ETD Collection

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    Quantitative easing in developed countries and middle income countries' financial markets
    (2017) Ntuli, Thuthuka
    This study examines Quantitative Easing policy programs of developed countries and their potential impact on Middle Income Countries through capital inflows. The study specifically focuses on the United States and European Union Quantitative Easing programs and investigates potential effects through the various transmission channels. An Autoregressive Multifactor MIDAS approach is used to carry out the empirical analysis and the study finds that lagged capital inflows are highly significant across the different models run and that there is evidence of transmission of quantitative easing to capital inflows to Middle Income Countries along the portfolio rebalancing and liquidity channels.
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    Explaining returns in property markets using Taylor rule fundamentals: Evidence from emerging markets
    (2014-07-15) Gumede, Ofentse;
    This study set out to investigate the relationship between returns in the residential property markets and two key economic variables of output and interest rates. The main focus was on the short-term rates path and how it is influenced by the Taylor rule fundamentals and in turn, its effect on the returns in the property markets within the developing countries of South Africa, Bulgaria, Lithuania and Czech Republic. A secondary focus was on building a model that can be further developed into a full forecasting model of returns in the residential property markets. Output was found to be a strong driver of returns in the residential property markets across all four countries. Real changes in the economic activity feed into the residential property markets and drives returns. Output can be incorporated into a forecasting framework for returns in the residential property markets within these countries The short-term rate paths within the countries studied were found to be consistent with the Taylor rule but with heavy short run deviations from the rule. Short-term rates deviated from the rule in the short run, but showed a tendency to revert to the rule in subsequent periods. Returns and prices in the property markets were driven by the short-term rates only in two of the emerging markets. For these countries, this link between rate and returns mean there was also a link between monetary policy and returns in the property sector. Similar to the Taylor rule process, property returns in the two emerging markets were found to have short run deviations which could not be explained by interest rates and output. For the purposes of building a fully fledged forecasting model, this model must be expanded to include other explanatory factors. Adding the risk premium as an explanatory variable could be the starting point.
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    Market interest rate fluctuations : impact on the profitability of commercial banks.
    (2013-02-20) Godspower-Akpomiemie, Euphemia Ifeoma
    There are many functions of the financial system, with the basic function of transferring loanable funds from lender to borrowers (Rose et al, 1995). This financial transaction can be carried out directly or semi directly between lenders and borrowers. The shortcomings of direct and semi direct financing have opened doors for a third method—financial intermediation, which is done by financial intermediaries. Commercial bank is the classic example of financial intermediary at work. To achieve the goal of owners’ wealth maximization, banks should manage their assets, liabilities, and capital efficiently. In doing this, the bank should be conscious of the gap or spread between the interest income and the interest expenses paid, which is called net interest income (NII). Net interest income is a major part of banks’ profit, this is basically why the financial intermediaries try to offer lowest returns to savers and lend funds to borrowers at the highest possible interest rates. It is measured as net interest margin (NIM), which is NII divided by the average earning assets. This study examines the interest rate sensitivity of commercial banks’ interest profitability (Net Interest Margin) and net worth at the theoretical level and attempt to measure empirically the extent to which the interest profitability and net worth of commercial banks have been affected during the period of changing interest rates between 2001 and 2010. It as well measures the extent to which the factors that determine interest rate movement affect interest rate and which of the factors has more effect on interest rate. The measure of profitability captures the essence of lend-long borrow-short without directly including other determinants of bank income, such as loan loss and loan volume, which may be correlated with interest rates. It is also important to note that NIM is not a measure of total banks’ profits since it does not include non-interest income and expenses. A software package stata 10.0 was used to conduct the hypothesis testing, trend, and correlation analysis. The sampled banks are fourteen commercial banks and one investment bank in South Africa. The sampled banks were later divided into two groups (big and small), based on their assets size as at the year-end 2010. There are five (5) big banks with asset size of more than R100 billion and ten (10) small banks with asset size of less than R100 billion iii as at the year-end 2010. Analysis was further carried out separately on both the big and small banks to see the effect of interest rate fluctuations on them. Data required by the model was obtained from annual financial statements of the sampled banks for the period of ten years. It was found that fluctuations on interest rate (repo rate) affect the profit of commercial banks, but this effect is huge on small banks than the big banks. As the repo rate increases, the profit of commercial banks increases. Such effect of repo rate on profit of commercial banks was found to be statistically significant. It was also found that interest rate changes as well affect the net worth of commercial banks. The macroeconomic factors the determine the interest rates do not have direct effect on the banks’ profit, but have significant effect on the banks’ net worth, especially that of the small banks. As the rate of inflation, the rate of money supply, and uncertainty increase, the net worth of the small commercial banks in South Africa also increase. It could be advised that to maximize owners’ equity, South African commercial banks (big and small) should concentrate more on forecasting and controlling the determinants of the interest rates, rather than the interest rates themselves. It was also found that among the internal factors affecting profit and net worth of commercial banks, the liquidity ratio is most significant relative to capital ratio, competition, and non-performing loan.
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    Can forward interest rates predict future spot rates in South Africa? A test of the pure expectations hypothesis and market efficiency in the South African government bond market
    (2012-07-04) Loukakis, Andrea
    The pure expectations hypothesis says that forward rates, implied off a yield curve, are unbiased predictors of future spot rates. Which implies forward rates, according to the pure expectations hypothesis, should provide reliable forecasts of future spot rates. This study set out to see if the theory behind the pure expectations hypothesis holds in a South African context. If it does hold, it can have an impact on real world applications such as bond trading strategies and the setting of monetary policy. To test the theory behind the pure expectations hypothesis, South African government bond data for the short end of the yield curve was used. Various regression tests were run. These regressions tested mainly for forward rate forecast accuracy, the relationship between forecast errors and changes in the spot rate, for the presence of liquidity premiums and to test for market efficiency. The results indicated that forecast accuracy and the relationship between forecast errors and changes in the spot rate were contrary to the theory behind the pure expectations hypothesis. A liquidity premium was found to exist and there appeared to be weak form market efficiency. These results led to a conclusion that there is very little evidence to support the theory behind the pure expectations hypothesis. This was mainly due to the presence of a liquidity premium. The pure expectations hypothesis does not seem to be of any significant use within real world applications.