Search

This study explores how uncertainties in domestic financial markets, including stocks, bonds, and exchange rates, as well as global crises like the subprime mortgage and European sovereign debt crises, affect the dynamic correlation between the Australian stock market index (ASX 300) and foreign exchange rates. Using quantile regression estimation and analyzing high-frequency data from 1999 to 2021, we uncover distinct relationships influenced by currency-specific uncertainties. Our findings reveal that Australian stock market concerns impact co-movements with financial instruments, showing different effects on the correlations with the Euro, British Pound, US Dollar, Japanese Yen, and Chinese Yuan. Surprisingly, uncertainties in the Australian bond market have a negative impact on co-movement with the Euro and British Pound but a positive impact with the US Dollar, Japanese Yen, and Chinese Yuan. Additionally, we observe that volatility in the Australian currency’s exchange rate with various currencies positively influences dynamic co-movements. However, the strength of this connection varies based on the volatility of the Australian dollar against the Japanese Yen. Global financial crises, especially the subprime mortgage crisis, significantly impact dynamic co-movements, supporting both Flow and Stock-oriented theories. In summary, our research sheds light on the diverse impacts of domestic financial market uncertainties on co-movement, providing valuable insights for portfolio managers and foreign investors aiming to understand the intricate relationship between the Australian stock market and exchange rates. JEL Classification : C32, F31, G01, G15

Abstract This paper specifically investigates the effects of US government emergency actions on the investor sentiment–financial institution stock returns relationship. Despite attempts by many studies, the literature still provides no answers concerning this nexus. Using a new firm-specific Twitter investor sentiment (TS) metric and performing a panel smooth transition regression for daily data on 66 S&P 500 financial institutions from January 1 to December 31, 2020, we find that TS acts asymmetrically, nonlinearly, and time varyingly according to the pandemic situation and US states’ responses to COVID-19. In other words, we uncover the nexus between TS and financial institution stock returns and determine that it changes with US states’ reactions to COVID-19. With a permissive government response (the first regime), TS does not impact financial institution stock returns; however, when moving to a strict government response (the overall government response index exceeds the 63.59 threshold), this positive effect becomes significant in the second regime. Moreover, the results show that the slope of the transition function is high, indicating an abrupt rather than a smooth transition between the first and second regimes. The results are robust and have important policy implications for policymakers, investment analysts, and portfolio managers.

The results uncover that the relationship between combined sovereign environmental, social, and governance (ESG) and banking sector's stability is a non-linear and inverted U-shaped in GCC economies, and nationals’ sustainability practices after exceeding a turning point of 0.228 reduce stability. Furthermore, the inverted U-shaped relationship between individual sovereign ESG and stability reveals that the banking sectors reap the benefits of countries engaging in sustainability practices if the ESG activities scores do not exceed turning points of 0.345, 0.232, and 0.424, respectively. The findings suggest policymakers find an optimal level through a balanced approach when investing toward achieving sustainability goals.

Currently, the UK has ambitious plans to reach net zero by 2050, despite other countries such as Russia and India targeting 2060 and 2070, respectively. Assuming that the UK emissions unceasingly decline at a given rate annually towards achieving net zero by 2050, its economy would need to ensure a reduction of 105 MtCO2 per year of its emissions from the current 2021 levels. Given that global greenhouse gas emissions have not peaked and continue to rise, the UK seeks to implement costly and aggressive emission reduction policies towards fulfilling commitments under the 2021 Glasgow Climate Pact. This paper investigates the effect of environmental taxes on environmental degradation in the UK between 2000Q1 and 2019Q4 using novel Fourier approaches. Using the novel Fourier ARDL estimator, the long-run equilibrium estimates indicate that gross domestic product and environmental tax cause a fall in carbon emissions. However, in trade and primary energy use, a unit change caused rising carbon emissions in the UK. Especially, the results indicate that environmental taxes have a negative effect on environmental degradation in the UK, and ecological tax policy could be considered as an effective channel to attain environmental sustainability. The outcome provides the following policy insights: (i) The government of the UK should support international environmental tax coordination mechanisms, especially on carbon pricing, to avoid relocation of carbon-intensive investments. (ii) The UK government must note that imposing more taxes to encourage emissions reductions could bring complexity to the tax system and unnecessarily bring costly ways to deal with climate change. Higher domestic electricity prices could disproportionately hit low-income households and create distributional cost concerns, which require benefit payouts or compensation schemes. (iii) Switching to electric vehicles simultaneously requires investments in charging infrastructure and battery technologies. To avoid this chicken-and-egg problem, the government of the UK could play a coordinating role, including deploying targeted subsidies, regulations, direct government involvement, or setting higher carbon prices in special cases.

