Can creditor bail-in trigger contagion? The experience of an emerging market
The successful bail-in of creditors in African Bank, a small South African monoline lender, provides an opportunity to evaluate the intended and unintended consequences of new resolution tools. Using a data set that matches quarterly, daily and nancial-instrument level data, I show that the bail-in led to money-market funds `breaking the buck’, triggering signi cant […]
Capturing the Black Swan: Scenario-Based Asset Allocation with Fat Tails and Non-Linear Correlations
This paper highlights the shortfalls of Modern Portfolio Theory (MPT). Amongst other flaws, MPT assumes that returns are normally distributed; that correlations are linear; and that risks are symmetrical. We propose a dynamic and flexible scenario-based approach to portfolio selection that incorporates an investor’s economic forecast. Extreme Value Theory (EVT) is used to capture the […]
Diversification measures and the optimal number of Stocks in a portfolio: An information theoretic explanation
This paper provides a plausible explanation for why the optimum number of stocks in a portfolio is elusive, and suggests a way to determine this optimal number. Diversification is dependent on the number of stocks in a portfolio and the correlation structure. Adding stocks to a portfolio increases the level of diversification, and consequently leads […]
Regionalization versus Internationalization of African Stock Markets: A frequency-time domain analysis
This paper examines regional and global co-movemnt of Africa’s stock markets using the three-dimensional continuous Morlet wavelet transform methodology. The analyses which are done in segments investigate co-movements with global markets; bilateral exchange rates expressed in US dollars and euro; and four regional markets in Africa. First, we find evidence of stronger co-movements broadly narrowed […]
How are Africa’s emerging stock markets related to advanced markets? Evidence from copulas
This paper examines the dependence structure between two developed and four emerging African stock markets in a copula framework. Using daily data from January 2000 to April 2014, our empirical results show that dependence structure between African and international stocks varies overtime, but generally weak. There is asymmetric and weak tail dependence for all the […]
Global commodities and African stocks: insights for hedging and diversification strategies
Owing to frequent fluctuations in global markets, diversifying across emerging markets is increasingly becoming a necessity. Despite this, a cloud of uncertainty surrounds the relative capacities of emerging markets to provide the required shields for international investors, especially during extreme market conditions. In this paper, we explore the relative potentials of African equities to provide […]
The Influence of Higher Moments and Non-Normality on the Sharpe Ratio: A South African Perspective
Although the general assumption is that daily and monthly returns data are normally distributed (Aparicio & Estrada, 2001), the correct statistical distribution of returns must first be established (Linden, 2001), as it constitutes one of the elementary building blocks that will ensure accurate financial analyses (Taylor, 1986). The assumption of normality is also critical when […]
A decision-theoretic model of asset-price underreaction and overreaction to dividend news
We combine new developments in decision theory with a standard consumption-based asset-pricing framework. In our model the efficient market hypothesis is violated if and only if agents beliefs’ express ambiguity about the stochastic process driving economic fundamentals. Asset price fluctuations result because agents with ambiguous beliefs are prone to a con firmatory bias in the interpretation […]
The valuation of biodiversity conservation by the South African Khomani San “bushmen” community
The restitution of land to the Khomani San “bushmen” and Mier “agricultural” communities in May 2002 marked a significant shift in conservation in the Kgalagadi area in South Africa. The Khomani San and Mier communities were awarded land inside and outside the Kgalagadi Transfrontier Park. Given that the Khomani San interact more with nature, biodiversity […]
Global Financial Crises and Time-varying Volatility Comovement in World Equity Markets
This paper studies volatility comovement in world equity markets between 1994 and 2008. Global volatility factors are extracted from a panel of monthly volatility proxies relating to 25 developed and 20 emerging stock markets. A dynamic factor model (FM) is estimated using two-year rolling window regressions. The FMs time-varying variance shares of global factors map […]
Determinants of Stock Market Prices in Namibia
This paper investigates the macroeconomic determinants of stock market prices in Namibia. The investigation was conducted using a VECM econometric methodology and revealed that Namibian stock market prices are chiefly determined by economic activity, interest rates, inflation,money supply and exchange rates. An increase in economic activity and the money supply increases stock market prices, while […]
Risk-return tradeoff and the behaviour of volatility on the South African stock market: Evidence from both aggregate and disaggregate data
The study analyses the nature and behaviour of volatility, the risk-return relationship and the long-term trend of volatility on the South African equity markets, using aggregate-level, industrial-level and sectoral-level daily data for the period 1995-2009. By employing dummy variables for the Asian and the sub-prime financial crises and the 11 September political shock, the study […]
Value, Size and Momentum Portfolios in Real Time: The Cross-Section of South African Stocks
We implement a recursive out-of-sample method to examine anomalies-based ex-ante predictability in the cross-section of stock returns. We obtain a series of simulated out-of-sample returns, consistent with investors using only prior information when choosing predictor variables. We find that, by commonly used performance criteria, real-time trading strategies based on size, value and momentum effects would […]
Application of a multi-criteria integrated portfolio model for quantifying South Africa’s crude oil import risk
The availability of secure energy resources at sustainable quantities and affordable prices is fundamental to South Africa’s current objective of enhancing and sustaining its current growth trajectory. Economic reforms, since the early 1990s, have led to the economy growing at an average rate of almost 5% per annum. A major consequence of this strong growth […]
Modelling Systemic Risk in the South African Banking Sector Using CoVar
In this paper we model systemic risk by making use of the conditional quantile regression to identify the most systemically important and vulnerable banks in the South Africa (SA) banking sector. We measure the marginal contributions of each bank to systemic risk by computing the delta Conditional Value at Risk which measures the difference between […]
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