S.E.E. article
DYNAMIC INTERDEPENDENCE BETWEEN CRUDE OIL PRICES AND FOREIGN EXCHANGE MARKET IN NIGERIA (Download sample)
Date Uploaded: Jan 27 2021 10:45AM
Modelling volatility interdependence between crude oil and foreign
exchange markets returns provides useful insights into how
information is transmitted from the crude oil market to the foreign
exchange market and vice versa. This paper evaluates dynamic
read moreModelling volatility interdependence between crude oil and foreign
exchange markets returns provides useful insights into how
information is transmitted from the crude oil market to the foreign
exchange market and vice versa. This paper evaluates dynamic
interdependence between crude oil and foreign exchange markets by
applying Baba, Engle, Kraft and Kroner (1990) (BEKK) specifications
to crude oil prices and Naira/USD exchange rates. Estimates from the
BEKK-GARCH (1,1) model indicate evidence of unidirectional shock
and volatility transmission from crude oil market to foreign exchange
market in Nigeria. Evidence of unidirectional volatility transmission
provides support for partial interdependence between the markets in
Nigeria. This finding has important implications for financial risk
management, foreign exchange market regulation and crude oil
revenue management policy.
WEAK LINKS AMONG RISK, RETURN AND VOLUME IN TIME AND FREQUENCY DOMAINS (Download sample)
Date Uploaded: Jan 27 2021 10:45AM
The classical portfolio theory suggests that higher returns of an asset
are justified by the higher risk it carries, supported by multi-factor
cross-sectional regressions. By investigating the time series and
frequency transformation of the Russell 3000
read moreThe classical portfolio theory suggests that higher returns of an asset
are justified by the higher risk it carries, supported by multi-factor
cross-sectional regressions. By investigating the time series and
frequency transformation of the Russell 3000 constituents, this study
shows that there are weak links between risk and return, as well as
trade volume and return. Only 19,02% (13,45%) constituents have
significantly positive (negative) risk and return relationships. In addition,
only 7,66% (12,77%) of the returns are positively (negatively) related
to trade volume. We use the cross-wavelet power spectrums to provide
additional evidence on the weak links. The conclusions from crosssectional analysis might lead to the asset misallocation in a time series setting.
A FORWARD GUIDANCE INDICATOR FOR THE SOUTH AFRICAN RESERVE BANK: IMPLEMENTING A TEXT ANALYSIS ALGORITHM (Download sample)
Date Uploaded: Jan 27 2021 10:45AM
The expansion of central bank communications and the increased use
thereof as a policy tool to manage expectations have led to an area of
research, semantic modelling, that analyses the words and phrases used
by central banks. We use text-mining and
read moreThe expansion of central bank communications and the increased use
thereof as a policy tool to manage expectations have led to an area of
research, semantic modelling, that analyses the words and phrases used
by central banks. We use text-mining and text-analysis techniques on South
African Reserve Bank monetary policy committee statements to construct an
index measuring the stance of monetary policy: a forward guidance indicator
(FGI). We show that, after controlling for market expectations, FGIs provide
significant explanatory power for future changes in the repurchase interest rate
(the primary monetary policy instrument). Their out-of-sample predictive power
is, however, weak. Furthermore, we show that FGIs are primarily driven by
inflation expectations, which highlights the strong link between the SARB’s
communication strategy and its inflation targeting mandate. In fact, we observe
a systematic anti-inflation bias in the communicated stance of monetary
policy—both absolutely and asymmetrically. Overall, Monetary Policy
Committee (MPC) statements reflect relevant information on the inflationary
stance and policy decisions of the South African Reserve Bank (SARB), but,
since forecasts are conditional on current information, they provide unreliable
forward guidance. Given this finding, MPC statements should emphasize the
conditional nature of the SARB’s stance, and what that implies for the future
path of the policy rate.
