Modern Finance
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Trade credit, earthquakes, and firm resilience: Lessons from three earthquakes in the 21st century
Get PDFThis study examines how firms adjust their trade credit policies after major earthquakes in Chile (2010), Italy (2016), and Türkiye (2023). Using an event study and difference-in-differences approach, it distinguishes resilient (positive abnormal returns) from vulnerable (negative abnormal returns) firms. Results show that resilient firms typically reduced both receivables and payables, signaling liquidity preservation and tighter credit standards. In contrast, vulnerable firms extended more credit and delayed payments, reflecting stress and limited financing. Effects are strongest among manufacturing firms. Findings highlight trade credit’s dual role as a liquidity buffer and a strategic tool for resilience in post-disaster recovery and climate-related risk management
Financial development and inequality: The role of religious freedom
Get PDFThe study investigates whether religious freedom affects the relationship between financial development and income inequality in sub-Saharan Africa. The study employs panel data analysis and a causal, quantitative research approach to achieve its research goals, focusing on 39 sub-Saharan African nations between 2000 and 2020. Based on the availability of data, this time frame was selected. Using the instrumental variable estimation method, the study reveals a significant positive correlation between financial development and income inequality, while religious freedom negatively influences income inequality. Again, the moderation analysis shows that religious freedom tends to amplify the inequality-widening effect of financial development. This finding indicates that while religious freedom is beneficial, it should be complemented with policies that ensure financial development does not exacerbate inequality. Governments and religious institutions can collaborate to promote financial literacy, equitable tax policies, and wealth redistribution mechanisms such as progressive taxation and social welfare programs
The gap between you and your peers matters: The net peer momentum effect in China
Get PDFWe propose a new return predictive signal: the net peer momentum (NPM), defined as the excess return on analyst-connected firms (CF) over the focal firm. Examining its pricing effect in the Chinese equity market reveals a robust cross-sectional relationship: stocks with high NPM significantly outperform those with low NPM. Accordingly, a long-short strategy based on NPM quintiles earns over 1% per month. While both CF and NPM offer incremental pricing power, NPM exhibits a stronger effect, as it incorporates both information about peer firms and the degree of investor underreaction to such information
Understanding crisis spillovers: US-BRICS market interdependence in times of turmoil
Get PDFThis study investigates the interconnectedness of stock returns between the U.S. and BRICS economies over the period 2016 - 2023, using daily data and integrating quantile and frequency-based methodologies. The analysis provides a comprehensive assessment of short- and long-term dynamics, with particular attention to tail dependencies and crisis episodes. The findings reveal heightened spillovers during the COVID-19 pandemic and the Russia-Ukraine war, with the U.S. and Brazil identified as the predominant net transmitters of shocks. Their roles, however, fluctuate across time and quantiles, underscoring the evolving and asymmetric nature of global linkages. These insights offer guidance for investors, policymakers, and risk managers
Social media and financial markets: The impact of Twitter sentiment on the Johannesburg Stock Exchange
Get PDFThis study examines the effect of Twitter-derived investor sentiment on stock market volatility in South Africa using daily data for the JSE All Share Index from 2016 to 2023. Using GARCH-M, E-GARCH-M, and GJR-GARCH-M, the results show that the GJR-GARCH-M specification provides the best fit both before and after incorporating sentiment. Twitter sentiment significantly amplifies market volatility, with negative sentiment exerting a more substantial impact than positive sentiment, consistent with asymmetric volatility dynamics and the leverage effect. Overall, the findings demonstrate that Twitter-derived sentiment contains valuable information for modelling and understanding volatility in emerging equity markets such as South Africa
Bank efficiency in the digital age: The role of financial technology in Tanzanian banks
Get PDFThe global rise of financial technology offers opportunities and challenges for banking businesses, including Tanzanian banks. This study examines the influence of a bank's FinTech index on the efficiency of 30 Tanzanian commercial banks categorized as large, medium, and small from 2010–2021. Using panel data and a two-step Generalized Method of Moments (GMM) estimator, the study finds that the FinTech index measuring banks' financial technology development significantly enhances efficiency across all banks, with the largest impact on large banks due to their high financial technology development. However, medium and small banks face challenges in financial technology development, resulting in a negative relationship between the FinTech index and the efficiency of banks. The study emphasizes the need for regulatory frameworks supporting financial technology integration in the core banking systems, especially for smaller and medium banks. It highlights the importance of collaboration and risk management to enhance bank efficiency and financial stability
