We examine the market and firm-level effects of the effective insider trading prohibition recently initiated in South Africa - the Trading Act of 1999. We find that the law has increased the awareness and abhorrence of insider dealing as both criminal and illegal. Further, we find that the average publicly traded firm in South Africa experienced significant improvements in equity value efficiency and corporate governance post the initiation of the law (2000 - 2004). Importantly, we find that upon controlling for other determinants of cost of capital, effective prohibition of insider dealings still explains reduction in the cost of equity by about 6% per annum. In fact, the mere initiation of the law does not reduce cost of equity instead the reduction in cost of equity occurs due to enforcement. These findings suggest that similar emerging markets in Africa and other regions of the world can benefit from enacting such capital market governance laws.
This paper addresses the issues of governance and ownership structure, and extends the agency theory of Jensen and Meckling (1976) to the Ethiopian banking sector. It analyzes the degree of the sector's fragility, and raises the reform issues of the day. Based on grounded theories and following a qualitative methodology, the paper confirms that Ethiopia's banking sector is dominated by a single state-owned bank (SOB), finds that the form of agency is complex, and argues that the draft banking law needs to aim at addressing the problems of ownership concentration and management on one hand, and capital structure on the other hand. The paper proposes that the Commercial Bank of Ethiopia (CBE) be privatized in a specific way; defensive mechanisms be set up for the banking sector to prevent Akerlof and Romer's (1993) ''looting'' scenario; and ''optimal'' board size and significant influence criteria be applied in sorting out board structure and ownership concentration in all banks. Furthermore, the new regulation must aim at reforming the central bank itself. The reform must address the extent to which the National Bank of Ethiopia (NBE) can be protected from political intervention.
Parity theories are used to study the "rand" / "dollar" rate. Interest rate parity results suggest that in about 20% to 26.7% of cases, investing in USA would have yielded higher interest returns than investing in South Africa. In 73.3% to 80% of cases, investing in South Africa would have yielded more interest returns. The PPP theory suggests rand undervaluation relative to the dollar, thereby justifying revaluation / appreciation in all cases, while the interest rate parity theory suggests rand undervaluation in 73.3% to 80% of cases and overvaluation in 20% to 26.7% of cases. Cointegration tests suggest significant (at 5% but not at 1%) long run PPP, which is consistent with the high correlation (0.97) between the two countries? price levels.
This paper provides an estimation of the relationship between the forward exchange rate and the future spot rate under the hypothesis of adaptive parameter updating. The Kalman filter technique is used for this end. The better performance of the Kalman filter technique over the random walk and the ordinary least square (OLS) techniques in out - of - sample forecasts confirms that a recursive technique with time - varying coefficients is relevant for forecasting the rand - dollar future spot rates.