This study evaluates the Adaptive Market Hypothesis (AMH) in the Nepalese stock market using daily index returns from July 1995 to February 2025, representing nearly three decades and the longest high-frequency analysis of the market to date. Comprehensive efficiency diagnostics reveal clear time-varying dynamics: persistent inefficiency from 1999 to 2019 is followed by emerging signs of efficiency from 2021 to 2025, coinciding with financial digitization and regulatory reforms. Employing GARCH and Markov-switching models, the results indicate highly persistent volatility (α + β ≈ 0.90) and the presence of two distinct volatility regimes. Low-volatility states persist for approximately 15 trading days, whereas high-volatility episodes last around 9 days, and are associated with major macroeconomic shocks, including the 2015 earthquake and the COVID-19 pandemic. Unlike developed markets, NEPSE does not exhibit a statistically significant leverage effect (γ₁ = 0.0279, p =0.120), suggesting symmetric volatility responses to positive and negative shocks. These findings contradict the assumption of static market efficiency and provide empirical evidence in support of the AMH’s prediction of evolving efficiency in emerging markets. The results carry important implications for regime- dependent investment strategies and countercyclical regulatory policies during high-volatility states.
Reliable projection of government bond markets is crucial for effective public debt management, development financing, and reducing rollover risks. In Nepal, bond markets serve as a key instrument for mobilizing resources, yet their future trajectories remain under explored despite their growing role in fiscal planning. This study investigates the mathematical exploration and computational performance of time series models ARIMA, RNN, and LSTM are applied to the government bonds of Nepal. The analysis examines trends, seasonal patterns, and trajectories using descriptive statistics to capture underlying market behaviors. An optimal ARIMA order was identified to effectively capture the linear growth path, while the RNN demonstrated strong capability in learning nonlinear patterns and outperformed the other models in predictive accuracy on un seen data. In contrast, the LSTM model, constrained by the limited size of the dataset, showed weaker generalization despite achieving comparable or lower training errors. The results highlight that Nepal’s bond market is characterized by a steady trajectory in Development Bonds, uncertainty in Citizen Saving Bonds, and weak participation in Foreign Employment Bonds, with total borrowing projected to rise. These findings suggest that while ARIMA emphasizes stability, deep learning approaches reveal momentum-driven growth potential, offering complementary perspectives. The paper aims to inform policymakers by presenting insights into how bond market forecasting may strengthen long-term development financing, mitigate refinancing risks, and foster wider participation in underutilized bonds, ultimately enhancing the effectiveness of debt management in Nepal.
Accurate prediction of agricultural yield is extremely important to ensure food security and cope with the challenges created by climate change and natural disasters. Forecasting agricultural yield is a challenging task due to the complex nature of variables (fertiliser, rainfall, temperature and others) that affect agricultural production. This study employs six supervised machine learning algorithms: Support Vector Machine (SVM), Decision Tree (DT), Random Forest (RF), Multi-Layer Perceptron (MLP), Recurrent Neural Network (RNN), and Convolutional Neural Network (CNN) to build a predictive model using 49 years of historical data (1973-2021) on paddy, wheat, and maize. Model performance was evaluated using Mean Squared Error (MSE), Mean Absolute Error (MAE), Mean Absolute Percentage Error (MAPE), and Root Mean Squared Error (rMSE). Results show that DT and RF models are the most precise with MSE 1% to 5%, MAE 8% to 21%, followed by SVM and CNN. Key predictors of crop yield include area cultivated, capital expenditure, banking expansion, rainfall, temperature, and fertilizers, while irrigation and road network were less significant. The study recommends that farmers prioritize commercial farming, agricultural equipment, and timely availability of fertilizer for application. The Government of Nepal (GoN) should redirect subsidies towards agricultural mechanization, ensure timely supply of fertilizer, and expand banking services in agricultural areas.
This paper intends to understand the impact of bank competition on credit risk and further determine if the association between competition and credit risk depends on bank stability, specifically focusing on commercial banks of Nepal. The study spans from 2011 to 2022 and incorporates various control variables, including macroeconomic, bank-specific, Covid-19 pandemic and regulatory factors. We incorporate a dynamic panel data model and find that while increased competition leads to an increase in credit risks, this effect is reversed in a stable banking environment with strong capitalization, profitability, and steady earnings. Our findings assist policymakers in achieving a more optimal equilibrium between promoting competition and safeguarding financial stability, while also limiting excessive risk-taking. Additionally, it can provide guidance to the bank management in improving their risk management practices.
