The Economics and Finance Letters

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No. 2

An Analyses of Exchange Rate Volatility: A Case of Sane Countries

Pages: 213-230
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An Analyses of Exchange Rate Volatility: A Case of Sane Countries

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DOI: 10.18488/journal.29.2021.82.213.230

Nzeh, Innocent Chile , Akaolisa, Chidiogo Jane , Millicent Adanne Eze , Bartholomew.O.N. Okaf , Abubakar Yusuf

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Nzeh, Innocent Chile , Akaolisa, Chidiogo Jane , Millicent Adanne Eze , Bartholomew.O.N. Okaf , Abubakar Yusuf (2021). An Analyses of Exchange Rate Volatility: A Case of Sane Countries. The Economics and Finance Letters, 8(2): 213-230. DOI: 10.18488/journal.29.2021.82.213.230
The sensitivity of exchange rate to an economy has made the study of its volatility essential and that motivated this study in SANE countries. Using GARCH models under different error distributions and monthly data spanning a period of 2016-2020, findings of our study show that exchange rate is volatile in each of the countries sampled. We also found that while some models in each country exhibit mean reversion, others show none mean reversion. The asymmetric parameters of the models show that exchange rate volatility in SANE countries exhibits both positive and negative shocks. Finally, our findings show that other error distributions perform better than the traditional Normal distribution. We therefore recommend that monetary authorities in each of the SANE countries should fine tune their policies on exchange rate to ensure stable and realistic exchange rate regimes which do not hurt the macroeconomic environment. We also suggest that in modelling exchange rate volatility, each country should explore several error distributions so as to avoid biased outcomes.
Contribution/ Originality
This study contributes to the existing literature by analyzing exchange rate volatility in SANE countries. Evaluating different error distributions in order to assist in a proper modeling of exchange rate in each of the countries is another area we have contributed to literature. We affirm the authenticity and originality of the paper.

Economic and Noneconomic Forces on Remittance Receiving: A Panel Analysis of Top Remittance Sending Countries towards Bangladesh

Pages: 201-212
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Economic and Noneconomic Forces on Remittance Receiving: A Panel Analysis of Top Remittance Sending Countries towards Bangladesh

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DOI: 10.18488/journal.29.2021.82.201.212

Quazi Nur Alam , Md Atiqullah Khan

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Quazi Nur Alam , Md Atiqullah Khan (2021). Economic and Noneconomic Forces on Remittance Receiving: A Panel Analysis of Top Remittance Sending Countries towards Bangladesh. The Economics and Finance Letters, 8(2): 201-212. DOI: 10.18488/journal.29.2021.82.201.212
The purpose of the paper is to investigate the impacts of economic and non-economic factors on the remittance receiving of Bangladesh. The study focuses on quantitative analysis of unbalanced panel data of 8 countries on remittance receiving of Bangladesh for the period of 1981-2019 by employing fixed effects model and random effects model. The results show that crude oil price, domestic credit to private sector of host country, and global financial crisis of 2008-10 have significant positive impact on remittance receiving of Bangladesh. GDP per capita of home country has significant negative impact which is an evidence of altruistic motive of migrant workers to remit more money. The impact of terrorist attacks on September 11, 2001 is found significantly positive as it resulted into strict change in monetary regulation by spreading more money from informal channel to formal channel. The political unrest in Bangladesh during 2007-08 has insignificant positive impact what means the non-democratic and army backed 1/11 government did not help to grow the remittance receiving. Inflation rate of host country has insignificant positive impact and FDI to GDP of host country has insignificant negative impact.
Contribution/ Originality
This paper documents the altruistic motive of migrant workers to send more remittances. This is the first study which has investigated 1/11 government effect on remittance receiving of Bangladesh. This paper adds value to the remittance related literature views. The findings can help to modify polices to increase remittance receiving.

