Year 2012, Issue 18
Date published31.10.2012
Table of content
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Velichko Adamov
RISK ASSESSMENT TOOLS FOR INVESTMENT SELECTION – THEORY AND PRACTICESummary: The paper reviews risk assessment for selection of investments in terms of em-pirical derivation and estimation of beta coefficients on the capital market in Bulgaria. It aims to develop some theoretical aspects regarding risk... The paper reviews risk assessment for selection of investments in terms of em-pirical derivation and estimation of beta coefficients on the capital market in Bulgaria. It aims to develop some theoretical aspects regarding risk assessment for investment se-lection as well as to provide empirical derivation and trend analysis of the beta coeffi-cient values of leading Bulgarian public companies included in the SOFIX index. The paper is structured in four main parts according to its subject matter, goal and objec-tives. The first part reviews the current objectives and the theoretical grounds of in-vestment management. The second part focuses on the possibilities to include risk into the investment analysis. The third part analyzes the methodological framework for in-vestment selection. The fourth part presents an empirical study of the beta coefficients of the SOFIX companies for the period 2007-2012, identifies trends and proposes cor-porate grouping according to their capacity to restore market capitalization to the pre-crisis levels. The results show that two of the leading Bulgarian companies (i.e. 13.3% of the total number of companies in the index) have betas exceeding 1.25 (based on monthly data for the period Sept. 2007 - Sept. 2012), seven companies (46.7% of the index) have beta coefficients between 0.75 and 1.25 and six companies (40% of the index) have conservative betas of less than 0.75. -
Teodora Dimitrova
SIGNAL PARAMETERS OF SHADOW ECONOMY IN BULGARIAJEL: H30Summary: The global financial and economic crisis at the beginning of this century resulted in certain cataclysms with destructive effects on the government's financial policy. In-creasing government budget deficits, strikingly inadequate... The global financial and economic crisis at the beginning of this century resulted in certain cataclysms with destructive effects on the government's financial policy. In-creasing government budget deficits, strikingly inadequate social status and deteriora-tion of the basic macroeconomic indicators measuring the „pulse” of the national and world economy once again brought forward the issue of the scale of shadow economy. The presence of shadow economy is an indicator for the lack of trust in govern-ment's financial policy and the inefficiency of the national economic policy. At the same time shadow economy practices affect negatively the economic growth, efficiency of labour, competitiveness and the economic and financial policy of the state. In this context, the main goal of the study is to analyze the extent of the shadow economy and the issues related thereto as well as to examine its actual manifestations in Bulgaria and propose measures to mitigate it. -
Rumyana Lilova
EVALUATION OF THE NEOCLASSICAL MODEL OF FUNCTIONING OF THE ECONOMY AND MOVE TOWARDS KEYNESIANISMSummary: Since the end of 2007 and the beginning of 2008 the global economy has been in an economic and financial crisis. This is a phenomenon with global consequences for production and consumption. In this line of thought two important... Since the end of 2007 and the beginning of 2008 the global economy has been in an economic and financial crisis. This is a phenomenon with global consequences for production and consumption. In this line of thought two important questions come to the foreground. They are connected with the market and the state when coordinating and guiding business decisions, on the one hand, and a system of measures for over-coming the consequences of the crisis situation – on the other. On this basis, the paper aims to compare the theoretical concepts of the leading schools of economics – neoclas¬sical and Keynesian, in the direction of proposed measures to remedy such a situation and to take up again the path of economic growth. -
Andrey Zahariev
ECONOMIC GROWTH IN TIMES OF CRISIS – MYTH OR REALITY IN THE BSEC COUNTRIESSummary: The paper presents a study of the economic development of the countries from the Black Sea Economic Cooperation (BSEC) block as an opportunity to assess the rate and pace of their economic development and the opportunities for... The paper presents a study of the economic development of the countries from the Black Sea Economic Cooperation (BSEC) block as an opportunity to assess the rate and pace of their economic development and the opportunities for Bulgaria, Romania and Greece (the EU member-states in BSEC) to develop their growth potential. Especially important (in times of global financial and economic crisis) is the relation be¬tween the GDP and the ability of free foreign trade economies to establish growth factors. The study focuses on the economic potential within the BSEC in terms of the main trends and growth factors in the BSEC economies. The aim of this study is to provide a critical analysis of the economic development trends of the BSEC countries in terms of identification of key factors supporting economic growth in the 21st century. The study is structured in two parts. The first part presents a comparative monitoring analysis of the trends in the key macroeconomic indicators for the period 2003-2010 in the BSEC countries. The second part presents growth rate models of the BSEC countries in terms of the level of openness of their economies and the dynamics of their export and import flows. -
