), publicado recientemente.

Liquidity Risk Management in the Avoidance of Another Financial Crisis
Al Janabi, Mazin A. M.
The global financial crisis showed us that there is a need for appropriate identification and evaluation of implicit liquidity trading risks in investment portfolios. It is undeniable that many of the financial institution collapses, both in developed and emerging markets, as well as the subsequent financial turbulence, were, to a certain extent, caused by the impact of liquidity trading risk on structured stocks portfolios. Liquidity trading risk increases due to the incapability of financial institutions to liquidate their shares at a fair price during the settlement period. In the chapter “Liquidity risk management in emerging and Islamic markets” that I published as part of the Handbook of Empirical Research on Islam and Economic Life (Edward Elgar, 2017), edited by the renowned scholar Prof. M. Kabir Hassan, University of New Orleans, I empirically develop and test a strategy of measurement and exposure control of market/liquidity risks of investment portfolios that include illiquid capital shares in critical circumstances, proposing that there be a strategy for the establishment of maximum risk limits.

Liquidity in the Time of COVID
Albanese, Claudio,Iabichino, Stefano,Mammola, Paolo
While the 2008 shifted the attention from individual trades to netting-set counterparty risk, the evolving 2020 storyline is driven by liquidity risk at the funding-set level. The COVID turmoil brings General Wrong Way Risk (GWWR) to the fore while the impending IBOR transition amplifies portfolio-wide liquidity risk by nominally decoupling fixing rates from funding costs. This confluence of circumstances reopens the never quite abated debate on the “black art of FVA”.

Los paradigmas actuales â€" educación, empresa y sociedad Colección:Científica Educación, Empresa y Sociedad (Current Paradigms â€" Education, Business and Society Collection: Scientific Education, Business and Society)
de negocios y desarrollo empresarial, Escuela internacional
Spanish abstract: Los nuevos paradigmas que se proponen en el campo la ciencia, la salud, la educación, la política, la economía, la literatura, el arte, la sociedad y la familia están hoy a la orden del día. En el campo de la ciencia, en el paradigma antiguo el conocimiento estaba separado en especialidades, en el nuevo paradigma se concibe de una manera interdisciplinaria y global. Se concebían las leyes físicas inmutables, en el nuevo paradigma se concibe que la complejidad cambie las leyes naturales. Se concebía la evolución gradual, en el nuevo paradigma la evolución se concibe por saltos. La ciencia era ajena a la metafísica, en el nuevo paradigma se incorpora la metafísica. Era materialista, reduccionista y determinista, en el nuevo paradigma se concibe no materialista, no reduccionista, no determinista. El paradigma antiguo concebía la ciencia ajena a la sociedad, en el nuevo paradigma la tecnología está integrada a la sociedad.English abstract: THE CURRENT PARADIGMS - EDUCATION, BUSINESS AND SOCIETY The new paradigms that are proposed in the field of science, health, education, politics, economy, literature, art, society and the family are today the order of the day. In the field of science, in the old paradigm knowledge was separated into specialties, in the new paradigm it is conceived in an interdisciplinary and global way. Immutable physical laws were conceived, in the new paradigm it is conceived that complexity changes natural laws. Gradual evolution was conceived, in the new paradigm evolution is conceived in leaps. Science was alien to metaphysics, metaphysics is incorporated into the new paradigm. It was materialist, reductionist and determinist, in the new paradigm it is conceived as non-materialistic, non-reductionist, non-deterministic. The old paradigm conceived science alien to society, in the new paradigm technology is integrated into society.

Martingale transport with homogeneous stock movements
Stephan Eckstein,Michael Kupper

We study a variant of the martingale optimal transport problem in a multi-period setting to derive robust price bounds of a financial derivative. On top of marginal and martingale constraints, we introduce a time-homogeneity assumption, which restricts the variability of the forward-looking transitions of the martingale across time. We provide a dual formulation in terms of superhedging and discuss relaxations of the time-homogeneity assumption by adding market frictions. In financial terms, the introduced time-homogeneity corresponds to a time-consistency condition for call prices, given the state of the stock. The time homogeneity assumption leads to improved price bounds as market data from many time points can be incorporated effectively. The approach is illustrated with two numerical examples.

