Contemporary Trends and Challenges in Finance

In the paper we investigate the dynamic relation between returns and volume of individual stocks traded on the Warsaw Stock Exchange. Theoretical models, such as the one proposed by Wang (J Polit Econ 102(1):127–167, 1994) suggest that this relation reveals the information asymmetry in the market and the role of private information. According to the models, the trade generated by risk-sharing and public information tends to decrease autocorrelation of returns, while the trade generated by private information has the opposite effect. To test this empirically we compared the coefficients obtained from the return-volume relation with other approximations of information asymmetry, based on liquidity. Unlike other works we have used dynamic regression to obtain the coefficients for 52 stocks, assuming that coefficients for individual stock can vary from month to month. Then we used panel regression with random effects to test the relationship between coefficient of information asymmetry and liquidity. We find an evidence supporting the compliance of measure of information asymmetry, especially for medium and small capitalization companies.

We develop a novel method to produce density forecasts of foreign exchange rates using Monte Carlo simulation with regime-switching depending on global financial markets’ sentiment. Using multiple density forecast evaluation tools the proposed approach have been examined in one month ahead forecasting exercise for 22 emerging markets currencies rates vs. dollar. According to the log predictive density score criterion, in case of the majority of emerging markets’ foreign exchange rates, the forecasting performance of the proposed approach is superior to the random walk forecast and AR-GARCH benchmarks. Further analysis of the proposed approach using coverage rates and Knüppel test indicate correct calibration of the density model. The conducted evaluation of the proposed approach suggests that such tool can be suitable for economists, risk managers, econometricians, or policy makers focused on producing accurate density forecasts of foreign exchange rates. The proposed approach is a valuable contribution to the existing literature on foreign exchange density forecasting.

Binary options are popular instruments, especially in non-regulated financial markets. Determination of adequate capital, if performed in compliance with binding legal regulations on own funds requirements, may be seriously misleading. This is particularly the case of short-term binary options. The aim of this article is to discuss critically the existing solutions in EU law and to propose some modifications that would be better suited to the nature of this type of financial instrument. The modifications allow to avoid overestimation of adequate capital and better reflect properties of the value of long-term and short-term cash-or-nothing binary options.

Under certain conditions, there are different relationships between stock markets. These relationships are one of the most important issues in portfolio analysis and they affect on the asset allocation or diversified risk. Usually the relations between markets intensify during and after the global financial crisis. In the article the relationships between European Union stock markets are analyzed. The main goal of research is to determine if the countries strongly related have any influence to the level of diversification. The Principal Component Analysis are used to determine the relations between the EU markets. Selected stock markets are also analyzed according to the diversification. The level of diversification are measured by the Portfolio Diversification Index, Rao’s Quadratic Entropy and the Diversification Ratio. In the research the data from the period 2005–2016 are used. Selected EU markets are analyzed in the sub-periods specified by the last global financial crisis which began in 2007.

This paper presents the relationship between classical and downside beta coefficients in the context of data generating processes. The theoretical analysis were the basis for determining the relationship between the beta coefficients in the classical and downside framework. Empirical studies based on regression analysis and correlation of the time series of daily returns sectoral indices quoted on the Warsaw Stock Exchange. Our results suggest that the relationships between classical and downside systematic risk measures depend on the basic parameters of the distribution of returns of market portfolio approximation. There are statistically significant correlations between the standard deviation, asymmetry and kurtosis of market portfolio and measures expressing the relation of beta coefficients. The arguments may be an indication of choosing a systematic risk measures and evaluation of the real beta coefficients. This choice is determined by the data generating process, which may contribute to differences between results of CAPM tests.

We estimate linear regressions with dummy variables for the rates of return, spreads and volumes of stocks included in the main Warsaw Stock Exchange index WIG 20 to reveal the intraday trading patterns after the Universal Trading Platform was introduced in April 2013. In doing so we use the data rounded to nearest second and aggregated into that of 1 h frequency. The analysis shows that the spreads and volumes exhibit either the day of the week or the hour of the day effect or both. The spreads resemble the reversed J and the volumes are U-shaped. The rates of return are mostly positive but eventually decline at the end of the trading day. Some of them exhibit the hour of the day but not the day of the week effect.

