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Thesis (M. Soc. Sc.)--University of Hong Kong, 1986.

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Thesis (M.Soc.Sc.)--University of Hong Kong, 1986. / Also available in print.

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

This thesis makes new observations of market phenomena for various commodities and trading strategies centered around these observations. In particular, our results imply that many aspects of the commodities markets, from delivery markets to producers and consumer derivative based ETFs can be modeled eectively using nancial engineering techniques. Chapter 2 examines what drives the returns of gold miner stocks and ETFs. Inspired by our real options model, we construct a method to dynamically replicate gold miner stocks using two factors: a spot gold ETF and a market equity portfolio. We find that our real options approach can explain a significant portion of the drivers of firm implied gold leverage. Chapter 3 studies commodity exchange-traded funds (ETFs). From empirical data, we find that many commodity leveraged ETFs underperform significantly against our constructed dynamic benchmark, and we quantify such a discrepancy via the novel idea of realized effective fee. Finally, we consider a number of trading strategies and examine their performance by backtesting with historical price data. Chapter 4 studies the phenomenon of non-convergence between futures and spot prices in the grains market. In our proposed approach, we incorporate stochastic spot price and storage cost, and solve an optimal double stopping problem to understand shipping certificate prices. Our new models for stochastic storage rates explain the spot-futures premium.

Technology has greatly impacted how economic agents interact in various markets, including transportation and online display advertising. This calls for a better understanding of some of the key features of these marketplaces and the development of fundamental insights for this class of problems. In this thesis, we study markets for which spatial and incentive considerations are crucial factors for their operational and economic success. In particular, we study pricing and staffing decisions for ride-hailing platforms. We also consider the contract design problem faced by Ad Exchanges when buyers' strategic behavior and inherent business constraints limit these platforms' decisions. Firstly, we investigate the pricing challenges of ride-hailing platforms and propose a general measure-theoretical framework in which a platform selects prices for different locations, and drivers respond by choosing where to relocate based on prices, travel costs, and market congestion levels. Our results identify the revenue-maximizing pricing policy and showcase the importance of accounting for global network effects. Secondly, we develop a queuing approach to study the link between capacity and performance for a service firm with spatial operations. In a classical M/M/n queueing model, the square root safety (SRS) staffing rule balances server utilization and customer wait times. By contrast, we find that the SRS rule does not lead to such a balance in spatial systems. In these settings, a service firm should use a higher safety factor, proportional to the offered load to the power of 2/3. Lastly, motivated by the online display advertising market where publishers frequently use transaction-contingent fees instead of up-front fees, we study the classic sequential screening problem and isolate the impact of buyers' ex-post participation constraints. We characterize the optimal selling mechanism and provide an intuitive necessary and sufficient condition under which screening is better than pooling.

Zugl.: Heidelberg, University, Diss., 1992. / Includes bibliographical references (p. [235]-246).

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