Evidence on the relationship between incentives and exogenous risk

Theoretical models on moral hazard provide competing predictions on the incentive-risk relationship. These predictions are derived under the assumptions of homogeneous agents and exogenous risk. However, the existing empirical evidence does not account for risk-aversion heterogeneity and risk endogeneity. This paper uses a well-built database on tenancy contracts to address these issues. Detailed information on cropping activities is used to measure the exogenous risk. Risk-aversion heterogeneity and other self-selection problems are addressed through a portfolio schedule and a subsample of farmers who simultaneously own and sharecrop different farms. This controlled exercise finds a direct relation between incentives and exogenous risk.

Cálculo do Value at Risk (VaR) para o Ibovespa, pós crise de 2008, por meio dos modelos de heterocedasticidade condicional (GARCH) e de volatilidade estocástica (Local Scale Model - LSM)

O objetivo deste estudo é propor a implementação de um modelo estatístico para cálculo da volatilidade, não difundido na literatura brasileira, o modelo de escala local (LSM), apresentando suas vantagens e desvantagens em relação aos modelos habitualmente utilizados para mensuração de risco. Para estimação dos parâmetros serão usadas as cotações diárias do Ibovespa, no período de janeiro de 2009 a dezembro de 2014, e para a aferição da acurácia empírica dos modelos serão realizados testes fora da amostra, comparando os VaR obtidos para o período de janeiro a dezembro de 2014. Foram introduzidas variáveis explicativas na tentativa de aprimorar os modelos e optou-se pelo correspondente americano do Ibovespa, o índice Dow Jones, por ter apresentado propriedades como: alta correlação, causalidade no sentido de Granger, e razão de log-verossimilhança significativa. Uma das inovações do modelo de escala local é não utilizar diretamente a variância, mas sim a sua recíproca, chamada de “precisão” da série, que segue uma espécie de passeio aleatório multiplicativo. O LSM captou todos os fatos estilizados das séries financeiras, e os resultados foram favoráveis a sua utilização, logo, o modelo torna-se uma alternativa de especificação eficiente e parcimoniosa para estimar e prever volatilidade, na medida em que possui apenas um parâmetro a ser estimado, o que representa uma mudança de paradigma em relação aos modelos de heterocedasticidade condicional.

Nonparametric tail risk, macroeconomics and stock returns: predictability and risk premia

This paper proposes a new novel to calculate tail risks incorporating risk-neutral information without dependence on options data. Proceeding via a non parametric approach we derive a stochastic discount factor that correctly price a chosen panel of stocks returns. With the assumption that states probabilities are homogeneous we back out the risk neutral distribution and calculate five primitive tail risk measures, all extracted from this risk neutral probability. The final measure is than set as the first principal component of the preliminary measures. Using six Fama-French size and book to market portfolios to calculate our tail risk, we find that it has significant predictive power when forecasting market returns one month ahead, aggregate U.S. consumption and GDP one quarter ahead and also macroeconomic activity indexes. Conditional Fama-Macbeth two-pass cross-sectional regressions reveal that our factor present a positive risk premium when controlling for traditional factors.

Risky business: social media metrics and political risk analysis

A quantificação do risco país – e do risco político em particular – levanta várias dificuldades às empresas, instituições, e investidores. Como os indicadores econômicos são atualizados com muito menos freqüência do que o Facebook, compreender, e mais precisamente, medir – o que está ocorrendo no terreno em tempo real pode constituir um desafio para os analistas de risco político. No entanto, com a crescente disponibilidade de “big data” de ferramentas sociais como o Twitter, agora é o momento oportuno para examinar os tipos de métricas das ferramentas sociais que estão disponíveis e as limitações da sua aplicação para a análise de risco país, especialmente durante episódios de violência política. Utilizando o método qualitativo de pesquisa bibliográfica, este estudo identifica a paisagem atual de dados disponíveis a partir do Twitter, analisa os métodos atuais e potenciais de análise, e discute a sua possível aplicação no campo da análise de risco político. Depois de uma revisão completa do campo até hoje, e tendo em conta os avanços tecnológicos esperados a curto e médio prazo, este estudo conclui que, apesar de obstáculos como o custo de armazenamento de informação, as limitações da análise em tempo real, e o potencial para a manipulação de dados, os benefícios potenciais da aplicação de métricas de ferramentas sociais para o campo da análise de risco político, particularmente para os modelos qualitativos-estruturados e quantitativos, claramente superam os desafios.

