Frontier Market Research Articles

BIOMETRICS, RACE MAKING, AND WHITE EXCEPTIONALISM: THE CONTROVERSY OVER UNIVERSAL FINGERPRINTING IN KENYA

AbstractThis article excavates the imperial origins behind the recent turn towards digital biometrics in Kenya. It also tells the story of an important moment of race-making in the years after the Second World War. Though Kenya may be considered a frontier market for today's biometrics industry, fingerprinting was first introduced in the early twentieth century. By 1920, the Kenyan colonial government had dictated that African men who left their reserves be fingerprinted and issued an identity card (known colloquially as akipande). In the late 1940s, after decades of African protest, the colonial government replaced thekipandewith a universal system of registration via fingerprinting. This legislative move was accompanied by protests from members of the white settler community. Ironically, the effort to deracialize Kenya's identification regime only further normalized the use of biometrics, but also failed to fully undermine associations between white male exceptionalism and exemption from fingerprinting.

Do global sentiment shocks spillover towards emerging and frontier markets?

PurposeThis study aims to investigate the impact of sentiment shocks based on US investor sentiments, bearish and bullish market conditions. Earlier studies, though very few, only consider the effect of investor sentiments on stock returns of emerging frontier Asian (EFA) markets.Design/methodology/approachThis study uses the application of regime switching model because of its capability to explore time-varying causality across different regimes unlike traditional linear models. The Markov regime switching model uses regime switching probabilities for capturing the potential asymmetries or non-linearity in a model, in this study’s case, thereby adjusting investor sentiments shocks to stock market returns.FindingsThe results of the Markov regime switching method suggests that US sentiment, bullish and bearish market shocks act as a main contributors for inducing variation in EFA stock market returns. The study’s non-parametric robustness results highlight an asymmetric relationship across the mean series, whereas a symmetric relationship across variance series. The study also reports Thailand as the most sensitive market to global sentiment shocks.Research limitations/implicationsThe sensitivity of the EFA markets to these global sentiment shocks highlights their sensitivity and implications for investors relying merely on returns correlation and spillover. These findings also suggest that spillover from developed to emerging and frontier equity markets only in the form of returns following traditional linear models may not be appropriate.Practical implicationsThis paper supports the behavioral aspect of investors and resultant spillover from developed market sentiments to emerging and frontier market returns across international equity markets offering more rational justification for an irrational behavior.Originality/valueThe study’s motivation to use the application of regime switching models is because of its capability to explore time-varying causality across different regimes unlike traditional linear models. The Markov regime switching model uses regime switching probabilities for capturing the potential asymmetries or non-linearity in a model, in the study’s case, thereby adjusting investor sentiments shocks to stock market returns. It is also useful of the adjustment attributable to exogenous events.

Revisiting the valuable roles of commodities for international stock markets

In this paper, we re-examine the safe haven, hedge, and diversification potentials of 21 commodities belonging to various commodity groups for 49 international stock markets belonging to countries in various stages of economic development. Using daily data from 2001 to 2018, we conduct an extensive analysis that considers the tails of the return distributions. Our main results show valuable hedge and safe haven roles for specific commodities, especially precious and industrial metals. Some of the results seem to be both commodity and country specific, suggesting the need to combine each stock market index with its best commodity match to get the highest benefits. Unsurprisingly, gold is indisputably the strongest safe haven asset, especially in many developed stock markets, confirming previous studies. The hedge effectiveness is highest for advanced emerging and a few developed stock markets. Commodities offer the highest conditional diversification benefits in an equally weighted portfolio for the stock markets of New Zealand and Norway, secondary emerging and frontier market groups.

