Africa Stock Research Articles

Development of a uniform exposure model for the African continent for use in disaster risk assessment

Several destructive natural hazards have occurred throughout Africa over the past century, yet few comprehensive exposure models exist for the continent. The high population growth and rapid pace of urbanization within many African countries entail a significant potential for increased economic and human losses, particularly where substantial urban growth encroaches upon hazard-prone regions with inadequate land management and building design regulations. This study introduces a new exposure model for all African countries using national and global datasets with a uniform approach across the continent, developed for a baseline year (2020) and six future years (2025, 2030, 2035, 2040, 2045, and 2050). The exposure model was originally derived with subnational statistics, and then further spatially disaggregated using Earth Observation (EO) data. This refined spatial resolution allows the model to reflect a realistic population distribution within each country and thereby better characterizes the potential risk to natural hazards and allows identification of disaster risk hotspots. The results indicate the current concentrations of building stock in Africa, in addition to regions where the urban building stock is expected to nearly triple (such as in Central and East Africa) or at least double (such as in West and South Africa).

Multifractality during upside/downside trends in the MENA stock markets: the effects of the global financial crisis, oil crash and COVID-19 pandemic

Purpose This paper examines asymmetric multifractality (A-MF) in the leading Middle East and North Africa (MENA) stock markets under different turbulent periods (global financial crisis [GFC] and European sovereign debt crisis [ESDC], oil price crash and COVID-19 pandemic).Design/methodology/approach This study applies the asymmetric multifractal detrended fluctuation analysis (A-MF-DFA) method of Cao et al. (2013) to identify A-MF and MENA stock market efficiency during the COVID-19 pandemic.Findings The results show strong evidence of different patterns of MF during upward and downward trends. Inefficiency is higher during upward trends than during downward trends in most of the stock markets in the whole sample period, and the opposite is true during financial crises. The Turkish stock market is the least inefficient during upward and downward trends. A-MF intensifies with an increase in scales. The evolution of excessive A-MF for MENA stock returns is heterogeneous. Most of the stock markets are more inefficient during a pandemic crisis than during an oil crash and other financial crises. However, the inefficiency of the Saudi Arabia and Qatar stock markets is highly sensitive to oil price crashes. Overall, the level of inefficiency varies across market trends, scales and stock markets and over time. The findings of this study provide investors and policymakers with valuable insights into efficient investment strategies, risk management and financial stability.Originality/value This paper first explores A-MF in the MENA emerging stock markets. The A-MF analysis provides useful information to investors regarding asset allocation, portfolio risk management and investment strategies during bullish and bearish market states. In addition, this paper examines A-MF under different turbulent periods, such as the GFC, the ESDC, the 2014–2016 oil crash and the COVID-19 pandemic.

Return and volatility spillovers between South African and Nigerian equity markets

PurposeThe paper evaluates the cross-transmission of returns and volatility shocks between Nigeria and South Africa stock markets to infer the extent of interdependence between the two markets. The paper also makes inference to optimal portfolio weights of holding assets in the two markets.Design/methodology/approachThe paper uses an asymmetric vector autoregressive-exogenous generalised autoregressive conditional heteroscedasticity (VAR-X GARCH) model to assess the extent of returns and volatility spillovers between Nigeria and South Africa.FindingsThe results of the empirical analysis show evidence of shock spillovers from the South African stock market to the Nigerian stock market. Moreover, based on the dynamic Sharpe ratio and portfolio weight optimisation, the results indicate the possibility of portfolio diversification when holding simultaneous positions in the two stock markets.Practical implicationsThe results imply the possibility of economic profit for investors who take positions in the two stock markets. The lack of synchronisation of stock markets in the two largest economies in Africa is in contrast with the situations in other regions where stock markets returns of large economies often co-move.Originality/valueThe paper is the first to use the asymmetric VAR-X GARCH model to assess the cross-transmission of shocks between stock markets.

