Frontier Market Research Articles

COVID-19 pandemic and herd behavior: Evidence from a frontier market

This paper examines the presence of herd behavior in the Vietnamese stock market using the cross-sectional absolute deviation (CSAD) method and by applying quantile regression (QR). We detect herd behavior in the Vietnamese stock market from January 2016 to May 2022. Herd behavior is less pronounced for bullish markets, yet more prominent under other market conditions. Importantly, the paper provides insight into the herd phenomenon during COVID-19’s fourth wave outbreak in Vietnam. We discover that during the fourth wave outbreak, investors on the Hanoi Stock Exchange (HNX) do not engage in herding. However, herd behavior does manifest on the Ho Chi Minh Stock Exchange (HOSE) with falling stock prices engendering pessimistic herd selling. Knowledge of this empirical evidence of herd behavior in the Vietnamese stock market should prove useful to investors in determining the intrinsic value of stocks, and to policymakers wishing to enhance the efficiency of the equity market.

The application of financing and dividend decision techniques in practice among Ghanaian chief financial officers (CFOs)

We use a survey approach to investigate how managers in a frontier market apply financing and dividend decision techniques in practice. 15 firm characteristics were grouped into paired subgroups for a two-sample t-test analysis that generated statistical differences, economic significance levels and ranking for each technique investigated. The Ghanaian listed firm’s sample choice was due to the country’s persistent volatile macroeconomic environment. In managing the capital structure, managers consider most relevant issuing of stock to give investors a better impression of their firms’ prospects (signalling). In choosing between short and long-term debt techniques, the most applied technique is matching the firm’s debt maturity with the assets’ useful life span. Managers are most concerned about the volatility of their earnings and cash flows on the appropriate amount of debt to use. A probe into debt policy indicates that the most valuable technique is issuing debt when the firm’s internal funds are inadequate. Under dividend policy, the most treasured technique is ensuring cash availability which deviated from existing literature. These results show that managers in frontier markets are cash-focused, which may lead to short-termism, which may be non-value-adding but important for survival in their persistent liquidity crunch markets.

Firm characteristics and the use of investment decision techniques in the global south: Evidence from Ghana

This study uses a survey approach to investigate how managers associated with thirty (30) firm characteristics subgroups apply thirty-seven (37) investment decision techniques in practice in a frontier market covering: capital budgeting, cost of equity, cost of capital, and adjustments for other types of systemic risk. The results show that 27 out of 30 firm subgroups significantly apply a payback period, and 0 out of 30 firm subgroups significantly apply any of the cost of equity estimation techniques investigated, deviating from the current literature. Nineteen out of 30 firm subgroups significantly apply a single common firm-wide discount rate for all projects, which is in line with global trends but inappropriate. It seems that frontier market managers are leaning toward simplicity as payback period, no cost of equity estimation and using a single common firm-wide discount rate do not properly account for time and risk. This may lead to less optimal investment decisions: resulting in firm value degradation. Promoting policies that reduce uncertainties in frontier markets may encourage the dominant use of net present value, cost of equity estimation and opportunity risk-adjusted cost of capital techniques to support firm value maximisation.

Long-Term Private Sector External Debt and Equity Returns: Cross-Sectional Evidence from 26 Emerging and Frontier Markets

Long-Term Private Sector External Debt and Equity Returns: Cross-Sectional Evidence from 26 Emerging and Frontier Markets

Enhancing supply chain agility through e-procurement in a volatile frontier market

Background: The business environment is increasingly becoming volatile, uncertain, complex and ambiguous (VUCA) because of globalisation, increased competition, random consumer tastes changes and environmental factors. Traditional procurement strategies are becoming increasingly redundant because of the volatility of the global business environment. The market has thus called for increased agility to conquer the VUCA nature of the supply chain environment.Objectives: The study sought to examine the role that e-procurement plays in augmenting the agility of supply chains. The four determinants of e-procurement, that is, e-design, e-sourcing, e-evaluation and e-negotiation, were linked directly with supply chain agility.Method: A census approach was taken to gather data from 219 supply chain and procurement employees of Zimbabwe’s telecommunications and technology industry. A self-administered survey questionnaire was used based on a scientifically developed and validated supply chain agility measurement scale from the extant literature.Results: Using structural equation modelling (SEM), the study’s results confirmed that e-procurement significantly predicts supply chain agility. All determinants of e-procurement were statistically significantly explaining supply chain agility in a volatile business environment.Conclusion: The study concludes that e-procurement augments the agility of the supply chain in volatile business environments, as e-procurement can increase swiftness and agility as it fosters ubiquitous business processes on a seamless real-time basis. It emerged from the study that the supply chain vulnerabilities volatile industries face could be eliminated through supply chain agility, augmented through e-procurement systems. The study’s findings also implore supply network members from upstream to downstream to adopt e-procurement.Contribution: The study has practical implications for all supply network members from upstream to downstream. It implores these members to adopt e-procurement to revive supply networks amid environmental volatility and alleviate miscommunication. Study also offers theoretical implications for e-procurement and supply chain management. The study also contributes to the body of knowledge by extending the existing theories on e-procurement and supply chains in the context of environmental volatility.

