Giuseppe Galloppo

A review of methods for combining internal and external data

In recent years, the occurrence of operational losses in financial institutions has increased the interest of academics and policy makers in operational risk. One of the main problems regarding the economic capital required to cover operational risk is the lack of sufficiently large databases. We present a set of models mixing internal and external data to predict both the severity and the frequency of operational losses. We show that, rather than a one-size-fits-all solution, there are several approaches, each presenting opportunities and limitations in the logical framework. Our findings offer useful insights for enhanced risk practice and prudential supervision.

Analysis of closed real estate funds in Italy

AbstractIn this paper, we examine closed real estate funds, comparing the Italian case with the international closed real estate fund market. We study whether the public hand has acted in an efficient market way to achieve return results in line with private competitors. In the last 10 years, international closed real estate funds have had an annual average of 0.5%. This result represents a very poor performance when compared with the returns offered by international bonds (5.6%) or international l equity markets (6.9%). This positive trend, however, is not followed by the closed real estate investment fund sponsored by the Italian government. On average, during the recent financial crisis, the returns of the international closed real estate funds in the euro area increased by more than 14 percentage points, while those of the Swiss franc area were about 1.5%.(ProQuest: ... denotes formulae omitted.)The management of real estate owned by public administrations is a thorny issue. First, there is the problem of reducing the financial resources available to the public, and the consequent need to rationalize spending. Second, there is the need to transform public real assets, which are often considered a passive voice in a government budget, into a resource.A lot of policymakers stress that government should orient its decisions through public / private partnerships that employ innovative financing instruments that enable the development of modern actions, effective and efficient in managing and using public assets. The real challenge is to be found in the enhancement of the public as a strategic lever to overcome the balance crisis.In Italy since 1999 disposals of public assets have been made by using securitization or real estate funds. In Italy, securitization has led to significant divestments by both banks (mainly loans) and government institutions.In this paper, we deal with the subject of the performance of public real estate funds. This is a financial instrument that allows the investor to participate in the economic results of private enterprises taken in the housing sector, not using the typical pattern of participation in a company, but the scheme of assets managed by a professional intermediary. We tackle the issue of performance, not according to what is typically called the closed-end fund puzzle, but by focusing on public real estate funds.The difficulties of the Italian government are extensively known, and certainly exacerbated, by the persistent state of international crisis. Indeed, Italy, having accumulated a huge public debt, has decided to use these financial instruments to address different needs regarding public spending, health, and welfare. These difficulties, mainly to be reconnected to the high level of public debt, in January 2013 have exceeded the remarkable level of 2,000 billion euros. Among the various economic policy tools with which Italy has decided to deal with this crisis, there are closed real estate funds. Through these instruments, Italy is providing the sale of public assets through their implementation in financial instruments in the form of closed end funds.Innovation in the literature coming from our paper is mainly due to the evidence that the central topic of analysis is real estate funds that are in the public domain. To our knowledge, this situation is specific to Italy and is not typical of any other countries.This paper is organized as follows. We begin by providing an overview of the literature on closed real estate funds and REITs. We then describe investment vehicles in an Italian context. We also describe the framework of the Italian case, including the impact of the international financial crisis. In addition, we discuss public real estate funds, summarize current challenges, and provide a comparison between these financial instruments and Italian and international vehicles. We close with concluding remarks about this vehicle in the Italian context. …

Volatility and Liquidity in Eastern Europe Financial Markets under Efficiency and Transparency Conditions

ABSTRACT. Following the consequences of the global financial crises, transparency and efficiency conditions of a local economic system have become important remedies for restoring of financial markets. This study provides measure of transparency and efficiency with correlation to liquidity and volatility and is taking into account the stock price reaction of emerging financial stock markets of Eastern Europe area and Turkey. We find that observed countries dont fully answer the expected sign of transparency, liquidity and risk measure, which meets the innovation from previous works (Berglof, Pajuste, 2005). It raises doubts concerning functioning of legal basement in these countries and affects the decisions about investments. In line with previous research (Ivanov, Lomev and Bogdanova, 2012) our findings show that these countries dont prove to have certain transparency expectations, which could result in a limited access to market information and in a decrease of market efficiency.Keywords: Financial Crisis, Risk, Liquidity, Volatility, Emerging Market, Eastern Europe.JEL Classification : G010, G23, G24(ProQuest: ... denotes formulae omitted.)IntroductionCountries with emerging markets are trying to rebuild their economies according to developed market models and are becoming more attractive for investing and trading. According to Miyajima and Shim (2014) the total amount of Asset Under Management (AUM) by the largest 500 AMCs doubled from

The Effect of Monetary Policy Interventions on Stock Markets and G-SIFIs during the Crisis

35 trillion in 2002 to almost

Central Banks’ Communication Strategies: Just Words?