Investigating the Nexus among Poverty Alleviation, Unemployment, and Economic Development in Nigeria

Pages: 190-200
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Investigating the Nexus among Poverty Alleviation, Unemployment, and Economic Development in Nigeria

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DOI: 10.18488/journal.29.2021.82.190.200

Salam, Najeem Gbadebo , Alase, Gbenga Ayofe , Lamidi, Sikiru Olatunji , Tonuchi, Emmanuel Joseph

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Salam, Najeem Gbadebo , Alase, Gbenga Ayofe , Lamidi, Sikiru Olatunji , Tonuchi, Emmanuel Joseph (2021). Investigating the Nexus among Poverty Alleviation, Unemployment, and Economic Development in Nigeria. The Economics and Finance Letters, 8(2): 190-200. DOI: 10.18488/journal.29.2021.82.190.200
The purpose of this study is to investigate the existing relationship between poverty alleviation programmes, unemployment, and economic development in Nigeria. Specifically, the study employed the Autoregressive Distributed Lag (ARDL) cointegration technique and Vector Autoregression (VAR) model to estimate the existing relationship between the variables, using time series data from the Central Bank of Nigeria (CBN). The findings revealed that poverty alleviation programmes have a significant positive impact on economic development in Nigeria, while unemployment has a significant negative impact on economic development in Nigeria within the period under review. It was also revealed that poverty alleviation programmes granger causes economic development, but economic development does not granger cause poverty alleviation programmes as expected. However, unemployment and economic development granger cause each other as expected. The study, therefore, concludes that any policy aimed at addressing poverty and unemployment, if properly formulated and executed, will promote sustainable economic development in Nigeria.
Contribution/ Originality
This study contributes to the first approach in determining whether economic development granger causes poverty alleviation programmes since it has been established in literature that poverty alleviation programmes are common in developing countries.

Impacts of the U.S.-China Trade Conflicts News on U.S. and Chinese Stock Returns

Pages: 180-189
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Impacts of the U.S.-China Trade Conflicts News on U.S. and Chinese Stock Returns

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DOI: 10.18488/journal.29.2021.82.180.189

Chiu, Shih-Yung

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Chiu, Shih-Yung (2021). Impacts of the U.S.-China Trade Conflicts News on U.S. and Chinese Stock Returns. The Economics and Finance Letters, 8(2): 180-189. DOI: 10.18488/journal.29.2021.82.180.189
With the China’s emergence in the global economy, the United States has faced a widening trade deficit with China, which led to a very unbalanced trade relationship. Acrimonious differences concerning the “fairness” of the two sides’ industry subsidies triggered the U.S.-China trade conflict (trade war) through the action of both countries levying extreme unilateral tariffs. The trade war has affected both the values of the import and export goods produced by firms and also have caused investors to lose confidence, thus inducing economic the panic that is reflected in price fluctuations in related stock markets. That is, U.S. and China stock markets may be sensitive to media news on the trade war, as reports of policy announcements result in corrections to investors’ market expectations. Thus, this research aims to reveal whether media news’ coverage of the U.S.-China trade conflicts predicts the two countries’ daily stock returns. We find that US-China trade news could increase two-day-ahead stock return in China, whereas the same news would decrease four-day-ahead stock return in US. The opposite effects imply that U.S. investors react pessimistically to news in a free and open market economic system, while Chinese investors are more optimistic about the news in a socialist market economic system with beliefs in their more powerful government.
Contribution/ Originality
The papers primary contribution is finding that US-China trade news increases two-day-ahead stock return in China, whereas the same news decreases four-day-ahead stock return in US. It may imply U.S. investors react pessimistically in a free and open economic system, while Chinese investors are more optimistic in a socialist market.

World Governance Indicators and Fraud: Evidence from One Belt One Road Countries

Pages: 159-179
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World Governance Indicators and Fraud: Evidence from One Belt One Road Countries

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DOI: 10.18488/journal.29.2021.82.159.179

