Finance

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An analysis of herd behaviour in the South African stock exchange.
(2013) Niyitegeka, Olivier.; Tewari, Devi Datt.
The stock market is an important part of the economy of a country. It plays a crucial role in the growth of the industry and commerce of the country that eventually affects the economy of the country to a great extent. This is the reason that the government, industry and the country in general keep a close watch on the happenings of the stock market. It is in this frame of mind that the current study investigates the presence of herd behaviour in the South African stock market. Herd behaviour occurs when investors disregard their individual information and base their trading decision on the actions of others. Herd behaviour was measured by testing whether or not there is a negative relationship between the dispersion of stock returns and the market return. The study also investigates whether herd behaviour is asymmetric in different market conditions, namely bull versus bear markets, highly volatile markets versus less volatile markets and high trading volumes versus low trading volumes. The results point towards a considerable presence of herd behaviour among investors at the Johannesburg Stock Exchange (JSE). An analysis of the asymmetric effect of herding on various market conditions reveals that herding is more pronounced during a bull market than a bear market, during low trading volume rather than high trading volume periods and is more prevalent during periods of low market volatility than in highly volatile markets. This study also used the Autoregressive Distributed Lag (ARDL) approach to cointegration in order to examine short- and long- term dynamics of investors’ herd behaviour at the JSE. The study noted that herd behaviour is not instantaneous; rather it takes place with a lapse in time. However, the unrestricted error correction results suggest that herd behaviour has a rather high speed of adjustment, implying that herding is a short-lived phenomenon.
An analysis of herd behaviour in the South African stock exchange.
(2013) Niyitegeka, Olivier.; Tewari, Devi Datt.
The stock market is an important part of the economy of a country. It plays a crucial role in the growth of the industry and commerce of the country that eventually affects the economy of the country to a great extent. This is the reason that the government, industry and the country in general keep a close watch on the happenings of the stock market. It is in this frame of mind that the current study investigates the presence of herd behaviour in the South African stock market. Herd behaviour occurs when investors disregard their individual information and base their trading decision on the actions of others. Herd behaviour was measured by testing whether or not there is a negative relationship between the dispersion of stock returns and the market return. The study also investigates whether herd behaviour is asymmetric in different market conditions, namely bull versus bear markets, highly volatile markets versus less volatile markets and high trading volumes versus low trading volumes. The results point towards a considerable presence of herd behaviour among investors at the Johannesburg Stock Exchange (JSE). An analysis of the asymmetric effect of herding on various market conditions reveals that herding is more pronounced during a bull market than a bear market, during low trading volume rather than high trading volume periods and is more prevalent during periods of low market volatility than in highly volatile markets. This study also used the Autoregressive Distributed Lag (ARDL) approach to cointegration in order to examine short- and long- term dynamics of investors’ herd behaviour at the JSE. The study noted that herd behaviour is not instantaneous; rather it takes place with a lapse in time. However, the unrestricted error correction results suggest that herd behaviour has a rather high speed of adjustment, implying that herding is a short-lived phenomenon.
An analysis of share prices and economic activity in South Africa: an NARDL approach.
(2021) Naidoo, Thiasha.; Moores-Pitt, Peter Brian Denton.
An integral component of economic activity rests on the performance of share prices as it influences consumer and business confidence which in turn affects the performance of the overall economy. The progressive characteristics of share prices and its successive role as an indicator of economic growth has been widely documented in advanced and developing economies such as South Africa but with evidence allowing for nonlinearity and asymmetric movements, being less predominant. The key objective of this thesis is to re-examine an existing issue by using a more complex method of analysis to determine whether fluctuations in the stock market influence the economic growth in South Africa. This study assesses share price fluctuations and its impact on economic growth, with the aim of identifying the nonlinearity and asymmetric effects in the relationship by taking into consideration a primary and sectoral analysis, within a South African context. As such, this study utilised various different methodological techniques that established cointegration; identified the existence of structural breaks; detected long and short-run relationships and determined the effects of nonlinearity and asymmetric adjustments between the stock market and economic activity, covering the period of 1999 to 2019. It was established that the relationship between economic growth and stock prices exhibit evidence of structural breaks. Furthermore, it was concluded that there is a strong link between the stock market and economic activity with the 2007/2008 global financial crisis. Most importantly, this thesis intended to determine the nonlinearity and asymmetric impacts that stock market fluctuations have on economic activity in South Africa. It was exhibited that there is evidence of strong nonlinear cointegration in the relationship. Additionally, there is a strong presence of nonlinearity and asymmetric adjustment in the relationship between stock market fluctuations and economic activity. Therefore, this study concluded that there is strong evidence of nonlinearity and asymmetric adjustment in the cointegrating relationship and depicted that economic growth is sensitive to stock market fluctuations in South Africa, which represents a novel contribution to the literature.
Capital structure and financial performance of South African state-owned entities.
(2019) Marimuthu, Ferina.; Kwenda, Farai.
Abstract available on the PDF.
Competition, regulation and stability in Sub-Saharan Africa commercial banks.
(2017) Akande, Joseph Olorunfemi.; Kwenda, Farai.
Abstract available on the PDF.
Country risk components and financial asset markets interdependence: evidence from South Africa=Izinkomba-ngozi Zezwe Kanye Nokubambisana Ezimpahleni Zomnotho Ezimaketheni: Ubufakazi Obuvela eNingizimu Afrikha.
(2023) Nhlapho, Rethabile Nokulunga.; Muzindutsi, Paul-Francois.; Obalade, Adefemi Alamu.
