Cointegration, causality and international portfolio diversification : investigating potential benefits to a South African investor
- Authors: Msimanga, Nkululeko Lwazi
- Date: 2011
- Subjects: Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:962 , http://hdl.handle.net/10962/d1002696 , Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
- Description: Research studies on portfolio diversification have tended to focus on developed markets and paid less attention to emerging markets. Traditionally, correlation analysis has been used to determine potential benefits from diversification but current studies have shifted focus from correlation analysis to exploring cointegration analysis and other forms of tests such as the Vector Error Correction Methodology. The research seeks to find if it is beneficial for a South African investor to diversify their portfolio of emerging market equities over a long-term period. Daily weighted share indices for the period of January 1996 to November 2008 were collected and analysed through the application of the Johansen cointegration technique and Vector Error Correction Methodology. Granger Causality tests were also performed to established whether one variable can be useful in forecasting another variable. The study found that there was at least one statistically significant long-run relationship between the emerging markets. After testing for unit roots for all the share indices and their first difference using the Augmented Dickey-Fuller test (ADF), Philips-Perron and Kwiatkowski, Phillips, Schmidt, and Shin (KPSS) unit root tests, similar conclusions were m~de. All the unit root tests and their levels could not be rejected for all the series. However, unit root tests on the first differences were rejected, meaning that all series are of order 1(1) - evidence of cointegration. Simply put, emerging markets tend not to drift apart over time. This suggests that emerging markets offer limited benefits to investors who are looking to add some risk to their portfolios. In addition, the study also found evidence of both unidirectional and bidirectional causality (Granger-Cause tests) between markets. This implies that the conditions for a particular market are exogenous of the other market. The study concludes that emerging markets are gradually adopting the same profile as developed markets.
- Full Text:
- Date Issued: 2011
- Authors: Msimanga, Nkululeko Lwazi
- Date: 2011
- Subjects: Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:962 , http://hdl.handle.net/10962/d1002696 , Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
- Description: Research studies on portfolio diversification have tended to focus on developed markets and paid less attention to emerging markets. Traditionally, correlation analysis has been used to determine potential benefits from diversification but current studies have shifted focus from correlation analysis to exploring cointegration analysis and other forms of tests such as the Vector Error Correction Methodology. The research seeks to find if it is beneficial for a South African investor to diversify their portfolio of emerging market equities over a long-term period. Daily weighted share indices for the period of January 1996 to November 2008 were collected and analysed through the application of the Johansen cointegration technique and Vector Error Correction Methodology. Granger Causality tests were also performed to established whether one variable can be useful in forecasting another variable. The study found that there was at least one statistically significant long-run relationship between the emerging markets. After testing for unit roots for all the share indices and their first difference using the Augmented Dickey-Fuller test (ADF), Philips-Perron and Kwiatkowski, Phillips, Schmidt, and Shin (KPSS) unit root tests, similar conclusions were m~de. All the unit root tests and their levels could not be rejected for all the series. However, unit root tests on the first differences were rejected, meaning that all series are of order 1(1) - evidence of cointegration. Simply put, emerging markets tend not to drift apart over time. This suggests that emerging markets offer limited benefits to investors who are looking to add some risk to their portfolios. In addition, the study also found evidence of both unidirectional and bidirectional causality (Granger-Cause tests) between markets. This implies that the conditions for a particular market are exogenous of the other market. The study concludes that emerging markets are gradually adopting the same profile as developed markets.
- Full Text:
- Date Issued: 2011
Trade union investment schemes: a blemish on the social movement unionism outlook of South African unions?