EX ANTE PREDICTABILITY OF STOCK RETURNS IN A FRONTIER MARKET

This study reports results on the ex ante predictability of stock returns using real-time stock market data in Vietnam, a frontier market, from June 2008 to June 2021. Countries classified as a frontier market are often known for currency manipulation, financial market illiquidity, and political instability. Despite the enormous risk usually posed by these inefficiencies, potential profits are large and achievable for many investors. This study provides evidence on existing a strategy to form out-of-sample long portfolios that generate statistically significant and positive mean monthly returns even in the presence of transaction costs. I also justify the magnitude of these returns by showing that they exceed those of VnIndex and MSCI Vietnam Index. The results reject the hypothesis that the stock prices in Vietnamese market follow random walks, thus oppose the stock market efficiency hypothesis. Evidence found in this study provides a better understanding of informational efficiency in a frontier equity market setting. Specifically, there are several implications on portfolio selection strategies, stock price patterns, and trading behavior bias related to Vietnamese stock market can be drawn from this study.

The impact of board characteristics and ownership structure on earnings management: Evidence from a frontier market

The impact of board characteristics and ownership structure on earnings management: Evidence from a frontier market

Ownership structure and voluntary disclosure quality: empirical evidence from a frontier market

Ownership structure and voluntary disclosure quality: empirical evidence from a frontier market

Voluntary disclosure quality, institutional ownership, and stock price volatility: Evidence from a frontier market

In this paper, we examine the impact of voluntary financial disclosure quality on the stock price volatility of non-financial firms quoted on the Tunis Stock Exchange. Empirically, we first test the impact of voluntary disclosure quality on stock price volatility. Then, we examine the combined effect of voluntary disclosure quality and institutional ownership on stock price volatility. We study a sample of 411 annual reports of non financial companies listed on the Tunisian stock exchange observed over the 2010–2019 period. The results show that voluntary disclosure quality has a negative impact on stock price volatility. Our results also show that the impact of voluntary disclosure quality on stock price volatility is still significantly negative even after incorporating institutional ownership into our empirical model to test the robustness of our results. Moreover, the positive impact of institutional ownership on stock price volatility is lessened by its indirect relationship with voluntary financial disclosure quality.

Budget Deficits and Stock Market Performance in Emerging and Frontier Markets in Africa

Budget Deficits and Stock Market Performance in Emerging and Frontier Markets in Africa

Ownership structure and voluntary disclosure quality: empirical evidence from a frontier market

Ownership structure and voluntary disclosure quality: empirical evidence from a frontier market

The Effects of Index Futures Trading Volume on Spot Market Volatility in a Frontier Market: Evidence from Ho Chi Minh Stock Exchange

This analysis is the first to investigate the influence of index futures trading volume on spot market volatility for the Ho Chi Minh Stock Exchange (HOSE). The data utilized in this study are the daily VN30-Index futures contract trading volume starting at the inception date for the VN30-Index futures contract, 10 August 2017 and going through 10 August 2022. Using an autoregressive distributed lag (ARDL) bounds testing approach, the empirical findings reveal a positive relation between VN30-Index futures trading volume and the volatility of the spot market for the HOSE in the short-run. In addition, the results of the ARDL tests confirm in for the long-run, trading volume of futures contracts has a significant positive influence on spot market volatility. Moreover, the results derived from the error correction model (ECM) indicate that only 5.54% of the disequilibria from the previous trading day are converged and corrected back to the long-run equilibrium from the current day. Based on the findings, we recommend that Vietnamese policymakers establish relevant intervention polices on speculation of individual investors in order to provide stabilization safeguards for the underlying stock market.

