A time-varying analysis of the sensitivity in commercial bank stock returns to market, interest rate and foreign exchange risk exposures in South Africa
- Authors: Mazomba, Xolani
- Date: 2017
- Subjects: Banks and banking - South Africa , Interest rates - South Africa , Foreign exchange rates - South Africa , GARCH model
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/245884 , uj:25477
- Description: M.Com. , Abstract: The objective of this study is to investigate the sensitivity of the South African commercial banks to the market, interest rate and exchange rate risk exposures. The study estimates a GARCH (1,1) model using the above variables including their conditional variances. To investigate the impact of the risk premium factor, a GARCH-in-Mean model with implied volatility of the exogenous variables as explanatory variables is used. The research relies on data of the JSE Top 40 companies and the major commercial banks. The data series ranges from 2003 to 2016. Using the TED spread, the data is split into three sub-samples the period prior to the crisis, during the crisis and the post-crisis period. It was found that the bank stock returns are sensitive to the market, interest rate and exchange rate risk. The banks are found to be influenced mostly by the 1-year and 10-year rates during the low volatility periods, while during the crisis period the impact extends to even shorter periods of 1-month, 3-month and 6-month yields. Furthermore, the banks are found to be more sensitive to the exchange rate during the low volatile periods, while the small banks are the most affected during the high volatility periods. Regarding the conditional variance, the study found that the bank stock returns follow a GARCH generating process. Furthermore, the study found that the conditional volatility from the GARCH-in-Mean model was irrelevant in pricing the bank stocks during the high volatility periods. The conditional variance of the GARCH-M was estimated with an inclusion of the implied volatility of the exogenous variables: market, interest rate and foreign exchange rate returns. The study found that the parameters have a very low significance overall and the impact of the volatility from the market and foreign exchange rate tended to decline during the high volatility period; while the effect of the interest rate volatility rises during the same period.
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- Authors: Mazomba, Xolani
- Date: 2017
- Subjects: Banks and banking - South Africa , Interest rates - South Africa , Foreign exchange rates - South Africa , GARCH model
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/245884 , uj:25477
- Description: M.Com. , Abstract: The objective of this study is to investigate the sensitivity of the South African commercial banks to the market, interest rate and exchange rate risk exposures. The study estimates a GARCH (1,1) model using the above variables including their conditional variances. To investigate the impact of the risk premium factor, a GARCH-in-Mean model with implied volatility of the exogenous variables as explanatory variables is used. The research relies on data of the JSE Top 40 companies and the major commercial banks. The data series ranges from 2003 to 2016. Using the TED spread, the data is split into three sub-samples the period prior to the crisis, during the crisis and the post-crisis period. It was found that the bank stock returns are sensitive to the market, interest rate and exchange rate risk. The banks are found to be influenced mostly by the 1-year and 10-year rates during the low volatility periods, while during the crisis period the impact extends to even shorter periods of 1-month, 3-month and 6-month yields. Furthermore, the banks are found to be more sensitive to the exchange rate during the low volatile periods, while the small banks are the most affected during the high volatility periods. Regarding the conditional variance, the study found that the bank stock returns follow a GARCH generating process. Furthermore, the study found that the conditional volatility from the GARCH-in-Mean model was irrelevant in pricing the bank stocks during the high volatility periods. The conditional variance of the GARCH-M was estimated with an inclusion of the implied volatility of the exogenous variables: market, interest rate and foreign exchange rate returns. The study found that the parameters have a very low significance overall and the impact of the volatility from the market and foreign exchange rate tended to decline during the high volatility period; while the effect of the interest rate volatility rises during the same period.
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Performance comparison of patient and the quick-trigger portfolio rebalancing strategies on South African stocks and bonds
- Authors: Nthite, Itumeleng
- Date: 2017
- Subjects: Stocks - South Africa , Bonds - South Africa
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/271803 , uj:28915
- Description: M.Com. (Financial Economics) , Abstract: This dissertation assesses patient and quick-trigger portfolio rebalancing policies on South African stocks and bonds by making use of a unique approach of finding the optimal rebalancing frequency and synthetic option construction method. Patient portfolio rebalancing strategies relate to strategies that take a long-term view, by rebalancing less frequently than normal, while quick-trigger portfolio rebalancing relates to excessive portfolio rebalancing. The findings of this dissertation show that quick-trigger rebalancing policies are desirable when we ignore rebalancing costs, and when rebalancing costs are assumed, quick-trigger rebalancing policies become undesirable because the more frequent a portfolio is rebalanced; the more the rebalancing costs are incurred. From the perspective of the unique approach of finding the optimal rebalancing frequency, a patient rebalancing approach tends to dominate quick response rebalancing approach, even if we assume that there are no rebalancing costs. The synthetic option construction strategy favours the quick-trigger rebalancing strategies when rebalancing costs are ignored, but quick-trigger rebalancing strategies are not a profitable approach when rebalancing costs are assumed because of excessive rebalancing. The overall results of this dissertation suggest that during the period between 1999 and 2014, following a patient rebalancing approach would have been more profitable than a quick trigger mechanistic rebalancing approach and that frequent activity should be kept minimal. Action should generally involve something other than rebalancing the portfolio. This result applies to a wide array of portfolio allocations containing South African stock and bonds.
