The present study examined how volatility in exchange rates shapes banking-sector financial stability across the G7 and six high-income European countries, consisting of 13 developed economies. The study analyses the time period from 2000 to 2023. To measure volatility, the present study employed the GARCH(1,1) conditional variance of monthly real effective exchange rates. Stability is measured through the following two supporting indicators: Bank Z-score (solvency) and Non-Performing Loan (NPL) ratio (credit quality). Our analysis combines the Fully Modified OLS and two-step System GMM for analysing long-run and dynamic effects. To assess distributional heterogeneity, Method of Moments Quantile Regression (MMQR) is employed, while Dumitrescu–Hurlin tests are used for examining causality. The results show that volatility in exchange rates significantly reduces bank solvency and elevates credit risk. These effects are highly uneven: the adverse impact falls on the most fragile banking systems—those in the lower quantiles of the Z-score distribution and the upper quantiles of the NPL distribution. Causality runs unidirectionally, moving from volatility to instability. Institutional quality, which is proxied by the rule of law and regulatory quality, is seen to significantly decrease the credit-risk channel but not the solvency channel. Our findings provide implications for developed economies and support targeted, fragility-sensitive macro-prudential policy.
This study investigates the impact of real effective exchange rate (REER) volatility on foreign direct investment (FDI) inflows in three major Central and Eastern European (CEE) economies—Hungary, Poland, and Romania—using quarterly data spanning from 2007-Q1 to 2024-Q4. The exchange rate volatility is modeled using a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) framework, and country-specific relationships are estimated through Autoregressive Distributed Lag (ARDL) bounds testing and Toda–Yamamoto causality analysis. Our research indicates that a uniform relationship does not exist across the region. In Hungary, the utilization of directional FDI data excluding Special Purpose Entities (SPEs), in conjunction with structural breaks and quarterly seasonal controls, reveals a statistically significant nonlinear (inverted U-shaped) relationship between long-run exchange rate volatility and FDI inflows. In addition, domestic financial development exerts a substantial buffering effect on the transmission of volatility in Hungary by bypassing SPE flows that previously obscured this effect. In Poland and Romania, a stronger currency consistently discourages investment by reducing cost competitiveness. Romania shows a distinct pattern: volatility initially attracts FDI, and while deeper financial markets meaningfully dampen this effect, the net relationship remains positive, unlike Hungary, where sufficiently deep credit markets fully reverse it. These results suggest that policymakers should look beyond short-term exchange rate stabilization and instead prioritize structural reforms, competitive exchange rate levels, transparent FDI reporting standards, and deeper domestic financial markets to sustain FDI inflows.
Fatima Kobeissy, Sandor J. Kovacs, L. Nádasi· Economies· 0 citations
This study examines the effects of economic policy uncertainty (EPU) on three dimensions of financial market dynamics—stock market returns, stock market volatility, and exchange rate volatility—across 15 G20 economies over the period 2006 Q1–2024 Q4. Employing a rigorous second-generation panel econometric framework that accounts for cross-sectional dependence and slope heterogeneity, we apply the Common Correlated Effects Mean Group (CCEMG) and Augmented Mean Group (AMG) estimators as primary estimators, complemented by cross-sectionally augmented ARDL (CS-ARDL) for short- and long-run dynamics and the Method of Moments Quantile Regression (MMQR) for distributional analysis. EPU is significantly associated with lower stock market returns, particularly in advanced economies and at lower quantiles of the return distribution. The impact of EPU on stock market volatility is not strong for mean-based estimators even when global uncertainty (VIX) is controlled for, and global fear dominates domestic policy uncertainty as a driver of volatility. Exchange rate volatility is positively and significantly associated with EPU, particularly in higher-volatility regimes. Subgroup analysis shows that EPU–return effects are stronger in advanced economies, but EPU–exchange rate volatility responses are stronger in emerging markets. These results have important implications for portfolio allocation, hedging strategies and macroprudential policy decisions in G20 economies.
Batuhan Karabiber· Journal of Risk and Financia...· 0 citations
Banking-equity returns in emerging markets may change markedly between calm and stressed periods. This study examines structural instability in the daily returns of South Africa's five largest listed banks: Standard Bank, FirstRand, Absa, Nedbank, and Capitec.
Daily closing prices from the IRESS Research Domain dataset cover 27 January 2016 to 23 January 2026. Absolute and squared log returns measure changes in typical return magnitude and volatility intensity. The empirical framework combines the Zivot–Andrews unit-root test, Bai–Perron multiple-break estimation, the robust ICSS κ
2
variance-stability test, common banking-factor analysis, post-estimation regime characterization, break clustering, and placebo and no-break comparisons. All empirical analyses were implemented using Python 3.12.4 (Python Software Foundation, Wilmington, Delaware, USA), distributed through Anaconda, on a 64-bit Windows 11 operating system.