70 trillion in 2012, more specifically, after Leham Brothers, the total AUM of EME equity and bond dedicated funds increased from

Stock Market Reaction to Policy Intervention

900 billion in October 2007 to

Why Do US Banks React Differently to Short Selling Bans

1.4 trillion in May 2014. However, emerging markets of Eastern Europe experienced influences of financial crises dramatically. Injured by consequences of financial crises then others. According to ECB (2010) in Europe, the impact of the crisis varied across the countries (also varied the speed and the timing at which countries were affected) and coming from domestic demand, dependence from FDI, fiscal policy and external imbalances. Among the Eastern Europe countries, Poland has weathered the crisis relatively well, unlike the Baltic countries, Romania and Bulgaria.When talking about the GDP growth (annual %), all observed countries showed a sharp reduction of this index in 2009, especially Ukraine, Turkey, Romania and Lithuania. In the end of the second wave of financial crises (2012), such countries like Estonia, Latvia and Lithuania demonstrated the highest GDP growth among the observed group. However, there are negative meanings of GDP growth in Czech Republic and Hungary, while other countries reduced their GDP down to the minimum but still positive meaning. Moreover, it led to a limited role of local firms in the efficient resource allocation in these countries. It is worth of saying that Eastern European emerging markets are very young and weak, hence, they are still trying to reach a decent level of efficiency, which is a key factor for investors decisions. Eastern European markets are well-known for their lack of transparency and high level of corruption. However, exactly better transparency increases investors desire to work with a certain country.According to recent studies (Barth (2013), Francis and Huang (2009), Lang (2012), Jahanshad (2013)), transparency is meant to improve liquidity which in turn is crucial to deal with large quantities of securities very fast and with minimum costs. Moreover, timing of liquidity of Eastern European markets is very important due to possible illiquidity of stocks where they can become expensive to sell at the exact time suitable for investor. Liquidity uncertainty reflects in liquidity volatility, liquidity skewness, and extreme liquidity events which bring a negative image of a company and it reflects also on the whole local financial markets (Barth (2013), Lang (2011), Lang (2012)).We agree with previous studies (Ang, Ciccone (2000), Lin (2014), Millar (2005)), that transparency is a timely and reliable increase of certain information which is open for investors. …

Asian Fund Manager Performance: Factor Specialisation and Financial Crisis Impact

Central banks have run during the crisis a wide set of monetary policy interventions using new instruments and techniques to restore the monetary stability and thus re-establish the stability of financial (and banking) systems. We analyze the effect of monetary policy interventions on stock markets in the most advanced monetary areas (Euro area, Japan, U.S., U.K., and Switzerland). We estimate cumulated abnormal returns (CARs) around the announcement of each monetary policy intervention focusing on: 1) interbank credit market; 2) stock markets; and 3) Global Systematically Important Financial Institutions (G-SIFIs). We show that different monetary policy interventions from single central banks have produced a diverse market reaction. Non-conventional measures have been more effective than traditional ones in restoring the stability of financial and banking sectors. Dividing the sample period into three different time intervals, we also show that the impact of expansionary interventions was particularly significant during the subprime crisis, while the effect of restrictive interventions was more relevant during the sovereign debt crisis.

The ‘Wisdom of the Crowd’ as an Antidote to the Credit Crunch: A Preliminary Analysis of Crowdfunding

This chapter assesses the communication strategies of the Federal Reserve (FED) and the European Central Bank (ECB), as well as their respective effectiveness. We explore the multi-dimensional aspects of the information embedded in more than 800 statements released by the heads of the EU and US central banks. Using tools from computational linguistics, we analyse the information released by these central banks on the state of economic conditions, as well as the guidance they provide about future monetary policy decisions. First, this chapter looks at some dimensions of the communication (tone, growth, ambiguity). Subsequently, we pay attention to the scenario’s impact on the communication strategies of the ECB and FED, assessing whether these strategies are influenced by certain variables that depict the scenario of the financial and real economy. Our results confirm the title of this chapter: most of the time, there is no significant difference between the communication strategy of the FED or the ECB, whether or not there is an improvement in the economic variables under consideration. We found that changes in communication strategy are mainly linked to changes in the health of the financial system.

Alternative Neural Network Approaches for Enhancing Stock Picking Using Earnings Forecasts

We analyze stock price reactions to the announcements of monetary and fiscal policy actions in twelve stock exchanges worldwide. While previous studies analyzed the effect of policy interventions focusing on monetary policy (e.g. Ricci, 2015) or concentrated on a specific type of companies (e.g. banks), our paper focuses on the reaction of stock indices representing the whole stock exchange and indices representing various industries. By estimating abnormal stock reactions around the announcement date of a wide range of policy actions between the 1st June 2007 and 30th June 2012, we show that: 1) Stock industry-indices react to policy interventions in a different manner from that of the broad stock index suggesting the existence of portfolio diversification opportunities; 2) Expansionary monetary actions have a negative effect on stock prices, when sector indices are taken into account; 3) Stock return reacts negatively to restriction measures for general and non-financial sector indices; 4) There is a stronger price reaction to expansionary measures during the first (and the hardest) stage of financial crisis (1st June 2007-14th September 2008).