We study dynamic conditional correlations of Central Bank Digital Currency (CBDC) uncertainty and attention indices with US dollar futures, 1-year US government bond, and gold futures. We find that USD futures hedges CBDC uncertainty, while the US bond hedges the CBDC uncertainty index subsequent to 2019. Interestingly, gold does not hedge CBDC uncertainty. The CBDC attention index exerts a negative effect on the other assets. These results are important for portfolio management.

ABSTRACT: Extant literature investigates on the determinants of NPL (non-performing loan) many a time, however, little is known on the relationship between economic uncertainty and NPL for any developing country. Historically, Bangladesh is suffering from high level of NPL in the banking sector. In addition to that, Bangladesh observes high level of macroeconomic uncertainty as characterized by high and volatile Gross Domestic Products and inflation, continuous exchange rate devaluations, and shallow financial markets. Motivated by this, we investigate the nexus between economic uncertainty and NPL for Bangladesh. Based on the data availability, we use the annual dataset covering 1990–2018. Furthermore, we use autoregressive distributed lag (ARDL) model considering its benefit accommodating both I(0) and I(1) variables. The empirical results show that there is positive relationship between economic uncertainty and NPL in the long run. The results are robust to the alternative measures of economic uncertainty and specifications. Consistent with the expectation, financial development carries a negative sign on the asset quality albeit the effect of economic uncertainty is actually pronounced (both the size and significance changes) in the augmented models. Key policy implication of this study is that government should formulate well anchored, rule-based policies to reduce inflation and interest related uncertainties. With a rule-based policy (for example, inflation targeting), people believe that central bank can achieve its targets. Government should adopt floating exchange rate regime that will adjust the external shocks well via exchange rates. In addition to this, government can monitor, and regulate stock market so that uncertainty in stock market is reduced. Finally, monetary and fiscal policies should be communicated well to the people. Thus, it is possible to reduce asymmetric information among the people, which may reduce economic uncertainty, and thus reduce NPL.

As global biodiversity declines, market participants are increasingly attentive to the financial implications of biodiversity risks. We study the effects of biodiversity risks on commodities futures returns using a novel biodiversity risk index over 2005-2022. Biodiversity risks can’t predict commodities returns, suggesting risk underestimation. Using dynamic conditional correlations (DCCs), we further show that precious metals offer diversification against biodiversity risks, while energy commodities can serve as a hedge or safe haven. However, agricultural commodities don’t provide protection against biodiversity risks, potentially increasing investors exposure to these risks. Our findings are significant for investors and regulators interested in addressing biodiversity risks.

Recent literature extensively studies the safe-haven properties of different asset classes in crisis periods. The magnitude of the economic policy uncertainty index (EPU) and the geopolitical risk (GPR) increases significantly during extreme crisis periods such as covid crisis, but the earlier literature ignores how both risk measures impact on different asset classes during severe economic downturns. In this paper, we contribute by examining the hedging and safe-haven properties of gold, oil, equities, and foreign exchange rates against the United States (US) EPU and GPR by utilizing OLS regression, quantile regression and the quantile connectedness approach for pre-covid (October 1, 2013–March 10, 2020) and post-covid data (March 11, 2020–August 27, 2021). OLS results suggest that only the stock market has positive risk premium for both uncertainty measures. With quantile regression analysis for the pre-covid period, we find that asset returns provide no hedge (hedge) across bearish (bullish) market conditions. Importantly, safe-haven properties suggest that gold is a safe-haven asset at the extreme stress condition (at higher level of USEPU shocks). Other assets also exhibit safe-haven characteristics during extreme uncertain periods with heterogeneity in safe-haven effectiveness across bearish to bullish markets. With the post-covid data, we show that S&P500 stocks and EURO hedge EPU and GPR in bullish market condition, while Oil, S&P500, Great Britain Pound, EURO, Japanese Yen display safe-haven properties at the 99% quantile of USEPU. Specifically, gold lost its safe-haven features during covid. Interestingly, results from quantile connectedness suggest that selected asset returns have the potential to diversify against uncertainty measures considering low volatility transmissions between them across the lower and higher quantiles. Our findings are important for investors and asset managers who aim to hedge EPU and GPR during the stress period.

This paper uses generalized method of moments (GMM) panel estimator, proposed by Arellano-Bond and Blundell-Bond, to examine the relationship between FDI and environment for the period of 2000-2010 for a sample of 16 emerging countries. The effect of financial development, institutional quality and macroeconomic policy related variables are controlled for from the macroeconomic literature. The OLS based regression results reveal that environmental quality is not significant in explaining FDI inflows in emerging countries. However, based on dynamic panel data analysis, environmental quality is significant in explaining FDI. Using a number of controls it is found that stock market capitalisation to GDP, gross saving to GDP, gross capital stock to GDP, market size , and economic freedom (institutional quality) exercised by the host countries are important determinants in FDI inflows. However, the influence of such determinants is mixed in direction and magnitude at different significance levels. Thus, climate change and its mitigation strategy and overall environment policy have important implications for attracting FDI in the countries in question. In addition, the results highlight the role of institutional quality and financial development in attracting FDI.