The Economics and Finance Letters

Journal Information
ISSN / EISSN : 2312-6310 / 2312-430X
Published by: Pak Publishing Group (10.18488)
Total articles ≅ 104
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, C Joe Arun
The Economics and Finance Letters, Volume 9, pp 69-77; https://doi.org/10.18488/29.v9i1.3016

Abstract:
Decision-making in an unfamiliar environment like the stock market is a difficult task, particularly given the immense amount of information and peer pressure. This study aims to analyze the influence of investors’ personality, assessed using the Big Five personality model, on investors’ decision-making in the Indian secondary equity market. Indian secondary equity investors in the city of Chennai were selected as the study population, and data was gathered from a sample of 436 investors using the questionnaire survey method. A Pearson correlation analysis was conducted to study the relationships between investors’ decision-making tools and personality dimensions, and significant correlation relationships were identified. Multiple linear regression was then used to analyze the linear relationship between the returns earned from equity investment and the personality dimensions and decision-making tools, as well as several demographics and financials. The results of the study could help investors better understand their equity decision-making in terms of the influence of their personality and guide them to adopt appropriate decision-making tools to increase their equity returns. Financial advisors could also benefit from this study as it would allow them to correlate their clients’ personalities and decision-making tools and suggest the most appropriate investment strategies.
Crina Pungulescu
The Economics and Finance Letters, Volume 9, pp 87-98; https://doi.org/10.18488/29.v9i1.3028

Abstract:
Semantic fingerprinting is a leading AI solution that combines recent developments from cognitive neuroscience and psycholinguistics to analyze text with human-level accuracy. As an efficient method of quantifying text, it has already found its application in finance where the semantic fingerprints of company descriptions have been shown to successfully predict stock return correlations of Dow Jones Industrial Average (DJIA) constituents. By extension, it has been suggested that diversified portfolios could be constructed to exploit the fundamental (dis)similarity between companies’ core activities (measured by the semantic overlap of company descriptions). This paper follows the performance of two portfolios made of the same DJIA constituent companies: the “minimum semantic concentration” portfolio (constructed with text-based portfolio weights) and the traditional “minimum variance” portfolio, over a time span of 16 years including two high volatility events: the 2007 − 2009 financial crisis and the COVID pandemic. The results confirm that textual analysis using semantic fingerprinting is consistently successful in predicting stock return correlations and is valuable as a portfolio selection criterion. However, in times of high market volatility the fundamental information given by the companies’ core activities, while still relevant, might carry less weight.
The Economics and Finance Letters, Volume 9, pp 99-109; https://doi.org/10.18488/29.v9i1.3043

Abstract:
This study investigates the effects of environmental characteristics, namely the quality of country-level governance and domestic risk on Islamic banking capital decisions. To do so, this study selects 29 listed Islamic banks operating in Arab markets for the wide range between the 2003-2018 period by performing the System-GMM dynamic panel technique. The results underscore that higher country-level governance quality is linked with higher capital ratios and Islamic banks increase capital ratios specifically by improving methods of anti-corruption, political stability, government effectiveness, and legal systems. Moreover, the results reveal that Islamic banks increase capital ratios by the rise of a country’s vulnerability, particularly by increasing financial and economic risks. However, the results suggest that decreasing political risk also corresponds with higher capital ratios. Overall, the results confirm that environmental characteristics have a pivotal role in determining Islamic bank capital ratios. The results are robust and the findings of this study are likely to open new discussions in the banking literature.
Gu Jiewei
The Economics and Finance Letters, Volume 9, pp 1-15; https://doi.org/10.18488/29.v9i1.2905

Abstract:
This paper uses the Mundell-Fleming-Dornbusch model to theoretically analyze the spillover effects of the American monetary policy on China after the subprime mortgage crisis. The research finds that the traditional American monetary policy has little impact on its economic revival. The implementation of a quantitative easing policy affected China’s macroeconomic development, capital flow, and import and export trade through the channels of interest rate, exchange rate, and trade flow. In the empirical part, this paper constructs a vector autoregressive model using data between the second quarter of 2007 and the fourth quarter of 2019. Based on the stability test, the Granger causality test preliminarily carries out the solution that exchange rate, interest rate, and trade mechanism all prominently show the spillover effect of US monetary policy on China. So do the macroeconomic variables. Through impulse response, it is found that the spillover of US monetary policy will cause overheating and strong liquidity in China's economy. In the future, China needs to adopt a prudent monetary policy, actively adjust its industrial structure, strengthen international cooperation, and continuously increase its international competitiveness to resist external shocks.
Mustapha Abiodun Akinkunmi, Saheed Bello
The Economics and Finance Letters, Volume 9, pp 40-48; https://doi.org/10.18488/29.v9i1.2988