Over the last few decades, financial markets have become more interlinked. As a result, there has been an increased demand for information across markets and thus, a need for country-specific risk ratings. Risk ratings are vital for attracting investments and capital inflows in financial markets by providing signals regarding a country’s economic, financial and political fundamentals. However, there remains a lack of consensus on the nature of the relationship between country risk and key asset markets, namely, the stock market, bond market, housing market, and gold and oil markets. This doctoral study evaluates the impact of country risk components on asset returns and their interlinkages for the period from February 2000 to December 2019 within the South African context. The first analytical paper (presented in Chapter 3) evaluates the dynamic relationship between South African asset markets using the Markov Switching Vector Autoregressive (MSVAR) model. The findings showed that the response of all asset returns to shocks in the economic system was regime-dependent. Moreover, shocks emanating from the exchange rate market and bond market explained most of the variation in the bull and bear regimes. The second paper (presented in Chapter 4) investigates the impact of country risk on various asset markets ing a Non-Linear Autoregressive Lag model (NARDL). This study fills the gap in understanding the reaction of stock, bond, housing, currency, gold and oil markets to positive and negative innovations in country risk components. The findings show evidence of long-run cointegrating relationships between asset returns and country risk components and indicate that country risk components are effective determinants of domestic asset market returns. The third paper (presented in Chapter 5) examines the effects of economic, financial and political risk on asset market linkages using a combination of the Dynamic Conditional Correlation Generalised Autoregressive Conditional Heteroscedasticity (DCC-GARCH) and NARDL models. The findings show that the correlation between asset markets was positive in stable market conditions and showed negative comovements during periods of market turmoil. Financial and political risk ratings were found to be the main drivers of asset market comovements in the short run. Anincrease in South African (domestic) political risk had a larger effect in the long run and was found to be an important determinant of asset return comovements. This result provides evidence suggesting that asset markets are informationally inefficient and changes in financial and political risk ratings can be used to predict price movements. Overall, this doctoral dissertation’s findings highlight the diversification benefits of domestic assets during periods of market uncertainty. Moreover, the results show that examining the different components of country risk provides better insight into the impact of country risk on asset markets. The results of this dissertation have significant implications for asset allocation decisions and risk management. From a policy perspective, it is crucial to formulate policies that address political instability as it plays a pivotal role in determining asset return behaviour, and consequently, the financial stability of the country. Furthermore, the results have implications for traditional asset pricing models that only capture the effects of market risk to predict future asset market behaviour. A more comprehensive understanding of the risks of specific markets is vital for more informed financial decision-making. Future research could extend the scope of the study to investigate the composite political risk factors that explain asset market behaviour. Iqoqa Ukuqagula ngenzuzo yempahla kusemqoka, ikakhulu ezimaketheni ezisathuthuka, ikakhulu ngoba abatshalizimali emhlabeni bazifaka engozini enkulu ngenxa yalezi zimakethe. Okugcina ngokuthi kube nesidingo esikhulu sokuthi amazwe afakwe esikalini njengalokhu ababambi-qhaza kwezomnotho befisa ukunciphisa ubungozi abazifaka kubo. Ukukalwa kobungozi kubalulekile ukuheha abatshali zimali kanye nokuhelela kwengqalabhizinisi emaketheni yezimali ngokunika izinkomba zomnotho, ezezimali kanye nesisekelo sezombangazwe wezwe. Kushosha ukuvulana komsuka wobudlelwane phakathi kobungozi obuthathwa yizwe, singabala isitokwe semakethe, imakethe yesivumelwano sembolekomali, imakethe yezindlu kanye nemakethe yegolide nemakethe kawoyela. Lolu cwaningo luhlole ubudlelwane phakathi kwezimpahla ezisezimakethe eNingizimu Afrikha kusetshenziswa imodeli i-Markov Switching Vector Autoregressive (MSVAR) nemodeli i-Dynamic Conditional Correlation Generalised Autoregressive Conditional Heteroscedasticity (DCC-GARCH). Umthelela wobungozi obuthathwa yizwe enzuzweni yempahla kanye ne-covariance yayo ihlolwe kusetshenziswa imodeli i-Non-Linear Autoregressive Lag (NARDL). Ngaphezukwakho konke, imiphumela iveze ukwehluka kwenzuzo empahleni yangaphakathi ngesikhathi sokungazinzi kwezimakethe. Imiphumela yocwaningo iveza ukuthi izimpendulo zayo yonke inzuzo yezimpahla azinalo uzinzo kwezomnotho kuncike kuHulumeni osuke uphethe. Ukungazinzi okusukela enanini lokuhwebelana kwezimakethe kanye nesivumelwano sobolekomali ezimaketheni kucacise ukungefani okuningi koHulumeni be-the bull and bear regimes. Ubungozi bezomnotho nezepolitiki kube yikho okuyizizathu zesixakaxaka ezimpahleni zezimakethe, esikhathini esifushane. Ukuthuthuka kobungozi kwezepolitiki eNingizimu Afrikha (ngaphakathi) kube nomthelela ngokuhamba kwesikhathi kwaphinde kwaba nesandla kwi-asset return linkages. Lokhu kuchaza ukuthi izimpahla zezimakethe azinalo ulwazi oluphelele kanye nezinguquko zokukalwa kwezomnotho nezepolitiki kungasetshenziswa ukuqagula ukunyakaza kwamanani. Imiphumela isemqoka kakhulu kubabumbi-zinqubomgomo, kangangoba, izinqubomgomo mazibunjwe ukudambisa ukungazinzi kwezepolitiki njengoba ineqhaza elibalulekile kwezomnotho wezwe. Ngaphezu kwalokho, imiphumela inomthelela kumamodeli ajwayelekile e-asset pricing avame ukuveza umthelela wobungozi bezimakethe ukuqagula ikusasa lezimpahla nemikhuba yakhona. Ukuqonda ubungozi ngokusabalele kwezimakethe kubalulekile ekuthathweni kwezinqumo ezinqala kwezomnotho.
Credit referencing, bank lending methodologies and SME access to finance in Ghana=Ukubheka izikweletu, Izindlela Zokuboleka ebhange, kanye Nokufinyelela Kwama-SME Kwezezimali eGhana.
(2021) Gyimah, Kofi Nyarko.; Muzindutsi, Paul-Francois.; Akande, Joseph Olorunfemi.
