Volatility transmission across South African financial markets: does the bull – bear distinction matter?
- Authors: Jaramba, Toddy
- Date: 2011
- Subjects: Finance -- South Africa , Financial institutions -- South Africa , Monetary policy -- South Africa , Portfolio management -- South Africa , Stock exchanges -- South Africa , Foreign exchange -- Mathematical models , Bond market -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1106 , http://hdl.handle.net/10962/d1013396
- Description: The volatility transmission in financial markets has important implications for investment decision making, portfolio diversification and overall macroeconomic stability. This paper analyses volatility transmission across four South African financial markets that is the stock, bond, money and foreign exchange markets, using daily data for the period 2000-2010. It also shows whether the volatilities in the SA financial markets present a different behaviour in bull and bear market phases. The effects of the international markets volatility to the local markets volatility was also looked at in this study. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, EGARCH and TARCH. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated together with block exogeneity, impulse response and variance decomposition. The study found that there is limited volatility transmission across the SA financial markets. The study also found that the money market is the most exogenous of all markets since the other three financial markets volatility is insignificant to the money market (see impulse response results). For the bond market, volatility transmission was characterized with a decreasing trend. With regard to international markets volatility, it concluded that, the shocks in the international markets will eventually affect the movement in the local markets. The results also highlighted that, world and local markets are important in accelerating the volatility transmission in SA financial markets depending on whether they are in their bull or bear phases. In the case of South Africa, the study found that volatility transmission across markets is higher during bear market periods than bull market periods. Basing on the study results which show that the volatility transmission is limited across SA financial markets, the implication to local and international investors is that there is a greater potential for diversifying risk by investing in different South African financial markets.
- Full Text:
- Date Issued: 2011
- Authors: Jaramba, Toddy
- Date: 2011
- Subjects: Finance -- South Africa , Financial institutions -- South Africa , Monetary policy -- South Africa , Portfolio management -- South Africa , Stock exchanges -- South Africa , Foreign exchange -- Mathematical models , Bond market -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1106 , http://hdl.handle.net/10962/d1013396
- Description: The volatility transmission in financial markets has important implications for investment decision making, portfolio diversification and overall macroeconomic stability. This paper analyses volatility transmission across four South African financial markets that is the stock, bond, money and foreign exchange markets, using daily data for the period 2000-2010. It also shows whether the volatilities in the SA financial markets present a different behaviour in bull and bear market phases. The effects of the international markets volatility to the local markets volatility was also looked at in this study. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, EGARCH and TARCH. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated together with block exogeneity, impulse response and variance decomposition. The study found that there is limited volatility transmission across the SA financial markets. The study also found that the money market is the most exogenous of all markets since the other three financial markets volatility is insignificant to the money market (see impulse response results). For the bond market, volatility transmission was characterized with a decreasing trend. With regard to international markets volatility, it concluded that, the shocks in the international markets will eventually affect the movement in the local markets. The results also highlighted that, world and local markets are important in accelerating the volatility transmission in SA financial markets depending on whether they are in their bull or bear phases. In the case of South Africa, the study found that volatility transmission across markets is higher during bear market periods than bull market periods. Basing on the study results which show that the volatility transmission is limited across SA financial markets, the implication to local and international investors is that there is a greater potential for diversifying risk by investing in different South African financial markets.