ANALYSIS OF THE DEPENDENCE STRUCTURE BETWEEN MINERALS PRICES AND THE RAND/USD EXCHANGE RATE USING COPULAS (Download sample)
Date Uploaded: Jan 27 2021 10:45AM
Copula functions are flexible tools for modelling the dependence
structure between variables. In this research, we extend the
literature on currency-commodity relationship using copulas. We
examine the dependence structure between gold, platinum mineral
read moreCopula functions are flexible tools for modelling the dependence
structure between variables. In this research, we extend the
literature on currency-commodity relationship using copulas. We
examine the dependence structure between gold, platinum mineral
prices and RAND/USD exchange rate. ARMA (1, 1)-EGARCH (1, 1)
and ARMA(1, 1)-APARCH (1, 1) models under different error terms
including normal, student-t and skewed student-t were fitted to the
returns of commodity prices and the exchange rate. Constants and time
varying copulas were then employed to examine the commoditycurrency dependence structure. The results show evidence of a
positive, strong dependence between gold, platinum prices and the
RAND/USD exchange rate. The analysis relies on Clayton, rotated
Clayton, Student-t, Gumbel, rotated Gumbel, Plackett and Joe Clayton
copulas and provide an indication of leverage effects. The results of the
time varying Normal copula indicate that fluctuations in gold and
platinum prices generate Rand/USD volatility.
COMMODITY PRICE SHOCKS AND FINANCIAL SECTOR STABILITY IN COMMODITY DEPENDENT COUNTRIES IN SOUTHERN AFRICA (Download sample)
Date Uploaded: Jan 27 2021 10:45AM
This paper examines the impact of negative commodity price shocks
on financial sector stability in selected Southern African countries,
namely Angola, Botswana, Mozambique, Namibia, Tanzania, Zambia
and Zimbabwe. Using multivariate panel data regression
read moreThis paper examines the impact of negative commodity price shocks
on financial sector stability in selected Southern African countries,
namely Angola, Botswana, Mozambique, Namibia, Tanzania, Zambia
and Zimbabwe. Using multivariate panel data regression analysis, with
fixed effects from 2000 to 2015, the study shows that commodity price
downturns result in increased non-performing loans and reduced bank
profitability. Specifically, negative commodity price shocks reduce
profitability as measured by the return on assets and return on equity.
In addition, the study shows that there is an adverse impact on financial
sector conditions, using a financial condition index as a proxy. The
index was derived from a combination of measures of non-performing
loans, return on assets and regulatory capital adequacy ratios, using a
three variable dynamic factor model. The main transmission
mechanisms through which commodity prices shocks affect financial
stability are GDP growth, fiscal revenue, savings and the size of the
fiscal deficit.
IDENTIFYING THE DRIVERS OF TRADE FINANCE IN SOUTH AFRICA (Download sample)
Date Uploaded: Jan 27 2021 10:45AM
Trade finance (or bank intermediated trade finance) plays an integral
role in facilitating trade across the globe: most studies assert that
trade finance (TF) forms part of more than 80% of total global trade.
Although TF has increased in importance for
read moreTrade finance (or bank intermediated trade finance) plays an integral
role in facilitating trade across the globe: most studies assert that
trade finance (TF) forms part of more than 80% of total global trade.
Although TF has increased in importance for policy makers after the
financial crises of 2008, most studies conducted over the last decade
(2009 onward) focussed on the supply side of TF and how its reduction
has hampered trade. By applying a robust least squares maximum
likelihood estimation technique, and using bi-squares and median
absolute deviation-centred (MADMED) scaling, this study investigates
the international and domestic variables driving demand for TF for
several listed South African companies. This study identified 12
instances of individually significant relationships between certain
industries and the independent variable (both domestic and
international financial and economic variables). It also found significant
regression results for the retail industry at first differences and identified
that macro-economic and financial variables (such as the US gross
domestic product and the rand-British pound exchange rate) influenced
the demand for retail TF. The sole significant domestic variable was
South African bank asset-to-capital ratios, showing that both financial
and economic factors are relevant in identifying TF demand drivers of
South African companies.
