A dissertation submitted to the Wits Business School, Faculty of Commerce, Law and Management, in partial fulfillment of the requirements of the candidacy of the Masters of Management in Finance and Investments University of Witwatersrand April 2016 / The aim of this paper is to investigate financial contagion in African financial markets from the global financial crisis. Interest in this subject has grown exponentially in the recent past in light of expanding globalization. The empirical analysis is based on daily stock price indices of a sample of African countries in order to compute the stock returns and find the impact of correlations between them and the US market. The empirical evidence is based on correlation tests by Forbes& Rigobon (2002). The analysis suggests that the larger markets by market capitalization and number of traded stocks exhibit co-movement, whereas the smaller markets experience financial contagion. The results have implications for financial investment process and risk management in terms of globalization and the unfolding of financial liberalization in Africa. / GR2018

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 Paper empirically investigates the behavior of Africa’s stock price volatility over time in ten African equity markets. It also attempts to establish the existence of a relationship between volatility and expected returns in the chosen equity markets. The effect of volatility on the stock prices is also investigated, together with establishing variations in the stock return volatility risk premia. Lastly, an investigation of whether volatility is transmitted from international markets to African markets is also undertaken. The sample period starts from November 1998 until December 2016. The preliminary empirical results show a mixed finding in the mean-variance tradeoff theory. Based on the GARCH-type models, the empirical results show that volatility of stock returns show the characteristics of volatility clustering, leptokurtic distribution and leverage effects over time for all the Africa equity markets. A weak relationship between volatility and expected returns is also found in all the African equity markets studied. The results also showed that as volatility increases, the returns correspondingly decrease by a factor of the coefficient for most of the equity markets. These results negate the theory of a positive risk premium on stock indices. It was also observed that stock return volatility risk premia have variations over time. The study also established that there was volatility transmission from the international markets into Africa equity markets. / MT2017

