an academic and professional review
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an academic and professional review
n° 127 November-December 2013 ISSN 2101-9304 150 euros revue-banque.fr an academic and professional review ARTICLES 4 Determinants of the Financial Performance of Major European Banks Pascal BARNETO, IAE, Université de Poitiers Georges GREGORIO, IAE, Université de Pau 16 Market Risk Measurement Models: Estimation of Volatility and Correlation Isam MOUALLIM, PRO BTP FINANCE, Paris Jean-Laurent VIVIANI, IGR/IAE de Rennes, CREM, Université de Rennes 36 Stock Index Futures Dynamics: Evidence from France Alassane DIAW, Al Jouf University, Saudi Arabia Bernard OLIVERO, Université de Nice Sophia Antipolis 42 Herding in French Stock Markets: Empirical Evidence from Equity Mutual Funds Mohamed AROURI, CRCGM-Université d’Auvergne & EDHEC Business School Raphaëlle BELLANDO, LEO-Université d’Orléans Sébastien RINGUEDÉ, LEO-Université d’Orléans Anne-Gaël VAUBOURG, LAREFI-Université Montesquieu-Bordeaux IV 60 Microfinance Institutions Ratings: The Influence of Board Characteristics Hubert TCHAKOUTE TCHUIGOUA, KEDGE Business School In partnership with Association française de finance Instructions to Authors Editorial line Submission information Bankers, Markets and Investors aims at publishing short and innovative research articles in the areas of banking, financial markets and investment with relevant practical application for investors. Any manuscript submitted for review must be original and not currently submitted for publication in another journal. Articles should be less than 20 pages double spaced (ideally 15 pages including graphs and notes). Shorter articles are also welcomed. Authors should provide an abstract of no more than 150 words. The purpose of the journal is to create a bridge between academics and professionals, by publishing articles that have direct relevance to those working in the investment field. We seek short articles, forward looking and rigorous, written in a style accessible to professional readership. The themes of the journal include the following: portfolio choice, investment management, institutional investors (pension funds, sovereign wealth funds, insurance, mutual funds…), individual investors and household finance, behavioral finance, alternative investments (hedge funds, private equity…), derivatives and structured finance, liquidity and transaction costs, socially responsible investment, funds and corporate governance, regulation and financial risk management. 2 Research published should be of interest to a sophisticated readership of investment practitioners and academics interested in practice-oriented type of research. Articles should be written in a style accessible to professional readership. Theoretical developments should as much as possible be relatively limited in the text (only the main results should be presented, details of the demonstrations should be left in the appendix). An empirical application of the results is encouraged. Two versions of the manuscript (blind and with author’s names) should be sent to hauvette@ revue-banque.fr Strategic Committee Editorial board Francis Candylaftis, BNPP Investment Partners Bernard Dumas, INSEAD Thierry Foucault, HEC René Karsenti, ICMA Denis Kessler, Scor André Levy-Lang, Paris Dauphine University Bertrand de Mazières, EIB Theo Nijman, Tilburg University Tom Steenkamp, Robeco Mike Wright, Imperial College Business School Managing Editor: Marie Brière, Amundi, Paris Dauphine University, Université Libre de Bruxelles Founding editor: Jean-François Boulier, Aviva Sanvi Avouyi-Dovi, Banque de France Philippe Bertrand, IAE Aix and Kedge Business School Bruno Biais, TSE Zvi Bodie, Boston University Alain Chevalier, ESCP Europe Philippe Desbrières, IAE Dijon Nicole El Karoui, École Polytechnique Antoine Frachot, GENES, ENSAE Edith Ginglinger, Paris Dauphine University Christian Gourieroux, CREST, Toronto University Ulrich Hege, HEC Georges Hübner, HEC Management School, University of Liège Monique Jeanblanc, Evry University Lionel Martellini, Edhec Kim Oosterlinck, ULB Patrice Poncet, Essec Sébastien Pouget, TSE Flavio Pressacco, Udine University François Quittard-Pinon, EM Lyon Michael Rockinger, HEC Lausanne Ronnie Sadka, Boston College Stephen Schaefer, LBS Ariane Szafarz, ULB Nizar Touzi, École Polytechnique Bas Werker, Tilburg University Bankers, Markets & Investors n° 127 november-december 2013 Bankers, Markets & Investors 18 rue La Fayette 75009 Paris www.revue-banque.fr Managing Director: Valérie Ohannessian General Secretary: Pierre Coustols Subediting: Alain de Seze (54 17) ; Christine Hauvette (54 10); Emmanuel Gonzalez (54 12) ; Alexandra Démétriadis (54 18) and DESK Subscription: REVUE BANQUE 18, rue La Fayette - 75009 Paris Gladys Hypolite Tel. : 01 48 00 54 26 – Fax : 01 48 00 54 25 E-mail: [email protected] CPPAP n° 0618 T 88200 Printer: SPEI (Pulnoy, France) Copyright deposit 3d quarter 2013. According to French Law (loi du 11 mars 1957 sur la propriété artistique et littéraire) no part of Bankers, Markets & Investors’ articles may be reproduced in any form or by any means without prior written permission of Revue Banque SARL. Ce numéro