This study examines how the transformation of MFIs from non-profit to profit-oriented has impacted their performance in Nepal. A mixed-method approach was applied where quantitative data was analysed using a Propensity Score Matching (PSM), followed by a qualitative thematic analysis. The results show that the transformation of MFIs reduces their profitability and operational self-sufficiency in the short run but increases them in the long run. Furthermore, the study found that the number of clients and the loan size of profit-oriented MFIs are increasing in Nepal, which suggests that MFIs in Nepal are drifting away from their main mission of social welfare, also known as mission drift.
This paper tries to examine the performance of VECM model to forecast the amount of loanable funds in the banking system of Nepal. For this, monthly data of 14 years starting from July 2007 to June 2021 have been used in the systematic process of modeling and forecasting practices. The VECM model was estimated with the training dataset covering from 2007 to 2015 followed by examination and validation with the testing dataset covering 2015 to 2020. The empirical results reveal that the supply side factors (government expenditure and BoP) of loanable funds have got dominant power in comparison to the demand side factors (industrial investment and consumption) while determining the amount of loanable funds in the banking system. The forecast performance indicators confirm that the selected VECM model is capable enough in explaining the variations of the determinants that bring changes in the monthly amount of loanable funds of the banking system. As suggested by the results, the VECM modeling approach could be used for forecasting of loanable funds at the BFIs' level in the banking system of Nepal.
Forecasting Nepal's Gross Domestic Product (GDP) holds paramount importance for effective resource planning and allocation. In this research, Artificial Neural Networks (ANNs) have been introduced to predict the GDP time series, wherein the data have been dissected into linear and nonlinear components. The linear aspects have been handled by the ARIMA model, while the ANNs managed the nonlinear elements. Additionally, the study has delved into hybrid models, resulting in additive and multiplicative combinations of ARIMA and ANN. These hybrid models have aimed to enhance forecasting performance, minimize errors, and improve accuracy compared to standalone models. The findings revealed that both ANN and hybrid models surpassed other approaches in terms of prediction accuracy.
The relationship between growth and macroeconomic stability is a wellestablished phenomenon. Long-term growth requires a higher level of investment and a stable economic environment contributes in promoting saving and investment. Good macroeconomic policies help attract foreign saving. Sound fiscal and monetary policies create a conducive climate for private investment and economic growth. So, the policymakers need to redress the problems of domestic and external financial imbalances by designing and implementing an appropriate mix of policies for achieving higher growth, lower price uncertainty, reduced external imbalances, and other macroeconomic vulnerabilities. So, the important issues facing the policymakers are designing sound exchange rate arrangement, making current account sustainable, and promoting financial and macroeconomic stability. In order to promote sound macroeconomic environment for attaining sustained economic growth, there is a need to pursue more flexible exchange rate regime and make progress toward adopting inflation targeting in addition to improving the financial sector soundness, strength and stability.
The purpose of this paper is to examine the frequency of mobile banking use during COVID-19. Data were collected from 226 respondents. Data have been analyzed by applying the two-stage structural modeling technique through Partial Least Squares-Structural Equation Modeling (PLS-SEM). This study has found a significant positive impact of attitude towards mobile banking, subjective norms, and perceived behavior control on behavior intention mobile banking adoption. However, the risk perception of COVID-19 has no effect on the intention of mobile banking adoption. Based on the findings of this research, some theoretical and practical implications have been provided.
This paper examines the impact of remittance on poverty and income inequality in the context of Nepal using cross-sectional national survey- Nepal Living Standard Survey, third edition (NLSS3) of 2010-11. We employ a Heckman two-step estimation model with instrumental variables and constructed counterfactual income to investigate the real impact of remittances. We find that remittance has helped in the reduction of poverty ratio by 5.3% but deepened the poverty gap by 7.37% and severity by 9.25%. In terms of inequality, remittance has helped to reduce inequality within the remittance receiving group, however, it also contributed to rising income inequality when compared to non- remittance receiving group.