ANTWI, Stephen Kwadwo , KONG, Yusheng , MUSAH, Mohammed , DONKOR, Mary

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ANTWI, Stephen Kwadwo , KONG, Yusheng , MUSAH, Mohammed , DONKOR, Mary (2021). World Governance Indicators and Fraud: Evidence from One Belt One Road Countries. The Economics and Finance Letters, 8(2): 159-179. DOI: 10.18488/journal.29.2021.82.159.179
This paper investigates the effect of worldwide governance indicators and global competitiveness on the level of accounting fraud in One Belt One Road (OBOR) countries. We use publicly available data from various sources. We perform principal components analysis to reduce the six governance indicators to three governance indexes. Governance indicators have significant impact on fraud and the effect could be positive or negative depending on the dimensions involved. Voice and accountability and political stability show significant negative impact on the number of fraud cases. Competitiveness shows a positive but insignificant effect on the level of fraud cases. Democratic countries report lesser number of fraud cases. The findings should be read with caution because of the diversity in the countries in the sample. OBOR countries exhibit different governance models, which may affect their indicators and as a result, the extent of fraud cases reported may be influenced by the regime practiced by a country. The study considers the relevance of governance indicators to policymakers in dealing with rising level of fraud since fraudulent activities affect productivity. Fraud analysis should be embedded in the governance architecture of countries to stimulate development and mitigate the risks of bankruptcies, business failures and loss of investments.
Contribution/ Originality
The paper contributes to literature on fraud and forensic accounting theories by employing the institutional framework to highlight the occurrence of fraud in different settings.

On the OCC Announcement Allowing US Banks to Use Stablecoins and the Immediate Impact on Cryptocurrency Valuations

Pages: 154-158
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On the OCC Announcement Allowing US Banks to Use Stablecoins and the Immediate Impact on Cryptocurrency Valuations

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DOI: 10.18488/journal.29.2021.82.154.158

Mark Schaub

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Mark Schaub (2021). On the OCC Announcement Allowing US Banks to Use Stablecoins and the Immediate Impact on Cryptocurrency Valuations. The Economics and Finance Letters, 8(2): 154-158. DOI: 10.18488/journal.29.2021.82.154.158
On January 4, 2021 the Office of the Comptroller of the Currency (OCC), a major regulator of financial institutions in the United States, announced that federally chartered banks and thrifts were now allowed to utilize stablecoins as payment instruments. Much research and many discussions have revolved around policies of governments worldwide in how to handle the new cryptocurrency phenomenon. The purpose of this short study was to observe the valuation impact of that announcement on the three largest cryptocurrencies and two others. Research findings show the altcoins with valuations not tied to the dollar had substantial increases in value while the stablecoins, which the announcement specified are now allowed to be used by banks, changed very little. Specifically, Bitcoin and Etherium increased over 20% in value within 5 days of the announcement while the stablecoins Tether and USDCoin changed in value by no more than 0.10% for the same event window. This shows that stablecoins lived up to their name even though they were promoted as an acceptable payment system in the US.
Contribution/ Originality
This study contributes to the existing cryptocurrency and event-study literature by examining the impact of an announcement by a major banking regulator in the United States upon the valuation of popular cryptocurrencies. Despite being plugged as acceptable payment methods in the US, stablecoins had no significant changes in value.

The Impact of Fundamental Factors on the Share Price of Micro-Sized Nasdaq Listed Technology Companies

Pages: 142-153
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The Impact of Fundamental Factors on the Share Price of Micro-Sized Nasdaq Listed Technology Companies

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DOI: 10.18488/journal.29.2021.82.142.153

Simon Rafaqat , Sahil Rafaqat , Saoul Rafaqat , Dawood Rafaqat

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Simon Rafaqat , Sahil Rafaqat , Saoul Rafaqat , Dawood Rafaqat (2021). The Impact of Fundamental Factors on the Share Price of Micro-Sized Nasdaq Listed Technology Companies. The Economics and Finance Letters, 8(2): 142-153. DOI: 10.18488/journal.29.2021.82.142.153
The paper aims to examine the impact of fundamental factors on the share price of the companies in the sector of technology. Therefore, the study has selected eighteen micro-size technology companies listed in NASDAQ with a market capitalization between $50 million and $300 million. The data have been obtained from these companies’ annual reports, NASDAQ, and SEC ranging from 2015 to 2019. The study evaluates the influence of firm size, earning per share, debt equity ratio, current ratio, operating cash flow ratio, return on equity, assets turnover ratio, return on assets, and the net profit margin on the share price of the selected companies. Moreover, the study uses multiple regression analysis, ANOVA, Pearson correlation, normality, multicollinearity, heteroscedasticity, autocorrelation test to find the effect of predictor variables on the share price. The results show that the operating cash flow ratio has a positive insignificant effect while debt equity ratio, net profit margin, and return on equity have a negative insignificant impact on the share price. However, return on assets, earning per share, and firm size have a positive significant relationship with share price, whereas the current ratio and the asset turnover ratio have a negative significant relationship with the share price. In conclusion, although the variables have a more negative insignificant effect than the positive insignificant impact on the share price, the variables have a more positive significant effect than a negative significant influence. Overall, the fundamental factors collectively have a significant impact on the share price of the experimented companies.
Contribution/ Originality
This study is one of the very few studies which have investigated the effect of the fundamental factors on the share price of the eighteen micro-size technology companies listed in NASDAQ over the period from 2015 to 2019.

