Journal Detail

Journal 35: Zicklin-Capco Institute Paper Series in Applied Finance

October 2012

Issue 35 of The Capco Journal of Financial Transformation highlights many of the topics that were discussed - under the overarching theme of Applied Finance - at the Capco Institute conference held earlier this year in New York, in association with Baruch College’s Zicklin School of Business. The latest edition of the Capco Journal of Financial Transformation brings together a number of relevant contributions to two themes, systemic risk and interconnectedness. We hope that you enjoy reading the articles in this issue, and that you continue to support us by sending us your innovative ideas.


Journal Articles
Kernel Alternatives to Approximate Operational Severity Distribution: An Empirical Application
Filippo di Pietro, María Dolores, Oliver Alfonso, Ana I. Irimia Diéguez
Do Investors Care About Noise Trader Risk?
Francisca Beer, Mohamad Watfa, Mohamed Zouaoui
Are Investor Sentiments Priced by the CAPM?
Rahul Verma, Gökçe Soydemir
How to Back-test Operational Risk: An Empirical Basic Analysis
José Manuel Feria-Dominguez, Enrique J. Jimenez-Rodriguez, Paz Rivera-Pérez
Bank Internationalization Since 1995
Jonathan A. Batten, Peter G. Szilagyi
Short-Selling Bans and Contagion Risk
Amelia Pais, Philip A. Stork
Tests of the Correlation Between Portfolio Performance Measures
Chris Adcock, Nelson Areal, Manuel Armada, Maria Ceu Cortez, Benilde Oliveira, Florinda Silva
Measuring Market Liquidity Risk – Which Model Works Best?
Cornelia Ernst, Sebastian Stange, Christoph Kaserer
A Risk-Based Risk Finance Paradigm
Siwei Gao, Michael R. Powers, Zaneta A. Chapman
Quantitative Modeling of Operational Risk Losses When Combining Internal and External Data
Jens Perch Nielsen, Montserrat Guillén, Catalina Bolancé, Jim Gustafsson

The relevance and awareness of systemic risk have grown significantly since seven credit events impacted financial institutions during the autumn of 2008 (Lehman, Fannie Mae & Freddie Mac, Washington Mutual and three Icelandic banks). Yet systemic risk remains an important notion that is still poorly understood from a quantitative point of view. The dynamics of dependency, or as it is more commonly called, “correlation”, are difficult to model in a satisfactory way. As a result, a good model of systemic risk has proven to be elusive.

The more general theme of interconnectedness in the financial markets remains fundamental, the more so since finance has become more global than regulation or sovereignty. As a result, regulation of financial markets worldwide continues to be difficult to implement. The need for effective global regulation has been heightened by the introduction of global instruments, such as ETFs, that allow investors worldwide to obtain exposure to a large variety of asset classes through very simple mechanisms. Increasing links between the political and financial arenas, fuelled by the sovereign crisis, are creating further levels of interconnectedness that are hardly “formulable” in a quantitative way.

We are again delighted that this latest issue of The Journal of Financial Transformation brings together a number of relevant contributions to these important themes from many different points of view, offering perspectives from both academia and industry.