The aim of this paper is to investigate relationships based on correlations between alternative liquidity measures derived from intraday data on the Warsaw Stock Exchange (WSE). Analyses of correlations help to find an answer to important question whether different liquidity proxies capture various sources of market liquidity/illiquidity or not. The main research hypothesis states that correlations are stable in specified periods. The hypothesis is verified by applying equality tests of correlation matrices computed over non-overlapping subsamples. The dataset consists of daily proxies of four liquidity measures for 53 WSE-traded companies divided into three size groups. The whole sample covers the period from January 3, 2005 to June 30, 2015, and it includes three adjacent subsamples, each of equal size: the pre-crisis, crisis, and post-crisis periods. To calculate several liquidity measures based on intraday data it is essential to recognize a side initiating the transaction and to distinguish between buyer- and seller-initiated trades. In this paper, the Lee and Ready (J Financ 46(2):733–746, 1991) trade classification algorithm is employed to infer trade sides. The obtained empirical results concerning the stability of correlations between liquidity proxies in the whole group of companies are not homogeneous.

This paper applies a method for measuring market risk called Downside Accounting Beta (DAB), previously developed by Rutkowska-Ziarko and Pyke (Econ Bus Rev 3(4):55–65, 2017). DAB shows how changes in the profitability of a sector affect the profitability of a company in that sector. DAB can also be applied to whole market. Empirical evidence is presented using the data from companies listed in the Polish construction sector of the Warsaw Stock Exchange. The analysis concludes that there are significant similarities between market betas and accounting betas. It also demonstrates that accounting betas using Return on Assets (ROA) and Return on Sales (ROS) are positively correlated with market betas and that there is a significant correlation between accounting betas with variance and semi-variance approaches. In addition, the paper identifies that the systematic risk on the Warsaw Stock Exchange is connected with the sensitivity of the company’s profitability of assets (ROA) and sales (ROS) in comparison with profitability for the whole sector. The practical implication of this research is that investors, owners and managers can apply DAB using ROA to calculate the systematic risk of companies that are not listed on stock markets and consequently to identify the levels of risk associated with companies within the sector.

S-curve is usually used to describe economic or natural phenomena, which follow the rule of the logistic growth. In this paper we propose to use the modified S-curve, due to the “unlimited growth” phenomenon. The aim of this research is to show the application of the S-curve as well as the modified S-curve in GDP growth forecasting, using data from transition economies. This paper presents also the proposal of numerical estimation of the modified S-curve parameters. According to paper’s aims, we have posed the following research hypotheses: (H1) the S-curve and the modified S-curve are effective tools of economic development forecasting for transition economies; (H2) the modified S-curve is more efficient than ordinary S-curve in GDP forecasting for transition economies.

The meaning of commodity markets and raw material trading is very important for the shape of the world economy. In recent years, commodity markets, similarly to economics or financial markets, have been transformed. In the first decade of the twenty-first century significant fluctuations of raw material prices were observed. Moreover, many investors originating from financial markets started to be more and more active on commodity markets. Cheapening and easily accessible capital encouraged investors to seek alternative ways to multiply their assets, and one of the solutions was an increased exposure on commodity markets. The purpose of this article was the consideration of market financialization based on our own and other empirical studies as well as chosen theoretical concepts. A hypothesis was formed which reads: The result of the financialization of the commodity markets process is the increasing fluctuation levels of prices. The verification of this hypothesis is based on comparison analysis of the changeability of prices of chosen materials and the positioning of the investors groups in the period of 2007–2017. Furthermore other empirical studies conducted by other authors were analysed. Understanding the impact of financialization on the prices of goods requires an evaluation of its influences on the economic mechanisms shaping the situation on commodity markets. It was concluded that the financialization of the commodity markets has an effect on the increased fluctuation of chosen materials.

The study builds upon the philosophical discrepancy between the production and intermediation approach to interpretation of banking business, but it brings up the issue of comparability of results that arise from application of both approaches in practical efficiency measurement of banking institutions. Its goal is to assess comparability or congruence of efficiency scores yielded by these two competitive approaches in a framework of data envelopment analysis (DEA), which is undertaken empirically in a case study of Slovak commercial banks for a period of 11 years from 2005 until 2015. The study finds that the main point of departure between the approaches that rests in treatment of deposits is an insuperable obstacle to comparability of their results, and that it does matter whether deposits are placed upon the input or output side of banking production. It is therefore safer to reconcile both approaches in a two-stage manner and to avoid black-box descriptions of banking production.

