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The Influence of Political, Economic, and Financial Risks on the South African Global Equity Portfolio Returns under Changing Market Conditions
Get PDFCountry risk is one of major determinants of investors’ decisions in pursuit of diversification opportunities and equity portfolio returns maximisation. This study investigates the effect of disaggregated country risk on South African global equity portfolio returns under fluctuating market conditions. Markov regime switching model was applied monthly data from January 2000 to December 2019. The study findings revealed that the foreign equity portfolio market moves between inefficiency and efficiency. Implying that country risks impact equity portfolio returns in foreign countries and the latter changes with market conditions. The results also indicated that more equity portfolios stay in bear market for extended periods compared to the amount of time spent in bull market. In other words, foreign portfolio equity market has been dominated by declining returns over the sample period. Additionally, all the assessed portfolios were affected by the country risk components. Yet, political risk proved to have dominant effect on foreign portfolios than other risk components. Consequently, political risk cannot be diversified through investing in alternative foreign portfolios
The Role of Investor Attention in ETF Liquidity
Get PDFETFs have gained increasing popularity due to their numerous benefits, including their higher liquidity relative to their counterparts. However, the influence of this increasing attention on their liquidity remains unexplored. Therefore, this study investigates the effect of investor attention on ETF liquidity. To achieve this objective, 80 South African ETFs are examined from January 2018 till December 2022 using a panel regression approach. The findings of this study suggest that an increase in investor attention increases the price impact but reduces the cost of trading, ultimately, leading to an improvement in ETF liquidity. Further analysis reveals that investor attention has a greater impact on ETFs tracking domestic benchmarks, and impacts only ETFs tracking equities, bonds, and property. The analyses also reveal that the effect of investor attention is only significant in the short-run and is eliminated in the long-run, and these effects have been intensified by the COVID-19 pandemic. Global investor attention, however, has an opposing effect on ETF liquidity. These findings are important for investors trading in ETF markets and regulators controlling these markets
The Dynamic Linkages among Gold Prices, Stock Prices, the Exchange Rate and Interest Rate in South Africa
Get PDFThe fundamental aim of this study is to examine the intricate interplay among gold prices, interest rates, exchange rates, and stock price indices within the context of South Africa. To achieve this, both a conventional Vector Autoregression Model and a Bayesian Vector Autoregression Model were applied to monthly data spanning from June 1995 to December 2022. The findings indicate that a positive shock in stock prices triggers positive reactions in exchange rates, gold prices, and interest rates. Conversely, a positive shock in interest rates induces negative reactions in both gold prices and stock prices. Moreover, a positive shock in gold prices elicits negative responses in both interest rates and stock prices. Additionally, a positive shock in exchange rates prompts positive reactions in gold prices and interest rates, while simultaneously resulting in a negative response in stock prices
Financial Inclusion and Economic Growth: Exploring a New Pattern of Functional Relationships
Get PDFThis paper endeavours to investigate the nexus between financial inclusion and economic growth, elucidating the positive effects stemming from the broadening utilization of financial services within society using panel data encompassing ten countries —Argentina, Armenia, Chile, Costa Rica, Georgia, India, Moldova, Montenegro, Poland, and Saudi Arabia— over the periods of 2010-2019.
The findings reveal that there exist initial positive effects on GDP concomitant with the expansion of financial services usage, followed by subsequent positive effects that may manifest irrespective of further expansion. From an econometric standpoint, this implies a positive response of the GDP indicator to the augmentation of financial services expansion indicators and conversely, a negative response to their decline. Thus, it concludes mixed relationships, characterized by the amalgamation of two distinct responses of the dependent variable concerning its association with the independent variable
Fiscal Councils and Creative Accounting in EU Member States
Get PDFWe study the relationship between fiscal councils and creative accounting in 27 European Union (EU) countries. We use stock-flow adjustments to indicate creative accounting and relate them to our fiscal council indicator in a panel framework. Regarding the fiscal rules that trigger creative accounting, we distinguish between external (resulting from European Monetary Union membership) and internal fiscal rules. While fiscal councils are not significant when used as stand-alone variable their interaction with fiscal rules is significant. Our findings indicate that fiscal councils reduce creative accounting triggered by fiscal rules and thus help to enforce fiscal rules and sound fiscal policies
Bond Indices Maturities and Changing Macroeconomic Conditions: Evidence from South Africa
Get PDFThis paper examines the effect of macroeconomic variables on government bond yields of different maturities under two regimes in South Africa. The study employs a Two-Stage Markov regime-switching model to analyze monthly time series data from March 2009 to October 2022. It attempts to explain variations in 1-3 year, 3-7 year, 7-12 year and +12 year government bond yields with six independent variables such as inflation, real GDP, real short-term interest rates, real long-term interest rates, real money supply, and the real Rand/Dollar exchange rate.