Zhelao Vytev
STRESS TESTING ISSUES IN THE MODERN BANKS WORKJEL: G21Summary: The present article provides critical analysis of the existing practice for carrying out of stress-test in the banking sector in our country and abroad. It provides good grounds for accentuating on a number of unsolved or discussion... The present article provides critical analysis of the existing practice for carrying out of stress-test in the banking sector in our country and abroad. It provides good grounds for accentuating on a number of unsolved or discussion issues, concerning: significance of the stress-tests; scope and periodicity of their implementation; identification of the specific risks, with potential negative effects; scenario modelling with specifying key risk parameters (factors), subject of shocking changes; performance of comparative analysis of the methods for implementing stress-tests and outlining of their advantages and disadvantages; specifics of implementation of the so-called „reverse” stress-tests, etc. -
Valeri Nenkov
PECULIARITIES AND PROBLEMS OF EQUITY FINANCING OF A BUSINESSSummary: Equity financing underlies the right investment decision-making, engages banks, ensures increased production and receipts, and strengthens the company’s positions on the national and international markets. Under the conditions of... Equity financing underlies the right investment decision-making, engages banks, ensures increased production and receipts, and strengthens the company’s positions on the national and international markets. Under the conditions of economic crisis and in the presence of a credit restriction and limited access to the capital market, equity fi-nancing of small and medium-sized companies in our country is crucial for their sur-vival. A company’s prosperity depends on the appropriate use of all financing tech-niques, i.e. it depends on the rational combination of equity financing and external financing. -
Plamen Pytev
OFFSHORE ZONES – PLACES FOR IMPLEMENTING CRIMINAL INITIATIVES OR ECONOMICALLY JUSTIFIED INVESTMENTSSummary: An intensive dispute about the role of the offshore zones in modern global economy is taking place among researchers, politicians and financial specialists. What are the reasons for investors to transfer their savings to such... An intensive dispute about the role of the offshore zones in modern global economy is taking place among researchers, politicians and financial specialists. What are the reasons for investors to transfer their savings to such offshore zones – are they motivated by economic reasons or are they just realizing their criminal intentions using the offshore status? According to Zhixiang Sun investors will transfer their savings to offshore zones until the ratio between return in the home country towards return in the offshore zone is higher than the ratio between unity minus the tax rate in the home country and unity minus the tax rate in the offshore zone. In our research we calculate these ratios for a US investor towards a possible transfer to 9 Caribbean offshore zones. For all cases we find that there are strong economic reasons for investors to transfer their savings to offshore zones. The same conclusions refer to Bulgarian investors, too. It is only for Panama that we did not find economic reasons. -
Stefan Simeonov, Tsetan Pavlov
INFLUENCE OF FINANCIAL DERIVATIVES ON THE CAPITAL MARKET OF MAJOR EUROPEAN EXCHANGESKeywords: financial derivatives, options, futures, exchange turnover, open positions, market liquidity, risky, precautionary behaviourSummary: There are still opinions in professional circles about the danger of financial derivatives and their blame for the current crisis. At the same time there are isolated studies regarding the specific effects of derivatives and they... There are still opinions in professional circles about the danger of financial derivatives and their blame for the current crisis. At the same time there are isolated studies regarding the specific effects of derivatives and they have a narrow focus – a separate tool, limited market and time. The current study looks for arguments about the actual influence of financial derivatives on the capital market in terms of studying the biggest West European exchanges with options and futures based on their instruments. An analysis is made of the most fundamental market indicators: exchange turnovers – in a premium value and number of contracts, open positions, movement of indexes, volatility, etc. The results of the correlative, comparative and traditional investment analyses lead to the fundamental findings: derivative trading improves market liquidity of the basic capital instruments and aids their risky management, the activity of derivative exchanges is more stable in years of crisis than that of the stock exchanges, which indicates a better risk-return correlation; an analogous analysis of the Russian markets for the same period corroborates some findings and shows some interesting differences in investment behaviour. In terms of methodology the parallel analysis between main indicators such as: exchange volumes, option rate and open positions enable the indication of fundamental changes in investment behaviour and of occurring financial and economic cataclysms. -
