A Doctoral thesis submitted in fulfilment of the requirements for the award of Doctor of Philosophy degree in the field of Finance The Graduate school of Business Administration, University of the Witwatersrand, October 2016 / The global financial system has experienced turmoil in the past three decades, at the least. Although the shocks originate abroad, they possess some rippling effects on African economies. The essence of market integration and cross-border listings of stocks has fueled the need for African markets to be well integrated with the global economy. Despite this need, available empirical literature exploring the integration of African markets regionally, and with the rest of the world appear unclear. Moreover, the possibility of global shocks transmitting to Africa via its emerging equity markets remains underexplored. At the same time, such knowledge is critical for not only understanding the functioning of equity markets in particular, but also important for regulating the financial system in general. This thesis addresses these gaps inherent in extant literature and proffer empirical and theoretical solutions by exploring the nexus between African stock markets and global shocks. The emphasis is on contagion, co-movement, and diversification. The thesis is organized into four empirical essays, each deeply touching on specific theme (s) that form the core of the problems or research questions under investigation while employing advanced econometric techniques that underpin the modeling of asset returns. The first essay examines the capacity of African equity markets to act as ‗hubs‘ for portfolio investors during tranquil and turbulent conditions of global equity and commodity markets. The findings posit that African stock markets provide decorrelation from commodity and global equity markets during extreme market conditions. To the extent that the results reveal the strength of African stocks in cushioning international portfolio investors in a mean-variance stand-point during market crashes, the essay helps to decay doubts in the minds of investors on the perceived lack of capacity of the continent‘s stocks to yield higher expected risk-return trade-offs during global market sell-offs. The implication of the study is that given the recent history of commodities and global stocks, fund managers around the world seeking viable alternatives to compensate for losses from commodity shocks through uncorrelated markets may consider the equity markets in Africa, albeit on account of volatility persistence, present and past market conditions, markets stability, as well as size and liquidity issues. The second essay examines regional and global co-movement of African stock markets using the three-dimensional continuous Morlet wavelet transform methodology. The essay establishes evidence of stronger co-movements broadly narrowed to short-run fluctuations. The co-movements are time-varying and commonly non-homogeneous – with phase difference arrow vectors implying lead-lag African Equity Markets and Global Shocks 2016 © Gideon Boako Page iii relationships. The presence of lead-lag effects and stronger co-movements at short-run fluctuations may induce arbitrage and diversification opportunities to both local and international investors with long-term investment horizons. The findings also reveal that some African equity markets are, to a degree, segmented from volatilities of the dollar and euro exchange rates. The third essay sheds light on whether African equity markets decoupled from, and / or converged with regional and global markets from 2003 to 2014, and analyzes the implications of that for shocks spillovers. Although there is no evidence of African markets convergence either regionally or globally, shock propagation exists in a time-varying setting. Regional markets in Africa are not just ‗shock absorbers‘ but also ‗shock transmitters‘. In the last essay, the dependence structure and (extreme) downside developed equity markets and currency price risk spillover effects to African stock markets using value-at-risk (VaR) and conditional value-at-risk (CoVaR) based on stochastic copulas is modeled. The study finds evidence of non-homogenous weak negative dependence between stocks and the USD and EUR exchange rates. Except for Egypt, there is evidence of positive significant dependencies between all African markets and their developed counterparts. Although, evidence of both uni-directional and bidirectional causality, as well as upper and lower tail dependencies are found across the stocks and currency markets, only some minuscule