As a result, the study finds that the performance of government bond yields varies with market conditions, as per the adaptive market hypothesis (AMH). More specifically, the returns of the 1-3 year bond index are influenced by real GDP in a bull regime, while the performance of the 3-7 year government bond yield is affected by real GDP in a bear market condition. Additionally, the inflation growth rate influences the performance of the 7-12 year government bond yield in a bull market regime, but not in a bear regime.
It also documents that the bear market conditions prevail among selected bond index returns, with the 12-year government bond yield staying in a bull state for 12 months, while the 7-12 year government bond yield stays the longest in a bear state (19 months). These findings demonstrate that the South African bond market is affected by changing conditions. Therefore, the interaction between the macroeconomy and bond performance is better explained by AMH, and there is potential for improved explanatory power through the use of nonlinear modeling techniques
The Movement of Exchange Rate and Expected Income: Case of South Africa
Get PDFMany studies have investigated the impact of expectations on the exchange rates. However, it remains a challenge linking the exchange rates to its fundamentals. This study seeks to determine the impact of expectations of future income on the exchange rates behaviour. In this study, we employ the Bayesian VAR method. The study finds that the expectations of income have effects on the exchange rate behaviour. Furthermore, the exchange rates behaviour is asymmetric
Forecasting Monthly Inflation in Bangladesh: A Seasonal Autoregressive Moving Average (SARIMA) Approach
Get PDFThe objective of this study is to forecast the trend of inflation in Bangladesh by utilizing past inflation data. To achieve this objective, we employed the Seasonal Autoregressive Integrated Moving Average (SARIMA) model which is an extension of the Autoregressive Integrated Moving Average (ARIMA) model. Monthly inflation data used for forecasting were derived from the Consumer Price Index (CPI) data obtained from the International Monetary Fund (IMF) database, covering the period from January 2010 to January 2023. Our analysis reveals that the SARIMA (2,0,0)×(1,0,1)12 model is the most appropriate fit. Based on this finding, we predicted the inflation trend in Bangladesh from February 2023 to December 2024. A comparison of our predicted values with the actual values indicates a high degree of correlation between the two. Although a few discrepancies were observed, they did not undermine our prediction since the parameters of the model lay within the 95% confidence interval
Factors Affecting Non-Performing Loans: Empirical Evidence from Commercial Banks in Uzbekistan
Get PDFThis paper applies a dynamic panel data approach to examine the main factors affecting non-performing loans (NPL) of commercial banks in Uzbekistan. The paper utilizes both bank-specific factors such as loan-to-deposit ratio, size, leverage, and type of ownership as well as macroeconomic factors, such as GDP growth rate and exchange rate to determine their significance in credit risk of commercial banks. The results indicate that current loan-to-deposit ratio (LDR) and leverage have positive impact on NPL ratio while higher GDP growth rate is associated with lower rate of NPL. However, lagged LDR and leverage ratios have shown negative relationship with NPL. Size, bank ownership type and exchange rate have not exhibited any significant impact on NPL
Decision-making under Rice Contract and Non-Contract Farming Arrangements in Ekiti State, Nigeria: A Game Theory Approach
Get PDFFarmers face considerable challenges in negotiating contracts, determining production levels, and fulfilling contractual obligations due to the inherent uncertainties associated with agricultural activities, including fluctuations in weather conditions, pest infestations, and crop diseases. Thus, this research delves into the decision-making processes within the rice farming sector in Nigeria, specifically examining the comparative profitability between contract and non-contract farming systems through Gross Margin analysis and the Maximax and Minima criteria.
Utilizing Ordinary Least Squares (OLS) technique on a randomly selected sample of 126 rice farmers from Ekiti State, Southwest Nigeria, our analysis reveals that rice farming in the region is economically viable, with contract farming demonstrating greater profitability compared to non-contract farming. The profitability of paddy rice cultivation is notably influenced by several factors, including farming experience, participation in cooperative associations, age, access to extension services, and agricultural training. Specifically, we observe that years of farming experience, membership in the association, and access to extension service positively influence profitability of paddy rice production of contracted farmers; while farmer age and formal training positively influence profitability of paddy rice production of non-contracted farmers.
Moreover, our study indicates that optimistic farmers are inclined towards adopting the contract farming model, while pessimistic farmers tend to favor non-contract arrangements. Thus, we recommend that optimistic farmers consider engaging in contract farming, while a non-contract approach is advisable for pessimistic rice farmers