Testing for the Asymmetric Impacts of Gold Price on India and South Africa Stock Market: An Asymmetric ARDL Model Approach

Testing for the Asymmetric Impacts of Gold Price on India and South Africa Stock Market: An Asymmetric ARDL Model Approach

The Dynamic Impact of Public External Debt on Capital Formation in Sub-Saharan Africa: The Pooled Mean Group Approach

The increasing reliance on public external debt stocks in Africa and other developing countries has raised the question of debt sustainability, especially in the face of Covid-19, which has forced many counties (both developed and developing) into an unforeseen and unplanned recession. This study contributes to the literature on debt sustainability by examining the effect of public debt on capital formation in Sub-Saharan Africa (SSA) from 2000 to 2008 using the pooled mean group estimation approach. The debt variables considered are external debt stock, debt service on external debt, and interest payment on external debt. Consistent with the overhang theory, our results show that increasing external debt stock and interest payment on external debts only have a marginal impact on capital formation in the short run and exerts a serious negative effect in the long run. Our results also show that debt service burden has a positive effect on gross fixed capital formation in the long run. Therefore, we argue that despite being faced with a huge debt service burden resulting from large external debt stock, SSA countries are not neglecting investments in critical infrastructures needed to drive economic growth. However, we recommend that increasing government revenue base, minimizing economic waste associated with public expenditure, and intensifying negotiations for debt relief may be a plausible way out.

The Dependence and Risk Spillover Between Energy Market and BRICS Stock Markets: A Copula-MGARCH Model Approach

The article examines the dynamic dependence structure and risk spillover between the future market of energy commodities and Brazil, Russia, India, China and South Africa (BRICS) stock markets for different market conditions. The study used copula-based multivariate GARCH model, or in short C-MGARCH model, to explore the conditional correlation by multivariate generalized autoregressive conditional heteroskedastic (MGARCH) and the remaining dependence by different copula models. Our results provide significant positive dynamic dependency among crude oil markets (natural gas market) and BRICS stock markets. We then explore the financial implications of volatility spillovers regarding portfolio risk management through an analysis of risk spillovers from energy market to BRICS countries using the value at Risk (VaR), conditional value at risk (CVaR) and delta CVaR. Our findings support the existence of significant risk spillover between crude oil markets (natural gas market) and BRICS stock markets. The presence of volatility spillover among oil prices, natural gas prices and BRICS stock market implies that oil market information (natural gas market information) enhances the volatility forecast in stock markets. Consequently, investors must take oil markets and natural gas markets into account at the time of financial portfolios structuring and in improving their hedging strategies.

The effect of a new wave of COVID-19 on the stock market performance: Evidence from the twenty JSE listed companies in South Africa

The lockdown shocks resulting from the global pandemic of COVID-19 in March 2020 brought untold economic imbalance to the financial sector in South Africa. The government’s proactive alternative measure of control to the new wave of COVID-19 must be investigated to offer policy suggestions for future economic and financial planning. Consequently, this study investigated the impact of the new wave of COVID-19 on the financial market with a special interest in the twenty JSE listed companies in South Africa. To enhance the quality in the frequency of study, daily panel data from November 2020 to January 2021 were sourced from S&P Capital IQ and Google online. The impact of COVID-19 was investigated alongside other variables that can influence the return of the stock markets on twenty JSE listed companies. The variables under investigation are daily exchange rate (dollar terms), dividend-adjusted share pricing, daily COVID-19 infection rate. Both robust descriptive and fixed effects time-variant analyses were adopted as the estimating techniques. The study provided empirical evidence that there is a direct but slow link between the daily incidence of infectious COVID-19 and returns on the stock market as key variables. This positive relationship indicates that both COVID-19 and financial activities could co-habit together to enhance greater return on the stock in South Africa. Hence, lockdown may not be most appropriate to the national economy of South Africa.

Modelling the heterogeneous relationship between the crude oil implied volatility index and African stocks in the coronavirus pandemic

This paper revisited the crude oil – stock market nexus to examine how the oil implied volatility index (a forward-looking and more accurate measure for uncertainty in oil prices) affects stock returns in major Africa's oil-importing (South Africa, Kenya, Mauritius, and Botswana) and oil-exporting (Nigeria, Egypt, Tunisia, and Morocco) countries during the COVID-19 pandemic. Quantile regression is employed to examine the heterogeneous relationship at different distributions of stock returns. The study documents evidence to support a negative relationship between the oil implied volatility shocks and stock returns in the selected stock markets, especially in downturns. Findings from this study also reveal that the oil implied volatility shocks can asymmetrically influence Africa's stocks. Specifically, our empirical evidence reveals that positive shocks in the oil implied volatility index play a key role in most of Africa's stock markets in market downturns while negative shocks play a moderate role during benign market conditions in some of Africa's stock markets during the pandemic. More importantly, our findings divulge that investors can find an invaluable shelter with a portfolio of the selected African stocks and oil market securities in the time of the pandemic. The policy implications are further discussed.