Kenya

Kenya is navigating a turbulent global backdrop marked by volatile commodity prices, slowing growth in key trading partners, and constrained frontier market access to international capital markets. At home, a smooth transition following the August elections demonstrated Kenya’s increasing institutional strengths, while the multi-season drought has worsened food insecurity for vulnerable populations in arid and semi-arid regions and kept food prices elevated. Strong tax overperformance in FY2021/22 helped cushion some of these shocks, and the administration of President Ruto eliminated petrol subsidies in their first week in office. Inflation has breached the central bank (CBK) target band, and monetary policy has been tightened by 175 basis points this year. Foreign reserves are adequate, but lower than previously projected given shortfalls in FY2021/22 external public commercial and project financing, spending cuts in FY2022/23 also extending to externally-financed projects, and the prospects for continued challenging market conditions for frontier economies into 2023.

Eurobonds, debt sustainability and macroeconomic performance in Africa: Synthetic control experiments

There has been a strong wave of Eurobond issuances by Africa's frontier market economies since the start of the century. But it is not clear how these issuances have affected economic performance. This paper uses synthetic control experiments to conduct comparative case study analyses of the impacts of Eurobond issuances on economic growth, debt sustainability, and domestic capital markets. Ex post, we compare the trajectories of the relevant macroeconomic outcomes against their synthetically constructed business-as-usual counterfactual in an environment with no Eurobond issuance. The results show that, on average, sovereign Eurobond issuances have led to improvements in per capita GDP in Africa by about 10 percent above the counterfactual, business-as-usual scenario. Although most issuances were within 3 percent of GDP, they potentially led to about 13 percentage point acceleration in the debt-to-GDP ratios after ten years, compared to the counterfactual. Public capital accumulation is, on average, faster in the first two to three years following an issuance in countries with positive correlations. • Eurobond issuances by African sovereigns surged in the 2000s, with over 125 instruments issued by 21 African sovereigns. • We conduct synthetic control experiments, comparing relevant macro-outcomes with their counterfactuals under no issuance. • Eurobond have had a noticeable positive effect on incomes, about 10 percent annual improvement above the counterfactual. • But debt sustainability risks from Eurobond issuances are heightened by 13 percent above the counterfactual within 10 years. • Downside risks from Eurobonds should be actively managed to remain a useful source of financing and development in Africa.

Examining the Portfolio Diversification Benefits with Selected Developed, Emerging and Frontier Markets

The financial market integration is important for the investors to have the portfolio diversification of their investment. The investors do the portfolio diversification to the market where they can have higher return with lower risk.The purpose of the paper is to analyse portfolio diversification opportunities among Asian Developed, Emerging and Frontier markets.The study is performed using various methods such as Correlation, Granger causality test, Johansen cointegration test, Portfolio diversification analysis using various diversification strategies. The study examines portfolio diversification opportunities by comparing non-diversified portfolio (home market) with diversified portfolios (Equal Weighted Portfolio, Minimum Variance Portfolio and Maximum Sharpe Portfolio). The gain from the portfolio diversification was also analyzed to measure the benefits of the diversification. The study found that the lack of integration among many markets proves the existence of the portfolio diversification opportunity. Study is unique in a nature that it examines the portfolio diversification benefits for the investors in developed, emerging and frontier markets, as past studies were limited to developed markets only.The study concluded that the investors can gain better return, lower risk and higher Sharpe with portfolio diversification in international market. The researchers can examine in future the portfolio diversification benefits with other frontier and emerging markets for the investors of the developed markets.

The MAX puzzle in a frontier market before and during the Covid-19 pandemic

ABSTRACT This study analyses the MAX anomaly in a frontier market before and during the Covid19 pandemic. Our sample has 39,673 firm-month observations of non-financial firms in Vietnam from 2008 to 2021. Using the Carhart four-factor model augmented with MAX anomaly, Fama-Macbeth two-step estimations, and portfolio analyses, we report the persistence of the MAX puzzle in Vietnam before and during the Covid-19 pandemic. The arbitrary returns between the highest and lowest MAX portfolios are around 1% per month. Finally, our results report that the MAX anomaly is subsumed by the IVOL anomaly, while the skewness fails to explain the MAX anomaly. Our findings align with the anchoring theory, prospect theory, and prior literature. Our findings align with the anchoring theory, prospect theory, and prior literature. Our study suggests that policymakers improve market transparency to protect retail investors.

