Asset price volatility in South African markets during financial crises
- Authors: Duncan, Andrew Stuart
- Date: 2012-10-09
- Subjects: Financial crises , Capital assets pricing model , Stock exchanges , Stocks - Prices
- Type: Thesis
- Identifier: uj:10391 , http://hdl.handle.net/10210/7830
- Description: Ph.D. , This thesis investigates the impact of domestic and foreign financial crises on volatility dynamics in South Africa. In a sample ranging from January 1994 to March 2009, Chapter 2 provides empirical support for the theory that domestic currency crises are associated with significant structural changes in daily exchange rate volatility. Speciacally, crisis periods coincide with large positive shifts in unconditional variance. Using this fact, we propose a new method - the structural change generalised conditional heteroskedasticity, or SC-GARCH, model - for identifying precise start- and end-dates for crises. Chapter 3 studies volatility transmission within SA from October 1996 to June 2010. Using a generalised version of the vector autoregressive (VAR) approach, time-varying and bidirectional volatility spillover indices are esti- mated for domestic currency, bond and equity markets. The results identify equities as the primary source of volatility transfer to other asset classes. At di erent points in time, spillovers are responsible for anywhere between 7.5 and 65 percent of system-wide volatility. Local maxima in spillover magni- tudes are estimated during domestic, as well as foreign crisis periods. Chapter 4 estimates time-varying comovement between SA and world volatilities during the period from 1994 to 2008. A dynamic factor model (FM) is used to extract three latent global volatility factors from a data panel which is representative of the world equity market portfolio. Relative to most other emerging markets, the global factors are poor predictors of volatility in SA. However, SA's comovement with global volatility increases sharply in response to emerging market crises in Asia (1997-8) and Russia (1998). The global factors are also important determinants of domestic volatility during the latter stages of the US subprime crisis (2007-8). Chapter 5 proposes the factor-augmented VAR as a parsimonious model for the transmission of foreign volatility shocks to SA equities. We compare international volatility transmission resulting from crises in Asia (1997-8) and the US (2007-8). Although the US crisis has a larger impact on the world equity market, the Asian shock leads to more dramatic increases in volatility in emerging economies, including SA.
- Full Text:
- Authors: Duncan, Andrew Stuart
- Date: 2012-10-09
- Subjects: Financial crises , Capital assets pricing model , Stock exchanges , Stocks - Prices
- Type: Thesis
- Identifier: uj:10391 , http://hdl.handle.net/10210/7830
- Description: Ph.D. , This thesis investigates the impact of domestic and foreign financial crises on volatility dynamics in South Africa. In a sample ranging from January 1994 to March 2009, Chapter 2 provides empirical support for the theory that domestic currency crises are associated with significant structural changes in daily exchange rate volatility. Speciacally, crisis periods coincide with large positive shifts in unconditional variance. Using this fact, we propose a new method - the structural change generalised conditional heteroskedasticity, or SC-GARCH, model - for identifying precise start- and end-dates for crises. Chapter 3 studies volatility transmission within SA from October 1996 to June 2010. Using a generalised version of the vector autoregressive (VAR) approach, time-varying and bidirectional volatility spillover indices are esti- mated for domestic currency, bond and equity markets. The results identify equities as the primary source of volatility transfer to other asset classes. At di erent points in time, spillovers are responsible for anywhere between 7.5 and 65 percent of system-wide volatility. Local maxima in spillover magni- tudes are estimated during domestic, as well as foreign crisis periods. Chapter 4 estimates time-varying comovement between SA and world volatilities during the period from 1994 to 2008. A dynamic factor model (FM) is used to extract three latent global volatility factors from a data panel which is representative of the world equity market portfolio. Relative to most other emerging markets, the global factors are poor predictors of volatility in SA. However, SA's comovement with global volatility increases sharply in response to emerging market crises in Asia (1997-8) and Russia (1998). The global factors are also important determinants of domestic volatility during the latter stages of the US subprime crisis (2007-8). Chapter 5 proposes the factor-augmented VAR as a parsimonious model for the transmission of foreign volatility shocks to SA equities. We compare international volatility transmission resulting from crises in Asia (1997-8) and the US (2007-8). Although the US crisis has a larger impact on the world equity market, the Asian shock leads to more dramatic increases in volatility in emerging economies, including SA.