comprend un encart jeté « Revue Banque Abonnement ». Abstracts ■■Determinants of the Financial Performance of Major European Banks 4 Pascal Barneto, IAE, Université de Poitiers, Georges Gregorio, IAE, Université de Pau. The purpose of this paper is to question the financial performance of the banking sector measured through their accounting documents. Using a ten-year study based on ■■Herding in French Stock Markets: Empirical Evidence from Equity Mutual Funds 42 Mohamed Arouri, CRCGM-Université d’Auvergne & EDHEC Business School, Raphaëlle Bellando, LEO-Université d’Orléans, Sébastien Ringuedé, LEO-Université d’Orléans, Anne-Gaël Vaubourg, LAREFI-Université Montesquieu-Bordeaux IV. a sample of the top 50 European banks, we test whether it is possible to detect diffe- Using the traditional herding measure of Lakonishok, Shleifer and Vishny (1992) (LSV) rences in performance with the application of IFRS. In particular, we examine whether and the more recent measure of Frey, Herbst and Walter (2007) (FHW), we assess her- fair value for AFS securities has played an important role in financial performance mea- ding by French equity mutual funds between 1999 and 2005. We show that LSV herding sure. Our findings show that financial performance stems from business growth and amounts to 6.5%, while FHW herding is approximately 2.5 times stronger. We find that improved margins but also by regulatory constraints specific to the banking system. herding is stronger in small-capitalization firms than in medium- and large-capita- The fair value has had little impact on the financial performance of banks caused by lization firms. Herding is also more severe among foreign stocks than among EU-15 the variations of AFS securities. or French stocks. Moreover, French mutual funds are shown to partially use positive Keywords: Financial performance; Banking sector; Fair value; Equity; Tier One. feedback strategies. Finally, we establish that sell-herding has a destabilising impact on stock prices and that this impact is larger for foreign stocks. JEL Classification: G21, M41 Keywords: herding, herding measures, mutual funds, fund managers, feedback trading. JEL Classification: G11, G23. ■■Market Risk Measurement Models: Estimation of Volatility and Correlation 16 Isam Mouallim, PRO BTP FINANCE, Paris, Jean-Laurent Viviani, IGR/IAE de Rennes, CREM, Université de Rennes. The objective of the paper is to compare the capacity of various market risk measure- ■■Microfinance Institutions Ratings: The Influence of Board Characteristics 60 Hubert Tchakoute Tchuigoua, KEDGE Business School. ment models to take into account some empirical properties of financial asset returns. This article aims to test empirically the relationships among board characteristics, Through an empirical study, we show that financial markets have some empirical cha- audit quality, and microfinance institution (MFI) ratings. An ordered logistic regression racteristics known as «stylized facts» that conventional market risk measurements are enables the study of a sample of 260 international MFIs that were rated between 2002 unable to reproduce. We propose Value-at-Risk (VaR) measures of market risk, based and 2008. Because of the potential for selection bias, a two-step Heckman selection on dynamic modeling of portfolio volatility and correlations between asset classes, model procedure is used to test the findings’ robustness. The results show that board using two risk measurement approaches: the univariate risk measurement approach expertise, activity, and the audit have a significant influence on MFI ratings. This influence and the multivariate risk measurement approach. We first describe how to estimate varies, however, from one rating agency to another, indicating that the informational the parameters of these models and then test their quality predictive using backtesting value of ratings differs across rating agencies. A comparative study of the impact of procedures. The results obtained show a great ability of the different risk measurement board characteristics shows that board activity becomes a more important factor when models to capture the stylized facts characterizing financial markets. Multivariate VaR an MFI has been rated by Planet Rating. models integrating correlations dynamic outperform the univariate VaR measures. Keywords: Ratings; Board of Directors; Governance; Microfinance. Keywords: Conditional Volatility; Dynamic Correlation; VaR; backtesting. JEL Classification: G21, G24, G30, L31 JEL Classification: C01, C32, G32 ■■Stock Index Futures Dynamics: Evidence from France 36 Alassane Diaw, Al Jouf University, Saudi Arabia, Bernard Olivero, Université de Nice Sophia Antipolis. This paper studies the French stock index futures market using autoregressive conditional durations (ACD) models. Indeed, these models suggest that the inter-trades durations convey information about the trading intensity of the market. We use a basic ACD to study the volatility concentration and to test the role of the information asymmetry in the trading intensity. The results show strong temporal dependencies and the negligible effect of the information asymmetry in the volatility process. The use of ACD-GARCH model which better accounts for the information driven by the price process confirms the results. Keywords: ACD Models, Market microstructure, Information asymmetry. JEL Classification: G10, C22. bankers, markets & investors n° 127 november-december 2013 3 La bibliothèque numérique de la banque et de la finance L’accès illimité aux ouvrages clés de la profession Un accès illimité aux ouvrages clés de la profession bibliotheque.revue-banque.fr • Plus de 2 200 ouvrages spécialisés. • Une sélection REVUE BANQUE en 6 thèmes clés : banques et marchés financiers, assurance, droit, économie, entreprise et patrimoine. Un accès illimité à tout moment • Des titres en français et en anglais. 