Stoyan Prodanov
REAL OPTIONS – THE NEW PARADIGM IN INVESTMENT DECISION MAKINGJEL: G31Keywords: corporate fnance, capital budgeting, real options, investment decisions, discounted appraisal methods, undiscounted appraisal methodsSummary: Financial theory has long tried to impose discounted cash flows techniques as a revolutionary approach in evaluating investment alternatives, offering a more accurate and complete idea of the potential in creating a value replacing... Financial theory has long tried to impose discounted cash flows techniques as a revolutionary approach in evaluating investment alternatives, offering a more accurate and complete idea of the potential in creating a value replacing the „Payback period” that has long been used in capital budgeting. Discounting of cash flows had been the main and indisputable paradigm in making investment decisions prior to the emergence of a real options analysis (ROA) - an application of the theory of financial options in capital budgeting. Real options enhance valuation by embedding flexibility in capital budgeting procedures – the ability of firms to react adequately to favorable or adverse changes in the economic environment, competition or markets. Real options analysis is the perfect approach in evaluating long-term investments and it will not be long before it replaces completely the traditional tools in capital budgeting. -
Angel Angelov
FREE ZONES AS A TOOL OF STATE ECONOMIC REGULATIONSummary: Free zones emerge at a certain stage in the development of national economy as a new form of interaction in foreign trade and foreign economic relations of a country. Duty free zones are one of the most common types of free zones.... Free zones emerge at a certain stage in the development of national economy as a new form of interaction in foreign trade and foreign economic relations of a country. Duty free zones are one of the most common types of free zones. The balanced achievement of a variety of goals by creating free zones leads to the conclusion that they can also be a tool of state economic regulation. Although there are almost all conditions for the development of free zones in Bulgaria, their activities, and hence their importance for our country, are on the decrease. The question arising is how to change that. The following trends in the development of free zones in Bulgaria can be outlined as very important: changing the regulatory requirements for tenants concerning the technological level and type of productions carried out in the free zones; tax incentives for investors; turning the free zones into industrial sites which use new technologies; using the regime approach in creating free zones in Bulgaria; authorizing a state agency to organize, coordinate and monitor the activities of the free zones in the country; and setting priority objectives in the operation of the free zones. This will provide opportunities for identifying the exact location and role of free zones and will make them an effective tool for state economic regulation. -
Bozhidar Bozhinov
ESTABLISHMENT OF THE BULGARIAN NATIONAL BANK AS A CENTRAL BANKJEL: G21Summary: The establishment of the central bank and banking system in our country began in the late XIX century, after the liberation from Ottoman rule. In its 120-year-old history Bulgarian banking has experienced many ups and downs to reach... The establishment of the central bank and banking system in our country began in the late XIX century, after the liberation from Ottoman rule. In its 120-year-old history Bulgarian banking has experienced many ups and downs to reach its current state. This study will focus on the establishment and recognition of the Bulgarian National Bank as a central and issuing bank. -
Valentin Milinov
ON EVOLUTION AND THE NEW CHALLENGES FACING BANK MARKETING IN THE AFTERMATH OF THE FINANCIAL CRISISSummary: In times of a global financial and economic crisis and global banking collapse, effective bank marketing will be the key factor for successful stabilization of the ban-king system. The dynamic and volatile banking trends require a... In times of a global financial and economic crisis and global banking collapse, effective bank marketing will be the key factor for successful stabilization of the ban-king system. The dynamic and volatile banking trends require a thorough reorganization of the concepts for strategic marketing planning and forecasting regarding customers, partners and shareholders. It will enable banks to turn the opportunities created by the globalization process into real profits and retain their key role of major financial intermediaries. In the highly competitive market of financial services one of the leading concepts in modern bank marketing requires that banks should set socially responsible and meaningful goals that would generate higher value for all stakeholders. The successful development of banks will depend on their awareness of the psychology and the various aspects of social behaviour changes and benefits. -