Academic as well as policymakers acknowledge the importance that access to credit to entrepreneurs plays in stirring the economic growth and development in both developed and developing countries. Despite the increasing use of use different lending methodologies in their dealings with Small and Medium Scale Enterprises (SMEs), a significant segment of SMEs are yet to benefit from these methodologies. This study examined the association between bank lending methodologies, Credit Reference Information (CRI), and SMEs ' access to credit in Ghana. This study adopted a mixed-methods research approach characterised by the quantitative (cross-sectional) approach and qualitative technique. The accessible population of SMEs was 2,354, out of which a sample of 1,061 SMEs was determined using the simple random sampling method. The sample applied to the qualitative aspect of the study was eight managers who were selected using the purposive sampling method. A survey questionnaire and interview were used to gather data. Quantitative data were analysed using Pearson’s correlation test, Exploratory Factor Analysis (EFA), and Ordinary Least Squares (OLS) regression analysis. Thematic analysis was employed to analyse qualitative data from interviews. Data analysis revealed that two domains of methodologies, namely Collateral Based Records (CBRs) and Personal Business Characteristics (PBCs), were applied to the participants to a great extent. The average scores associated with these dimensions were significantly higher than the median of the measurement scale. Furthermore, responses from the qualitative analysis suggest that CBRs as a methodology were more applied, but financial institutions also applied PBCs. Applying the two methodologies is necessary as they play unique roles in lending, though CBRs better cushions banks against default. This implies that both transaction-based and relationship-based lending methodologies are applied mainly by banks in Ghana though transaction-based lending is the most applied. The study contributed to the literature by proposing a framework of steps that SMEs in Ghana can take towards successful loan applications. Iqoqa Ucwaningo luhlole ukuhlobana phakathi kwezindlela zokuboleka amabhange, i-CRI, nama-SME ukuthola isikweletu e-Ghana. Nakuba izincwadi zangaphambili zenza ukungabaza emandleni alezi zindlela ezimbili zokubikezela ngempumelelo ukufinyelela kwezikweletu kumafemu ama-SME, lolu cwaningo lubonisa ukuthi i-CRI inyusa amandla alezi zindlela zokuboleka ukuze zisize ukuthuthukisa ukufinyelela kwesikweletu. Lolu cwaningo lwamukele indlela yocwaningo exubile ebonakala ngendlela yobuningi (i-cross-sectional) kanye nezindlela zekhwalithi. Inani labantu abafinyelelekayo lama-SME laliyizinkulungwane ezimbili amakhulu amathathu namashumi amahlanu nane (2,354) lapho isampula lama-SME liyinkulungwane eyodwa namashumi ayisithupha nanye (1,061) anqunywa kusetshenziswa indlela elula yokusampula engahleliwe. Isampula esetshenziswe esicini sekhwalithi yocwaningo bekungabaphathi abayisiyishiyagalombili (8) abakhethwe kusetshenziswa indlela yesampula eyinhloso. Imininingo yaqoqwa ngokusetshenziswa kwemibuzo yocwaningo kanye nezingxoxo. Imininingo yobuningi yahlaziywa ngokuhlolwa kokuhlobanisa kuka-Pearson, ukuhlaziya i-Exploratory Factor Analysis (EFA), kanye nokuhlaziywa kokuhlehla kwe-Ordinary Least Squares (OLS). Ukuhlaziywa ngokwengikimba kwasetshenziswa ukuze kuhlaziywe imininingo yekhwalithi evela ezingxoxweni. Ukuhlaziywa kwemininingo kuthole ukuthi izizinda ezimbili zezindlela, okuyi-Collateral Based Records (CBRs) kanye nezimo zebhizinisi lomuntu siqu, phecelezi, i-Personal Business Characteristics (PBC), zisetshenziswe kubahlanganyeli ngezinga eliphezulu. Okusho ukuthi, izikolo ezimaphakathi ezihlotshaniswa nalezi zilinganiso beziphezulu kakhulu kunemidiyeni yesikali sokulinganisa. Izimpendulo ezivela ekuhlaziyweni kwekhwalithi ziphakamisa ukuthi ama-CBR njengendlela yokusebenza asetshenziswa kakhulu kodwa ama-PBC nawo asetshenziswa izikhungo zezezimali. Ukusetshenziswa kwalezi zindlela ezimbili kuyadingeka njengoba zidlala indima eyingqayizivele ekubolekeni, nakuba ama-CBR evikela kangcono amabhange ngokuzenzakalelayo. Umthelela walokhu ukuthi amabhange womabili izindlela zokuboleka ezisekelwe ekwenziweni kanye nezisekelwe ebudlelwaneni zisetshenziswa kakhulu amabhange aseGhana nakuba imali ebolekiwe esekelwe entendeni isetshenziswa kakhulu. Ucwaningo lube negalelo ekubhalweni ngokuphakamisa uhlaka lwezinyathelo ama-SME aseGhana angazithatha ukuze afake isicelo semalimboleko esiyimpumelelo.
Credit risk modelling for private firms under distressed economic and financial conditions: evidence from Zimbabwe.
(2021) Matenda, Frank Ranganai.; Sibanda, Mabutho.; Chikodza, Eriyoti.; Gumbo, Victor.
