Financial Resilience Research Cluster Four@Four event

The Financial Resilience Research Cluster held their annual “Four@Four” event on Wednesday 19th June. The meeting comprised four speakers pursuing diverse interests in finance with abstracts as follows;

A one-sided Vysochanskii-Petunin inequality with financial applications

“We derive a one-sided Vysochanskii-Petunin inequality, providing bounds on the probability of a random variable analogous to those provided by Cantelli.s inequality under the additional assumption of unimodality. We then pursue applications of this one-sided Vysochanskii-Petunin inequality in a financial context. First, we test for unimodality in stock returns for a large sample of firms. Next, we examine refined bounds for the individual risk measures of Value-at-Risk and Expected Shortfall, with interesting implications for the Basel multiplier. Lastly, we develop simple versions of upper bounds of the systemic risk measures of CoVaR, Marginal Expected Shortfall and SRISK that are straightforward to calculate.”

 Jairaj Gupta, University of Birmingham and Mariachiara Barzotto, Newcastle University

Bankruptcy Resolution: Misery or Strategy?

 “In this study we explore the explanatory power of a set of covariates relating to firm, judicial, case, geographic, and macroeconomic characteristics in explaining the likelihood of successful bankruptcy resolution. Based upon our analysis, we propose an eight-factor multivariate Probit model that best explain bankruptcy resolution. Subsequently, we investigate the effect of strategic behaviour (proxied by financial benefits) on firms’ likelihood of emerging from bankruptcy, and whether financial benefits are endogenous to the emergence likelihood. Test results confirm that firms start acting strategically from one up to four years before filing for bankruptcy in the presence of (repeated) adverse event(s).”

Arnaud Lionnet, School of Mathematics University of Birmingham

Department of Mathematics

“My research investigates the evolution in time of a financial network, both in good and bad times (bankruptcies and/or asset devaluations). The goal is to understand the deformation through time of the network and the associated reorganisation of the system (concentration, contraction, financial losses, structure of balance sheets). The project aims at will getting an understanding of the impact of macroprudential policies and crisis resolution policies (timing and type of intervention; targeted institutions: too big to fail, too connected to fail, and about how to contain an unfolding cascade of bankruptcies. Some dynamic models, are not “micro-founded” and arbitrarily postulate interacting diffusion models for wealth of institutions. By contrast, my research focuses on the dynamics of the financial network. This allows us to understand the upstream of a crisis; the impact of regulation and the potential for prevention. To understand the evolution of a financial network we need to understand;

What is a systemic crisis over the passage of time?

Is it frequent? How bad is it?

What is the impact of the various parameters on the deformation of the network through time?

How to evaluate the outcomes of various policies, both macroprudential regulation and intervention policies.

How to search for efficient policies.

This research is funded by a grant of 10k€ from Europlace Institute of Finance/LABEXvv Louis Bachelier (France).”

 

Jane M. Binner University of Birmingham and Rakesh Bissoondeeal Aston University

“We investigate (i) the performance of the weighted monetary aggregate, Divisia, relative to its official Simple Sum counterpart in a money demand framework, and (ii) the impact of share prices and their volatility on these aggregates. We find that the Divisia aggregate shows more stability with monetary policy targets, such as output, than its counterpart, particularly during the financial crisis and beyond. We also find that the influence of share prices and their volatility on monetary aggregates have increased in the recent decades. We also uncover that as share prices increase, investors tend to increase their holdings of more savings oriented assets but they also switch from low interest yielding highly liquid assets into equities”