An empirical comparison of stock market bubbles

Financial asset bubbles occur due to systematic and continuous differences between fundamental and market values. Due to high growth periods and foreign capital inflows, bubbles are also seen in stock market indexes, especially in emerging market economies. This study analyzes the existence of bubbles in BIST100, IDX COMPOSITE, BOVESPA, MDEX, NIFTY 50, SHANGAI, and S&P 500 stock markets for the period 2009:01-2021:06. RADF, SADF, and GSADF tests are applied to detect bubbles on stock market closing prices. In addition, the emergence and demise dates of the bubbles are determined by employing the date-stamping method. The GSADF test gives more effective results and determines bubbles with different durations in all stock markets, except the S&P 500. The results reveal that the most inefficient market is IDX COMPOSITE, and S&P 500is the most efficient market. The analysis includes the S&P 500, the world's most liquid and most prominent stock market, for comparison. In this respect, bubbles occur more in emerging market exchanges. The findings also confirm the validity of the rational bubble law.

Factors affecting sukuk market development: empirical evidence from sukuk issuing economies

Purpose Both developed and developing countries, Muslim and non-Muslim, have been showing keen interest in sukuk financing. This interest was because of the lesson learned by both Asian and non-Asian economies that having a developed capital market is very essential to enable an economy resilient to the financial crisis. Therefore, this study aims to produce theoretical relationships and identify empirical support for the determinants of sukuk market development. Design/methodology/approach By using panel data analysis, the study covers the period from 1993 until 2017, and includes 13 sukuk issuing economies as per the availability of data. Findings The findings of the study revealed that the stage of economic development, banking system, money supply and current account balance are positively associated with sukuk market. Interestingly, economic size and exports appear to be negatively associated with sukuk. Practical implications To flourish the domestic sukuk market, authorities need to strengthen the existing financial system and economic development. Originality/value The study contributes in a limited body of knowledge on determinants of sukuk market development by exploring novel determining factors of foreign capital inflows as well as macroeconomic and financial factors.

Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality

Purpose: The purpose of the study was to examine the key determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in emerging market economies, with greater emphasis placed on the impact of institutional quality. Design/Methodology/Approach: The study applied a panel data system generalised method of moments (GMM) model using annual data spanning the period 2007 to 2017, in respect of 12 emerging market economies. To measure institutional quality, the study adopted the Worldwide Governance Indicators, and constructed a composite index for institutional quality using the Principal Components Analysis (PCA) method. Findings: The results revealed that FDI in the selected emerging markets was attracted by institutional quality and economic growth. Capital account openness, institutional quality and economic growth were positive determinants of FPI. However, stock market development stood out as the key determinant factor for foreign capital inflows. Implications/Originality/Value: The implications of these findings are that, in their pursuit of foreign capital inflows, these emerging markets should continue to liberalise their economies and develop their financial markets. Importantly, such developments must be coupled with the strengthening of the formal governance institutions. Robust institutions would not only curb institutional weaknesses that deter international capital inflows, but would also insulate emerging markets from unfavourable effects of volatile capital flows.

The impact of foreign capital inflows on poverty in Vietnam: An empirical investigation

This study investigates the impact of foreign capital inflows on poverty in Vietnam, using annual time series data from 1990 to 2018. The study was motivated by the need to establish if burgeoning foreign capital inflows in Vietnam can support the poverty alleviation agenda. Foreign direct investment (FDI) and external debt were used as proxies for foreign capital inflows; and infant mortality rate, Human Development Index (HDI) and household consumption expenditure were used as poverty proxies. Using the autoregressive distributed lag (ARDL) approach, the study found foreign direct investment to reduce poverty in the short run and long run when household consumption expenditure was used as a poverty measure. However, the study found FDI to worsen poverty in the short run when infant mortality rate and HDI were used as poverty proxies. The study found external debt to have poverty mitigating effect in the short run regardless of the poverty measure used and in the long run only when household consumption expenditure was used as a poverty measure.

FOREIGN CAPITAL INFLOWS IN CENTRAL AND EAST EUROPEAN COUNTRIES

Free cross-border movement of goods and capital correlates with the general economic state of a country in both apparent and subtle ways. The intensity of financial and economic interactions with the outside world is an indicator of the sustainability and efficiency of the national economy. After joining the EU, all Member States liberalized the balance of payments (BoP), i.e. ensured free and unrestricted cross-border movement of goods and capital. For certain countries the liberalization of BoP was a considerable challenge, which they managed to successfully overcome. These were the EU countries of the Council for Mutual Economic Assistance (CMEA) was active among the former socialist countries until 1990, or the so-called "CMEA-EU countries". For an economic comparison to be plausible, it has to be made between the dynamics of comparable economies. Such a group of economies is formed by the CMEA-EU countries. EU membership provided them with the opportunity to use on their own their potential in property, intellect, power and resources. This is the reason why the present study has adopted a comparative analysis based on CMEA-EU countries. An attempt has been made to comprehensively monitor and analytically assess all major financial flows, especially in the CMEA-EU countries, and their impact on economic dynamics. A comparison is made for both the positive and negative aspects of the incoming financial resources in these countries. Particular emphasis is placed on macroeconomic elements and policies that outline, create conditions, and predetermine the scale, interactions and projections of cross-border financial flows.

Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

This study investigates the cointegrating and causality relationships between foreign direct investment (FDI), foreign portfolio investment (FPI) and institutional quality in a sample of 12 emerging market economies for the period from 2007 to 2017. A composite index for institutional quality composed of the Worldwide Governance Indicators was constructed using the Principal Components Analysis (PCA) method. The panel autoregressive distributed lag (ARDL) model and the error correction model (ECM) were applied to assess the cointegrating and causal relationships between the key variables. In addition to finding significant cointegrating relationships between institutional quality and the foreign capital inflows (FDI and FPI), the results confirmed unidirectional causality from FDI and FPI to institutional quality in the long run. The results further suggested that the long-run relationship between the two foreign capital inflows was more of a trade-off nature, dependent upon the dynamics of the institutional environment in the host economy. The recommendations suggested include that emerging markets should continue to open their economies in pursuit of capital inflows, which will reciprocally strengthen their domestic institutional environment. Strengthening institutions could curtail the persistence of institutional weaknesses and insulate emerging economies from the adverse effects of volatile capital flows and, over the long run, enhance capital inflows.

Inflationary Rate in Nigeria: Impact of Foreign Capital Inflows

As the prices of daily needs are aggravating in Nigeria, the value of the country’s currency (naira) is less appreciated on a daily basis, and this pose a threat to a good standard of living in Nigeria. Therefore, this study investigated the impact of foreign capital inflows on the persistent increase in inflation in Nigeria over the period of 1985 to 2019. The Autoregressive Distributed Lags was used to obtain the parameter estimates of the long run relationship between foreign capital inflows and inflation. By using the Forecast Error Variance Decomposition techniques, the cause-effect analysis of foreign capital inflows and inflation was determined. Results provide evidence of a long run relationship between the series. Results further indicate that inflation is sensitive to foreign capital inflows variables such as net official development assistance received and remittance inflows in Nigeria. Policies that reduce the negative impact on inflation are recommended in the body of the paper.

Foreign capital inflows and economic growth: the experience of low-income countries in Sub Saharan Africa

Purpose This paper aims to investigate the long-run impact of selected foreign capital inflows, including aid, remittances, foreign direct investment (FDI), trade and debt, on the economic growth of 21 low-income countries in the Sub Saharan Africa (SSA) region, during the period 1990–2018. Design/methodology/approach To obtain this objective and for robust analysis, a parametric approach, which was dynamic ordinary least squares, and a non-parametric technique, which was fully modified ordinary least squares, were used. Findings The results of both models confirmed that, in the long run, trade and aid affected the growth rate of the per capita income in these countries in a positive way. However, external debt seemed to have an adverse influence on such growth. Originality/value First, this is the initial study that has addressed this matter across a homogenous group of countries in the SSA region. Second, while most of the previous studies regarding capital inflows into the SSA region have focused on the impact of only one or two aspects of such foreign capital inflows on growth, the present study, instead, examined the impact of five types of foreign capital inflows (aid, remittances, FDI, trade and debt).

FOREIGN CAPITAL INFLOWS AND MANUFACTURING SECTOR GROWTH IN NIGERIA

The study examined the impact of foreign capital inflow on manufacturing sector growth in Nigeria using time series data from 1986 to 2019. The study specifically sought to examine the causal relationship between foreign capital inflows and the growth of the manufacturing sector in Nigeria in the long run The study employed the Autoregressive Distributed Lag (ARDL) estimation technique to account for the impact of foreign capital inflows on the manufacturing sector growth in Nigeria. The study utilized the Contribution of Manufacturing Sector to Gross Domestic Product (MGDP) as proxy for manufacturing sector growth. Manufacturing sector growth was the dependent variable while foreign direct investment (FDI), foreign portfolio investment (FPI) and foreign Aid (FOA) were the independent variables, and were regarded as proxies for foreign capital inflows. The study results revealed that foreign capital inflows through the FDI had a significant positive impact on contributions of the manufacturing sector to gross domestic product (GDP). The study also revealed that foreign capital inflows through the FPI had a significant positive impact on contributions of the manufacturing sector to the GDP. The study further revealed that foreign capital inflows through the FOA had a significant positive impact on contributions of the manufacturing sector to the GDP. Based on these findings, the study has recommended that the Nigerian government should promote foreign capital inflows through the FDI in order to achieve the desired level of manufacturing sector growth in the country’s economy in the long run. The government should also encourage foreign capital inflows through the FPI in order to attain the desired level of manufacturing sector growth in the Nigerian economy. Finally, the government should also support foreign capital inflows through the FOA in order to attain the desired level of manufacturing sector growth in the Nigerian economy in the long run.