Global financial crisis and multiscale systematic risk: Evidence from selected European stock markets

Abstract

In this paper, we have investigated the impact of the global financial crisis on the multihorizon nature of systematic risk and market risk using daily data of eight major European equity markets over the period of 2005-2018. The method is based on a wavelet multiscale approach within the framework of a capital asset pricing model. Empirical results demonstrate that beta coefficients have a multiscale tendency, and betas tend to increase at higher scales (lower frequencies). In addition, the size of betas and R 2 s tends to increase during the crisis period compared with the precrisis period. The multiscale nature of the betas is consistent with the fact that stock market investors have different time horizons due to different trading strategies. Our results based on scale dependent value at risk (VaR) suggest that market risk tends to be more concentrated at lower time scales (higher frequencies) of the data. Moreover, the scale-by-scale estimates of VaR have increased almost three folds for every market during the crisis period compared with the precrisis period. Finally, our approach allows for accurately forecasting time-dependent betas and VaR.

Capital structure revisited. Do crisis and competition matter in a Keiretsu corporate structure?

“…Capital structure decisions remain one of the essential corporate decisions by executive managers of firms (Ahmed & Hla, 2019; Alexandridis & Hasan, 2019). This stems from the fact that from theoretical standpoints, a wrong capital structure decision can have profound implications for the cost of capital, riskiness and performance of a firm.…”

“…In the view of the trade‐off theory, growth opportunities that are in the form of intangible assets cannot be collateralised. Thus, firms with growth opportunities tend to borrow less and use more equity (Alexandridis & Hasan, 2019; Céspedes et al, 2010; Chen, 2004).…”

“…The 2007–2008 global economic recession intensified interest in investigating the effects of financial crisis on financing decisions of firms (e.g., Alexandridis & Hasan, 2019; Demirgüç‐Kunt, Peria, & Tressel, 2020; Crotty, 2009). Indeed, our interest in the effect of crisis on capital structure of Japanese firms is linked to the theoretical suggestions that the increased uncertainties and risk coupled with decline in returns would make lenders unwilling to commit to long term investments (Dick, Schmeling, & Schrimpf, 2013; Lemmon & Zender, 2019).…”

“…Theoretically, the uncertainty associated with financial crisis could affect long‐term leverage from the perspectives of both firms and lenders. A rise in uncertainty makes business prospects oscillate in such a way that firms forgo projects with long‐term maturity so as to reduce their leverage levels (Alexandridis & Hasan, 2019; Antill & Grenadier, 2019; Brunnermeier & Oehmke, 2013). That is, the preference for flexibility in finance options associated with volatile economic conditions makes short‐term leverage preferable.…”

“…These subsequent theoretical developments suggest that the choice of capital structure is not random (Inderst & Vladimirov, 2019; Ji, Mauer, & Zhang, 2019; Lemmon & Zender, 2019). Whilst this claim has received support from a large body of literature suggesting that firms' characteristics affect their capital structure decisions (e.g., Ahmed & Hla, 2019; Asad, Gulzar, Bangassa, & Khan, 2019; Céspedes, González, & Molina, 2010; Danso & Adomako, 2014; De Jong, Kabir, & Nguyen, 2008; Fosu, 2013; Muradoğlu & Sivaprasad, 2012; Ranasinghe, 2019; Wang, Manry, & Rosa, 2019), it is reasonable to argue that other, unexplored, factors, such as financial crisis and product market characteristics may also influence capital structure (Alexandridis & Hasan, 2019; Elmagrhi, Ntim, Malagila, Fosu, & Tunyi, 2018; Harris & Roark, 2019). This naturally raises some questions: (a) Would the traditional capital structure determinants remain important in product markets in which firms traditionally enjoy special lending relationships with large major banks; and (b) Would the traditional capital structure determinants remain important, where firms belong to large industrial groupings and are subject, largely, to effective monitoring?…”