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.

Banking and regional inequality in Brazil: an empirical note

The paper investigates a neglected aspect of regional inequality in Brazil, namely regional inequalities related to financial flows. A synthetic regional financial inequality index is proposed and calculated in a semester basis over the 02-1994/02-2000 period. The inequality measure attempts to capture to what extent deposits in a given state translate into credit operations in that locality. Two main results emerge. First, non-negligible inequality patterns emerge when one considers the segment of private banks and those are consistent with an important proportion of states with a predominantly exporting pattern, for which deposits surpasses loans in that locality. Second, if one focus on the segment of public banks, an opposite pattern appears, that is consistent with decision patterns that might have, in part, a regional development motivation.

Corruption, income, and rule of law: empirical evidence from developing and developed economies

This article presents an empirical analysis based on cross-country data concerned with two points regarding corruption: (i) its effects on income; and (ii) how to mitigate corruption. The findings can be highlighted in two points. Firstly the idea that corruption is intrinsically connected with income is confirmed. Secondly, the traditional argument that an increase in rule of law represents a good strategy in the fight against corruption is valid for developing countries. Furthermore, this study reveals that the search for increasing the human development index represents a rule of thumb for high levels of income and to control corruption.

Small teleoperated vehicles: study of potential use cases and empirical prototyping

This thesis researches the current state of small teleoperated devices, the need for them and developing one. Small teleoperated devices give the possibility to perform tasks that are impossible or dangerous for humans. This work concentrates on small devices and cheap components and discloses one way of developing a teleoperated vehicle, but not necessarily the optimal way. Development and the current state of teleoperation were studied by a literature review, in which the data was searched from literature as well as from the Internet. The need for teleoperated devices was mapped through a survey, where 11 professionals from variating fields were interviewed how they could utilize a teleoperated devices and with what kind of features. Also, a prototype was built as a proof of concept of small teleoperated devices. The prototype is controlled by a single-board microcomputer that also streams video to the controlling device. The video can be viewed on a display or with a head mounted display.

Price synchronization in retailing: some empirical evidence

The paper investigates the synchronization of price changes in the context of retail tire dealers in São Paulo-Brazil and selected items in supermarkets for cleaning supplies and food in Rio de Janeiro-Brazil. Results indicate similar and non-negligible synchronization for different brands, although magnitudes are distant from a perfect synchronization pattern. We find interesting patterns in inter-firm competition, with similar magnitudes across different tire types. Intra-chain synchronization is substantial, indicating that a common price adjustment policy tends to be sustained for each chain across different products.

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.

The Impact of Acquisitions on Share Pricing and Long Term Performance – Empirical Evidence from the Global Automotive Industry

Automotive industry has faced intense consolidation pressure, which has lead to increasing number of M&As. However, empirical evidence has given controversial results suggesting that most of M&As are value destructive for acquiring companies and for acquiring companies’ shareholders. The objective of this master’s thesis is to examine how acquiring companies’ shareholders react to acquisition announcement and is the reaction in line with the long-term performance. This study uses empirical evidence from automotive industry, which has been characterized as an industry that holds large amount of vertical and horizontal synergies. Transaction data consists of 65 acquisitions made by publicly listed companies between 2008-2010. The short-term impact is tested by applying event study methodology while the long term operative performance is examined with accounting study methodology. The event study results indicate that during the three days after acquisition (t= 0-2), the acquiring firms’ stocks generate an abnormal return of 1.22% on average across all acquisitions. When long term performance is studied it is evident that acquiring companies perform better than the industry median pre- and post-transaction but there is no statistically significant evidence that the performance has increased. The only performance ratio indicating statistically significant decrease is Return on Equity (ROE). On long-term horizontal acquisitions seem to outperform conglomerate ones but otherwise deal characteristics do not have any statistically significant impact.