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1 – 10 of over 34000Neha Seth and Monica Singhania
The purpose of this paper is to analyze the existence of volatility spillover effect in frontier markets. This study also examines whether any linkages exist among these markets…
Abstract
Purpose
The purpose of this paper is to analyze the existence of volatility spillover effect in frontier markets. This study also examines whether any linkages exist among these markets or not.
Design/methodology/approach
Monthly data of regional frontier markets, from 2009 to 2016, are analyzed using Multivariate GARCH (BEKK and Dynamic Conditional Correlation (DCC)) models.
Findings
The result of cointegration test shows that the sample frontier markets are not linked in long run, and Granger causality test reveals that the markets under consideration do not cause each other even in the short run. BEKK test says that the effect of the arrival of shock from the own market does not last for longer, whereas shock from other markets lasts with the stronger persistence, and according to DCC test, the volatility spillover exists for all the markets.
Practical implications
The results of present study suggest that the frontier markets are not cointegrated in the long run as well as in the short run, which opens the doors for long-term investments in these markets in future, which may lead to decent returns. Long-term investors may draw the benefits from including the financial assets in their portfolios from these non-integrated frontier markets; nevertheless, they have to consider and implement diversification and hedging strategies during the period of financial turmoil, so as to protect themselves against economic and financial distress.
Originality/value
Significant work has been done on developed, developing and emerging markets but frontier markets are not explored much so far. This paper is an attempt to see the status of frontier stock markets as potential financial markets for diversification benefits.
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Faheem Aslam, Paulo Ferreira and Wahbeeah Mohti
The investigation of the fractal nature of financial data has been growing in the literature. The purpose is to investigate the multifractal behavior of frontier markets using…
Abstract
Purpose
The investigation of the fractal nature of financial data has been growing in the literature. The purpose is to investigate the multifractal behavior of frontier markets using multifractal detrended fluctuation analysis (MFDFA).
Design/methodology/approach
This study used daily closing prices of nine frontier stock markets up to 31-Aug-2020. A preliminary analysis reveals that these markets exhibit fat tails and clustering patterns. For a more robust analysis, a combination of Seasonal and Trend Decomposition using Loess (STL) and MFDFA has been employed. The former method is used to decompose daily stock returns, where later detected the long rang dependence in the series.
Findings
The results confirm varying degree of multifractality in frontier stock markets, implying that they exhibit long-range dependence. Based on these multifractality levels, Serbian and Romanian stock markets are the ones exhibiting least long-range dependence, while Slovenian and Mauritius stock markets indicating highest dependence in their series. Furthermore, the markets of Kenya, Morocco, Romania and Serbia exhibit mean reversion (anti-persistent) behavior while the remaining frontier markets show persistent behaviors.
Practical implications
The information given by the detection of the fractal measure of data can support for investment and policymaking decisions.
Originality/value
Frontier markets are of great potential from the perspective of international diversification. However, most of the research focused on other emerging and developed markets, especially in the context of multifractal analysis. This study combines the STL method and a physics-based robust technique, MFDFA to detect the multifractal behavior of frontier stock markets.
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Aswini Sukumaran, Rakesh Gupta and Thadavilil Jithendranathan
The purpose of this paper is to examine whether there exist significant benefits from diversification into frontier markets for an Australian investor in comparison to a US…
Abstract
Purpose
The purpose of this paper is to examine whether there exist significant benefits from diversification into frontier markets for an Australian investor in comparison to a US investor.
Design/methodology/approach
The study uses the computationally efficient ADCC GARCH model to estimate time-varying correlations of returns. The authors also compare the results to DCC GARCH correlations in order to test whether the results are model-specific. Optimal portfolios with several restrictions were constructed and the results from Australian and US investors were compared. The study also uses a holding out period that is rebalanced at the end of each quarter using new portfolio weights.
Findings
The study finds that there are significant benefits for the Australian investor from diversifying into frontier markets. However, the benefits to the US investor are much higher than that of an Australian investor. The results from the holding out period also present significantly higher benefits to the US investor compared to the Australian investor.
Originality/value
This study examines the diversification benefits to the Australian investor from frontier markets and compares the benefits of the Australian and the US investors. The results emphasise the potential benefits from including frontier markets in the portfolio. The paper also presents a holding out period analysis.
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Muhammad Azhar Khan, Saadia Irfan and Samina Naveed
This study aims to examine the link between financial reporting quality and investment efficiency in publicly listed firms in frontier markets, taking into account country-level…
Abstract
Purpose
This study aims to examine the link between financial reporting quality and investment efficiency in publicly listed firms in frontier markets, taking into account country-level investor protection. By comparing real and accrual earnings management, this paper demonstrates the context-dependent nature of the impact of financial reporting quality. It emphasises the importance of improving investor protection and reducing agency conflicts in promoting investment efficiency in frontier markets.