Since the outburst of the recent 2007 - 2008 global financial and economic crisis, modelling of credit risk for private non-financial firms under economic and financial stress has been receiving a lot of regulatory and scientific attention the world over. Nevertheless, the quandary is that there seems to be no well-defined estimation procedures and industry consensus on how to incorporate economic downturn conditions in private firm credit risk models, which have led to the introduction of diverse default probability, exposure at default and rate of recovery prediction methodologies. Moreover, there is no consensus on which predictor variables have the most significant impact on private firm credit risk under downturn conditions. This study strives to design forecasting models in order to estimate key credit risk components (default probability, recovery rate and exposure at default) for private nonfinancial firms under downturn conditions in a developing economy. The main aim of the thesis is to identify and interpret the drivers of probability of default, recovery rate and credit conversion factor. In the first part, the study reviews literature using a scoping review framework in order to identify the reasons and motives for research, emerging trends and research gaps in modelling bankruptcy risk for private nonfinancial corporations in developing economies. The second part of the thesis creates stepwise logit models to detect the default probability for privately-owned non-financial corporates under downturn conditions in a developing country. In the third section of the study, stepwise logit models are designed to separately forecast probability of default for audited and unaudited privately-traded non-financial corporations under downturn conditions in a developing economy. The fourth part of the thesis develops stepwise Ordinary Least Squares regression models to predict workout recovery rates for defaulted bank loans for private non-financial corporates under downturn conditions in a developing market. In the fifth section of the study, stepwise Ordinary Least Squares regression models are developed to estimate the credit conversion factor to precisely predict, at the account level, the exposure at default for defaulted private nonfinancial corporations having credit lines under downturn conditions in a developing economy. To fit the models, the study adopts unique real-world data sets pooled from an anonymised major Zimbabwean commercial bank. This study finds that the forecasting of probability of bankruptcy for private non-financial corporates in developing economies is an appropriate discipline that has not been properly studied and has some distinctive and unexplored zones due to its complexity and the diverse business ethos of private firms. The thesis discovers that accounting information is imperative in predicting the default probability, rate of recovery and exposure at default for Zimbabwean private non-financial corporations under downturn conditions. Further, the study reveals evidence indicating that the forecasting results of the designed credit risk models are improved by incorporating macroeconomic variables. The incorporation of macroeconomic factors is vital since it enables stress testing and provides a way of modelling the default probability, recovery rate and exposure at default under downturn conditions. In light of these findings, it is recommended that firm and/or loan features, accounting information and macroeconomic factors should be adopted when predicting credit risk parameters for private non-financial corporates under downturn conditions in a developing country.
Cryptocurrency volatility, volatility spillovers and the effect of global investor sentiment.
(2021) Rathilal, Sahil.; Muguto, Hilary Tinotenda.; Nhlapo, Rethabile.
Cryptocurrencies continue to enjoy attention from investors and policymakers and their growing usage has fortified this attention. However, it is their volatility and the volatility spillovers among the cryptocurrencies have been most intriguing. Various factors such as susceptibility to speculative pressures, uncertainty regarding their valuation, and the lack of regulation have been forwarded as possible explanations. However, these factors have not fully explained cryptocurrency volatility and volatility spillovers, suggesting that there could be other salient factors. In this study, investor sentiment, described as the noise-driven investors' perception of the risk and cash flows of an asset, was forwarded as one of those salient factors. Specifically, this study sought to examine the nature of volatility and volatility spillovers among currencies and their subjectivity to global investor sentiment. Bitcoin, Ethereum and Ripple and an investor sentiment index constructed from a set of five proxies over a period spanning February 2018 to August 2021 were employed. For the analysis, the study employed GARCH models to examine the nature of cryptocurrency volatility, the ADCC-GARCH framework and the Diebold-Yilmaz spillover index to examine the nature of cryptocurrency volatility spillovers, and the Toda-Yamamoto model to examine the causality between cryptocurrencies and investor sentiment. The study found evidence of significant sentiment effects in both mean and variance equations of the cryptocurrencies. Similarly, the analysis of comovements and spillovers showed that there were significant sentiment effects on the phenomena. Failure to account for investor sentiment could, therefore, lead to poor estimation of volatility and volatility spillovers. The results have implications for investors, speculators, and policymakers alike. The results obtained provided an insight on the effect of investor sentiment on cryptocurrency volatility and showed how the market reacts to the investors' behaviour where their actions influence volatility. The investors and speculators may then use the insight on sentiment to determine the market volatility to earn returns accordingly. Further, policymakers can use this to determine the optimal regulations to prevent excessive volatility in this market. The study, therefore contributes to the debate on the drivers of cryptocurrency volatility. It also contributes to literature by introducing a measure of investor sentiment.
Determinants of spending habits: a case study of University of KwaZulu-Natal students.
(2017) Obagbuwa, Oloyede.; Kwenda, Farai.
As the cost of university education continues to increase, university students’ spending habits have become topical. Good spending habits among students will guarantee their financial stability. Spending habits are an aspect of financial behaviour; a component of financial literacy. Financial literacy comprises three components: financial knowledge, financial attitudes, and financial behaviours. The relationship between these components has been examined, especially among university students. However, the relationship between financial knowledge, financial attitude together with demographic characteristics and spending habits have not been welladdressed in the extant literature, particularly among university student’s in South Africa. This study aims to fill the knowledge gap on students’ spending by examining the determinants of their (university student’s) spending habits. This study uses spending habits as the dependable variable, and financial knowledge, financial attitude, gender, age, family background, racial group, years in university, the course of study and financial aid as independent variables. The study employed quantitative research method; it used questionnaire adapted from previous studies. The reliability of the scales for the constructs was confirmed using Cronbach Alpha and the coefficient values more than 0.70. A total of 479 completed questionnaires were collected and used for the study. The study employed Statistical Packages for Social Sciences (SPSS 24) to analyse the data. Descriptive statistics were used to analyse the demographic characteristics and the results were presented in tables and charts. Binary Logistic Regression and ANOVA were used to examine the relationship between the explanatory variables and the dependable variable. The finding revealed that financial attitude can influence students’ spending habits while other explanatory variables did not have a significant influence on students’ spending habits. The study further sought to investigate the significant relationship between gender and spending habits, the course of study and spending habits, and racial groups and spending habits using Crosstabulation and Chi-Square analysis. The findings shows that there is no statistically significant relationship between gender and spending habits, the course of study and spending habits, and racial groups and spending habits of the respondents. These findings suggest that a financial literacy programme by the university authority with emphasis on financial attitudes will enhance the good spending habits of the students. However, the research findings only reflect the responses of the study population of the College of Law and Management as well as College of Humanities of the University of KwaZulu-Natal.
The effect of disaggregated country risk on the South African equity portfolio returns under changing market conditions.
(2022) Jaffar, Sandisele Ayesha.; Muzindutsi, Paul-Francois.; Habanabakize, Thomas.