Private Equity Funds/Venture Capital - A New Role And Opportunity In The Albanian Economy And Financial Market
Meka, Elvin S.
The prolonged stagnation bank credit expansion, following the outbreak of recent economic and financial crises of 2008, and now the complex situation during the pandemic, has produced a significant impact on the availability of new and longterm sources of business financing, mainly related to mid and large-size companies, but also to start-ups. Currently, all such categories of businesses find difficulties in obtaining long-term financing from banks and this has major implications on financing their investments and projects in the pipeline. In a time when, paradoxically, bank credit is becoming increasingly complex and difficult and therefore, to score a significant influence on the economy and investment financing, and regardless of the existing liquidity abundance, establishing and developing Private Equity/Venture Capital Funds (PE/VC) can play an important contributioninthis regard. Despite the fact that such type of institutional investor is currently lacking within the Albanian capital market, some basic legal, institutional and economic premises do exist within the Albanian financial landscape, and which could provide grounds for such an actor to play its role in providing an alternative source of long - term financing for Albanian businesses. Consequently, their existence could pave the way for revitalization of the idea and attempts to put into operation a functioning capital market in Albania, which is still rudimentary and non-active.

Private Information Dissemination in the Secondary Loan Market: The Effect on Stock Bid-ask Spreads
Saunders, Anthony ,Shao, Pei,Xiao, Yuchao
We consider loans being marked to market to constitute new information that is only immediately available to large institutional traders, so-called qualified institutional buyers (QIBs). Smaller investors (non-QIBs) do not have instant access to such information. Investigating the effects of privileged information releases on bid-ask spreads of borrowing firms’ equity, we find a significant elevation in the level of information asymmetry that affects those spreads. Our paper reveals that private information dissemination in the secondary loan market affects the stock market information environment and yields benefits to large insiders with priority access to important information about the borrowing firms’ quality.

Radner equilibrium and systems of quadratic BSDEs with discontinuous generators
Luis Escauriaza,Daniel C. Schwarz,Hao Xing

Motivated by an equilibrium problem, we establish the existence of a solution for a family of Markovian backward stochastic differential equations with quadratic nonlinearity and discontinuity in $Z$. Using unique continuation and backward uniqueness, we show that the set of discontinuity has measure zero. In a continuous-time stochastic model of an endowment economy, we prove the existence of an incomplete Radner equilibrium with nondegenerate endogenous volatility.

Real-Time Real Economic Activity Entering the Pandemic Recession
Francis X. Diebold

Entering and exiting the Pandemic Recession, I study the high-frequency real-activity signals provided by a leading nowcast, the ADS Index of Business Conditions produced and released in real time by the Federal Reserve Bank of Philadelphia. I track the evolution of real-time vintage beliefs and compare them to a later-vintage chronology. Real-time ADS plunges and then swings as its underlying economic indicators swing, but the ADS paths quickly converge to indicate a return to brisk positive growth by mid-May. We show, moreover, that daily real activity path was highly correlated with the daily COVID-19 cases. Finally, I provide a comparative assessment of the real-time ADS signals provided when exiting the Great Recession.

Reddit's self-organised bull runs: Social contagion and asset prices
Valentina Semenova,Julian Winkler

This paper develops an empirical and theoretical case for how 'hype' among retail investors can drive large asset fluctuations. We use the dataset of discussions on WallStreetBets (WSB), an online investor forum with over nine million followers as of April 2021, to show how excitement about trading opportunities can ripple through an investor community with large market impacts. This paper finds empirical evidence of psychological contagion among retail investors by exploiting differences in stock price fluctuations and discussion intensity. We show that asset discussions on WSB are self-perpetuating: an initial set of investors attracts a larger and larger group of excited followers. Sentiments about future stock performance also spread from one individual to the next, net of any fundamental price movements. Leveraging these findings, we develop a model for how social contagion impacts prices. The proposed model and simulations show that social contagion has a destabilizing effect on markets. Finally, we establish a causal relationship between WSB activity and financial markets using an instrumental variable approach.

Scaling Up Sustainable Investment through Blockchain-Based Project Bonds
Chen, Yushi,Volz, Ulrich
This paper explores options for mobilizing domestic savings through fintech solutions to scale up sustainable investment. Most developing and emerging economies face an urgent need to scale up sustainable finance for low-carbon and climate-resilient infrastructure investment, yet underdeveloped capital markets tend to inhibit domestic resource mobilization for infrastructure investment. At the same time, domestic savers in many developing and emerging economies face a scarcity of “safe” assets in the local currency, resulting in the exporting of capital to financial centers in advanced economies. The paper discusses how fintech can help to complement conventional capital markets and mobilize financial resources for sustainable infrastructure investments. It puts forward a proposal for blockchain-based project bonds to raise finance through a digital crowdfunding platform, which is also able to record transparently and certify the use of proceeds, sustainability impact, and revenue streams of projects by combining timestamp, public and private key mechanisms, and smart contract technologies. This approach would not only provide investors of different sizes with the opportunity to purchase local-currency assets and issuers such as municipalities to raise funds for sustainable infrastructure investment. It would also facilitate project management once the project is operational, for example through metering and billing, and create full transparency over the life cycle of the investment, reducing problems concerning the misuse of funds.