Marin Marinov
RESEARCHING VARIATIONS IN THE MARKET TREND BY USING INDICATORS FOR TECHNICAL ANALYSISKeywords: technical analysis, market indicatorsSummary: Technical analysis is one of the two approaches used for investment analysis of financial markets. It comprises diverse graphical and quantitative tools, which are applied in researching the price deviation of financial instruments.... Technical analysis is one of the two approaches used for investment analysis of financial markets. It comprises diverse graphical and quantitative tools, which are applied in researching the price deviation of financial instruments. This research paper focuses on the indicators that are applied to forecast short-term price variations of financial instruments. -
Aneliya Radulova
NEOCLASSICAL AND INSTITUTIONAL SYNTHESIS OF HOUSEHOLDSSummary: The paper presents a study on households as subjects of economic relations in terms of the institutional and neoclassical synthesis. Households are considered a pri-mary component of the economic system, as well as objectively... The paper presents a study on households as subjects of economic relations in terms of the institutional and neoclassical synthesis. Households are considered a pri-mary component of the economic system, as well as objectively necessary and relatively autonomous economic entities. The neoclassical synthesis deals with two main charac¬teristics of both individuals and households – their rationalism and sovereignty – as key factors of their behaviour in a market economy. In response to the shortcomings of the neoclassical theory, the institutional approach focuses on the norms, rules and stereo¬types that govern human behaviour in real life. The analysis of households as functional socio-economic entities requires a combination of the concepts of neoclassical and in¬stitutional approaches. -
Lyudmil Krystev
A COMPARATIVE ANALYSIS OF INSURANCE COMPANIES OPERATING IN THE FIELD OF „GENERAL INSURANCE”JEL: G22Summary: The present article makes a comparative analysis of the activities of insurance companies based on officially published information. It argues that the evaluation of the activities of insurance companies in Bulgaria should be based... The present article makes a comparative analysis of the activities of insurance companies based on officially published information. It argues that the evaluation of the activities of insurance companies in Bulgaria should be based not only on generated premium income, but also on financial indicators. In this context, an assessment is made of the return on sales and return on equity of the insurance companies operating in the field of „General insurance”. -
Petya Vasileva
MACROECONOMIC STATE OF BULGARIA AND PROSPECTS FOR DEVELOPMENT OF BULGARIAN ECONOMYKeywords: development of financial markets, infrastructure, macroeconomic environment, higher education and training, innovationSummary: Bulgaria has managed to reduce the deficit as required according to the excessive deficit procedure and is carrying out a substantial reform aimed at raising the statutory retirement age for both men and women. Despite the progress... Bulgaria has managed to reduce the deficit as required according to the excessive deficit procedure and is carrying out a substantial reform aimed at raising the statutory retirement age for both men and women. Despite the progress made by the Government in fulfilling its reform programme, the main challenges facing the country’s policy have remained largely unchanged. Due to the constant increase in unemployment there should be more active reorientation of the active employment policy in order to improve employability. The low educational achievement shows that the provision of quality education faces significant structural barriers. Sustainability and adequacy of the pension system are still not fully guaranteed. The quality of public expenditure, the tax system efficiency and the business environment are suboptimal. Bulgaria is largely dependent on imported energy and its energy market is not fully operational. -
Sergey Radukanov
TRENDS IN THE DEVELOPMENT OF PROFITABILITY AND RISK PROFILE OF THE BANKING SECTOR IN OUR COUNTRYJEL: G 21Summary: This paper discusses the impact of the financial crisis on the profitability and risk profile of the banking sector in our country. The problem is studied at two levels – at a macroeconomic level (the banking system as a whole) and... This paper discusses the impact of the financial crisis on the profitability and risk profile of the banking sector in our country. The problem is studied at two levels – at a macroeconomic level (the banking system as a whole) and at a microeconomic level (particular banks). An indicator is derived for a complex binding of profit and risk (risk-weighted profitability), its dynamics is traced and the factors that influence it are outlined. -
