The Financial Landscape of Emerging Economies

Emerging Markets and Developing Economies (EMDEs) have been a significant driver of global growth in the twenty-first century. This paper analyses the changing contours of the financial sector and the challenges faced by EMDEs in recent years. In these countries, banks and domestic equity markets still continue to be vital as a source of financing for the corporate sector, bond markets. Amongst developing regions, South Asia had the largest equity market capitalization as a share of GDP in 2019, and the growth of corporate bond markets has been facilitated by improved macroeconomic stability, better regulation of bond markets, and protection of retail investors. Finally, the findings relating to financial inclusion (that includes digital and traditional) suggest further promoting access to and usage of formal financial services to maximize society’s overall welfare.

The present paper attempts to explore the possible interdependence between business cycle and financial cycle in India during 1996Q1–2018Q3. Quarterly data of macroeconomic variables, namely real GDP, credit to GDP ratio, real house prices, real equity prices and real effective exchange rate have been used for the analysis. The cyclical components of the variables are generated by the frequency filter technique of Christiano–Fitzgerald. The identification of peaks and troughs has been done using turning point analysis of Bry and Boschan (National Bureau of Economic Research 1971). Degree of co-movement between two cycles is found by Harding and Pagan (Journal of Monetary Economics, 49(2):365–381 2002) technique. To explore the long-run relation between the business cycle and financial cycle, spectral Granger causality test (Breitung and Candelon) has been conducted. The empirical finding reveals that the cyclical component of financial variable Granger causes the cyclical component of the gross domestic product in the medium as well as long runs and vice versa.

Recent empirical evidence from different markets suggests that the security market line is flatter than posited by CAPM. This flatness implies that a portfolio long in low-beta assets and short in high-beta assets would earn positive returns. Frazzini and Pedersen (2014) conceptualize a BAB factor that tracks such a portfolio. We find that a similar BAB factor earns significant positive returns in India. The returns on the BAB factor dominate the returns on the size, value, and momentum factors. We also find that stocks with higher volatility earn relatively lower returns. These findings indicate overweighting of riskier assets by leverage constrained investors in the Indian market.

This study examines the dynamic relationship between economic policy uncertainty (EPU) and stock market volatility in a pure order-driven emerging stock market. Considering the non-linear EPU-volatility relationship, this study uses GARCH family of models to capture the impact of policy uncertainty on stock market volatility. Empirical estimates reveal that economic policy uncertainty is an essential determinant of stock market volatility, and higher EPU leads to significant increase in volatility. We believe, a thorough understanding the EPU-Volatility relationship can be beneficial for investors to better predict the behaviour of stock market volatility.

The emerging economy of India counts agriculture as its top priority, suggesting that the prices of these commodities affect the stock market and domestic inflation. This paper investigates the long-run and short-run interactions between the select agricultural commodities and Fast-Moving Consumer Goods (FMCG) stock index by applying daily data using the Autoregressive Distributive Lag (ARDL) bound test to investigate the cointegration relationship. The findings indicate the absence of cointegration between National Commodity and Derivative Exchange (NCDEX) agricultural commodities and Bombay Stock Exchange (BSE) FMCG index. Additionally, this study uses the Toda and Yamamoto approach of Granger causality test to analyze the causal relationship between variables under study. The evidence reveals absence of causal relationship between FMCG index and agricultural commodities except for cottonseed, rape mustard seed and jeera. Furthermore, this test confirms only unidirectional causal relationship from these commodities to FMCG index. Finally, our analysis provides an opportunity for investors to hedge their risk due to the absence of causality and cointegration between FMCG index and agricultural commodities by diversifying their portfolio in both the markets.

The main purpose of this paper is to strengthen the theoretical underpinning of the relationship between emotion and investment decision-making. Since investment decisions are made both under the condition of risk and uncertainty, emotion acts as a crucial antecedent for making a better investment decision. Absence of emotion while making investment decisions can hinder for making better decisions. So, for being a successful investor, he/she should not only depend on the market fundamentals but also should be aware of their own emotion. This is because emotion is having a significant role in investment decision-making. However, a successful investor not only depends on their self-emotion but also to control and regulate their emotion carefully for making advantageous decisions.

Using a multi-level modelling approach, this paper analyzes the decomposition of the sources of inequality in credit availability from both informal and formal sources in India for the second half of the year 2002 and 2012. On decomposing inequality of credit availability in India at three nested levels—household, region and state. It is observed that around 80–87% of the variance in informal credit results from the variance between households, around 4.2–5.4% and the remaining 8.9–15.1% stems from variance at the regional level and at the state level, respectively. Whereas for formal credit, 80–87% of the variance stems from the variance between households, around 5.6–7.1% from the regional level and the remaining 8.3–14.9% comes from variance at the state level. The paper analyzes the effect of various household, regional and state-level characteristics on credit availability from both formal and informal sources in India.

The focus of the paper is on Principal–Principal (PP) conflicts which differ significantly from traditional Principal–Agent (PA) conflicts that dominate the corporate governance discourse in developed economies. In emerging economies, PP conflicts are the dominant form of governance conflicts. PP conflict is a term used to characterize the conflicts between controlling shareholders and minority shareholders. The genesis of this type of conflict is the weak institutional structure prevalent in the emerging economies that results in concentrated ownership in the form of family control and business group structure. Since PP conflicts are the result of completely different corporate dynamics, it requires remedies that differ considerably from the remedies of PA conflicts. This paper reviews the extant literature on PP conflicts with the aim to decipher its characteristics, institutional antecedents, and organizational consequences.

This paper explores the impact of board composition on agency costs of large and small commercial banks in India. Asset turnover ratio and leverage ratio are taken to measure agency costs. Board composition is measured under three categories, i.e., board structure, board independence, and board committee. Board size and employee representative on board were taken as a proxy of board structure. CEO duality and independent chairperson represent board independence. Audit committee meetings and board meetings per year have been taken as a proxy for the board committee. Multiple linear regression analysis was used to assess the relationship between the dependent and independent variables. The sample consists of 35 Indian commercial banks from the year 2008–2018. The finding of the study reveals that in large banks board structure, board independence, and board committee influence agency costs. While in the case of small banks, board structure and board committee impact agency cost.

The Indian aviation sector has been experiencing substantial growth in recent years. This remarkable growth, however, has not been reflecting in the financial statement of majority of the leading air carriers. In 2019, Jet Airways has been grounded due to severe financial crisis. Considering the dynamic and competitive environment in which airline companies operate, early warning signal of financial distress is extremely important. This study attempts to analyse the financial situation of selected airline companies in India using various bankruptcy predicting models viz. Altman Model, Pilarski Model, Fuzzy Logic Model and Kroeze Model. This paper examined financial data of four major national carriers viz. Indigo, Jet Airways, Air India and Spice Jet between 2014 and 2019. The scores calculated from various models have indicated that there exists financial distress among the Indian air carriers. It is observed that different models have given more or less similar predictions and grades for different air carriers in India. This study is of great relevance considering the contribution of aviation sector to the national growth and series of bankruptcy instances in this sector.