Stock market volatility during times of crisis: a comparative analysis of the conditional volatilities of JSE stock indices during the 2007/08 global financial crisis and COVID-19
- Authors: Wang, Zixiao
- Date: 2022-04-06
- Subjects: Stock exchanges , Johannesburg Stock Exchange , Global Financial Crisis, 2008-2009 , COVID-19 (Disease) Economic aspects , Economic forecasting , Stock exchanges and current events , GARCH model
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/284603 , vital:56078
- Description: This research analyses the comparative behaviour of stock market volatility during two crises. The goal of this research is to determine whether assumed cyclical and defensive sectors have either retained or revealed their expected properties during both the Global Financial Crisis (GFC) and COVID-19 by analysing sectoral volatility amid these two crises. Understanding how volatility changes amid crises helps to determine whether the volatility assumptions of diversified investment portfolios for both defensive and cyclical sectors still held given the different causes of each crisis. In turn, this knowledge can assist with risk management and portfolio allocation in stock market investments. The study can also contribute towards the enhancement of financial markets’ resistance against systemic risks through portfolio diversification, and aid government decision-making targeted at tackling the weaknesses of different economic sectors especially in times of overall economic weakness. This research makes use of the GARCH model to analyse a group of daily time series that consists of eleven sectoral indices and one benchmark index, all based on the South African stock markets. These observed series are categorised into two full sample periods, one designated to the Global Financial Crisis (January 2006 to May 2009) and the other for COVID-19 (January 2018 to May 2021). These are further divided into two sets of sub-sample periods, each made up of a pre-crisis and during-crisis. Furthermore, the dummy variables representing the occurrence of structural breaks are inserted into the full sample periods’ conditional variance equations. This is aimed at capturing the asymmetrical impact of the crises themselves on all observed series. Based on the movement of volatility persistency from pre-crisis to during-crisis for both crises, the results show that, firstly, Health Care and Consumer Goods are considered defensive Sectors. Secondly, Banks, Basic Materials, Chemicals, Telecommunications, and Financials are considered cyclical Sectors. Thirdly, Automobiles & Parts, Consumer Services, and Technology are considered indeterminable Sectors due to the inconsistent behaviour of these sectors’ volatility persistency throughout the sub-sample periods of both crises. Overall, according to the average volatility persistency, the observed series for COVID-19’s full sample period are generally less volatile than those of the GFC. However, the sub-sample periods suggest that the observed series for both pre-crisis and during-crisis periods of COVID-19 are more volatile than those same sub-samples of the Global Financial Crisis. Being able to analyse the characteristics of stock market sectors is crucial for risk management and optimal portfolio allocation of stock market investments. This can be achieved through portfolio diversification by investing in a variety of stocks, both cyclical and defensive, and adjusted over time based the needs of stock market investors. Diversified portfolios do not only serve the interests of individual investors, but can also enhance the financial markets’ overall resistance against systemic risks. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2022
- Full Text:
- Date Issued: 2022-04-06
- Authors: Wang, Zixiao
- Date: 2022-04-06
- Subjects: Stock exchanges , Johannesburg Stock Exchange , Global Financial Crisis, 2008-2009 , COVID-19 (Disease) Economic aspects , Economic forecasting , Stock exchanges and current events , GARCH model
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/284603 , vital:56078
- Description: This research analyses the comparative behaviour of stock market volatility during two crises. The goal of this research is to determine whether assumed cyclical and defensive sectors have either retained or revealed their expected properties during both the Global Financial Crisis (GFC) and COVID-19 by analysing sectoral volatility amid these two crises. Understanding how volatility changes amid crises helps to determine whether the volatility assumptions of diversified investment portfolios for both defensive and cyclical sectors still held given the different causes of each crisis. In turn, this knowledge can assist with risk management and portfolio allocation in stock market investments. The study can also contribute towards the enhancement of financial markets’ resistance against systemic risks through portfolio diversification, and aid government decision-making targeted at tackling the weaknesses of