Should You Take Investment Advice From WallStreetBets? A Data-Driven Approach
Tolga Buz,Gerard de Melo

Reddit's WallStreetBets (WSB) community has come to prominence in light of its notable role in affecting the stock prices of what are now referred to as meme stocks. Yet very little is known about the reliability of the highly speculative investment advice disseminated on WSB. This paper analyses WSB data spanning from January 2019 to April 2021 in order to assess how successful an investment strategy relying on the community's recommendations could have been. We detect buy and sell advice and identify the community's most popular stocks, based on which we define a WSB portfolio. Our evaluation shows that this portfolio has grown approx. 200% over the last three years and approx. 480% over the last year, significantly outperforming the S&P500. The average short-term accuracy of buy and sell signals, in contrast, is not found to be significantly better than randomly or equally distributed buy decisions within the same time frame. However, we present a technique for estimating whether posts are proactive as opposed to reactive and show that by focusing on a subset of more promising buy signals, a trader could have made investments yielding higher returns than the broader market or the strategy of trusting all posted buy signals. Lastly, the analysis is also conducted specifically for the period before 2021 in order to factor out the effects of the GameStop hype of January 2021 - the results confirm the conclusions and suggest that the 2021 hype merely amplified pre-existing characteristics.

Showing off cleaner hands: mandatory climate-related disclosure by financial institutions and the financing of fossil energy
RPS Submitter, Banque de France,Mésonnier, Jean-Stéphane,Nguyen, Benoît
We investigate the real effects of mandatory climate-related disclosure by financialinstitutions on the funding of carbon-intensive industries. Our impact metric is the amountinvested into securities, bonds and stocks, issued by fossil fuel companies. A French law,which came into force in January 2016 in the aftermath of the Paris Agreement on climatechange, provides us with a quasi-natural experiment. The new regulation, unique in Europeat that time, requires institutional investors (i.e., insurers, pension funds and assetmanagement firms), but not banks, to report annually on both their climate-related exposureand climate change mitigation policy. Using a unique dataset of security-level portfolioholdings by each institutional sector in each euro area country, we compare the portfoliochoices of French institutional investors with those of French banks and all financialinstitutions located in other EA countries. We find that investors subject to the newdisclosure requirements curtailed their financing of fossil energy companies by some 40%compared to investors in the control group.

Stock Price Forecasting in Presence of Covid-19 Pandemic and Evaluating Performances of Machine Learning Models for Time-Series Forecasting
Navid Mottaghi,Sara Farhangdoost

With the heightened volatility in stock prices during the Covid-19 pandemic, the need for price forecasting has become more critical. We investigated the forecast performance of four models including Long-Short Term Memory, XGBoost, Autoregression, and Last Value on stock prices of Facebook, Amazon, Tesla, Google, and Apple in COVID-19 pandemic time to understand the accuracy and predictability of the models in this highly volatile time region. To train the models, the data of all stocks are split into train and test datasets. The test dataset starts from January 2020 to April 2021 which covers the COVID-19 pandemic period. The results show that the Autoregression and Last value models have higher accuracy in predicting the stock prices because of the strong correlation between the previous day and the next day's price value. Additionally, the results suggest that the machine learning models (Long-Short Term Memory and XGBoost) are not performing as well as Autoregression models when the market experiences high volatility.

Strategic Investment in Technology via Corporate Venture Capital
Wang, Susheng
We study corporate strategic investment in technology via corporate venture capital (CVC). An entrepreneurial venture is said CVC-superior if investing in it is better than investing in internal R&D to an investing company. We find that ventures with high expected technologies are CVC-superior; ventures with medium expected technologies are CVC-inferior; and ventures with low expected technologies are CVC-superior if the ventures have excellent financial profiles. CVC offers an option for the investing company to choose between an acquisition or a sale off of the venture. The option is said desirable if it improves efficiency. We find that this option is desirable for ventures with superior financial profiles, but undesirable for ventures with superior technological profiles.