Abstract:
Empirical works on the stock market exchange rate nexus remain scanty in the managed floating exchange rate environment like Nigeria. Thus, our paper contributes to the scanty literature by analyzing how the COVID19 pandemic shapes the existing link in the oil-rich countries like Nigeria using a time series approach based on daily data spanning between 2017 and 2021. The paper investigates a Granger causality relationship in the specified VAR model by implementing the Toda and Yamamoto procedures while determining the direction of the causality through our impulse response analysis. Our findings show unidirectional causality from exchange rates to the stock market in the pandemic but no causality before the pandemic. This suggests that the exchange rate affects the performance of the Nigerian stock market in the pandemic period. Therefore, the Nigerian stock market and the exchange rate should not be considered as alternative strategies to mitigate risk during the crisis periods.
Manel Mazioud
The Economics and Finance Letters, Volume 9, pp 49-68; https://doi.org/10.18488/29.v9i1.2990

Abstract:
This paper aims to examine the effect of financial development on economic growth volatility for a sample of 63 countries during the period 1996-2016. Previous studies have reported mixed and inconclusive results regarding such an effect. I ascribe these controversial findings to the limitations of the ordinary least squares (OLS) regression and adopt the method of quantile regression with panel data as developed in Canay (2011). This methodological contribution allows us to test whether the effect of financial development varies across the full distribution, especially at the extreme quantiles of economic growth volatility. Unlike OLS regression, quantile regression captures the whole picture of the relationship between financial development and economic growth volatility by estimating the effect at each quantile of the distribution. Overall, our empirical results show that the effect of financial development on economic growth volatility is negative. However, this effect appears to not be uniform across the quantiles of the economic volatility distribution. This paper sheds more light on the association between financial development and economic growth volatility.
Chengye Jia, Weige Huang
The Economics and Finance Letters, Volume 9, pp 28-39; https://doi.org/10.18488/29.v9i1.2936

Abstract:
This paper studies the effects of factors such as economic growth, industrial structure and governance on the differences in PM2.5 concentration among groups by using Oaxaca-Blinder (OB) decomposition and Recentered Influence Function (RIF) regressions. Specifically, we first explore the differences in PM2.5 concentration among cities and find that structure effects attributable to differences in returns to these factors contribute more to total difference in PM2.5 concentration than composition effects caused by differences in the means of these factors. Moreover, the offsetting effects of positive composition and negative structure effects drag the time trend of PM2.5 concentration downward. Besides, the negative impact of GDP per capita on PM2.5 concentration implies the existence of an inverted U-shaped environmental Kuznets curve (EKC) between PM2.5 concentration and GDP per capita. In sum, we find that the differences in returns to factors or structures of cities are the main causes of differences in PM2.5 concentration among cities in China compared to the differences in the means of factors.
You Du
The Economics and Finance Letters, Volume 8, pp 266-276; https://doi.org/10.18488/journal.29.2021.82.266.276

Abstract:
This paper investigates the effect of health and health risk on households’ optimal consumption and portfolio allocations over the life cycle. The simulation results show that consumption, savings in bonds, and savings in stocks all increase in health. Compared with poor health households, the healthy households consume 49% higher, invest 27% and 39% more in bonds and in stocks, respectively. The risky portfolio share, which is the ratio of stocks to the total financial assets is positively related with health for most of the lifetime. Regarding the age profile, it demonstrates the same tendency for both health levels: at the very young age, the risky portfolio share is relatively high. Starting from the middle age, this share falls significantly and keeps steady until the end of life. These results emphasize the importance of health and its associated risk in consumption and portfolio decisions. With all other things equal, households’ consumption and investment behaviors are heterogenous across health. It also provides significant policy applications: by promoting health and reducing health risk, it would largely improve households’ well-being: higher consumption, and more savings in financial assets.
Antwi Stephen Kwadwo, Kong Yusheng, Musah Mohammed, Donkor Mary
The Economics and Finance Letters, Volume 8, pp 159-179; https://doi.org/10.18488/journal.29.2021.82.159.179

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