This write-up is submitted in partial fulfilment of the Master of Management Degree in Finance and Investments Degree. / Growth in commodity exporting economies, such as South Africa, is highly dependent on the revenue generated from exports. It is thus evident that as commodity prices fluctuate, income and the balance of payments will be accordingly impacted. This is further exacerbated by strong dependence on the imports of certain commodities. Oil is one such commodity on whose imports South Africa is highly dependent. Although natural gas is also imported, it is in lower quantities and is as such expected to impact South Africa to a lower extent. Coal, on the other hand, is among the main commodity exports and was expected to have an impact on (and be impacted by) South African macroeconomic fundamentals. In this study, we use a VECM and MGARCH model to test the interaction between South African macroeconomic variables and these three commodities. Our VECM findings indicate that oil and exchange rates are inflationary. This implies that an increase in oil prices and/or exchange rates (indicating a depreciation of the Rand against the U.S. Dollar) results in an increase in inflation. Inflation, on the other hand, propagates higher coal prices and to a lesser extent, higher interest rates. We account the latter to South Africa’s inflation targeting regime and the former to demand and supply dynamics which occur at RBCT as production costs increase (short-term coal export contracts and spot market sales). Natural gas is found to have weak impacts on interest rates and exchange rates. Our MGARCH model shows that only the innovations in natural gas and oil prices spillover into interest rates and exchange rate. There is no direct spillover captured. However, there is strong direct spillover from oil to inflation. Lastly, interest rates are found to have a strong direct volatility spillover to both oil and natural gas. We attribute this to the exchange rate impact that interest rates have and is supported by the exchange rate impact on commodity price volatility. We conclude that an in-depth understanding of triggers is pertinent for monetary and fiscal policy decisions in South Africa. Although the South African economy is relatively diversified compared to other developing countries, commodity price fluctuations do have a significant impact on economic performance. / MT2017

Thesis (M.M. (Finance & Investment)--University of the Witwatersrand, Faculty of Commerce, Law and Management, Wits Business School, 2017 / This paper provides an empirical analysis of the effect of commodity price volatility on the volatility of the South African exchange rate and subsequently the returns on the equity of commodity producing firms listed on the JSE. GARCH and VAR models evaluate South African exchange rate and stock market data between the years 1995 and 2015. Results show that there exists a spill over and bidirectional relationships between the equity returns volatility and the volatility of the exchange rate. Findings also indicated that international commodity price shocks transmitted into the South African Rand. / MT2017

Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Management Graduate School of Business Administration University of the Witwatersrand April 2016 / This thesis examined commodity futures on the South African Futures Exchange (SAFEX) from two angles; the investors’ perspective and that of the futures exchange. For the former, the research looked at market inefficiencies and resultant arbitrage opportunities while for the latter, extraordinary market movements are examined by exploring how extreme value analysis (EVA) is ideal for exchange risk management and maintaining market integrity. This broadly leads to four empirical contributions to the literature on commodity futures. Using a variety of time series models, wheat contract anomalies are identified by developing new trading rules whose outcomes are superior to any approach based on chance. Monte Carlo simulation employed in an out-of-sample period after accounting for transaction costs establishes that the trading rules are financially profitable. An examination of information flows across four major markets indicated that the Zhengzhou Commodity Exchange (ZCE) is the most endogenous market, Euronext and the London International Financial Futures Exchange (LIFFE) the most exogenous, while Kansas City Board of Trade (KCBT) is the most influential and sensitive wheat market. SAFEX is a significant receiver of information but does not impact the other markets. Another contribution, analysing maturity effects by incorporating traded volume, change in open interest, and the bid-ask spread while accounting for multicollinearity and seasonality indicates that only wheat supports the so called maturity effect. Lastly, asymmetry is found in long and short positions in SAFEX contracts, and using extreme value theory (EVT) in margin optimization, evidence is found that price limits significantly impact large contract returns. Several implications arise from these results. SAFEX wheat contract inefficiencies could be attractive to speculators. Wheat margins should be higher nearer maturity. Optimizing margins using EVT could reduce trading costs, increase market attractiveness and liquidity while enhancing price discovery. South Africa should increase wheat production since reducing imports will lower vulnerability to adverse price transmission. JEL Classification: C13, C14, C58, G01, G13, G17 Keywords: Futures market; commodities; volatility; seasonality; information flows, margins / MB2016

Agriculture is of inestimable value to South Africa because it is a major source of job creation and plays a key role in earning foreign exchange. The most significant contribution of agriculture, and in particular maize, is its ability to provide food for the nation. For a number of decades government legislation determined prices, and as such the trade of grains on the futures exchange requires market participants to adapt to a volatile environment. The research focuses on the ability of market participants to effectively mitigate price volatility on the futures exchange through the use of derivative instruments, and the possibility of developing risk management strategies that will outperform the return offered by the market. The study shows that market participants are unable to use derivative instruments in such a way that price volatility is minimised. The findings of the study also indicate that the development of derivative risk management strategies could result in better returns than those offered by the market, mainly by exploiting trends on the futures market. / Financial Accounting / M. Comm. (Business Management)

Agriculture is of inestimable value to South Africa because it is a major source of job creation and plays a key role in earning foreign exchange. The most significant contribution of agriculture, and in particular maize, is its ability to provide food for the nation. For a number of decades government legislation determined prices, and as such the trade of grains on the futures exchange requires market participants to adapt to a volatile environment. The research focuses on the ability of market participants to effectively mitigate price volatility on the futures exchange through the use of derivative instruments, and the possibility of developing risk management strategies that will outperform the return offered by the market. The study shows that market participants are unable to use derivative instruments in such a way that price volatility is minimised. The findings of the study also indicate that the development of derivative risk management strategies could result in better returns than those offered by the market, mainly by exploiting trends on the futures market. / Financial Accounting / M. Comm. (Business Management)