Risk-based projects conducted by Centre for Financial Risk members include:
- Managing systemic risk through development of a real-time business conditions indicator
- The impact of business cycle risks on asset returns
- Risk management in superannuation and financial plans
- Currency risk and the role of central banks
- Risks associated with climate change
- Managing risks to electricity supplies
- Survival analysis for medical costs and insurance companies
- Dependency between risks and implications for financial institutions and regulators
Early-Warning Systems and Managing Systemic Risks using Real-Time Financial and Business Conditions Indicators
Area of Interest: Systemic Risk Lead Institution: Macquarie University Project Summary
Substantial resources in banks, businesses, governments and universities are devoted to deriving accurate and timely estimates of the state of the economy and systemic risks. These estimates are of central importance for business, financial, regulatory and macroeconomic policy decision-makers, who have to act in real time. However the data currently utilised is largely disparate, arrives at different time intervals, and is not always rigorously analysed for joint informational content with respect to the management of financial and systemic risks. This project applies the rigour of dynamic factor models (DFMs) for Australia in an international financial and macroeconomic context to model potential systemic risks for the financial sector and the economy. A key outcome is a new set of early warning indicators for systemic risk available over the internet, developed through close communication between Australian academics and practitioners including the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA).
The MySuper Default Option: Assessing Portfolio Diversification, Suitability for Contributors and Performance of Superannuation Investment Strategies
Area of Interest: Superannuation, Financial Market Developments
According to the Federal Government, MySuper is “a new low cost and simple superannuation product”, that will provide a “single diversified investment strategy, suitable for the vast majority of members who are in the default option.” As more and more MySuper products are approved by the regulator (APRA), this study seeks to explore the diversification of various MySuper products and their suitability for investors. The study will build on a new measure of diversification, the diversification delta. It will also focus on the performance of MySuper products when a contributor is close to retirement and his or her capital base is near its maximum. In this respect, the performance of MySuper products will be compared to alternative, potentially more conservative investment approaches that reduce downside risks for contributors close to retirement.
Team Leader: Professor Stefan Trueck, Co-Director Centre for Financial Risk, Department of Applied Finance and Actuarial Studies, Faculty of Business and Economics, Macquarie University; Researchers: Dr Robert Bianchi, Senior Lecturer, Department of Accounting, Finance and Economics, Griffith Business School, Griffith University; Professor Michael Drew, Professor of Finance, Department of Accounting, Finance and Economics, Griffith Business School, Griffith University; Dr Yuri Salazar, Postdoctoral Research Fellow - Centre for Financial Risk, Faculty of Business and Economics, University of Melbourne
Elements of Risk Governance and Culture
We are a university-based group conducting research into the risk culture of large financial institutions. Bringing together expertise in financial risk management, organisational psychology, survey design and state of the art statistical analysis, we have developed the first rigorously validated survey instrument to assess risk culture. We are able to provide risk culture assessments on a consulting basis using our evidence-based methods. Find out more.
Regulation of Financial Plans and Allocated Pensions
This project will research the question of regulating for financial plans, allocated pensions and account-based pensions that carry less investment risk on the cusp of retirement and are better tailored to the spending plans of retirees.
The Cost of Living Longer: Projecting the Effects of Prospective Mortality Improvements on Economic Support Ratios for a Selection of OECD Countries
This project will analyse the effects of prospective mortality improvement on economic support ratios for selected developed countries. The mortality forecasts will be as prepared by Li, Tickle and Parr using the Poisson Common Factor Model for a current IAAust grant-funded project. The proposed project will prepare population and labour force projections for a range of developed countries, and compare the values of economic support ratios between projections using the forecast mortality improvement and projections which assume constant mortality. The outcome will be a better understanding of the implications of forecast mortality change for population aging and economic dependency.
Modeling climate impacted risk with generalised additive models with location, scale and shape
Area of Interest: Systemic Risk Lead Institution: Macquarie University
Professor Stefan Trueck | Co-Director Centre for Financial Risk, Department of Applied Finance and Actuarial Studies, Faculty of Business and Economics, Macquarie University
David Pitt | Department of Applied Finance and Actuarial Studies, Faculty of Business and Economics, Macquarie University
John McAnernay, Climate Futures
Tony Coleman, Lonergan Edwards and Associates Ltd
Measuring uncertainty in global housing markets and its risk to Australia
Area of interest: Real estate risk, financial bubbles, systemic risk, business cycles
This project aims to develop and construct a measure of systemic risk for the national real-estate markets in Australia, and its main trading partners, namely China, Japan, New Zealand, United Kingdom and United States of America. Recently developed methodology will be used to investigate how real estate risks migrate across these countries over time, and during periods of financial turbulence. This methodology is intended to be employed as part of a market stability surveillance program and for assessing the impact of real-estate risk on the overall economy. Early detection of the onset of future housing bubble collapses would be of significant benefit to policy makers, Australia’s trading partners, the real estate industry and ultimately home buyers.
