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The banking sectors in the Scandinavian countries are highly concentrated, typically undercapitalised and they have suffered through several crises since the 1990s. This article analyses the systemic risk in Denmark, Norway and Sweden focusing on the co-dependence in the tails of equity returns of an individual bank and the overall banking system. We use, partly in a new way, conditional cross-quantilograms (CQs) for this purpose. We find that the CQs are positive and statistically significant in the low and high quantiles indicating that the Scandinavian banks are systemically linked. The low-quantile dependence is relatively stronger compared with the magnitude of dependence in the other quantiles. These results hold even after controlling for equity market volatility and economic policy uncertainty. We further observe that the systemic risk was insignificant from the early-2000 to the outbreak of the global financial crisis (GFC). However, after the GFC and the euro zone crisis, the systemic risk has increased substantially. Finally, we find that bank size has a positive relationship with systemic risk (low-quantile dependence) while return on asset and loan to deposit ratio exhibit a negative influence. Furthermore, these relationships are asymmetric across quantiles., Funding Agencies|Nasdaq Nordic Foundation

This paper examines quantile coherency in bonds, commodities, currencies, and equities using a novel quantile coherency approach. While recent literature has explored single-frequency tail and time-frequency dependence in asset returns, we provide fresh evidence on asset return dependence across quantiles (proxying business cycles or market conditions) at different frequencies (representing investment horizons). Considering sixty-seven individual asset return series in four asset classes, we observe that low frequency (yearly) dependence is stronger in the bond, foreign exchange, and equity markets. Specifically, we find strong dependence between the German and French bond markets, heating oil and crude oil, gold and silver, British Pound, and Euro, French and German and Canadian and US equities. As we report asset return interdependence in different business cycles and at different time horizons, these results have important implications for portfolio allocation and investment strategy formulation.

This paper examines the relationship between firms' sustainability practices and their value during a crisis when overall trust and support are lacking in the economy. While a handful of studies explore this research agenda concentrating on the US context and a standalone crisis, we provide novel evidence on the Asia Pacific region considering three global crises. Applying difference-in-differences regressions, we find that high-sustainability companies posted superior value during the global financial crisis and the European debt crisis. This result, however, does not hold for the COVID-19 crisis. This key finding passes several endogeneity tests (firm-fixed effect, propensity score matching, and post-crisis interaction). As we explore potential mechanisms of firm resistance during crises and apply a triple difference approach, we find evidence that firm value was intensified during the crises due to sustainability activities coupled with high customer loyalty, high institutional ownership, and a low degree of information asymmetry. Finally, although high sustainability performance generally positively impacted firm value during crises, this relationship was negative (weaker) for the highly impacted industries (the emerging countries) included in the sample. Our key finding continues to hold for a set of robustness checks. The outcome of this study provides significant policy directions to regulators, corporate managers, and investment professionals., Funding Agencies|Asian Development Bank

The banking sectors in the Scandinavian countries are highly concentrated, typically undercapitalised and they have suffered through several crises since the 1990s. This article analyses the systemic risk in Denmark, Norway and Sweden focusing on the co-dependence in the tails of equity returns of an individual bank and the overall banking system. We use, partly in a new way, conditional cross-quantilograms (CQs) for this purpose. We find that the CQs are positive and statistically significant in the low and high quantiles indicating that the Scandinavian banks are systemically linked. The low-quantile dependence is relatively stronger compared with the magnitude of dependence in the other quantiles. These results hold even after controlling for equity market volatility and economic policy uncertainty. We further observe that the systemic risk was insignificant from the early-2000 to the outbreak of the global financial crisis (GFC). However, after the GFC and the euro zone crisis, the systemic risk has increased substantially. Finally, we find that bank size has a positive relationship with systemic risk (low-quantile dependence) while return on asset and loan to deposit ratio exhibit a negative influence. Furthermore, these relationships are asymmetric across quantiles., Funding Agencies|Nasdaq Nordic Foundation

This paper examines ESG portfolios causal relationship with conventional and ethical equity prices, exchange rates and commodity prices. Using multi-scale wavelet decomposition, asset returns are decomposed into three timescales (short-, medium- and long-term), and a three-step filtered framework is used to explore dynamic non-linear linkages. We document significant bidirectional causal relationship between ESG, conventional and ethical equity portfolio returns. While the causality persists from the short- to medium-term, it is relatively weaker in the long-term. We further observe statistically significant causality running from ESG portfolio returns to currency and commodity returns. This causality is strongest in the short-term, turns weaker in the medium-term and, in some instances, disappears in the long-term. These results are generally robust for the use of original returns and VAR-filtered returns. However, as we control for conditional heteroskedasticity in the return series, the causality appears weaker particularly between ESG portfolio and commodity returns. Our results have important implications for planning portfolio allocation and devising hedging and diversification strategies.

This paper explains cross-market variations in the degree of return predictability using the extreme bounds analysis (EBA). The EBA addresses model uncertainty in identifying robust determinant(s) of cross-sectional return predictability. Additionally, the paper develops two profitable trading strategies based on return predictability evidence. The result reveals that among the 13 determinants of the cross-sectional variation of return predictability, only value of stock traded (a measure of liquidity) is found to have robust explanatory power by Leamers (1985) EBA. However, Sala-i-Martins (1997) EBA reports that value of stock traded, gross domestic product (GDP) per capita, level of information and communication technology (ICT) development, governance quality, and corruption perception are robust determinants. We further find that a strategy of buying (selling) aggregate market portfolios of the countries with the highest positive (negative) return predictability statistic in the past 24 months generates statistically significant positive returns in the subsequent 3 to 12 months. In the individual country level, a trading rule of buying (selling) the respective countrys aggregate market portfolio, when the return predictability statistic turns out positive (negative), outperforms the conventional buy-and-hold strategy for many countries., Funding Agencies|Linkoping University, Sweden; Jan Wallander and Tom Hedelius Foundation