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Debt and deleveraging during a financial crisis : a South African perspective
- Authors: More, Tebogo Paulina
- Date: 2013-07-25
- Subjects: Corporate debt , Financial leverage , Financial crises
- Type: Thesis
- Identifier: uj:7699 , http://hdl.handle.net/10210/8565
- Description: M.Comm. (Financial Management) , The purpose of this study is to show the influence of corporate debt on financial distress particularly during and after an economic/financial crisis on South African companies. It is assumed that companies that are highly leveraged prior to a crisis will experience financial distress during as well as after the crisis and that they will go through a process of deleveraging sometime after the financial crisis. The financial statements of 47 capital intensive companies that are traded on the main board of the JSE Limited are analysed for two crises that took place between 1994 and 2010. These crisis points coincide with the Asian crisis and the Dot.com bubble crash. The 2008 sub-prime crisis is excluded from the analyses due to the absence of post-crisis financial information for some of the companies sampled. The analysis examines the relationship between debt and financial distress and between debt and profitability before, during and after the crises. The evolution of debt levels before, during and after the crises is also examined. The empirical findings of the study are a departure from international literature and experience that suggest that during times of economic prosperity companies become over-indebted due to expansion plans and therefore in most cases experience financial distress as they are unable to meet their obligations or meet these with great difficulty during and after the crisis.
- Full Text:
- Authors: More, Tebogo Paulina
- Date: 2013-07-25
- Subjects: Corporate debt , Financial leverage , Financial crises
- Type: Thesis
- Identifier: uj:7699 , http://hdl.handle.net/10210/8565
- Description: M.Comm. (Financial Management) , The purpose of this study is to show the influence of corporate debt on financial distress particularly during and after an economic/financial crisis on South African companies. It is assumed that companies that are highly leveraged prior to a crisis will experience financial distress during as well as after the crisis and that they will go through a process of deleveraging sometime after the financial crisis. The financial statements of 47 capital intensive companies that are traded on the main board of the JSE Limited are analysed for two crises that took place between 1994 and 2010. These crisis points coincide with the Asian crisis and the Dot.com bubble crash. The 2008 sub-prime crisis is excluded from the analyses due to the absence of post-crisis financial information for some of the companies sampled. The analysis examines the relationship between debt and financial distress and between debt and profitability before, during and after the crises. The evolution of debt levels before, during and after the crises is also examined. The empirical findings of the study are a departure from international literature and experience that suggest that during times of economic prosperity companies become over-indebted due to expansion plans and therefore in most cases experience financial distress as they are unable to meet their obligations or meet these with great difficulty during and after the crisis.
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Extreme conditional value-at-risk : a scenario for risk management
- Authors: Mhlanga, Isaah Alexy
- Date: 2013-09-17
- Subjects: Risk management , Global Financial Crisis, 2008-2009 , Financial crises , Value at risk , Extreme value theory
- Type: Thesis
- Identifier: uj:7743 , http://hdl.handle.net/10210/8613
- Description: M.Comm. (Financial Economics) , Systemically important international institutions that were too “big to fail” such as American International Group, Citi Group, Merrily Lynch, UBS and MF Global to name a few, were bailed out from their financial problems by their respective government. Besides the immediate substantial financial costs that were incurred globally, banking sector problems associated with the US mortgage-backed securities spread to other countries and had a significant negative impact on their real economies – many countries went into recession, unemployment increased and production levels declined. It is now 2012, three years after the crisis and global economic activity is yet to return to pre-crisis levels. Given the substantial losses that were incurred globally and claims that the financial crisis was caused by the failure of risk management, an investigation of the inadequacies of risk management as a discipline that developed to safeguard the world from such financial havoc is not only necessary but undoubtedly required. Therefore, this mini-dissertation investigate the inadequacy of risk management, specifically, the inadequacy of current models that are used to estimate market risk. Traditional Value-at-Risk (VaR) models and two extreme value theory (EVT) distribution models: the generalised extreme value distribution (GEV) and the generalised Pareto distribution (GPD) are used to estimate potential losses in order to evaluate the appropriate model for estimating losses in extreme market volatility. The main findings are that EVT-based models accurately estimates both downside and upside losses during extreme market volatility, and therefore must be used as internal bank models for market risk.
