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Do financial technology firms influence bank performance?

Dinh Phan, (Taylor’s University, Kuala Lumpur, Malaysia)
Paresh Kumar Narayan, (Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia)
R. Eki Rahman, (Bank Indonesia Institute, Bank Indonesia)
Akhis R. Hutabarat, (Bank Indonesia Institute, Bank Indonesia)

Abstract
We develop a hypothesis that the growth of financial technology (FinTech) negatively influences bank performance. We study the Indonesia market, where FinTech growth has been impressive. Using a sample of 41 banks and data on FinTech firms, we show that growth of FinTech firms negatively influences bank performance. We test our main conclusion through multiple additional tests and robustness tests, such as sensitivity to bank characteristics, effects of the Global Financial Crisis, and use of alternative estimators. Our main conclusion that FinTech negatively predicts bank performance holds.

A study of Indonesia's stock market: How predictable is it?

Dinh Hoang Bach Phan (Taylor’s Business School, Taylor’s University, Malaysia)
Thi Thao Nguyen Nguyen (Faculty of Project Management, The University of Da Nang-University of Science and Technology, Vietnam)
Dat Thanh Nguyen (Banking Department, University of Economics - The University of Danang, Vietnam)

Abstract
Using monthly data from January 1995 to December 2017, this paper tests whether Indonesian stock index returns are predictable. In particular, we use eight macro variables to predict the Indonesia composite and six sectoral index returns using the FGLS estimator of Westerlund and Narayan (2012, 2015). Our results suggest that the Indonesian stock index returns are predictable. However, the predictability depends not only on the macro predictor used but also on the indexes examined. Second, we find that the most popular predictor is the exchange rate and followed by the interest rate. Finally, our main findings survive a number of robustness tests.

Terrorist attacks and oil prices: hypothesis and empirical evidence

Dinh Hoang Bach Phan (Centre for Financial Econometrics, Deakin Business School, Deakin University, Australia)
Paresh Kumar Narayan (Centre for Financial Econometrics, Deakin Business School, Deakin University, Australia)
Qiang Gong (Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China)

Abstract
Using a unique dataset that merges terrorism activity with oil prices, this paper develops and tests the hypothesis that terrorist attacks predict oil prices. We develop three insights. First, we show that terrorist attacks have a positive effect on oil prices, but it is attacks originating from oil producer countries that most influence oil prices. Second, we devise trading strategies based on terrorist attacks and show that attacks, by signaling buying and selling in the market, beat a buy-and-hold strategy. We also show that a mean–variance investor who utilizes our terrorism-based forecasting model makes economically meaningful profits. Our analysis also shows that the effect of terrorism on oil prices operates via both the oil production and oil investment channels.

Monetary Policy Transmission and Credit Cards: Evidence from Indonesia

K.P. Prabhesh (Indian Institute of Technology Hyderabad, Hyderabad, India)
R. Eki Rahman (Bank Indonesia Institute, Bank Indonesia, Jakarta, Indonesia)

Abstract
This paper empirically tests the dynamics of credit cards and monetary policy in the context of Indonesia. Using monthly data from 2006 to 2018, and Structural Vector Autoregressive model, the credit card usage is mainly driven by Indonesia’s high economic growth over the last decade, which indeed signifies the role of credit cards on consumption smoothing. The study also found that the monetary policy transmission through lending channel is weak. However, the role of the exchange rate and global oil price in the transmission process being more prevalent.

Are Oil Prices Efficient? A Time-Varying Analysis on the Weak-Form Efficiency of Crude Oil Prices

Shaista Arshad (Nottingham University Business School, University of Nottingham Malaysia Campus, Malaysia)
Syed Aun R. Rizvi (Suleman Dawood School of Business, Lahore University of Management Sciences, Lahore, Pakistan)

Abstract
This paper attempts to analyse the weak form efficiency of Brent oil prices to evaluate the efficiency of oil markets. With limited research on this novel area, we conduct a time-varying and multi-scale analysis on crude oil market benchmarks using Multifractal-Detrended Fluctuation Analysis (MFDFA) over the period of twenty years. The objective is to investigate whether the crude oil markets are efficient in the weak form during different economic regimes over multi-scales. The results from different sub-samples provides evidence that in the shorter horizon component, there is a tendency towards improving efficiency across every expansion post recession and this trend in the longer term component is violated in the recent global recovery of post 2010. We find that the benchmark Brent crude oil prices is weak-form efficient implying low predictability levels of prices. As a robustness check, we reassess the data in five different ways. (1) as stated above, the data is divided into periods of expansions and recessions, (2) a multi-scale analysis is integrated to include short and long-term analysis, (3) the data is reanalysed under a different order q, where results hold, (4) the analysis is repeated for weekly data, and results conform, and lastly (5) seven other oil prices benchmarks are used, and the general results conform to those for Brent crude oil.

