Abstract
This study measures the economic content of three different inductors of country risk: political, economic and financial risk indices, and fundamental attributes, such as earning-to-price ratios, and its impact on net foreign portfolio equity investment inflow in Egypt. We explore whether any of these measures contain information about net foreign portfolio equity investment inflow in Egypt. The study uses the autoregressive distributed lag (ARDL) bounds testing approach. Quantitative estimates based on the time series annual data from 2004 to 2018. The empirical results prove that there is a univariate cointegrated and stable long-run relationship among net foreign portfolio equity investment inflow and three different measures of country risk and E/P ratio. The results show that three measures of country risk have a significant effect on net foreign portfolio equity investment inflow in Egypt in the long and short run. But Political risk is a positive effect, While Economic and Financial risks are a negative effect. And E/P ratio has a positive significant effect on net foreign portfolio equity investment in Egypt in the short run only. The results confirm that after Procedure the CUSUM and CUSUMSQ tests, net foreign portfolio equity investment inflow function is stable.Keywords: Country Risk, Return, FPI, ARDL, EgyptJEL Classifications: C12, F21, G11, G15DOI: https://doi.org/10.32479/ijefi.10495
Highlights
How does an international investor think when he wants to invest abroad? Does the international investor prefer to invest in Egypt and why? This question has become very important for the Egyptian decision-maker so that he can formulate and implement sound policies and regulations that promote and attract more foreign investment
autoregressive distributed lag (ARDL) approach is used for the cointegration of the model
Autoregressive Distributed Lag (ARDL) Estimates We propose ARDL modeling for cointegration test, where net foreign portfolio equity investment (FPIEQ) is considered to be the dependent variable and the best lag distribution of the independent variables, earning to price (E/P), political risk (POL), economic risk (ECO) and financial risk (FIN), was modeled
Summary
How does an international investor think when he wants to invest abroad? Does the international investor prefer to invest in Egypt and why? This question has become very important for the Egyptian decision-maker so that he can formulate and implement sound policies and regulations that promote and attract more foreign investment. How does an international investor think when he wants to invest abroad? Does the international investor prefer to invest in Egypt and why? The importance of this study comes from here. The Egyptian economy recently faces many challenges, especially after the January 25 revolution, and the subsequent political and economic events that were reflected on the Egyptian stock market, as a result of being affected by these events. With the beginning of the nineties of the last century, emerging economies began to establish and open their financial markets to foreign investors, as a result of the different economic and political structures in the developed and developing economies; Country risk analysis has become very important for these investors. The foreign investor seeks to invest in different countries to diversify the risks and achieve more returns. The behavior of the foreign investor is driven by two types of determinants: Returns and risk factors with a positive response to returns and a negative response to risks
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