Forecasting time-varying value-at-risk

In this thesis we are interested in financial risk and the instrument we want to use is Value-at-Risk (VaR). VaR is the maximum loss over a given period of time at a given confidence level. Many definitions of VaR exist and some will be introduced throughout this thesis. There two main ways to measure risk and VaR: through volatility and through percentiles. Large volatility in financial returns implies greater probability of large losses, but also larger probability of large profits. Percentiles describe tail behaviour. The estimation of VaR is a complex task. It is important to know the main characteristics of financial data to choose the best model. The existing literature is very wide, maybe controversial, but helpful in drawing a picture of the problem. It is commonly recognised that financial data are characterised by heavy tails, time-varying volatility, asymmetric response to bad and good news, and skewness. Ignoring any of these features can lead to underestimating VaR with a possible ultimate consequence being the default of the protagonist (firm, bank or investor). In recent years, skewness has attracted special attention. An open problem is the detection and modelling of time-varying skewness. Is skewness constant or there is some significant variability which in turn can affect the estimation of VaR? This thesis aims to answer this question and to open the way to a new approach to model simultaneously time-varying volatility (conditional variance) and skewness. The new tools are modifications of the Generalised Lambda Distributions (GLDs). They are four-parameter distributions, which allow the first four moments to be modelled nearly independently: in particular we are interested in what we will call para-moments, i.e., mean, variance, skewness and kurtosis. The GLDs will be used in two different ways. Firstly, semi-parametrically, we consider a moving window to estimate the parameters and calculate the percentiles of the GLDs. Secondly, parametrically, we attempt to extend the GLDs to include time-varying dependence in the parameters. We used the local linear regression to estimate semi-parametrically conditional mean and conditional variance. The method is not efficient enough to capture all the dependence structure in the three indices —ASX 200, S&P 500 and FT 30—, however it provides an idea of the DGP underlying the process and helps choosing a good technique to model the data. We find that GLDs suggest that moments up to the fourth order do not always exist, there existence appears to vary over time. This is a very important finding, considering that past papers (see for example Bali et al., 2008; Hashmi and Tay, 2007; Lanne and Pentti, 2007) modelled time-varying skewness, implicitly assuming the existence of the third moment. However, the GLDs suggest that mean, variance, skewness and in general the conditional distribution vary over time, as already suggested by the existing literature. The GLDs give good results in estimating VaR on three real indices, ASX 200, S&P 500 and FT 30, with results very similar to the results provided by historical simulation.

Can book-to-market and size be risk factors that predict economic growth in Asia's emerging economies?

We investigate whether the two 2 zero cost portfolios, SMB and HML, have the ability to predict economic growth for markets investigated in this paper. Our findings show that there are only a limited number of cases when the coefficients are positive and significance is achieved in an even more limited number of cases. Our results are in stark contrast to Liew and Vassalou (2000) who find coefficients to be generally positive and of a similar magnitude. We go a step further and also employ the methodology of Lakonishok, Shleifer and Vishny (1994) and once again fail to support the risk-based hypothesis of Liew and Vassalou (2000). In sum, we argue that search for a robust economic explanation for firm size and book-to-market equity effects needs sustained effort as these two zero cost portfolios do not represent economically relevant risk.

Project-based organization as adaptation to risk and opportunity in small firms

Recent years have seen a rapid increase in SMEs working collaboratively in inter-organizational projects. But what drives the emergence of such projects, and what types of industries breed them the most? To address these questions, this paper extends the long running literature on the firm and industry antecedents of new venturing and alliance formation to the domain of project-based organization by SMEs. Based on survey data collected among 1,725 small and medium sized organizations and longitudinal industry data, we find an overall pattern that indicates that IOPV participation is primarily determined by a focal SME’s scope of innovative activities, and the munificence, dynamism and complexity of its environment. Unexpectedly, these variables have different effects on whether SMEs are likely to engage in IOPVs, compared to with how many there are in their portfolio at a time. Implications for theory development are discussed.

The impact of litigation risk on corporate prospective disclosure : a review of the empirical literature

We review the literature on the impact of litigation risk (a form of external governance) on corporate prospective disclosure decisions as reflected in management earnings forecasts. From this analysis we identify four key areas for future research. First, litigation risk warrants more attention from researchers; currently it tends to be treated as a secondary factor impacting MEF decisions. Second, it would be informative from a governance perspective for researchers to explore why litigation risk has a differential impact on MEF decisions across countries. Third, understanding the interaction between litigation risk and forecast/firm-specific characteristics is important from management, investor and regulatory perspectives but is currently under-explored Last, research on the litigation risk and MEF attributes link is piecemeal and incomplete, requiring more integrated and expanded analysis.

Corporate governance and risk management : the role of risk management and compensation committees

This paper examines the role of compensation and risk committees in managing and monitoring the risk behaviour of Australian financial firms in the period leading up to the global financial crisis (2006–2008). This empirical study of 711 observations of financial sector firms demonstrates how the coordination of risk management and compensation committees reduces information asymmetry. The study shows that the composition of the risk and compensation committees is positively associated with risk, which, in turn, is associated with firm performance. More importantly, information asymmetry is reduced when a director is a member of both the risk and compensation committees which moderate the negative association between risk and firm performance for firms with high risk.

