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Capital Markets Review Vol. 30, No. 2 pp. 1-106 (2022)

Capital Markets Review Vol. 30, No. 2, pp. 1-18 (2022)

Malaysian Domestic Bond Market Experience: Lessons for Emerging Economies

Meng-Wai Lee1, Michael Meow-Chung Yap2 & Kim-Leng Goh3
1Faculty of Business and Economics, University of Malaya, Malaysia.
2Business School, University of Nottingham Malaysia, Malaysia.
3Faculty of Business and Economics, University of Malaya, Malaysia.

Abstract: Research Question: Are there effects of crowding-out from persistent fiscal deficits and what are the role of the banking sector on development of the government and corporate bond markets in Malaysia? Motivation: This paper revisits the aftermath of the 1997-98 Asian financial crisis that led to challenging years for Malaysia when its running balanced budgets switched to fiscal deficits. A policy option is to develop the domestic bond market to raise funds, but this is not without challenges. Idea: Raising long-term government bonds through the domestic bond market to cover the fiscal shortfall may crowd-out the corporate bond market. An already established banking sector is also likely to compete with the domestic bond market to provide financing to the economy. Data: To focus on the Asian financial crisis for policy lessons, this paper uses quarterly data on the Malaysian government and corporate bond markets based on the old categorization of Bank for International Settlements from Q4 1993 up to Q4 2011. The sample includes observations up to the period before the categorization was changed beginning from 2012. Method/Tools: Regression analyses are conducted to examine the effects of government debt and the growth of banking sector on the development of the domestic bond market. The ARDL approach is used to screen for possible long-run relationships between the variables. Findings: We find that a dominant banking sector complements development of the government bond market. It, however, impacts the corporate bond market negatively. Over-concentration of power in large banks does not augur well for both bond markets, but this impact disappears as the bond markets develop. Persistent fiscal deficits, resulting in the growth of the government bond market, do not result in crowding-out of the corporate bond market. Contributions: Our findings suggest that efforts to boost domestic bond market development must take cognizance of the possible complementary and competing roles between the two bond markets and the banking sector.


Capital Markets Review Vol. 30, No. 2, pp. 19-37 (2022)

Asymmetric Real Exchange Rate and Foreign Direct Investment Determinants: An Empirical Study of Malaysia

Hock Tsen Wong1
1Faculty of Business, Economics & Accountancy, Universiti Malaysia Sabah, Malaysia.

Abstract: Research Question: This study examines the impact of macroeconomic variables and also the asymmetric impact of the real exchange rate on foreign direct investment (FDI) by country in Malaysia, namely Japan, the United States of America, Singapore, Germany Taiwan, Korea, Australia, the United Kingdom, Hong Kong and India. Moreover, this study investigates macroeconomic determinants of FDI of those countries as a group in Malaysia. Motivation: The promotion of FDI shall consider potential heterogeneous of FDI from different country as the source or type of FDI likely different from country. Idea: There are not many studies investigate the asymmetric impact of the real exchange rate on FDI. Data: The data is yearly from 1980 to 2017, except for Korea the data is from 1981 to 2017 due to the availability of the data begins from 1981. Method/Tools: The importance of macroeconomic variables as FDI determinants by country in Malaysia is examined by the autoregressive distributed lag model (ARDL) approach. Conversely, the importance of macroeconomic variables as FDI determinants of those countries as a group in Malaysia is estimated by the system generalized method of moments (GMM) of the Arellano-Bond estimator. Findings: The results of the autoregressive distributed lag model (ARDL) approach show the determinants of each country are not the exactly the same. The results of the non-linear autoregressive distributed lag model (NARDL) approach shows that there is some evidence of the asymmetric impact of the real exchange rate on FDI in the long run and short run. The results of the system generalized method of moments (GMM) of the Arellano-Bond estimator reveal that the real exchange rate, positive real exchange rate, negative real exchange rate, real national income, trade openness and real average wage are found to be the main macroeconomic determinants of FDI from Japan, the United States of America, Singapore, Germany Taiwan, Australia, the United Kingdom, Hong Kong and India. Contributions: The implications for policymakers are to promote a dynamic competitive advantage in the home country and therefore policymakers need to pay more attention to their macroeconomic policies to reduce production and transaction costs of FDI.


Capital Markets Review Vol. 30, No. 2, pp. 39-61 (2022)

Actively Managed ETFs: A Performance Evaluation

Gerasimos Georgiou Rompotis1
1Department of Economics, National and Kapodistrian University of Athens, Greece.