An Exploration of Recent Indonesian Literature: Economics, Finance and Islamic Banking

Dinh Hoang Bach Phan (Taylor’s Business School, Taylor’s University, Malaysia)
Syed Aun R. Rizvi (Suleman Dawood School of Business, Lahore University of Management Sciences, Pakistan)
Badri Narayan Rath (Department of Liberal Arts, Indian Institute of Technology Hyderabad, India)
Qiang Gong (Wenlan School of Business, Zhongnan University of Economics and Law, China)

Abstract
In this paper, we provide a comprehensive review of recent research on Indonesian economic, finance, and Islamic banking literature. Indonesia has attracted substantial research due to key unique features of its economic and finance systems. Therefore, it is important to understand what has been done in the existing Indonesian literature, what are the main findings and lessons learned, and what are the potential future directions for research in these areas. Using nearly 150 papers published in respected journals, we contribute to the literature by providing the first attempt to respond to those questions.

Bitcoin Price Growth and Indonesia’s Monetary System

Paresh Kumar Narayan, (Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia)
Seema Narayan, (RMIT University, Melbourne, Australia)
R. Eki Rahman, (Bank Indonesia Institute, Bank Indonesia)
Iwan Setiawan, (Bank Indonesia Institute, Bank Indonesia)

Abstract
Concerned by the volatility of Bitcoin price growth (BPG), Bank Indonesia—Indonesia’s central bank—discourages trading cryptocurrencies. We examine the relationship between Bitcoin price growth (BPG) and Indonesia’s monetary aggregates (inflation, real exchange rate, and money velocity). In doing so, we develop the conceptual link between Bitcoin and monetary aggregates. We find strong and robust evidence that BPG leads to inflation growth, currency appreciation, and a reduction in money velocity. Our results have policy implications for other central banks in terms of achieving stability of the monetary system if BPG is indeed a concern for those countries.

Role of Islamic Banks in Indonesian Banking Industry – An Empirical Exploration

Paresh Kumar Narayan, (Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia)
Syed Aun R. Rizvi, (Lahore University of Management Science, Lahore, Pakistan)
Ali Sakti, (Bank Indonesia Institute, Bank Indonesia, Indonesia)
Ferry Syarifuddin, (Bank Indonesia Institute, Bank Indonesia, Indonesia)

Abstract
Islamic banks have been gaining traction in Indonesia, which is the world’s largest Muslim population. Although the share of Islamic banking is small, the growth potential poses challenges and questions that need an inquiry. Our paper is a response to this. We investigate whether competition from Islamic banks adds to the financial stability and profitability. We then test the source of any such stability/instability. We find, consistent with the competition-stability theory, that the presence of Islamic banks has not impacted profitability but has made the banking industry more stable. We show that Islamic banks have improved both lending and deposit growth of the banking system, suggesting that Islamic banks have contributed to stability through both asset and liability channels.

Do financial technology firms influence bank performance?

Dinh Phan, (Taylor’s University, Kuala Lumpur, Malaysia)
Paresh Kumar Narayan, (Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia)
R. Eki Rahman, (Bank Indonesia Institute, Bank Indonesia)
Akhis R. Hutabarat, (Bank Indonesia Institute, Bank Indonesia)

Abstract
We develop a hypothesis that the growth of financial technology (FinTech) negatively influences bank performance. We study the Indonesia market, where FinTech growth has been impressive. Using a sample of 41 banks and data on FinTech firms, we show that growth of FinTech firms negatively influences bank performance. We test our main conclusion through multiple additional tests and robustness tests, such as sensitivity to bank characteristics, effects of the Global Financial Crisis, and use of alternative estimators. Our main conclusion that FinTech negatively predicts bank performance holds.

A financial system–led endogenous growth model for Indonesia

Solikin M. Juhro, (Bank Indonesia Institute, Bank Indonesia), 
Paresh Kumar Narayan, (Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia) 
Bernard Njindan Iyke, (Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne, Australia)
Budi Trisnanto, (Bank Indonesia Institute, Bank Indonesia)

Abstract
The validity of growth models is debatable, more so in developing than in developed economies. We contribute to this debate by testing the relevance of semi-endogenous growth models in explaining Indonesia’s economic growth transformation. Using historical time series data (1968 to 2016), we test growth models from a unique perspective by examining the roles of structural changes and the Islamic financial market in addition to testing the importance of the conventional financial system. Our main finding is that while linear models fail to support semi-endogenous growth models, nonlinear models do support them. We show that Indonesia’s growth experience is best characterized by a semi-endogenous growth model driven by research activity and access to the financial system, particularly the Islamic financial market.