Development and formative evaluation of a motorcycle rider training intervention to address risk taking

The need to address on-road motorcycle safety in Australia is important due to the disproportionately high percentage of riders and pillions killed and injured each year. One approach to preventing motorcycle-related injury is through training and education. However, motorcycle rider training lacks empirical support as an effective road safety countermeasure to reduce crash involvement. Previous reviews have highlighted that risk-taking is a contributing factor in many motorcycle crashes, rather than merely a lack of vehicle-control skills (Haworth & Mulvihill, 2005; Jonah, Dawson & Bragg, 1982; Watson et al, 1996). Hence, though the basic vehicle-handling skills and knowledge of road rules that are taught in most traditional motorcycle licence training programs may be seen as an essential condition of safe riding, they do not appear to be sufficient in terms of crash reduction. With this in mind there is considerable scope for the improvement of program focus and content for rider training and education. This program of research examined an existing traditional pre-licence motorcycle rider training program and formatively evaluated the addition of a new classroom-based module to address risky riding; the Three Steps to Safer Riding program. The pilot program was delivered in the real world context of the Q-Ride motorcycle licensing system in the state of Queensland, Australia. Three studies were conducted as part of the program of research: Study 1, a qualitative investigation of delivery practices and student learning needs in an existing rider training course; Study 2, an investigation of the extent to which an existing motorcycle rider training course addressed risky riding attitudes and motives; and Study 3, a formative evaluation of the new program. A literature review as well as the investigation of learning needs for motorcyclists in Study 1 aimed to inform the initial planning and development of the Three Steps to Safer Riding program. Findings from Study 1 suggested that the training delivery protocols used by the industry partner training organisation were consistent with a learner-centred approach and largely met the learning needs of trainee riders. However, it also found that information from the course needs to be reinforced by on-road experiences for some riders once licensed and that personal meaning for training information was not fully gained until some riding experience had been obtained. While this research informed the planning and development of the new program, a project team of academics and industry experts were responsible for the formulation of the final program. Study 2 and Study 3 were conducted for the purpose of formative evaluation and program refinement. Study 2 served primarily as a trial to test research protocols and data collection methods with the industry partner organisation and, importantly, also served to gather comparison data for the pilot program which was implemented with the same rider training organisation. Findings from Study 2 suggested that the existing training program of the partner organisation generally had a positive (albeit small) effect on safety in terms of influencing attitudes to risk taking, the propensity for thrill seeking, and intentions to engage in future risky riding. However, maintenance of these effects over time and the effects on riding behaviour remain unclear due to a low response rate upon follow-up 24 months after licensing. Study 3 was a formative evaluation of the new pilot program to establish program effects and possible areas for improvement. Study 3a examined the short term effects of the intervention pilot on psychosocial factors underpinning risky riding compared to the effects of the standard traditional training program (examined in Study 2). It showed that the course which included the Three Steps to Safer Riding program elicited significantly greater positive attitude change towards road safety than the existing standard licensing course. This effect was found immediately following training, and mean scores for attitudes towards safety were also maintained at the 12 month follow-up. The pilot program also had an immediate effect on other key variables such as risky riding intentions and the propensity for thrill seeking, although not significantly greater than the traditional standard training. A low response rate at the 12 month follow-up unfortunately prevented any firm conclusions being drawn regarding the impact of the pilot program on self-reported risky riding once licensed. Study 3a further showed that the use of intermediate outcomes such as self-reported attitudes and intentions for evaluation purposes provides insights into the mechanisms underpinning risky riding that can be changed by education and training. A multifaceted process evaluation conducted in Study 3b confirmed that the intervention pilot was largely delivered as designed, with course participants also rating most aspects of training delivery highly. The complete program of research contributed to the overall body of knowledge relating to motorcycle rider training, with some potential implications for policy in the area of motorcycle rider licensing. A key finding of the research was that psychosocial influences on risky riding can be shaped by structured education that focuses on awareness raising at a personal level and provides strategies to manage future riding situations. However, the formative evaluation was mainly designed to identify areas of improvement for the Three Steps to Safer Riding program and found several areas of potential refinement to improve future efficacy of the program. This included aspects of program content, program delivery, resource development, and measurement tools. The planned future follow-up of program participants' official crash and traffic offence records over time may lend further support for the application of the program within licensing systems. The findings reported in this thesis offer an initial indication that the Three Steps to Safer Riding is a useful resource to accompany skills-based training programs.

How international entrepreneurship characteristics influence Internet capabilities for the international business processes of the firm

This research explores the relationship between international entrepreneurship characteristics and the use of Internet capabilities for the international business processes of the firm. It has been suggested, that the accumulation of a firms Internet capability can assist international operations, especially when operating in fast changing dynamic Internet environments. However, international entrepreneurship characteristics which are seen as a precursor to leveraging Internet capabilities are still vague. Given this finding, eight case studies of small and medium sized travel and tourism firms were selected to investigate the influence of international entrepreneurship characteristics, and Internet capabilities for international business processes. Based on the eight in-depth case studies, the results signify that successful international entrepreneurial firms which encompass high levels of international innovativeness and proactiveness behaviour integrate Internet capabilities to a greater degree. Our findings also indicate that the prior international business experience, international risk-taking propensity and international networking characteristics are not necessarily precursors to successful integration of Internet capabilities for international business processes. On the contrary, international business experience and international networks actually lead to a reliance on traditional mechanisms of internationalisation and can dilute the development of Internet capabilities for international business processes.

Environmental information provision, market valuation, and firm incentives: An empirical study of the Japanese PRTR system

The environmental performance of a listed firm could affect its level of investment in pollution prevention and its access to financial markets. Previous studies using Tobin's q that explore market response to environmental performance do not distinguish between the impact of performance on investment and market response, which may mislead conclusions. To overcome this problem, we simultaneously estimate the functions of the intangible asset, the replacement cost, and the toxic chemical risk. We find that the Japanese financial market does not value risk associated with toxic chemical releases. Nevertheless, even without market valuation, firms increase investment to reduce pollution. © 2010 by the Board of Regents of the University of Wisconsin System.