Country risk, national cultural differences between partners and survival of international joint ventures in Brazil

This article aims to identify the main and interaction effects of two country-level variables, namely national distance and country risk, on the survival of international joint ventures in emerging markets. Research hypotheses predicting the negative impact of national distance and country risk on survival of international joint ventures are formulated in this article. These research hypotheses are examined in a sample of 234 international joint ventures formed in Brazil between 1973 and 2004. These international joint ventures were subjected to an event history analysis over a period of time ranging from 1973 to 2006. The empirical results show that large national cultural differences between local and foreign partners increase the instability of international joint ventures, whereas the survival of these alliances does not seem to be affected either by the economic and political uncertainty of Brazil. Furthermore, the national distance between local and foreign partners has effects on survival that are variable according to the life cycle of international joint ventures. (C) 2007 Elsevier Ltd. All rights reserved.

A Comparison of the Environmental Impact of Different AOPs: Risk Indexes

Today, environmental impact associated with pollution treatment is a matter of great concern. A method is proposed for evaluating environmental risk associated with Advanced Oxidation Processes (AOPs) applied to wastewater treatment. The method is based on the type of pollution (wastewater, solids, air or soil) and on materials and energy consumption. An Environmental Risk Index (E), constructed from numerical criteria provided, is presented for environmental comparison of processes and/or operations. The Operation Environmental Risk Index (EOi) for each of the unit operations involved in the process and the Aspects Environmental Risk Index (EAj) for process conditions were also estimated. Relative indexes were calculated to evaluate the risk of each operation (E/NOP) or aspect (E/NAS) involved in the process, and the percentage of the maximum achievable for each operation and aspect was found. A practical application of the method is presented for two AOPs: photo-Fenton and heterogeneous photocatalysis with suspended TiO2 in Solarbox. The results report the environmental risks associated with each process, so that AOPs tested and the operations involved with them can be compared.

Country Risk and Market Reactions to Earnings Announcements: Evidence from Finnish Stock Markets

The objective of this thesis is to examine the market reaction around earnings announcements in Finnish stock markets. The aim is to find out whether the extreme market conditions during the financial crisis are reflected in stock prices as a stronger reaction. In addition to this, the purpose is to investigate how extensively Finnish listed companies report the country segmentation of revenues in their interim reports and whether the country risk is having a significant impact on perceived market reaction. The sample covers all companies listed in Helsinki stock exchange at 1.1.2010 and these companies’ interim reports from the first quarter of 2008 to last quarter of 2009. Final sample consists of 81 companies and 630 firm-quarter observations. The data sample has been divided in two parts, of which country risk sample contains 17 companies and 127 observations and comparison sample covers 66 companies and 503 observations. Research methodologies applied in this thesis are event study and cross-sectional regression analysis. Empirical results indicate that the market reaction occurs mainly during the announcement day and is slightly stronger in case of positive earnings surprises than the reactions observed in previous studies. In case of negative earnings surprises no significant differences can be observed. In case of country risk sample and negative earnings surprise market reaction is negative already in advance of the disclosure contrary to comparison sample. In case of positive surprise no differences can be observed. Country risk variable developed during this study seems to explain only minor part of the market reaction.

The impact of country risk on international real estate returns

Commercial real estate investors have well-established methods to assess the risks of a property investment in their home country. However, when the investment decision is overseas another dimension of uncertainty overlays the analysis. This additional dimension, typically called country risk, encompasses the uncertainty of achieving expected financial results solely due to factors relating to the investment’s location in another country. However, very little has been done to examine the effects of country risk on international real estate returns, even though in international investment decisions considerations of country risk dominate asset investment decisions. This study extends the literature on international real estate diversification by empirically estimating the impact of country risk, as measured by Euromoney, on the direct real estate returns of 15 countries over the period 1998-2004, using a pooled regression analysis approach. The results suggest that country risk data may help investor’s in their international real estate decisions since the country risk data shows a significant and consistent impact on real estate return performance.