Globalization has resulted in the rapid increase of international trade and international mobility of financial capital. Capital inflows into South Africa date back to the early 1990s and these inflows continue to grow. With increased investments into the country, investors can diversify some local risks. Still, they also become exposed to the different components of country risk (political, financial, and economic risk). However, depending on the investor's risk appetite, country risks may encourage or discourage foreign portfolio investments. This study examined the effects of disaggregated country risk on South African equity portfolio returns under changing market conditions. Additionally, this study compared how South African domestic and foreign equity portfolios respond to changes in country risk components under bearish and bullish market conditions. A Markov switching approach was employed to analyse monthly data of 19 equity portfolios for the sample period spanning from January 2000 to December 2019. The results suggested that domestic and foreign portfolios spent more time in downward trends. Moreover, the effects of country risk components depend on market conditions for both domestic and foreign portfolios. In both cases, the impact of country risk components is more significant in bull than in bear market conditions. Essentially, economic and financial risk had a more substantial impact on domestic portfolios, whereas political risk was more significant on foreign portfolios. In this way, political risk cannot be diversified through investing in foreign portfolios. These findings have crucial implications as they indicate that it is vital to maintain a stable economic, financial and political environment to encourage sustainable portfolio investment.
The effect of inclusions and exclusions of stocks from the JSE Top 40 and FTSE/JSE mid cap indices on liquidity.
(2022) Naicker, Milanca.; Peerbhai, Faeezah.
The inclusion and deletions of stock from the equity indices provide an important insight into a company’s performance. There is evidence there are no studies on the effects of inclusions and exclusions of liquidity in a South African market as previous studies in such a market relates to price and index rebalancing effects as a result of inclusions and exclusions to the FTSE/JSE and JSE Top 40. The insights that international studies provide are useful and these effects explored in a South African context would be useful and close the gap in this area of research and this is one of the main aims of the study. The lack of studies analysing the impact on liquidity as a result of inclusions and exclusions to the JSE Top 40 and Mid Cap Index is a disadvantage to South African investors, companies, and regulators. Therefore, the primary objective of this study is to investigate the effect of inclusions and exclusions on the Top 40 and Mid Cap Index on liquidity as well as to determine how does the size of a firm impacts the liquidity effects of an index addition or deletion. The paper seeks to determine these effects by using an event study methodology by regressing a number of different liquidity proxies (turnover, aggregate turnover, bid-ask spread, percentage spread and Amihud Illiquidity measure) using daily data for the companies that have been included and excluded from the indices. This study analyses 44 inclusions and exclusions on the JSE Top 40 and 73 and 81 inclusions and exclusions on the Mid Cap index from January 2010 to December 2020. The results from this study provide important insights into the effects of index revisions and firm size on liquidity. For stocks that form part of the inclusions to an index, there in an increase in liquidity as a result of the increased trade after the stock was included in the Top 40 and provides support from the Downward Sloping Demand Curve Hypothesis, Price Pressure Hypothesis and Liquidity Cost Hypothesis. For exclusions stocks, shows a decrease in volume traded and increasing spreads for the Top 40 and indicates that this diminished liquidity observed for such companies that find themselves excluded in both the Top 40 and Mid Cap indices which supports the information cost liquidity hypothesis.
Effect of macroeconomic variables on stock returns under changing market conditions: evidence from the JSE sectors.
(2020) Moodley, Fabian.; Nzimande, Ntokozo Patrick.; Muzindutsi, Paul-Francois.
The equity market is seen as one of the key determinants of the fraternity of finance, as it unites investors with ambitions to invest in marketable instruments to earn a return on their investments. The equity market not only unites investors with similar ambitions, but is an important economic stimulus because it contributes a significant portion to economic growth. Underlying financial theories illustrate an interaction between stock market returns and macroeconomic variables. However, recently a debate has arisen in relation to the type of effect that is evident between macroeconomic variables and stock market returns. This debate is centred on the efficient market hypothesis (EMH), which depicts a linear effect and the adaptive market hypothesis (AMH), which advocates for a nonlinear affect. Thus, there is no empirical agreement regarding the relationship between macroeconomic variables and stock market returns. In an attempt to contribute to the debate, the study examined the interaction between macroeconomic variables and the Johannesburg Stock Exchange (JSE) indices returns under changing market conditions. The study’s objective was to establish the effect between macroeconomic variables and stock market returns in a bullish and a bearish market condition and to compare the expected duration of each market condition among the selected JSE index returns. The study used the Markov regime-switching model of conditional mean with constant transition probabilities. Moreover, preliminary tests in the form of graphical visualisations, descriptive statistics, correlation tests, unit root tests and stationarity tests with and without structural breaks were considered. The variables that formed part of the JSE consisted of the real values associated with the JSE All-Share Index, Industrial Metals and Mining Index, Consumer Goods 3000 Index, Consumer Services 5000 Index, Telecommunications 6000 Index, Financials 8000 Index and the Technologies 9000 Index. The macroeconomic variables included the real values of inflation (CPI) rate, industrial production rate, short-term interest rate, long-term interest rate, money supply (M2) and real effective exchange rate (REER). The JSE index returns series and the macroeconomic variable series contained monthly data that ranged from January 1996 to December 2018. The findings of the regressed model illustrated the JSE All-Share Index returns are negatively affected by long-term interest growth rate in a bull market condition, by short-term interest growth rate in a bear market condition, and positively affected by industrial production growth rate in a bear market condition. The Industrial Metal and Mining Index returns are negatively affected by inflation growth rate in the bear market condition. The Consumable Goods Index returns are positively influenced by growth rate of real effective exchange rate in a bullish market condition, negatively affected by inflation growth rate, short-term interest growth rate and growth rate of REER in a bear market condition. The Consumable Service Index returns are negatively affected by short-term interest growth rate in a bull market condition and long-term interest growth rate in a bear market condition. The Telecommunication Index returns are negatively affected by long-term interest growth rate in the bull and bear market conditions and positively affected by growth rate of REER in a bear market condition. The Financial Index returns are negatively affected by long-term interest growth rate in a bull and bear market and short-term interest growth rate in a bear market condition. The Technologies Index returns are positively affected by growth rate of REER in a bull market condition. Moreover, the bull market condition prevailed the longest across the JSE selected indices. The findings of this study are consistent with AMH as it suggests that the efficiency and inefficiency of equity markets are owing to changing market conditions. Hence, macroeconomic variables affect the stock market returns differently under changing market conditions. Moreover, the findings were seen to contradict EMH as it suggests equity markets are efficient. As a result, the alternating efficiency effect under changing market conditions suggests that the effect of macroeconomic variables on stock market returns is explained by AMH and could be better modelled by nonlinear models. Thus, policymakers should consider that the effect of macroeconomic variables on JSE index returns varies with regimes and, therefore, develop appropriate policies.