- Full Text:
- Date Issued: 2011
Financial instability in South Africa : trends and interactions within the financial markets
- Authors: Shikwambana, Jamela
- Date: 2007 , 2013-08-06
- Subjects: Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1043 , http://hdl.handle.net/10962/d1005911 , Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Description: This study seeks to investigate the trends and interactions of market volatility as a source of instability in the South African financial markets. Financial instability can be manifested in the form of banking and currency crisis, institutional failures and extreme asset price volatility. This study, however, focuses on a single aspect of financial instability - asset price volatility. Asset price volatility reflects changes in market expectations as investors react to such changes, and thus on its own is not necessarily a source of instability. However, volatility spillovers can propagate volatility shocks across the market, increasing the risk of widespread instability. Using a combination of graphical and trend analysis as well as more formal estimation techniques, the study examined volatility in the stock, money and foreign exchange markets. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, TARCH and EGARCH. An analysis of volatility interactions and the transmission of volatility shocks across the market is crucial to understanding financial instability. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated. This framework allowed us to examine the propagation of shocks across the markets. Volatility in the financial markets was found to be highly persistent and in the case of exchange rates, volatility was also characterised by an increasing trend. Significant linkages between the financial markets were found. The links also extended to the volatility relationship as evidenced by significant volatility spillovers across the markets. While volatility spillovers from the money market were found in the stock market and the foreign exchange market, no volatility spillovers from these markets were found in the money market. Thus the money market was identified as the major source of volatility spillovers and shocks in the financial markets. These results highlighted the role of monetary policy in the financial system, specifically the need to make monetary policy stable and predictable to ensure that interest rate shocks are not an additional source of instability. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
- Date Issued: 2007
- Authors: Shikwambana, Jamela
- Date: 2007 , 2013-08-06
- Subjects: Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1043 , http://hdl.handle.net/10962/d1005911 , Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Description: This study seeks to investigate the trends and interactions of market volatility as a source of instability in the South African financial markets. Financial instability can be manifested in the form of banking and currency crisis, institutional failures and extreme asset price volatility. This study, however, focuses on a single aspect of financial instability - asset price volatility. Asset price volatility reflects changes in market expectations as investors react to such changes, and thus on its own is not necessarily a source of instability. However, volatility spillovers can propagate volatility shocks across the market, increasing the risk of widespread instability. Using a combination of graphical and trend analysis as well as more formal estimation techniques, the study examined volatility in the stock, money and foreign exchange markets. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, TARCH and EGARCH. An analysis of volatility interactions and the transmission of volatility shocks across the market is crucial to understanding financial instability. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated. This framework allowed us to examine the propagation of shocks across the markets. Volatility in the financial markets was found to be highly persistent and in the case of exchange rates, volatility was also characterised by an increasing trend. Significant linkages between the financial markets were found. The links also extended to the volatility relationship as evidenced by significant volatility spillovers across the markets. While volatility spillovers from the money market were found in the stock market and the foreign exchange market, no volatility spillovers from these markets were found in the money market. Thus the money market was identified as the major source of volatility spillovers and shocks in the financial markets. These results highlighted the role of monetary policy in the financial system, specifically the need to make monetary policy stable and predictable to ensure that interest rate shocks are not an additional source of instability. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
- Date Issued: 2007
The behaviour and fundamental determinants of the real exchange rate in South Africa
- Authors: Takaendesa, Peter
- Date: 2006
- Subjects: Foreign exchange rates -- South Africa , Terms of trade -- South Africa , Finance -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:960 , http://hdl.handle.net/10962/d1002694 , Foreign exchange rates -- South Africa , Terms of trade -- South Africa , Finance -- South Africa
- Description: Real exchange rates have important effects on production, employment and trade, so it is crucial to understand the factors responsible for their variations. This study analyses the main determinants of the real exchange rate and the dynamic adjustment of the real exchange rate following shocks to those determinants, using quarterly South African data covering the period 1975 to 2005. It begins with a review of literature on the determinants of the real exchange rate and provides an updated background on the exchange rate system in South Africa. An empirical model linking the real exchange rate to its theoretical determinants is then specified. In contrast to previous analyses, this study augments the cointegration and vector autoregression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long run effects and short run dynamic effects on the real exchange rate. The variables that have been found to have a long run relationship with the real exchange rate include the terms of trade, real interest rate differential, domestic credit, openness and technological progress. The estimate of the speed of adjustment coefficient found in this study indicates that about a third of the variation in the real exchange rate from its equilibrium level is corrected within a quarter. The impulse response functions broadly corroborate the theoretical predictions, but only the terms of trade, domestic credit and openness have a significant impact on the real exchange rate in the short run. However, only shocks to the terms of trade and domestic credit have persistent effects on the real exchange rate. Results from the variance decompositions are largely similar to those from the impulse response analysis. The terms of trade, domestic credit and openness are the only variables found to significantly explain the variation in the real exchange rate. The most interesting result that emerged from this analysis and is supported by previous research is that among other determinants, the terms of trade explain the largest proportion of the variation in the real exchange. On balance, the evidence therefore suggests that real exchange rate fluctuations are predominantly equilibrium responses to real and monetary shocks rather than fiscal policy shocks.
