International Journal of Economic Policy in Emerging Economies (7 papers in press)

Regular Issues

• Nonlinear ARDL approach for asymmetric effects of investor sentiment on asset pricing in an emerging Asian economy: the Malaysian experience  
  by Han Hwa Goh, Lee Lee Chong, Ming Ming Lai 
  Abstract: This paper addresses the issues pertaining to asset pricing model in Malaysian stock market, an emerging Asian economy, using monthly data between January 2001 and December 2015 for all the stocks on the main market of Bursa Malaysia and five different investor sentiment proxies (i.e., market-wide indicators). Employing NARDL nonlinear cointegration approach, we examine the causal relationship between stock excess returns and investor sentiment in the integrated Fama-French three-factor model. The empirical results suggest that the investor sentiment is an added risk factor to help explain directly the mispricing component of returns in the Fama-French three-factor model and thus bridging the current research gap between traditional and behavioural asset-pricing theories in Malaysia. Besides, this paper reveals that the stock returns are affected by sentiment in an asymmetric and nonlinear manner in either short- or long-run. In particular, we found that the immensity of positive changes of sentiment is significantly greater than that of negative changes of sentiment towards stock returns. These findings may help finance professionals to perform smart investing strategies using investor sentiment as a contrarian indicator
  Keywords: investor sentiment; asset pricing; asymmetric cointegration; emerging economy; Bursa Malaysia.
  DOI: 10.1504/IJEPEE.2022.10046790
   
  
• Long and short run drivers of the real exchange rate in Egypt (20022020)  
  by Hoda Mansour, Soliman Hassan 
  Abstract: Egypt is an emerging developing country which has a long history of utilising different exchange rate regimes. Since the liberalisation of its Egyptian pound in 2016, the country has been facing a set of challenges to stabilise its exchange rate. To suggest better policies, this paper examines the long and short run determinants of Egypts real exchange rate. Using Johansen and Juselius co-integration test, VAR, and an error correction model, the study analyses data from 2002 to 2020 for Egypt. The study concludes that, in the long run, growth rate, international reserves, government consumption, terms of trade and workers remittances all have a long-run impact on the real exchange rate, while the degree of openness has no significant impact. In addition, the study provides evidence that, on the short-run, the degree of openness and government consumption have significant impact on the real exchange rate. Results of this study infer a preference for a fixed or strictly managed exchange rate regime over a flexible regime.
  Keywords: real exchange rate; Johansen and Juselius co-integration test; vector autoregressive model; VAR model; Egyptian pound.
  DOI: 10.1504/IJEPEE.2022.10046804
   
  
• Investigating the growth factors of life insurance sector an ARDL approach  
  by Abhijit Chakraborty, Avijit Debnath, Ashim Kr Das 
  Abstract: Insurance sector is considered a significant contributor to the economic growth of economies across the world. The purpose of this study is to investigate the factors affecting growth potentials of life insurance sector in India. ARDL technique is used to investigate short-run and long-run relationships between life insurance sector growth represented by life insurance penetration and 13 independent variables under macro-economic, demographic and socio-cultural category using time series data from 19802018. The ARDL bounds testing procedure was used to check for co-integration. The study found that gross domestic product per capita, interest rate (deposit), young dependency ratio, gross capital formation, and education are significantly influencing life insurance sector growth in the long run. The short-run error correction model revealed speed of adjustment at 0.80 at 1% level of significance. The findings may help favourable policy formulation to support the life insurance sector growth in India.
  Keywords: life insurance sector; determinants; co-integration; ARDL; bounds test; economic growth; India; GDP per capita; macro-economic; demographic; socio-cultural.
  DOI: 10.1504/IJEPEE.2022.10046826
   
  
• The effect of audit committee characteristics on the firms performance: an empirical study of Pakistan Stock Exchange  
  by Sahibzada Kashif Ahmad, Atta Ur Rahman, Fahad Abdullah, Shabir Ahmad, Laila Taskeen Qaz 
  Abstract: The purpose of this study is to investigate the impact of audit committee characteristics on firms performance. We used gender diversity, size of the committee, frequency of audit meetings, financial expertise, and independence as audit committee characteristics and return on assets and return on equity as performance measures. A panel of 94 firms was investigated from 2015 to 2019 using a weighted least square regression. The overall results show that the size of the audit committee negatively affects the firms performance. While the frequency of meetings, expertise, and gender diversity positively impact the firms performance. Indicating the significance of frequent communication, experience, and presence of women in audit committees, respectively. Our study highlights insight for policymakers and regulators considering ongoing corporate governance and regulatory reforms in Pakistan.
  Keywords: corporate governance; audit committee characteristics; performance; Pakistan.
  DOI: 10.1504/IJEPEE.2022.10048785
   
