The risk of development of Lithuanian derivatives markets
Abstract
Derivative financial instruments play a very important role in financial markets, but they are seen as rather contradictory and their impact on financial markets and the stability of these markets has not been comprehensively examined. Therefore, the aim of this article is to systematise the potential risks of derivatives in the context of the past global financial crisis, and the recent situation in Lithuania. In particular, growing international tension and deteriorating economic situation, make it necessary to re-analyse the recent crisis, its causes and consequences. The 2007–2008 global financial crisis revealed the challenges and risks of derivatives and showed the tremendous impact that their imprudent use may have on the stability of a financial system. The Lithuanian economy recently joined the euro, but its macroeconomic fundamentals show certain risks. Infrastructures of the derivatives market, liquidity and an adequate supervisory framework are necessary to maintain stability.
Keyword : derivatives, financial instrument, risk, foreign exchange transactions and interest rate contracts, financial crisis, causes and consequences of financial crisis
How to Cite
Garškaitė-Milvydienė, K. (2021). The risk of development of Lithuanian derivatives markets. Journal of Business Economics and Management, 22(2), 346-368. https://doi.org/10.3846/jbem.2021.13894
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Barron, A., & Hultén, P. (2011). Corporate political strategizing in the European Union during the 2007–2013 Recession: An Exploratory Study. Environment and Planning C: Government and Policy, 29(5), 783–796. https://doi.org/10.1068/c10165b
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Bezzina, F. H., & Grima, S. (2012). Exploring factors affecting the proper use of derivatives. Managerial Finance, 38(4), 414–417. https://doi.org/10.1108/03074351211207554
Bingham, N. H., & Rüdiger, K. (2013). Risk-neutral valuation – pricing and hedging of financial derivatives (5th ed.). Springer Verlag.
Blanco, I., & Wehrheim, D. (2017). The bright side of financial derivatives: Options trading and firm innovation. Journal of Financial Economics, 125(1), 99–119. https://doi.org/10.1016/j.jfineco.2017.04.004
Borger, V. (2020). The currency of solidarity. Constitutional transformation during the Euro Crisis. Cambridge University Press. https://doi.org/10.1017/9781108864633
Braendle, U. (2018). The impact of the European Banking Union’s Single Supervisory Mechanism on corporate governance practices in European banks. Banks and Bank Systems, 13(2), 164–177. https://doi.org/10.21511/bbs.13(2).2018.14
Brigham, E. F., & Davies, P. R. (2016). Intermediate financial management (12th ed.). South-Western College Pub.
Burns, C., Tobin, P., & Sewerin, S. (2019). The impact of the economic crisis on European environmental policy. Oxford University Press. https://doi.org/10.1093/oso/9780198826958.001.0001
Burns, C., & Tobin, P. (2016). The impact of the economic crisis on European Union environmental policy. JCMS: Journal of Common Market Studies, 54(6), 1485–1494. https://doi.org/10.1111/jcms.12396
Carroll, A., O’Brien, F., & Ryan, J. (2017). An examination of European firms’ derivatives usage: The importance of model selection. European Financial Management, 23(4), 648–690. https://doi.org/10.1111/eufm.12115
Carruthers, B. G. (2013). Diverging derivatives: Law, governance and modern financial markets. Journal of Comparative Economics, 41(2), 386–400. https://doi.org/10.1016/j.jce.2013.03.010
Chang, C. C., Ho, K. H., & Hsiao, I. J. (2018). Derivatives usage for banking industry: evidence from the European markets. Review of Quantitative Finance and Accounting, 51(4), 921–941. https://doi.org/10.1007/s11156-017-0692-3
Crotty, J. (2009). Structural causes of the global financial crisis: A critical assessment of the “new financial architecture”. Cambridge Journal of Economics, 33(4), 563–580. https://doi.org/10.1093/cje/bep023
David, G. (2009). Did recent experience of a financial crisis help in coping with the current financial turmoil? The case of the Nordic Countries. JCMS: Journal of Common Market Studies, 47(5), 997–1015. https://doi.org/10.1111/j.1468-5965.2009.02032.x
Donohoe, M. P. (2015). Financial derivatives in corporate tax avoidance: A conceptual perspective. The Journal of the American Taxation Association, 37(1), 37–68. https://doi.org/10.2308/atax-50907
Eilifsen, A., & Quick, R. (2018). Florian Schmidt and Steffen Umlauf, Investors’ perceptions of nonaudit services and their type in Germany: The financial crisis as a turning point. International Journal of Auditing, 22(2), 298–316. https://doi.org/10.1111/ijau.12121
Foster, J. B., & Magdoff, F. (2009). The great financial crisis – causes and consequences. NYU Press.