Employee-friendly practices and corporate financial performance: Evidence from a frontier market

Employee-friendly practices and corporate financial performance: Evidence from a frontier market

Forecasting the Risk Factor of Frontier Markets: A Novel Stacking Ensemble of Neural Network Approach

Forecasting the risk factor of the financial frontier markets has always been a very challenging task. Unlike an emerging market, a frontier market has a missing parameter named “volatility”, which indicates the market’s risk and as a result of the absence of this missing parameter and the lack of proper prediction, it has almost become difficult for direct customers to invest money in frontier markets. However, the noises, seasonality, random spikes and trends of the time-series datasets make it even more complicated to predict stock prices with high accuracy. In this work, we have developed a novel stacking ensemble of the neural network model that performs best on multiple data patterns. We have compared our model’s performance with the performance results obtained by using some traditional machine learning ensemble models such as Random Forest, AdaBoost, Gradient Boosting Machine and Stacking Ensemble, along with some traditional deep learning models such as Convolutional Neural Network (CNN), Long Short-Term Memory (LSTM) and Bidirectional Long Short-Term (BiLSTM). We have calculated the missing parameter named “volatility” using stock price (Close price) for 20 different companies of the frontier market and then made predictions using the aforementioned machine learning ensemble models, deep learning models and our proposed stacking ensemble of the neural network model. The statistical evaluation metrics RMSE and MAE have been used to evaluate the performance of the models. It has been found that our proposed stacking ensemble neural network model outperforms all other traditional machine learning and deep learning models which have been used for comparison in this paper. The lowest RMSE and MAE values we have received using our proposed model are 0.3626 and 0.3682 percent, respectively, and the highest RMSE and MAE values are 2.5696 and 2.444 percent, respectively. The traditional ensemble learning models give the highest RMSE and MAE error rate of 20.4852 and 20.4260 percent, while the deep learning models give 15.2332 and 15.1668 percent, respectively, which clearly states that our proposed model provides a very low error value compared with the traditional models.

Loan Loss Provisioning and Efficiency: A Study of Frontier Market Banks

This paper investigates frontier market bank managers’ use of the discretionary component of loan loss provisions to manage earnings and its association with efficiency. Studies have documented that bank managers use loan loss provisions to smooth earnings, yet the association of provisioning with efficiency in frontier markets has not been empirically examined. Employing stochastic frontier analysis as a method of efficiency assessments in 22 frontier market countries, results show bank efficiency declined steadily from 2001 to 2018. This finding is contrary to economic efficiency theory and suggests that loan quality difficulties have persisted despite nations enjoying increasing economic development. Regression analysis results further reveal that earnings management (EM) via loan loss provisioning is inversely related to efficiency. Study findings support prospect theory, indicating that managers engage in risk-seeking behavior while making risk-averse judgments. Overall, the study results imply that banks should expand loan provisioning strategies to optimize resource allocation and business performance.

Foreign ownership and liquidity: evidence from a frontier market

PurposeThis study aims to provide empirical evidence on the impact of foreign share ownership on the liquidity of the Tunisian Stock Exchange (TSE).Design/methodology/approachThe authors hypothesize in the first strand that stock liquidity could be positively affected by foreign ownership based on the real friction channel. The authors then hypothesize in the second strand, based on the information friction channel, that foreign ownership's impact on stock liquidity could be insignificant or negative and that foreign investors raise the level of information asymmetry. A sample of 318 firm-year observations from Tunisia over the 2012–2017 period and a random-effects estimation were used. Moreover, using the 2SLS estimator, a robustness check framework was applied in order to address any potential reverse causality concerns.FindingsThe authors find strong evidence that higher foreign ownership improves stock liquidity. More specifically, firms with higher foreign ownership engender a lower bid-ask spread, a better stock ability to absorb a large amount of trading volume, and a larger depth. These findings are still valid when reverse causality concerns are addressed through the use of the 2SLS estimator.Originality/valueThe paper contributes to the existing literature by focusing on the ownership–liquidity relationship on a frontier market. It provides further empirical support that higher corporate governance quality reduces the information asymmetry problem and enhances stock market liquidity.