Fragility Index for a Differentiated Approach

Finance Research Letters, 2014

This article proposes a novel framework to construct a financial fragility index (FIX) of an emerging country from five main variables by combining the methods of principal component analysis and dynamic conditional correlations. The main contribution of the FIX is the time-varying weighting scheme of the variables and it is demonstrated for a leading emerging market, Turkey. A comparison with the classic principal component approach on forecasting economic activity-expectations and a policy making application are presented.

Territorio, 2020

Fragility is perhaps the concept that best represents the many uncertainties of our time related to different issues such as political and economic instability, energy and ecological transition, climate change, demographic and migratory dynamics. The article aims at conceptually clarifying the notion of fragility so as to try to differentiate it from other related notions such as that of vulnerability. It is pointed out that vulnerability is a notion that, unlike fragility, can be understood (in line of principle) entirely by means of risk analysis tools; and secondly, although both fragility and vulnerability can be regarded as 'dispositions', they belong to two different types.

Quantitative Finance, 2013

We provide a mathematical definition of fragility and antifragility as negative or positive sensitivity to a semi-measure of dispersion and volatility (a variant of negative or positive "vega") and examine the link to nonlinear effects. We integrate model error (and biases) into the fragile or antifragile context. Unlike risk, which is linked to psychological notions such as subjective preferences (hence cannot apply to a coffee cup) we offer a measure that is universal and concerns any object that has a probability distribution (whether such distribution is known or, critically, unknown).

2011

2018

Resumen Este artículo de investigación científica presentará un nuevo indicador analítico aplicable sobre el estudio del desempeño y la vulnerabilidad del mercado. Se basa en la observación de un único índice que puede mostrar la inconsistencia permanente del rendimiento del mercado que siempre se experimenta en diferentes períodos de la historia. El desempeño del mercado y la vulnerabilidad pueden materializarse bajo la forma de crisis comercial, energética o financiera. Básicamente, suponemos que el mercado se ve afectado por cinco fuerzas: fuerzas económicas, fuerzas sociales, fuerzas políticas, fuerzas tecnológicas y fuerzas naturales. Todas estas cinco fuerzas siempre interactúan simultáneamente; afectan el comportamiento del mercado directamente sin ninguna restricción o aislamiento. Por lo tanto, el objetivo de este documento de opinión es ofrecer a los responsables políticos e investigadores una nueva herramienta analítica para estudiar el desempeño del mercado y la vulnerabilidad en la economía de cualquier país desde una nueva perspectiva. De hecho, este artículo de investigación científica, pretende establecer un nuevo índice multidisciplinario para analizar el desempeño y la vulnerabilidad del mercado. Este nuevo índice multidisciplinario se titula «El índice de tendencia del desempeño y la vulnerabilidad del mercado (índice MPVT)». El índice MPVT intenta estimar cinco fuerzas unidas que pueden influir en la tendencia del mercado a corto y largo plazo, el mismo índice no pretende ser un modelo de pronóstico en ningún caso. Finalmente, el índice MPTV se aplicó al estudio del desempeño del mercado de EE. UU. y su vulnerabilidad. Abstract This research paper will present a new applicable analytical indicator on the study of market performance and vulnerability. It is based on the observation of a single index that can show the permanent inconsistency of the market performance that is always experienced across different periods in history. Market performance and vulnerability can materialize under the shape of trade, energy or financial crisis. Basically, we assume that the market is affected by five forces: economic forces, social forces, political forces, technological forces and natural forces. All these five forces always interact simultaneously; they affect market behavior directly without any restriction or isolation. Hence, the objective of this research paper is to offer policy-makers and researchers a new analytical tool to study the market performance and vulnerability in the economy of any country from a new perspective. In fact, this opinion paper intends to establish a new multidisciplinary index to analyze the market performance and vulnerability. This new multidisciplinary index is entitled «The Market Performance and Vulnerability Trend Index (MPVT-Index)». The MPVT-Index attempts to estimate five forces together that can influence the market trend in the short and long run, the same index is not intended to be a forecasting model in any case. Finally, the MPTV-Index was applied to the study of U.S. market performance and its vulnerability.

Annals of Finance, 2006

The paper proposes a measure of financial fragility that is based on economic welfare in a general equilibrium model calibrated against UK data. The model comprises a household sector, three active heterogeneous banks, a central bank/regulator, incomplete markets, and endogenous default. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors and how the response of the economy to shocks relates to our measure of financial fragility. Finally we use panel VAR techniques to investigate the relationships between the factors that characterise financial fragility in our model, i.e. banks’ probabilities of default and banks’ profits – to a proxy of welfare.

Development in so-called 'fragile states' has become a key priority for the international community over the past few years, but international actors have not yet adequately incorporated sufficiently nuanced understandings of fragility into policies or practices. The increasing proportion of the world's poor living in fragile contexts, the depth of human need in these contexts, and the potential regional spillover implications of this fragility, all make this an urgent concern. This chapter examines this growing need and discusses the origins and methodological approach in this volume, before setting up the rest of the book with definitions and an analysis framework. The chapter concludes with a summary of the book chapters and contributions. This is an author's pre-publication TOC and draft copy of the introductory chapter of my edited book. This chapter is cited as:

OECD Development Co-operation Working Papers, 2020

OECD Working Papers do not represent the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the authors. Working Papers describe preliminary results or research in progress by the authors and are published to stimulate discussion on a broad range of issues on which the OECD works.

University of Malta. Islands and Small States Institute & The Commonwealth Secretariat eBooks, 2010

2015

This paper makes an empirical investigation of the determinants of fragility in terms of long-term fiscal sustainability and sovereign ratings for Brazil, India, Indonesia, South Africa and Turkey, referred to as the " fragile five " by Morgan Stanley (2013), using the Fully Modified Ordinary Least Square (FMOLS) approach developed by Phillips and Hansen (1990). The data set covers the 1980–2012 period for fiscal sustainability and 1990–2012 for sovereign ratings in these countries. The study revealed a statistically significant relationship between fiscal sustainability and current account balance, gross domestic product (GDP), total reserves, energy imports, exchange rate, external debt and credit to the private sector, while the findings associated with sovereign ratings demonstrate significantly that the leading determinants of sovereign ratings are exchange rates, total reserves, energy imports, foreign direct investment (FDI) net inflows, current account balance, GDP and external debt stocks.