Googling Investor’s Sentiment: Powerful Measure in Conventional and Islamic MENA Financial Markets

ABSTRACT

The objective of this paper is to investigate whether investors' sentiment measured by the Internet search behavior constitutes a valid measure of investor’s sentiment on Islamic and conventional indexes of emerging and frontier financial markets in MENA countries. In fact, we examine the relation between googling investor’s sentiment and monthly Islamic and conventional index returns during the period 2004–2016. Using the Dynamic Conditional Correlation, the BEKK-GARCH and the wavelet coherence models, we confirm that googling investor’s sentiment is a perfect indicator of investor’s sentiment measure. Indeed, we find that this measure has the ability to reflect major events such as subprime financial crisis, oil crisis and Arab spring revolution affecting MENA Islamic and conventional index markets. Our finding indicates that investors can use googling investor’s sentiment as an indicator to predict returns and volatility of emerging and frontier markets since it reflects the behavior and emotions of investors in MENA financial markets.     

Cost-efficiency and financial and geographical characteristics of banking sectors in the MENA countries

We utilize the translog stochastic frontier model to estimate the cost-efficiency levels for conventional and Islamic, Cooperation Council (GCC) and non-GCC banks in the Middle East and North African (MENA) countries. The estimated cost-efficiency averages around 77% for those MENA banks, but with slight changes in this score for the individual countries. The results also show that the banks in the GCC countries are the most efficient in the region and the efficiency scores for the conventional and Islamic banks are similar. Finally, the recent financial crisis seems to have a slight impact on the observed efficiency scores of those banks.     

Risk sharing in the Middle East and North Africa

This study investigates welfare gains and channels of risk sharing among 14 Middle Eastern and North African (MENA) countries, including the oil‐rich Gulf region and the resource‐scarce economies such as Egypt, Morocco and Tunisia. The results show that for the 1992–2009 period, the overall welfare gains across MENA countries were higher than those documented for the Organization for Economic Cooperation and Development (OECD) nations. In the Gulf region, the amount of factor income smoothing does not differ considerably when output shocks are longer lasting rather than transitory, whereas the amount smoothed by savings increases remarkably when shocks are longer lasting. In contrast, both factor income flows and international transfers respond more to permanent shocks than to transitory shocks in the non‐oil MENA countries. The results also show that a significant portion of shocks is smoothed via remittance transfers in the economically less‐developed MENA countries, but not in the oil‐rich Gulf and OECD countries. Finally, for the overall MENA region, a large part of the shock remains unsmoothed, suggesting that more market integration is needed to remedy the weak link of incomplete risk sharing.     

Does oil substitute for patriarchy?

Critics of Ross's (American Political Science Review, 102, 2008, 107) gendered resource curse thesis argue that culture trumps oil wealth as a determinant of female labor force participation (FLFP). Here, I argue that, while cultural attributes do indeed affect the female labor supply, oil wealth reduces the demand for female labor by hurting the export‐oriented industries that employ female labor intensively. By reducing the demand for female labor in this way, oil wealth undermines the positive effect of gender egalitarianism on FLFP. Thus, oil curses women. Using data from the World Values Survey and the World Bank, I find support for the argument.     

FEMALE LABOUR FORCE PARTICIPATION AND RELIGION: A CROSS‐COUNTRY ANALYSIS

This paper empirically examines whether female labour force participation (FLFP) in a cross‐section of countries between 1985 and 2005 varies depending upon the religion practised in these countries. Using a cross‐sectional empirical specification, we initially find that FLFP is lower in Muslim countries. However, the association between Islam and FLFP greatly diminishes once other controls are included in the regression, suggesting that Islam might not diminish FLFP as some have argued. Moreover, once these additional controls are included, the association between Islam and FLFP is similar to that between Catholicism and FLFP. Countries where Protestantism is prevalent or where no religion is practised have higher FLFP. Finally, we find some evidence that the association between FLFP and religion is weakening over time.     