- Full Text:
- Authors: Mhlanga, Isaah Alexy
- Date: 2013-09-17
- Subjects: Risk management , Global Financial Crisis, 2008-2009 , Financial crises , Value at risk , Extreme value theory
- Type: Thesis
- Identifier: uj:7743 , http://hdl.handle.net/10210/8613
- Description: M.Comm. (Financial Economics) , Systemically important international institutions that were too “big to fail” such as American International Group, Citi Group, Merrily Lynch, UBS and MF Global to name a few, were bailed out from their financial problems by their respective government. Besides the immediate substantial financial costs that were incurred globally, banking sector problems associated with the US mortgage-backed securities spread to other countries and had a significant negative impact on their real economies – many countries went into recession, unemployment increased and production levels declined. It is now 2012, three years after the crisis and global economic activity is yet to return to pre-crisis levels. Given the substantial losses that were incurred globally and claims that the financial crisis was caused by the failure of risk management, an investigation of the inadequacies of risk management as a discipline that developed to safeguard the world from such financial havoc is not only necessary but undoubtedly required. Therefore, this mini-dissertation investigate the inadequacy of risk management, specifically, the inadequacy of current models that are used to estimate market risk. Traditional Value-at-Risk (VaR) models and two extreme value theory (EVT) distribution models: the generalised extreme value distribution (GEV) and the generalised Pareto distribution (GPD) are used to estimate potential losses in order to evaluate the appropriate model for estimating losses in extreme market volatility. The main findings are that EVT-based models accurately estimates both downside and upside losses during extreme market volatility, and therefore must be used as internal bank models for market risk.
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Perceived characteristics of security analysts : a market participant’s perspective
- Authors: Marynowska, Samantha Teresa
- Date: 2019
- Subjects: Portfolio management , Financial crises , Investment analysis
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/414808 , uj:34999
- Description: Abstract: This study investigates the perceived characteristics of security analysts viewed by market participants, as vital in their decision making process, which leads to final investment decisions. The decision-making process is complicated by the elements that facilitate the accuracy of said security analysts. Many factors play a vital role in the competency portrayed by security analysts and thus market participants need to be aware of and evaluate such factors when selecting the relevant evaluations (or recommendations) provided to the public. A cross-sectional survey study methodology was applied to gather the relevant data. One hundred surveys were completed by South African market participants, which were collected and upon which the findings were based. The study focuses on eight categories that could possibly lead to a change in a market participants’ perspective of security analysts, mainly: (i) regulatory environment and conflicts of interest, (ii) information exchange, (iii) inherent bias, (iv) reporting standards, (v) incentives and optimism, (vi) experience and reputation, (vii) managerial guidance, and (viii) forecast drift. The results indicated that market participants, on average, would consult at least four analyst reports prior to making a final investment decision, and a majority would monitor their investments at least bi-quarterly. Furthermore, market participants are not more likely to purchase an investment that holds a buy recommendation to that of a hold or sell recommendation. A majority of market participants believe that conflicts of interest between buy-side and sell-side analysts exist, and would thus create overly optimistic investment recommendations. In addition, market participants believe that forecast accuracy is increased with each successive follower forecast made by security analysts. Analyst compensation, experience and reputation does influence the majority of market participants when making a final investment decision. Lastly the level of corporate governance and reporting standards upon which the recommendation is based also influences their final investment decision. This study could contribute to the growing body of research on investment, security analysts and market participants within South Africa. , M.Com. (Finance)
- Full Text:
- Authors: Marynowska, Samantha Teresa
- Date: 2019
- Subjects: Portfolio management , Financial crises , Investment analysis
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/414808 , uj:34999