Design/methodology/approach
Accounting data from 1998 to 2020 are collected for all listed firms in six frontier market countries across 21 industries. Fixed-effect regression analysis is used to test causal relationships; several robustness checks are performed; and two-stage least squares is used to address endogeneity concerns.
Findings
Higher financial reporting quality improves investment efficiency in frontier markets. Furthermore, the positive effect is amplified when country-level investor protection in frontier markets is strong.
Originality/value
These findings add to the growing body of evidence showing that financial reporting quality improves investment efficiency, even in frontier markets. Furthermore, the level of investor protection within a country strengthens this relationship, particularly in firms that are prone to underinvestment.
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Nisha Mary Thomas, Smita Kashiramka and Surendra S. Yadav
The purpose of this paper is to investigate the long-run equilibrium relationship between developed, emerging and frontier markets of the Asia-Pacific region during January 2000…
Abstract
Purpose
The purpose of this paper is to investigate the long-run equilibrium relationship between developed, emerging and frontier markets of the Asia-Pacific region during January 2000 to June 2016.
Design/methodology/approach
Zivot and Andrews’ unit root test is used to examine the existence of unit root in index series in the presence of a structural break. Gregory and Hansen’s test of cointegration is employed to examine the stable long-run relationship between the indices under study.
Findings
The results suggest that the emerging markets of China and Thailand and the frontier markets of Sri Lanka and Pakistan are fairly segmented from most of the markets in the Asia-Pacific region. Hence, these markets provide good diversification opportunities to global investors. Bidirectional cointegration analysis indicates that emerging and frontier markets influence developed markets. Hence, it can be inferred that the de facto position that only bigger markets influence small markets no longer holds true in the current environment.
Practical implications
The findings of this study will provide valuable inputs to global investors for creating an optimal investment portfolio.
Originality/value
This study does a comprehensive examination of market integration in the Asia-Pacific region. It also contributes to the thin body of work done on frontier markets. Unlike past studies, this paper analyzes the bidirectional cointegration relationship to examine if the notion that only bigger markets influence smaller markets holds true or not. Finally, this study employs advanced techniques of unit root test and cointegration test that consider structural breaks in the models.
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Muhammad Azhar Khan, Nabeel Safdar and Saadia Irfan
Prior evidence that financial reporting quality (FRQ) of publicly listed firms improves investment efficiency in developed markets leaves unaddressed questions of whether this…
Abstract
Purpose
Prior evidence that financial reporting quality (FRQ) of publicly listed firms improves investment efficiency in developed markets leaves unaddressed questions of whether this relationship holds in emerging and frontier markets and what channels influence this relationship. This study aims to test the role of financial constraints faced by firms and managerial risk-taking on the association of FRQ and investment efficiency in 13,231 publicly listed firms in 24 emerging and frontier markets.
Design/methodology/approach
Available accounting data from 1998 to 2022 are collected for all listed firms across 41 industries in 24 countries. Causal relationships are tested using fixed-effect regression analysis, several additional tests and robustness checks are applied using alternative proxies and concerns for endogeneity are addressed using two-stage least square and system generalised method of moments analysis.
Findings
Findings show that FRQ of firms in emerging and frontier markets positively affects investment efficiency, the affirmative impact of FRQ on investment efficiency is higher when firms are facing more financial constraints and when managerial risk-taking is lower and financial constraints and risk-taking have a more pronounced impact on the link between FRQ and investment efficiency in the under-investment scenario.
Originality/value
These findings contribute to the growing body of evidence, shedding light on the meticulous interplay between FRQ and investment efficiency in frontier and emerging markets. Specifically, the increased financial constraints encountered by firms and a more conservative approach to managerial risk-taking emerge as crucial factors complementing this relationship.
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Syed Manzur Quader and Michael Dietrich
Using a panel of 1,122 UK firms listed on the London Stock Exchange over the period of 1981-2009, corporate efficiencies are predicted in this paper as inverse proxies of agency…
Abstract
Purpose
Using a panel of 1,122 UK firms listed on the London Stock Exchange over the period of 1981-2009, corporate efficiencies are predicted in this paper as inverse proxies of agency cost and the agency cost hypotheses are tested. The paper aims to discuss this issue.
Design/methodology/approach
Stochastic frontier analysis is used to estimate corporate efficiency of firms, but from two different perspectives. The long-run and short-run corporate efficiencies are predicted focussing on modern approach of value maximization and traditional approach of profit maximization, respectively.
Findings
The estimation results reveal that, an average firm in the sample achieves 74.5 percent of its best performing peer's market value and 86.6 percent of its best performing peer's profit and both of them are highly significant in the analysis. The long-run market value efficiency supports the agency cost of outside equity and the short-run profit efficiency supports the agency cost of outside debt hypothesis. Also there is a positive rank correlation between these two efficiencies which confirms that an average firm in the UK suffers from inefficiency or agency conflicts to a certain extent, no matter whether the firm is driven by short-run or long-run growth perspectives.