The aim of the paper is to verify the impact of the competitiveness of the banking sector and concentration on banks’ credit ratings. A literature review was prepared and as a result the following hypothesis was put: the bigger the banks from the countries where the banking sector is more concentrated and more competitive, the higher the banks’ credit ratings. The analysis has been prepared by using ordered panel data models on banks’ credit ratings with the use of quarterly data on a European banks’ sample. Long-term issuer credit ratings given to banks by the three largest credit rating agencies (S&P, Fitch and Moody) were used as a dependent variable. Banks’ notes are especially sensitive to the capital adequacy, the assets quality and the earnings factors. The concentration of the banking sector has got a significant impact on the notes proposed by Fitch and Moody’s, but the direction of the impact has been varied. Fitch notes are positively correlated with concentration indicators. According to their opinion, bigger banks on more concentrated markets can receive the financial support from the government, because in the case of default problems will have an influence on the whole financial system. Fitch ratings also react negatively to a higher competition on the financial market. Moody’s puts attention to insolvency problems of the financial market, and as a result its notes are negatively correlated with the concentration of the banking sector. A positive relationship between the competition and banks’ credit ratings has been observed in the case of Moody’s and S&P’s.

Changes in operational risk environment caused by globalization, information technology development and deregulations, have been significantly influencing banking industry and operational risk management process. This continuous evolution has forced to create an appropriate regulatory framework. Starting from Basel I Accord where market and credit risk were controlled, Basel II regulatory framework introduced an operational risk category and capital requirements for the losses connected with operational risk. The problem has raised during and after the financial crisis, when despite an increase in the number and severity of operational risk events, capital requirements for operational risk remained stable or even fell for the standardized approaches. As a consequence, the new Standardized Approach was proposed in 2015 and implemented by most biggest banks. The aim of the paper is to compare different approaches proposed under Basel II for modeling operational risk and to discuss new Basel IV proposals of regulatory capital charge for the operational risk.

In this paper systemic risk is meant in a very narrow sense as a risk of breakdown or major dysfunction in the banking system. Some researches use the term to include the potential insolvency of a major player in or a component of the financial. In the paper, financial indicators and the approach of Conditional Value-at-Risk (CoVaR) proposed by Adrian and Brunnermeier is used to assess systemic risk. The goal is to verify the results obtained for delta CoVaR for banks by aggregate measure of their financial condition. In the paper two methods of CoVaR estimation were applied: GARCH and quantile regression. As a measure of financial condition, the composite indicator (development measure proposed by Hellwig, containing selected financial ratios, was calculated. Empirical analysis for Polish banking industry indicates a weak or insignificant relationship between values of systemic risk measure (delta CoVaR) and the values of financial condition measure (composite indicator).

The role of the active management of the banking book in the banking industry is constantly growing. This is dictated by heavily regulated landscape and increased competition for resources such as liquidity and capital. Given the market pressure, the relentless pursuit for the most efficient and productive use of a bank’s resources subject to consolidated risk and return appetite remains of upmost importance for banks of all size. The need for the use of the optimization technique to manage the banking book of a financial institution is becoming an imperative to remain profitable. This article states that the application of optimization techniques can provide useful information to understand the target structure for the banking book in terms of its composition of liabilities and is valid tool which helps to decrease the overall cost of funding. Moreover, the application of optimization techniques, in this article, is seen as the integrated management of the exposure to financial risks under one approach.

This study analysed operating performance associated with the CEO succession in companies listed on the Warsaw Stock Exchange. An event study based on accounting data was applied. Operating performance was calculated as median and mean ROA and EBITDA/TA ratios within 3 years after CEO appointments and compared to ratios’ results in the same period before the event. Abnormal operating performance for the entire sample was negative and statistically significant. After the event the operating performance did not improve following new CEO appointments or re-appointments. Obtained results indicate that CEO appointments decrease the value of the company. Companies performed better for re-appointments compared to new CEO appointments. However in case of new CEOs we observed small improvement within the first 2 years after the succession.

The aim of the paper is to analyse the capitalistic firm, not only as systems for the creation of economic and financial value for their shareholders, but also that is evaluated for the social values. The financial performance and the value of capital, is measured by a coherent system of monetary values. Nevertheless, if we do not limit our view to simply the shareholders but consider instead the stakeholders, we must then also broaden our notion of the production of sustainable value to include both the social and the environmental values. This implies an intense social action based on transparency, reputation and the dialogue with the stakeholders that need to be communicates. The sustainability report is the instrument to inform the stakeholders how the firm, by pursuing its own prevailing interests, contributes to improving the quality of life of the members of the society in which it operates and that can, in all respects, represent a means for the creation of sustainable value.