A systematic component of the jump-risk premium in an AJD model

We develop an affine jump diffusion (AJD) model with the jump-risk premium being determined by both idiosyncratic and systematic sources of risk. While we maintain the classical affine setting of the model, we add a finite set of new state variables that affect the paths of the primitive, under both the actual and the risk-neutral measure, by being related to the primitive's jump process. Those new variables are assumed to be commom to all the primitives. We present simulations to ensure that the model generates the volatility smile and compute the "discounted conditional characteristic function'' transform that permits the pricing of a wide range of derivatives.

Tail risk in the hedge fund industry

The dissertation goal is to quantify the tail risk premium embedded into hedge funds' returns. Tail risk is the probability of extreme large losses. Although it is a rare event, asset pricing theory suggests that investors demand compensation for holding assets sensitive to extreme market downturns. By de nition, such events have a small likelihood to be represented in the sample, what poses a challenge to estimate the e ects of tail risk by means of traditional approaches such as VaR. The results show that it is not su cient to account for the tail risk stemming from equities markets. Active portfolio management employed by hedge funds demand a speci c measure to estimate and control tail risk. Our proposed factor lls that void inasmuch it presents explanatory power both over the time series as well as the cross-section of funds' returns.

We're Chained: an analysis of systemic risk in finance

This dissertation presents two papers on how to deal with simple systemic risk measures to assess portfolio risk characteristics. The first paper deals with the Granger-causation of systemic risk indicators based in correlation matrices in stock returns. Special focus is devoted to the Eigenvalue Entropy as some previous literature indicated strong re- sults, but not considering different macroeconomic scenarios; the Index Cohesion Force and the Absorption Ratio are also considered. Considering the S&P500, there is not ev- idence of Granger-causation from Eigenvalue Entropies and the Index Cohesion Force. The Absorption Ratio Granger-caused both the S&P500 and the VIX index, being the only simple measure that passed this test. The second paper develops this measure to capture the regimes underlying the American stock market. New indicators are built using filtering and random matrix theory. The returns of the S&P500 is modelled as a mixture of normal distributions. The activation of each normal distribution is governed by a Markov chain with the transition probabilities being a function of the indicators. The model shows that using a Herfindahl-Hirschman Index of the normalized eigenval- ues exhibits best fit to the returns from 1998-2013.

An evolving possibilistic fuzzy modeling approach for value-at-risk estimation

Market risk exposure plays a key role for nancial institutions risk management. A possible measure for this exposure is to evaluate losses likely to incurwhen the price of the portfolio's assets declines using Value-at-Risk (VaR) estimates, one of the most prominent measure of nancial downside market risk. This paper suggests an evolving possibilistic fuzzy modeling approach for VaR estimation. The approach is based on an extension of the possibilistic fuzzy c-means clustering and functional fuzzy rule-based modeling, which employs memberships and typicalities to update clusters and creates new clusters based on a statistical control distance-based criteria. ePFM also uses an utility measure to evaluate the quality of the current cluster structure. Computational experiments consider data of the main global equity market indexes of United States, London, Germany, Spain and Brazil from January 2000 to December 2012 for VaR estimation using ePFM, traditional VaR benchmarks such as Historical Simulation, GARCH, EWMA, and Extreme Value Theory and state of the art evolving approaches. The results show that ePFM is a potential candidate for VaR modeling, with better performance than alternative approaches.