Petko Angelov
MANAGING THE STATE DEBT OF BULGARIA – ISSUES AND CHALLENGESSummary: Satisfying the public interest in terms of public goods and services has its lim¬its – the resource limitedness in the provision of public goods and services. Since the needs of society and individuals always exceed the available... Satisfying the public interest in terms of public goods and services has its lim¬its – the resource limitedness in the provision of public goods and services. Since the needs of society and individuals always exceed the available economic resources for their implementation, this necessitates the use of debt and deficit financing tools. This is particularly true for the state as an economic entity. Moreover, debt financing could be used for the formation and implementation of policies going far beyond the purely economic objectives of any government. Economic theory has already proved that the public debt, its quantity and management processes have an impact on the economic development of the country, consumption, savings and investments. Extending the debt crisis and the cataclysms in financial markets demonstrate the illusory idea of the adequacy of national economies in the management of public debt in the long term. It is objectively necessary to apply established measures as well as to approve new ones. The systematic approach for determining the multifaceted nature of public debt management has an important role in the area of analysis. -
Ivan Marinov
REASONS FOR THE CHANGES IN THE VOLUME AND QUALITY OF INDIVIDUAL CUSTOMERS' LOANS PROVIDED BY COMMERCIAL BANKS IN BULGARIASummary: The high credit activities of commercial banks in Bulgaria as regards citizens and households just before the consequences of the global economic crisis, as well as the efforts of local people to maintain a quality standard of... The high credit activities of commercial banks in Bulgaria as regards citizens and households just before the consequences of the global economic crisis, as well as the efforts of local people to maintain a quality standard of living, are the main reasons which increase the burden of individual customers’ loans in the loan portfolio of bank institutions. The worsening of economic indicators in the country after the beginning of 2009 forces the banking institutions to change their behaviour on the credit market and to seek effective ways to limit the ever increasing non-performing loans among the population. The purpose of the current study is to trace the tendencies in the change of volume and quality of the banks’ overall consumer loan portfolio for the period December 2006 – June 2012, and to outline the main reasons of the worsened quality of loans extended to individuals for current needs by the local commercial banks. -
Dimitar Kostov
CAPITAL MARKETS IN EUROPE – INTEGRATION AS AN ANTI-CRISIS MEASUREJEL: G15Summary: The leading thesis in this paper is the concept that the development of a unified institutionalized European capital market is a necessity and a mandatory condition for the successful implementation of the EU economic policy, which,... The leading thesis in this paper is the concept that the development of a unified institutionalized European capital market is a necessity and a mandatory condition for the successful implementation of the EU economic policy, which, however, has not been recognized as a priority by the governing institutions of the Economic Union. Using empirical research we prove that the average correlation of the indices of capital mar¬kets within the Euronext system is a bit higher and much more stable than the correla¬tion of the chosen five stock exchanges which are not in the Euronext system. That allows for a conclusion to be made that the degree of capital market integration is higher within the Euronext system than outside it, which may be used as a powerful anti-crisis instrument. -
Mladen Lambev
THE TOBIN TAX AND THE SPECULATIVE CURRENCY TRANSACTIONSSummary: The purpose of this paper is to outline the Tobin Tax ability to solve certain problems related to the instability of financial markets, conditioned by speculative transactions. First proposed in the early 70’s of the 20th century,... The purpose of this paper is to outline the Tobin Tax ability to solve certain problems related to the instability of financial markets, conditioned by speculative transactions. First proposed in the early 70’s of the 20th century, Tobin’s idea has re-tained its relevance and is still subject of attention both in academic circles and in terms of its practical implementation. Briefly reviewing the unsuccessful experience of Swe-den to introduce its own type of the Tobin Tax, the paper seeks the lessons learned through it and identifies the most significant obstacles and challenges before the finan-cial transactions taxation from financial, political and organizational point of view.