- Authors: Rubushe, Melikaya
- Date: 2010
- Subjects: Labor unions -- South Africa , Labor unions and communism , Cosatu , Economic development -- South Africa , National Union of Mineworkers (South Africa) , Labor unions -- Finance , Business enterprises, Black -- South Africa , Investments -- South Africa
- Language: English
- Type: Thesis , Masters , MSocSc
- Identifier: vital:3331 , http://hdl.handle.net/10962/d1003119 , Labor unions -- South Africa , Labor unions and communism , Cosatu , Economic development -- South Africa , National Union of Mineworkers (South Africa) , Labor unions -- Finance , Business enterprises, Black -- South Africa , Investments -- South Africa
- Description: South African trade unions affiliated to Congress of South African Trade Unions (COSATU) have taken advantage of the arrival of democracy and newly found opportunities available through Black Economic Empowerment to venture into the world of business by setting up their own investment companies. The declared desire behind these ventures was to break the stranglehold of white capital on the economy and to extend participation in the economic activities of the country to previously disadvantaged communities. Using the National Union of Mineworkers and the Mineworkers’ Investment Company as case studies, this dissertation seeks to determine whether unions affiliated to the Congress of South African Trade Unions (COSATU) are advancing the struggle for socialism through their investment schemes. Secondly, the dissertation determines whether, in the activities of the schemes, internal democracy is preserved and strengthened. The theoretical framework of this dissertation emerges from arguments advanced by Lenin and Gramsci on the limitations of trade unions in terms of their role in the struggle against capitalism. In addition, the argument draws on the assertions by Michels regarding the proneness of trade union leadership to adopt oligarchic tendencies in their approach to leadership. Of interest is how, according to Gramsci, trade unions are prone to accepting concessions from the capitalist system that renders them ameliorative rather than transformative. Drawing from Michels’ ‘iron law of oligarchy’, the thesis examines whether there is space for ordinary members of the unions to express views on the working of the union investment companies. By looking at the extent to which the investment initiatives of the companies mirror the preferences of the ordinary members of the unions, one can determine the level of disjuncture between the two. The study relies on data collected through interviews and documentary material. Interviews provide first-hand knowledge of how respondents experience the impact of the investment schemes. This provides a balanced analysis given that documents reflect policy stances whereas interviews provide data on whether these have the stated impact. What the study shows is a clear absence of space for ordinary members to directly influence the workings of union investment companies. It is also established that, in their current form, the schemes operate more as a perpetuation of the capitalist logic than offering an alternative system.
- Full Text:
- Date Issued: 2010
- Authors: Rubushe, Melikaya
- Date: 2010
- Subjects: Labor unions -- South Africa , Labor unions and communism , Cosatu , Economic development -- South Africa , National Union of Mineworkers (South Africa) , Labor unions -- Finance , Business enterprises, Black -- South Africa , Investments -- South Africa
- Language: English
- Type: Thesis , Masters , MSocSc
- Identifier: vital:3331 , http://hdl.handle.net/10962/d1003119 , Labor unions -- South Africa , Labor unions and communism , Cosatu , Economic development -- South Africa , National Union of Mineworkers (South Africa) , Labor unions -- Finance , Business enterprises, Black -- South Africa , Investments -- South Africa
- Description: South African trade unions affiliated to Congress of South African Trade Unions (COSATU) have taken advantage of the arrival of democracy and newly found opportunities available through Black Economic Empowerment to venture into the world of business by setting up their own investment companies. The declared desire behind these ventures was to break the stranglehold of white capital on the economy and to extend participation in the economic activities of the country to previously disadvantaged communities. Using the National Union of Mineworkers and the Mineworkers’ Investment Company as case studies, this dissertation seeks to determine whether unions affiliated to the Congress of South African Trade Unions (COSATU) are advancing the struggle for socialism through their investment schemes. Secondly, the dissertation determines whether, in the activities of the schemes, internal democracy is preserved and strengthened. The theoretical framework of this dissertation emerges from arguments advanced by Lenin and Gramsci on the limitations of trade unions in terms of their role in the struggle against capitalism. In addition, the argument draws on the assertions by Michels regarding the proneness of trade union leadership to adopt oligarchic tendencies in their approach to leadership. Of interest is how, according to Gramsci, trade unions are prone to accepting concessions from the capitalist system that renders them ameliorative rather than transformative. Drawing from Michels’ ‘iron law of oligarchy’, the thesis examines whether there is space for ordinary members of the unions to express views on the working of the union investment companies. By looking at the extent to which the investment initiatives of the companies mirror the preferences of the ordinary members of the unions, one can determine the level of disjuncture between the two. The study relies on data collected through interviews and documentary material. Interviews provide first-hand knowledge of how respondents experience the impact of the investment schemes. This provides a balanced analysis given that documents reflect policy stances whereas interviews provide data on whether these have the stated impact. What the study shows is a clear absence of space for ordinary members to directly influence the workings of union investment companies. It is also established that, in their current form, the schemes operate more as a perpetuation of the capitalist logic than offering an alternative system.