  
• Diversion of loan use: evidence from rural West Bengal, India  
  by Moumita Poddar Rana, Tanmoyee Banerjee, Ajitava Raychaudhuri 
  Abstract: Present paper explores spending behaviour of loan proceeds and identifies the effect of different socio-economic and political factors on the probability of loan diversion using a primary household survey data drawn from four villages of state of West Bengal, India. Loan diversion refers to the incidence where institutional borrowers use total or part of their loan for purposes that was not specified during the borrowing. Survey reveals that institutional loans taken for working capital needs are mostly diverted either partly or fully and mainly for household expenditure. This study considers Heckman sample selection model, considering the sample selection bias. Results show that religion, age, support of political party and financial literacy of principal earner significantly increases probability of loan diversion. The study also investigates the joint probability of indebtedness and loan diversion; multiple borrowing and loan diversion; indebtedness and institutional borrowing and socio-economic determinants by using bivariate probit model.
  Keywords: loan diversion; financial literacy; multiple borrowing; indebtedness; institutional borrowing; sample selection bias; Heckman probit model; bivariate probit model; West Bengal; India.
  DOI: 10.1504/IJEPEE.2022.10048959
   
  
• Financial stability and macroeconomic risk: an outlook from emerging economies  
  by Rexford Abaidoo, Elvis Kwame Agyapong 
  Abstract: Financial stability or stability in the banking industry constitutes one of the core enabling conditions critical for economic growth and development among economies globally. This paper examines the impact of macroeconomic risk (instability in key macroeconomic variables) on stability in the banking industry using data from 32 countries in Sub-Saharan Africa (SSA) from 2001 to 2018. The study uses principal component analysis (PCA) constructed macroeconomic risk index and proxies financial stability by two indicators bank liquid reserves to bank assets ratio and bank Z score respectively. Empirical estimates examining the relationships in the study uses the two-step system generalised method of moments (GMM) model. The results suggest that macroeconomic risk (instability in the macroeconomic environment) contributes significantly to instability in the banking industry among economies in Sub-Sahara Africa; this conclusion is similar for the two measures of financial stability employed in the study. The results further suggest that trade liberalisation has significant moderating impact on the financial stability (bank liquid reserves to asset ratio) macroeconomic risk nexus. The empirical estimates additionally show that macroeconomic risk may negate any positive impact financial sector improvement may have on financial stability among economies in the sub-region.
  Keywords: financial stability; macroeconomic risk; principal component analysis; PCA; generalised method of moment; GMM.
  DOI: 10.1504/IJEPEE.2022.10049377
   
  
• COVID-19 pandemic and work behaviour of non-farm household enterprises: evidence from Nigerian data  
  by Obed I. Ojonta, Jonathan E. Ogbuabor 
  Abstract: This study investigated the influence of COVID-19 pandemic on the work behaviour of non-farm household enterprises (NHEs) in Nigeria using multinomial logistic regression technique and Nigerias 2020 Living Standard Measurement Survey data. Specifically, the study addressed two main questions: how has COVID-19 pandemic impacted on the work behaviour of NHEs in Nigeria? What other factors significantly influence the work behaviour of these enterprises? The results show that the influence of COVID-19 pandemic on the work behaviour of NHEs in Nigeria is negative and significant. The results further indicate that other key drivers of the work behaviour of NHEs in Nigeria include: sufficient soap to wash hands, skipping a meal, thought of eating less, and running out of food. Consequently, the study recommended that government should ensure that NHEs are adequately funded during and after the pandemic in order to strengthen their operations on a sustainable basis.
  Keywords: COVID-19 pandemic; work behaviour; non-farm household enterprises; multinomial logit model; Nigeria.
  DOI: 10.1504/IJEPEE.2022.10052680