• The Korean Journal of Applied Statistics
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• v.24 no.2
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• pp.253-268
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• 2011

In this paper, we estimate systematic risk from credit migration (or transition) matrices under "Asymptotic Single Risk Factor" model. We analyzed transition matrices issued by KR(Korea Ratings) and concluded that systematic risk implied on credit migration somewhat coincide with the real economic cycle. Especially, we found that systematic risk implied on credit migration is better than that implied on the default rate. We also emphasize how to conduct a stress test using systematic risk extracted from transition migration. We argue that the proposed method in this paper is better than the usual method that is only considered for the conditional probability of default(PD). We found that the expected loss critically increased when we explicitly consider the change of credit quality in a given portfolio, compared to the method considering only PD.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.11
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• pp.117-126
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• 2020

This paper is aimed to explore the co-movement capital market in Southeast Asia and analysis the correlation of conventional and Islamic Index in the regional and global equity. This research become necessary to represent the risk on the capital market and measure market performance, as investor considers the volatility before investing. The time series daily data use from April 2012 to April 2020 both conventional and Islamic stock index in Malaysia and Indonesia. This paper examines the dynamics of conditional volatilities and correlations between those markets by using Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH). Our result shows that conventional or composite index in Malaysia less volatile than Islamic, but on the other hand, both drive correlation movement. The other output captures that Islamic Index in Indonesian capital market more gradual volatilities than the Composite Index that tends to be low in risk so that investors intend to keep the shares. Generally, the result shows a correlation in each country for conventional and the Islamic index. However, Internationally Indonesia and Malaysia composite and Islamic is low correlated. Regionally Indonesia's indices movement looks to be more correlated and it's similar to Malaysian Capital Market counterparts. In the global market distress condition, the diversification portfolio between Indonesia and Malaysia does not give many benefits.

• Journal of Korean Society of Industrial and Systems Engineering
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• v.41 no.4
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• pp.81-90
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• 2018

Modern investment theory has empirically proved that stock returns can be explained by several factors such as market risk, firm size, and book-to-market ratio. Other unknown factors affecting stock returns are also believed to still exist yet to be found. We believe that one of such factors is the operational efficiency of firms in transforming inputs to outputs, considering the fact that operations is a fundamental and primary function of any type of businesses. To support this belief, this study intends to empirically study the relationship between firm efficiency and stock price performance. Firm efficiency is measured using data envelopment analysis (DEA) with inputs and outputs obtained from financial statements. We employ cross-efficiency evaluation to enhance the discrimination power of DEA with a secondary objective function of aggressive formulation. Using the CAPM-based performance regression model, we test the performance of equally weighted portfolios of different sizes selected based upon DEA cross-efficiency scores along with a buy & hold trading strategy. For the empirical test, we collect financial data of domestic firms listed in KOSPI over the period of 2000~2016 from well-known financial databases. As a result, we find that the porfolios with highly efficient firms included outperform the benchmark market portfolio after controlling for the market risk, which indicates that firm efficiency plays a important role in explaining stock returns.

• The Journal of the Convergence on Culture Technology
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• v.5 no.4
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• pp.277-282
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• 2019

This study analyzed the determinants of the financial Soundness of savings banks. In particular, empirical analysis was carried out on how the loan deposit ratio correlates with financial soundness after restructuring. As the restructuring of savings banks was finalized in 2014, asset management changed and it is time to analyze the financial characteristics of savings banks. In summary, the relationship between the savings bank lending rate and the NPL ratio is estimated to have a negative value at the 1% significance level. In other words, the higher the mortgage rate, the lower the substandard and below ratio. It can be said that it is not easy for a savings bank to build an aggressive loan portfolio. In other words, the more difficult it is to finance loans through savings deposits, the more likely the risk aversion tends to be. The higher the corporate loan ratio, average interest expense, and economic growth rate, the higher the risk index. The larger the asset size and the higher the loan growth rate, the lower the risk index. Increasing the mortgage rate may reduce risk-seeking behavior, but it does not mean that it is unconditionally positive for savings banks. Therefore, the loan deposit rate regulation should reduce the incentives for excessive asset expansion and manage preemptive soundness through lending portfolio management.

• Environmental and Resource Economics Review
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• v.23 no.4
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• pp.583-615
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• 2014

Including the rolling black out in 2011, Korea has suffered from rapid increase of electricity consumption and demand forecasting failure for last five years. In addition, because of the Fukushima disaster, high fuel prices, and introduction of new generation sources such as renewables, the uncertainty on a power supply strategy increases. Consequently, a stable power supply becomes the new agenda and a revisino of strategy for new power generation sources is needed. In the light of this, we appraises the sixth basic plan for long term electricity demand and supply considering the changes of foreign and domestic conditions. We also simulate a strategy for the new power generation sources using a portfolio analysis method. As results, a diversity of power generation sources will increase and the share of renewable power generation will be surged on the assumptions of a cost reduction of renewable power sources and an increase of fuel costs. Particularly, on the range of a risk level(standard deviation) from 0.06 and 0.09, the efficient frontier has the most various power sources. Besides, the existing power plan is not efficient so that an improvement is needed. Lastly, the development of an electricity storage system and energy management system is necessary to make a stable and efficient power supply condition.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.12
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• pp.615-626
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• 2020

