Global Savings Group - Rocket Internet SE venture currency risk management exposure. This thesis covers the theory around currency risk management, putting it into practice with the real case of GSG currency risk exposure. In the end I aim to verify if currency risk affects the performance of SMEs, and if such type of companies (in this case the GSG) are aware of such exposure and if they adopt any strategies in order to reduce such exposure.

Master thesis touches upon the interesting spheres of risk classification, measurement and management of financial institutions. Modern banks have numerous credit risk measurement models at their disposal. However, agreement about performance of those models is not that unanimous and to some point the models are blamed for breaking out of 2007 financial crisis. In the theoretical part of the thesis we provide survey of risk measurement practices in banks. We investigate the main types of risk of banks in their day-to-day activities. Special focus is paid on the credit risk and on the models and techniques of its measurement; Practical part of thesis then contains construction and accuracy estimation of particular credit-risk-model (Altman Z-score). In it we construct and compute Altman Z-score for sample of firms from two chosen sectors in United Kingdom. Main goals of the work are a) testing accuracy of the model by comparing its outputs to real development, and b) econometric testing of the specification of the model itself.

As personal backgrounds and experiences vary, emotions stemming from exposure to violence shape a manager's risk perception and investment strategies. We document significant variation in the risk exposure of managers who were raised in states with higher per capita violence rates than those who were not. Although managers exposed to violence tend to hold more stocks in their portfolios, take less idiosyncratic risk, hold portfolios with betas closer to 1, and have less concentrated portfolios, these managers' risk-adjusted performance is not statistically different than that of their counterparts who were not exposed to violence.

In this thesis, we set out to model the market risk exposure for 251 stocks in the S&P 500 index, during a ten-year period between 2011-04-30 and 2021-03-31. The study brings to light a model not often mentioned in the scientific literature focused on market risk estimation, the linear mixed model. The linear mixed model makes it possible to model a time-varying market risk, as well as adding structure to the idiosyncratic risk, which is often assumed to be a stationary process. The results show that the mixed model is able to produce more accurate estimates for the market risk, compared to the baseline, which is here defined as a CAPM model. The success of the mixed model, which we in the study will refer to as the ADAPT model (adaptive APT), most certainly lies in its ability to create a hierarchical regression model. This makes it possible to not just view the set of observations as a single population, but let us group the observations into different clusters and in such a way makes it possible to construct a time-varying exposure. In the last part of the thesis, we highlight possible improvements for future works, which could make the estimation even more accurate and also more efficient.

This thesis consists of three papers that make independendet contributions to the field of financial economics. As such, the papers, Chapter 2, Chapter 3, and Chapter 4, can be read independently of each other. In Chapter 2, we construct a simple measure of the aggregate illiquidity of hedge fund portfolios, and show that it has strong in- and out-of-sample forecasting power for 72 portfolios of international equities, U.S. corporate bonds, and currencies, over the 1994 to 2011 period. The forecasting ability of hedge fund illiquidity for asset returns is, in most cases, greater than, and provides independent information relative to, well-known predictive variables for each of these asset classes. We construct a simple equilibrium model to rationalise our findings and empirically verify auxiliary predictions of the model. In Chapter 3, I analyse the risk-shifting of hedge funds. Since the information on hedge fund holdings is very restricted, researchers have used the variance of returns as a proxy for risk. I propose a new method for measuring the time-varying variance. I use this method to investigate whether equity long-short hedge funds engage in risk-shifting driven by their past performance relative to their peers. I find that hedge funds which have strongly underperformed or outperformed their peers in recent months increase their exposure to the core strategy, i.e. the equity long-short strategy, and to non-core strategies. The risk shifting is mitigated for hedge funds with long redemption periods. Chapter 4 contributes to the equity premium prediction literature. I improve the forecast performance of typical single variable predictive regressions used in the equity premium prediction literature through Bayesian priors derived from consumption-based asset pricing models. To implement these model-based priors, I develop a Bayesian procedure which is rooted in the macroeconometrics literature. I find that the model-based priors can increase the explanatory power, measured by the out-of-sample R², of the single variable predictive regressions by several percentage points.