Mapping green market dynamics: Insights into sustainable sectors and strategic tech minerals
Get PDFThis study explores the spillover dynamics and interconnectedness among traditional energy markets, eco-friendly indices, and strategic minerals under varying economic conditions. Quantile connectedness measures are employed to capture asymmetric spillover effects across adverse (5th percentile), normal (median), and boom (95th percentile) conditions. To ensure robustness, a Quantile Vector Autoregression (QVAR) framework is utilized to validate the findings. The results reveal significant heterogeneity: traditional energy markets dominate as spillover transmitters during boom periods, while eco-friendly indices and strategic minerals exhibit balanced or dependent roles across quantiles. Gasoline and Tellurium emerge as key transmitters in stressed conditions, whereas Coal and Gas Oil play dominant roles during bullish markets. These findings offer valuable insights into the dynamics of market interdependence, emphasizing the need for tailored risk management strategies. Academically, this study contributes to the literature on connectedness, while offering practical implications for energy policy and sustainable market strategies
Sign and size asymmetries between futures and spot prices in the markets of agricultural commodities
Get PDFThe goal of the present article is to examine asymmetries in sign and size among spot and futures prices in the markets of agricultural commodities of corn, hard red wheat, and soybeans. Daily observations of spot and futures prices for the three agricultural commodities and the econometric tool of local linear regressions have been utilized. The empirical results were obtained for the period between January 2000 and the end of March 2025. The empirical results reveal evidence of asymmetric dependence in sign and size, at the very extremes of the distribution, under extreme negative changes for the commodity of corn and under extreme positive changes for the commodity of soybeans. Accordingly, extreme price increases/decreases of different signs but of the same absolute magnitude are transmitted from futures to spot prices with different intensity. Moreover, large price shocks in value are transmitted from futures to spot prices more forcefully compared to smaller ones. Evidence of sign and size asymmetries might greatly help diversify the traders’ investment risk
Sovereign debt sustainability in MENA countries: Determinants and policy implications
Get PDFThis paper examines sovereign debt sustainability in the Middle East and North Africa (MENA) region by comprehensively analyzing macroeconomic, institutional, and geopolitical determinants. Using a panel dataset of 15 MENA countries spanning 2000-2023, we employ dynamic panel estimation techniques to identify key factors affecting debt sustainability. Our findings reveal significant heterogeneity across the region, with oil-exporting countries demonstrating distinct debt dynamics compared to oil-importing nations. Institutional quality and governance indicators emerge as critical predictors of debt sustainability beyond traditional macroeconomic variables. Furthermore, our threshold analysis identifies specific debt-to-GDP levels at which growth effects become negative, varying substantially across country groups. The results underscore the importance of tailored policy approaches to regional debt management, challenging one-size-fits-all recommendations from international financial institutions. This research contributes to the literature by developing a novel composite debt sustainability index and providing empirical evidence on the region-specific determinants of sustainable sovereign debt management
Human capital in asset pricing: A machine learning perspective on the six-factor model for Pakistan's equity market
Get PDFThe study aims to extend the Fama-French five-factor model by adding human capital as the sixth factor, with a specific focus on Pakistan's frontier market. Additionally, we also test the efficacy of three estimation approaches, OLS, ARIMAX, and LSTM-RNN, by comparing their predictive power. Employing a machine learning approach to assess the predictive power of estimation techniques offers fresh insights into the importance of contextual and market-specific factors. The study provides empirical evidence that the complexity of deep learning models is not always an advantage, especially in ‘underdeveloped’ markets that lack high-frequency market data and large datasets. Additionally, our results also support the inclusion of the sixth factor (human capital) in the asset pricing model. The findings show that firms with high investment in human capital exhibit a positive premium, whereas firms with low investment in human capital exhibit a negative premium, supporting Human Resource Theory in the Pakistani market