This paper aims to examine the determinants of government revenue in Nepal. The macroeconomic variables, namely, GDP per capita, imports, consumer price index, exchange rate, and foreign aid from 1975 to 2021 have been included to assess their effect on government revenue. We have performed descriptive and econometric analyses. Government revenue increased by about 15 percent on average from 1976 to 2021 and the revenue-to-GDP ratio stood at around 22 percent in 2021. The empirical results reveal that GDP per capita and imports are the major determinants of government revenue in the short run. Likewise, GDP per capita, imports, and exchange rate are the major determinants of government revenue in the long-run. The error correction term suggests that the short-run disequilibrium in the system takes about 3 years to converge to equilibrium.
This paper assesses the contribution of remittances on GDP and private gross fixed capital formation of Nepal by employing the ARDL bound test approach. The model incorporates the level of financial development, and the institutional quality of Nepal as regressors in addition to the macroeconomic regressors recognised by the literature. Perron’s (1997) innovation outlier model of breakpoint unit root test has been used to confirm the suitability of the variables in the ARDL bounds test approach. The findings show a positive effect of remittances on GDP while a negative effect on private gross fixed capital formation. The paper concludes that remittances do not act as a source of capital flows in the context of Nepal, rather they behave as compensatory transfers to the recipient households. To align remittances in productive activities such as self-employment, financial investment, etc., a remittance-focused policy is advised to reach out the recipients and provide them rigorous advisory and training supports.
Dividend policy of firm in theoretical finance is one of the most controversial issue, various theories of dividend policy try to explain the dividend behaviour of the firm. The dividend distributed by a firm to its shareholder is very different when it is viewed from the perspective of the company’s life cycle. If no regulation forces, then firms at initial stage have higher investment opportunities, so they retain all their earning and pay no dividend. The firms at maturity stage have less investment opportunities, slow pace of growth rate and lower cost of raising external capital, hence, mature firms retain less and pays higher dividend. Life cycle hypothesis suggests that firm increases their dividend with their maturity. This study investigates the dividend behaviour of Nepalese commercial banks, by using the ten years panel data for the period from 2010 to 2019. Using conventional proxies of life cycle, the result of the study consistently shows that Nepalese listed commercial bank follow dividend life cycle theory. The result also shows that larger firms pay higher dividend and dividend history has positive relation with next period dividend payment. The result is robust and such robustness check has been conducted by altering some of the proxies of the variables. The result of the study suggest that the regulators should not impose same dividend policy to the entire banking industry.
This paper investigates bank stability and its bank-specific, industry-specific, macroeconomic and institutional determinants for the Nepalese banking industry. The study employs the system GMM to a panel of bank-level data covering the period from 2004-2018. The results show that the stability of the Nepalese banking industry improved during the early years of the study period, i.e., 2004-2007; however, it exhibited a decaying trend for the rest of the study period. The analysis reveals that the major factors responsible for this deterioration are capital adequacy, asset quality, and earnings of the banks. Most of the dimensions have shown improvements during the initial years of the study period; however, this trend reversed post-2007.The study groups the banks into three categories: stable, moderately stable, and less stable banks as per their respective stability score. The estimation results indicate that a positive bank stability persistence exists in the Nepalese banking industry. Results suggest that credit growth has a negative impact on the stability of the banks. The results of the study support the concentration-stability hypothesis. Income diversification appears to have a positive impact on the stability of the banks. Findings disclose that inflation is playing a crucial role in impacting the stability of the banks. The study reveals that the GFC had no significant impact on the stability of the Nepalese banking industry.
Role of workers’ remittance seems to be an imperative part of Nepalese economy for about two decades. The remittances inflow has supported to maintain the foreign reserves at the national level and consumption in household level. This paper investigates the role of remittances in export performance of Nepal employing the gravity modelling approach using annual data for the period of 26 years, from year 1993 to 2018. First, we document the scenario of remittances and export nexus, then conduct an econometric estimation for the exports flows from Nepal to its trading partners. The major finding indicates that the remittances have a statistically significant negative impact on export performance, which is largely impacted by the size of the trading partner’s economy as indicated by the estimation’s results. The study suggests for an urgent attention from policy makers to make the remittance in favor of exports by developing the export strategies. In this regard, a special focus on exporting to the rich economies may be a good way to boost the export performance of Nepal.