This thesis consists of one stock return predictability study and two international risk exposure studies. The first study shows that the statistical significance of out-of-sample predictability of market returns given by Kelly and Pruitt (2013), using a partial least squares methodology, constructed from the valuation ratios of portfolios, is overstated for two reasons. Firstly, the analysis is conducted on gross returns rather than excess returns, and this raises the apparent predictability of the equity premium due to the inclusion of predictable movements of interest rates. Secondly, the bootstrap statistics used to assess out-of-sample significance do not account for small-sample bias in the estimated coefficients. This bias is well known to affect in-sample tests of significance and I show that it is also important for out-of-sample tests of significance. Accounting for both these effects can radically change the conclusions; for example, the recursive out-of-sample R2 values for the sample period 1965-2010 are insignificant for the prediction of one-year excess returns, and one-month returns, except in the case of the book-to-market ratios of six size- and value-sorted portfolios which are significant at the 10% level. The second study examines whether U.S. common stocks are exposed to international risks, which I define as shocks to foreign markets that are orthogonal to U.S. market returns. By sorting stocks on past exposure to this risk factor I show that it is possible to create portfolios with an ex-post spread in exposure to international risk. I examine whether the international risk is priced in the cross-section of U.S. stocks, and find that for small stocks an increase in exposure to international risk results in lower returns relative to the Fama-French three-factor model. I conduct similar analysis on a measure of the international value premium and find little evidence of this risk being priced in U.S. stocks. The third study examines whether a portfolios of U.S. stocks can mimic foreign index returns, thereby providing investors with the benefits of international diversification without the need to invest directly in assets that trade abroad. I test this proposition using index data from seven developed markets and eight emerging markets over the period 1975-2013. Portfolios of U.S. stocks are constructed out-of-sample to mimic these international indices using a step-wise procedure that selects from a variety of industry portfolios, stocks of multinational corporations, country funds and American depositary receipts. I also use a partial least squares approach to form mimicking portfolios. I show that investors are able to gain considerable exposure to emerging market indices using domestically traded stocks. However, for developed market indices it is difficult to obtain home-made exposure beyond the simple exposure of foreign indices to the U.S. market factor. Using mean-variance spanning tests I find that, with few exceptions, international indices do not improve over the investment frontier provided by the domestically constructed alternative of investing in the U.S. market index and portfolios of industries and multinational corporations.

The aim of this thesis is to address the implications of Basel III regulation on counterparty credit risk. We analysed the development of OTC market, we addressed systemic risk and the way how central counterparties could mitigate or spread the contagion among banks. We used simulated data to develop a stress test model to find out the impact of counterparty credit risk on banks' capital requirements, in case the interest rate increased extensively. Six pos- sible scenarios of interest rate levels were developed with ascending order of the IR level. From these scenarios we computed the exposure levels and credit valuation adjustment (CVA) as the market value of counterparty credit risk. We came to the following conclusions: (1) Czech banks have enough capital to withstand any interest rate increase in any scenario. (2) Banks with high expo- sure to derivatives like Bank of America, Citibank and JP Morgan would face severe problems if the interest rate increased. (3) There is no direct correlation between credit valuation adjustment and interest rate, the CVA increases faster with the increase of the interest rate.