Predicting FDI inflows: Exploring a nonlinear relationship between peace years,oil wealth,and the rule of law

Despite previous studies investigating the impacts of various factors such as peace years, natural resources, and the rule of law on foreign direct investment (FDI), empirical findings remain inconclusive. Therefore, this study investigates the interplay between these factors in shaping host country conditions that facilitate FDI inflows. Using generalized additive models, we examine the simultaneous effects of peace years, oil wealth, and the rule of law on FDI inflows in a sample of non-OECD countries from 1970 to 2009. Our results reveal that established peace is a critical factor in attracting FDI inflows for both oil-exporting and non-oil-exporting countries. However, the effects of the rule of law vary depending on oil wealth. Oil-exporting countries receive more FDI inflows when they have a weak rather than a strong rule of law, while non-oil-exporting countries tend to receive more foreign investments when they have a moderately strong rule of law. We argue that countries with oil wealth combined with a moderately weak rule of law provide an environment that is conducive to multinational corporations (MNCs) in extractive industries seeking monopoly rents. Conversely, countries without oil wealth should create stable yet efficient environments that protect property rights and promote labor market flexibility to appeal to non-resource-seeking MNCs.     

Democracy,Geography and Model Uncertainty

We analyse the nature of robust determinants of differences in democracy levels across countries taking explicitly into account uncertainty in the choice of covariates and spatial spillovers. We make use of recent developments in Bayesian model averaging to assess the effect of a large number of potential factors affecting democratisation processes and account for several specifications of spatial linkages. Our results indicate that spatial spillovers are present in the data even after controlling for a large number of geographical covariates. Addressing the determinants of democracy without modelling such spillovers may lead to flawed inference about the nature of the determinants of democratisation processes. In particular, our results emphasise the role played by Muslim religion, population size, trade volumes, English language, natural resource rents, GDP per capita, being a MENA country and the incidence of armed conflicts as factors affecting democracy robustly.     

Demographic change and economic growth: The role of natural resources in the MENA region

This paper analyses the conditional effect of demographic change on economic development in the MENA region. We employ fixed-effects panel analysis on data from 19 countries in the region and demonstrate a negative impact of natural rents on the relationship between the working-age population and economic growth. Once the critical level of approximately 16% of resource rents (as share in total GDP) is reached, a one-unit increase in working-age population appears to harm economic growth. Further tests show that this finding is mainly driven by the negative effects of resource rents on female labor force participation. However, other drivers are a large public sector, low private sector development and inefficient labor market policies and issues such as the “Dutch disease”. The main finding remains after robustness checks in the form of controlling for competing hypotheses. Policy makers are advised to encourage economic diversification, female employment and private sector development.     

Corruption and natural resource rents: evidence from quantile regression

This study examines the impacts of oil rents on corruption for 157 countries. While existing studies have primarily focused on average effects, we employ quantile regression to estimate the effects of natural resource abundance for different corruption levels. We consider the effects of natural resource rents, mainly oil rents and then compare them with those of total and non-oil natural resources rents. The estimation results show that, generally, more oil rents increase corruption. Specifically, impacts are larger in countries with an intermediate level of corruption and smaller in highly corrupt countries. While total resource rents increase corruption significantly, non-oil resource rents do not. This may be due to non-oil resource rent management (mainly inland) being more subject to public scrutiny. Non-oil natural resources are concentrated in the less-developed sub-Saharan African countries, where corruption is prevalent; therefore, the impacts of natural resource rents are unremarkable.     

Exchange Rates and Stock Prices in the MENA Countries: What Role for Oil?

This paper considers the linkage between stock prices and exchange rates in four MENA (Middle East and North Africa) emerging markets. In contrast to the existing evidence that uses a global market index to uncover such a relationship it is found that for the sample countries oil prices emerge as the dominant factor in the above relationship. The paper considers the presence of regime shifts and evidence is found of cointegration only for the period following the 1999 oil price shock. Readjustment towards equilibrium in each stock market occurs via oil price changes. Finally, a number of robustness checks are performed and persistence profiles produced.     

