4. Conclusion

standard errors, hence indicating less efficient parameter estimations. Thus, the serial correlation test developed by Wooldridge (2002) is utilized under the null hypothesis of no serial correlation [23]. The Wooldridge test for autocorrelation in panel data has a test statistic of F (1, 24) that equals to 35.434 with a prob. value of 0.000, which is found to be statistically significant at 1%

Due to the existence of heteroskedasticity and autocorrelation problems in the fixed effect panel model, the acquired fixed effect model results may offer biased results. Therefore, the feasible generalized least square (GLS), which allows the estimations of panel data model under heteroskedasticity across panels and autocorrelation presence, is employed so as to conclude

significance level, thereby denoting existence of autocorrelation in the panel model.

228 Financial Management from an Emerging Market Perspective

the results of the model [21, 24].5 The feasible GSL estimators are obtained as in Eq. (7).

where Ω = ∑<sup>n</sup> � <sup>n</sup> ⦻ I, which is the error variance matrix and obtained as in Eq. (8).

dX

i,j <sup>¼</sup> <sup>b</sup>E<sup>i</sup> 0 bEj

The estimated test results from the Feasible GLS for both two models are suggested in Table 5. As observed in the estimation results of model 1, the impact of economic growth on the domestic investment is positive and significant at 1% significance level. This result is anticipated, since growing economy such as emerging markets and developing economies may offer valuable prospects for private investors to obtain profitable returns, when they invest in these countries. Similarly, the studies of Bahmani-Oskooee and Hajile [12] and Safradi and

Variables INV (Model 1) INV (Model 2) GDP\_G 0.376\* (0.049) 0.319\* (0.062) RIR �0.017 (0.027) �0.015 (0.027) VOL 0.118\* (0.045) 0.118\*\* (0.456) CRI — �0.856\*\*\* (0.500) Constant 20.073\* (0.735) 20.377 (0.755)

Observations 275 276 Number of country 25 25 Wald chi-squared 60.29\* 62.29\*

Notes: Robust standard errors are given in square parentheses. \*,\*\*,\*\*\* denote the significance level at 1%, 5% and 10% respectively.

See also http://www.stata.com/manuals13/xtxtgls.pdf.

Table 5. The feasible GLS estimation results.

5

<sup>Ω</sup><sup>b</sup> �<sup>1</sup> <sup>X</sup>�<sup>1</sup> � ��<sup>1</sup>

X0 <sup>Ω</sup><sup>b</sup> �<sup>1</sup>

y (7)

<sup>T</sup> (8)

βdFGLS ¼ X<sup>0</sup>

Although the effects of exchange rate uncertainty on the macroeconomic variables such as economic growth, capital flows, and international trade are examined vastly in the literature, the number of studies associated with the impact of exchange rate uncertainty on the domestic investment is rather sparse to our knowledge. The evidence on the effects of exchange rate uncertainty on the domestic investment is inconclusive. Hence, this study attempts to provide some new evidence on this topic for 25 EMDEs under a panel data model for the time span of 2004 and 2014 by regarding the economic growth, real interest rate, and GFC as controlling variables. Rather than examining the countries individually, this study gives a broad scanning about the impact of exchange rate uncertainty on the domestic investment in EMDEs by employing feasible generalized least square panel data method, which offers more robust result compared to fixed effect panel data method. Exchange rate uncertainties for the selected countries are modeled by GARCH(1, 1), EGARCH(1, 1), or GJR-GARCH(1, 1) model, depending on the individual exchange rate patterns. This study finds that the impact of exchange rate uncertainty on domestic investment for EMDEs is found to be positive and statistically significant. This may imply that domestic investors in these countries are risk neutral and insensitive to adjustment costs related to the exchange rate fluctuations and the irreversibility of the investments in case the conditions worsen. Furthermore, exchange rate volatility could potentially provide a profitable opportunity for risk-appetent investors. In some cases, movements in the exchange rate could be beneficial for the domestic investors, particularly for the sophisticated ones.