different economic sectors especially in times of overall economic weakness. This research makes use of the GARCH model to analyse a group of daily time series that consists of eleven sectoral indices and one benchmark index, all based on the South African stock markets. These observed series are categorised into two full sample periods, one designated to the Global Financial Crisis (January 2006 to May 2009) and the other for COVID-19 (January 2018 to May 2021). These are further divided into two sets of sub-sample periods, each made up of a pre-crisis and during-crisis. Furthermore, the dummy variables representing the occurrence of structural breaks are inserted into the full sample periods’ conditional variance equations. This is aimed at capturing the asymmetrical impact of the crises themselves on all observed series. Based on the movement of volatility persistency from pre-crisis to during-crisis for both crises, the results show that, firstly, Health Care and Consumer Goods are considered defensive Sectors. Secondly, Banks, Basic Materials, Chemicals, Telecommunications, and Financials are considered cyclical Sectors. Thirdly, Automobiles & Parts, Consumer Services, and Technology are considered indeterminable Sectors due to the inconsistent behaviour of these sectors’ volatility persistency throughout the sub-sample periods of both crises. Overall, according to the average volatility persistency, the observed series for COVID-19’s full sample period are generally less volatile than those of the GFC. However, the sub-sample periods suggest that the observed series for both pre-crisis and during-crisis periods of COVID-19 are more volatile than those same sub-samples of the Global Financial Crisis. Being able to analyse the characteristics of stock market sectors is crucial for risk management and optimal portfolio allocation of stock market investments. This can be achieved through portfolio diversification by investing in a variety of stocks, both cyclical and defensive, and adjusted over time based the needs of stock market investors. Diversified portfolios do not only serve the interests of individual investors, but can also enhance the financial markets’ overall resistance against systemic risks. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2022
- Full Text:
- Date Issued: 2022-04-06
Efficient market hypothesis with structural breaks: evidence from BRICS stock markets
- Authors: Guduza, Sinazo
- Date: 2019
- Subjects: Stock exchanges , Investment analysis Developing countries -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/42342 , vital:36647
- Description: The study is an examination of weak form market efficiency (EMH) in BRICS equity markets using weekly data spanning from 2005 to 2018. The study makes use linear as well as nonlinear unit rot tests, that is, the ADF and KSS tests respectively. For more robust results, the study uses the Integer Flexible Fourier Function (IFFF) and the Fractional Frequency Flexible Fourier Function (FFFFF) to account for smooth structural breaks. The study investigates the full sample period and splits the empirical data into three sub-samples corresponding to the period succeeding the global financial crisis, the BRICS summits and the BRICS Development Bank (BDB). This study, to the best of our knowledge, is the first to investigate the efficiency in the BRICS stock markets using a combination of the specified series of unit root tests. Moreover, there are no prior studies that have examined these markets for the sub-samples mentioned above. Our empirical results point us to convincing evidence of weak form inefficiency as the majority of the results reject the null hypothesis of a unit root.
- Full Text:
- Date Issued: 2019
- Authors: Guduza, Sinazo
- Date: 2019
- Subjects: Stock exchanges , Investment analysis Developing countries -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/42342 , vital:36647
- Description: The study is an examination of weak form market efficiency (EMH) in BRICS equity markets using weekly data spanning from 2005 to 2018. The study makes use linear as well as nonlinear unit rot tests, that is, the ADF and KSS tests respectively. For more robust results, the study uses the Integer Flexible Fourier Function (IFFF) and the Fractional Frequency Flexible Fourier Function (FFFFF) to account for smooth structural breaks. The study investigates the full sample period and splits the empirical data into three sub-samples corresponding to the period succeeding the global financial crisis, the BRICS summits and the BRICS Development Bank (BDB). This study, to the best of our knowledge, is the first to investigate the efficiency in the BRICS stock markets using a combination of the specified series of unit root tests. Moreover, there are no prior studies that have examined these markets for the sub-samples mentioned above. Our empirical results point us to convincing evidence of weak form inefficiency as the majority of the results reject the null hypothesis of a unit root.
