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Über dieses Buch

This volume continues to highlight the latest research contributions presented at the annual Wroclaw conference in Finance (Poland), covering a wide range of topics in the field. The chapters reflect the extent, diversity, and richness of research areas, and discuss both fundamental and applied finance. A detailed analysis of current financial-market problems including specifics of Polish and Central European markets is also part of this volume. Selected chapters also examine the results of advanced financial modeling. These proceedings are a valuable resource for researchers in universities and research and policy institutions, graduate students and practitioners in economics, finance and international economics in both private and government institutions.



Financial Market


The Relationship Between Ethnic Diversity and Stock Market Development: A Global Perspective

Diversity plays a crucial role in investor’s decision-making behaviour. If the culture of heterogeneity escalates, consumer choices also create catastrophic shifts in the financial markets. This study aims to investigate the relationship between diversity and stock market development by using the data of 187-countries of the world. The results indicate that diversity either ethnic or religious, or both have a significant positive association with stock market development (including market capitalization, market liquidity, turnover ratio, listed domestic companies, S&P/global equity index). This study suggests that diversity is a natural phenomenon; however, productive results of diversity can be obtained by providing an equal and peaceful society through cohesiveness.
Saqib Amin

Does Withholding Tax Reduce International Income-Shifting by FDI?

FDI instruments are used for income-shifting from firms located in countries with higher taxes to low-tax governments or tax heavens. Nowadays, the EU tries to eliminate such practices. We add to this discussion by studying whether withholding tax reduces income-shifting with the use of debt and equity FDI. Poland is the chosen setting. We use the Arellano-Bond dynamic panel-data estimator for an extended specification model derived from the knowledge-capital model with two types of capital: physical and human. We provide evidence that to reduce multinational enterprises’ income-shifting, the policymakers can increase WHT on interests. However, WHT on dividends seems inefficient, contrary to WHT on interests, as a rise in WHT on dividends motivates MNEs to provide debt FDI instruments instead of equity FDI. We identified that vertically integrated MNEs from countries with good quality governance and a better institutional environment are more likely to provide loans and other debt FDI to Polish firms. Horizontally integrated MNEs are more likely to withdraw debt FDI from Poland, while vertically integrated MNEs renew debt FDI in Polish firms.
Anna Białek-Jaworska

The Relationship Between Trading Volume and Returns Volatility on Warsaw Stock Exchange

This study examined the relationships between conditional variance of individual stock returns and trading volume and mixed variable in terms of trading volume with price movement indicator. The main problem is to define the role of volume as such, and in the context of price change in the perception of information, often private information, by traders. Using GARCH(1) model specification in the sample of 10 stocks listed on the Warsaw Stock Exchange the results reveal a decreasing of volatility persistence in nine stocks when contemporaneous trading volume was added to the variance equation. The model with price indicator variables demonstrates a reduction of the persistence in three stocks compared to the model with trading volume alone. Moreover, for more stocks the upward price movement has a greater impact on volatility than the downward price movement. The combined variables, volume and indicator of price movement direction have positive and statistically significant influence on returns’ variation.
Lesław Markowski

Factors Influencing Individual Investor Participation in Stock Market

Modern Portfolio Theory requires individual investors to hold some risky assets in their portfolio. Many of these risky assets are traded in capital markets; hence the expectation for significant participation by individual investors. Evidence has shown this not to be the case; many individual investors around the world are opting to invest in less risky assets. Tanzania, like many countries around the world, is facing the problem of low individual investors’ participation in its capital market. This study aimed at determining the factors behind the low individual investors’ participation in the Dar es Salaam Stock Exchange. Using data collected from 1600 individuals in the country, it is observed that demographic factors of gender, age and education to have insignificant influence on the participation decision of an individual investor. Only those individuals with a risk-taking attitude are willing to participate in capital markets. The properties of companies offering financial products in these markets have a significant influence on the participation decision. Friends, relatives and brokers advice plays a substantial role in the level of participation of individual investors. To increase individual investors’ participation in Tanzania’s capital market, factors of household income, information availability and capital market awareness should be addressed.
Dorika Jeremiah Mwamtambulo

Model Risk of VaR and ES Using Monte Carlo: Study on Financial Institutions from Paris and Frankfurt Stock Exchanges

The aim of this research was to analyze the model risk of Expected Shortfall and Value at Risk in different configurations. The study was done using the close market prices of financial institutions between 2000 and 2020, from the Paris and Frankfurt stock exchanges. We empirically demonstrated a quantitative estimation of the precision metrics for various configurations of Value at Risk and Expected Shortfall computed using four different Monte Carlo approaches. We used two precision metrics to judge these models—the ratio and the spread. The precision provides an estimate of the reproducibility of the model (variability) and we propose using functions of the precision to represent the risk of the outcome of the model.
Aleksandra Helena Pasieczna

