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Jurnal Ekonomi Malaysia

57 (1) 2023 33 – 47

Risk-Averse Behaviour in Emerging Markets: The Role of Economic Indicators, Bank Characteristics and Developed Markets

City Graduate School
City University Malaysia
Menara City U, No. 8, Jalan 51A/223
46100 Petaling Jaya, Selangor, MALAYSIA.

kokloangooi94@hotmail.com

Abstract

This study aims to examine the impact of economic indicators and bank characteristics on investors’ risk-averse behaviour in emerging countries. It further analyses the influence of the developed markets on the risk-averse behaviour of the emerging markets. This study specifically explores the tendency of risk-averse behaviour among investors, as described in the Prospect theory. Using India, Indonesia, Malaysia and China as the sample countries over the 2010-2021 period, this study employs panel data regression with excess return, three-factor alpha, five-factor alpha and six-factor alpha models for robustness testing.  The results showed that the economic indicators, namely IMF growth forecast, GDP growth rate, and real interest rate significantly impact risk-averse behaviour. Bank characteristic of non-performing loans also explains risk-averse behaviour. In addition, the US as a developed market is significantly correlated with investors’ behaviours in emerging markets. The results of the quantile regression showed that Malaysian investors have the highest tendency towards risk-averse behaviour, followed by Indonesia, China and India. This study may assist regulators, policymakers and practitioners in determining the tendency of risk-averse behaviour. The respective parties should regularly monitor, control and regulate investors’ risk aversion as the contagion effect of extreme irrational behaviour can lead to market crash and financial crisis.

Keywords

bank characteristics; emerging market; Investors’ reaction; prospect theory; risk-averse

JEL Codes

E58, E70, F30, G40
Jurnal Ekonomi Malaysia http://dx.doi.org/10.17576/JEM-2023-5701-04
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Loang, Ooi Kok (2023). Risk-Averse Behaviour in Emerging Markets: The Role of Economic Indicators, Bank Characteristics and Developed Markets. Jurnal Ekonomi Malaysia, 57(1), 33–47. Jurnal Ekonomi Malaysia http://dx.doi.org/10.17576/JEM-2023-5701-04

@article{loang2023risk,
  title={Risk-Averse Behaviour in Emerging Markets: The Role of Economic Indicators, Bank Characteristics and Developed Markets},
  author={Loang, Ooi KokLoang, Ooi Kok},
  journal={Jurnal Ekonomi Malaysia},
  volume={57},
  number={1},
  pages={33—47},
 

year={2023},
}

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