- Full Text:
- Date Issued: 2006
- Authors: Takaendesa, Peter
- Date: 2006
- Subjects: Foreign exchange rates -- South Africa , Terms of trade -- South Africa , Finance -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:960 , http://hdl.handle.net/10962/d1002694 , Foreign exchange rates -- South Africa , Terms of trade -- South Africa , Finance -- South Africa
- Description: Real exchange rates have important effects on production, employment and trade, so it is crucial to understand the factors responsible for their variations. This study analyses the main determinants of the real exchange rate and the dynamic adjustment of the real exchange rate following shocks to those determinants, using quarterly South African data covering the period 1975 to 2005. It begins with a review of literature on the determinants of the real exchange rate and provides an updated background on the exchange rate system in South Africa. An empirical model linking the real exchange rate to its theoretical determinants is then specified. In contrast to previous analyses, this study augments the cointegration and vector autoregression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long run effects and short run dynamic effects on the real exchange rate. The variables that have been found to have a long run relationship with the real exchange rate include the terms of trade, real interest rate differential, domestic credit, openness and technological progress. The estimate of the speed of adjustment coefficient found in this study indicates that about a third of the variation in the real exchange rate from its equilibrium level is corrected within a quarter. The impulse response functions broadly corroborate the theoretical predictions, but only the terms of trade, domestic credit and openness have a significant impact on the real exchange rate in the short run. However, only shocks to the terms of trade and domestic credit have persistent effects on the real exchange rate. Results from the variance decompositions are largely similar to those from the impulse response analysis. The terms of trade, domestic credit and openness are the only variables found to significantly explain the variation in the real exchange rate. The most interesting result that emerged from this analysis and is supported by previous research is that among other determinants, the terms of trade explain the largest proportion of the variation in the real exchange. On balance, the evidence therefore suggests that real exchange rate fluctuations are predominantly equilibrium responses to real and monetary shocks rather than fiscal policy shocks.
- Full Text:
- Date Issued: 2006
The economic valuation of cultural events in developing countries: combining market and non-market valuation techniques at the South African National Arts Festival
- Authors: Snowball, Jeanette Dalziel
- Date: 2006
- Subjects: Standard Bank National Arts Festival -- Economic aspects , Performing arts festivals -- Economic aspects -- South Africa -- Grahamstown , Arts -- South Africa -- Economic aspects , Finance -- South Africa , Arts -- South Africa -- Finance , Arts -- South Africa -- Political aspects , Finance, Public -- South Africa , South Africa -- Politics and government -- 1994-
- Language: English
- Type: Thesis , Doctoral , PhD
- Identifier: vital:969 , http://hdl.handle.net/10962/d1002703 , Standard Bank National Arts Festival -- Economic aspects , Performing arts festivals -- Economic aspects -- South Africa -- Grahamstown , Arts -- South Africa -- Economic aspects , Finance -- South Africa , Arts -- South Africa -- Finance , Arts -- South Africa -- Political aspects , Finance, Public -- South Africa , South Africa -- Politics and government -- 1994-
- Description: The arts in many countries, but particularly in developing ones, are coming under increasing financial pressure and finding it difficult to justify the increases in government funding needed to maintain and grow the cultural sector. The trend in cultural economics, as well as in other areas, appears to be towards including qualitative valuations, as well as the more traditional quantitative ones. This thesis argues that the value of cultural events should include long term historical qualitative analysis, financial or economic impact and a valuation of the positive externalities provided by cultural events and that any one of these should only be regarded as a partial analysis. Four methods of valuing the arts using the South African National Arts Festival (NAF) as an example are demonstrated. Firstly, a qualitative historical analysis of the role of the NAF in South Africa’s transformation process from Apartheid to the democratic New South Africa is examined, using theories of cultural capital as a theoretical basis. It is argued that the value of cultural events needs to take into account long-term influences especially in countries undergoing political and social transformation. The second valuation method applied is the traditional economic impact study. Four economic impact studies conducted on the NAF are discussed and methodologies compared. It is concluded that, despite the skepticism of many cultural economists, the method can provide a useful partial valuation and may also be used for effective lobbying for government support of the arts. Chapter four discusses willingness to pay studies conducted at the NAF in 2000 and 2003 (as well as a pilot study conducted at the Klein Karoo Nationale Kunstefees). It is found that lower income and education groups do benefit from the positive externalities provided by the Festival and that this is reflected in their willingness to pay to support it. It is also argued that such contingent valuation studies can provide a reasonably reliable valuation of Festival externalities, but that they may be partly capturing current or future expected financial gains as well. Finally, the relatively new choice experiment methodology (also called conjoint analysis) is demonstrated on visitors to the NAF. The great advantage of this method in valuing cultural events is that it provides part-worths of various Festival attributes for different demographic groups. This enables organizes to structure the programme in such a way as to attract previously excluded groups and to conduct a cost-benefit analysis for each part of the Festival.
