Journals
2026 EN
AcostaSmith Jonathan · Ferrara Gerardo · RodriguezTous Francesc
ABSTRACT As part of the post global financial crisis banking reforms, regulators introduced a leverage ratio requirement, a minimum capital requirement over a bank's total exposures. We assess the consequences of this requirement for derivative clearing services to clients, which creates exposures for the dealers, by exploiting its earlier introduction in the United Kingdom and detailed confidential transaction and portfolio data. UK dealers reduce their client clearing business following the introduction of the requirement, particularly dealers with lower capital positions and for longer‐term derivatives; they are also more likely to end client relationships. Capital regulation might indirectly limit access to clearing services.
Journals
2026 EN
Thampanya Natthinee · Wu Junjie
ABSTRACT This study explores how temperature anomalies, a novel form of systematic risk, affect financial markets, expanding the traditional understanding of market‐wide risks. While climate change is becoming an important consideration, the extent to which temperature anomalies disrupt economic activities and influence stock returns is urgently needed to assess. Using data from 479 Thai companies (2010–2023), we apply linear and nonlinear autoregressive distributed lag (ARDL) models to examine the impact of temperature anomalies and investor sentiment on stock returns. Our findings reveal that (1) temperature anomalies significantly affect short‐term stock returns, especially when prioritising sustainability and environmental, social, and governance (ESG) factors; (2) public awareness, measured by Google Search Volume Index (GSVI), has a complex, nonlinear impact on the stock market; (3) temperature anomalies act like traditional risk measures, influencing stock returns similarly to market volatility. The study highlights the growing importance of climate change in financial decision‐making and offers insights into investor reactions to climate risks and economic sentiment. It emphasises the need to consider short‐term market reactions to climate‐related news and suggests that temperature anomalies could be viewed as a systematic risk in financial markets.
Journals
2026 EN
Nunes Manuel · Gerding Enrico · McGroarty Frank
+2 more
ABSTRACT We present long short‐term memory (LSTM)‐LagLasso, a novel explainable deep learning approach applied to bond yield forecasting. Our method involves feature selection from a large universe of potential features and forecasts bond yields using dynamic LSTM networks. It examines the internal gating signals of a trained LSTM and explains their dynamics through exogenous variables that may influence bond price formation. By considering these variables at various lags and using the Lasso technique for feature selection, we demonstrate how different hidden units within the LSTM dynamically adjust to make predictions across different temporal regimes and how their evolution is shaped by various external factors. In an empirical study on government bond yield forecasting, we demonstrate the statistical accuracy of LSTM‐LagLasso compared to a multilayer perceptron (MLP) and highlight its explainability.
Journals
2026 EN
Akdogan Idil Uz · Halicioglu Ferda · Demir Ishak
ABSTRACT This study examines the determinants of a change in currency expectations for the Turkish Lira (TL) versus the US dollar with different maturities (1 month, 3 months and 1 year). The risk premium is estimated using the interest rate differential and a latent component called the missing risk premium . The empirical model is extended to break down the risk component by introducing other explanatory variables, such as currency swap agreements, credit default swap (CDS), foreign reserves and the volatility index (VIX). A state‐space model is employed to explain the behaviour of an unobserved variable over the period between January 2005 and March 2023 with daily and weekly data frequencies. Our findings suggest that the uncovered interest parity (UIP) condition does not hold consistently in Turkey during this period. Deviations from UIP can be attributed to a time‐varying risk premium as outlined in Fama's framework. Additionally, our analysis also shows that interest rates and swaps play a significant role in explaining the variations in the TL's risk premium. Moreover, we found a substantial increase in both the level and volatility of the missing risk premium for longer maturities after 2018. Incorporating observable variables substantially reduces both the magnitude and the long‐lasting impact of the missing risk premium shocks on expectations. Overall, this study sheds light on the intricate relationship between monetary policy changes, exchange rates and risk premia in the context of an emerging market.
Journals
2026 EN
Căpraru Bogdan · Georgescu George · Sprincean Nicu
ABSTRACT This paper examines the effects of fiscal rules (FRs) and independent fiscal institutions (IFIs) on sovereign risk. To address potential endogeneity issues, we employ the System Generalised Method of Moments (GMM) estimator in an analysis comprising 24 European Union member states throughout the 2007–2019 period. Our results indicate that FRs are effective in mitigating sovereign default risk, as measured by credit default swap (CDS) spreads on sovereign bonds. In addition, we document that Member States with better numerical compliance rates with European Union fiscal rules have lower sovereign CDS spreads and thus lower risk. By overseeing and fostering compliance with numerical fiscal targets and enhancing the transparency of the budgetary process, IFIs exert a beneficial impact on the probability of sovereign default, particularly those subject to institutional reforms. Furthermore, more developed financial markets supported by both FRs and IFIs contribute to a reduction in sovereign CDS premiums. Our findings have critical policy implications against the backdrop of European economic and fiscal governance reform.