Valuing emerging markets companies : new approaches to determine the effective exposure to country risk

The aim of this paper is to propose new methods to measure the effective exposure to country risk of emerging-market companies. Starting from Damodaran (2003), we propose seven new approaches and a revised CAPM for emerging markets companies. The “Prospective Lambda” represents the effective exposure according to analysts’ estimates of growth. The “Relative Lambda” relies on the firm value estimated through a relative valuation. The “Retrospective Lambda” represents the ex-post effective exposure to country risk. The “Company Effective Risk Premium” is a generalization of the Retrospective Lambda, and expresses the premium effectively requested by investors to invest in that specific company in the past year. “The Actual Lambda” and the “Company Actual Risk Premium” represent, respectively, the actual exposure to country risk of a company and the actual premium requested by investors to invest in that specific company. The “Industry Lambda” reflects the median exposure to country risk of the industry in which the company belongs. We tested our new measures of exposure to country risk on the Latin American emerging markets companies according to the classification of the MSCI Emerging Markets Latin America Index. The results confirm that the new approaches can be effectively applied by financial analysts to stable-growth companies that operate in emerging markets and to mature markets companies that operate in emerging markets, providing with a more reliable estimate of both the premium effectively requested by investors in the past and the actual premium. Applying the new approaches, the cost of equity reflects the effective exposure of a company to country risk without being over- or underestimated, as is the case with other existing approaches.

Measurement of the nonlinear optical response of low-density lipoprotein solutions from patients with periodontitis before and after periodontal treatment: evaluation of cardiovascular risk markers

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Spatial Distribution of the Risk of Dengue and the Entomological Indicators in Sumare, State of Sao Paulo, Brazil

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Wildlife Risk Management at Vancouver International Airport

The Vancouver International Airport (YVR) is the second busiest airport in Canada. YVR is located on Sea Island in the Fraser River Estuary - a world-class wintering and staging area for hundreds of thousands of migratory birds. The Fraser Delta supports Canada’s largest wintering populations of waterfowl, shorebirds, and raptors. The large number of aircraft movements and the presence of many birds near YVR pose a wide range of considerable aviation safety hazards. Until the late 1980s when a full-time Wildlife Control Program (WCP) was initiated, YVR had the highest number of bird strikes of any Canadian commercial airport. Although the risks of bird strikes associated with the operation of YVR are generally well known by airport managers, and a number of risk assessments have been conducted associated with the Sea Island Conservation Area, no quantitative assessment of risks of bird strikes has been conducted for airport operations at YVR. Because the goal of all airports is to operate safely, an airport wildlife management program strives to reduce the risk of bird strikes. A risk assessment establishes the current risk of strikes, which can be used as a benchmark to focus wildlife control activities and to assess the effectiveness of the program in reducing bird strike risks. A quantitative risk assessment also documents the process and information used in assessing risk and allows the assessment to be repeated in the future in order to measure the change in risk over time in an objective and comparative manner. This study was undertaken to comply with new Canadian legislation expected to take effect in 2006 requiring airports in Canada to conduct a risk assessment and develop a wildlife management plan. Although YVR has had a management plan for many years, it took this opportunity to update the plan and conduct a risk assessment.

The relationship between banking market competition and risk-taking: Do size and capitalization matter?

This paper addresses the effects of bank competition on the risk-taking behaviors of banks in 10 Latin American countries between 2003 and 2008. We conduct our empirical approach in two steps. First, we estimate the Boone indicator, which is a measure of competition. We then regress this measure and other explanatory variables on the banking "stability inefficiency" derived simultaneously from the estimation of a stability stochastic frontier. Unlike previous findings, this paper concludes that competition affects risk-taking behavior in a non-linear way as both high and low competition levels enhance financial stability, while we find the opposite effect for average competition. In addition, bank size and capitalization are essential factors in explaining this relationship. On the one hand, the larger a bank is, the more it benefits from competition. On the other hand, a greater capital ratio is advantageous for banks that operate in collusive markets, while capitalization only enhances the stability of larger banks under high and average competition. These results are of extreme importance when considering bank regulations, especially in light of the recent turmoil in the global financial markets. (C) 2012 Elsevier B.V. All rights reserved.