- Full Text:
- Date Issued: 2019
The interaction between oil price shocks, currency volatility and stock market prices: evidence from South Africa
- Authors: Tshivhase, Mikovhe
- Date: 2019
- Subjects: Petroleum products -- Prices , Accounting and price fluctuations , Inflation (Finance) -- South Africa , Stock exchanges , Economics
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/43834 , vital:37051
- Description: Crude oil is an essential and strategic commodity in modern economies. Therefore, energy price fluctuations have the potential of affecting the economic welfare of a country. For instance, they have the potential to undermine the government’s attainment of its economic growth targets (National Treasury, 2016:2). The South African Reserve Bank (SARB) also considers oil price movements to be one of the major threats to currency volatility and the continued attainment of its inflation targets of about (3-6, per cent), as evidenced by numerous recent statements by its monetary policy committee (SARB, 2016:5-13). This study used co-integration tests to investigate the interaction between oil price shocks, exchange rates and stock market prices in South Africa over the period 1 January 2011 to 1 April 2018. The study employed the Johansen co-integration test. The results found no long run co-integration between oil prices, exchange rate and stock market prices. Therefore, this study adopted the VAR model for causality tests. Using the VAR model, this study found the existence of a unidirectional causality between stock prices and oil prices, with stock prices leading the oil prices changes. The all share index, resources and financials index were found to be significant variables to explain oil prices. This result is consistent with the business cycle view, which states that oil price fluctuations are mainly driven by demand factors. Furthermore, strong world output growth trends especially in emerging markets, could give rise to an upward surge in oil prices. The study also found that there is a weak correlation between stock price and exchange rate in South Africa. This is consistent with the asset approach. The findings of this study add to the already largely debated theories that seek to explain the relationship between the oil prices, exchange rates and stock market prices. The recommendation of this research is that, policy makers, researchers and investment bankers or fund managers who have interest or trade these financial instruments, may have to consider the role of stock market prices in the various sectors of the economy in their models for forecasting the path of the oil prices and the Rand/US Dollar exchange rate trend.
- Full Text:
- Date Issued: 2019
- Authors: Tshivhase, Mikovhe
- Date: 2019
- Subjects: Petroleum products -- Prices , Accounting and price fluctuations , Inflation (Finance) -- South Africa , Stock exchanges , Economics
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/43834 , vital:37051
- Description: Crude oil is an essential and strategic commodity in modern economies. Therefore, energy price fluctuations have the potential of affecting the economic welfare of a country. For instance, they have the potential to undermine the government’s attainment of its economic growth targets (National Treasury, 2016:2). The South African Reserve Bank (SARB) also considers oil price movements to be one of the major threats to currency volatility and the continued attainment of its inflation targets of about (3-6, per cent), as evidenced by numerous recent statements by its monetary policy committee (SARB, 2016:5-13). This study used co-integration tests to investigate the interaction between oil price shocks, exchange rates and stock market prices in South Africa over the period 1 January 2011 to 1 April 2018. The study employed the Johansen co-integration test. The results found no long run co-integration between oil prices, exchange rate and stock market prices. Therefore, this study adopted the VAR model for causality tests. Using the VAR model, this study found the existence of a unidirectional causality between stock prices and oil prices, with stock prices leading the oil prices changes. The all share index, resources and financials index were found to be significant variables to explain oil prices. This result is consistent with the business cycle view, which states that oil price fluctuations are mainly driven by demand factors. Furthermore, strong world output growth trends especially in emerging markets, could give rise to an upward surge in oil prices. The study also found that there is a weak correlation between stock price and exchange rate in South Africa. This is consistent with the asset approach. The findings of this study add to the already largely debated theories that seek to explain the relationship between the oil prices, exchange rates and stock market prices. The recommendation of this research is that, policy makers, researchers and investment bankers or fund managers who have interest or trade these financial instruments, may have to consider the role of stock market prices in the various sectors of the economy in their models for forecasting the path of the oil prices and the Rand/US Dollar exchange rate trend.
