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Risk Management in Capital Markets
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Risk Management in Capital Markets

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Financial Markets".

Deadline for manuscript submissions: 30 April 2025 | Viewed by 7931

Special Issue Editor

Prof. Dr. Abdullahi Dahir Ahmed

E-Mail Website
Guest Editor
School of Accounting, Information Systems and Supply Chain, RMIT University, Melbourne 3000, Australia
Interests: behavioural finance; applied finance; quantitative finance; risk management, international financial flows; green finance

Special Issue Information

Dear Colleagues,

Capital markets play a critical role in facilitating financial intermediation and mobilizing monetary savings to provide timely access to finance, support risk management and propel economic growth. More importantly, efficient capital markets are effective in helping long-term investment and fostering investors’ portfolio diversification and risk-taking. While supporting individuals to grow their wealth over time, these markets also allow businesses to diversify their sources of investment and to raise cheaper financial capital required for growth. Capital markets often enhance international linkage and foster stock markets correlations so as to influence asset returns, price volatility and risk-sharing among investors. Given today’s unprecedented financial disruption, many economies have undertaken continuous reforms to manage cross-border trade and investment uncertainties. Therefore, global international markets are, today, more integrated with the rest of the world and these institutions do respond rapidly to adverse shocks from global economic outlook and key foreign macroeconomic announcements. On the other hand, capital market liberalizations over the last two decades have significantly supported the correlation between emerging and advanced markets while also helping in the reduction in volatility challenges in most emerging markets. However, overtime, challenges of market volatility represent a major uncertainty that play a significant role in influencing variations in stock returns and equity risk premiums. Notably, while investors generally tend to seek stability and predictability, market volatility means a higher cost of managing risks. Finally, in the context of rapidly changing international business environments, greater trade networks, increased communication and closer connectedness patterns have enhanced the possibilities for commodity markets to react rapidly and instantaneously to new information and innovation. In conclusion, it is not only important to examine risk management strategies in today’s marketplace, as investments are highly volatile, but also the impact of institutionalization, digitalization, modernization and globalization. 

Therefore, papers analyzing the impact of risk management in enhancing business growth and capital performance and in the context of financing investment decision-making are welcomed.

Prof. Dr. Abdullahi Dahir Ahmed
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • financial market linkages
  • risk management and regulatory reforms
  • risk connectedness and economic policy uncertainty
  • equity capital dynamics
  • volatility management
  • return and volatility spillover
  • price discovery process
  • funding/lending in today’s volatile markets
  • risk and social connectedness
  • stock price volatility connectedness
  • financial product innovation
  • capital mobility and investment opportunities
  • capital market integration
  • financial risk management
  • intermediation and monetary policy challenges

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Published Papers (6 papers)