- Full Text:
- Date Issued: 2006
- Authors: Snowball, Jeanette Dalziel
- Date: 2006
- Subjects: Standard Bank National Arts Festival -- Economic aspects , Performing arts festivals -- Economic aspects -- South Africa -- Grahamstown , Arts -- South Africa -- Economic aspects , Finance -- South Africa , Arts -- South Africa -- Finance , Arts -- South Africa -- Political aspects , Finance, Public -- South Africa , South Africa -- Politics and government -- 1994-
- Language: English
- Type: Thesis , Doctoral , PhD
- Identifier: vital:969 , http://hdl.handle.net/10962/d1002703 , Standard Bank National Arts Festival -- Economic aspects , Performing arts festivals -- Economic aspects -- South Africa -- Grahamstown , Arts -- South Africa -- Economic aspects , Finance -- South Africa , Arts -- South Africa -- Finance , Arts -- South Africa -- Political aspects , Finance, Public -- South Africa , South Africa -- Politics and government -- 1994-
- Description: The arts in many countries, but particularly in developing ones, are coming under increasing financial pressure and finding it difficult to justify the increases in government funding needed to maintain and grow the cultural sector. The trend in cultural economics, as well as in other areas, appears to be towards including qualitative valuations, as well as the more traditional quantitative ones. This thesis argues that the value of cultural events should include long term historical qualitative analysis, financial or economic impact and a valuation of the positive externalities provided by cultural events and that any one of these should only be regarded as a partial analysis. Four methods of valuing the arts using the South African National Arts Festival (NAF) as an example are demonstrated. Firstly, a qualitative historical analysis of the role of the NAF in South Africa’s transformation process from Apartheid to the democratic New South Africa is examined, using theories of cultural capital as a theoretical basis. It is argued that the value of cultural events needs to take into account long-term influences especially in countries undergoing political and social transformation. The second valuation method applied is the traditional economic impact study. Four economic impact studies conducted on the NAF are discussed and methodologies compared. It is concluded that, despite the skepticism of many cultural economists, the method can provide a useful partial valuation and may also be used for effective lobbying for government support of the arts. Chapter four discusses willingness to pay studies conducted at the NAF in 2000 and 2003 (as well as a pilot study conducted at the Klein Karoo Nationale Kunstefees). It is found that lower income and education groups do benefit from the positive externalities provided by the Festival and that this is reflected in their willingness to pay to support it. It is also argued that such contingent valuation studies can provide a reasonably reliable valuation of Festival externalities, but that they may be partly capturing current or future expected financial gains as well. Finally, the relatively new choice experiment methodology (also called conjoint analysis) is demonstrated on visitors to the NAF. The great advantage of this method in valuing cultural events is that it provides part-worths of various Festival attributes for different demographic groups. This enables organizes to structure the programme in such a way as to attract previously excluded groups and to conduct a cost-benefit analysis for each part of the Festival.
- Full Text:
- Date Issued: 2006
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