Building Climate Change Adaptation and Resilience through Soil Organic Carbon Restoration in Sub-Saharan Rural Communities: Challenges and Opportunities

Soil organic carbon (SOC) is widely recognised as pivotal in soil function, exerting important controls on soil structure, moisture retention, nutrient cycling and biodiversity, which in turn underpins a range of provisioning, supporting and regulatory ecosystem services. SOC stocks in sub-Saharan Africa (SSA) are threatened by changes in land practice and climatic factors, which destabilises the soil system and resilience to continued climate change. Here, we provide a review of the role of SOC in overall soil health and the challenges and opportunities associated with maintaining and building SOC stocks in SSA. As an exemplar national case, we focus on Tanzania where we provide context under research for the “Jali Ardhi” (Care for the Land) Project. The review details (i) the role of SOC in soil systems; (ii) sustainable land management (SLM) techniques for maintaining and building SOC; (iii) barriers (environmental, economic and social) to SLM implementation; and (iv) opportunities for overcoming barriers to SLM adoption. We provide evidence for the importance of site-specific characterisation of the biophysicochemical and socio-economic context for effective climate adaptation. In particular, we highlight the importance of SOC pools for soil function and the need for practitioners to consider the type of biomass returns to the soil to achieve healthy, balanced systems. In line with the need for local-scale site characterisation we discuss the use of established survey protocols alongside opportunities to complement these with recent technologies, such as rapid in situ scanning tools and aerial surveys. We discuss how these tools can be used to improve soil health assessments and develop critical understanding of landscape connectivity and the management of shared resources under co-design strategies.

The integration and efficiency of BRICS and Pakistan stock markets: An analysis using asymmetric cointegration and MF-DFA approaches

This study examines the asymmetric cointegration and efficiency between Pakistan and BRICS equity markets using monthly data from October 1997 to September 2018. The results reveal that the Brazilian stock market is the most efficient during the global financial crisis. Threshold and momentum threshold autoregressive models (TAR and M.TAR) confirm the presence of a long-run relationship between BRICS and Pakistan stock markets, where the speed of negative shocks is higher and significant for Pakistan Russian, Pakistan South Africa stock market pair. This infers quick adjustment of stock prices to negative shocks (bad news) as compared to positive shocks (good news). The speed of adjustment of positive shocks for Pakistan China is higher. The results of asymmetric error correction model (AECM) show results of unidirectional causality between Pakistan China and Pakistan Brazil stock market pairs, while bidirectional causality runs from Pakistan Russia, Pakistan India, and Pakistan South Africa stock market pairs. Thus the Pakistan stock market has short-run and long-run relationships with most other stock markets. Multi-fractal detrended fluctuation analysis supports long run efficiency of Brazilian markets during the global financial crisis. It suggests that investors pay keen attention to the Pakistan stock market when investing in BRICS stock market.

Impact of Coronavirus Pandemic on Financial Market Stability in Africa

The outbreak of the coronavirus in December 2019, with its accompanying declaration as a pandemic by the World Health Organisation in March 2020, resulted in lockdown of the global financial markets. This paper uses data from pre-coronavirus, coronavirus endemic and coronavirus pandemic periods to evaluate the impact of coronavirus pandemic on stability of Africa stock markets, sovereign bond markets and U.S. dollar exchange rates in Kenya, Morocco, Nigeria and South Africa as well as Africa Sharia equity and Sukuk indices. Findings from study suggest that Africa financial markets became very unstable during the coronavirus pandemic than during the endemic and pre-coronavirus periods. Results from bivariate regression model show evidence of negative impact of coronavirus pandemic on financial market returns. The results further show that Africa financial markets return volatility increases as the number of coronavirus cases increases. Overall, the findings suggest that coronavirus has negative impact on financial markets’ returns and exacerbated financial markets instability thus retarding sustainable economic development in the continent. JEL Classification Numbers: G10, I12, O55

Integrated Mobile Application Based on Machine Learning for East Africa Stock Market

Regional Integration refers to the process of states coming together to sign agreements where they agree to cooperate in certain areas common to them. The East African Community (EAC) which was founded on November 30, 1999, identified three integration pillars; common Market protocol, customs union and political federation. In attempt to achieve the named pillars, financial markets have been identified as a key driver for common market and customs union. The challenge however is that the East African countries run the most expensive stocks on the African Continent and this has greatly influenced trade volumes and investor appetite. When these markets are integrated it allows collective bargaining thereby increasing their market share across the region other than a given country running its own exchange. This paper presents a software platform that will enable an investor to purchase and sell stocks irrespective of any location in the East African Region thus spur the development of stock market in terms of volume and competitiveness.

