This paper uses a large panel dataset of 62 commercial banks from 11 African countries for the period 1991 - 1998 to empirically isolate the determinants of bank risk in African economies. It is found that liquidity and asset quality variables are the most important indicators of bank risk. The evidence on liquidity is consistent with the theory that contagion risk is the main inertia behind bank runs, in the context that severe liquidity constraints seriously undermine public confidence and are signals of terminal risk. The evidence on asset quality suggests that deterioration in asset quality is a precursor of terminal risk. The main policy implication of these findings is that liquidity and asset quality variables are potential "early warning" indicators of bank failure in African economies.
This paper examines whether the Amman Stock Exchange has become more weak-form efficient since liberalization in 1997. Using a battery of econometrics tests on daily closing price index data of the market for the pre-liberalization period (January 1993 - May 1997) and the post-liberalization period (June 1997 - December 2000), the paper finds that in spite of the theory suggesting otherwise, market liberalization has not turned around the Amman Stock Exchange to become weak-form efficient.
Two competing theories in financial economics offer different policy approaches for financial market development. The imperfect information paradigm supports financial repression with government intervention. Financial liberalization policies are designed to "liberate" the financial systems from government interference. Despite decades of intervention and liberalization, savings and investments in many developing countries have remained low. This suggests that policy designs influenced by the two paradigms are not sufficient to address problems facing financial systems in developing countries. Financial deepening cannot occur without sound institutional infrastructure. While getting prices is necessary, public policy has an important role in financial market development.