Market integration, return and volatility dynamics; empirical evidence from African stock markets

Frontier and Emerging economies have implemented policies with the objective of liberalizing their equity markets. Equity market liberalization opens the domestic equity market to foreign investors and as well paves the way for domestic investors to invest in foreign equity securities. Among other things, equity market liberalization results in diversification benefits. Moreover, equity market liberalization leads to low cost of equity capital resulting from the lower rate of return by investors. Additionally, foreign and local investors share any potential risks. Liberalized equity markets also become liquid considering that there are more investors to trade. Equity market liberalization results in financial integration which explains the movement of two markets. In crisis period, increased volatility and co-movement between two markets may result in what is termed contagion effects. In Africa, major moves toward financial liberalization generally started in the late 1980s with South Africa as the pioneer. Over the years, researchers have studied the impact of financial liberalization on Africa’s economic development with diverse results; some being positive, others negative and still others being mixed. The objective of this study is to establish whether African stock-markets are integrated into the United States (US) and World market. Furthermore, the study helps to see if there are international linkages between the Africa, US and the world markets. A Bivariate- VAR- GARCH- BEKK model is employed in the study. In the study, the effect of thin trading is removed through series of econometric data purification. This is because thin trading, also known as non-trading or inconsistency of trading, is a main feature of African markets and may trigger inconsistency and biased results. The study confirmed the widely established results that the South Africa and Egypt stock markets are highly integrated with the US and World market. Interestingly, the study adds to knowledge in this research area by establishing the fact that Kenya is very integrated with the US and World markets and that it receives and exports past innovations as well as shocks to and from the US and World market.

Volatility of Different Formulations of Clomazone Herbicide

Volatilization represents an important process in the displacement of pesticides for the environment. The physicochemical properties of the clomazone molecule indicate its relative volatility. Therefore, this study was carried out to assess the volatilization of different clomazone herbicide formulations using bioindicator species. To that end, airtight glass boxes were used with the presence of different clomazone formulations and plant species. The formulations used were Gamit 360 CS(r), Gamit 500 EC(r) and Gamit Star(r). The plant species assessed were maize, sorghum and rice. With the results obtained it is possible to conclude that, among the formulations, Gamit 360 CS(r) has caused less phytotoxicity to the bioindicator species in comparison to the formulations of Gamit 500 EC(r) and Gamit Star(r) formulations. In general, The Gamit 500 EC(r) and Gamit Star(r) have not differed in the phytotoxicity potential for the bioindicator species.

Online peer to peer lending: clustering borrowers using self-organizing maps

The purpose of this thesis is to find out whether all the peer to peer lenders are unworthy of credit and also if there are single qualities or combinations of qualities that determine the probability of default of a person or group of people. Distinguishing qualities are searched with self-organizing maps (SOM). Qualities and groups of people found by the self-organizing map are then compared to the average. The comparison is carried out by looking how big proportion of borrowers meeting the criteria is two months or more behind with their payments. Research data used is collected by an Estonian peer to peer lending company during the years of 2011-2014. Data consists of peer to peer borrowers and information gathered from them.

Effect of race, genetic population structure, and genetic models in two-locus association studies: clustering of functional renin-angiotensin system gene variants in hypertension association studies

Previous genetic association studies have overlooked the potential for biased results when analyzing different population structures in ethnically diverse populations. The purpose of the present study was to quantify this bias in two-locus association studies conducted on an admixtured urban population. We studied the genetic structure distribution of angiotensin-converting enzyme insertion/deletion (ACE I/D) and angiotensinogen methionine/threonine (M/T) polymorphisms in 382 subjects from three subgroups in a highly admixtured urban population. Group I included 150 white subjects; group II, 142 mulatto subjects, and group III, 90 black subjects. We conducted sample size simulation studies using these data in different genetic models of gene action and interaction and used genetic distance calculation algorithms to help determine the population structure for the studied loci. Our results showed a statistically different population structure distribution of both ACE I/D (P = 0.02, OR = 1.56, 95% CI = 1.05-2.33 for the D allele, white versus black subgroup) and angiotensinogen M/T polymorphism (P = 0.007, OR = 1.71, 95% CI = 1.14-2.58 for the T allele, white versus black subgroup). Different sample sizes are predicted to be determinant of the power to detect a given genotypic association with a particular phenotype when conducting two-locus association studies in admixtured populations. In addition, the postulated genetic model is also a major determinant of the power to detect any association in a given sample size. The present simulation study helped to demonstrate the complex interrelation among ethnicity, power of the association, and the postulated genetic model of action of a particular allele in the context of clustering studies. This information is essential for the correct planning and interpretation of future association studies conducted on this population.

