The impact of hedging and trading derivatives on value, performance and risk of European banks
The objective of this paper is to examine the relationship between bank characteristics, in particular
value, performance and volatility of bank stock returns, and its exposure to financial derivative contracts.
The study is based on 109 publicly traded European banks over the period from 2005 to 2010. The database
contains both accounting data from Bankscope and manually collected information from the notes to financial
statements. After controlling for bank-specific characteristics, time effects and cross-country differences,
we find that banks efficiently using hedging derivatives have a lower risk and a higher value. However,
this relationship becomes less pronounced or is inversed in the post-crisis period and concerns both
trading and hedging derivatives. For systemically important banks heavily involved in derivatives market
volatility of stock returns is higher and valuations are lower.We notice however that derivatives play second
fiddle to bank risk and performance. Our findings corroborate the importance of distinction of derivatives
by the purpose of use, which becomes less obvious for investors in the post-crisis period. Our results have
important policy implications, especially in the light of the recent debate over the necessity of separation of
risky banking activities from commercial bank branches (for instance, as proposed in Liikanen report) in an
attempt to reduce systemic risk. We emphasize the need for a higher transparency of disclosures regarding
hedge accounting and harmonisation of reporting formats across EU.
In most cases the ultimate goal of a bank is profit maximization. That depends on what derivatives one uses. Thus the objective of this research is to examine the relationship between a bank’s value and characteristics of derivatives it subscribed to. The financials from 2005 to 2010 of 130 European public banks countries are examined. The study is based on two sets of data: the
first one contains the accounting data on balance sheets and the profit and loss accounts from Bankscope from 2005 to 2010, while the second one includes the manually collected data from the notes to the financial statement disclosures. Regression analysis is used to trace the impact of derivative use on bank’s value. Time effects and cross-country differences are controlled for.
Two key research implications are as follows. The return on hedging derivatives is positively associated with the growth in bank’s stock returns, whereas trading derivatives’ notional value negatively impacts both Tobin’s q and ROAA, and positively impacts risk of the bank’s stocks.
Though the service sector is growing rapidly in the emerging markets, including Russia, the quality of services is still low in comparison with the developed countries. Thus, organizations should implement strategic services management and create a customer-oriented culture. To analyze the role of customer orientation in the service sector in Russia, banking industry is considered. Based on the data collection of fifty largest banks it is determined that only thirty percent of the sample declares customer orientation as a corporate value. The calculation of corporate value index demonstrated that banks pay less attention to customer focus and more frequently mention effectiveness, trust, teamwork, and openness as the main values. An analysis of required skills and competencies of employees also demonstrated that customer orientation is not one of the main requirements to personnel in Russia.
Internal rate of return IRR is one of the key criteria for justifying and choosing capital investments with conventional cash flows. However, this criterion is not practically used when the rate of return of investment instruments (short sales, options, futures, swaps) is calculated because these instruments create non-conventional cash flows. The author previously showed that IRR problems were observed when the present value of cash flows changed sign from period to period. This paper offers a criterion to evaluate the rate of return of investment instruments with non-conventional cash flows, i.e. General Rate of Return (GRR).
This is a common practice to analyze company performance based on financial results, linkage to the strategy, or analysis of human resources related indicators, such as productivity, employee engagement, etc.. The recent research, conducted in January – June, 2012 among Russian top banks was directed to measure the influence of publicly declarative corporate values and codes of ethics on performance. Based on the analysis of annual and social reports of Russian banks core corporate values were determined. To numerically quantify corporate values CV – Index (corporate value index) was calculated. The research found out statistically significant evidence that corporate values (CV-Index) positively correlates with net profit of top banks.
These empirical findings suggest that corporate ethics is vital for management of banks in emerging markets.
We develop a model of asset pricing and hedging for interconnected financial markets with frictions – transaction costs and portfolio constraints. The model is based on a control theory for random fields on a directed graph. Market dynamics are described by using von Neumann – Gale dynamical systems first considered in connection with the modelling of economic growth [13,24]. The main results are hedging criteria stated in terms of risk-acceptable portfolios and consistent price systems, extending the classical superreplication criteria formulated in terms of equivalent martingale measures.
Bringing together a team of scholars from the diverse fields of geography, literary studies, and history, this is the first volume to study water as a cultural phenomenon within the Russian/Soviet context. Water in this context is both a cognitive and cultural construct and a geographical and physical phenomenon, representing particular rivers (the Volga, the Chusovaia in the Urals, the Neva) and bodies of water (from Baikal to sacred springs and the flowing water of nineteenth-century estates), but also powerful systems of meaning from traditional cultures and those forged in the radical restructuring undertaken in the 1930s. Individual chapters explore the polyvalence and contestation of meanings, dimensions, and values given to water in various times and spaces in Russian history. The reservoir of symbolic association is tapped by poets and film-makers but also by policy-makers, the popular press, and advertisers seeking to incite reaction or drive sales. The volume's emphasis on the cultural dimensions of water will link material that is often widely disparate in time and space; it will also serve as the methodological framework for the analysis undertaken both within chapters and in the editors' introduction.
This paper presents a pattern behavioral analysis of 100 largest Russian commercial banks by total assets during an eight- year period: from the first quarter of 1999 to the second quarter of 2007. Bank performance indicators are analyzed. Structural similarities in the development of the banks are examined. A cluster analysis is applied to determine banks with a similar structure of operations. This analysis allows to estimate how the structure of the Russian banking system has been changing over time. In particular, it allows to identify prevailing patterns in the behavior of Russian commercial banks and to analyze the stability of their position in a particular pattern.
In this work the demand for the incoming tourism in the Russian Federation is modeling. The panel data for 16 countries - the basic sources of tourist streams - and the period with 2000 for 2009 are used. Modeling is spent separately for each of 10 tourist zones of Russia. In quality a determinant of demand there are considered a total national product in a country of origin, the exchange rate, transport charges, cost of residing, lag of the demand variable and the fictitious variables reflecting influence of shocks in quality a determinants of demand. The received estimations of dynamic models of demand correspond to expectations, are statistically significant and can be useful in practice of planning of development of entrance tourism in various municipal formations and regions of Russia.
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.
The paper examines the principles for the supervision of financial conglomerates proposed by BCBS in the consultative document published in December 2011. Moreover, the article proposes a number of suggestions worked out by the authors within the HSE research team.