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This paper aims to contribute to the political connection literature by investigating the impact of political connection on banks’ profitability in Bahrain.

Exploiting the unique natural experiment of the 2017 Qatar blockade crisis, this study uses primary data of political connection. The study uses the difference-in-difference (DID) methodology to investigate the effect of political connections on banks’ profitability.

The main finding is that political connections have a positive effect on bank profitability in Bahrain. The paper finds that the ongoing GCC crisis has had a negative effect on the banking sector of Bahrain. During the Qatar blockade crisis, politically connected banks suffered more than their non-connected counterparts.

The result suggests that the Qatar blockade crisis has had a notable effect on the banking system throughout the region, including both the boycotting countries as well as Qatar. In the banking sector, politically connected banks are the most harmed by the crisis. Investors can enhance their hedging and investment decisions by exploiting knowledge of how political connections affected bank profitability during the Qatar diplomatic crisis and how that effect can be transmitted from one market to another. In addition, regulators could use insights about the association between political connections and profitability in Bahrain to undertake strategies to increase banks’ profitability and mitigate the transmission effect of a crisis by ensuring adequate regulation and supervision.

This paper offers four novel contributions to political connection literature as follows: Firstly, the study fills in an important gap in the literature as it is the first attempt to quantify the impact of political connections on bank performance in Bahrain. To the best of the authors’ knowledge, the role of political factors in Bahrain has not been studied about the banking system. Secondly, the study depends on primary data about political connections collected manually from various sources. Thirdly, this is the first study to investigate the effect of the Qatar blockade on the banking sector. Lastly, the evidence suggests that politically connected banks are more profitable than banks that lack political connections. However, the Qatar blockade crisis resulted in a sharp decrease in bank profitability, suggesting that the crisis significantly harmed the banking sector in Bahrain.

This paper aims to ask whether a range of stock market factors contain information that is useful to investors by generating a trading rule based on one-step-ahead forecasts from rolling and recursive regressions.

Using USA data across 3,256 firms, the authors estimate stock returns on a range of factors using both fixed-effects panel and individual regressions. The authors use rolling and recursive approaches to generate time-varying coefficients. Subsequently, the authors generate one-step-ahead forecasts for expected returns, simulate a trading strategy and compare its performance with realised returns.

Results from the panel and individual firm regressions show that an extended Fama-French five-factor model that includes momentum, reversal and quality factors outperform other models. Moreover, rolling based regressions outperform recursive ones in forecasting returns.

The results support notable time-variation in the coefficients on each factor, whilst suggesting that more distant observations, inherent in recursive regressions, do not improve predictive power over more recent observations. Results support the ability of market factors to improve forecast performance over a buy-and-hold strategy.

The results presented here will be of interest to both academics in understanding the dynamics of expected stock returns and investors who seek to improve portfolio performance through highlighting which factors determine stock return movement.

The authors investigate the ability of risk factors to provide accurate forecasts and thus have economic value to investors. The authors conducted a series of moving and expanding window regressions to trace the dynamic movements of the stock returns average response to explanatory factors. The authors use the time-varying parameters to generate one-step-ahead forecasts of expected returns and simulate a trading strategy.

The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future output growth.

Using US stock portfolios from 1964 to 2019, the authors undertake three related exercises: whether a set of common factors contain independent predictive ability for stock returns, what economic and market variables explain movements in the factors and whether stock market factors have predictive power for future output growth.

The results show that several of the considered factors do not contain independent information for stock returns. Further, most of these factors are neither explained by economic conditions nor they provide any predictive power for future output growth. Thus, they appear to contain very little economic content. However, the results suggest that the impact of these factors is more prominent with higher macroeconomic risk (contractionary regime).

The stock market factors are more likely to reflect existing market conditions and exhibit a weaker relation with economic conditions and do not act as a window on future behavior.

Fama and French three-factor model still have better explanations for stock returns and economic information more than any other models.

This paper contributes to the literature by examining whether a selection of factors provides unique information when modelling stock returns data. It also investigates what variables can predict movements in the stock market factors. Third, it examines whether the factors exhibit a link with subsequent economic output. This should establish whether the stock market factors contain useful information for stock returns and the macroeconomy or whether the significance of the factor is a result of chance. The results in this paper should advance our understanding of asset price movement and the links between the macroeconomy and financial markets and, thus, be of interest to academics, investors and policy-makers.

This paper investigates the effect of political connections on the capital structure of banks before and after the financial crisis in Gulf Cooperation Council (GCC) countries.

This paper employs the natural experiment that the financial crisis offers and uses a difference-in-differences model to investigate the effect of political connections on capital structure. Capital structure is measured by the total debt to total assets ratio. Control variables include bank size, growth, profitability, coverage ratio and volatility. The research sample includes all the banks in the GCC from 2005 to 2016.

The authors find that political connections negatively affect banks capital structure decisions. The results contradict the claim that politically connected firms tend to sustain higher debt due to government privilege and a lower chance of bankruptcy. Additionally, the results show that after the financial crisis, politically connected banks de-lever more compared to non-connected counterparts. This could suggest that the degree of support received by connected banks changes or that they exploit their retained earnings for financing (individual country results, however, suggest that leverage increases in Qatar).

This paper provides several contributions. First, GCC countries present an interesting and important area in which to study the relation between political connections and capital structure as it represents a mix of newer markets that seek to attract investors and foreign capital. Second, to the best of our knowledge, the present study is the first to examine the effect of the political connection and capital structure in GCC region where royal families play a significant role, especially for banks. Third, our paper is the first to link connections with leverage after the financial crisis in the banking sector. Moreover, our paper is the first to investigate this phenomenon in the GCC countries using manually collected primary data.