African Journals Online
African Finance Journal

Volume 3, Part 2 2001
ABSTRACTS

AN ANALYSIS OF THE LINKAGES AMONG AFRICAN AND WORLD EQUITY MARKETS

Asjeet S. Lamba
The University of Melbourne
and
Isaac Otchere
The University of Melbourne


In this paper, we provide the first comprehensive analysis of the dynamic relationships between the returns of emerging African equity markets and the world's major equity markets during January 1988 - May 2000. Using a vector autoregression (VAR) model, we find that all the African equity markets, except those in South Africa and Namibia, are segmented as movements in these markets are mainly influenced by domestic factors. Surprisingly, South Africa, the largest African equity market, has minimal influence on all other markets, except Namibia. Generally, the empirical results do not support intra-continental comovements. 

We also document a very low degree of international comovement among the African equity markets and the major world equity markets, except South Africa and Namibia where a relatively large proportion of the variation in market returns can be attributed to the influences of overseas markets.

The results suggest that apart from South Africa and, to a lesser extent, Namibia, the emerging equity markets of the African region are not integrated with the major world equity markets, including the British and the French markets with which these countries have strong historical, trade and economic ties. Thus, we conclude that while technological developments have increased the level of integration among many developed and regional equity markets, the same cannot be said of the African equity markets, with the possible exception of South Africa.

FIRM GROWTH IN INFLATIONARY ENVIRONMENTS

Charles N'Cho-Oguie; Daniel L. Blakley; L. William Murray
University of San Francisco
and
Marolee Beaumont Smith
University of South Africa


The purpose of this paper is to demonstrate the extent to which and under what conditions inflation is most harmful to firm growth. A framework is developed which allows international comparison of the differential effects of inflation on firm growth. An empirical multivariate model was used to test the assumed relationships. We conclude that inflation always affects growth in a negative manner. 

Further, operating and financial policies can be used to either extend or retard the overall impact of inflation on the firm's performance. A data set of firms' financial statements over a ten-year period in New Zealand, Mexico and Brazil was assembled which permitted an examination of the impact of inflation on a firm's financial performance during periods of high- and low-inflation.


AN ANALYSIS OF ASYMMETRY IN THE CONDITIONAL MEAN RETURNS: 
EVIDENCE FROM THREE SUB-SAHARAN AFRICA EMERGING EQUITY MARKETS

George Ogum
La Sierra University
School of Business and Management


Asymmetric behavior of conditional volatility of stock returns has been widely documented. Conditional volatility of stock returns is asymmetric in the sense that negative shocks increase volatility more than positive shocks of an equal magnitude. Scant attention, however, has been given to possible asymmetries in the conditional mean. Using equity data from South Africa, Nigeria and Kenya, this paper examines the hypothesis that both the conditional mean and conditional variance of stock returns of the three markets respond asymmetrically to past shocks. The paper employs a time-varying asymmetric moving average threshold GARCH (asMA-TGARCH) model. The results indicate that both conditional mean and volatility are asymmetric functions of past innovations. However, conditional mean asymmetry is the reverse of that of volatility in the sense that good news has greater impact than bad news of equal magnitude. 
FINANCE LETTER

EVALUATING PORTFOLIO PERFORMANCE

Nicholas Biekpe and Karen Jenkins
Africa Centre for Investment Analysis
University of Stellenbosch


When evaluating performance it is important to determine not only the rate of return that a portfolio has earned, but also how this rate compares to a benchmark, such as the overall movement in the market. Even more correct would be to compare the rate of return with that of an investment fund with similar risk characteristics, thereby compensating for differences in risk. It is important not to, for instance, compare bond funds to small capitalisation stock or emerging markets funds.

Despite the abovementioned compensation, the ranking of portfolio managers can still be misleading. Even within a "universal portfolio", some managers may only be concentrating on subgroups such as companies with high market capitalisation that exhibit considerable capital appreciation, hence, portfolio characteristics are not comparable in this situation (Bodie, Kane and Marcus, 1996, p 779).

This letter discusses some of the indices used by many investment professionals to measure fund managerial skills.