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Research

11 pages, 296 KiB  
Article
Social Status, Portfolio Externalities, and International Risk Sharing
by Timothy K. Chue
J. Risk Financial Manag. 2024, 17(10), 464; https://doi.org/10.3390/jrfm17100464 - 14 Oct 2024
Viewed by 634
Abstract
We show that a model of “the spirit of capitalism”, or the concern for social status, can generate a high degree of international risk sharing as measured by asset prices, even when consumption and portfolio holdings exhibit “home bias”. We also show how [...] Read more.
We show that a model of “the spirit of capitalism”, or the concern for social status, can generate a high degree of international risk sharing as measured by asset prices, even when consumption and portfolio holdings exhibit “home bias”. We also show how portfolio externalities can arise in the model and highlight the caution that one needs in interpreting asset-price-based measures of international risk sharing: in the presence of portfolio externalities, even when the measured degree of risk sharing is perfect, it is still possible for government policies to induce investors to hold better-diversified portfolios and attain higher welfare. Full article
(This article belongs to the Special Issue Risk Management in Capital Markets)
26 pages, 2996 KiB  
Article
Mapping Risk–Return Linkages and Volatility Spillover in BRICS Stock Markets through the Lens of Linear and Non-Linear GARCH Models
by Raj Kumar Singh, Yashvardhan Singh, Satish Kumar, Ajay Kumar and Waleed S. Alruwaili
J. Risk Financial Manag. 2024, 17(10), 437; https://doi.org/10.3390/jrfm17100437 - 29 Sep 2024
Cited by 1 | Viewed by 1216
Abstract
This paper explores the influence of the risk–return relationship and volatility spillover on stock market returns of emerging economies, with a particular focus on the BRICS countries. This research is undertaken in a context where discussions on de-dollarization and the expansion of BRICS [...] Read more.
This paper explores the influence of the risk–return relationship and volatility spillover on stock market returns of emerging economies, with a particular focus on the BRICS countries. This research is undertaken in a context where discussions on de-dollarization and the expansion of BRICS membership are gaining momentum, making it a novel and distinct exercise compared to prior studies. Utilizing econometric techniques to investigate daily market returns from 1 April 2008 to 31 March 2023, a period that witnessed major events like the global financial crisis, the COVID-19 pandemic, and the Russia–Ukraine conflict, linear and non-linear models like ARCH, GARCH, GARCH-M, EGARCH, and TGARCH, are employed to assess stock return volatility behaviour, assuming a Gaussian distribution of error terms. The diagnostic test confirms that the distribution is non-normal, stationary, and heteroscedastic. The key findings indicate a lack of the risk–return relationship across all BRICS stock markets, except for South Africa; a more pronounced effect of unpleasant news over pleasant news; a slow mean-reverting process in volatility; the EGARCH model is the best fit model as evidenced by a higher log likelihood and lower Akaike information criterion and Schwardz information criterion parameters; and finally, the presence of significant bidirectional and unidirectional spillover effects in the majority of instances. These findings are valuable for investors, regulators, and policymakers in enhancing returns and mitigating risk through portfolio diversification and informed decision making. Full article
(This article belongs to the Special Issue Risk Management in Capital Markets)
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19 pages, 1697 KiB  
Article
Risk Analysis of Conglomerates with Debt and Equity Links
by Arturo Cifuentes and Rodrigo Roman
J. Risk Financial Manag. 2024, 17(9), 426; https://doi.org/10.3390/jrfm17090426 - 23 Sep 2024
Viewed by 762
Abstract
Conglomerates play an important role in the functioning of capital markets. Therefore, assessing their response to external shocks is a significant risk management challenge not only for conglomerate executives but also for investors and regulators alike. In this context, a conglomerate refers to [...] Read more.
Conglomerates play an important role in the functioning of capital markets. Therefore, assessing their response to external shocks is a significant risk management challenge not only for conglomerate executives but also for investors and regulators alike. In this context, a conglomerate refers to a group of companies typically operating across different industries and interconnected through both equity and debt relationships. Essentially, a conglomerate functions as a financial network whose nodes are linked by two layers of reciprocal connections. This paper introduces an algorithm to evaluate a conglomerate’s response to external shocks. Additionally, it proposes a protocol based on five key metrics that collectively summarize the conglomerate’s overall resilience. These metrics offer two major advantages: they facilitate comparisons between the strengths of different conglomerates and help assess the effectiveness of various strategies, such as internal capital reallocations, aimed at enhancing a conglomerate’s resilience. The algorithm’s usefulness, including its ability to detect cascades or “second-wave” defaults, is demonstrated through two illustrative examples. Full article
(This article belongs to the Special Issue Risk Management in Capital Markets)
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14 pages, 536 KiB  