Oil rents, corruption, and state stability: Evidence from panel data regressions

We examine the effects of oil rents on corruption and state stability exploiting the exogenous within-country variation of a new measure of oil rents for a panel of 30 oil-exporting countries during the period 1992–2005. We find that an increase in oil rents significantly increases corruption, significantly deteriorates political rights while at the same time leading to a significant improvement in civil liberties. We argue that these findings can be explained by the political elite having an incentive to extend civil liberties but reduce political rights in the presence of oil windfalls to evade redistribution and conflict. We support our argument documenting that there is a significant effect of oil rents on corruption in countries with a high share of state participation in oil production while no such link exists in countries where state participation in oil production is low.     

Institutional Quality and Public Debt Accumulation: An Empirical Analysis

The question of public debt management for both developed and developing economies has generated an enormous amount of political as well as academic interest. This study examines how governance affects public debt accumulation in the MENA countries during the 1996–2015 period. The six Worldwide Governance indicators (voice and accountability, political stability and the absence of violence/terrorism, government effectiveness, regulatory quality, rule of law and control of corruption) were used to measure the quality of governance in these countries. The results show that only three governance indicators support well the hypothesis that poor governance leads to higher accumulation of MENA public debt. Moreover, the estimates suggest a significant indirect impact of bad governance operating via decreased GDP growth. These findings have important implications for policy makers of these countries, which are currently facing major fiscal and external imbalances due to the high cost of war and terrorist attacks, low oil prices and a decline in trade. Sound public debt management represents an urgent task especially that public debt management problems often find their origins in the lack of attention paid by policymakers to the costs of bad governance and weak macroeconomic management.     

Bank overall financial strength: Islamic versus conventional banks

A number of recent studies compare the performance of Islamic and conventional banks with the use of individual financial ratios or efficiency frontier techniques. The present study extends this strand of the literature, by comparing Islamic banks, conventional banks, and banks with an Islamic window with the use of a bank overall financial strength index. This index is developed with a multicriteria methodology that allows us to aggregate various criteria capturing bank capital strength, asset quality, earnings, liquidity, and management quality in controlling expenses. We find that banks differ significantly in terms of individual financial ratios; however, the difference of the overall financial strength between Islamic and conventional banks is not statistically significant. This finding is confirmed with both univariate comparisons and in multivariate regression estimations. When we look at the bank financial strength within regions, we find that conventional banks outperform both the Islamic banks and the banks with Islamic window in the case of Asia and the Gulf Cooperation Council; however, Islamic banks perform better in the MENA and Senegal region. Second stage regressions also reveal that the bank overall financial strength index is influenced by various country-specific attributes. These include control of corruption, government effectiveness, and operation in one of the seven countries that are expected to drive the next big wave in Islamic finance.     

How does female labor force participation impact on housing values?

Female labor force participation (FLFP) and household wealth are two main topics of interests to economists for long time. The objective of this study is to investigate the response of housing values, household wealth, to female labor force participation using panel level data in the U.S. states. We develop static and dynamic estimation models using state-level data in the U.S. from 2005 to 2013. The results show the FLFP rate and per capita income have a strong positive effect on housing values, while the number of units per capita has a negative effect on housing values in the state. We find that a 10% increase in FLFP will result in an increase of about 12.5% on housing values. Additionally, increasing per capita income by 10% on average will cause housing values to rise by 9%, however, a 10% rise in the number of units per capita will decrease housing values by 30%. The results assist economists and policy makers in assessing policies to optimize decisions in labor market and housing market.     