evidence of downside spillover effects was recorded, albeit episodic. It is observed that propagation of shocks from the GFC had a second round effect in African stock markets. Thus, the impact of the GFC to African economies was not through the credit crunches and liquidity freezes in Phase I of the crisis, but rather through the global recession that followed into the second phase. The findings are consistent with the view that global shocks propagation to developing markets may stagger during crisis and intensify post-crisis. A practical implication from the results is that given the relatively scarce resources and levels of technological know-how available to African governments, efforts to wean the continent‟s equity markets from adverse effects of global market crashes should be geared towards plans and programmes to mitigate the shocks not at the early stages but latter stages, where the effects to Africa could be prominently felt. Three key arguments are deduced from all the essays. First, although financial market underdevelopment seems prima-facie, to help countries isolate themselves against immediate contagion, it also reduces the ability of the real economy to cushion the impact of the crisis. African Equity Markets and Global Shocks 2016 © Gideon Boako Page iv Therefore, the argument of the thesis is that despite the common fear that a highly integrated and developed market may present fertile grounds for shock spillover, Africa must continue to pursue programmes aimed at enhancing inter and intra-regional integration. However, the degree and extent of both inter- and intra-regional integration ought to be pegged at certain optimal levels in order to reap benefits from scale economies. Such endeavours at integration will not only help in risk diversification but also help smooth the impact of shocks. The second argument is that, the proposition of the ―decoupling theory‖ i.e. returns of African equity markets and global stocks are not jointly normal during crisis periods may not be entirely tenable, empirically. Thirdly, the thesis argues that the “shift-contagion” theory may not reflect the reality for Africa, particularly during initial stages of crisis. Instead, the thesis suggests an extension and argues for a “delayed-shift contagion” theory. Keywords: Decoupling, shift-contagion, spillover effects, CoVaR, exchange rates, commodities. JEL Classification: C40, C58, F31, F36, G10, G11, G15, / GR2018

Dissertation (PhD)--University of Stellenbosch, 2007. / ENGLISH ABSTRACT: Commodity issues have assumed renewed importance in debates about the attainment of the United Nation’s Millennium Development Goals for Sub-Saharan Africa and objectives of the New Partnership for Africa’s Development. For instance thirty-four countries in Africa depend on up to three commodities for more than half of their foreign exchange earnings. Despite the importance of commodity markets to economic development on the continent commodity-related research has not attracted the needed attention. The study considered eighteen primary commodities exported by most countries in Sub-Saharan Africa. The commodities were drawn from metals, agricultural raw materials, food and energy sub-groups. This dissertation presents results of research work underlying six stand-alone essays focusing on the relationship between commodities and various aspects of economic performance in Sub-Saharan Africa. Whilst three of the six essays dwelt on issues affecting commodities of interest to most African countries the others considered particular commodity markets in a selected number of countries. First the relationship between commodity markets and economic growth is studied. The second essay examined trends and volatility in Sub-Saharan Africa’s key commodity prices over the past four decades. Role of commodity prices in macroeconomic policy in South Africa is also investigated using a new research approach. The fourth essay estimated the supply response of a number of tradable and non-tradable agricultural commodities in Ghana. In the fifth essay a range of volatility forecasting models were evaluated using eighteen commodity spot prices. The last essay examined the interaction between changes in commodity prices, money supply, inflation and the real exchange rate in Ghana, Nigeria and South Africa. The findings of the study indicate that a negative relationship exist between extent of primary commodity dependence and economic growth. The study also revealed that volatility levels have not changed for nine out of the eighteen commodities studied however, changes were