Effectiveness of credit risk management practices of Ghanaian commercial banks in agricultural finance.
(2021) Nyebar, Abraham.; Muzindutsi, Paul-Francois.; Obalade, Adefemi Alamu.
Lending to the agricultural sector by commercial banks in Ghana is characterised by high credit risk even though empirical evidence suggests that commercial banks can minimize this exposure by using appropriate practices to mitigate against adverse effects. This implies that the credit risk management practices adopted by Ghanaian commercial banks may be inadequate and ineffective due to credit risk identification challenges or problems in implementing credit risk management policies. The study investigated the methods adopted by commercial banks to identify credit risk, the effectiveness of the implementation of credit risk management policies, and the strategies used by Ghanaian commercial banks to mitigate credit risk in agricultural finance. The mixed methods approach, involving the use of quamtitative method using survey questionnaire and qualitative method through interviews and policy documents, was adopted. Data were analysed using Principal Components Analysis (PCA), ANOVA and MANOVA, documents, and thematic analysis. Findings indicated that some of the methods used by commercial banks to identify credit risk in agricultural finance do not meet commercial banks’ credit risk management needs. Also, some other methods that proved effective in minimising credit risk were not frequently used by commercial banks. Also, most Ghanaian commercial banks lacked technical units and technical employees with agricultural training backgrounds to manage the credit related to agricultural finance. Further, agricultural activities lacked insurance schemes to protect against credit risk. The ANOVA and MANOVA tests showed significant differences in credit risk management practices among Ghanaian commercial banks. The study recommeneded the need for a robust credit risk management strategies to mitigate credit risk in agricultural finance. The agricultural sector should be supported with refined policy and implementation documents informed by the reality of borrowers’ inability to honour loan contracts. The findings point to the needs to increase credit guarantee schemes and create incentive-based risk-sharing systems for small and medium agriculture enterprises; and establish more robust credit referencing bureau institutions to reduce credit risk.
Equity super sectors connectedness and its determinants: evidence from the Johannesburg Stock Exchange.
(2023) Babatunde, Samuel Lawrence.; Doorasamy, Mishelle.; Obalade, Adefemi A.
Everything depends on everything else. More importantly, macroeconomic and financial connections have proved to be more fundamental compared with others. The reality of dynamic connectedness and time varying correlation as precursors to contagion and systemic risk are proven through the super sectors, namely the Automobile and Parts, Chemical, Telecommunication, Technology, Energy, Health, Finance, Insurance and General Industrial super sectors of the Johannesburg Stock Exchange, with daily sample period from 1 January 2006 to 31 December 2021. The first objective is to determine the systematically important super sectors in the different extreme periods. The second objective is to determine the return linkages of the equity super sector, while the third objective is to examine the dynamic connectedness and the shock propagation among the super sectors during the extreme risk events. Finally, the fourth objective is to evaluate the determinants of volatility connectedness of the JSE equity super sectors. The different extreme events considered alongside the full sample periods for this study are the 2007/2008 Global financial crisis (GFC), the 2009-2011 European Debt Crisis (EDC), the 2017-2018 U.S-China trade war (U.S-China TWR) and the late 2019-2021 COVID-19 pandemic. This study employs the Page et al., (1999) model with the Granger causality model of Billio et al., (2012) to accomplish objective one. While in objective two, the DECO-GARCH model of Engle and Kelly (2012) was employed to establish the time varying equicorrelations status of the super sectors through the rolling window analysis. For objective three, the realised volatilities of the super sectors were obtained through the Garman and Klass (1980) model and thereafter, the dynamic connectedness and direction of propagation were determined through the Diebold and Yilmaz (2009, 2012 and 2014) model alongside the TVP-VAR of Antonakakis et al., (2020). The study further employed the nonlinear autoregressive distributed lag (NARDL) model to determine the asymmetrically significant determinants of total sectorial volatility connectedness of the JSE market in the fourth objective. Findings from this study revealed the Telecommunication super sector is the most systematically important super sector during the full sample size analysis. It was revealed that the equicorrelation of the super sectors is positive and high, this was also the case for the rolling window results except for the years not within the extreme period, yet the least equicorrelation was 0.1491 for the year 2012-2013, while the highest was 0.7022 for the COVID-19 pandemic period. It was also established that the total connectedness of the sample period and the different extreme periods were high, suggesting a high interconnectedness of the super sectors. Lastly, the determinant estimation results show LSAVI, LDMR and LEPU as the asymmetrically significant drivers of total sectorial volatility connectedness on the JSE market. This study is the first to investigate sectorial connectedness, equicorrelation and the determinants of volatility connectedness in South Africa and in Africa at large. This study contributes to the limited literature on systemically important equity super sectors and sectorial dynamic connectedness and dynamic equicorrelation in the emerging market. First the result shows that the Telecommunication sector is the most important node for the EDC, the U.SChina trade war and the COVID-19 pandemic periods. While the Insurance and the Energy are the highest ranked super sectors amongst the network of super sectors for the full sample period and for the GFC period, hence making these super sectors the most systemically important nodes during these selected periods. It also shows that the sectorial common equicorrelation on the JSE is high and time varying with higher values for the year where extreme events occurred such as the GFC, EDC, and the COVID-19 pandemic period. This result is also a revelation that during the period of financial or economic crisis correlation of sectors are high compared to non-crisis periods. Third, the dynamic connectedness results show that the sectors on the JSE are interconnected and a shock to one sector can have a spillover effect on another close sector in the value-chain. Fourth, the South African volatility index, the Economic Policy Uncertainty and the Domestic Market Return are symmetrically and asymmetrically significant determinants of the sectorial volatility connectedness of JSE market. These findings from this study have implications for economic policy makers, portfolio and fund managers, foreign and local investors, sector regulators and researchers/academics in the field of finance.