Research limitations/implications
The predicted broad measures of agency costs in the paper have wider implications in enhancing the understanding of the UK firms’ corporate performance especially when they operate under a relatively free and market based governance and financial system.
Originality/value
The work is distinguished by the large panel of UK firms and a long period of time that is considered. Emphasizing on the empirical implications of the distinctions between short-run and long-run efficiency is also novel.
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Abdullah Promise Opute and Nnamdi O. Madichie
This paper aims to evaluate the working relationship between accounting and marketing, exploring the nature and antecedents of their integration and consequences on firm…
Abstract
Purpose
This paper aims to evaluate the working relationship between accounting and marketing, exploring the nature and antecedents of their integration and consequences on firm performance.
Design/methodology/approach
The methodological approach in this study is twofold. First, a review of literature is used to identify core antecedents in the body of literature. Subsequently, four exploratory case studies were used in examining the antecedents of accounting–marketing integration from a frontier market perspective.
Findings
This study identifies information sharing and involvement as core elements of accounting–marketing integration; cultural diversity and management mechanisms (policy, structural and procedural justice) as antecedents of accounting–marketing integration; and country of origin as a mediating factor on the extent of association of some variables on their integration. Finally, this study establishes that there is a positive association between accounting–marketing integration and organisational performance.
Research limitations/implications
This study has two major limitations. First, it is qualitative and based on a review of literature and evidence from four case studies. Second, it explored only the less developed country context. Future research should, therefore, aim to address these gaps.
Practical implications
This study draws attention to the fact that accounting and marketing are culturally diverse, and strategic managerial mechanisms must be used to maintain a relevant and effective level of information sharing and involvement towards enhancing organisational performance.
Originality/value
Using exploratory case studies to support the development of a framework, the authors contend that organisations would optimise organisational performance if due attention is given to both information sharing and involvement dimensions of integration, as well as appropriate managerial mechanisms adopted in managing their relationship.
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R.M. Ammar Zahid, Alina Taran, Muhammad Kaleem Khan and Can Simga-Mugan
This study investigates the influence of ownership composition on market-based and accounting-based financial performance in the European frontier markets (EFMs), a target region…
Abstract
Purpose
This study investigates the influence of ownership composition on market-based and accounting-based financial performance in the European frontier markets (EFMs), a target region for global investors.
Design/methodology/approach
Ownership composition is defined as shareholders' concentration and structure (i.e. foreign, domestic, state and free-float), whereas financial performance is measured as Tobin's Q and return on assets. The system generalised method of moments panel data estimation technique is employed on a sample of 241 companies.
Findings
Findings reveal that companies from European Union (EU) frontier markets are controlled, on average, by one to five large shareholders. Being a signal of expropriation rationale of majority shareholders regardless of the capital structure, this highly concentrated ownership and decision-making model negatively affects the market-based and accounting-based financial performance of the companies and thereby supports the agency theory in the frontier markets.
Research limitations/implications
The findings provide empirical evidence for authorities, investors, analysts and corporations regarding the effect of ownership percentage and structure in the Eastern European region, assisting also other frontier and emerging markets in corporate governance and other regulatory decisions.
Originality/value
The ownership–performance relationship varies from developed to emerging markets with conflicting results. This study provides evidence on monitoring and expropriation effects of majority shareholders in the context of different categories of shareholders. In doing so, it combines the analysis of both ownership concentration and structure in the EFMs.
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Fatma Mathlouthi and Slah Bahloul
This paper aims at examining the co-movement dependent regime and causality relationships between conventional and Islamic returns for emerging, frontier and developed markets…
Abstract
Purpose
This paper aims at examining the co-movement dependent regime and causality relationships between conventional and Islamic returns for emerging, frontier and developed markets from November 2008 to August 2020.
Design/methodology/approach
First, the authors used the Markov-switching autoregression (MS–AR) model to capture the regime-switching behavior in the stock market returns. Second, the authors applied the Markov-switching regression and vector autoregression (MS-VAR) models in order to study, respectively, the co-movement and causality relationship between returns of conventional and Islamic indexes across market states.
Findings
Results show the presence of two different regimes for the three studied markets, namely, stability and crisis periods. Also, the authors found evidence of a co-movement relationship between the conventional and Islamic indexes for the three studied markets whatever the regime. For the Granger causality, it is proved only for emerging and developed markets and only during the stability regime. Finally, the authors conclude that Islamic indexes can act as diversifiers, or safe-haven assets are not strongly supported.
Originality/value
This paper is the first study that examines the co-movement and the causal relationship between conventional and Islamic indexes not only across different financial markets' regimes but also during the COVID-19 period. The findings may help investors in making educated decisions about whether or not to add Islamic indexes to their portfolios especially during the recent outbreak.
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