Monetary policy and country risk

This article develops an econometric model in order to study country risk behavior for six emerging economies (Argentina, Mexico, Russia, Thailand, Korea and Indonesia), by expanding the Country Beta Risk Model of Harvey and Zhou (1993), Erb et. al. (1996a, 1996b) and Gangemi et. al. (2000). Toward this end, we have analyzed the impact of macroeconomic variables, especially monetary policy, upon country risk, by way of a time varying parameter approach. The results indicate an inefficient and unstable effect of monetary policy upon country risk in periods of crisis. However, this effect is stable in other periods, and the Favero-Giavazzi effect is not verified for all economies, with an opposite effect being observed in many cases.

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.

How does country risk matter for foreign direct investment?

In this paper, we aim to identify the political and financial risk components that matter most for the activities of multinational corporations. Our paper is the first paper to comprehensively examine the impact of various components of not only political risk but also financial risk on inward FDI, from both long-run and short-run perspectives. Using a sample of 93 countries (including 60 developing countries) for the period 1985-2007, we find that among the political risk components, government stability, socioeconomic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability, and ethnic tensions have a close association with FDI flows. In particular, socioeconomic conditions, investment profile, and external conflict appear to be the most influential components of political risk in attracting foreign investment. Among the financial risk components, only exchange rate stability yields statistically significant positive coefficients when estimated only for developing countries. In contrast, current account as a percentage of exports of goods and services, foreign debt as a percentage of GDP, net international liquidity as the number of months of import cover, and current account as a percentage of GDP yield negative coefficients in some specifications. Thus, multinationals do not seem to consider seriously the financial risk of the host country.

The Determinants of Country Risk in Eastern European Countries. Evidence from Sovereign Bond Spreads. Bruges European Economic Research (BEER) Papers 8/November 2006

The paper studies country risk in two Central and Eastern European countries - Bulgaria and Poland. The long run relationship between the yield differential (spread) of Eastern European national bonds (denominated in US dollars) over a US Treasury bond on one the hand and the country’s fundamentals as well as an US interest rate on the other hand, is examined. The cointegrated VAR model is used. First, the yield differentials are analyzed on a country by country basis to extract stochastic trends which are common for all bonds in a given country. Thereafter, the risk is disentangled into country and higher level risk. This paper is among the first ones which use time series data to study the evidence from sovereign bond spreads in Eastern Europe.

Risk and global change : developing scientific methods for advocacy and awareness raising