observed in the other nine. Another key finding of the study was that there is merit in using gold and metal prices as variables in forming monetary policy in South Africa. It was also observed that random walk and autoregressive models consistently outperform more complex models in forecasting volatility in commodity spot prices. Results of the supply response study suggest that even though producers usually respond to price incentives, structural features of domestic agricultural commodity markets in Ghana may have hindered the conversion of improved incentives to higher agricultural growth. Results of the last paper indicate that in Ghana commodity price increases impact money supply growth and inflation whilst in Nigeria the effects of crude oil price increases produces higher inflation and appreciation of the real exchange. In the case of South Africa effects of gold export booms were transmitted through changes in money supply, inflation and real appreciation of the domestic currency. The results of the study have implications for both decision makers in business and government. / AFRIKAANSE OPSOMMING: Kommoditeits-aangeleenthede het vernuwe belangrikheid in die debat rakende die vervulling van die Verenigde Nasises se Millennium Onwikkelings Doelwitte vir Sub-Sahara Afrika en die doelwitte van die Nuwe Vennootskap vir Afrika se Ontwikkeling aangeneem. By voorbeeld, vier-en-dertig Afrika lande is afhanklik van tussen een en drie kommoditeite vir meer as die helte van hul buitelandse valuta inkomste. Ten spyte van die belangrikheid van kommoditeits-markte vir ekonomiese ontwikkeling op die kontinent het kommoditeits-verwante navorsing nog nie die nodige aandag gekry nie. Die studie het agtien primêre uitvoer-kommoditeite wat deur die meeste Sub-Sahara Afrika lande uitgevoer word oorweeg. Die kommoditeite is afkomstig van metale, onverwerkte landbou produkte, voedsel en energie sub-groepe. Hierdie tesis bied die resultate van navorsing wat gedoen is op ses afsonderlike opstelle wat fokus op die verhouding tussen kommoditeite en verskeie aspekte wat die ekonomiese vertoning in Sub-Sahara Afrika beïnvloed. Drie van die ses opstelle fokus op faktore wat kommoditeite van belang vir meeste Afrika lande affekteer, terwyl die ander geselekteerde lande se unieke kommoditeits-markte oorweeg word. Die eerste opstel bestudeer die verhouding tussen kommoditeits-markte en ekonomiese groei. Die tweede opstel oorweeg tendense en volitaliteit in Sub-Sahara Afrika se belangrikste kommoditeits-pryse oor die afgelope vier dekades. Die rol van kommoditeits-pryse in Suid-Afrika se makro-ekonomiese beleid word ook ondersoek met behulp van 'n nuwe navorsings benadering. Die vierde opstel maak 'n skatting van Ghana se aanbod van verskeie verhandelbare en nie-verhandelbare landbou kommoditeite. In die vyfde opstel word 'n reeks volitaliteitsvoorspellings-modelle ge-evalueer deur agtien lokopryse te gebruik. Die laaste opstel bestudeer die interaksie tussen veranderinge in kommoditeits-pryse, geld aanbod, inflasie en die reële wisselkoers in Ghana, Nigerië en Suid-Afrika. Bevindinge van die studie dui daarop dat 'n negatiewe verhouding tussen die graad van primêre kommoditeits-afhanklikheid en ekonomiese groei voorkom. Die studie het ook bevind dat volitaliteits–vlakke vir nege van die agtien kommoditeite wat bestudeer is nie verander het nie, terwyl veranderinge in die ander nege waargeneem is. 'n Kritiese bevinding was dat daar meriete steek in die gebruik van goud en ander metal pryse as veranderlikes in die formulering van die monetêre beleid in Suid-Afrika. Dit is ook waargeneem dat “random walk” en autoregressiewe modelle deurlopend beter vaar in die voorspelling volitaliteit in kommoditeits lokopryse as komplekse modelle. Resultate van die aanbod respons studie dui daarop dat alhoewel produseerders gewoontlik reageer op prys insentiewe, struktule eienskappe van die binnelandse landbou kommoditeits-mark in Ghana moontlik die effek van verbeterde insentiewe op landbou groei kon beperk het. Resultate van die laaste opstel dui daarop dat kommoditeits-prys verhogings in Ghana die geld-aanbod groei en inflasie beinvloed, terwyl in Nigerië die effekte van ru-olie prys verhogings lei tot hoër inflasie en appresiasie van die reële wisselkoers. In die geval van Suid-Afrika word die effekte van die skielike groot toenames in goud-uitvoere die duidelikste waargeneem deur veranderinge in die geld-aanbod, inflasie en die reële appresiasie van die binnelandse geld-eenheid. Die resultate van die studie het implikasies vir beide besluitnemers in besigheide en die regering.