Abstract: Research Question: The current study examines whether actively managed Exchange Traded Funds (ETFs) in the United States can beat the market. The market timing skills of ETF managers are evaluated too. Motivation: This study has been motivated by the recent increased interest of investors in actively managed ETFs. This interest has been answered by the creators of active ETFs via the launch of several of such products over the last couple of years. As a result, significant money has flown into active ETFs during the last two years, and especially in 2021. Idea: In other words, by examining the latest return data of active ETFs, we try to confirm whether the recent growth in the active ETF market has been driven by material performance records of these funds. Data: The performance of 50 U.S. equity actively managed ETFs is examined over the period 1/1/2018 – 31/12/2021. Method/Tools: Standard methodology including single-factor market model and the Fama-French-Carhart four- and six-factor models is used. Findings: The findings are in line with previous evidence in the literature. Active ETFs fail to achieve any material above market return. In addition, it is shown that the Fama-French-Carhart factors are material in explaining the performance of the examined ETFs. Finally, the managers of active ETFs do not seem to possess any superior market timing skills. Contributions: When it comes to the contribution of this study, we note that we use the most recent data than any other known study in the literature. Moreover, based on methodology found in the literature on traditional mutual funds, we consider several factors in assessing the performance of active ETFs than just the market index, which is frequently the case in similar studies. Finally, market timing skills are assessed via an enhanced set of regression models. All the above enhance our knowledge about the failure of active ETFs to beat the market and to compete their passive peers.


Capital Markets Review Vol. 30, No. 2, pp. 63-89 (2022)

Digital Cashless Payments and Economic Growth: Evidence from CPMI Countries

Yi-Xun Pang1, Sin-Huei Ng1 & Wei-Theng Lau2
1School of Economics and Management, Xiamen University Malaysia, Malaysia.
2School of Business and Economics, Universiti Putra Malaysia, Malaysia.

Abstract: Research Question: This paper aims to investigate the relationships between digital payments and economic growth in 27 CPMI countries. Besides, it also studies the comparison of the impacts of digital payments between developed and developing countries. Motivation: Digital cashless payments have been widely discussed in recent years and the penetration of cashless payments around the globe is rising exponentially throughout the decade. Several studies have found that cashless payments have a positive impact on economic growth. However, the existing studies are mainly focusing on the European countries. Committee on Payments and Market Infrastructures (CPMI) is a new area to be explored because it consists of some countries that are seldom being investigated in the related fields previously. Idea: Analysis consists of GDP growth as the variable of interest and transaction volumes of debit cards, credit cards and e-money payments as the explanatory variables. Several control variables are used to capture other effects in the model. Data: Data are collected from various sources of database for the period of 2013-2019 covering a total of 27 countries/regions which consist of 18 developed countries and 9 developing countries in the CPMI membership. Method/Tools: This paper employs a fixed effect panel data model to analyse the relationship between digital payments and economic growth in (1) all CPMI countries, (2) developed CPMI countries, (3) developing CPMI countries. A comparative analysis is also performed between the developed and developing CPMI countries. Findings: Our findings are in line with the expectation, where all three digital payments are positively correlated to economic growth. However, only the e-money payment is statistically significant to the economic growth. Besides, the findings also indicate that the effects of digital payments on the developed economies are greater than the developing economies. Contributions: CPMI members have put in considerable efforts in facilitating cashless payments. The analysis of the relationship between digital cashless payments and economic growth in CPMI countries provides a review on the effectiveness of the initiatives taken by the member countries. Our findings are expected to offer some new insights related to digital cashless payments and contribute to the modern financial sector.


Capital Markets Review Vol. 30, No. 2, pp. 91-106 (2022)

Efficiency and Competition in QISMUT Banking Sector

Noor Shazreen Mortadza1 & Rossazana Ab-Rahim1
1Faculty of Economics and Business, Universiti Malaysia Sarawak, Malaysia.

Abstract: Research Question: Theoretically, the rapid growth of the banking sector fosters competition and eventually competition influences the efficiency performance of the banks. The issue that we would like to highlight, whether efficiency and competition are interrelated in the QISMUT banking sector. Motivation: In the context of QISMUT, these countries recorded 80 percent of shares of the global Islamic banking industry (Ernst and Young, 2014). Due to the rapid growth of Islamic banks in QISMUT, it is important for them to operate efficiently in their performance to compete with conventional banks. Hence, this study aims to assess the nexus of efficiency and competition of QISMUT (Qatar, Indonesia, Saudi Arabia, Malaysia, United Arab Emirates and Turkey) banking sector. Interestingly, there is no study related to investigating the nexus of efficiency and competition of the QISMUT banking sector. Idea: Competition and efficiency are important as it is reflecting the performance of the banking sector. Since competition causes the banks to perform better in terms of efficiency. It can be seen that there is a relationship between competition and efficiency. Data: The period of the data is from 2006 to 2016. It consists of 60 conventional and 32 Islamic banks. Method/Tools: The measurement to measure the efficiency is Data Envelopment Analysis (DEA) whilst for the competition, Lerner Index is used. In order to test the relationship between competition and efficiency, the Generalized Method of Moments (GMM) is employed due to its advantages such as overcoming the endogeneity problem. Findings: The findings indicate Islamic banks are more efficient than conventional banks in QISMUT. The results also show there is an insignificant competition-efficiency whereas efficiency-competition is significant for the conventional banking sector in QISMUT. The results imply that the banking authorities should monitor the conventional banking sector as the finding shows a high concentration compared to Islamic because these countries aim to become an Islamic international financial hub. Contributions: This study contributes to the new evidence of QISMUT banking sector regards on efficiency, competition and the impact of banks-specific variables.



Updated on 1 October 2022