Return and Volatility spillovers among stock and Foreign Exchange Markets: Empirical Evidence from selected African Markets

Return and volatility dynamics in financial markets across the world have recently become important for the purpose of asset pricing, portfolio allocation and risk management. However, volatility, which come about as a result of the actions of market participants can help adapt to different situations and perform when it really matters. With recent development and liberalization among financial markets in emerging and frontier markets, the need for how the equity and foreign exchange markets interact and the extent to which return and volatility spillover are spread across countries is of importance to investors and policy makers at large. Financial markets in Africa have received attention leading to investors diversifying into them in times of crisis and contagion effects in developed countries. Regardless of the benefits these markets may offer, investors must be wary of issues such as thin trading, volatility that exists in the equity and currency markets and its related fluctuations. The study employs a VAR-GARCH BEKK model to study the return and volatility dynamics between the stock and foreign exchange sectors and among the equity markets of Egypt, Kenya, Nigeria, South Africa and Tunisia. The main findings suggest a higher dependence of own return in the stock markets and a one way return spillover from the currencies to the equity markets except for South Africa which has a weaker interrelation among the two markets. There is a relatively limited integration among the equity markets. Return and volatility spillover is mostly uni-directional except for a bi-directional relationship between the equity markets of Egypt and Tunisia. The study implication still proves a benefit for portfolio managers diversifying in these African equity markets, since they are independent of each other and may not be highly affected by the influx of negative news from elsewhere. However, there is the need to be wary of return and volatility spillover between the equity and currency markets, hence devising better hedging strategies to curb them.

Variance reduction properties of dynamic hedging models - empirical evidence from BRICS countries

This Master’s Thesis analyses the effectiveness of different hedging models on BRICS (Brazil, Russia, India, China, and South Africa) countries. Hedging performance is examined by comparing two different dynamic hedging models to conventional OLS regression based model. The dynamic hedging models being employed are Constant Conditional Correlation (CCC) GARCH(1,1) and Dynamic Conditional Correlation (DCC) GARCH(1,1) with Student’s t-distribution. In order to capture the period of both Great Moderation and the latest financial crisis, the sample period extends from 2003 to 2014. To determine whether dynamic models outperform the conventional one, the reduction of portfolio variance for in-sample data with contemporaneous hedge ratios is first determined and then the holding period of the portfolios is extended to one and two days. In addition, the accuracy of hedge ratio forecasts is examined on the basis of out-of-sample variance reduction. The results are mixed and suggest that dynamic hedging models may not provide enough benefits to justify harder estimation and daily portfolio adjustment. In this sense, the results are consistent with the existing literature.

Acquisition Failure: The case of a multinational enterprise from an emerging market failing in Indonesia.

The escalation in the number of mergers and acquisition transactions involving emerging market firms is a relatively recent phenomenon; as a consequence academic research in such topic is rather limited. The purpose of this research study was to discuss the possible reasons that led the acquisition failure of an emerging multinational firm and an Indonesian player. Extensive theoretical research was performed and it had been achieved, based on this, the finding of a framework that facilitated to understand the way in which the concepts of cultural distances and relate liabilities of foreignness in the process of acquisitions of foreign companies in emerging markets. The theoretical background collects literature related to acquisitions, models of cultural studies between nations and liabilities of foreignness. It has been generated a variety of frameworks that aid to understand the way that the institutional distance and cultural factors together with the concept of liabilities of foreignness can affect the process of market entry of an emerging multinational company to the extent that the best way to stop losing money is to abandon the project. The empirical research consisted of selective semi-structured interviews and an extensive research in available public data on the chosen study case of this research. There were several factors that were identified as the cause of the failure in the market entry of a Mexican multinational firm in Indonesia. The weakness shown by the local government authorities was used by the local community leaders who rioted because of discomfort. These groups were the ones who made the government submit to the extent that the agreements reached at the beginning of the deal were either canceled or modified in a way that favored always the local community. The contributions of this study fall into the knowledge field of emerging multinational firms and market entry process.

