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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Economic growth and unemployment under alternative monetary policy regimes: evidence from South Africa
- Authors: Kifa, Masini Guylain
- Date: 2014-06-10
- Subjects: Monetary policy - South Africa , Inflation (Finance) - South Africa , Economic development - South Africa , Unemployment - South Africa , Foreign exchange rates - South Africa , Interest rates - South Africa , Monetary policy - Developing countries
- Type: Thesis
- Identifier: uj:11451 , http://hdl.handle.net/10210/11147
- Description: M.Com. (Economic Development and Policy Issues) , Monetary policy is not only the process by which the monetary authority of a country controls the supply of money, but is furthermore a sufficient tool to overcome the problem of economic growth and unemployment. This can take place when the policy instruments – interest rates (Repo) and money supply growth (M3) – have significant effects on these macroeconomic variables. However, the issue of the efficacy of monetary policy on GDP growth and employment creation is at the centre of debates among researchers. Some researchers are of the opinion that the objective of monetary policy in achieving and maintaining price stability is founded on the idea that inflation is not good for economic growth, employment creation and income equality but, instead, only secures macroeconomic environment. In South Africa, the efficiency of different monetary policy tools, inflation and money-supply targeting, on economic performance has been questioned. Moreover, the issue of the high level of unemployment remains controversial among scholars. Therefore, the structural vector-error correction model (VECM) methods was used with quarterly data in order to investigate the impact of aggregate money supply (M3), interest rate (Repo) and real exchange rate on CPIX (inflation) , economic growth (GDP volume rate) and unemployment (joblessness rate) in South Africa for the period 1986 to 2010. The results show that both monetary-policy regimes have positively impacted on economic growth, but the impact of the pre-inflation-targeting regime is higher. Moreover, a weak positive liaison between monetary policy and unemployment is observed, but the post-inflation-targeting regime shows a higher percentage decrease in unemployment than the pre-inflation targeting period. Beyond any doubt, the research approves the engagement of the SARB to monitor (target) CPIX (inflation) due to its ability to ensure price stability and create a stable economic environment favourable to economic performance.
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- Authors: Kifa, Masini Guylain
- Date: 2014-06-10
- Subjects: Monetary policy - South Africa , Inflation (Finance) - South Africa , Economic development - South Africa , Unemployment - South Africa , Foreign exchange rates - South Africa , Interest rates - South Africa , Monetary policy - Developing countries
- Type: Thesis
- Identifier: uj:11451 , http://hdl.handle.net/10210/11147
- Description: M.Com. (Economic Development and Policy Issues) , Monetary policy is not only the process by which the monetary authority of a country controls the supply of money, but is furthermore a sufficient tool to overcome the problem of economic growth and unemployment. This can take place when the policy instruments – interest rates (Repo) and money supply growth (M3) – have significant effects on these macroeconomic variables. However, the issue of the efficacy of monetary policy on GDP growth and employment creation is at the centre of debates among researchers. Some researchers are of the opinion that the objective of monetary policy in achieving and maintaining price stability is founded on the idea that inflation is not good for economic growth, employment creation and income equality but, instead, only secures macroeconomic environment. In South Africa, the efficiency of different monetary policy tools, inflation and money-supply targeting, on economic performance has been questioned. Moreover, the issue of the high level of unemployment remains controversial among scholars. Therefore, the structural vector-error correction model (VECM) methods was used with quarterly data in order to investigate the impact of aggregate money supply (M3), interest rate (Repo) and real exchange rate on CPIX (inflation) , economic growth (GDP volume rate) and unemployment (joblessness rate) in South Africa for the period 1986 to 2010. The results show that both monetary-policy regimes have positively impacted on economic growth, but the impact of the pre-inflation-targeting regime is higher. Moreover, a weak positive liaison between monetary policy and unemployment is observed, but the post-inflation-targeting regime shows a higher percentage decrease in unemployment than the pre-inflation targeting period. Beyond any doubt, the research approves the engagement of the SARB to monitor (target) CPIX (inflation) due to its ability to ensure price stability and create a stable economic environment favourable to economic performance.
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Determination of net interest margin drivers for selected financial institutions in South Africa : a comparison with other capital markets
- Authors: Mudzamiri, Kizito
- Date: 2013-05-01
- Subjects: Banks and banking - South Africa , Financial institutions - South Africa , Net interest margins , Classical Linear Regression Model , Ordinary Least Squares data estimating technique , Bank profits - South Africa , Interest rates - South Africa
- Type: Thesis
- Identifier: http://ujcontent.uj.ac.za8080/10210/379972 , uj:7473 , http://hdl.handle.net/10210/8331
- Description: M.Comm. (Financial Management) , There is a wide perception that bank net interest margins (NIMs) in Sub-Saharan Africa in general and South Africa in particular, are higher compared to other regions. The study investigates four commercial banks in South Africa with the aim of identifying the relevant factors affecting the behaviour of NIMs in commercial banking in South Africa, and draws comparisons with other markets. The study employs the Classical Linear Regression Model (CLRM) using the Ordinary Least Squares (OLS) data estimating technique to analyse net interest margins over the period 2000 to 2010. The study takes note of Ho and Saunders’s seminal work produced in 1981, and subsequent extensions and modification by other authors and researchers. Net interest margins are modeled in a single-step together with explanatory variables driven from the theoretical model. Using data obtained from the Bankscope data base, the variables examined in the study are; competitive structure of the market, average operating costs, management’s propensity for risk aversion, credit risk exposure, the quantum of the bank’s operations, short-term money market interest rate volatility, the opportunity cost of holding reserves and quality of management running the institution. The findings of the study suggest that market power, average operating costs, degree of risk aversion, credit risk exposure, and size of operations are major factors explaining the behaviour of NIMs in South Africa. These variables are major in terms of the number of banks that exhibit statistical significance. Market power, interest rate volatility and opportunity cost of holding reserves are also relevant factors, although they affect fewer banks than the major factors. Comparison of South African net interest margins determinants with those from other regions reveals some fundamental differences. These differences indicate that banks from different countries and regions are faced with different operating environments and risk profiles that drive net interest margins.
