4. Electronic Theses and Dissertations (ETDs) - Faculties submissions

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    Essays on exchange rate movements and stock returns in emerging and frontier African economies
    (University of the Witwatersrand, Johannesburg, 2024) Atipaga, Umar-Farouk; Alagidede, Imhotep Paul; Tweneboah, George
    Global financial markets have recently undergone significant turmoil due to numerous factors, such as economic uncertainties, pandemics, geopolitical tensions, and extreme contagion. Unfortunately, African economies are not immune to these global developments and are often impacted by risk-off sentiment. As a result, these shocks have significant consequences for African exchange rates and capital markets. Due to the region's trade and investment dynamics, African economic policymakers rely heavily on exchange rate management as a policy tool. Additionally, capital flows in the form of equities are important for Africa’s growth agenda. The research explored four distinct, yet interconnected essays related to currency and equity movements in Africa, aiming to offer valuable insights into investment and policy considerations while enriching the existing literature. The first essay explored the connection between currency movements and equities in Africa. This approach departs from the usual VAR and GARCH models and employs a tool that accounts for time-frequency co-movements. This is critical for investment and policy decisions as it better explains which part of the sample period produces shocks. Given the recent market uncertainties, this study suggests that investors can determine the right investment horizon. The bivariate wavelet technique established a profound negative correlation at the upper end of the horizon, making room for diversification opportunities. With exchange rates playing a dominant leading role, it presents a case for policy considerations towards currency stability. The partial wavelet results revealed that investors should scale down to the short end of the investment horizon during crisis periods like COVID-19. In the second essay, the asymmetric linkages were modelled between stock returns of developed economies and African markets using quantile regressions along 0.05 quantile iii | P a g e intervals. The crux of this study is to determine the options available to holders of African stocks considering market integration. Having employed the U.S. and U.K. as proxy for advanced markets, we found diversification and hedging benefits from the two advanced markets for some African equities at different time scales. The quantile-on-quantile regression results revealed that both U.S. and U.K. stocks could offer safe-haven benefits for some African equities in extreme market conditions. The findings strongly project that investors making decisions to mitigate risks must appreciate the heterogeneity in the nexus between the advanced markets and African economies to arrive at optimal risk-adjusted returns The third essay applied transfer entropy techniques for the examination of information flows between advanced and African markets. Information content analysis is vital in the current investment and portfolio management dispensation. Findings from the information exchanges indicated that some African markets have led the market integration process ahead of their peers. This study compared significant periods of global interest, such as the Fed normalisation period and BREXIT. The results present important implications for risk management strategies and policy measures to anchor markets to withstand shocks. Due to the potential scales of investments from market integration with advanced markets, African policymakers are encouraged to champion this agenda. However, this requires the need to build economies to withstand shocks. Similarly, in the last essay, the information content was modelled between currencies of advanced markets and African economies. Exchange rate spillovers have significant implications for emerging and frontier economies due to the linkages between currency performance and other key variables. The essay examined information exchanges with the iv | P a g e world’s most liquid currencies over different crisis periods. The results possess essential implications for risk management strategies and policy frameworks, especially in this current period of heightened global uncertainties. Due to the spillovers in the currency market, African policymakers should be wary about the susceptibility of their currencies to global shocks.
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    Diversification benefits of SA REITs in a mixed asset portfolio: one decade and a pandemic later
    (2023) Mphaho, Masilo; Kodongo, Odongo
    Volatility spillover between financial markets causes inefficiency of diversification. Therefore, other investment alternatives are required to build an optimal portfolio, one of them being Real Estate Investment Trusts (REITs). The low correlation between REITs and stocks implies an advantage of diversification in an investment portfolio containing both assets. An important implication of this finding is that if stocks and REITs are incorporated into an investment portfolio, the investor will have better diversification benefits. This paper looks at the diversification benefits of having REITs in a mixed asset portfolio by conducting an empirical study from when the REIT regime came into effect in South Africa 10 years ago, particularly focusing on the period between 2013 and 2023. The econometric tools used in this regard include cointegration and, time series models (VAR and VECM) for forecasting. The paper also considers how the COVID-19 pandemic has affected this relationship by conducting a mean-variance spanning test to see if the inclusion of REITs in an existing portfolio dominates it. Other measures such as Sharpe ratios and Efficient Frontiers are included for analysing portfolio performance. Therefore, providing a mature analysis of REITs continuing from current literature and assisting Fund Managers in understanding the impact of including the asset class in a portfolio with a long-term investment horizon. This study affirms the low correlation between REITs and other stocks and further shows that they are not affected by shocks in the bond and stock markets respectively while also having the potential to improve the risk-adjusted returns of a Portfolio. Therefore, Fund Managers can consider REITs for their portfolio diversification strategies.