- Full Text:
- Date Issued: 2010
Integration between the South African and international bond markets : implications for portfolio diversification
- Authors: Rabana, Phomolo
- Date: 2009
- Subjects: Bond market , Bond market -- South Africa , Principal components analysis , International finance , Foreign exchange rates -- South Africa , Investments -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:947 , http://hdl.handle.net/10962/d1002681 , Bond market , Bond market -- South Africa , Principal components analysis , International finance , Foreign exchange rates -- South Africa , Investments -- South Africa
- Description: International bond market linkages are examined using monthly bond yield data and total return indices on government bonds with ten years to maturity. The bond yield data covers a nineteen-year period from January 1990 to July 2008, while the bond total return index data covers a nine-year period from August 2000 to July 2008. The international bond markets included in the study are Australia, Canada, Germany, Japan, the United Kingdom, and the United States. The examination of international bond market linkages across these markets has important implications for the formulation of effective portfolio diversification strategies. The empirical analysis is carried out in three phases: the preliminary analysis, the principal component analysis (PCA), and the cointegration analysis. For each analysis and for each set of data the full sample period is first analysed and subsequently a five-year rolling window approach is implemented. Accordingly, this makes it possible to capture the time-varying nature of international bond market linkages. The preliminary analysis examines the bond market trends over the sample period, provides descriptive statistics, and reports the correlation coefficients between the selected bond markets. The PCA investigates the interrelationships among the bond markets according to their common sources of movement and identifies which markets tend to move together. The cointegration analysis is carried out using the Johansen cointegration procedure and investigates whether there is long-run comovement between South Africa and the selected bond markets. Where cointegration is found, Vector Error-Correction Models (VECMs) are estimated in order to examine the long-run equilibrium relationships in addition to their short-run adjustments over time. The empirical analysis results were robust, and overall integration between SA and the selected major bond markets remained weak and sporadic. In addition, the results showed that even after accounting for exchange rate differentials, international bond market diversification remained beneficial for a South African investor; and since international bond market linkages remained weak with no observable trend, international bond market diversification will remain beneficial for some time to come for a South African investor.
- Full Text:
- Date Issued: 2009
- Authors: Rabana, Phomolo
- Date: 2009
- Subjects: Bond market , Bond market -- South Africa , Principal components analysis , International finance , Foreign exchange rates -- South Africa , Investments -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:947 , http://hdl.handle.net/10962/d1002681 , Bond market , Bond market -- South Africa , Principal components analysis , International finance , Foreign exchange rates -- South Africa , Investments -- South Africa
- Description: International bond market linkages are examined using monthly bond yield data and total return indices on government bonds with ten years to maturity. The bond yield data covers a nineteen-year period from January 1990 to July 2008, while the bond total return index data covers a nine-year period from August 2000 to July 2008. The international bond markets included in the study are Australia, Canada, Germany, Japan, the United Kingdom, and the United States. The examination of international bond market linkages across these markets has important implications for the formulation of effective portfolio diversification strategies. The empirical analysis is carried out in three phases: the preliminary analysis, the principal component analysis (PCA), and the cointegration analysis. For each analysis and for each set of data the full sample period is first analysed and subsequently a five-year rolling window approach is implemented. Accordingly, this makes it possible to capture the time-varying nature of international bond market linkages. The preliminary analysis examines the bond market trends over the sample period, provides descriptive statistics, and reports the correlation coefficients between the selected bond markets. The PCA investigates the interrelationships among the bond markets according to their common sources of movement and identifies which markets tend to move together. The cointegration analysis is carried out using the Johansen cointegration procedure and investigates whether there is long-run comovement between South Africa and the selected bond markets. Where cointegration is found, Vector Error-Correction Models (VECMs) are estimated in order to examine the long-run equilibrium relationships in addition to their short-run adjustments over time. The empirical analysis results were robust, and overall integration between SA and the selected major bond markets remained weak and sporadic. In addition, the results showed that even after accounting for exchange rate differentials, international bond market diversification remained beneficial for a South African investor; and since international bond market linkages remained weak with no observable trend, international bond market diversification will remain beneficial for some time to come for a South African investor.