USING DYNAMIC PANEL DATA MODELING TO STUDY NET FDI INFLOWS IN MENA COUNTRIES (Download sample)
Date Uploaded: Sep 18 2020 8:45AM
Foreign direct investment (FDI) plays a critical role in providing financial capital needs, technology transfer, and creating more jobs in the host country. It also helps economies to increase competitiveness and productivity, thereby increasing exports and
read moreForeign direct investment (FDI) plays a critical role in providing financial capital needs, technology transfer, and creating more jobs in the host country. It also helps economies to increase competitiveness and productivity, thereby increasing exports and enhancing opportunities for growth and development. Middle East and North Africa (MENA) countries are in desperate need of more FDI inflows to resolve their economic problems. This paper investigates the determinants of net FDI inflows to 23 countries in MENA region during the period from 1995 to 2017 by using static and dynamic panel data analysis. The results indicate that macro determinants, such as gross domestic product (GDP) growth rate, openness, the inflation rate, and public expenditure have a significant impact on net FDI inflows. In addition, we observe that rents from natural resource (oil), exchange rate, and total reserves of foreign exchange and monetary gold do not significantly influence FDI.
TRADE OPENNESS, INSTITUTIONS AND FINANCIAL DEVELOPMENT IN SUB-SAHARAN AFRICA (Download sample)
Date Uploaded: Sep 18 2020 8:45AM
The study aims to determine the connection between trade openness, institutions and financial development for 26 countries in sub-Saharan Africa over the period 1982-2016. The analysis relies on system GMM estimation with 5-year (non-overlapping) averaged
read moreThe study aims to determine the connection between trade openness, institutions and financial development for 26 countries in sub-Saharan Africa over the period 1982-2016. The analysis relies on system GMM estimation with 5-year (non-overlapping) averaged data. The results reveal no evidence of a significant impact of trade openness on financial development. There is, however, evidence of a positive (though statistically weakly significant) impact of institutional quality on the development of the financial sector. There is also no evidence of a significant joint impact of the trade openness and institution quality on financial sector development.
EXPLORING THE BEHAVIOUR OF ACTIVELY MANAGED, MAXIMALLY DIVERSIFIED PORTFOLIOS (Download sample)
Date Uploaded: Sep 18 2020 8:45AM
Maximising returns is often the goal of asset management, but in the current (2020) low-interest investment environment, plagued by political, trade and economic uncertainty, managing portfolio risk also plays a significant role. Maximally diversified (MD)
read moreMaximising returns is often the goal of asset management, but in the current (2020) low-interest investment environment, plagued by political, trade and economic uncertainty, managing portfolio risk also plays a significant role. Maximally diversified (MD) portfolios are assembled with an emphasis on risk management, not return outperformance. This approach can yield considerable benefits for risk-averse investors. While some work has been done applying this technique to passive portfolios, little to none has been undertaken on active portfolios, restricted by tracking errors (TEs) and evaluated relative to a benchmark. For the first time, actively managed maximum diversification portfolios are scrutinised over time. In booming markets, actively managed MD portfolios generate significant outperformance, but during recessionary periods, no significant benefits emerge. Returns and Sharpe ratios are weak and volatilities high (albeit lower than other strategies). As TE increases, actively managed MD portfolio weights become less confined and adjust ever closer to the overall (unconstrained) MD portfolio weights. Fewer benefits are realised as TEs increase for actively managed MD portfolios compared with the unconstrained alternative.
IS THERE AN INTERDEPENDENCE IN FOREIGN EXCHANGE MARKETS DURING NON-CRISIS PERIODS? EMPIRICAL EVIDENCE FROM MENA COUNTRIES (Download sample)
Date Uploaded: Sep 18 2020 8:45AM
The purpose of this article is to investigate the existence of volatility interdependence in different fixed-exchange-rates markets during non-crisis periods. Based on daily exchange rates from four Middle East and North African (MENA) countries (Saudi
read moreThe purpose of this article is to investigate the existence of volatility interdependence in different fixed-exchange-rates markets during non-crisis periods. Based on daily exchange rates from four Middle East and North African (MENA) countries (Saudi Arabia, Kuwait, Morocco, and Tunisia), we use an original approach, combining proper segmentation of our data sample with univariate and multivariate GARCH models. The main result is that fixed exchange rates do show different levels of volatility interdependence to the international market in both stable and crisis periods. Moreover, the type of exchange rate regime plays a significant role in maintaining the interdependence, while introducing flexibility reforms tend to reduce it and to increase the impacts of past shocks.