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Introduction PASCAL BARNETO* Full Professor of Finance IAE, University of Poitiers GEORGES GREGORIO Associate Professor of Finance IAE, University of Pau In recent years, the financial performance of listed companies has been an object of study in much academic research, notably following the publication of the Feltham-Ohlson evaluation model (1995) that linked book value to market value. Reconciling accounting and stock market information is a commendable objective as long as the markets involved are efficient and if the prevailing national accounting system of the firm in question tries to convey asset values as fairly and precisely as possible to reflect economic reality. The purpose of the present article is to analyze the financial performance determinants found within IFRS standards on the basis of a business sector that has been the topic of very few performance measurement studies in Europe, ie, the banking sector. IFRS standards advocate an economic financial vision of accounting rooted in the generalization of fair value. This construct which became quite controversial in Europe when the 2008 financial crisis peaked following the fall of Lehman Brothers, requires that most financial instruments be evaluated either on a mark-to-market or else a markto-model basis – or, where this was impossible, in cash flow terms. Financial institutions were the entities most directly concerned with this standard since all variations in the fair value of their financial portfolios’ assets and liabilities would now impact net income and/or equity capital1, i.e. the two variables used to measure performance in ROE (Return on Equity) terms. We know that most banks measures are less than 50% of their assets at fair value and that the major part of banks’ balance sheet is measured at amortized cost, on average (KMPG, 2010). But the present study is useful to determine whether there was any real difference in performance before and after the adoption of IFRS (mainly for securities classified as available for sale, AFS), and whether the fair value construct explains much of the positive and negative performance witnessed since that date. * Corresponding author :[email protected] 4 Barneto.indd Sec1:4 Banks’ financial performance cannot be reduced to a mere choice of accounting criteria. Unlike industrial or commercial companies, banks operate in a highly regulated sector (Diamond, 1984). At national level, many European countries feature both a banking supervision and control system as well as an accounting system that is specific to their own banking activities (i.e., France has specific accounting regulations for credit institutions, called the Plan Comptable des Etablissements de Crédit)2. At the same time, IFRS standards do not offer a specific accounting model for financial institutions even if a standard such as IFRS 73 is very relevant to this category. In addition, since 1 January 2004 the European banking sector has been monitored by the Committee of European Banking Supervisors (CEBS)4 ; a prudential supervision legitimized by such directives as the MiFID (Markets in Financial Instruments Directive); other statutory equity capital-related measures (i.e. the Capital Requirements Directive, CRD). A number of international authorities, such as the Basel Committee with its Cooke or McDonough ratios, also receive banking sector reports to satisfy their own prudential regulations. Such rules are intended to reinforce the banking sector’s Tier 1 capital and solvency ratios. At this level, there exists an indirect link between the quality of accounting information and banking regulation. By impacting operational performance, IFRS standards affect equity capital hence Tier 1 capital ratios which are required by regulators to exceed a certain threshold. Financial performance measurements are thus conditioned by an exogenous variable – regulation. Yet like any equivalent attribute, performance (when calculated using accounting data) is first and foremost the consequence of an entity’s internal accounting choices. Firstly, a bank’s performance stems from its commercial strategy, i.e. its business positioning and the geographical choices that it has made. Over the past 20 years, some institutions have focused on business activities delivering higher margin to the detriment of lending activities, where banks simply serve as intermediaries (a core business for commercial banks). 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