Temporal causality and the dynamics of judicial appellate caseload,real income and socio-economic complexity in Australia

This paper shows that, during the 1970s and 1980s, MENA economies were characterized by a significant overvaluation of their currency. This overvaluation has had a cost in terms of competitiveness. To determine the degree of overvaluation of the MENA currencies, an indicator of misalignment was developed based on the estimation of an equilibrium exchange rate (Edwards, Exchange Rate Misalignment in Developing Countries, The Johns Hopkins University Press, Baltimore, 1988). The empirical work was based on a panel of 53 developing countries, ten of which are MENA economies. Although overvaluation decreased in the 1990s, probably due to flexibilization of the exchange rate regime in some MENA countries and to better macroeconomic management in others, misalignment remained higher than in other regions. This may be explained by the MENA countries’ delay in adopting more flexible exchange rates, as well as in reforming their economies. In terms of competitiveness, the estimation of an export equation has shown that manufactured exports have been significantly affected by the overvaluation of the MENA currencies. Countries that already had a more diversified economy benefited more from the decreased overvaluation in the 1990s. These countries also saw a continuous rise in diversification of their manufactured exports, resulting from the significant decline in exchange rate misalignment.     

Against the Wind: Labor Force Participation of Women and Economic Instability in Iran

In the last three decades, Iranian women's educational attainment has continuously increased while their fertility rate has fallen rapidly. Yet in spite of these developments, which in many countries have a positive effect on women's labor force participation, female labor force participation (FLFP) rates have remained at low levels. This paper argues that despite its overall static trend, FLFP of some Iranian women responded to economic pressures induced by macroeconomic instabilities. Looking at the Iranian economic crisis of 1994–5, the study shows that, controlling for individual fixed effects, married women in rural areas and never-married women in urban areas increased their participation rate by as much as 38 percent. No change in hours worked was found for any group of women. The differences in responses and their underlying reasons have policy implications for many developing countries.     

Political transition and bank performance: How important was the Arab Spring?

Using data for 2000–2012, the article utilizes the natural experiment of the Arab Spring to examine its impact on the risk and returns of MENA banks. The analysis indicates that the Arab Spring lowered bank profitability by roughly 0.2% and raised bank risk by 0.4% points. As well, the evidence appears to suggest that there were no differential effect of the political conflict on the performance and stability of Islamic banks.     

Financial Development Impact on Firm Dynamic Creation: Panel Data Evidence on MENA Countries

Using a panel of 14 MENA countries, this paper investigates and examines whether financial development trains a substantial effect on entrepreneurship development by facilitating the rise of new firms. Generalized Two-Stage Least Squares estimate results with instrumental variables highlight the relevance of developed financial systems for the creation of new firms. In overall, financial development and its component explained by the institutional quality exert a positive and significant effect on new entry density in oil MENA countries compared to non-oil ones.     

Islamic constitutionalism and rule of law: a constitutional economics perspective

This study investigates the relationship between Islamic constitutionalism and rule of law. Al Azhar, one of the most respected Sunni religious institutions in the world, developed a model of an Islamic constitution. This study uses Al-Azhar’s constitution as a model of Islamic constitutionalism and examines its stance in regard to the rule of law. We find the Al-Azhar’s constitution to be incompatible with essential concepts of rule of law. For example, the powers vested in the head of the Islamic state are enormous, making the executive branch of government far superior to the legislative and judicial branches. Women and non-Muslims are explicitly discriminated against throughout the constitution. Moreover, laws stemming from this constitution are not stable since many differences exist among schools of Islamic jurisprudence (fiqh). Consequently, we show that state-of-the-art Islamic constitutionalism lacks essential components needed in any constitution based on rule of law.     

Measuring resource scarcity in non-renewable resource with an application to oil and natural gas in Alberta

In this paper annual Canadian exploration data are used to estimate a multiple-output translog exploration cost function. A new definition of depletion is introduced and its estimated coefficient is found to be statistically significant. The fitted cost function parameters are then used to obtain estimates of the marginal costs of exploration for oil and gas. Our estimated marginal exploration costs are smaller than in previour studies because we have allowed for technical progress which offsets the depletion effects. These marginal cost estimates are employed, along with previous estimates of exploration rents, to measure resource scarcity. We find some evidence for the increased scarcity of oil and gas in Alberta. For oil there is a 10.1% per year increase in scarcity along the trend line while for natural gas there is a 2.4% per year increase in scarcity along the trend line.