Modeling the frequency dynamics of spillovers and connectedness between crude oil and MENA stock markets with portfolio implications

This paper examines the frequency of spillovers between crude oil futures and the Middle East and North Africa (MENA) stock markets. We use the methodologies proposed by Diebold and Yilmaz (2012) and Baruník and Křehlík (2018) and the wavelet coherency approach. The results show time-varying volatility spillovers in the considered markets. The short-term spillovers are higher than their intermediate-term counterparts. The highest jump in spillovers occurs during the COVID-19 outbreak, followed by the global financial crisis and the recent oil price crash. The spillovers are higher for oil-exporting countries than oil-importing countries. Saudi Arabia, Qatar, and the United Arab Emirates (UAE) are the main contributors to spillovers in the short and intermediate terms. Brent oil, Egypt, Morocco, and Turkey are the net receivers of spillovers in the short term, and they switch to become net contributors to spillovers in the intermediate term. Turkey and oil-exporting stock markets receive more spillovers than oil-importing stock markets irrespective of the time frequency. Wavelet analysis shows evidence of co-movements between oil futures and stock markets at intermediate and low frequencies. The lead–lag relationships between crude oil and stock markets are mixed and time-varying. Moreover, a mixed portfolio offers diversification benefits. Hedging is more expensive during the pandemic period and particularly in the intermediate term compared to the short term. Hedging effectiveness is highest during the COVID-19 pandemic in the short and intermediate terms for almost all markets.

Dynamics of land use land cover and its impact on carbon stocks in Sub-Saharan Africa: an overview

Land use land cover change (LULCC) is a global environmental trend that plays a key role in worldwide environmental change and sustainable development. Substantial disturbance resulting from natural and anthropogenic activities has been witnessed in sub-Sahara Africa (SSA) over the last four decades, which is mostly due to the increasing population being experienced in Africa. One-third of emitted greenhouse gases (GHG) are attributable to LULCC and agricultural activities most especially deforestation. Soil carbon sequestration has been considered as a possible strategy to counterbalance carbon dioxide (CO2) emissions and mitigate global climate change, driven by rising concentrations of GHG in the atmosphere and global increase in temperature. The role of tropical Africa's forests in mitigating climate change has been widely acknowledged under the global treaties' Reducing Emissions from Deforestation and Degradation (REDD) initiatives. More than two-thirds of the SSA population rely on forests and woodlands for their livelihoods. Despite the importance of forests, Sub-Saharan Africa, and even the entire African continent, is experiencing an acceleration in deforestation, leading to diminished ecosystem resilience. Subsistence and commercial agriculture accounted for 10% of total forest land loss in Africa (approximately 75 million ha) between 1990 and 2010. As a result, agricultural expansion alone accounts for 70–80% of Africa's total forest loss. The challenges of implementing a policy to reduce emissions from deforestation and forest degradation, and foster conservation, sustainable management of forests, and enhancement of forest carbon stocks (REDD +) in the SSA includes interactions between a number of anthropogenic-induced factors and challenges. These factors, which are of various types (economic, institutional, etc.), cause loss of forest and forest degradation; and the challenges arising from finance, institutional and technical expertise hinder the appropriate design and implementation of national forest monitoring schemes. These challenges must be adequately addressed in order to accurately quantify the carbon budgets and implement an appropriate forest and carbon monitoring system for REDD + in SSA. Therefore, in meeting the REDD + initiatives in SSA, integrated land use management approach that enhances soil carbon sequestration potential should be given considerable systematic and scientific attention. In addition, political, socioeconomic and institutional factors that hinder sustainable forest management and land use system management must be addressed collectively.