Journals
2026 EN
Nasim Asma · Downing Gareth · Nasir Muhammad Ali
ABSTRACT This study analyses the implications of uncertainty, the regulatory and economic environment, and the monetary policy regime for bank performance. Employing multiple indicators of bank performance and underlying explanatory factors, we used a novel set of empirical approaches including Fixed Effects, Random Effects, Panel Fully Modified Least Squares (FMOLS), Panel Dynamic Least Squares (DOLS), and the Generalised Method of Moments (GMM). Considering the data of both developed (G7) and emerging (E7) economies from 2001 to 2020, our results reveal that uncertainty, leverage, capital adequacy, monetary policy, economic growth, inflation and the exchange rate have significant implications for various aspects of bank performance. We also find significant differences between the developed and developing economies' banking sector performance. In the context of uncertainty, the findings have vital implications for the banking sector in emerging and advanced economies, monetary and prudential policymakers, and stakeholders of financial stability.
Journals
2026 EN
Hanif Waqas · El Khoury Rim · Gubareva Mariya
ABSTRACT This study conducts a comprehensive analysis of interconnectedness in Gulf Cooperation Council (GCC) equity markets and global bond markets, primarily focusing on European Monetary Union (EMU) and US bonds, from July 2007 to September 2023. Using innovative methodologies such as quantile connectedness and quantile coherency, we capture the dynamic relationships across different market conditions, particularly during extreme events. The quantile connectedness includes a moderate to low degree of interconnectedness during normal market conditions, intensifying during extreme market conditions. The United Arab Emirates (UAE) and Saudi Arabia are identified as influential players, transcending borders to impact returns in other GCC markets. Roles of GCC countries as net transmitters or receivers of returns shift over time, necessitating adaptable investment strategies. The interconnectedness of GCC markets with bonds responds differently to global crises and turbulences, including geopolitical and health crises. Our quantile coherence analysis provides insights for risk management and portfolio allocation. These findings have crucial implications for investors, encouraging adaptive asset allocation strategies, and for policymakers to monitor intra‐regional spillovers in shaping market dynamics.
Journals
2026 EN
Akhtar Tahir
ABSTRACT This study aims to investigate the relationship between ownership structure and dividend payments (DP) and whether financial technology (FinTech) has an impact on this relationship. The study uses a panel sample of 278 Chinese financial firms during the period 2009–2022. The study applies regressions and finds that FinTech firms pay lower dividends, suggesting that these firms are holding onto the money to re‐invest for future growth. The results demonstrate that Institutional‐shareholding, and inside shareholding (Chairman‐shareholdings and Managerial‐shareholdings) increase DP in firms, while Largest‐ and Top_10 shareholdings decrease the DP. With the induction of FinTech, the Institutional‐shareholdings and inside shareholding decrease DP, so they utilise funds for future growth. Moreover, FinTech intensifies the negative impact of the Largest‐ and Top10‐shareholdings on DP. The results from the sub‐sample further support the findings. Several other economic parameters, such as the dynamic panel model, difference‐in‐differences and propensity score matching, and different dividend measures confirm the findings. The study contributes to other contentious findings found in the literature and offers helpful insights into the effects of innovation on prospective financial sector firms' ownership structure and DP, which seem to be impacted by FinTech.
Journals
2026 EN
Joura Essam · Gerged Ali Meftah · Xiao Qin
+1 more
ABSTRACT In this study, we explore how the personal traits of CEOs and corporate governance mechanisms moderate the link between say‐on‐pay (SOP) votes and various aspects of firm efficiency. Our sample consists of 1931 firms listed in four Anglo‐Saxon economies (i.e., USA, UK, Canada and Australia) during a period of notable regulatory changes. Our findings reveal a significant and positive impact of SOP votes on firm efficiency. This suggests that company executives recognise that lower efficiency leads to lower pay or even job loss. Interestingly, our analysis indicates that younger managers can contribute more to creating value and improving business performance compared with their older counterparts. However, the relationship between gender and firm efficiency remains inconclusive. Furthermore, our study highlights the limited involvement of the board of directors in driving firm efficiency. This could be attributed to inadequate monitoring, cooperation and communication among board members, particularly in the case of audit committees, which seem to have less skilled members. Alternatively, this lack of board engagement may be due to the influence of powerful managers within the company. This paper also offers practical implications to policymakers and practitioners and suggests avenues for future research that can build upon our evidence.
Journals
2026 EN
Chen YenHsiao · Wu Jiang · McManus Richard
+1 more
ABSTRACT Information flows are a theoretical explanation for stock market volatility, but controversy remains regarding how to measure them. Based on cross‐sectional and temporal properties of information flows, we decompose total trading volume into four types: cross‐country shocks and country‐specific shocks due to arrivals of private information, and trading volume shocks and stock volatility shocks due to public information. We then use a Structural Vector Autoregressive model to reconstruct historical trading volume resulted from the four types of information shocks. The evidence shows that the historical trading volumes due to private information flow can explain volatility clustering of stock markets. By analysing sources of information flow, we find private information flow reflects systemic risk in the global financial system. The result conforms to Mixture of Distribution Hypothesis and finds that quality of information content is what differentiates privately informed trading from public information trading. It further suggests the main drivers of stock market volatility are uncertainties about fundamental values of assets and about other investors' behaviours.