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- Authors: Mudzamiri, Kizito
- Date: 2013-05-01
- Subjects: Banks and banking - South Africa , Financial institutions - South Africa , Net interest margins , Classical Linear Regression Model , Ordinary Least Squares data estimating technique , Bank profits - South Africa , Interest rates - South Africa
- Type: Thesis
- Identifier: http://ujcontent.uj.ac.za8080/10210/379972 , uj:7473 , http://hdl.handle.net/10210/8331
- Description: M.Comm. (Financial Management) , There is a wide perception that bank net interest margins (NIMs) in Sub-Saharan Africa in general and South Africa in particular, are higher compared to other regions. The study investigates four commercial banks in South Africa with the aim of identifying the relevant factors affecting the behaviour of NIMs in commercial banking in South Africa, and draws comparisons with other markets. The study employs the Classical Linear Regression Model (CLRM) using the Ordinary Least Squares (OLS) data estimating technique to analyse net interest margins over the period 2000 to 2010. The study takes note of Ho and Saunders’s seminal work produced in 1981, and subsequent extensions and modification by other authors and researchers. Net interest margins are modeled in a single-step together with explanatory variables driven from the theoretical model. Using data obtained from the Bankscope data base, the variables examined in the study are; competitive structure of the market, average operating costs, management’s propensity for risk aversion, credit risk exposure, the quantum of the bank’s operations, short-term money market interest rate volatility, the opportunity cost of holding reserves and quality of management running the institution. The findings of the study suggest that market power, average operating costs, degree of risk aversion, credit risk exposure, and size of operations are major factors explaining the behaviour of NIMs in South Africa. These variables are major in terms of the number of banks that exhibit statistical significance. Market power, interest rate volatility and opportunity cost of holding reserves are also relevant factors, although they affect fewer banks than the major factors. Comparison of South African net interest margins determinants with those from other regions reveals some fundamental differences. These differences indicate that banks from different countries and regions are faced with different operating environments and risk profiles that drive net interest margins.
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Modelling the short term interest with stochastic differential equation in continuous time: linear versus non-linear mode
- Authors: Thaba, Lethabo Jane
- Date: 2014-06-10
- Subjects: Interest rates - South Africa , Interest rates - Mathematical models
- Type: Thesis
- Identifier: uj:11441 , http://hdl.handle.net/10210/11137
- Description: M.Com. (Financial Economics) , Recently, there has been a growth in the bond market. This growth has brought with it an ever-increasing volume and range of interest rate depended derivative products known as interest rate derivatives. Amongst the variables used in pricing these derivative products is the short-term interest rate. A numbers of short-term interest rate models that are used to fit the short-term interest rate exist. Therefore, understanding the features characterised by various short-term interest rate models, and determining the best fitting models is crucial as this variable is fundamental in pricing interest rate derivatives, which further determine the decision making of economic agents. This dissertation examines various short-term interest rate models in continuous time in order to determine which model best fits the South African short-term interest rates. Both the linear and nonlinear short-term interest rate models were estimated. The methodology adopted in estimating the models was parametric approach using Quasi Maximum Likelihood Estimation (QMLE). The findings indicate that nonlinear models seem to fit the South African short-term interest rate data better than the linear models
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- Authors: Thaba, Lethabo Jane
- Date: 2014-06-10
- Subjects: Interest rates - South Africa , Interest rates - Mathematical models
- Type: Thesis
- Identifier: uj:11441 , http://hdl.handle.net/10210/11137
- Description: M.Com. (Financial Economics) , Recently, there has been a growth in the bond market. This growth has brought with it an ever-increasing volume and range of interest rate depended derivative products known as interest rate derivatives. Amongst the variables used in pricing these derivative products is the short-term interest rate. A numbers of short-term interest rate models that are used to fit the short-term interest rate exist. Therefore, understanding the features characterised by various short-term interest rate models, and determining the best fitting models is crucial as this variable is fundamental in pricing interest rate derivatives, which further determine the decision making of economic agents. This dissertation examines various short-term interest rate models in continuous time in order to determine which model best fits the South African short-term interest rates. Both the linear and nonlinear short-term interest rate models were estimated. The methodology adopted in estimating the models was parametric approach using Quasi Maximum Likelihood Estimation (QMLE). The findings indicate that nonlinear models seem to fit the South African short-term interest rate data better than the linear models
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