Financial inclusion and human development in frontier countries

AbstractThis study empirically investigates whether the level of human development drives greater financial inclusion, and vice versa in the contexts of frontier markets. The dynamic panel generalized methods of moments (System‐GMM) methodology is employed to analyze data spanning from 2005 to 2014 for twenty (20) frontier markets by Standard and Poor's Indices. The study finds that human development is a catalyst for financial inclusion scale‐up in the banking industry, which in turn, augments the development process. It establishes fresh evidence that income level, financial literacy, and healthy lives are the decisive factors for financial inclusion scale‐up in the banking industry. It finds new evidence that the underlying cause of low financial inclusion is low human development. The study concludes that low human development causes low financial inclusion. Also, promoting financial inclusion through the banking sector is very instrumental to stimulating human development, thus the reverse applies in frontier markets. The study implies that low living standards, poor health, high illiteracy, and deprived well‐being and freedom largely account for low financial inclusion hence its spillover effect of having low human development in frontier market countries.

Mixed logistic model with two independent random coefficients for financial crisis prediction: Argentinean companies

The paper develops a mixed logistic financial distress prediction model with two independent random coefficients and validates it for public Argentinean companies. This study complements existing literature on bankruptcy prediction in emerging economies advancing the application of contemporary econometric methods (Caro et al., 2013). Anticipating bankruptcy risks increases portfolios' profitability. Emerging economies and frontier markets differ from developed economies in political, cultural, social and institutional terms. Given those differences, investors and lenders need specific bankruptcy and financial distress prediction models. The model developed achieves an excellent performance using financial statements from firms listed in the Buenos Aires Stock Exchange during 1993-2000 with ratios accepted in the literature (Altman, 1993; Jones and Hensher, 2004). Results show that profitability, assets turnover and cash flow from operations reduce the likelihood of financial distress while leverage increases it for companies operating in a frontier market such as Argentina.

Wymiary płynności rynku papierów wartościowych: weryfikacja empiryczna na rynku granicznym

Wymiary płynności rynku papierów wartościowych: weryfikacja empiryczna na rynku granicznym

Time Varying Stock Market Integration and Diversification Opportunities within Emerging and Frontier Markets

This study examines the time-varying feature of Emerging and Frontier stock markets to identify diversification opportunities. For this purpose, we sample 29 emerging and frontier countries ranging from 2000-2018 from America, Europe, Asia, Middle East, and Africa with each region consisting of a panel with one home country and other as remaining countries portfolio. Our results highlight few diversification opportunities in the post-crisis period for international investors in emerging and frontier stock markets as compared to the pre-crisis period. In the post-crisis period; Peru, Philippine, Jordan offer diversification opportunities for long run whereas Brazil, Mexico, Peru in emerging America, Philippine from Emerging Asia, Kazakhstan in frontier Europe, Kenya, Morocco in frontier Africa and Bahrain, Jordan from frontier Middle East offer short-run diversification opportunities for international investors.

Impact of Economic Crisis 2008 on Integration of Indian Stock Market with Emerging and Frontier Markets of Asia- A study of Pre and During Crisis Period

Impact of Economic Crisis 2008 on Integration of Indian Stock Market with Emerging and Frontier Markets of Asia- A study of Pre and During Crisis Period

The Effects of Board Structure on Corporate Performance: Evidence from East African Frontier Markets

The effectiveness of the well-known corporate governance practices may not be universal due to fundamental differences in the environments under which firms operate. By using hand-collected data from all the non-financial firms listed on the unexplored East African frontier markets (i.e., Kenya, Tanzania and Uganda), we examine the effect of board characteristics on the performance of firms. Our results show that board size has a negative and significant effect on firm performance. The presences of foreigners and civil servants on the board play positive roles on financial performance, where the agency and resource dependence theories apply. Further, we find that board members with higher education also contribute to firm performance. These findings still hold when we consider the 2008-2009 financial crisis period. Overall, we show that in a business climate where ownership is largely dominated by few shareholders, the conventional governance mechanisms do not work effectively.

Is there an illiquidity premium in frontier markets?

We perform a comprehensive examination of the role of stock-level liquidity in the cross-section of frontier market stock returns. Using several popular liquidity measures and a battery of asset pricing tests, we investigate the illiquidity premium in 22 countries for the years 1991–2019. Contrary to typical relationships in developed and emerging markets, we find no evidence of illiquidity premium in frontier equities. Our findings support the hypothesis that for countries not fully integrated with the global economy, the diversification benefits offset the illiquidity, which, in turn, proves less important.