PhD (Statistics) / Department of Statistics / There has been a growing interest in investment opportunities in Africa. The net foreign direct investment (FDI) to Sub-Saharan Africa has increased from $13 billion in 2004 to about $54 billion in 2015. Investing on the stock markets is one of such investment opportunities. Stock markets in Africa have realised growth in market capitalization, membership, value and volume traded due to an increase in investments. This level of growth in African stock markets has raised questions about their efficiency. This thesis examined the weak-form informational efficiency of African stock markets. The aim therefore of this thesis is to test the efficiency of African stock markets in the weak-form of the Efficient Market Hypothesis (EMH) for eight countries, namely, Botswana, Egypt, Kenya, Mauritius, Morocco, Nigeria, South Africa and Tunisia. Since, the researcher will be testing the weak-form of the EMH, the data to be used is on past price information on the markets of the eight countries. Data for the eight countries were obtained from DataStream for the period between August 28, 2000 to August 28, 2015. The data is for a period of 180 months which resulted in 3915 data points. Although there have been studies on the weak-form market efficiency of African stock markets, the efficiency conclusions on the markets have been mixed. This problem might be due to the methods used in the analyses. First, most of the methods used were linear in nature although the data generating process of stock market data is nonlinear and hence nonlinear methods maybe more appropriate in its analysis. Also these linear methods tested the efficiency of African markets in absolute form, however, an efficiency conclusion relying solely on absolute efficiency might be misleading because, stock markets become efficient with time due to improvements in the quality of information processing from reforms on the markets. The researcher solved this problem of using absolute frequency by comparing the results when the presence of long-memory in frequency and time domains of the markets were examined. The researcher used a semi-parametric estimator, the Local Whittle estimator to test for long-memory in frequency domain and the Detrended Fluctuation Analysis (DFA) to test for long-memory in time domain. The DFA method is suitable for both stationary and nonstationary time series which makes it to have more power over methods like the rescaled range analysis (R/S) in the estimation of Hurst exponent. Second, the researcher examined whether the markets were predictable under the Adaptive Market Hypothesis (AMH). The researcher employed the Generalised Spectral (GS) test to examine the Martingale difference hypothesis (MDH) of the markets. The Generalised spectral (GS) test is a non-parametric ii test designed to detect the presence of linear and nonlinear dependencies in a stationary time series. The GS test considers dependence at all lags. Third, because of the nonlinear nature in the data-generating process on the markets, the stationarity of the market returns under a nonlinear Exponential Smooth Threshold Autoregressive (ESTAR) model was examined. A nonlinear ADF unit root test against ESTAR and a modified Wald-type test against ESTAR in the analysis were employed. Fourth, the self-exciting threshold Autoregressive (SETAR) method was employed to model the returns when non-linear patterns were observed as a result of nonlinear data generating process on the markets. The literature on market efficiency of African stock markets has shown that variations exist in the study characteristics. There are variations in the method of analysis, type of test, type of data employed, time period chosen and the scope of analysis for the studies. The researcher therefore quantitatively reviewed previous studies by means of meta-analysis to identify which study characteristics affects efficiency conclusions of African markets using the mixed effects model. The findings showed the presence of long-memory in the returns of the stock markets when the whole sample was used. This made the markets weak-form inefficient, however, when the researcher tested for the persistence of long-memory through time, there were periods the markets were efficient in the weak-form. The memory effect was low in the South African market but high in the Mauritian market. Furthermore, it was observed that, the returns for Egypt, which were highly predictable when the whole data was analysed became not highly predictable when the rolling window approach of the GS test was used. Egypt had one of the lowest percentages of the windows that had a p-value less than 0.05 after South Africa. The results obtained from using the non-linear unit root tests on the logarithmic price series of the markets under study showed that, the markets were non-stationary and hence weak-form efficient under an ESTAR framework but for Botswana. Thus the markets were weak-form efficient when analysed using a non-linear method. This observation means that Africa’s foreign direct investment would have been increased over the years if the appropriate methods are used. This is because, over the years, studies on the weak-form efficiency African stock markets have ended with mixed conclusions with most of the markets being concluded to be weak-form inefficient as a result of the use of linear methods in the analysis. This finding, to us, has had an effect on investors commitments to Africa because the right methodology was not employed. iii The findings from modelling the returns under the non-linear SETAR model showed that, the SETAR model performs better than the standard AR(1) and AR(2) model for all the markets under study after the non-linear patterns were identified in the returns series. The SETAR (2,2,2) model is a threshold model, therefore, investors are able to move freely in search of higher opportunities between the low and high regimes. Investors main aim is to make profits, hence, the threshold model of SETAR gives them the freedom to move to a regime where the rate of returns is increasing unlike the standard AR(1) and AR(2) linear models where there are no switching of regimes. Finally, none of the study characteristics in the market efficiency studies was found to be significant in efficiency conclusions of African stock markets but the indicator for publication bias was significant. This means that there has been a change in attitude in recent years towards studies on informational market efficiency whose results do not support the Efficient Market Hypothesis (EMH), unlike the earlier years when the EMH was formulated and acclaimed to be one of the best propositions in economics. It was therefore concluded that when time-varying methods are used in analysing weak-form efficiency, the dynamics of the markets become known to investors for proper decision-making. Also, nonlinear methods should be used in order to reflect the nonlinear nature of data capturing on the stock markets / NRF

Thesis (MDF)--Stellenbosch University, 2012. / ENGLISH ABSTRACT: The effects that capital market development has on growth, specifically whether capital market development can lead to growth, have been widely debated. Studies have been conducted on modernised and sophisticated economies that give evidence of the existence of such a relationship. However, with the current increase in African economic growth rates scholars and policy makers are beginning to question the validity of the relationship in the African context. In addition, the jury is still out on whether capital market development causes growth, or whether growth causes capital market development, and what the nature and transmission mechanism of the relationship is. This study is guided by King and Levine (1993c) as well as literature reviews from various researchers. The study conducts a quantitative analysis of the South African capital markets, more specifically the Johannesburg Stock Exchange, in order to provide insight into the relationship between capital market development and growth. The time series regression analysis is conducted over the 1996-2006 period.