The Relationship between Carry Trade and Asset Markets in South Africa

Bonga‐Bonga, Lumengo; Maake, Tebogo

doi:10.3390/jrfm14070300

Cited by 3 publications

(1 citation statement)

References 22 publications

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“…Following Sadorsky (2012), this paper extends the BEKK VAR GARCH methodology by making use of the multivariate asymmetric BEKK VAR-X GARCH to account for the weakly exogenous influence of the UK FTSE 100 in assessing shock spillovers between the South African and Nigerian stock markets. Literature abounds on the influence of developed stock markets, especially the UK FTSE 100, on emerging and developing stock markets (see Bonga-Bonga, 2018; Bonga-Bonga and Maake, 2021). However, several studies accounts for the influence of these markets by including a strongly exogenous variable in the modelling process.…”

Section: Methodsmentioning

confidence: 99%

Return and volatility spillovers between South African and Nigerian equity markets

Phume

Bonga‐Bonga

2022

AJEMS

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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.

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Section: Methodsmentioning

confidence: 99%

Return and volatility spillovers between South African and Nigerian equity markets

Phume

Bonga‐Bonga

2022

AJEMS

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Examining the Dependence Structure Between Carry Trade and Equity Market Returns in BRICS Economies

Makhanya,

Bonga-Bonga,

Manguzvane

2024

International Economic Journal

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Carry Trade and Capital Market Returns in South Africa

Rangoanana

Bonga‐Bonga

2022

JRFM

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This paper assesses the extent to which carry trade operations affect the performance of equity and bond markets in a target country, South Africa, by considering the US and the euro area as the funding countries. A two- and three-factor capital asset pricing model (CAPM) is employed to assess whether the pricing of equity and bond markets in South Africa depends on the US dollar/rand and euro/rand carry trade returns. Moreover, the paper uses the quantile regression technique to assess whether this pricing varies with the distribution of the equity and bond returns. The findings support that the US- and euro-funded carry trade are essential factors for the pricing of equity and bond markets in South Africa. Moreover, the results of the two-factor model show a negative relationship between the equity excess return and the US-carry trade returns at lower quantiles of the equity market returns. The positive relationship is observed in the upper quantiles of the equity market. The negative relationship means that carry trade activities reduce equity market returns during a bear market as investors close out their position when conditions in the equity market become unfavourable. The results of the three-factor model, controlling for the global volatility or uncertainty, show that carry trade investors exit the equity market to invest in the bond market when global uncertainty rises. This finding shows that carry trade investors choose less risky assets during rising global uncertainty.

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The Relationship between Carry Trade and Asset Markets in South Africa

Cited by 3 publications

References 22 publications

Return and volatility spillovers between South African and Nigerian equity markets

Return and volatility spillovers between South African and Nigerian equity markets

Examining the Dependence Structure Between Carry Trade and Equity Market Returns in BRICS Economies

Carry Trade and Capital Market Returns in South Africa

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