Les mutations structurelles au sein de l'industrie financière sont nombreuses, protéiformes et complexes. L'analyse de leurs conséquences, particulièrement en matière de stabilité financière, s'avère cruciale. Notre travail se concentre sur l'une de ces transformations, à savoir l'émergence et le développement de la conglomération financière, qui a pour singularité d'entremêler diversification et globalisation, et qui, à notre sens, a été relativement peu étudié. Notre objectif est donc de contribuer à combler cette insuffisance. Nous avons articulé notre réflexion autour de trois axes : l'appréhension pratique de la conglomération financière, ses implications en termes de risque, et ses incidences en matière de dispositif prudentiel, et plus particulièrement en termes d'architecture de surveillance. Nous proposons de pallier l'absence de données dédiées spécifiquement à ce mouvement en utilisant des données relatives aux opérations de fusions-acquisitions. Alors qu'il est impossible d'affirmer de manière univoque si ces groupes sont plus ou moins risqués que leurs homologues individuels et susceptibles d'exposer la sphère financière à des risques exacerbés et/ou nouveaux, nous explicitons les éléments à même d'engendrer un profil de risque plus élevé, soulignons l'importance d'adopter une perspective globale du niveau de risque encouru et démontrons l'incidence pernicieuse de la stratégie de diversification sur la probabilité de risque systémique. Enfin, nous montrons à l'aide d'un Probit Multinomial que la conglomération financière est un facteur explicatif aux cotés des facteurs traditionnellement mis en avant de l'unification des autorités nationales de surveillance. / The arisen structural changes, and still current, within the financial industry are especially numerous, multiple and complex. The analysis of their consequences, particularly on financial stability, turns out crucial. Our work concentrates on one of these transformations, the emergence and the development of the financial conglomeration, which has for peculiarity to mix diversification and globalization, and which in our sense was rarely studied. Our objective is to contribute to fill this lack. We articulated our reflection around three axes: the practice apprehension of the financial conglomeration, its implications in terms on risk exposure, and its incidences in prudential plan, more particularly in terms on architecture of the financial supervision. We suggest mitigating the absence of data dedicated specifically to this movement by using data relative to the operations of mergers & acquisitions. While it seems impossible to assert in a unambiguous way if these groups are more or less risked that their counterparts individual and susceptible to expose the financial sphere to aggravated and\or new risks, we clarify elements to engender a higher risk profile, underline the importance to adopt a global perspective towards this level of incurred risk and demonstrate the pernicious incidence of the strategy of diversification on the probability of systematic risk. Finally, we show by means of a Probit Multinomial that the financial conglomeration is an explanatory factor in the highly-rated of factors traditionally advanced by the unification of the national authorities of supervision.

Do renminbi (RMB) exchange rate fluctuations affect cross-border M&A activities of enterprises at the micro level? This paper centers on this major issue, and we study and analyze the impacts of RMB internationalization on the magnitude and success of cross-border M&As. We investigate the impacts of exchange rate changes on the magnitude and success of enterprise-level cross-border M&As by developing nominal exchange rate (NER) and real exchange rate (RER) volatility indicators using data from the Thomson Financial SDC Platinum Merger and Acquisitions database. By applying a variety of indicators and subsample estimates in the study, we find that exchange rate volatility (of either NER or RER) is significantly negatively correlated with enterprise-level cross-border M&As, suggesting that RMB exchange rate movements deter cross-border M&As to some extent; fluctuations in RMB exchange rate have a significant negative impact on the success of cross-border M&As, and the exchange rate risk induced by exchange rate changes increases the risk of cross-border M&As; meanwhile, exchange rate fluctuations have a significant inhibitory effect on conglomerate M&As in addition to horizontal cross-border M&As. In addition, exchange rate fluctuations have a significant inhibitory effect on the profit-oriented cross-border M&As of enterprises in non-state-owned-or-controlled industries. Therefore, we should take prudent actions to prevent the impacts of RMB exchange rate movements on cross-border M&As, actively tap the potential of bilateral investment treaties in securing cross-border M&As, promote coordination between RMB exchange rate regulation iimechanisms and the “go global” strategy, and improve the level of internationalization and competitiveness of Chinese enterprises. / Business Administration/Finance

The thesis aims to introduce an efficient resource development strategy in electric utility long term planning under uncertainty considerations. In recent years, electric utilities have recognized the concepts of robustness, flexibility, and risk exposure, to be considered in their resource development strategy. The concept of robustness means to develop resource plans that can perform well for most, if not all futures, while flexibility is to allow inexpensive changes to be made if the future conditions deviate from the base assumptions. A risk exposure concept is used to quantify the risk hazards in planning alternatives for different kinds of future conditions. This study focuses on two technical issues identified to be important to the process of efficient resource development: decision-making analysis considering robustness and flexibility, and decision-making analysis considering risk exposure. The technique combines probabilistic methods and tradeoff analysis, thereby producing a decision set analysis concept to determine robustness that includes flexibility measures. In addition, risk impact analysis is incorporated to identify the risk exposure in planning alternatives. Contributions of the work are summarized as follows. First, an efficient resource development framework for planning under uncertainty is developed that combines features of utility function, tradeoff analysis, and the analytical hierarchy process, incorporating a performance evaluation approach. Second, the multi-attribute risk-impact analysis method is investigated to handle the risk hazards exposed in power system resource planning. Third, the penetration levels of wind and photovoltaic generation technologies into the total generation system mix, with their constraints, are determined using the decision-making model. The results from two case studies show the benefits of the proposed framework by offering the decision makers various options for lower cost, lower emission, better reliability, and higher efficiency plans. / Ph. D.