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- Authors: Nthite, Itumeleng
- Date: 2017
- Subjects: Stocks - South Africa , Bonds - South Africa
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/271803 , uj:28915
- Description: M.Com. (Financial Economics) , Abstract: This dissertation assesses patient and quick-trigger portfolio rebalancing policies on South African stocks and bonds by making use of a unique approach of finding the optimal rebalancing frequency and synthetic option construction method. Patient portfolio rebalancing strategies relate to strategies that take a long-term view, by rebalancing less frequently than normal, while quick-trigger portfolio rebalancing relates to excessive portfolio rebalancing. The findings of this dissertation show that quick-trigger rebalancing policies are desirable when we ignore rebalancing costs, and when rebalancing costs are assumed, quick-trigger rebalancing policies become undesirable because the more frequent a portfolio is rebalanced; the more the rebalancing costs are incurred. From the perspective of the unique approach of finding the optimal rebalancing frequency, a patient rebalancing approach tends to dominate quick response rebalancing approach, even if we assume that there are no rebalancing costs. The synthetic option construction strategy favours the quick-trigger rebalancing strategies when rebalancing costs are ignored, but quick-trigger rebalancing strategies are not a profitable approach when rebalancing costs are assumed because of excessive rebalancing. The overall results of this dissertation suggest that during the period between 1999 and 2014, following a patient rebalancing approach would have been more profitable than a quick trigger mechanistic rebalancing approach and that frequent activity should be kept minimal. Action should generally involve something other than rebalancing the portfolio. This result applies to a wide array of portfolio allocations containing South African stock and bonds.
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Risk-return nexus in a GARCH-M framework : empirical evidence from the South African stock market
- Authors: Morahanye, Hlompho
- Date: 2019
- Subjects: Financial risk management , Johannesburg Stock Exchange , GARCH model
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/414319 , uj:34939
- Description: Abstract: This paper studies the association between risk and returns in the Johannesburg Stock Exchange. In particular, the study is interested in modelling this relationship during periods of high volatility with special reference to the 2007-2009 financial crises. The objective is to highlight the effect that a high volatility period might have on the relationship. To achieve this objective, daily data for the market index, JSE Top 40 and the two JSE sectoral indices for the period 1/1/2004 to 3/5/2017 are used. The GARCHM, E-GARCH-M and TARCH-M models and the same aforementioned models with dummy variables to account for two volatility regimes are used. The CAPM prediction that the expected return on a stock above the risk-free rate is positive is not supported by the study. The tests conducted to examine the relationship observed that the risk premiums were either positive but insignificant, or negative and significant, which is inconsistent with the theory. The observed outcomes indicate that the risk premium is not necessarily positive, even after accounting for different regimes. These results are generally in line with observations made by other authors who investigated the relationship within the South African context. The findings of this paper are useful in financial decision-making, such as in providing investors with information on which sectors to invest in based on their risk appetite, as well as providing information regarding the performance of the different stocks in the market in terms of risk and return. , M.Com. (Financial Economics)
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- Authors: Morahanye, Hlompho
- Date: 2019
- Subjects: Financial risk management , Johannesburg Stock Exchange , GARCH model
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/414319 , uj:34939
- Description: Abstract: This paper studies the association between risk and returns in the Johannesburg Stock Exchange. In particular, the study is interested in modelling this relationship during periods of high volatility with special reference to the 2007-2009 financial crises. The objective is to highlight the effect that a high volatility period might have on the relationship. To achieve this objective, daily data for the market index, JSE Top 40 and the two JSE sectoral indices for the period 1/1/2004 to 3/5/2017 are used. The GARCHM, E-GARCH-M and TARCH-M models and the same aforementioned models with dummy variables to account for two volatility regimes are used. The CAPM prediction that the expected return on a stock above the risk-free rate is positive is not supported by the study. The tests conducted to examine the relationship observed that the risk premiums were either positive but insignificant, or negative and significant, which is inconsistent with the theory. The observed outcomes indicate that the risk premium is not necessarily positive, even after accounting for different regimes. These results are generally in line with observations made by other authors who investigated the relationship within the South African context. The findings of this paper are useful in financial decision-making, such as in providing investors with information on which sectors to invest in based on their risk appetite, as well as providing information regarding the performance of the different stocks in the market in terms of risk and return. , M.Com. (Financial Economics)
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