Tail Granger causalities and where to find them: extreme risk spillovers vs. spurious linkages
Piero Mazzarisi,Silvia Zaoli,Carlo Campajola,Fabrizio Lillo

Identifying risk spillovers in financial markets is of great importance for assessing systemic risk and portfolio management. Granger causality in tail (or in risk) tests whether past extreme events of a time series help predicting future extreme events of another time series. The topology and connectedness of networks built with Granger causality in tail can be used to measure systemic risk and to identify risk transmitters. Here we introduce a novel test of Granger causality in tail which adopts the likelihood ratio statistic and is based on the multivariate generalization of a discrete autoregressive process for binary time series describing the sequence of extreme events of the underlying price dynamics. The proposed test has very good size and power in finite samples, especially for large sample size, allows inferring the correct time scale at which the causal interaction takes place, and it is flexible enough for multivariate extension when more than two time series are considered in order to decrease false detections as spurious effect of neglected variables. An extensive simulation study shows the performances of the proposed method with a large variety of data generating processes and it introduces also the comparison with the test of Granger causality in tail by [Hong et al., 2009]. We report both advantages and drawbacks of the different approaches, pointing out some crucial aspects related to the false detections of Granger causality for tail events. An empirical application to high frequency data of a portfolio of US stocks highlights the merits of our novel approach.

The Dynamics of Non-Performing Loans during Banking Crises: A New Database with Post-COVID-19 Implications
Ari, Anil,Chen, Sophia,Ratnovski, Lev
We present a new dataset on the dynamics of non-performing loans (NPLs) during 92 banking crises since 1990. The data show similarities across crises during NPL build-ups but much heterogeneity in the pace of NPL resolution. We document how high and unresolved NPLs deepen post-crisis recessions and use a machine learning approach to establish pre-crisis predictors of NPL problems. These predictorsâ€"a set of weak macroeconomic, institutional, corporate, and banking sector conditionsâ€"help shed light on post-COVID-19 NPL vulnerabilities.

The Homogenous Properties of Automated Market Makers
Johannes Rude Jensen,Mohsen Pourpouneh,Kurt Nielsen,Omri Ross

Automated market makers (AMM) have grown to obtain significant market share within the cryptocurrency ecosystem, resulting in a proliferation of new products pursuing exotic strategies for horizontal differentiation. Yet, their theoretical properties are curiously homogeneous when a set of basic assumptions are met. In this paper, we start by presenting a universal approach to deriving a formula for liquidity provisioning for AMMs. Next, we show that the constant function market maker and token swap market maker models are theoretically equivalent when liquidity reserves are uniform. Proceeding with an examination of AMM market microstructure, we show how non-linear price effect translates into slippage for traders and impermanent losses for liquidity providers. We proceed by showing how impermanent losses are a function of both volatility and market depth and discuss the implications of these findings within the context of the literature.

The Impact of FinTech on Discrimination in Mortgage Lending
Shoag, Daniel
The mortgage market has historically been plagued by racial discrimination, and recent data show ongoing disparities in the terms offered to minority borrowers by traditional lenders. The mortgage market has changed rapidly in the past decade, however, due to the rise of technology-based (FinTech) lenders. In this paper, I show that FinTech lenders show little to no gap in the terms provided to Black and Hispanic borrowers after adjusting for GSE credit-risk pricing determinants and loan size. This fact is shown using proprietary data on borrowers to better study racial bias and FinTech loans. The paper further shows that, in a matched analysis of observationally similar Black and Hispanic and non-Black or Hispanic borrowers, FinTech lenders provide statistically indistinguishable terms to the two groups. This stands in sharp contrast to the large discrepancies found under identical tests for traditional lenders. This matched analysis, wherein borrowers with similar characteristics such as income and age are compared, is supported by an analysis of preference and shopping heterogeneity in the National Survey of Mortgage Originations. Finally, I show that FinTech penetration in a region had consequences on legacy lender terms as well. Greater FinTech penetration in a zip code is associated with smaller discrepancies even among legacy lenders.

The Legal Origins of Financial Development: Evidence from the Shanghai Concessions
Levine, Ross,Lin, Chen,Ma, Chicheng,Xu, Yuchen
We assemble new data on the British and French concessions in Shanghai between 1845 and 1936 to assess the legal origins view of financial development. During this period, two regime changes altered the degree to which the British common and French civil law traditions held jurisdiction over the respective concessions: the 1869 formation of the Mixed Courts strengthened Western legal jurisdiction, while the 1926 rendition agreement returned those courts to Chinese control. By examining the changing application of different legal traditions to adjacent neighborhoods within the same city, we address identification challenges associated with cross-country studies. Consistent with the legal origins view, the financial development advantage in the British concession widened after the formation of the Courts and shrank after their rendition.