Dividend policy and earnings quality in Vietnam

Purpose The purpose of this paper is to examine the relationship between dividend policy and earnings quality of Vietnamese listed firms. Design/methodology/approach The sample includes firms listed on Vietnam stock exchange during the period between 2010 and 2016. Two measures of earnings quality are the annual firm-specific absolute value of residuals from Dechow and Dichev’s (2002) model and from Dechow and Dichev (2002) as modified by McNichols’s (2002) model. The firms’ dividend policy is captured by dividend paying status. This is a dummy variable that takes the value of 1 if the firm pays dividends and 0 otherwise. In addition, dividend yield and dividend payout ratio, which are continuous variables, are also used in this paper as alternative proxies for dividend policy. Findings Using panel data analysis, this paper documents that dividend payers have higher earnings quality than dividend non-payers. Dividends are an indicator of earnings quality. These findings are consistent with prior studies. After controlling for variables that may be related to earnings quality as well as for the year and industry fixed effects, this relation remains unchanged. In addition, this result is also robust after controlling for firm fixed effects. Originality/value This paper offers the empirical evidence on the relation between dividend policy and earnings quality in Vietnam, which is a frontier market.

Investor recognition, liquidity, and post-issue performance following rights offerings: Evidence from a frontier market

This paper examines changes in investor recognition and liquidity around rights offerings in a frontier market, viz., Sri Lanka. We find that offer characteristics such as issue proceeds and offer price discounts improve investor recognition. We find that larger offer price discounts and offer proceeds are associated with increases in investor recognition. Further, we find that announcements of rights issues reduce information asymmetry and as a result, liquidity improves in the post rights issue announcement period. In addition, we find a strong positive association between liquidity improvements and increases in investor recognition. Finally, we find that greater investor recognition is negatively associated with contemporaneous and post- issue abnormal stock returns, whereas increases in liquidity are positively associated with post-issue abnormal returns. Overall, we show that rights issues in a frontier market affect both investor recognition and liquidity.

Credit Risk and Anomalies in Pakistan’s Stock Market

AbstractThis paper investigates the relation between credit risk and stock return for publicly traded firms in the Pakistan Stock Exchange (PSX) over the period 2000–2017. Using credit ratings as a proxy for credit risk, we find that the credit risk–stock return relation is negative in Pakistan, as low‐rated stocks (i.e., those with high credit risk) earn lower returns than high‐rated stocks (i.e., those with low credit risk). This negative relation is robust to alternative measures of credit risk (e.g., Altman’s Z‐score and the distance‐to‐default) and is also maintained even after controlling for size, momentum, and liquidity effects. Our study provides evidence of the default‐risk anomaly in a frontier market that lacks adequate information infrastructure and faces high levels of political and economic uncertainty.

Corporate Governance and Stock Market Liquidity

The purpose of this paper is to examine the capital market effects of corporate governance (CG) practices of “comply or explain” on stock market liquidity in a frontier market. Using secondary data from Nairobi Securities Exchange (NSE) liquidity position is analyzed using panel data random effects regression against CG guidelines. The results show a negative and significant relationship between CG compliance and stock market liquidity suggesting that regulated CG practices improves market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory. We provide evidence that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore the regulators and stakeholders could be motivated by the benefits of regulation and this could lead to renewed effort to improve the current compliance from the current 61.4%, to higher levels. Our finding shows that security market regulation through CG guidelines can improve stock market liquidity in frontier markets. This offers regulators and policy makers a strong motivation to enhance security regulation to strengthen capital market confidence.

Market efficiency in the emerging and frontier markets of the MENA countries

Daily and weekly market index returns were analyzed to examine market efficiency in emerging and frontier markets in MENA region. Based on a set of tests, autocorrelation, runs, unit root and multiple variance report tests, over a period of 7 years, our results show mixed results for different indices. However, emerging and frontier market and yield series indicate the lack of market efficiency. We find that daily and weekly market index returns do not follow random markets. We can conclude that investors can obtain the flow of arbitrage profits due to the inefficiency of the market belonging to these countries.

