Financial market integration, contagion and volatility transmission: a case of the globally developed markets and developing stock markets in Africa
- Authors: Chima, Anyikwa Izunna
- Date: 2018
- Subjects: Money market , Investment analysis Capital market
- Language: English
- Type: Thesis , Doctoral , PhD
- Identifier: http://hdl.handle.net/10948/23935 , vital:30646
- Description: The widespread impact of the 2007 global financial crisis and the subsequent Eurozone sovereign debt crisis added new impetus to the on-going international discussions about the sustainability of a financial integration model. Moreover, the crisis revealed the complexity of the international transmission of financial shocks and the financial vulnerabilities of different financial markets. More so, it exposed the major weaknesses in our knowledge of how the forces that drive global financial systems operate. This is compounded by a failure to appreciate the scope of interdependencies that exist across markets and their potential to destabilise the global financial system in times of crises. At the heart of this weakness is the inability to accurately understand the various propagation mechanisms and channels through which a crisis from one market is transmitted to other markets. It is against this background that this study is undertaken, in order to empirically investigate the role of financial market integration, contagion and volatility transmission, using weekly data between the period 3 January 2003 to 26 December 2014. The study covers 27 stock markets, comprising 13 African stock markets, 10 developed stock markets and four emerging stock markets. The study employed two empirical frameworks: the first framework focused on the short-run and long-run relationships between African stock markets and major global stock markets using the Johansen co-integration test, Granger causality test, GIRF and GFEVD. The second framework focused on testing evidence of contagion and volatility transmission using the DCC-GJRGARCH model and AS model. The results show that the majority of African stock markets moved together in the long-run with the major global stock markets during the pre-crisis and Eurozone crisis periods. While the long-run relationship between African stock markets and the major global markets disappeared during the period of the global financial crisis, the relationship re-emerged during the Eurozone crisis period. From the analysis of Granger causality test, the results show some differences exist in terms of the relative strength of the causal linkages across markets and periods. However, it was shown that strong causal linkages emerged during the global financial and Eurozone crisis periods relative to the pre-crisis period. Also, the leading role of the major developed markets, compared to the emerging markets, is demonstrated throughout the analysis of causality tests. Moreover, the sensitivity of African markets to shocks from the global markets was clearly highlighted by analysis of the GIRF and GFEVD, especially during both crisis periods. Furthermore, the results from the AS model confirm significant evidence of mean and volatility spill-over effects from the major global markets to African markets especially during the periods of both crises. In addition, the level of volatility was found to be more persistent and asymmetric during both crisis periods compared to the pre-crisis period. The results confirm the existence of contagion effects through the analysis of the conditional correlation during both crisis periods. More importantly, the analysis of conditional correlation emphasised evidence of heightened co-movement between African markets and the major global markets during the periods of crisis. Consequently, the decoupling phenomenon is rejected in favour of synchronisation of business cycles between African stock markets and the major global markets. The findings of this study have several important implications for the policymakers and investors in Africa and the world at large. The findings of this study not only provide some information about the level of financial integration but also the effect of growing financial linkages between African markets and the global markets, which is important for designing appropriate regulatory frameworks. Also, the knowledge about the dynamic interrelationship in terms of contagion and volatility transmission between African markets and the major global markets can be utilised by investors, and thereby help them to make better investment decisions. Consequently, the findings of this study point to a need for policymakers in general and in Africa in particular, to monitor closely changes in financial development in other markets in order to reduce the vulnerability of domestic markets to external shocks. To mitigate the impact of the external shocks, greater co-operation and co-ordination, with proper supervision of different markets‟ fiscal and monetary policies, should be encouraged. Such policies need to be carefully aligned with the objective of external sustainability. This can be achieved through strategic partnerships and mergers, foreign institutional investments, cross market listing of shares, corporatisation of exchanges and the introduction of private ownership. Above all, effective regulation is needed to realise the benefits of financial market integration.
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- Date Issued: 2018
Modelling daily return variations in developing market currencies
- Authors: Howarth, Grant
- Date: 2013-07-12
- Subjects: Dollar, American , Currency questions , Foreign exchange market , Foreign exchange rates , Rate of return -- Developing countries , Money market , Prices
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1076 , http://hdl.handle.net/10962/d1008365 , Dollar, American , Currency questions , Foreign exchange market , Foreign exchange rates , Rate of return -- Developing countries , Money market , Prices
- Description: This study examines the American Dollar (USD) denominated currency returns of five developing market currencies for the presence of the day-of-the-week effect. Daily data from January 1995 to February 2008 is examined, and is split into two subperiods, SP1 (1995 - 2002) and SP2 (2003 - February 2008). Currency returns are non-normally distributed across the full data set and SP1 , but tend towards normality in SP2. As such non-parametric tests are used to test the equality of the first four moments across days of the week. Tests on the first moment show that two of the currencies do not show any evidence of the day-of-the-week effect. However, evidence of the day-of-the-week effect is found in the other three currencies in SP1, although the effect disappears or weakens significantly in SP2. Little evidence of the day-of-the-week effect is found in tests on the second moment. The hypothesis of equal higher moments across currency returns is rejected for almost all of the weekday pairs for all five currencies in SP1 , but in SP2 the hypothesis of equal higher moments can only be rejected for a single pair of weekdays for one currency. This indicates the disappearance of the day-of-the-week effect across higher moments in SP2. Thus, the study finds that the day-of-the-week effect is present across the first moment and higher moments in the returns to most currencies in SP1 , but has disappeared for all five currencies in SP2. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
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