- Full Text:
- Date Issued: 2009
The current role of modern portfolio theory in asset management practice in South Africa
- Authors: Garaba, Masimba
- Date: 2005
- Subjects: Portfolio management -- South Africa , Investments -- South Africa , Bank investments -- Mathematical models , Capital assets pricing model , Asset -- Liability management , Money market -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:965 , http://hdl.handle.net/10962/d1002699 , Portfolio management -- South Africa , Investments -- South Africa , Bank investments -- Mathematical models , Capital assets pricing model , Asset -- Liability management , Money market -- South Africa
- Description: This research examines the role that modern portfolio theory (MPT) plays in current South Africa asset management practice in comparison to other portfolio management techniques and security evaluation methods. The purpose of asset management is to pool complementary financial market expertise, in order to generate returns in excess of the market return on the investments of the owners of financial resources that are entrusted to the firm, since the owners of financial resources might not be able to make superior investment decisions on their own. The research presents and discusses the literature pertaining to modern portfolio theory, traditional portfolio theory (fundamental and technical analyses), and behavioural finance theory. The implication of the efficient market hypothesis in relation to all the portfolio management theories is also presented and discussed. In line with a positivist paradigm, the survey research methodology, which combines both qualitative and quantitative aspects, was adopted. The instrument used for data collection was a questionnaire, which was found to be reliable and valid for this research. The questionnaire encompassed the Lickert scale to measure the data. The results of the analysis were interpreted using descriptive statistics. The results of this research suggest that modern portfolio theory does not play a significant role in the management of portfolios and security evaluation in South Africa. South African asset managers regard fundamental analysis as the most significant method of security evaluation in the management of portfolios. Technical analysis and econometric models are regarded as playing a moderate role and complement fundamental analysis whilst behavioural finance models play the least role. This research recommends an integrated portfolio management strategy that incorporates MPT, traditional portfolio theory and behavioural finance models to enhance investor value and protection.
- Full Text:
- Date Issued: 2005
- Authors: Garaba, Masimba
- Date: 2005
- Subjects: Portfolio management -- South Africa , Investments -- South Africa , Bank investments -- Mathematical models , Capital assets pricing model , Asset -- Liability management , Money market -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:965 , http://hdl.handle.net/10962/d1002699 , Portfolio management -- South Africa , Investments -- South Africa , Bank investments -- Mathematical models , Capital assets pricing model , Asset -- Liability management , Money market -- South Africa
- Description: This research examines the role that modern portfolio theory (MPT) plays in current South Africa asset management practice in comparison to other portfolio management techniques and security evaluation methods. The purpose of asset management is to pool complementary financial market expertise, in order to generate returns in excess of the market return on the investments of the owners of financial resources that are entrusted to the firm, since the owners of financial resources might not be able to make superior investment decisions on their own. The research presents and discusses the literature pertaining to modern portfolio theory, traditional portfolio theory (fundamental and technical analyses), and behavioural finance theory. The implication of the efficient market hypothesis in relation to all the portfolio management theories is also presented and discussed. In line with a positivist paradigm, the survey research methodology, which combines both qualitative and quantitative aspects, was adopted. The instrument used for data collection was a questionnaire, which was found to be reliable and valid for this research. The questionnaire encompassed the Lickert scale to measure the data. The results of the analysis were interpreted using descriptive statistics. The results of this research suggest that modern portfolio theory does not play a significant role in the management of portfolios and security evaluation in South Africa. South African asset managers regard fundamental analysis as the most significant method of security evaluation in the management of portfolios. Technical analysis and econometric models are regarded as playing a moderate role and complement fundamental analysis whilst behavioural finance models play the least role. This research recommends an integrated portfolio management strategy that incorporates MPT, traditional portfolio theory and behavioural finance models to enhance investor value and protection.
- Full Text:
- Date Issued: 2005
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