This paper attempts to determine the impact of remittance on rural poverty in Nepal using the microdata set of household risk and vulnerability survey 2016 – 2018. The cross-sectional analysis has been carried out using a dataset of 2018 with 5,645 households across 50 districts of Nepal. The logit regression model has been used to determine the relationship between poverty and remittances. About 38 percent of rural households received remittances in 2018. About 65 percent of households headed by females received remittance compared to 30 percent of households headed by male counterparts. About 41 percent, 31 percent, and 32 percent of households living in the Hilly region, Terai, and Himalayan region respectively received remittance in 2018. About 1 in every 5 households in rural Nepal is poor. The probability of households falling into poverty reduces by 4.8 percent with a one percent rise in household assets. Remittance receiving households are 2.3 percent less likely to get caught in poverty as compared to remittance non-receiving households. The probability of households plunging into poverty decreases by about 1.1 percent with every 10 percent increase in remittance inflows to households.
This study examines the empirical relationship between financial development and economic growth in Nepal. Financial development has been measured by three key pillars of the financial system bank, capital market and insurance. Gross domestic product and gross fixed capital formation are considered for economic growth indicators. Using time series techniques, the stationary properties of the data sets are tested followed by Johansen co-integration test to observe long run equilibrium relationship between the two variables and Granger Causality test to identify the causal relationship among the variables. Also, Vector Error Correction Model (VECM) has been employed to analyze the short run dynamics of the system. The result of the study reveals that there is cointegrating relationship between market capitalization and economic development with short-run causality is running from market capitalization to GDP. In regard to insurance market, error correction term is negative and significance for both GDP and GCF indicating there is cointegrating relationship between insurance market and economic development. However, the result shows no evidence of causality between insurance premium and economic development in short-run. The negative relation between bank and GDP reinforces that there is a cointegrating relationship between banking sector development and economic development. The result also shows that lagged value of GDP is significant. It shows that short-run causality is running from GDP to banking sector development.Nepal
This paper aims to examine the role of financial development and economic growth in Nepal employing Autoregressive distributed lag (ARDL) approach of cointegration using time series data for the period from 1965 to 2018. Nepal is a unique country with big markets in the neighbors-India and China but remains as one of the poor landlocked developing countries, even being the earlier entrant in liberalization and reform. Nepal recently went through a substantial political transition and now the stable government is seeking substantial amount of foreign direct investment. In this background, it will be better, for a good policy analysis, to know how the financial activities have played the role in highly intended economic growth. We develop a model with five proxies of financial development (broad money, domestic credit to private sector, total credit from banking sector, capital formation, and foreign direct investment); and econometrically test their contribution in economic growth. Overall, the results suggest that financial development causes to economic growth substantially, except in the case of foreign direct investment. This result warns the policy makers to be more serious making investment friendly economy to attract the expected foreign direct investment.
The impact of bank specific factors on the financial performance of Nepalese commercial banks is analyzed in this paper. The financial performance is measured by using return on assets (ROA). Similarly, managerial efficiency (ME), liquidity (LIQ), credit risk (CR), assets quality (AQ) and operational efficiency (OE) is used as proxy of bank specific factors. This study used panel data of 17 commercial banks for the period of 2010/11 to 2017/18. Breusch and Pagan Lagrangian multiplier test showed that Pooled Regression model is not appropriate and Hausman test concluded that Fixed Effect model is appropriate rather than Random Effect model. Using the Fixed Effect model; this study concludes that bank specific factors have significant impact on financial performance of Nepalese commercial banks. Finally, this study reveals that ME, AQ and OE have significant positive impact, and CR has negative impact on the financial performance of Nepalese commercial banks.
There have been significant efforts in Nepal to increase the outreach of electronic payments services (EPS) in the last couple of years but the usage of these services has not seen significant progress. People are showing reluctance to accept the new form of payments as there are issues on users’ acceptance of this new mode. There is a need to understand users’ perception on EPS and act accordingly to improve the usage. This paper analyses users’ perception on EPS from four aspects - perceived ease of use, perceived usefulness, perceived security and perceived trust. Results of the survey show that there are low average mean scores for security and trust when compared to perceived usefulness and ease of use. Respondents have cited accessibility of EPS as one of the major issues behind such a low usage. Most of the responses are found to be independent by gender, age group, income level and other attributes. Further, perceived usefulness and ease of use have higher effect on willingness to adopt EPS in future when compared to perceived security and perceived trust.