- Full Text:
- Date Issued: 2019
Volatility and the risk return relationship on the South African equity market
- Authors: Mandimika, Neville
- Date: 2010
- Subjects: Stock exchanges , Financial risk -- South Africa , Saving and investment -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1009 , http://hdl.handle.net/10962/d1002744 , Stock exchanges , Financial risk -- South Africa , Saving and investment -- South Africa
- Description: The volatility of stock markets has important implications for investment decision making, financial stability and overall macroeconomic stability. This study examines the risk-return relationship as well as the behaviour of volatility of the South African equity markets using both aggregate, industrial level and sector level data. The study is divided into three parts. The first part investigates the behaviour of volatility in each of the industries, sectors and the benchmark series focussing on whether volatility is symmetric or asymmetric. Subsequently we investigate which, among the GARCH family of models appropriately captured the riskreturn relationship under which distributional assumption. The second part examines the riskreturn relationship on the SA stock market. The third part examines the long term trend of volatility and whether volatility significantly increases during financial crises and during major global shocks. The GARCH-M, EGARCH-M and TARCH-M models under the Gaussian, Student –t and the GED are used. The findings this study makes are as follows: firstly, there is no clear relationship between risk and return. Secondly, volatility is asymmetrical, implying that bad news has a greater effect on volatility than good news in the South African equity market. Thirdly, the TARCH-M model under the GED was found to be the most appropriate model. Fourthly, volatility increases during financial crises and major global shocks. Overall, volatility is generally not priced on the South African equity markets. Thus, both local and international investors need to consider other factors that influence returns such as skewness. The general increase in volatility during financial crises and major global shocks poses a major concern for policy makers as this may cause financial instability. Thus policy makers need to be mindful of the behaviour of volatility in the South African equity market in response to external shocks.
- Full Text:
- Date Issued: 2010
- Authors: Mandimika, Neville
- Date: 2010
- Subjects: Stock exchanges , Financial risk -- South Africa , Saving and investment -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1009 , http://hdl.handle.net/10962/d1002744 , Stock exchanges , Financial risk -- South Africa , Saving and investment -- South Africa
- Description: The volatility of stock markets has important implications for investment decision making, financial stability and overall macroeconomic stability. This study examines the risk-return relationship as well as the behaviour of volatility of the South African equity markets using both aggregate, industrial level and sector level data. The study is divided into three parts. The first part investigates the behaviour of volatility in each of the industries, sectors and the benchmark series focussing on whether volatility is symmetric or asymmetric. Subsequently we investigate which, among the GARCH family of models appropriately captured the riskreturn relationship under which distributional assumption. The second part examines the riskreturn relationship on the SA stock market. The third part examines the long term trend of volatility and whether volatility significantly increases during financial crises and during major global shocks. The GARCH-M, EGARCH-M and TARCH-M models under the Gaussian, Student –t and the GED are used. The findings this study makes are as follows: firstly, there is no clear relationship between risk and return. Secondly, volatility is asymmetrical, implying that bad news has a greater effect on volatility than good news in the South African equity market. Thirdly, the TARCH-M model under the GED was found to be the most appropriate model. Fourthly, volatility increases during financial crises and major global shocks. Overall, volatility is generally not priced on the South African equity markets. Thus, both local and international investors need to consider other factors that influence returns such as skewness. The general increase in volatility during financial crises and major global shocks poses a major concern for policy makers as this may cause financial instability. Thus policy makers need to be mindful of the behaviour of volatility in the South African equity market in response to external shocks.
- Full Text:
- Date Issued: 2010
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