Tick Size Reduction and Liquidity Dimensions: Evidence from an Emerging Market

The paper presents an analysis of the tick size adjustment on an order-driven market in an emerging country. The Vietnamese stock market introduces a new tick size system that sets four different tick sizes based on the stock price on 12 September 2016. Researchers argue that multidimensional aspects characterize market liquidity. The article classifies three dimensions of market liquidity: tightness, depth, and resilience. The study investigates the variation of liquidity dimensions following the changes in a minimum tick size on the Vietnamese stock market. The paper employs seven liquidity measures to proxy for three liquidity dimensions: quoted spread, effective spread, trading volume, trading value, Amihud (2002) measure, turnover ratio, and market efficiency coefficient. Using the Wilcoxon signed-rank test, the study examines the difference in liquidity proxies between the pre- and post-periods. The empirical evidence illustrates that tightness dimensions decline significantly during the post-periods. The proxies of the depth and resilience dimensions illustrate greater illiquidity following a reduction in tick size.
Quoc-Khang Pham

Cryptocurrency Portfolio Construction Using Machine Learning Models

Multivariate time series prediction is one of the main challenges and has been widely studied in quantitative finance. Prediction outcomes are the prerequisites for active portfolio construction and optimization and play a significant role in developing an efficient trading strategy. Since inception, cryptocurrencies have broad market acceptance and constitute an asset class characterised by high returns, high volatilities, usage, transaction speed and low correlations. Many hedge fund managers, proprietary trading desk in large banks and boutique trading firms has spent considerable efforts in forecasting cryptocurrency prices. This study is about the portfolio construction of nine most capitalised cryptocurrencies: binancecoin, bitcoin, bitcoincash, chainlink, EOS, ETH, Litecoin, MCO and XRP (More details on cryptocurrencies and the market capitalization can be seen in any crypto currency exchanges like binance, Upbit, Bitfinex, Coinbase). ARIMA, convolutional neural network and long short-term memory methods are proposed to forecast the cryptocurrency prices. In addition, multiple portfolios are constructed using equal weighted portfolio, modern portfolio theory, cointegrated pairs, Kelly criterion and risk parity which make financial or economic sense and then portfolio performance measures are used thereby determining the best portfolio to hold. We find that the portfolio constructed using cointegrated pair has outperformed and the annualised returns are further maximised using a pair trading strategy.
Gopinath Ramkumar



Development Factors of Blockchain Technology Within Banking Sector

A concept of blockchain technology is a hybrid of mathematics, information technology and cryptography. This combination of well know technologies allows treat blockchain like a solution which can move banking sector to the next level of development. Blockchain technology can be also identified as a disruptive tool with a promise of huge implementation potential. Nevertheless, blockchain technology should be treated only in category of support for existing systems and models in the perspective upcoming years. The process of implementation, adoption and diffusion of blockchain technology within global business requires capital, recourses and reengineering currently understanding of global economy. Blockchain features especially valuable for banking i.e.: transparency, immaturity, safety, publicity, cost saving, time stamped and speed. The global banking sector is currently exploring implementation potential of blockchain technology in the context of payments, services, financial management. The main aim of the article is to clarify the implementation potential of blockchain technology, the risk related to implementation process, challenges and opportunities produced by blockchain for banking sector. The paper is aimed at critically analyzing the impact of blockchain technology for banking industry. Methods applied for this paper are case study and literature review.
Monika Kołodziej

Does Competition Matter for the Effects of Macroprudential Policy on Bank Asset Growth?

This paper attempts to find out what is the role of competition in the effects of macroprudential policy in a cross-country sample of over 9000 commercial banks in the period of 2004–2016. We focus on two areas of work of macroprudential policy that may be potentially affected by competition. The first one is the area of asset growth. The other is procyclicality proxied with the link between bank asset growth and business cycle. Our results show that competitive environment in the banking industry does affect the conduct of macroprudential policy. High competition is associated with increased asset growth in countries applying more macroprudential policy instruments affecting risk taking by banks. The association between competition and effects of macroprudential policy on sensitivity of asset growth to business cycle differs between cyclical and resilience oriented tools. Intense competition in the banking industry is associated with decreased procyclicality of assets growth in countries using cyclical instruments. In contrast, more competitive banking industry is associated with increased procyclicality of asset growth in countries using resilience-oriented tools.
Małgorzata Olszak, Iwona Kowalska

Systemic Risk in Selected Countries of Western and Central Europe

The paper presents the empirical results for systemic risk measured with self-modified quantile-based models: Expected Shortfall, Long Run Expected Shortfall, SRISK, and Delta CoVaR. We model each financial system as a set of unequally weighted Systemically Important Financial Institutions. Systemic risk is understood as the risk of disruptions to this system that would have significant impact on its functioning. Sample countries include Germany and the countries of Central and South-Eastern Europe: Poland, Slovakia, Hungary, Romania, and Bulgaria. The 13-year horizon of the study covers the global financial crisis, the public debt crisis in Europe, and the following economic stagnation. The results show a variation in the levels of risk in the same sub-periods for different countries. We also demonstrate that systemic risk materialized with similar strength in the developing European countries as in developed Germany.
Marta Karaś, Witold Szczepaniak