Every bank exhibits breaks in absolute and squared returns. The strongest clustering occurs in February and March 2020, with further clustering in September and November 2020. FirstRand records the most absolute-return breaks, whereas Standard Bank and Nedbank record the most squared-return breaks. The robust ICSS κ
2
test rejects unconditional variance stability for Standard Bank, FirstRand, Absa and Nedbank, but not for Capitec. Several breaks remain after common banking movements are removed, indicating heterogeneous bank-level adjustment. Additional transformed-return breaks occur in 2016–2018 and 2022.
Structural instability is multidimensional and depends on the risk proxy examined. Breaks in return magnitude and volatility intensity are accompanied by statistically supported unconditional-variance shifts for four of the five banks, while Capitec shows transformed-return breaks without a confirmed robust variance shift. The findings support bank-specific, break-aware risk monitoring and caution against treating all forms of instability as equivalent.
Mojaesi Vincent Kometsi, R. Chifurira, Knowledge Chinhamu· Frontiers in Applied Mathema...· 0 citations
This study examines the internal and macroeconomic determinants of stock price volatility in Indonesian digital banks and distinguishes their long-run and short-run effects. Monthly secondary data for 2019-2022 were compiled for five digital banks listed on the Indonesia Stock Exchange: Bank Jago, Allo Bank Indonesia, Bank Neo Commerce, Bank MNC Internasional, and Bank Raya Indonesia. The determinants were leverage, firm size, trading volume, earning volatility, inflation, and the policy interest rate. An Error Correction Model (ECM) was estimated in EViews 10 after Augmented Dickey-Fuller stationarity testing and Johansen cointegration testing. In the long run, firm size (beta=-2.76×10^-7; p=0.0116) and trading volume (beta=-5.92×10^-10; p=0.0282) were negatively associated with stock price volatility, while the interest rate had a positive effect (beta=2.687645; p=0.0007). Leverage, earning volatility, and inflation were not significant. In the short run, only the interest rate was significant and positive (beta=6.696431; p<0.001). The error-correction coefficient was negative and significant (ECT=-0.890171; p<0.001), indicating rapid adjustment toward long-run equilibrium. Stock price volatility in Indonesian digital banks is more consistently related to monetary conditions than to the selected firm-specific indicators in the short run, while firm size and trading activity become relevant over longer horizons.
Annisa Mawardah Novianty, Peni Sawitri· International Journal of Sci...· 0 citations
This study analyses the short-run and long-run effects of monetary policy and other critical macroeconomic determinants on Lao's exchange rate, namely money supply, international reserves, real output growth, and domestic inflation, adding to the understanding of currency stabilization in a developing, dollarized, and import-dependent economy. Through the Autoregressive Distributed Lag (ARDL) approach, this study examines secondary sources of data from the World Development Indicators (WDI) and the Asian Development Bank (ADB) from 2000 to 2023. Unit root and bounds testing indicate the presence of cointegration, thus confirming the ARDL method. The diagnostic testing (CUSUM, CUSUMSQ) ensures stability and robustness of the model. The findings revealed that money supply (M2) depreciates the exchange rate while international reserve stabilizes and appreciates the exchange rate. GDP growth and inflation depreciate the exchange rate in the long run. The ECT reveals rapid short-run re
turns to equilibrium, reflecting the efficient responsiveness of policy. This paper does so in the context of our regional focus on the Lao economy, using a dynamic analysis to identify key but hitherto under-researched determinants of exchange rate dynamics in developing countries. It adds to the monetary policy literature by emphasizing structural challenges such as dollarization and import dependence. Policymakers must regulate money supply growth, build up foreign reserves, and use inflation targeting to stabilize the exchange rate. It is also suggested that sustainable GDP growth strategies and export diversification be pursued to ensure the currency's stability.
The financial performance of banks is critical to financial system stability and economic
development, particularly in emerging economies where banks operate under volatile
macroeconomic conditions and elevated credit risk. Despite extensive empirical evidence, the
determinants of bank profitability remain inconclusive, prior studies relied on relatively short
observation periods, and examined credit risk and bank-specific characteristics independently.
This study investigates the joint effects of bank characteristics and credit risk on the financial
performance of Tier-1 Deposit Money Banks in Nigeria from 2000 to 2025 using a balanced panel.
Financial performance was measured using return on assets (ROA) and return on equity (ROE),
while panel regression analysis was estimated using a fixed-effects model selected through the
Hausman specification test. The findings reveal that non-performing loans significantly reduce
profitability by ROA 0.084% and ROE 0.614%, while the cost efficiency ratio also exerts a
significant negative effect (ROA: 0.031%; ROE: 0.258%). Conversely, capital adequacy ratio,
loan-to-deposit ratio and bank size positively and significantly enhance financial performance.
Average lending rate and bank age have statistically insignificant effects on profitability. The study
contributes to the banking literature by providing long-term evidence on the combined influence
of credit risk and bank-specific characteristics within an integrated empirical framework, while
extending the application of Portfolio Theory and Credit Risk Theory to Nigeria's banking sector.
The findings imply that strengthening credit risk management, maintaining adequate
capitalization, improving operational efficiency, and sustaining prudent lending and liquidity
management are essential for enhancing bank profitability, financial resilience, and the stability
of the Nigerian banking industry.
Unknown authors· IIARD INTERNATIONAL JOURNAL...· 0 citations
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