Research team: Associate Professor Roselyne Joyeux; Department of Economics, Macquarie University; Associate Professor George Milunovich, Department of Economics, Macquarie University; Associate Professor Shuping Shi, Department of Economics, Macquarie University; Dr Ben Wang, Department of Economics, Macquarie University; Professor Yongheng Deng, Wisconsin School of Business, University of Wisconsin – Madison; Associate Professor Jing Wu, College of Business, City University of Hong Kong; Professor Eric Girardin, Aix-Marseille University.
Grant: ARC Discovery Grant DP190102049: $220,000
Awarded: 27 November 2018
Two-price quantitative finance
Area of interest: Quantitative finance
This project aims to establish a novel field, namely two-price quantitative finance, and explore its applications. The new field will integrate two major schools for modelling and explain the presence of two prices, the buying and selling prices, widely observed in the real-world markets, and the equilibrium approach from the fundamental law of one price. The outcomes would deepen our understanding of the fundamental relationship among liquidity, prices, risk and the economy. This project expects to bring about long-term impact on quantitative finance and related applications through providing a deep understanding of, and a new perspective for, the design, risk and fairness of the finance, property and insurance markets.
Research team: Professor Tak Kuen (Ken) Siu, Department of Actuarial Studies and Business Analytics, Macquarie University; Professor Robert Elliott, Department of Mathematical Sciences, University of Alberta; Professor Dilip Madan, Robert H. Smith School of Business, University of Maryland.
Grant: ARC Discovery Grant DP190102674: $450,000
Awarded: 27 November 2018
Monitoring financial bubbles using high-frequency data
Area of interest: Financial market risk, systemic risk, business cycles, financial bubbles
This project aims to develop an econometric procedure for monitoring speculative behaviour, often labelled as bubbles, in financial markets. There has been widespread recognition that financial speculation can inflict harm on the real economy. Crises or recessions are often preceded by excessive asset market speculation. This project will utilise intraday information for bubble detection and address major technical challenges arising from high-frequency financial data. It is expected to significantly improve the speed and accuracy of bubble detection, thereby providing more timely and precise warning alerts for investment decisions, market surveillance and policy action.
Research team: Associate Professor Shuping Shi, Department of Economics, Macquarie University
Grant: ARC Discovery Early Career Research Grant (DECRA) DE190100840: $375,000.00
Awarded: 27 November 2018
AntiPort – Educating the public on risks and the prevention of mobile number porting scams
Area of interest: Financial literacy, consumer protection, personal finance
This multi-disciplinary project aims to assist consumers to protect their privacy and finances by improving mobile phone security through education and implementation of other measures to stop personal information being compromised and abused by professional scammers. The project addresses a rapidly growing problem, with many individuals facing significant financial loss and considerable difficulty in rectifying the identity problems that arise from porting crimes.
An additional $30,000 contribution to the project will be provided by the Optus Macquarie Cyber Security Hub.
Research team: Professor Stefan Trueck, Department of Actuarial Studies and Business Analytics, Macquarie University; John Selby, Department of Accounting and Corporate Governance, Macquarie University; Christophe Doche, Department of Computing, Macquarie University; Martin Boyd, Department of Computing, Macquarie University.
Financial Literacy Australia Grant: $120,000
Awarded: November 2018
The nexus between Retirement Villages and Aged Care
Area of interest: Financial literacy, aged care funding
A project to investigate the nexus between Retirement Villages and Aged Care, exploring the risk and costs of relocating from a retirement village to other accommodation, particularly to aged care, with analysis of industry practices that may limit aged care funding options.
The grant follows on from a previous Financial Literacy Australia funded project for the development of a Retirement Village Calculator to compare fees between villages. The second stage of the retirement village project will allow a deeper exploration of the true costs and broader implications of living at a retirement village.
This will include an evaluation of financial or other hardships that may arise because of delays in returning funds to the resident by the village, and whether the amount available for aged care or other accommodation options may be eroded by unexpectedly high fees levied on departure or other unfavourable contract terms.
Research team: Headed by Associate Professor Timothy Kyng, Department of Actuarial Studies, Macquarie University
Financial Literacy Australia Grant: $90,000
Awarded: November 2018