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Masters Degrees (Finance)

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Browsing Masters Degrees (Finance) by Author "Muzindutsi, Paul-Francois."

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    The effect of disaggregated country risk on the South African equity portfolio returns under changing market conditions.
    (2022) Jaffar, Sandisele Ayesha.; Muzindutsi, Paul-Francois.; Habanabakize, Thomas.
    Globalization has resulted in the rapid increase of international trade and international mobility of financial capital. Capital inflows into South Africa date back to the early 1990s and these inflows continue to grow. With increased investments into the country, investors can diversify some local risks. Still, they also become exposed to the different components of country risk (political, financial, and economic risk). However, depending on the investor's risk appetite, country risks may encourage or discourage foreign portfolio investments. This study examined the effects of disaggregated country risk on South African equity portfolio returns under changing market conditions. Additionally, this study compared how South African domestic and foreign equity portfolios respond to changes in country risk components under bearish and bullish market conditions. A Markov switching approach was employed to analyse monthly data of 19 equity portfolios for the sample period spanning from January 2000 to December 2019. The results suggested that domestic and foreign portfolios spent more time in downward trends. Moreover, the effects of country risk components depend on market conditions for both domestic and foreign portfolios. In both cases, the impact of country risk components is more significant in bull than in bear market conditions. Essentially, economic and financial risk had a more substantial impact on domestic portfolios, whereas political risk was more significant on foreign portfolios. In this way, political risk cannot be diversified through investing in foreign portfolios. These findings have crucial implications as they indicate that it is vital to maintain a stable economic, financial and political environment to encourage sustainable portfolio investment.
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    Effect of macroeconomic variables on stock returns under changing market conditions: evidence from the JSE sectors.
    (2020) Moodley, Fabian.; Nzimande, Ntokozo Patrick.; Muzindutsi, Paul-Francois.
    The equity market is seen as one of the key determinants of the fraternity of finance, as it unites investors with ambitions to invest in marketable instruments to earn a return on their investments. The equity market not only unites investors with similar ambitions, but is an important economic stimulus because it contributes a significant portion to economic growth. Underlying financial theories illustrate an interaction between stock market returns and macroeconomic variables. However, recently a debate has arisen in relation to the type of effect that is evident between macroeconomic variables and stock market returns. This debate is centred on the efficient market hypothesis (EMH), which depicts a linear effect and the adaptive market hypothesis (AMH), which advocates for a nonlinear affect. Thus, there is no empirical agreement regarding the relationship between macroeconomic variables and stock market returns. In an attempt to contribute to the debate, the study examined the interaction between macroeconomic variables and the Johannesburg Stock Exchange (JSE) indices returns under changing market conditions. The study’s objective was to establish the effect between macroeconomic variables and stock market returns in a bullish and a bearish market condition and to compare the expected duration of each market condition among the selected JSE index returns. The study used the Markov regime-switching model of conditional mean with constant transition probabilities. Moreover, preliminary tests in the form of graphical visualisations, descriptive statistics, correlation tests, unit root tests and stationarity tests with and without structural breaks were considered. The variables that formed part of the JSE consisted of the real values associated with the JSE All-Share Index, Industrial Metals and Mining Index, Consumer Goods 3000 Index, Consumer Services 5000 Index, Telecommunications 6000 Index, Financials 8000 Index and the Technologies 9000 Index. The macroeconomic variables included the real values of inflation (CPI) rate, industrial production rate, short-term interest rate, long-term interest rate, money supply (M2) and real effective exchange rate (REER). The JSE index returns series and the macroeconomic variable series contained monthly data that ranged from January 1996 to December 2018. The findings of the regressed model illustrated the JSE All-Share Index returns are negatively affected by long-term interest growth rate in a bull market condition, by short-term interest growth rate in a bear market condition, and positively affected by industrial production growth rate in a bear market condition. The Industrial Metal and Mining Index returns are negatively affected by inflation growth rate in the bear market condition. The Consumable Goods Index returns are positively influenced by growth rate of real effective exchange rate in a bullish market condition, negatively affected by inflation growth rate, short-term interest growth rate and growth rate of REER in a bear market condition. The Consumable Service Index returns are negatively affected by short-term interest growth rate in a bull market condition and long-term interest growth rate in a bear market condition. The Telecommunication Index returns are negatively affected by long-term interest growth rate in the bull and bear market conditions and positively affected by growth rate of REER in a bear market condition. The Financial Index returns are negatively affected by long-term interest growth rate in a bull and bear market and short-term interest growth rate in a bear market condition. The Technologies Index returns are positively affected by growth rate of REER in a bull market condition. Moreover, the bull market condition prevailed the longest across the JSE selected indices. The findings of this study are consistent with AMH as it suggests that the efficiency and inefficiency of equity markets are owing to changing market conditions. Hence, macroeconomic variables affect the stock market returns differently under changing market conditions. Moreover, the findings were seen to contradict EMH as it suggests equity markets are efficient. As a result, the alternating efficiency effect under changing market conditions suggests that the effect of macroeconomic variables on stock market returns is explained by AMH and could be better modelled by nonlinear models. Thus, policymakers should consider that the effect of macroeconomic variables on JSE index returns varies with regimes and, therefore, develop appropriate policies.