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The potential of nonparametric models in the methodology for international financial comparisons

Vol. 25, Iss. 1, JANUARY 2019

Received: 15 October 2018

Received in revised form: 29 October 2018

Accepted: 12 November 2018

Available online: 29 January 2019

Subject Heading: Financial system

JEL Classification: G00, G10, G20

Pages: 4–14

Evloeva L.B. Saint Petersburg State University, St. Petersburg, Russian Federation

L'vova N.A. Saint Petersburg State University, St. Petersburg, Russian Federation

Subject The article deals with the international financial comparisons methodology. Within the framework of the study, we address the potential of non-parametric models to assess financial development assessment. Nonparametric models are by the International Monetary Fund and the World Economic Forum, however, they require further development in view of current challenges.
Objectives The research aims to assess the potential of nonparametric models in the international financial comparisons methodology.
Methods The research methodology appeals to the theory of financial systems, including the assumption of the phenomenon of financial exuberance. Given this assumption, the Financial Development Index that is developed using a nonparametric approach, has been tested on emerging economies.
Results The main research result is our model of the Financial Development Index. The novelty of the model is that the assessment takes into account the national innovation potential, which is becoming an increasingly important factor in financial development. Applying the proposed Index, we managed to rank the investigated countries by the level of financial development and identify their strengths and weaknesses.
Conclusions The potential of nonparametric models in the international financial comparisons methodology should be considered as high enough. These models are easy to use and enable to consider the specifics of analyzed information. Decomposition of the Financial Development Index by country reveals special aspects of financial systems, which should be taken into account by their participants and regulators of the financial sector.

Keywords: financial system, financial market, financial development, financial development index


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