Christos Floros

Hedge ratios in Greek stock index futures market

This paper examines hedging in Greek stock index futures market. The focus is on various techniques to estimate constant or time-varying hedge ratios. For both available stock index futures contracts of the Athens Derivatives Exchange (ADEX), a variety of econometric models are employed to derive and estimate underlying hedge ratios. Standard OLS regressions, simple and vector error correction models, as well as multivariate generalized autoregressive heteroscedasticity (M-GARCH) models are employed to estimate corresponding hedge ratios that can be employed in hedging (viewed as risk management). In both cases for Greek stock index futures, M-GARCH models (capturing time-variation) provide best hedging ratios, in line with similar findings in the literature. These models are strongly recommended to risk managers dealing with Greek stock index futures.

Bank profitability and inflation: the case of China

Purpose – The purpose of this paper is to evaluate the determinants of bank profitability in China. It examines the effects of inflation on bank profitability, while controlling for comprehensive bank‐specific and industry‐specific variables.Design/methodology/approach – The sample comprises a total of 101 banks (five state‐owned banks, 12 joint‐stock commercial banks and 84 city commercial banks). The period under consideration extends from 2003‐2009. The two step generalized methods of moments (GMM) estimators are applied.Findings – Empirical results exhibit that there is a positive relationship between bank profitability, cost efficiency, banking sector development, stock market development and inflation in China. The authors report that low profitability can be explained by higher volume of non‐traditional activity and higher taxation. Moreover, the authors confirm that there is a competitive environment in the Chinese banking industry. Furthermore, the authors propose policy actions that should be ta...

The monthly and trading month effects in Greek stock market returns: 1996‐2002

Purpose - The paper aims to investigate the monthly and trading month effects in the stock market returns of the ASE using daily data before and after the crisis of 1999-2001. In addition, the study seeks to consider data from both periods of the ASE, before and after the upgrade of the market (May 2001). Design/methodology/approach - This paper examines the calendar effects in the Greek stock market returns using an ordinary least squares (OLS) model. Daily closing prices of the General ASE Index, FTSE/ASE-20 and FTSE/ASE Mid 40 are used to calculate daily returns. The time period includes data from 26 November 1996 to 12 July 2002 for General ASE Index, 23 September 1997-30 August 2001 for FTSE/ASE-20 and 8 December 1999-30 August 2001 for FTSE/ASE Mid 40. Findings - The results show that there is no January effect. In other words, daily returns are not higher in January than in any other month. Moreover, the results for the trading month effect show higher (but not significant) returns over the first fortnight of the month. Practical implications - The results have important implications for both traders and investors. The findings are strongly recommended to financial managers dealing with Greek stock indices. Originality/value - The contribution of this paper is to provide evidence using data before and after the financial crisis of 1999-2001 in Greece.

Long memory in the Portuguese stock market

Purpose - This papers aim is to test for the presence of fractional integration, or long memory, in the daily returns of the Portuguese stock market using autoregressive fractionally integrated moving average (ARFIMA), generalised autoregressive conditional heteroskedasticity (GARCH) and ARFIMA-FIGARCH models. Design/methodology/approach - The data cover two periods: 4 January 1993-13 January 2006 (full sample), and 1 February 2002-13 January 2006 (that is, data are considered after the merger of the Portuguese Stock Exchange with Euronext). Findings - The results from the full sample show strong evidence of long memory in stock returns. When data after the merger are considered, weaker evidence of long memory is found. It is concluded that the Portuguese stock market is more efficient after the merger with Euronext. Originality/value - The findings of this paper are helpful to financial managers and investors dealing with Portuguese stock indices.

Bank profitability and GDP growth in China: a note

This article examines the effect of GDP growth on bank profitability in China over the period 2003–2009. The one-step system GMM estimator is used to test the persistence of profitability in the Chinese banking industry. The empirical findings suggest that cost efficiency is positively related to bank profitability, while lower profitability can also be explained by higher taxes paid by banks. In addition, there is a negative relationship between GDP growth and bank profitability. Furthermore, the results show that (1) the profitability in the Chinese banking industry is significantly affected by the level of non-performing loans, and (2) Chinese banks with higher levels of capital have lower profitability. Finally, we find that the departure from a perfectly competitive market structure in the Chinese banking industry is relatively small.

Stock market returns and the temperature effect: new evidence from Europe

In this article we investigate if stock market returns are related to temperature. Research in behavioural finance shows that lower temperature can lead to aggression, while higher temperature can lead to both apathy and aggression (Cao and Wei, 2005). Evidence from previous studies suggests that the temperature anomaly is characterized by a negative relationship between stock market returns and temperature. We consider daily financial and temperature data from five European countries: Austria, Belgium, France, Greece and UK. Using a Generalized Autoregressive Conditional Heteroscedasticity (GARCH) method, we find a negative relationship between temperature and stock market returns for Austria, Belgium and France only. Greece and UK show a positive but not significant correlation between temperature and stock market returns. These findings are strongly recommended to financial managers and investors dealing with European stock indices.

