Can Common Stocks Provide A Hedge Against Inflation? Evidence from African Countries

The extent to which the stock market provides a hedge to investors against inflation is examined for African stock markets. By employing parametric and nonparametric cointegration procedures, we show that the point estimates of the elasticities of stock prices with respect to consumer prices range from 0.015 for Tunisia to 2.264 for South Africa, evidence of a positive long-run relationship. Further, the time path of the response of stock prices to innovations in consumer prices exhibits a transitory negative response for Egypt and South Africa, which becomes positive over longer horizons: important indication that the stock market tends to provide a hedge against rising consumer prices in African markets.Stock Prices, Inflation, Fisher Effect, African Stock Markets, Cointegration

Persistence of inflationary shocks: Implications for West African Monetary Union Membership

Plans are far advanced to form a second monetary union, the West African Monetary Zone (WAMZ), in Africa. While much attention is being placed on convergence criteria and preparedness of the five aspiring member states, less attention is being placed on the extent to which the dynamics of inflation in individual countries are (dis)similar. This paper aims to stimulate debate on the long term sustainability of the union by examining the dynamics of inflation within these countries. Using Fractional Integration (FI) methods, we establish that some significant differences exist among the countries. Shocks to inflation in Sierra Leone are non mean reverting; results for The Gambia, Ghana and Guinea-Bissau suggest some inflation persistence, despite being mean reverting. Some policy implications are discussed and some warnings are raised

Calendar Anomalies in an Emerging African Market: Evidence from the Ghana Stock Exchange.

This paper investigates two calendar anomalies in an emerging African market. Both the day of the week and month of the year effects are examined for Ghana. The latter is an interesting case because i) it operates for only three days per week during the sample period and ii) the increased focus that African stock markets have received lately both from academics and practitioners. We employ rolling techniques to asses the affects of policy and institutional changes. This allows deviations from the linear paradigm. We finally employ non-linear models from the GARCH family in a rolling framework to investigate the role of asymmetries. Contrary to a January return pattern in most markets, an April effect is found for Ghana. The evidence also shows the presence of the day of the week effects with asymmetric volatility performing better than the benchmark linear estimates. This seasonality though disappears when only the latest information is used (time-varying asymmetric GARCH). Our approach provides a new framework for investigating this well-known puzzle in finance.Calendar Anomalies, Non-Linearity, Market Efficiency, Asymmetric Volatility, Rolling windows.

Why a Diversified Portfolio Should Include African Assets

We employ parametric and non-parametric cointegration to investigate the extent of integration between African stock markets and the rest of the world. Long-run correlation estimates imply very low association between the two. The two distinct cointegration approaches confirm the latter through recursive estimation. The implication is that global market movements may have little impact on Africa. However, we argue that including African assets in a mean variance portfolio could be beneficial to international investors.Correlation, Long-run correlation, Cointegration, Non-parametric cointegration, African Stock Markets

Month-of-the-year and pre-holiday seasonality in African stock markets

Seasonal anomalies (calendar effects) may be loosely referred to as the tendency for financial asset returns to display systematic patterns at certain times of the day, week, month or year. Two popular calendar effects are investigated for African stock returns: the month-of-the-year and the pre-holiday effects, and their implication for stock market efficiency. We extend the traditional approach of modelling anomalies using OLS regressions and, examine both the mean and conditional variance. We find high and significant returns in days preceding a public holiday for South Africa, but this finding is not applicable to the other stock markets in our sample. Our results also indicate that the month-of-the-year effect is prevalent in African stock returns. However, due to liquidity and round trip transactions cost the anomalies uncovered may not necessarily violate the no-arbitrage condition. Finally we discuss promising areas for future research using developing stock markets data

Dr. George Adu: A valedictory remembrance

No Abstrac

Persistence of Inflationary Shocks: Implications for West African Monetary Union Membership

Plans are far advanced to form a second monetary union, the West African Monetary Zone (WAMZ), in Africa. While much attention is being placed on convergence criteria and preparedness of the five aspiring member states, less attention is being placed on how the dynamics of inflation in individual countries are (dis)similar. This paper aims to stimulate debate on the long term sustainability of the union by examining the dynamics of inflation within these countries. Using Fractional Integration (FI) methods, we establish that some significant differences exist among the countries. Shocks to inflation in Sierra Leone are non mean reverting; results for The Gambia, Ghana and Guinea-Bissau suggest some inflation persistence, despite being mean reverting. Some policy implications are discussed and possible outstanding policy questions are also raised.Inflationary shocks, fractional integration, stationarity, West Africa, Monetary unions.

Modelling stock returns in Africa's emerging equity markets

We investigate the behaviour of stock returns in Africa’s largest markets namely, Egypt, Kenya, Morocco, Nigeria, South Africa, Tunisia and Zimbabwe. The validity of the random walk hypothesis is examined and rejected by employing a battery of tests. Secondly we employ smooth transition and conditional volatility models to uncover the dynamics of the first two moments and examine weak from efficiency. The empirical stylized facts of volatility clustering, leptokurtosis and leverage effect are present in the African data

Construction institutions and economic growth in sub-Saharan Africa

The construction sector in developing countries has propelled economic growth in the most recent period, yet  analysis of growth performance has failed to take this into account. This article is a comparative analysis of the  relationship between the construction sector and aggregate output for a panel of sub-Saharan African countries  using a panel generalized methods of moments (GMM). After accounting for the effects of institutional set up, cross sectional heterogeneity and non-linearity, our results revealed that the construction sector affects growth positively  and most importantly, developing the right institutions could further enhance this impact. The intrinsically non-linear relationship between the construction and output growth is very mute in our sample, suggesting that, sub-Saharan  African countries have not yet reached the stage of development where construction growth becomes trivial. We  further show that East Africa experienced a robust impact of construction on economic growth compared to West and Southern Africa.Keywords: Construction; Output growth; Institutions;  Endogeneity

Modern macroeconomics: a review of the post 2008/2009 crisis debate

This paper reviews the current debate on the state of modern macroeconomics from methodological standpoint. While some senior figures in economics have argued that modern macroeconomics has gone wayward and thus become irrelevant for policy, others argue otherwise. Methodologically, the fundamental sources of dispute have centered on realism of assumptions, mathematical formalism and empiricism and falsification of economic models. Our conclusion from this review is that the observable world upon which macroeconomist rely on to make their assumptions, theories and predictions represent a very tiny fraction of physical reality. Thus any policy derived from such partial and short sighted analysis can only produce a sub-optimal outcome. Moreover, the fundamental analysis employed in macroeconomic analysis overlook peculiarities which should be the rule rather than the exception for addressing important economic conundrums. In short, although we do not support the position of most critics on the view that macroeconomics of the last 30 years is completely useless, we are of the view that there is need for serious rethinking about the future of macroeconomics. This is the only way forward, if the subject has anything to say about policy. Keywords: Financial Crisis, Modern Macroeconomics, Rational Expectations, Illusion, Perception and Realit