Garskaite-Milvydiene, K., & Burksaitiene, D. (2016). Peculiarities of bankruptcies, restructuring, mergers and acquisitions in Lithuania in the post-crisis period. Inzinerine Ekonomika-Engineering Economics, 27(5), 546–556. https://doi.org/10.5755/j01.ee.27.5.16241
Gay, G. D., Lin, C. M., & Smith, S. D. (2011). Corporate derivatives use and the cost of equity. Journal of Banking & Finance, 35(6), 1491–1503. https://doi.org/10.1016/j.jbankfin.2010.10.033
Geyer-Klingeberg, J. G., Hang, M., & Rathgeber, A. W. (2018). What drives financial hedging? A metaregression analysis of corporate hedging determinants. International Review of Financial Analysis, 2019, 61, 203–221. https://doi.org/10.2139/ssrn.3164869
Gródek-Szostak, Z., Malik, G., Kajrunajtys, D., Szeląg-Sikora, A., Sikora, J., Kuboń, M., Niemiec, M., & Kapusta-Duch, J. (2019). Modeling the dependency between extreme prices of selected agricultural products on the derivatives market using the linkage function. Sustainability, 11(15), 4144. https://doi.org/10.3390/su11154144
Hentschel, L., & Smith, C. (2020). Risk and regulation in derivatives (or why derivatives are a blessing, not a curse). Journal of Applied Corporate Finance, 32(1), 36–37. https://doi.org/10.1111/jacf.12387
Hoa, N., Liu, M. H., & Gallagher, D. (2013). Effective derivative hedging and initial public offering long‐run performance. Accounting & Finance, 54(4), 1263–1294. https://doi.org/10.1111/acfi.12036
Höing, O., & Kunstein, T. (2018). Political science and the eurozone crisis. A review of scientific journal articles 2004–15. JCMS: Journal of Common Market Studies, 57(2), 298–316. https://doi.org/10.1111/jcms.12788
Hull, J. (2012). Options, futures, and other derivatives. Pearson.
Iba, H., & Aranha, C. C. (2012). Practical applications of evolutionary computation to financial engineering: Robust techniques for forecasting, trading and hedging. Springer.
Inekwe, J. (2018). Financial crises and the extreme bounds of predictors. Empirical Economics, 55(4), 2047–2067. https://doi.org/10.1007/s00181-017-1352-0
Jacopo, C., Gros, D., & Micossi, S. (2009). The global financial crisis: Causes and cures. Journal of Common Market Studies, 47(5), 977–996. https://doi.org/10.1111/j.1468-5965.2009.02031.x
Jankensgard, H. (2013). Does centralisation of FX derivative usage impact firm value? European Financial Management, 21(2), 309–332. https://doi.org/10.1111/j.1468-036X.2013.12014.x
Kazi, I. A., Wagan, H., & Akbar, F. (2013). The changing international transmission of U.S. monetary policy shocks: Is there evidence of contagion effect on OECD countries. Economic Modelling, 30, 90–116. https://doi.org/10.1016/j.econmod.2012.07.020
Kosowski, R. L., & Neftci, S. N. (2015). Principles of financial engineering. Academic Press Advanced Finance. https://doi.org/10.1016/B978-0-12-386968-5.00012-1
Lel, U. (2014). Currency hedging and corporate governance: A cross-country analysis. Journal of Corporate Finance, 18(2), 221–225. https://doi.org/10.1016/j.jcorpfin.2011.12.002
Li, Sh., & Marinc, M. (2014). The use of financial derivatives and risks of U.S. bank holding companies. International Review of Financial Analysis, 35, 46–71. https://doi.org/10.1016/j.irfa.2014.07.007
Lietuvos bankas. (2016). Užsienio valiutos pirkimas ir pardavimas [Purchase and sale of foreign currency]. http://www.lb.lt/int/htm.aspx
Lietuvos bankas. (2018). Lietuvos valiutų ir išvestinių finansinių priemonių rinkų apžvalga [Review of Lithuanian foreign exchange and derivatives markets]. http://www.lb.lt/2016_m_lietuvos_valiutu_ir_isvestiniu_finansiniu_priemoniu_rinku_apzvalga
Lietuvos bankas. (2019a). Lietuvos valiutų ir išvestinių finansinių priemonių rinkų apžvalga [Review of Lithuanian foreign exchange and derivatives markets]. http://www.lb.lt/2019_m_lietuvos_valiutu_ir_isvestiniu_finansiniu_priemoniu_rinku_apzvalga
Lietuvos bankas. (2019b). Užsienio valiutos pirkimas ir pardavimas [Purchase and sale of foreign currency]. http://www.lb.lt/int/htm.aspx
Lietuvos Respublikos Seimas. (2007). Finansinių priemonių rinkos įstatymas [Law on Markets in Financial Instruments]. http://www3.lrs.lt/pls/inter2/dokpaieska.showdoc_l?p_id=291835&p_query=&p_tr2=
Marshall, A., Kemmitt, M., & Pinto, H. (2013). The determinants of foreign exchange hedging in Alternative Investment Market firms. The European Journal of Finance, 19(2), 89–100. https://doi.org/10.1080/1351847X.2012.659267
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