Financial development, economic freedom, innovative facilities, economic wellbeing and Inclusive finance in Sub-Saharan Africa.
(2023) Nutassey, Victoria Abena.; Sibanda, Mabutho.; Nomlala, Bomi Cyril.
This thesis presents three empirical papers that seek to improve inclusive finance and economic wellbeing in Sub-Saharan Africa (SSA). Employing a generalized method of moment for 30 SSA countries: The first paper concerned itself with the role of regulation in the relationship between financial development and inclusive finance. It found a significant positive direct effect of financial development on inclusive finance and a significant positive direct influence of regulation on financial inclusion, but found a significant positive role of regulation in the relationship between financial development and inclusive finance up to a threshold of 6.3354, above which regulation negatively modulates. This suggests that when regulation exceeds that threshold of 6.3354 in SSA, it subsequently hinders the financial sector from rendering enough services that can help improve inclusive finance. Hence, policymakers should always check the mean of their economies' regulations against the threshold of 6.3354 before deciding whether to be more restrictive or not. Also, Paper two sheds light on the collaborative role of innovative facilities and economic freedom in inclusive finance. The study recorded that improving economic freedom promotes financial inclusion while expanding innovative facilities in SSA inhibits it. Again, innovative facilities improve the impact of economic freedom on inclusive finance in SSA but subsequently diminish the effect of economic freedom on inclusive finance after certain thresholds. This implies that in SSA, innovative facilities-induced freedom-inclusive finance is relevant only when it has not covered certain thresholds because undesirable results are revealed after the thresholds. Thus, technical and financial knowledge should be enhanced in addition to lowering the cost of using innovative facilities to access financial services to prevent negative influence after the thresholds. Paper three assessed the complementary role of economic freedom on the influence of inclusive finance on economic wellbeing. The findings revealed that financial inclusion enhances the wellbeing of residents, economic freedom improves the wellbeing of the populace and a free environment maximizes the role of inclusive finance on economic wellbeing in SSA. Hence, less restrictions are recommended to be adopted by policymakers in SSA when it comes to enhancing financial inclusion's influence on economic wellbeing.
Financial risk management and bank profitability in South African banks.
(2017) Mafu, Sibusiso Mfundo.; Sibanda, Mabutho.
This study examined the connection between financial risk management and banks’ profitability in a South African context. The relationship was segmented into three major financial risks; credit risk, liquidity risk and market risk. Theory assumes risk to have a negative relationship with profitability; however, some studies have proved otherwise. This study used top five banks in South Africa over a10-year period spanning 2006 to 2015 and employed Fixed Effect Model based on the Hausman Test to estimate the relationship between credit, liquidity and market risk with profitability measure return on equity. “The credit risk indicators (independent variables) employed in this study are non-performing loans to total loans, and loans and advances to total deposit. Two control variables leverage ratio and logarithm of total asset as proxy for firm size were also used. All variables were regressed against ROE as a profitability measure (dependent variable). The findings indicate a significant relationship between profitability and non-performing loans, and leverage ratio at 1%, loans and advances to total deposit at 5%; while firm size (log total assets) is significant at 10% significance level. The liquidity risk indicators (independent variables) employed are loans and advances to total deposit, non-performing loans to total loans, LOG(total assets), market capitalisation to total assets, non-deposit dependence/external finance, equity to total assets. Control variables are non-performing loans, firm size (log total assets), GDP growth rate, and ratio of financing gap. The findings indicate that loans and advances to total deposit, non-performing loans, market capitalisation to total assets, and non-deposit dependence are significant at 1% significance level, firm size (log total assets), at 5% ; while equity to total assets, GDP growth and ratio of financing gap are insignificant. The market risk indicators (independent variables) employed with three main variables are market capitalisation (log stock) to proxy equity risk, exchange rate to proxy foreign exchange risk, and lending interest rate to proxy interest rate risk. Three control variables were employed; inflation rate, GDP and monetary supply (M3). The findings show market capitalisation (log stock) is significant at 1%, exchange rate and GDP are significant at 10% significance level. An insignificant and negative relationship with lending interest rate was found. With the control variables, the findings showed that there is an insignificant and positive relationship between inflation rate and return on equity and a negative relationship between GDP and return on equity. The results are in conflict with the expected sign. The study suggests that, with regards to credit risk, banks in South Africa should enhance their capacity in credit analysis and loan administration while the regulatory authorities should pay more attention to banks’ compliance to relevant regulatory requirements by the Basel Committee on Banking Supervision, put more effort in attracting deposits as they are a major determinant of liquidity followed by external funding liability and seek for effective hedging strategies to deal with the market risk volatilities.
Financial sustainability, liquidity and outreach of deposit-taking microfinance institutions: evidence from low income Sub-Saharan Africa.
(2020) Moyo, Zibusiso.; Mukorera, Sophia Zivano Elixir.; Nyatanga, Phocenah.