The paper investigates determinants of corporate cash holdings in Central Eastern Europe (CEE) countries. In particular, it looks into the effect of tax changes and tax uncertainty on cash holdings in industrial listed companies from Bulgaria, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia. The sample contains 484 firms from those countries with data for the period 2008–2014. The main goal of the research was to find out how changes in tax rates and tax system influence corporate cash holdings. Beside determinants related to tax changes, the research included control variables indicated in literature as cash holdings determinants, such as: financial constraints, company’s profitability, leverage, working capital strategy and economic environment uncertainty. The results show that cash holdings increases with growth in profit tax rate and decreases with growth in number of tax payments. Simplification of the tax system is accompanied by an increase in the level of cash holdings, however various effects of changes in particular factors were observed, such as cash holding decreases with growth in corporate income tax rate, but it increases with uncertainty measured by growth in numbers of hours required to prepare, file and pay taxes.

The research aim is to verify whether and how the impact of primary determinants of capital structure varies across European countries. Several firm-specific factors, as well as industry features are taken into account in the international comparative analysis, which also captures the problem of debt maturity. The study is based on the BACH-ESD database provided by the European Commission and includes 11 EU countries during the period 2000–2014. The results of the panel data models estimated for different countries and for three debt measures indicate that the impact of direct determinants of debt varies considerably across countries and depending on debt maturity. The differences occur in terms of both significance and direction. The research findings confirm the prevalence of the industry effect over the size effect in the capital structure, although the difference between the relative importance of the two effects varies across countries. The results also indicate the greater appropriateness of the pecking order theory for long-term debt, whilst the trade-off predictions appear more suitable for explaining short-term financing decisions.

This working paper discusses the problem of mutual use the insolvency and bankruptcy variable for business failure modeling. The research shows how the terms bankruptcy and insolvency modeling on the unformal dataset might result in different fits of the models. Models were estimated based on 17,024 firm’s yearly observations from the 2004 to 2014 for the Polish financial market. Following priory research, the models were developed with application of the logit regression. The evidence gathered during the study supports the conclusion that the use of the legal definition of insolvency is a weak instrument for bankruptcy modeling.

This study aimed to find out the relationship between financial knowledge and parental influence among university students. Online survey instrument was used to collect data. Totally 169 students from Poland, Croatia, Greece, Turkey, Portugal, Slovakia, Slovenia, Latvia, Lithuania and Hungary participated in this study. Logistic regression was used to analyse the data. Students from Poland had the highest financial knowledge score (5.7 out of 7). Result found that male students, students 26 years old or above, PhD students, those whose fathers’ had high school degree, those who discussed with their mothers when making financial decision were more knowledgeable on personal financial knowledge. Result showed that origin of country was significant for financial knowledge since students from Poland was found to be more knowledgeable than students from Greece, Hungary, Latvia, Lithuania, Turkey, Slovakia and Slovenia. It was concluded that mothers had significant impact on financial knowledge of university students, but higher level of parental education had no influence on financial knowledge of university students.

The paper presents the results of the study aimed at verifying the significance of households’ financial well-being for the values of their sight deposits, under economic and financial destabilisation. The reason for conducting this analysis is the European Banking Authority’s stance about retail sight deposits being stable funding for credit institutions under stress, due to their transactional nature. Thus, this opinion assumes the existence of linkages between the levels of deposits and financial situation (especially incomes) of their owners. The study is based on data from the Eurosystem HFCS, which relate to households’ financial well-being in 15 euro area countries in the time of economic and financial turmoil. The regression models are used to estimate the impact of respondents’ incomes and assets (real and financial assets). The main findings are that the significance of households’ financial well-being for the allocation of deposits is heterogeneous in the countries analysed. In part of them the primary influence is assigned to the level of recent annual gross income, while in the other to net wealth accumulated by a household in the long run. From all the sight deposits declared, the most sensitive to financial situation are those placed by respondents on retirement. However, assuming the constancy of the financial situation of households in the euro area, their willingness to allocate more sight deposits appears geographically differentiated. The most willing in this regard is the Finnish population.