Analysis of Synergies in Indian Corporate M&A Deals: A Logit Regression Approach

Pages: 130-141
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Analysis of Synergies in Indian Corporate M&A Deals: A Logit Regression Approach

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DOI: 10.18488/journal.29.2021.82.130.141

Anjala Kalsie , Neha Singh

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Anjala Kalsie , Neha Singh (2021). Analysis of Synergies in Indian Corporate M&A Deals: A Logit Regression Approach. The Economics and Finance Letters, 8(2): 130-141. DOI: 10.18488/journal.29.2021.82.130.141
A firm's financial attributes play an essential part in the merger decision. The present paper attempts to improve the existing literature on assessing M&A activity in Indian corporate. The primary objective is to analyse 1) When synergies are gained, payment is made in cash, 2) When synergies are gained, M&A activity takes place in the related industries. The paper has analysed 20 major M&A deals which took place between 2010 and 2015 for the Indian Corporates. The data includes three year pre-merger , year of merger and three year post merger i.e. a total of seven year data for each deal has been used in the study effectively from 2007 to 2018. Random Effect Logit Regression has been applied to estimate the relationship. The major results derived from the analysis suggest that EBITDA has statistically significant relation with payment dummy as well as Industry relatedness. Statistically significant results have also been observed for Free Cash flow. Asset Turnover has also shown to have a significant relationship with relatedness of industry in our model. The results supports both the hypothesis of the study i.e. “When synergies are gained, cash mode of payment is preferred.” and “When synergies are gained, mergers & acquisition in related industry sector are preferred”.
Contribution/ Originality
This study is one of the very few studies which have investigated how the mode of payment in Merger and Acquisition(M&A) strategy is impacted by the synergies gained in the major M&A deals for Indian Corporates over the period from 2010 to 2015.

Money Supply & Growth Nexus: Evidence from Nigeria

Pages: 117-129
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Money Supply & Growth Nexus: Evidence from Nigeria

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DOI: 10.18488/journal.29.2021.82.117.129

Onipede, Samuel F , Afiemo, Oghenekaro O , Nduka, Kodili N. , Apinran, Martins O

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Onipede, Samuel F , Afiemo, Oghenekaro O , Nduka, Kodili N. , Apinran, Martins O (2021). Money Supply & Growth Nexus: Evidence from Nigeria. The Economics and Finance Letters, 8(2): 117-129. DOI: 10.18488/journal.29.2021.82.117.129
The study focused on the dynamic impact of the broader money supply (M3) on economic growth (proxied by Purchasing Manager Index) in Nigeria between 2010M1 and 2018M12. The study investigated the long and the short-run relationship between the selected macroeconomics variables including broad money supply (M3); consumer price Index (CPI); Oil price (OIL), external reserves (Rev) and economic growth using, the Autoregressive Distributed lag (ARDL) method. The findings from the study indicate that in the long-run, the relationship between the broad money supply and economic growth is not only significant statistically but also positive in compliance with theory. The error correction coefficient -0.38072 is statistically different from zero and negative in line with a priori expectation. The result shows that deviation from equilibrium between economic growth as proxied by PMI and other predictors is recovered at an average speed of about 38% monthly in the long-term. The implication here is that the Central Bank of Nigeria is encouraged to maintain a steady rate in the growth of its monetary aggregates, in such a way that is consistent with economic growth. This, of course, is to serve as a complementary policy measure to government’s Economic Recovery and Growth Plan (ERGP).
Contribution/ Originality
This study is adding to the existing literature on the subject matter in Nigeria by deploying a new data on the broader money supply, M3 that was recently introduced in the country. The work is around the first study to investigate the role of M3 on growth in Nigeria with Auto regressive distributed lag (ARDL) technique.