Comprehensive evaluation of plastic flows and stocks in South Africa

There is an urgent need to tackle the major challenge of plastic waste, as the increase in production and consumption of plastics is generating higher levels of waste. The South African government formulated a Waste Research Development and Innovation (RDI) Roadmap to facilitate the transition to a circular economy. To support this roadmap, this paper defines the plastic material flows within the country to enable the benchmarking of plastic footprints and to inform the transition to a circular economy. The flows and stocks of plastic were quantified using material flow analysis for a reference year with the most complete and recent data available. The paper presents the first known case of a Sankey diagram for plastic materials in South Africa and pioneers an approach to embed data uncertainty in a Sankey diagram and resource flows. The flow results for 2017 show an estimated 1,350,000 tons of primary plastic (24 kg/capita) and 2,742,970 tons of plastic product (49 kg/capita) were produced in South Africa, about 1,805,780 tons of primary plastic (32 kg/capita) were consumed and 2,247,323 tons (40 kg/capita) of plastic waste were generated. Furthermore, the study identified data and information gaps and underlying assumptions on waste evaluation that need to be revisited, and also proposes a new approach for a comprehensive evaluation of the recycling rate in South Africa.

Do Africa stock markets exhibit any evidence of risk-return trade-off

The purpose of this paper is to establish the nature of risk-return trade-off in selected Africa stock markets. Specifically, the paper evaluates stock markets in Cote d'Ivoire (BRVM), Kenya, Mauritius, Morocco, Nigeria, South Africa and Tunisia, for risk-return relationship. The paper employs AR(p)-GARCH(1, 1)-in-mean model on the seven stock markets over the 4 January 2010 to 30 November 2018 study period. The results evince positive and significant risk-return trade-off in the South Africa, Tunisia and Morocco stock markets. The results also show existence of positive but insignificant risk premium coefficients for the other Africa stock markets, which imply that stock markets in Cote d'Ivoire, Kenya, Mauritius, and Nigeria may not have compensated investors for inherent systematic risk. The results further suggest that investments in many of the Africa stock markets over the sample period would have provided returns uncorrelated with risk.

Do Africa stock markets exhibit any evidence of risk-return trade-off

Do Africa stock markets exhibit any evidence of risk-return trade-off

Exploration of safe havens for Africa's stock markets: A test case under COVID-19 crisis

The bear markets associated with the ongoing COVID-19 crisis present a test case to examine the traditionally expounded safe haven capabilities of gold and other precious metals, as well as the growing claims that bitcoin is the new “virtual gold” of our time. New evidence from our paper fails to corroborate such claims, however, we find bitcoin as a complementary safe haven asset. Further results show that none of the traditional safe havens and bitcoin could offer refuge for Africa's emerging equity markets. Instead, gold and palladium outperform the other candidates to provide sanctuary for small-sized equity markets.

Unit root tests in the presence of structural breaks: Evidence from African stock markets

This paper examines whether stock prices for fourteen African countries are affected by transitory or permanent shocks. This study answers whether Africa stock market indices are mean-reverting or random-walk in the presence of multiple structural breaks. To investigate African equity price behavior, we considered one and two endogenously determined structural break tests of Zivot and Andrews (1992) and Lumsdaine and Papell (1997), respectively. Findings/Originality: Our results show that almost all African equity price indices follow the random walk processes except for Senegal and Botswana, which exhibit mean-reversion properties in its equity prices. It implies that investors in African stock markets cannot rely on past information and behavior to predict stock market movements or develop their trading strategies. The result also confirms that the Augmented Dickey-Fuller (ADF) unit root test is not applicable in the presence of structural breaks in African stock markets.

Investigation of The Relationship Between VIX Index and BRICS Countries Stock Markets: An Econometric Application

The VIX index, the largest volatility indicator index of the USA, has been derived from the S&P 500 index and has been carefully monitored by international investors since 1993. While the VIX index was previously followed by investors from developed countries, it is now followed by investors who evaluate their investments in developing countries. In this study, It was examined the effect of price movements in the VIX index on the stock markets of the developing (BRICS) countries between the dates of 02.24.2011 and 06.01.2020. Toda Yamamoto causality test was used by using daily closing data. In addition, bilateral results were examined for each variable in the study. Considering the findings obtained from the study, it was observed that the VIX index is in bilateral causality with Russia (RTSI) and South Africa (INVSAF40) stock markets as of the baseline period. On the other hand, it is determined that the price movements in the VIX index have a unilateral causality relationship on India (BSESN) and China (SSEC) indices. However, it has been concluded that the VIX index does not have a unilateral or bilateral causal relationship with the Brazilian (BOVESPA) stock market.