How important are spillovers from major emerging markets?

AbstractThe seven largest emerging market economies—China, India, Brazil, Russia, Mexico, Indonesia, and Turkey—constituted more than one‐quarter of global output and more than half of global output growth during 2010–2015. These emerging markets, which we call EM7, are also closely integrated with other countries, especially with other emerging and frontier markets (FMs). Given their size and integration, growth in EM7 could have significant cross‐border spillovers. We provide empirical estimates of these spillovers using a Bayesian vector autoregression model. We report three main results. First, spillovers from EM7 are sizeable: a 1 percentage point increase in EM7 growth is associated with an 0.9 percentage point increase in growth in other emerging and FMs and a 0.6 percentage point increase in world growth at the end of 3 years. Second, sizeable as they are, spillovers from EM7 are still smaller than those from G7 countries (group of seven of advanced economies). Specifically, growth in other emerging and FMs, and the global economy would increase by one‐half to three times more due to a similarly sized increase in G7 growth. Third, among the EM7, spillovers from China are the largest and permeate globally.

Revamping Liquidity Measures: Improving Investability in Emerging and Frontier Market Indices and Their Related ETFs

In this article we present a new way of measuring stock liquidity. The method uses price and bid-ask spread (not dollar volume, transactions or turnover) as the primary inputs and Extreme Value Theory to build the measure. We demonstrate its value by its ability to identify successfully liquid stocks in emerging and frontier markets better than volume, transaction and turnover based measures of liquidity. We offer this new measure because recent research has demonstrated that volume, transaction and turnover based measures do not on their own measure liquidity.

Performance Persistence in Anomaly Returns: Evidence from Frontier Markets

ABSTRACT This study aims to explore the performance persistence of frontier market equity anomalies. To this end, I replicate 140 anomalies in the cross-section of returns in a sample of 23 frontier markets. I demonstrate a robust and strong performance persistence in the anomaly returns. The return persistence is driven by two independent components related to past short- and long-term returns. These components reflect short-term momentum and cross-sectional variation in long-term anomaly returns, respectively. Combining the two components forms an efficient anomaly selection strategy.

Frontier and Emerging Markets: A Perspective from Portfolio Flows and Financial Integration

This paper investigates to what extent low-income developing countries (LIDCs) characterized as frontier markets (FMs) have begun to be subject to capital flows dynamics typically associated with emerging markets (EMs). Using a sample of developing countries covering the period 2000–14, we show that: (i) average annual portfolio flows to FMs as a share of gross domestic product (GDP) outstripped those to EMs by about 0.6 percentage points of GDP; (ii) during years of heightened stress in global financial markets, portfolio flows to FMs dried up like those to EMs; and that (iii) FMs have become more integrated into international financial markets. Our findings confirm that, in terms of portfolio flows, FMs have become more similar to EMs than to the rest of LIDCs and are therefore more vulnerable to swings in global financial markets conditions. Accordingly, it is important to have in place frameworks to strengthen FMs’ resilience to adverse capital flows shocks.

The Metropolitan Effect: Colonial Influence on the Internationalization of Francophone African Firms

ABSTRACTDrawing on the experience of firms of various sizes from Francophone Africa, we explore how the internationalization trajectories of frontier economy firms may vary from those predicted by theory. The firms studied followed social, linguistic, cultural, and institutional gradients to internationalize first to France, rather than to neighboring countries, and did so in search of not only markets and resources but also legitimacy. In turn, the sales, resources, and legitimacy acquired in France supported further international expansion, sometimes even to neighboring countries. Although our insights derive from the experience of Francophone firms from Africa, we argue that for firms from all former colonies, the internationalization trajectory leads through the colonial center. Our findings underline the roles of legitimacy-seeking and network ties in the internationalization of frontier market firms and serve as a salutatory reminder of the lingering influence of colonial ties on international business.