The United Nations’ Sustainable Development Goals regard microfinance provision as a developmental tool in fighting poverty and financial exclusion which are particularly rife in Low-Income Sub-Saharan Africa (LISSA). Therefore, this study analysed the financial sustainability, liquidity and outreach of LISSA Deposit-taking Microfinance Institutions (DTMFIs) through three objectives. The first objective investigated why the LISSA DTMFIs fall short in achieving financial sustainability despite having commendable deposit volumes. Panel data spanning 2006 to 2017 obtained through desk research from the Microfinance Information Exchange of 64 DTMFIs sampled across 18 LISSA countries was utilized. Through probit regression, the study found that the likelihood of attaining financial sustainability is reduced by small scale deposits, loan loss provisions, deteriorating loan portfolio quality and costly branch coverage. The study recommends low cost, large scale deposit operations; efficiency in managing operating expenses; credit enhancements; and restrictive deposit-taking licencing. The second objective assessed the relationship between liquidity and deposit insurance as the LISSA DTMFIs default in meeting withdrawals on deposits. The fixed panel of 64 DTMFIs was utilized. The estimated random effects results showed that explicit deposit insurance is positive and significantly related to liquidity. The study concluded that designing and implementing explicit deposit insurance schemes mitigates liquidity risk in depository microfinance. Therefore, the LISSA regulators ought to include microfinance deposits in formulating deposit insurance policies. The third objective examined whether pursuing outreach and financial sustainability in depository microfinance exhibit a trade-off or mission drift, as this is not yet clear for deposits. The System Generalized Method of Moments was adopted, using the fixed panel of 64 DTMFIs. No significant relationship was found between financial sustainability and the average deposit balance (outreach depth); but financial sustainability was negative and significantly related to number of depositors (outreach breadth). The study concluded that in the LISSA’s depository microfinance sector, there is neither a mission drift nor trade-off in outreach depth, but a trade-off exists in outreach breadth. Therefore, it is recommended that the DTMFIs segment their markets and develop appropriate deposit products for each market segment and also leverage on cost-efficient deposit-taking methods such as the use of agents and mobile phones.
Firm investment behavior: the role of leverage, liquidity and cash flow volatility: African evidence.
(2017) Edson, Vengesai.; Kwenda, Farai.
The main corporate financial strategic pillars that drive a firm’s value are mainly financing and investment. Conventional finance theories hold that leverage is power that amplifies investment. Cash flows and liquidity are the lifeblood of any firm which gives life to and fuels higher investments. To this end, there is an indispensable interplay between financing, investment, cash flows and liquidity. Existing studies on investment decisions are largely centered on developed economies but no studies, to the best of my knowledge, have been done in developing economies like those in Africa. However, there is persistent behavioural and structural heterogeneity between firms in developing and developed economies, resulting in diverging economic implications for a firm’s behaviour. This study was motivated by the observation that leverage levels in African firms are generally low but now on the rise as compared to developed economies, investment levels are stagnant, low liquidity of stock markets coupled with cash flows that are too volatile. Given the progressively vital role developing economies have for global growth, this study sought to find how this trend in leverage levels is impacting on investment in Africa, a concern for the global economy. Given the inseparability of investment and leverage from liquidity and cash flow, the study also examines the role of liquidity and cash flows in investment decision making. This study extends the reduced form investment model to a dynamic panel data model estimated with a novel technique; the generalised method of moments (GMM) on the panel data of 815 listed African non-financial firms. The methodology controls for unobservable heterogeneity, endogeneity, autocorrelation, heteroscedasticity and probable bi-directional relationships. The study found evidence that leverage constrains investment and its impact is more pronounced in firms with low-growth opportunities. These results suggest that investment policy does not solely depend on the neoclassical fundamentals but also on financing strategy and are inclined to the hypothesis that leverage plays a disciplinary role to avoid over-investment. The study also found that stock market liquidity is associated with higher average capital expenditures. The effect of liquidity on investment was found to be heterogeneous with financial constraints and growth opportunities. The study reveals that cash flows are not only an important determinant of investment decisions, but the variability of the cash flows also has a significant bearing on the investment policy. The experimental analysis shows that an increase in debt may reduce the negative effect of leverage on investment. However, the shallow, illiquid debt markets of African firms would mean higher costs and this countermands any benefits from debt. Based on these, findings, the study recommends that African firms should consider relying more on internally generated funds and the stock markets so as not to suppress any available cash flows and improved liquidity. African firms should trade off the effects of managing volatility and the resulting negative impact of cash flow volatility on investment levels.
Firm size and the day of the week effect on the Johannesburg Stock Exchange.
(2020) Mutemeri, Linah.; McCullough, Kerry-Ann Frances.
The Efficient Market Hypothesis (EMH) asserts that stock prices always entirely reflect all available information and that stock prices follow a random walk, where future stock prices are not predictable based on historical prices (implying stock market efficiency). If the stock market is not efficient, abnormal returns can be realised by beating the stock market through observing and trading on certain patterns (anomalies) exhibited by past stock prices. Various anomalies have been documented, including the Day of the Week (DOW) effect (the tendency of a stock market to exhibit on average low daily returns in the beginning of the week (mostly on Mondays) and high returns towards the end of the week (mostly on Fridays). Examining the DOW effect is particularly interesting, as it demonstrates daily patterns on which investors can take advantage of this anomaly to realise excess returns on daily basis. One of the reasons that has been put forward as to what initiates the DOW effect, is measurement error as when a variable of interest either explanatory or dependent variable has some measurement error independent of its value. Thereby, leading to the notion that the DOW effect is present in medium and small markets or firms with low merchantability (firm size effect). However, from the South African literature, still has a gap about the existence of the DOW effect across firm sizes on the JSE and its cyclical (appearing or disappearing) changes over time. Firstly, the study examined the existence of the DOW effect on the JSE in firm sizes on a full sample (1995 to 2019) utilising daily log-returns. The best-fit models were selected from a family of GARCH models, EGARCH (2, 1) and EGARCH (3, 1) models better fitted the AltX and the large index respectively and TGARCH (3, 1) and TGARCH (1, 1) better fitted medium and small indices respectively. The results showed that the DOW effect exists on the JSE stock exchange in three out of all the four investigated indices (medium, small and AltX except the large), particularly the DOW effect existed more in returns than in the volatility of those returns. Secondly, a rolling window analysis was utilised to examine the changes of the DOW effect over 1995- 2019 where the best-fit model for each sub-period was utilised. The results showed that the existence of the DOW effect is not constant over time concluding a cyclical behaviour (appearing and disappearing in some sub-periods). However, the highest frequency of appearance of the DOW effect appeared in the medium, small and the AltX indices confirming the notion that the DOW anomaly is mostly found in companies with low capitalisation.

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