- Description: Abstract: This study investigates the perceived characteristics of security analysts viewed by market participants, as vital in their decision making process, which leads to final investment decisions. The decision-making process is complicated by the elements that facilitate the accuracy of said security analysts. Many factors play a vital role in the competency portrayed by security analysts and thus market participants need to be aware of and evaluate such factors when selecting the relevant evaluations (or recommendations) provided to the public. A cross-sectional survey study methodology was applied to gather the relevant data. One hundred surveys were completed by South African market participants, which were collected and upon which the findings were based. The study focuses on eight categories that could possibly lead to a change in a market participants’ perspective of security analysts, mainly: (i) regulatory environment and conflicts of interest, (ii) information exchange, (iii) inherent bias, (iv) reporting standards, (v) incentives and optimism, (vi) experience and reputation, (vii) managerial guidance, and (viii) forecast drift. The results indicated that market participants, on average, would consult at least four analyst reports prior to making a final investment decision, and a majority would monitor their investments at least bi-quarterly. Furthermore, market participants are not more likely to purchase an investment that holds a buy recommendation to that of a hold or sell recommendation. A majority of market participants believe that conflicts of interest between buy-side and sell-side analysts exist, and would thus create overly optimistic investment recommendations. In addition, market participants believe that forecast accuracy is increased with each successive follower forecast made by security analysts. Analyst compensation, experience and reputation does influence the majority of market participants when making a final investment decision. Lastly the level of corporate governance and reporting standards upon which the recommendation is based also influences their final investment decision. This study could contribute to the growing body of research on investment, security analysts and market participants within South Africa. , M.Com. (Finance)
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Risk-based asset allocation : a forward looking approach
- Mantshimuli, Lamukanyani Alson
- Authors: Mantshimuli, Lamukanyani Alson
- Date: 2016
- Subjects: Asset allocation , Financial crises , Portfolio management , Financial risk
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/237248 , uj:24306
- Description: M.Com. (Financial Economics) , Abstract: The portfolio allocation problem is characterised by two factors; risk and expected return. This is mainly explained by the Markowitz (1952) mean-variance framework. The frequency and severity of recent financial crises has led to an increase in calls for improved asset allocation methods in the asset management industry. Asset allocation strategies should protect investor capital and result in higher relative returns in turbulent times. Modern portfolio theory has been heavily criticised (Lee, 2011; Roncalli, 2013) for failure to provide adequate diversification to protect fund managers during crises, hence the emergence of risk-based asset allocation methods that focus on portfolio construction based on risk and diversification. The crises led to poor performance of different portfolios and funds, especially those with high exposure to equities. Risk-based allocation methods try to achieve investors’ goals of safety and higher returns, irrespective of future market behaviour. Six risk-based asset allocation strategies were explored and contrasted; Equally weighted, Risk parity, Most Diversified, Minimum Correlation, Minimum variance and the Minimum CVaR portfolio. This was done in an effort to find the method which performs better when investors have different investment goals. Predicted risk measures were applied as inputs in these risk-based asset allocation methods (i.e. a forward looking approach was taken). The study focused on comparisons of the risk-based asset allocation methods using forwardlooking risk measures in the South African market. The main results of the study include the finding that risk-based asset allocation methods are effective in protecting investors’ capital and achieve higher returns than the market portfolio during crisis periods compared to other periods as expected. It was also found that the Minimum Correlation Portfolio performed better than all other risk-based asset allocation during the crisis period, which means it is the best risk-based asset allocation method to use during crisis periods in the South African market . There has not been a lot of studies on the perfomance of the Minimum Correlation Portfolio, and this result shows the need for a comprehensive study on all risk-based asset allocation methods in different countries/regions to determine which risk-based asset allocation technique is best for different regions.