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    Assessing livelihood vulnerability and adaptation to climate variability and change among farming households in Plateau State, north-central Nigeria
    (University of the Witwatersrand, Johannesburg, 2024) Hassan, Buhari; Knight, Jasper
    It has been projected that sub-Saharan Africa would be severely affected by climate change in form of persistent and increasing climate variability. Nigeria’s situation as a developing country coupled with the fact that agricultural activities are primarily rainfed, provides a suitable case study in which to assess the vulnerability of farming households to climate variability and change. Lack of data on the nature and extent of vulnerability to climate variability (particularly annual changes in rainfall and temperature patterns) on food production systems and livelihoods in Nigeria hinders the development of effective policies to mitigate the adverse impacts of climate change and variability. The study aims to improve understanding of the socio-economic, institutional, biological and physical factors that contribute to vulnerability of farming households to climate change and variability in Nigeria. By combining descriptive, participatory and statistical analysis as well as field observations, this research develops a holistic approach to assess the level of exposure, sensitivity and adaptive capacity of farming households. Multistage sampling was used to purposely select communities in Bokkos Local Government Area, Plateau State, for the study, while farming households were randomly selected for the household questionnaire survey within four communities. Purposive sampling was used to identify key informants for interviews. Observation and taking photographs of farmers’ activities were used to complement the other data collection methods. Qualitative data was analysed using descriptive and content analysis, while the quantitative data was analysed using the Statistical Package for Social Sciences (SPSS) (v 27) and Microsoft Excel (v2020). The level of vulnerability of farming households was determined using the Sustainable Livelihood Approach. Results show that farmers are exposed to climate variability in form of changing rainfall patterns which includes late onset of rains, dry spells, and early cessation of rains and crop loss due to pests and disease infestation. Results show that the vulnerability of farming households can be linked to access to household livelihood capital assets and that households are characterised by low levels of financial, social and physical capital. Smallholder farming households adopt a range of on-farm and off-farm adaptation strategies including changing planting time, crop diversification, engaging in irrigation farming, intensifying the use of fertilizers, manure and agro-chemicals to boost crop yield, and planting of disease-resistant and drought-tolerant crop varieties. Farming households experience a number of challenges which include a lack of financial resources which has a strong influence on enhancing other capital assets such as physical and natural capitals; poor access to mechanised agricultural equipment, lack of training on how to deal with climate change and variability, limited access to improved crop varieties as well as a lack of institutional support, which constitute serious barriers to adaptation to climate variability. In applying these results to climate change adaptation it is recommended that policymakers need to institute specific and implementable climate change adaptation policies that will enable farmers to utilize their capital assets on effective adaptation measures and also engage in viable alternative livelihood diversification strategies, enhance agricultural productivity and resilience and improve institutional support including access to information and training
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    Modelling the dependence structures among international stock markets using copulas: Evidence from South Africa and advanced economies
    (niversity of the Witwatersrand, Johannesburg, 2023) Foresto, Anis; Farell, Gregory
    Growth in financial linkages has led to similar movements between financial markets. This increase in financial market interdependence or comovement raises questions about the transmission of risk through conventional channels (balance sheet, trade dependence and portfolio flows), particularly the methods policymakers and institutional investors use to measure the strength and intensity of these transmission channels. This study will add to the literature by empirically assessing the dependence structure between South Africa and Advanced Economies (AE) stock prices, to determine if diversification is still possible. These are represented by the Johannesburg Securities Exchange (JSE TOP 40 index for South Africa, the Standard and Poor’s 500 (S&P 500) for the United States, Financial Times Stock Exchange 100 (FTSE 100) for the UK, and the Deutscher Aktienindex for Germany. This study will model the dependence structure using both static and time-varying copula methods. The time-varying copula model specification is adapted from the Generalized Autoregressive Score (GAS) model of Creal et al (2013). This study finds little evidence to support the benefit of diversification between South Africa’s stock market and advanced economies. The results are consistent with the stylised facts in the literature: asset returns are asymmetric and leptokurtic and the dependence between markets intensifies during crisis periods. The findings of this study are consistent with prior literature on African markets (Mensah and Alagidede, 2017, Bello et al, 2022)