Fuzzy tolerance/equivalence relations from intersection, union and complement operators and their application to a clustering method

This master thesis work introduces the fuzzy tolerance/equivalence relation and its application in cluster analysis. The work presents about the construction of fuzzy equivalence relations using increasing generators. Here, we investigate and research on the role of increasing generators for the creation of intersection, union and complement operators. The objective is to develop different varieties of fuzzy tolerance/equivalence relations using different varieties of increasing generators. At last, we perform a comparative study with these developed varieties of fuzzy tolerance/equivalence relations in their application to a clustering method.

Regime-Switching in the Impact of Oil Price Shocks on Stock Market Volatility: Evidence from Oil-Importing and Oil-Exporting Countries

Research has highlighted the adequacy of Markov regime-switching model to address dynamic behavior in long term stock market movements. Employing a purposed Extended regime-switching GARCH(1,1) model, this thesis further investigates the regime dependent nonlinear relationship between changes in oil price and stock market volatility in Saudi Arabia, Norway and Singapore for the period of 2001-2014. Market selection is prioritized to national dependency on oil export or import, which also rationalizes the fitness of implied bivariate volatility model. Among two regimes identified by the mean model, high stock market return-low volatility regime reflects the stable economic growth periods. The other regime characterized by low stock market return-high volatility coincides with episodes of recession and downturn. Moreover, results of volatility model provide the evidence that shocks in stock markets are less persistent during the high volatility regime. While accelerated oil price rises the stock market volatility during recessions, it reduces the stock market risk during normal growth periods in Singapore. In contrast, oil price showed no significant notable impact on stock market volatility of target oil-exporting countries in either of the volatility regime. In light to these results, international investors and policy makers could benefit the risk management in relation to oil price fluctuation.

Category fluency test: effects of age, gender and education on total scores, clustering and switching in Brazilian Portuguese-speaking subjects

Verbal fluency tests are used as a measure of executive functions and language, and can also be used to evaluate semantic memory. We analyzed the influence of education, gender and age on scores in a verbal fluency test using the animal category, and on number of categories, clustering and switching. We examined 257 healthy participants (152 females and 105 males) with a mean age of 49.42 years (SD = 15.75) and having a mean educational level of 5.58 (SD = 4.25) years. We asked them to name as many animals as they could. Analysis of variance was performed to determine the effect of demographic variables. No significant effect of gender was observed for any of the measures. However, age seemed to influence the number of category changes, as expected for a sensitive frontal measure, after being controlled for the effect of education. Educational level had a statistically significant effect on all measures, except for clustering. Subject performance (mean number of animals named) according to schooling was: illiterates, 12.1; 1 to 4 years, 12.3; 5 to 8 years, 14.0; 9 to 11 years, 16.7, and more than 11 years, 17.8. We observed a decrease in performance in these five educational groups over time (more items recalled during the first 15 s, followed by a progressive reduction until the fourth interval). We conclude that education had the greatest effect on the category fluency test in this Brazilian sample. Therefore, we must take care in evaluating performance in lower educational subjects.

Clustering of psychiatric and somatic illnesses in the general population: multimorbidity and socioeconomic correlates

The distribution of psychiatric disorders and of chronic medical illnesses was studied in a population-based sample to determine whether these conditions co-occur in the same individual. A representative sample (N = 1464) of adults living in households was assessed by the Composite International Diagnostic Interview, version 1.1, as part of the São Paulo Epidemiological Catchment Area Study. The association of sociodemographic variables and psychological symptoms regarding medical illness multimorbidity (8 lifetime somatic conditions) and psychiatric multimorbidity (15 lifetime psychiatric disorders) was determined by negative binomial regression. A total of 1785 chronic medical conditions and 1163 psychiatric conditions were detected in the population concentrated in 34.1 and 20% of respondents, respectively. Subjects reporting more psychiatric disorders had more medical illnesses. Characteristics such as age range (35-59 years, risk ratio (RR) = 1.3, and more than 60 years, RR = 1.7), being separated (RR = 1.2), being a student (protective effect, RR = 0.7), being of low educational level (RR = 1.2) and being psychologically distressed (RR = 1.1) were determinants of medical conditions. Age (35-59 years, RR = 1.2, and more than 60 years, RR = 0.5), being retired (RR = 2.5), and being psychologically distressed (females, RR = 1.5, and males, RR = 1.4) were determinants of psychiatric disorders. In conclusion, psychological distress and some sociodemographic features such as age, marital status, occupational status, educational level, and gender are associated with psychiatric and medical multimorbidity. The distribution of both types of morbidity suggests the need of integrating mental health into general clinical settings.