Evaluating value-at-risk models before and after the financial crisis of 2008: International evidence

Purpose - The purpose of this paper is to focus on the performance of three alternative value-at-risk (VaR) models to provide suitable estimates for measuring and forecasting market risk. The data sample consists of five international developed and emerging stock market indices over the time period from 2004 to 2008. The main research question is related to the performance of widely-accepted and simplified approaches to estimate VaR before and after the financial crisis. Design/methodology/approach - VaR is estimated using daily data from the UK (FTSE 100), Germany (DAX30), the USA (SP classic GARCH(1,1) model of conditional variance assuming a conditional normally distributed returns; and asymmetric GARCH with skewed Student- Findings - The paper provides evidence that the tools of quantitative finance may achieve their objective. The results indicate that the widely accepted and simplified ARCH framework seems to provide satisfactory forecasts of VaR, not only for the pre-2008 period of the financial crisis but also for the period of high volatility of stock market returns. Thus, the blame for financial crisis should not be cast upon quantitative techniques, used to measure and forecast market risk, alone. Practical implications - Knowledge of modern risk management techniques is required to resolve the next financial crisis. The next crisis can be avoided only when financial risk managers acquire the necessary quantitative skills to measure uncertainty and understand risk. Originality/value - The main contribution of this paper is that it provides evidence that widely accepted/used methods give reliable VaR estimates and forecasts for periods of financial turbulence (financial crises).

The efficiency of Greek stock index futures market

Purpose - The papers objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999-2001; to investigate the short-run and long-run efficiency of the FTSE/ASE-20 stock index futures contract and FTSE/ASE Mid 40 stock index futures contract traded on the Athens Derivatives Exchange (ADEX). Design/methodology/approach - This paper examines efficiency of the Greek stock index futures market from 1999 to 2001. A variety of econometric models are employed to test for cointegration between prices. The paper uses daily data from the Athens Stock Exchanges (ASEs) and the ADEX. A more detailed discussion on the causal relationship between spot and futures price in ADEX is obtained by using the impulse response functions of the vector error-correction model (to study the behaviour of series from real shocks). Findings - The results show that the Greek futures and spot prices form a stable long-run relationship. For both FTSE/ASE-20 and FTSE/ASE Mid 40, futures markets play a price discovery role, implying that futures prices contain useful information about spot prices. Futures markets are informationally more efficient than underlying stock markets in Greece. Practical implications - The results have important implications for both traders and speculators. The findings are strongly recommended to financial managers dealing with Greek stock index futures. Originality/value - The contribution of this paper is to provide evidence using data from the early stage of the ADEX (started its official operation on 27 August 1999). It also investigates whether the hypotheses exist after the dramatic rise of ASE stock prices.

The use of GARCH models for the calculation of minimum capital risk requirements: International evidence

Purpose - The paper seeks to explain volatility and risk (VaR) modelling using data from international financial markets, and particularly to evaluate the performance of minimum capital risk requirements (MCRR) estimates in an out-of-sample period using the bootstrapping approach. Design/methodology/approach - This paper captures financial time series characteristics by employing the GARCH( Findings - The results show that higher capital requirements are necessary for a short position since a loss is more likely than for a long position. Research limitations/implications - Future research should examine the performance of multivariate time series models when using daily and monthly returns of international mature and emerging markets. Consequently, it is of interest to consider multivariate models to describe the volatility and market risk of several time series jointly, to exploit possible linkages that exist. Practical implications - The findings are strongly recommended to risk managers and modellers dealing with US and European financial markets. Originality/value - The contribution of this paper is to provide new evidence from international equity markets to the modelling of financial time series by explaining volatility and VaR (MCRR) estimates in the US and European markets. This paper explains the functioning of financial markets and the process by which financing decisions are reached through risk modelling.

Stock market volatility and bank performance in China

Purpose - The purpose of this paper is to evaluate the determinants of bank performance in China. In particular, the paper examines the effects of stock market volatility, competition and ownership on bank performance in China. Design/methodology/approach - The sample comprises a total of 11 banks (four state-owned and seven joint-stock commercial banks) listed in the Chinese Stock Exchanges. The period under consideration extends from 2003-2009. The generalized methods of moments (GMM) difference and system estimators are applied. Findings - Empirical results show that high level of stock market volatility can translate into higher return on equity (ROE) and excess return on equity (EROE). Rather than leading to improved profitability, the labour productivity has a negative impact on economic value added (EVA). Ownership does not have any effect on the profitability of Chinese banking industry. The bank profitability in terms of ROE and EROE is lower in the banking industry with higher competition. When using the GMM with ROE-COC and ROE, the paper finds that high taxation has a negative impact on both state-owned and joint-stock banks, while the capital level is negatively related to joint-stock commercial banks. With regards to the other two performance indicators (EVA and NIM), the result suggests that higher cost efficiency and labour productivity improve the performance of both state-owned and joint-stock commercial banks. Large volume of non-traditional activity is the explanation of poor performance of state-owned commercial banks, while higher credit risk, lower taxation and the mature banking industry are helpful in improving the performance of joint-stock commercial banks. Research limitations/implications - Further research should examine other methods (e.g. the Rosse-Panzar H statistic) to calculate the bank competition in China, and other determinants of bank performance in Asian countries and compare them with these results. Social implications - The current study has relevant policy implications. First, in order to increase the profit earned from the traditional loan-deposit services, the Chinese banks should make loans to the high risk projects or companies, and control the expenses including both the operating and personnel expenses. Furthermore, the government and bank regulatory authority should make policy such as inject capital to SOCBs and write-off NPLs for them to reduce the degree of competition in order to make banks have better performance. Originality/value - Particular emphasis is given on the investigation into the effects of stock market volatility, competition and ownership on bank performance in China while controlling for the most comprehensive bank-specific, industry specific and macroeconomic variables.