Goodness C. Aye

Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model

This article investigates the existence of spillovers from stock prices onto consumption and the interest rate for South Africa using a time-varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility. In this regard, we estimate a three-variable TVP-VAR model comprising real consumption growth rate, the nominal three-months Treasury bill rate and the growth rate of real stock prices. We find that the impact of a real stock price shocks on consumption is in general positive, with large and significant effects observed at the one-quarter-ahead horizon. However, there is also evidence of significant negative spillovers from the stock market to consumption during the financial crisis, at both short and long horizons. The monetary policy response to stock price shocks has been persistent, and strong especially post the financial liberalisation in 1985, but became weaker during the financial crisis. Overall, we provide evidence of significant time-varying spillovers on consumption and interest rate from the stock market. JEL Classification: C11, C15, C32, E31, E32, E44, E52

Military expenditure, economic growth and structural instability: a case study of South Africa

This paper contributes to the growing literature on the milex-growth nexus, by providing a case study of South Africa and considering the possibility of structural breaks by applying newly developed econometric methods. Using full sample bootstrap Granger non-causality tests, no Granger causal link is found between military expenditure and GDP for 1951–2010, but parameter instability tests show the estimated VARs to be unstable. Using a bootstrap rolling window estimation procedure, however, finds evidence of bidirectional Granger causality in various subsamples. This implies standard Granger non-causality tests, which neither account for structural breaks nor time variation may be invalid.

Causality between Exports and Economic Growth in South Africa: Evidence from Linear and Nonlinear Tests

This paper investigates the dynamic causal link between exports and economic growth using both linear and nonlinear Granger causality tests. We use annual South African data on real exports and real gross domestic product from 1911-2011. The linear Granger causality result shows no evidence of significant causality between exports and GDP. The relevant VAR is unstable, which undermines our confidence in the causality result identified by the linear Granger causality test. Accordingly we turn to the nonlinear methods to evaluate Granger causality between exports and GDP. First, we use Hiemstra and Jones (1994) nonlinear Granger causality test and find a unidirectional causality from GDP to exports. However, using a more powerful and less biased nonlinear test, the Diks and Panchenko (2006) test, we find evidence of significant bi-directional causality. These results highlight the risk of misleading conclusions based on the standard linear Granger causality tests which neither accounts for structural breaks nor uncover nonlinearities in the dynamic relationship between exports and GDP.

Predicting BRICS stock returns using ARFIMA models

This article examines the existence of long memory in daily stock market returns from Brazil, Russia, India, China and South Africa (BRICS) countries and also attempts to shed light on the efficacy of autoregressive fractionally integrated moving average (ARFIMA) models in predicting stock returns. We present evidence which suggests that ARFIMA models estimated using a variety of estimation procedures yield better forecasting results than the non-ARFIMA (AR, MA, ARMA and GARCH) models with regard to prediction of stock returns. These findings hold consistently for the different countries whose economies differ in size, nature and sophistication.

Diversification and farm household welfare in Makurdi, Benue State, Nigeria

This study examines the socioeconomic characteristics that influence the decision to diversify and also the welfare effect of diversification on farm households in Makurdi, Benue State. A total of 120 farm households were sampled using a simple random technique. Structured questionnaires were used in collecting the data. The ordinary least square (OLS) model was used to analyze the welfare effect of diversification while the Logit model was used to analyze the determinants of diversification. The Logit results show that a male-headed household, education and credit increase the probability of diversification while farming experience and market access decrease the probability. The OLS result shows that diversification, age, education and credit have a positive and significant effect on household welfare while household size has a negative effect. These results have important implications for policy, economic growth and development.

Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience

This study assesses how fiscal policy affects the dynamics of asset markets, using Bayesian vector autoregressive models. We use sign restrictions to identify government revenue and government spending shocks, while controlling for generic business cycle and monetary policy shocks. In addition to examining the effects of anticipated and unanticipated revenue and spending shocks, we also analyse three types of fiscal policy scenarios: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes), and a deficit-financed tax cut (revenue decreases but government spending stays unchanged). Using South African quarterly data from 1966:Q1 to 2011:Q2, we show that a deficit spending shock does not affect house prices, but temporarily exerts a positive effect on stock prices. With a deficit-financed tax cut shock, house prices increase persistently while stock prices increase quickly, but only temporarily. A balanced budget shock permanently decreases house prices and temporarily reduces stock prices.