Corporate Finance


Industry and Size Effect in the Relation Between Corporate Material and Financial Decisions: Findings from the EU Countries

The study aims to verify whether and how the relation between corporate material and financial decisions is affected by the firm size and its industrial classification. The relation between corporate operational risk—reflected in asset tangibility—and financial risk—reflected in capital structure—is explored by estimating panel data models with interactions between variables so as to identify the industry and size effect in the considered relationship. The study, based on 12 EU countries in the period 2000–2017, contributes to the existing literature by capturing the indirect effects of size and industry in the asset structure–capital structure relation. Findings highlight the relevance of both effects, but also indicate the greater importance of the industrial classification for the considered relationship.
Julia Koralun-Bereźnicka

Technology Level and Financial Constraints of Public Listed Companies

In this paper, we verify whether one of the best-developed stock exchange markets in Central and East Europe—the Warsaw Stock Exchange (Poland) is an effective means of alleviating financial constraints for high technology companies.
Two investment models—for high-technology (HT) and low-technology (LT) publicity traded enterprises were executed (334 entities from 2004 to 2018).
We confirmed that HT companies are financially constrained—they undertake investments when the operating cash flow is available. Whereas in LT companies level of operating cash flow does not impact the investments level. Based on our results, we can conclude that the stock market in emerging markets, like Poland, has not entirely solved the problem of capital access for innovative, high-technology firms; however, it plays a role in the case of non-technology companies.
Katarzyna Prędkiewicz, Paweł Prędkiewicz, Marek Pauka

Personal Finance


Differences in Use of Credit Products Between the Old and New Member States of the European Union

The aim of the article is to assess the specificity of the disproportions in the use of loan products of a financial institution by young people aged 15 and 24 between the old and new member states of the European Union.
The author of the article uses data from the Global Findex Database, which contains the results of a survey conducted in 2017 among households. The dependence between having a credit card and a loan in financial institutions was examined. For this purpose, correlation coefficients were calculated and their significance was checked using t-statistics. The article primarily applies a statistical analysis of data on the share of people using products such as credit cards and loans in a financial institution as a research method.
The differences in the wealth of the old and new member states of the European Union may partly explain the differences in the share of young people using a credit card and a loan in a financial institution in these countries; however, this link is not clear. The examples of Slovenia, Estonia, and Latvia indicate that it is possible to promote the use of banks and other formal financial institutions among young people effectively also in relatively less wealthy countries.
Agnieszka Huterska

Diversified Risky Financial Assets in Portfolios of Risk-Averse Households: What Determines Their Occurrence?

Selected households declaring unwillingness to take any financial risk hold diversified risky assets, such as publicly-traded shares, other equities, bonds and mutual fund units. Our study aims to identify socio-demographics and socio-economics, which are decisive for this propensity in Belgium, Finland, France, Germany, and Spain. It also aims to describe two profiles of risk-averse households—with a tendency to diversify risky assets in portfolios and with a tendency to avoid risky investments. In the study, we apply the Poisson regression model for individual countries as well as for the entire group of countries. We use microdata from the second wave of the Eurosystem’s Household Finance and Consumption Survey. The results obtained allow us to conclude that the propensity to hold diversified types of risky assets mostly refers to these subjectively risk-averse households that receive high incomes and are represented by well-educated persons aged 40+. Opposite to the above, the propensity to behave in a consistent manner on the retail financial market, i.e., to avoid risky assets, is primarily an attribute of low-income households with poorly educated, young, and divorced responding persons. We also identify other characteristics of households in question that complete the above profiles, related to their size, sources of incomes and types of marital status or gender of responding persons. However, their significance can be concluded only at the domestic level.
Katarzyna Kochaniak, Paweł Ulman

Financial Behavior: Preliminary Survey Results

This study aimed to find out relationship between financial behavior and socio-demographic variables including, gender, income, working experience and pre-knowledge on personal finance. The study was based on an online survey. It was shared on social media in Italy and Turkey. Totally 394 Italian and Turkish university students were included in the research. Independent Sample t-test was used to analyze the data. The study found that Turkish students had higher financial behavior score than Italian students. Higher income, having working experience and pre-knowledge on personal finance were determinants for having higher level of financial behaviors for both Italian and Turkish students. When making a comparison between Italian and Turkish students, ıt was concluded that Turkish students who were female, having lower income, no working experience and no pre-knowledge on personal finance had higher level of financial behavior. There was no difference between Italian and Turkish students in terms of being male. This study may provide policymakers with fruitful findings to increase favorable financial level of university students.
Kutlu Ergün
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