Les catastrophes sont souvent perçues comme des événements rapides et aléatoires. Si les déclencheurs peuvent être soudains, les catastrophes, elles, sont le résultat d'une accumulation des conséquences d'actions et de décisions inappropriées ainsi que du changement global. Pour modifier cette perception du risque, des outils de sensibilisation sont nécessaires. Des méthodes quantitatives ont été développées et ont permis d'identifier la distribution et les facteurs sous- jacents du risque.¦Le risque de catastrophes résulte de l'intersection entre aléas, exposition et vulnérabilité. La fréquence et l'intensité des aléas peuvent être influencées par le changement climatique ou le déclin des écosystèmes, la croissance démographique augmente l'exposition, alors que l'évolution du niveau de développement affecte la vulnérabilité. Chacune de ses composantes pouvant changer, le risque est dynamique et doit être réévalué périodiquement par les gouvernements, les assurances ou les agences de développement. Au niveau global, ces analyses sont souvent effectuées à l'aide de base de données sur les pertes enregistrées. Nos résultats montrent que celles-ci sont susceptibles d'être biaisées notamment par l'amélioration de l'accès à l'information. Elles ne sont pas exhaustives et ne donnent pas d'information sur l'exposition, l'intensité ou la vulnérabilité. Une nouvelle approche, indépendante des pertes reportées, est donc nécessaire.¦Les recherches présentées ici ont été mandatées par les Nations Unies et par des agences oeuvrant dans le développement et l'environnement (PNUD, l'UNISDR, la GTZ, le PNUE ou l'UICN). Ces organismes avaient besoin d'une évaluation quantitative sur les facteurs sous-jacents du risque, afin de sensibiliser les décideurs et pour la priorisation des projets de réduction des risques de désastres.¦La méthode est basée sur les systèmes d'information géographique, la télédétection, les bases de données et l'analyse statistique. Une importante quantité de données (1,7 Tb) et plusieurs milliers d'heures de calculs ont été nécessaires. Un modèle de risque global a été élaboré pour révéler la distribution des aléas, de l'exposition et des risques, ainsi que pour l'identification des facteurs de risque sous- jacent de plusieurs aléas (inondations, cyclones tropicaux, séismes et glissements de terrain). Deux indexes de risque multiples ont été générés pour comparer les pays. Les résultats incluent une évaluation du rôle de l'intensité de l'aléa, de l'exposition, de la pauvreté, de la gouvernance dans la configuration et les tendances du risque. Il apparaît que les facteurs de vulnérabilité changent en fonction du type d'aléa, et contrairement à l'exposition, leur poids décroît quand l'intensité augmente.¦Au niveau local, la méthode a été testée pour mettre en évidence l'influence du changement climatique et du déclin des écosystèmes sur l'aléa. Dans le nord du Pakistan, la déforestation induit une augmentation de la susceptibilité des glissements de terrain. Les recherches menées au Pérou (à base d'imagerie satellitaire et de collecte de données au sol) révèlent un retrait glaciaire rapide et donnent une évaluation du volume de glace restante ainsi que des scénarios sur l'évolution possible.¦Ces résultats ont été présentés à des publics différents, notamment en face de 160 gouvernements. Les résultats et les données générées sont accessibles en ligne (http://preview.grid.unep.ch). La méthode est flexible et facilement transposable à des échelles et problématiques différentes, offrant de bonnes perspectives pour l'adaptation à d'autres domaines de recherche.¦La caractérisation du risque au niveau global et l'identification du rôle des écosystèmes dans le risque de catastrophe est en plein développement. Ces recherches ont révélés de nombreux défis, certains ont été résolus, d'autres sont restés des limitations. Cependant, il apparaît clairement que le niveau de développement configure line grande partie des risques de catastrophes. La dynamique du risque est gouvernée principalement par le changement global.¦Disasters are often perceived as fast and random events. If the triggers may be sudden, disasters are the result of an accumulation of actions, consequences from inappropriate decisions and from global change. To modify this perception of risk, advocacy tools are needed. Quantitative methods have been developed to identify the distribution and the underlying factors of risk.¦Disaster risk is resulting from the intersection of hazards, exposure and vulnerability. The frequency and intensity of hazards can be influenced by climate change or by the decline of ecosystems. Population growth increases the exposure, while changes in the level of development affect the vulnerability. Given that each of its components may change, the risk is dynamic and should be reviewed periodically by governments, insurance companies or development agencies. At the global level, these analyses are often performed using databases on reported losses. Our results show that these are likely to be biased in particular by improvements in access to information. International losses databases are not exhaustive and do not give information on exposure, the intensity or vulnerability. A new approach, independent of reported losses, is necessary.¦The researches presented here have been mandated by the United Nations and agencies working in the development and the environment (UNDP, UNISDR, GTZ, UNEP and IUCN). These organizations needed a quantitative assessment of the underlying factors of risk, to raise awareness amongst policymakers and to prioritize disaster risk reduction projects.¦The method is based on geographic information systems, remote sensing, databases and statistical analysis. It required a large amount of data (1.7 Tb of data on both the physical environment and socio-economic parameters) and several thousand hours of processing were necessary. A comprehensive risk model was developed to reveal the distribution of hazards, exposure and risk, and to identify underlying risk factors. These were performed for several hazards (e.g. floods, tropical cyclones, earthquakes and landslides). Two different multiple risk indexes were generated to compare countries. The results include an evaluation of the role of the intensity of the hazard, exposure, poverty, governance in the pattern and trends of risk. It appears that the vulnerability factors change depending on the type of hazard, and contrary to the exposure, their weight decreases as the intensity increases.¦Locally, the method was tested to highlight the influence of climate change and the ecosystems decline on the hazard. In northern Pakistan, deforestation exacerbates the susceptibility of landslides. Researches in Peru (based on satellite imagery and ground data collection) revealed a rapid glacier retreat and give an assessment of the remaining ice volume as well as scenarios of possible evolution.¦These results were presented to different audiences, including in front of 160 governments. The results and data generated are made available online through an open source SDI (http://preview.grid.unep.ch). The method is flexible and easily transferable to different scales and issues, with good prospects for adaptation to other research areas. The risk characterization at a global level and identifying the role of ecosystems in disaster risk is booming. These researches have revealed many challenges, some were resolved, while others remained limitations. However, it is clear that the level of development, and more over, unsustainable development, configures a large part of disaster risk and that the dynamics of risk is primarily governed by global change.