Relay protection in active distribution networks

Increasingly growing share of distributed generation in the whole electrical power system’s generating system is currently a worldwide tendency, driven by several factors, encircling mainly difficulties in refinement of megalopolises’ distribution networks and its maintenance; widening environmental concerns adding to both energy efficiency approaches and installation of renewable sources based generation, inherently distributed; increased power quality and reliability needs; progress in IT field, making implementable harmonization of needs and interests of different-energy-type generators and consumers. At this stage, the volume, formed by system-interconnected distributed generation facilities, have reached the level of causing broad impact toward system operation under emergency and post-emergency conditions in several EU countries, thus previously implementable approach of their preliminary tripping in case of a fault, preventing generating equipment damage and disoperation of relay protection and automation, is not applicable any more. Adding to the preceding, withstand capability and transient electromechanical stability of generating technologies, interconnecting in proximity of load nodes, enhanced significantly since the moment Low Voltage Ride-Through regulations, followed by techniques, were introduced in Grid Codes. Both aspects leads to relay protection and auto-reclosing operation in presence of distributed generation generally connected after grid planning and construction phases. This paper proposes solutions to the emerging need to ensure correct operation of the equipment in question with least possible grid refinements, distinctively for every type of distributed generation technology achieved its technical maturity to date and network’s protection. New generating technologies are equivalented from the perspective of representation in calculation of initial steady-state short-circuit current used to dimension current-sensing relay protection, and widely adopted short-circuit calculation practices, as IEC 60909 and VDE 0102. The phenomenon of unintentional islanding, influencing auto-reclosing, is addressed, and protection schemes used to eliminate an sustained island are listed and characterized by reliability and implementation related factors, whereas also forming a crucial aspect of realization of the proposed protection operation relieving measures.

Catching up with competitiveness in emerging markets – An analysis of the role of the firm’s technology management strategies

Emerging markets have experienced rapid economic growth, and manufacturing firms have had to face the effects of globalisation. Some of the major emerging economies have been able to create a supportive business environment that fosters innovation, and China is a good example of a country that has been able to increase value-added investments. Conversely, when we look at Russia, another big emerging market, we witness a situation in which domestic firms struggle more with global competitiveness. Innovation has proven to be one of the most essential ingredients for firms aiming to grow and become more competitive. In emerging markets, the business environment sets many constraints for innovation. However, open strategic choices in new product development enable companies in emerging markets to expand their resource base and capability building. Networking and close inter-firm cooperation are essential in this regard. In this dissertation, I argue that technology transfer is one of the key tools for these companies to become internationally networked and to improve their competitiveness. It forces companies to reach outside the company and national borders, which in many cases, is a major challenge for firms in emerging markets. This dissertation focuses on how companies can catch up with competitiveness in emerging markets. The empirical studies included in the dissertation are based on analyses of survey data mainly of firms and their strategies in the Russian manufacturing industry. The dissertation contributes to the current strategic management literature by further investigating technology management strategies in manufacturing firms in emerging markets and the benefits of more open approaches to new product development and innovation.

Return and volatility linkages between the S&P 500 and emerging stock markets in Eastern Europe

The aim of this thesis is to research mean return spillovers as well as volatility spillovers from the S&P 500 stock index in the USA to selected stock markets in the emerging economies in Eastern Europe between 2002 and 2014. The sample period has been divided into smaller subsamples, which enables taking different market conditions as well as the unification of the World’s capital markets during the financial crisis into account. Bivariate VAR(1) models are used to analyze the mean return spillovers while the volatility linkages are analyzed through the use of bivariate BEKK-GARCH(1,1) models. The results show both constant volatility pooling within the S&P 500 as well as some statistically significant spillovers of both return and volatility from the S&P 500 to the Eastern European emerging stock markets. Moreover, some of the results indicate that the volatility spillovers have increased as time has passed, indicating unification of global stock markets.