Electroretinographic findings associated with panretinal photocoagulation (PRP) versus PRP plus intravitreal ranibizumab treatment for high-risk proliferative diabetic retinopathy

To evaluate changes in electroretinographic (ERG) findings after panretinal photocoagulation (PRP) compared to PRP plus intravitreal injection of ranibizumab (IVR) in eyes with high-risk proliferative diabetic retinopathy (PDR). Patients with high-risk PDR and no prior laser treatment were assigned randomly to receive PRP (PRP group; n = 9) or PRP plus IVR (PRPplus group; n = 11). PRP was administered in two sessions (weeks 0 and 2), and IVR was administered at the end of the first laser session (week 0) in the PRPplus group. Standardized ophthalmic evaluations including (ETDRS) best-corrected visual acuity (BCVA), and fluorescein angiography to measure area of fluorescein leakage (FLA), were performed at baseline and at weeks 16 (+/- 2), 32 (+/- 2) and 48 (+/- 2). ERG was measured according to ISCEV standards at baseline and at week 48 (+/- 2). At 48 weeks, 2,400-3,000 laser spots had been placed in eyes in the PRP group, while only 1,400-1,800 spots had been placed in the PRPplus group. Compared to baseline, there was a statistically significant (P < 0.05) FLA reduction observed at all study visits in both groups, with the reduction observed in the PRPplus group significantly larger than that in the PRP group at week 48. ROD b-wave amplitude was significantly reduced to 46 +/- A 5 % (P < 0.05) of baseline in the PRP group and 64 +/- A 6 % (P < 0.05) in the PRPplus group. This reduction was significantly larger in the PRP group than in the PRPplus group (P = 0.024; t Test). Similar results were observed for the dark-adapted Combined Response (CR) b-wave amplitude, with a reduction at 48 weeks compared to baseline of 45 +/- A 4 % in the PRP group and 62 +/- A 5 % in the PRPplus group; the reduction in CR b-wave amplitude was significantly larger in the PRP group than in the PRPplus group (P = 0.0094). CR a-wave, oscillatory potentials, cone single flash, and 30 Hz flicker responses showed statistically significant within-group reductions, but no differences in between-group analyses. These results suggest that treating high-risk PDR with PRP plus IVR is effective for PDR control, and permits the use of less extensive PRP which, in turn, induces less retinal functional loss, in particular for rod-driven post-receptoral responses, than treatment with PRP alone.

Accuracy of Timed Up and Go Test for screening risk of falls among community-dwelling elderly

Objective: To determine the accuracy of the Timed Up and Go Test (TUGT) for screening the risk of falls among community-dwelling elderly individuals. Method: This is a prospective cohort study with a randomly by lots without reposition sample stratified by proportional partition in relation to gender involving 63 community-dwelling elderly individuals. Elderly individuals who reported having Parkinson's disease, a history of transitory ischemic attack, stroke and with a Mini Mental State Exam lower than the expected for the education level, were on a wheelchair and that reported a single fall in the previous six months were excluded. The TUGT, a mobility test, was the measure of interested and the occurrence of falls was the outcome. The performance of basic activities of daily living (ADL) and instrumental activities of daily living (IADL) was determined through the Older American Resources and Services, and the socio-demographic and clinical data were determined through the use of additional questionnaires. Receiver Operating Characteristic Curves were used to analyze the sensitivity and specificity of the TUGT. Results: Elderly individuals who fell had greater difficulties in ADL and IADL (p<0.01) and a slower performance on the TUGT (p=0.02). No differences were found in socio-demographic and clinical characteristics between fallers and non- fallers. Considering the different sensitivity and specificity, the best predictive value for discriminating elderly individuals who fell was 12.47 seconds [(RR= 3.2) 95% CI: 1.3- 7.7]. Conclusions: The TUGT proved to be an accurate measure for screening the risk of falls among elderly individuals. Although different from that reported in the international literature, the 12.47 second cutoff point seems to be a better predictive value for Brazilian elderly individuals.