“The Impact of COVID-19 on Financial Markets, Banking Systems, and the Overall Economy

COVID-19 emerged as a black swan event that stifled the global economy. COVID-19 resulted in social isolation within countries, closed borders, loss of business, loss of employment, industry-wide shutdowns, and many more adverse economic effects. Governments across the globe initiated fiscal and monetary stimulus programs to combat the damaging economic effects caused by the virus. Volatility in the financial markets spiked in the aftermath of the crisis, most likely due to difficulty in estimating the extent of the economic damage caused by this global event, which is still unfolding. The extent of the downturn could be felt over many years.

  • The impact of fiscal and monetary policy responses
  • The impact on consumer spending
  • The impact on financial markets
  • Bond markets – sovereign, agency, municipals, corporate
  • Risk management
  • Bankruptcies
  • Investor sentiment
  • Changes to capital structure
  • Changes to payout policy
  • Changes to the commodity markets
  • Impact on emerging and growth economies

THEME 2: “The Macroeconomic Consequences of COVID-19”,
The outbreak of the COVID-19 pandemic and the resulting lockdowns have created a deep global recession, massive government interventions, and forced a change in the social and economic behavior of economic agents. This raises many questions about the path to economic recovery and the long-lasting impact of the crisis on the economy.

  • Demand and supply effects from the crisis and their impact on the economy
  • Asymmetric recovery from the crisis across sectors and countries
  • Structural changes in terms of consumer behavior and economic activity
  • The implications of social distancing and e-commerce for economic performance
  • The evolution of public debt and fiscal-monetary interactions
  • Impact on the financial system and macro-financial linkages
  • Central bank interventions
  • The interaction between epidemiological and economic factors
  • Coordination failures and preparedness for future pandemics across countries

THEME 3: Clearing and Derivatives. Market infrastructure has proved as robust as ever through what is seen as the biggest test of market functioning since the Global Financial Crisis of 2008. The increased activity and volatility triggered by the pandemic has been met with extraordinary resilience, with CCPs (Central Clearing Party) successfully managing extreme volumes and market moves in exceptional circumstances, proving their contribution to systemic stability and to fully functioning markets. The topic should be about clearing, to reflect on the lessons learned from the pandemic, including the performance of the broader eco-system that CCPs serve and interact with, and to examine the questions and challenges, old and new, that lie ahead.
1) CCP Resolution: cross-border cooperation; legal obstacles to resolution; differences between CCP and banking resolution.
2) Clearing structures and incentives: CCPs’ loss allocation models; skin in the game (SIG), non-default losses (NDL); client clearing.
3) CCP auctions. Auction design and incentives; client participation.
4) Operational risk. Lessons learned from the management of COVID-19 crisis and the deployment of business continuity plans (BCP); cyber-threats; operational risk models.
5) Model risk management (MRM). Model risk management frameworks and the design of efficient testing and validation methodologies; model risk in big data and advanced analytics models.
6) Risk models. Implications for risk models’ design and calibration of the unprecedented moves observed in risk factors (negative WTI, the repo/future/US Treasury basis, the gold-cash futures basis, etc.); modelling of volatility products; liquidity risk modelling.
7) LIBOR transition. Impact on derivative markets; implications for pricing and risk models.
8) New modelling methodologies: Applications of big-data analysis, agent-based modelling, machine learning, or behavioral models in the CCP context.
9) Technological innovation: New technologies for clearing; legal and regulatory implications; the future of FMI service provision; issues around the use crypto-assets that represent securities (e.g. stable coin and virtual assets); crypto-derivatives.
10) Liquidity risk transmission: Lessons learned from the dash-for-cash run during the COVID-19 stress; network models; contagion effects; feedback loops; procyclicality; measures of vulnerability; complexity; implications for financial stability.
11) Climate change. Impact of climate change on derivatives markets; modelling climate events risk; implications for crisis management; scenarios design and stress-testing; changes in market behaviour and in business models.

THEME 4: Retail investors’ and financial professionals’ perceptions and expectations of risk, return, and related financial concepts. Factors that shape such perceptions as well as their impact on financial behavior.

  • Drivers of the perceived attractiveness of different assets for retail investors
  • Drivers of investor expectations regarding return and risk (including different definitions and measures of risk)
  • Different ways of communicating and framing risk, return, and historical performance, and their effect on investment behavior
  • (Mis)perception of financial concepts like diversification, correlation, risk factors, etc.
  • Effects of regulatory standards regarding the presentation of investment products on financial behavior

THEME 5: Impact of the COVID-19 epidemic on the Islamic financial industry and the role of Islamic banking and finance during the pandemic.
Some people think that Islamic financial institutions and Islamic instruments are relatively stable and outperform their conventional counterparts, particularly during periods of high uncertainty and economic turbulence. Also, Islamic social finance products such as waqf (Islamic endowment), zakat (compulsory alms), ṣadaqah (donation), qard hasan (benevolent loan) could have a positive impact on poverty alleviation, productivity and financial access of small and medium enterprises among other benefits.
The topic could be both theoretical and empirical analyses of a wide range of related topics including, but not limited to, resilience and stability of Islamic financial markets and institutions during the pandemic; the impact of media attention and investor sentiment on volatility and risk transmission of Islamic financial market and institutions; interconnectedness and contagion effects between conventional and Islamic financial markets during the crisis; the relationship between Islamic finance and the real economy; financial performance of Islamic banks and institutions during the pandemic; the role of Sukuk and other Islamic social finance products in alleviating the adverse impact of the pandemic; the role of Islamic financial instruments in providing opportunities for risk-sharing, portfolio diversification, and hedging during the pandemic.

THEME 6: Advances in the Regional Capital Market: Korea
The topic could be both empirical or theoretical in all areas of finance, with a special attention paid to the recent developments in the Korean capital market. While Korea’s economic and financial development over the last 50 years has been widely recognized as a remarkable success, academic research has revealed that the integrity of the capital market is still yet to be established.

  • ESG issues and practices
  • Stock return and risk dynamics
  • The behavior of different types of investors
  • Impact of Covid-19
  • Financial market regulation and reforms
  • Corporate financing and investment
  • Asset allocation and asset management
  • Mutual funds and pension funds
  • Stewardship code and investor activism
  • The role of Fintech
  • The role of foreign investors

THEME 7: Recent Development in New Structural Economics and Finance, emphasizing the overlap of financial systems with structural economics.
New structural economics (NSE) is a theory of economic development, transition, and operation. NSE applies a neoclassical approach to the study of the determinants and impacts of economic structure and its evolution. NSE posits that economic structures, including the structure of technology and industry (determining labor productivity), and hard and soft infrastructure (determining transaction costs), are endogenous to an economy’s dynamic endowment structure. NSE maintains that developing countries and regions should develop industries that conform to their comparative advantages based on their respective factor endowments structures. Concomitantly, an effective market is required for enterprises to spontaneously gravitate to technology and industries appropriate to comparative advantage, with a facilitating state essential for ensuring hard and soft infrastructures are correspondingly upgraded.
TOPICS: All theoretical and empirical studies related to recent development in new structural economics, and to the overlap of new structural economics and finance, including but not limited to:
Economic growth and development
Financial structure and development
Political economy and corporate finance
Industrial and innovation policies
International trade and investment
COVID-19, NSE and finance

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