- Full Text:
- Authors: Mantshimuli, Lamukanyani Alson
- Date: 2016
- Subjects: Asset allocation , Financial crises , Portfolio management , Financial risk
- Language: English
- Type: Masters (Thesis)
- Identifier: http://hdl.handle.net/10210/237248 , uj:24306
- Description: M.Com. (Financial Economics) , Abstract: The portfolio allocation problem is characterised by two factors; risk and expected return. This is mainly explained by the Markowitz (1952) mean-variance framework. The frequency and severity of recent financial crises has led to an increase in calls for improved asset allocation methods in the asset management industry. Asset allocation strategies should protect investor capital and result in higher relative returns in turbulent times. Modern portfolio theory has been heavily criticised (Lee, 2011; Roncalli, 2013) for failure to provide adequate diversification to protect fund managers during crises, hence the emergence of risk-based asset allocation methods that focus on portfolio construction based on risk and diversification. The crises led to poor performance of different portfolios and funds, especially those with high exposure to equities. Risk-based allocation methods try to achieve investors’ goals of safety and higher returns, irrespective of future market behaviour. Six risk-based asset allocation strategies were explored and contrasted; Equally weighted, Risk parity, Most Diversified, Minimum Correlation, Minimum variance and the Minimum CVaR portfolio. This was done in an effort to find the method which performs better when investors have different investment goals. Predicted risk measures were applied as inputs in these risk-based asset allocation methods (i.e. a forward looking approach was taken). The study focused on comparisons of the risk-based asset allocation methods using forwardlooking risk measures in the South African market. The main results of the study include the finding that risk-based asset allocation methods are effective in protecting investors’ capital and achieve higher returns than the market portfolio during crisis periods compared to other periods as expected. It was also found that the Minimum Correlation Portfolio performed better than all other risk-based asset allocation during the crisis period, which means it is the best risk-based asset allocation method to use during crisis periods in the South African market . There has not been a lot of studies on the perfomance of the Minimum Correlation Portfolio, and this result shows the need for a comprehensive study on all risk-based asset allocation methods in different countries/regions to determine which risk-based asset allocation technique is best for different regions.
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Volatility dynamics in African equity markets during financial crises
- Authors: Mattes, Jason
- Date: 2012-11-05
- Subjects: Financial crises , Stock exchanges , Volatility dynamics , Capital assets pricing model
- Type: Mini-Dissertation
- Identifier: uj:7353 , http://hdl.handle.net/10210/8100
- Description: M.Comm. , The focus of this paper is on volatility dynamics in five African stock markets. Special emphasis is placed on five crisis periods that occur between 1 January 1997 and 22 October 2010. Rollingwindow bivariate diagonal-BEKK GARCH models are run between the African markets and markets taken as the sources of the crises from the start of the 14-year period until its end. It is found that while African volatility is persistent and volatility linkages exist between the five markets and the overseas markets, some of the effects of the crises are dominated by non-crisis period volatility dynamics and spillovers as well as domestic influences. This is especially the case for volatility persistence, unconditional volatility and the own- and cross-GARCH effects. The crisis that has the strongest impact on the volatility of the five African markets is the Credit Crisis, thus not providing support for the theory of emerging markets “decoupling” from the U.S.
- Full Text:
- Authors: Mattes, Jason
- Date: 2012-11-05
- Subjects: Financial crises , Stock exchanges , Volatility dynamics , Capital assets pricing model
- Type: Mini-Dissertation
- Identifier: uj:7353 , http://hdl.handle.net/10210/8100
- Description: M.Comm. , The focus of this paper is on volatility dynamics in five African stock markets. Special emphasis is placed on five crisis periods that occur between 1 January 1997 and 22 October 2010. Rollingwindow bivariate diagonal-BEKK GARCH models are run between the African markets and markets taken as the sources of the crises from the start of the 14-year period until its end. It is found that while African volatility is persistent and volatility linkages exist between the five markets and the overseas markets, some of the effects of the crises are dominated by non-crisis period volatility dynamics and spillovers as well as domestic influences. This is especially the case for volatility persistence, unconditional volatility and the own- and cross-GARCH effects. The crisis that has the strongest impact on the volatility of the five African markets is the Credit Crisis, thus not providing support for the theory of emerging markets “decoupling” from the U.S.
- Full Text:
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