The purpose of this study is to analyze the determinants of risk factor model for the Jordanian banking stocks from 2006 to 2018. This study employs the Five-factor Fama and French's (2015) methodology and uses the annual returns of all Jordanian banks including 2 Islamic and 13 commercial banks listed on the Amman Stock Exchange (ASE) over a period of 13 years. The results show that the factors of value and profitability have an important role in evaluating the expected return in Jordanian banking stocks. Moreover, the value HML and profitability RMW factors provide the highest cumulative returns among these five factors, while the investment CMA and size SMB factors are still around zero cumulative returns. For the market factor, it provides the least negative cumulative returns. The results showed that the largest correlation is between value and investment factors which means that banks with a high book to market value become banks with a conservative investment strategy. The result of the sub-periods confirmed the value and profitability results. The findings of this study suggest that the five-factor Fama and French model is the choice of building an investment portfolio, especially the factors of value and profitability.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.8
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• pp.1-12
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• 2021

Altman's Z-score is used to measure a company's financial health and to predict the probability that a company will collapse within 2 years. It is proven to be very accurate to forecast bankruptcy in a wide variety of contexts and markets. The goal of this study is to use Altman's Z-score model to forecast insolvency in non-financial publicly traded enterprises. Non-financial firms are a significant industry in Malaysia, and current trends of consolidation and long-term government subsidies make assessing the financial health of such businesses critical not just for the owners, but also for other stakeholders. The sample of this study includes 84 listed companies in the Kuala Lumpur Stock Exchange. Of the 84 companies, 52 are considered high risk, and 32 are considered low-risk companies. Secondary data for the analysis was gathered from chosen companies' financial reports. The findings of this study show that the Altman model may be used to forecast a company's financial collapse. It dispelled any reservations about the model's legitimacy and the utility of applying it to predict the likelihood of bankruptcy in a company. The findings of this study have significant consequences for investors, creditors, and corporate management. Portfolio managers may make better selections by not investing in companies that have proved to be in danger of failing if they understand the variables that contribute to corporate distress.

• Journal of Distribution Science
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• v.13 no.5
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• pp.71-82
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• 2015

Purpose - The purpose of this study is to investigate risk price implied from the pricing kernel of Korean stock distribution market. Recently, it is considered that the quantitative easing programs of major developed countries are contributing to a reduction in global uncertainty caused by the 2007~2009 financial crisis. If true, the risk premium as compensation for global systemic risk or economic uncertainty should show a decrease. We examine whether the risk price in the Korean stock distribution market has declined in recent years, and attempt to provide practical implications for investors to manage their portfolios more efficiently, as well as academic implications. Research design, data and methodology - To estimate the risk price, we adopt a non-parametric method; the minimum norm pricing kernel method under the LOP (Law of One Price) constraint. For the estimation, we use 17 industry sorted portfolios provided by the KRX (Korea Exchange). Additionally, the monthly returns of the 17 industry sorted portfolios, from July 2000 to June 2014, are utilized as data samples. We set 120 months (10 years) as the estimation window, and estimate the risk prices from July 2010 to June 2014 by month. Moreover, we analyze correlation between any of the two industry portfolios within the 17 industry portfolios to suggest further economic implications of the risk price we estimate. Results - According to our results, the risk price in the Korean stock distribution market shows a decline over the period of July 2010 to June 2014 with statistical significance. During the period of the declining risk price, the average correlation level between any of the two industry portfolios also shows a decrease, whereas the standard deviation of the average correlation shows an increase. The results imply that the amount of systematic risk in the Korea stock distribution market has decreased, whereas the amount of industry-specific risk has increased. It is one of the well known empirical results that correlation and uncertainty are positively correlated, therefore, the declining correlation may be the result of decreased global economic uncertainty. Meanwhile, less asset correlation enables investors to build portfolios with less systematic risk, therefore the investors require lower risk premiums for the efficient portfolio, resulting in the declining risk price. Conclusions - Our results may provide evidence of reduction in global systemic risk or economic uncertainty in the Korean stock distribution market. However, to defend the argument, further analysis should be done. For instance, the change of global uncertainty could be measured with funding costs in the global money market; subsequently, the relation between global uncertainty and the price of risk might be directly observable. In addition, as time goes by, observations of the risk price could be extended, enabling us to confirm the relation between the global uncertainty and the effect of quantitative easing. These topics are beyond our scope here, therefore we reserve them for future research.

• Communications for Statistical Applications and Methods
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• v.24 no.5
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• pp.507-518
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• 2017

Volatility plays a crucial role in theory and applications of asset pricing, optimal portfolio allocation, and risk management. This paper proposes a combined model of autoregressive moving average (ARFIMA), generalized autoregressive conditional heteroscedasticity (GRACH), and skewed-t error distribution to accommodate important features of volatility data; long memory, heteroscedasticity, and asymmetric error distribution. A fully Bayesian approach is proposed to estimate the parameters of the model simultaneously, which yields parameter estimates satisfying necessary constraints in the model. The approach can be easily implemented using a free and user-friendly software JAGS to generate Markov chain Monte Carlo samples from the joint posterior distribution of the parameters. The method is illustrated by using a daily volatility index from Chicago Board Options Exchange (CBOE). JAGS codes for model specification is provided in the Appendix.

• The Korean Journal of Financial Studies
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• v.3 no.2
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• pp.329-364
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• 1996

Writing naked put options is a strategy employed either as a speculation to capture premium income, or as a method of placing a limit order to buy the underlying at the strike price in return for premium received. Using a Monte Carlo simulation, twenty thousand equity prices are generated under known volatility and return parameters. A binomial tree is constructed using the same volatility and return parameters. Put options on these 'equities' are valued with the binomial methodology. The performance of various put writing strategies is evaluated on a risk-adjusted basis. Evidence presented suggests that the judicious use of put options may enhance returns during portfolio construction.