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.

On the Efficiency of the Benchmarks Used in the Asset Management

In this work we studied the efficiency of the benchmarks used in the asset management industry. In chapter 2 we analyzed the efficiency of the benchmark used for the government bond markets. We found that for the Emerging Market Bonds an equally weighted index for the country weights is probably the more suited because guarantees maximum diversification of country risk but for the Eurozone government bond market we found a GDP weighted index is better because the most important matter is to avoid a higher weight for highly indebted countries. In chapter 3 we analyzed the efficiency of a Derivatives Index to invest in the European corporate bond market instead of a Cash Index. We can state that the two indexes are similar in terms of returns, but that the Derivatives Index is less risky because it has a lower volatility, has values of skewness and kurtosis closer to those of a normal distribution and is a more liquid instrument, as the autocorrelation is not significant. In chapter 4 it is analyzed the impact of fallen angels on the corporate bond portfolios. Our analysis investigated the impact of the month-end rebalancing of the ML Emu Non Financial Corporate Index for the exit of downgraded bond (the event). We can conclude a flexible approach to the month-end rebalancing is better in order to avoid a loss of valued due to the benchmark construction rules. In chapter 5 we did a comparison between the equally weighted and capitalization weighted method for the European equity market. The benefit which results from reweighting the portfolio into equal weights can be attributed to the fact that EW portfolios implicitly follow a contrarian investment strategy, because they mechanically rebalance away from stocks that increase in price.

Kockázattal kiegészített Taylor-szabályok becslése Magyarországra = Estimation of risk-augmented Taylor rules for Hungary

Cikkünkben a magyar monetáris politikát vizsgáljuk olyan szempontból, hogy kamatdöntései meghozatalakor figyelembe vette-e az országkockázatot, és ha igen, hogyan. A kérdés megválaszolásához a monetáris politika elemzésének leggyakoribb eszközét használjuk: az ország monetáris politikáját leíró Taylor-szabályokat becslünk. A becslést több kockázati mérőszámmal is elvégeztük több, különféle Taylor-szabályt használva. Az érzékenységvizsgálatban az inflációhoz és a kibocsátási réshez is alkalmaztunk más, az alapspecifikációban szereplőtől eltérő mérőszámokat. Eredményeink szerint a Magyar Nemzeti Bank kamatdöntései jól leírhatók egy rugalmas, inflációs célkövető rezsimmel: a Taylor-szabályban szignifikáns szerepe van az inflációs céltól való eltérésének és - a szabályok egy része esetén - a kibocsátási résnek. Emellett a döntéshozók figyelembe vették az országkockázatot is, annak növekedésére a kamat emelésével válaszoltak. Az országkockázat Taylor-szabályba történő beillesztése a megfelelő kockázati mérőszám kiválasztása esetén jelentős mértékben képes javítani a Taylor-szabály illeszkedését. _____ The paper investigates the degree to which Hungarian monetary policy has considered country risk in its decisions and if so, how. The answer was sought through the commonest method of analysing a countrys monetary policy: Taylor rules for describing it. The estimation of the rule was prepared using several risk indicators and applying various types of Taylor rules. As a sensitivity analysis, other indicators of inflation and output gap were employed than in the base rule. This showed that the interest-rate decisions of the National Bank of Hungary can be well described by a flexible inflation targeting regime: in the Taylor rules, deviation of inflation from its target has a significant role and the output gap is also significant in one part of the rules. The decision-makers also considered country risk and responded to an increase in it by raising interest rates. Insertion of country risk into the Taylor rule could improve the models fit to an important degree when choosing an appropriate risk measure.