The paper explores the validity of PPP theory in South Africa. Cointegration theory is applied to monthly data on two nominal exchange rates of the rand and relative prices. Our tests identify that long-run co-movement exists between the nominal exchange rate and the relative prices between South Africa and the US and between South Africa and the UK. An estimated error-correction model shows that a proportion of the deviation from PPP in the initial period is corrected for rate in the following period, only in the rand-sterling exchange.
The paper examines the relationship between interest rates and stock market returns for seven African countries. Cointegration tests indicate a long-run relationship between interest rate and stock prices for Kenya and South Africa. The short-run dynamic Vector Error Correction Model Granger causality shows unidirectional causality from stock returns to interest rate in Kenya and bidirectional causality in South Africa. Responses to shocks from impulse response functions have long lasting effects in Egypt, Ghana, Nigeria and Tunisia and are short-lived in Mauritius.
This paper analyses returns and volatility on the Namibian and South African stock markets. We use daily closing indices of the Namibian Stock Exchange (NSX) and the Johannesburg Stock Exchange (JSE). The sample covers the period from January 4, 1999 to March 20, 2003. Our methodology has three main parts: (i) unit root tests, (ii) cointegration analysis and (iii) volatility modelling. The results show that both markets exhibit very low correlations, while there is no evidence of linear relationship between the markets. Furthermore, volatility analysis shows evidence of no spillover effects. Our results suggest that NSX is an attractive risk diversification tool for regional portfolio diversification in Southern Africa.
This study estimates the systematic for the listed companies on the Stock Exchange of Mauritius using the capital asset pricing model and the market model. We then correct for thin trading. Finally, the Schwert and Seguin (1990) model is used to estimate the time variation in beta. The results indicate that the betas corrected for thin trading are quite different from the traditional beta estimates. It is therefore crucial to take thin trading into account when estimating systematic risk for markets characterized by thin trading. Moreover, when the time-variation in beta is taken into account, the empirical regularity that the spread between the systematic risk of small and large firms is higher as market volatility increases is confirmed by the data.
This article investigates the stability of the covariance- and correlation-matrix of thirty three companies as well as the JSE All Share return index over the period January 1990 - December 2000. Extensive Chi-squared testing suggests that the covariance- and the correlation-matrix of South African stock returns are not stable over time.