The Forecast Performance of Model-Free Implied Volatility: Evidence from DAX Index Options

Volatility has a central role in various theoretical and practical applications in financial markets. These include the applications related to portfolio theory, derivatives pricing and financial risk management. Both theoretical and practical applications require good estimates and forecasts for the asset return volatility. The goal of this study is to examine the forecast performance of one of the more recent volatility measures, model-free implied volatility. Model-free implied volatility is extracted from the prices in the option markets, and it aims to provide an unbiased estimate for the market’s expectation on the future level of volatility. Since it is extracted from the option prices, model-free implied volatility should contain all the relevant information that the market participants have. Moreover, model-free implied volatility requires less restrictive assumptions than the commonly used Black-Scholes implied volatility, which means that it should be less biased estimate for the market’s expectations. Therefore, it should also be a better forecast for the future volatility. The forecast performance of model-free implied volatility is evaluated by comparing it to the forecast performance of Black-Scholes implied volatility and GARCH(1,1) forecast. Weekly forecasts for six years period were calculated for the forecasted variable, German stock market index DAX. The data consisted of price observations for DAX index options. The forecast performance was measured using econometric methods, which aimed to capture the biasedness, accuracy and the information content of the forecasts. The results of the study suggest that the forecast performance of model-free implied volatility is superior to forecast performance of GARCH(1,1) forecast. However, the results also suggest that the forecast performance of model-free implied volatility is not as good as the forecast performance of Black-Scholes implied volatility, which is against the hypotheses based on theory. The results of this study are consistent with the majority of prior research on the subject.

Interdependence of Macroeconomics Variables, Stock Market Returns and Stock Market Volatility in Latin America

This thesis examines the interdependence of macroeconomic variables, stock market returns and stock market volatility in Latin America between 2000 and 2015. Argentina, Brazil, Chile, Colombia, Mexico and Peru were chosen as the sample markets, while inflation, interest rate, exchange rate, money supply, oil and gold were chosen as the sample macroeconomic variables. Bivariate VAR (1) model was applied to examine the mean return spillovers between the variables, whereas GARCH (1, 1) – BEKK model was applied to capture the volatility spillovers. The sample was divided into two smaller sub-periods, where the first sub-period covers from 2000 to 2007, and the second sub-period covers from 2007 to 2015. The empirical results report significant shock transmissions and volatility spillovers between inflation, interest rate, exchange rate, money supply, gold, oil and the selected markets, which suggests interdependence between the variables.

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.

Effects of overvaluation and exchange rate volatility over industrial investment: empirical evidence and economic policy proposals for Brazil

The present article aims to analyze the recent behavior of real exchange rate in Brazil and its effects over investment per worker in Brazilian manufacturing and extractive industry. Preliminary estimates presented in the article shows an over-valuation of 48% of real exchange rate in Brazil. The reaction between the level (and volatility) of real exchange rate and investment (per worker) in Brazil is analyzed by means of a panel data econometric model for 30 sectors of Brazilian manufacturing and extractive industry. The empirical results show that the level and volatility of real exchange rate has a strong effect over investment per worker in Brazilian industry. Finally, we conclude the article presenting a proposal for a new macroeconomic regime that aims to produce an acceleration of economic growth of Brazilian economy and, by that, a catching-up process with developed countries.

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.

Margin requirements and volatility : evidence from Canadian stocks

Margin policy is used by regulators for the purpose of inhibiting exceSSIve volatility and stabilizing the stock market in the long run. The effect of this policy on the stock market is widely tested empirically. However, most prior studies are limited in the sense that they investigate the margin requirement for the overall stock market rather than for individual stocks, and the time periods examined are confined to the pre-1974 period as no change in the margin requirement occurred post-1974 in the U.S. This thesis intends to address the above limitations by providing a direct examination of the effect of margin requirement on return, volume, and volatility of individual companies and by using more recent data in the Canadian stock market. Using the methodologies of variance ratio test and event study with conditional volatility (EGARCH) model, we find no convincing evidence that change in margin requirement affects subsequent stock return volatility. We also find similar results for returns and trading volume. These empirical findings lead us to conclude that the use of margin policy by regulators fails to achieve the goal of inhibiting speculating activities and stabilizing volatility.