Does debt ceiling and government shutdown help in forecasting the us equity risk premium

This article evaluates the predictability of the equity risk premium in the United States by comparing the individual and complementary predictive power of macroeconomic variables which are popular in academia and technical indicators which are widely used by practitioners in the market using a comprehensive set of 16 economic and 14 technical predictors over a monthly out-of-sample period of 1995:1 to 2012:12 and an in-sample period of 1986:1-1994:12. In order to do so we consider, in addition to the set of variables used in Neely et al. (2013), the forecasting ability of two other important variables namely government shutdown and debt ceiling. Using a more recent dataset compared to that of Neely et al. (2013), our results tend to support the better out-of-sample predictive ability of technical indicators when compared to economic variable but to a lesser extent. Our results also show that one of the newly added variables namely government shutdown provides statistically significant out-of-sample predictive power over the equity risk premium relative to the historical average based on the MSFE-adjusted statistics. An important finding however is that, during recessions, the majority of our indicators including the newly added government shutdown variable can provide better out-of-sample predictive power when compared to the historical benchmark. Most of the variables, including government shutdown but not debt ceiling, also show significant economic gains for a risk averse investor especially during recessions which can be interpreted as a willingness to pay a portfolio management fee.

Testing for bubbles in the BRICS stock markets

Purpose The purpose of this paper is to investigate whether there exist multiple bubbles in the Brazil, Russia, India, China and South Africa (BRICS) stock markets. Design/methodology/approach In this study, the authors apply the generalized sup Augmented Dickey-Fuller test, a new recursive test proposed by Phillips et al. (2015) and use monthly data on stock price-dividend ratio. Findings The empirical results indicate that there exist multiple bubbles in the stock markets of the BRICS. Further, the dates of the bubbles also correspond to specific events in the stock markets of these economies. This finding has important economic and policy implications. Originality/value The authors declare that this paper is original and has not been published by another journal previously.

Causality between US economic policy and equity market uncertainties: Evidence from linear and nonlinear tests

This paper examines the causal relationship between economic policy uncertainty (EPU) and equity market uncertainty (EMU) in the US. We use daily data on the newly developed indexes by Baker et al. (2013a) covering 1985:01:01 to 2013:06:14. Results from the linear causality tests indicate strong bidirectional causality. However, the parameters stability tests show strong evidence of short-run parameter instability, thus invalidating any conclusion from the full sample linear estimations. Therefore we turn to nonlinear tests and observe a stronger predictive power from EMU to EPU than from EPU to EMU. Using sub-sample bootstrap rolling window causality tests to fully account for the existence of structural breaks, we find evidence that EPU can help predict the movements in EMU only around 1993, 2004 and, 2006. However, we find strong evidence that EMU can help predict the movements in EPU throughout the sample period barring around 1998, 2003 and 2005.

Technological innovation and efficiency in the Nigerian maize sector: Parametric stochastic and non-parametric distance function approaches

Abstract The current world food crisis has necessitated alternative policy actions in most countries, including increased investment in agricultural research and development. This study uses duality theory to obtain allocative and cost efficiency from the parametric stochastic distance function, and results are then compared to estimates from the non-parametric distance function. The study further evaluates the impact of technological innovations and other policy variables on technical, allocative and cost efficiency from both approaches in a second-stage endogeneity-corrected Tobit regression model. Mean technical, allocative and cost efficiency ranges from 80.1 per cent to 86.7 per cent, from 57.8 per cent to 73.8 per cent, and from 50.3 per cent to 62.3 per cent respectively. The analysis of technical, allocative and cost efficiency with respect to technological innovation and other policy factors is robust. Results show that policies aimed at maize technology development and its timely dissemination, as well as improvements in education and access to credit and extension, could promote technical, allocative and cost efficiency, reduce yield variability, enhance farm income and food security and reduce poverty in Nigeria.