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Risk Avoidance, Macroeconomic Indicators and Bank Performances in Developing Economies

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  • Ooi Kok Loang

    (Department of Finance, Faculty of Business and Economics, Universiti Malaya, 50603 Kuala Lumpur, Malaysia)

Abstract

This study examines the impact of macroeconomic indicators and bank performance on investor risk avoidance in developing economies, with a focus on India, Indonesia, Thailand and China. Furthermore, this study investigates investors’ propensity for risk avoidance in these markets using prospect theory. Macroeconomic indicators such as the IMF’s growth forecast, GDP growth rate and real inflation rate significantly influence risk avoidance, and nonperforming loans are the only bank performance factors that explain this behavior. The quantile regression analysis shows that Thai investors have the highest level of risk avoidance, followed by investors from China, Indonesia and India, in descending order. This study offers a novel contribution by examining how nonperforming loans and inflation uniquely influence investor risk avoidance in developing economies. The results of this study are essential for regulators, policymakers and practitioners to understand the factors that influence risk avoidance market behavior. This study provides insights that can be used to create effective regulatory frameworks and risk management strategies by shedding light on the factors that contribute to risk avoidance.

Suggested Citation

  • Ooi Kok Loang, 2024. "Risk Avoidance, Macroeconomic Indicators and Bank Performances in Developing Economies," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-30, December.
    • Handle: RePEc:wsi:afexxx:v:19:y:2024:i:04:n:s2010495224500180
    DOI: 10.1142/S2010495224500180
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    More about this item

    Keywords

    Risk avoidance; developing markets; macroeconomic indicators; bank performances; prospect theory;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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