Article
The Impact of Corporate Reputation on Cost of Debt: A Panel Data Analysis of Indian Listed Firms
by Amanpreet Kaur, Mahesh Joshi, Gagandeep Singh and Sharad Sharma
J. Risk Financial Manag. 2024, 17(8), 367; https://doi.org/10.3390/jrfm17080367 - 18 Aug 2024
Viewed by 1439
Abstract
The study analyses the impact of financial reputation on the cost of debt financing for Indian companies. In doing so, panel regression analysis is performed using firm-specific data on 395 Indian listed firms covering 2002–2017. The paper uses market capitalization as a benchmark [...] Read more.
The study analyses the impact of financial reputation on the cost of debt financing for Indian companies. In doing so, panel regression analysis is performed using firm-specific data on 395 Indian listed firms covering 2002–2017. The paper uses market capitalization as a benchmark of financial reputation. For robustness check, excess of market value over book value is also used as a proxy of financial reputation. The study found that the reputation of a firm in financial markets plays a vital role in determining the cost of financing. The results provide evidence supporting a significant negative relationship between financial reputation and the cost of debt. The findings provide motivation for corporate managers to invest in reputation-building activities to reduce the cost of borrowing. The relevance of reputation in lowering the cost of debt capital has garnered limited attention, especially in emerging economies like India. This study is a preliminary attempt to link two strands of research in the Indian context: financial reputation and the cost of debt. Full article
(This article belongs to the Special Issue Risk Management in Capital Markets)
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17 pages, 297 KiB  
Article
Corporate Cash Holdings and Investment Efficiency: Do Women Directors and Financial Crisis Matter?
by Ardianto Ardianto and Noor Adwa Sulaiman
J. Risk Financial Manag. 2024, 17(7), 311; https://doi.org/10.3390/jrfm17070311 - 22 Jul 2024
Viewed by 1309
Abstract
This study investigates the relationship between corporate cash holdings and investment efficiency, with a focus on how COVID-19 and the presence of women directors may influence this relationship. Using data from Indonesian public companies during the COVID-19 period, comprising 2350 firm-year observations, we [...] Read more.
This study investigates the relationship between corporate cash holdings and investment efficiency, with a focus on how COVID-19 and the presence of women directors may influence this relationship. Using data from Indonesian public companies during the COVID-19 period, comprising 2350 firm-year observations, we employ fixed-effect regression models with industry and year controls to test our hypotheses. Robustness and endogeneity tests are conducted to ensure the reliability of our findings. Our research reveals that companies with larger cash reserves tend to experience decreased investment efficiency during the COVID-19 crisis. Moreover, the negative impact of substantial cash reserves on investment efficiency is exacerbated by the presence of female directors on the board. However, our findings also suggest that female directors can mitigate the adverse effects of excessive cash reserves on a company’s investment efficiency, particularly during unforeseen economic challenges such as the pandemic. Full article
(This article belongs to the Special Issue Risk Management in Capital Markets)
18 pages, 1450 KiB  
Article
Impact of Ownership Structure and Dividends on Firm Risk and Market Liquidity
by Abhinav Rajverma
J. Risk Financial Manag. 2024, 17(7), 262; https://doi.org/10.3390/jrfm17070262 - 26 Jun 2024
Cited by 1 | Viewed by 1863
Abstract
This article examines the impact of ownership structure and dividend payouts on idiosyncratic risk and market liquidity using agency, signaling, and bankruptcy theories from an emerging market perspective. The evidence shows that family firms dominate and have concentrated ownership, and dividend payouts are [...] Read more.
This article examines the impact of ownership structure and dividend payouts on idiosyncratic risk and market liquidity using agency, signaling, and bankruptcy theories from an emerging market perspective. The evidence shows that family firms dominate and have concentrated ownership, and dividend payouts are lower among family firms than their counterparts. The idiosyncratic risk is high among firms with higher family ownership concentration. The family ownership concentration and control positively influence the (firm) risk, dividends positively affect the market liquidity, and risk relates negatively to the market liquidity, supporting the entrenchment of the minority shareholders’ proposition that a significant payout leads to a decrease in information asymmetry and a lower level of risk. The study further supports the proposition that information asymmetries are central to elucidating the dynamics of dividend payouts and their effects on firm risk and market liquidity. The evidence confirms that family ownership concentration affects policy decisions, especially ownership control. The paper’s originality lies in factoring ownership concentration when analyzing how payouts affect firm risk and market liquidity from an emerging markets perspective where controlling shareholders enjoy substantial private benefits, whereas minority shareholders have limited protection. Full article
(This article belongs to the Special Issue Risk Management in Capital Markets)
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