To the extent of our knowledge, there is a gap in scrutinizing the impacts of the country's risk and global uncertainty on Asian firms' cash holdings. Therefore, this work aims to shed light on this gap by choosing 989 listed non-financial Asian firms and performing both the static (fixed-effects) and dynamic (Difference-GMM and System‐GMM) panel data methods between 2008 and 2020. The findings reveal that an increase in a country's risk and global uncertainty stimulates firms to stockpile more cash though the impact of country risk is more pronounced. Likewise, the results underscore that among the country risk factors, firms have more precautionary motives to stockpile more cash with increases in financial and political instability while they hold more cash with rises in economic stability. Remarkably, the results emphasize that the impacts of country risk and global uncertainty on cash holdings are more prominent in environments characterized by common-law legal origin, high uncertainty avoidance cultures, and less financial market development. Moreover, the results reveal that firm-specific factors including growth opportunity, leverage, profitability, dividend, and size have an important role in shaping Asian firms' cash holdings policy.

Abstract This study aims to fill the gap in the literature by specifically investigating the impact of country risk on the credit risk of the banking sectors operating in Brazil, Russia, India, China, and South Africa (BRICS), emerging countries. More specifically, we explore whether the country-specific risks, namely financial, economic, and political risks significantly impact the BRICS banking sectors’ non-performing loans and also probe which risk has the most outstanding effect on credit risk. To do so, we perform panel data analysis using the quantile estimation approach covering the period 2004–2020. The empirical results reveal that the country risk significantly leads to increasing the banking sector’s credit risk and this effect is prominent in the banking sector of countries with a higher degree of non-performing loans (Q.25 = − 0.105, Q.50 = − 0.131, Q.75 = − 0.153, Q.95 = − 0.175). Furthermore, the results underscore that an emerging country’s political, economic, and financial instabilities are strongly associated with increasing the banking sector’s credit risk and a rise in political risk in particular has the most positive prominent impact on the banking sector of countries with a higher degree of non-performing loans (Q.25 = − 0.122, Q.50 = − 0.141, Q.75 = − 0.163, Q.95 = − 0.172). Moreover, the results suggest that, in addition to the banking sector-specific determinants, credit risk is significantly impacted by the financial market development, lending interest rate, and global risk. The results are robust and have significant policy suggestions for many policymakers, bank executives, researchers, and analysts.

Abstract This study specifically explores the effect of domestic political and economic risks on risk-taking in the banking sector for 105 countries operating in six various geographical regions between 2009 and 2017. To the best of our knowledge, this may be the first study that attempts to conduct this relationship from this perspective. Remarkably, the dynamic estimation results underscore that a rise in political and economic risks triggers risk-taking behavior in the banking sector globally, in particular in the OECD High-income region. Besides, the estimation results reveal that capital regulation, market power, and income diversification negatively impact risk-taking while credit risk, inefficiency, financial market development, and deposit insurance have a positive effect on risk-taking behavior. The results also stress that the extent of the effect of determinants and significance level vary by changing the region. The results are robust and have significant implications for policymakers and bank managers.

Extant literature suggests the essential role of a country's vulnerability in decreasing the stability of the banking sectors. However, the effect of country-specific risks on banking sector stability remains largely understudied. This study specifically examines the impact of country risk, encompassing political, economic, and financial risks, on the banking sector stability from a global perspective. Furthermore, we attempt to provide more insight by answering how this relationship varies by grouping countries based on income and risk levels. To achieve this purpose, we focus on 107 countries and employ a dynamic panel data model (SYS-GMM) between 2004 and 2017. The results indicate that a reduction in a country's vulnerability to specific political, economic, and financial risks, contributes to enhanced stability in the banking sector. This positive effect is particularly pronounced as countries move from low to medium and high-income levels. Furthermore, the study reveals that a decrease in country risk leads to increased banking sector stability in both low and high-risk countries, but the effect is more outstanding in low-risk environments. Moreover, the results highlight the significant influence of banking sector-specific factors and country-level determinants on stability, however, the magnitude and direction of these factors' coefficients depend on the income and risk levels of the countries. The results are robust and can have important suggestions to policymakers, regulators, and bank executives in understating and mitigating risk factors to enhance the stability of their banking sectors.

The study aims to examine the volatility transmission between the West Texas Intermediate (WTI) crude oil price returns and the U.S. stock market (S&P500 index) returns for the period 2006-2016. In the empirical analyses, univariate GARCH and multivariate GARCH (BEKK-GARCH) models are employed to investigate potential volatility spillover effect of crude oil price returns on the S&P500 index returns or vice versa. The results of GARCH methods reveal that (i) volatility spill-over effect of S&P500 index returns on the crude oil returns is more significant than the volatility spillover effect of crude oil on the S&P500 index returns by using univariate GARCH model; and (ii) there is a one way volatility spillover effect that runs from S&P500 index returns to crude oil returns when we apply multivariate BEKK-GARCH model. These findings have implications for in-vestors and oil-stock portfolio holders for their portfolio decisions in order to manage their risks on their international investments. Further, crude oil investment participants should consider the changes in U.S. stock market index returns in order to predict the expected volatility in the crude oil returns.