The economic impact of weather and climate
Richard S.J. Tol

I propose a new conceptual framework to disentangle the impacts of weather and climate on economic activity and growth: A stochastic frontier model with climate in the production frontier and weather shocks as a source of inefficiency. I test it on a sample of 160 countries over the period 1950-2014. Temperature and rainfall determine production possibilities in both rich and poor countries; positively in cold countries and negatively in hot ones. Weather anomalies reduce inefficiency in rich countries but increase inefficiency in poor and hot countries; and more so in countries with low weather variability. The climate effect is larger that the weather effect.

The profitability and distance to distress of European Banks: do business choices matter?
Marques, Bernardo P.,Alves, Carlos F.
This paper examines which business choices are more likely to increase the profitability and distance to distress of banks, and whether changing business model pays off. We find that the profitability and distance to distress increase with the use of customer deposits and equity, and decrease with size; also, the top performers tend to have a high relationship banking orientation and/or operate a retail focused business model. Furthermore, we document that income diversification only bears a positive impact on the distance to distress of banks highly focused on relationship banking, and size only bears a negative effect on the profitability of these banks as well; additionally, only banks with a low relationship banking orientation significantly benefit from customer deposits. With respect to the effects of business model changes, we find that shifts from the retail diversified funding model to either the retail focused or the large diversified models improve profitability in the medium term. Finally, we find evidence that large diversified banks benefited from internal capital markets during the twin financial crisis by tapping into low-cost funding from subsidiaries. Our results are robust to changes to our baseline model that account for endogeneity and persistency issues.

Where are the opportunities for growth in the professional services space?
Edouard Ribes

The professional services industry (legal, accounting, consulting, architectural services{\ldots}) employs an important share of the active population in mature countries. However, after decades of undisputed growth, the sector appears to be at a turning point in certain geographies. This article therefore proposes a simple framework to help diagnose where growth opportunities (if any) may lie.When applied to the US economic context, the model indicates that at a macro-economic national level the sector should stall, which concurs with the trend observed over the past decade. However, it also highlights that a few industrial sectors (e.g. the US beverage industry) still offer pockets of growth for a variety of professional expertises. Replicating and fine-tuning those findings could be interesting for practitioners to steer their marketing and business development efforts. On the other hand, the quantitative framework presented in this study could pave the way for future research in the academic community.

أثر آليات الحوكمة على ربحية المصارف الإسلامية في دول مجلس التعاون الخليجي خلال الفترة 2005م - 2016م (The Impact of Governance Mechanisms on Profitability of Islamic Banks in the GCC Countries During 2005-2016)
Tashkandi, Abdulhadi Abdulrahim
Arabic Abstract: تهدت الدراسة إلى بيان أثر آليات الحوكمة على ربحية المصارف الإسلامية بدول مجلس التعاون الخليجي. واعتمدت الدراسة على عينة مكونة من 24 مصرفًا إسلاميًا في خمس دول من دول مجلس التعاون الخليجي خلال الفترة 2005م-2016م، من خلال تحليل نموذج بيانات السلاسل الزمنية المقطعية الديناميكي باستخدام طريقة العزوم المعممة “Generalized Methods of Moment” ((GMM System، وقد تم استخدام مقياسين للتعبير عن الربحية هما: العائد على الأصول، والعائد على حقوق الملكية. أظهرت نتائج الدراسة وجود علاقة قوية بين متغيرات الحوكمة والربحية للمصارف الإسلامية بدول مجلس التعاون الخليجي؛ حيث وجدت أن عدد أعضاء الهيئة الشرعية تؤثر إيجابًا على ربحية المصارف الإسلامية، بينما نجد أن كلاً من حجم مجلس الإدارة وعدد الأعضاء المستقلين في مجلس الإدارة تؤثر سلبًا على الربحية، كما أظهرت النتائج أن كلاً من حجم المصرف ونسبة كفاية رأس المال والسيولة النقدية ومعدل الفائدة تمثل محددات إيجابية مؤثرة على ربحية المصارف الإسلامية.English Abstract: This study aims to explore the impact of applying the governance mechanisms on the profitability of Islamic banks in the GCC countries. The sample of the study is based on twenty-four full-fledged Islamic banks over the period from 2005 to 2016 in five GCC countries. The study utilizes a dynamic panel model that allows for persistence in bank profitability, and estimate the model using the Generalized Methods of Moment (GMM) estimator. Return on assets and return on equity have been used as alternative measures of bank profitability. The results of the research suggest there is a strong relationship between the variables of governance and profitability of Islamic banks. It was found that the number of members of the Sharī'ah board positively affects bank profitability, while the size of the Board of Directors and the number of independent members of the Board of Directors negatively affect bank profitability. Furthermore, the results showed that the size of the bank, the capital adequacy ratio, cash liquidity and interest rate were positive determinants of the profitability of Islamic banks.