Equity Prices, Monetary Policy, And Economic Activities In Emerging Market Economies: The Case Of South Africa

2012 ◽  
Vol 28 (6) ◽  
pp. 1217 ◽  
Author(s):  
Lumengo Bonga-Bonga
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Emerging Markets ◽  
Emerging Market ◽  
Labour Productivity ◽  
Emerging Market Economies ◽  
Font Size ◽  
Economic Activities ◽  
Equity Prices ◽  
Market Economies

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;">This paper investigates the possible influence equity price shocks have on economic activities and inflation in emerging market economies such as South Africa. Moreover, the paper discusses the role monetary policy action should play in preventing or reducing the disruptive effects of equity market volatility in emerging markets. It uses the structural vector error correction (SVEC) model to identify the different shocks and obtain the impulse response functions in a case study of South Africa. The paper finds that positive shocks to equity prices negatively affect expected inflation in the first two quarters before the effect becomes positive. This finding indicates that initially </span><span lang="EN-ZA" style="color: black; font-size: 10pt; mso-themecolor: text1; mso-ansi-language: EN-ZA;">high stock market valuations raise the expectation of high capital and labour productivity by investors. Later on, the possibility of high stock prices increasing economic activity creates an expectation of high inflation rates in the future. From this finding, the paper concludes that the monetary authority in emerging markets in general and South Africa in particular should include equity prices in its reaction function. </span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

scholarly journals Liquidity regulations and bank behavior: An emerging markets perspective

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 194-211
Author(s):  
Tafirei Mashamba
Keyword(s):  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Emerging Market Economies ◽  
Basel Iii ◽  
Market Economies ◽  
Coverage Ratio ◽  
The Impact

The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit funding was found to be more responsive to the LCR rule while the elasticity of equity and long-term funding to the LCR specification was found to be weak. The weak response of equity and long-term funding to liquidity standards was attributed to low levels of capital market development in emerging markets (Bonner, van Lelyveld, & Zymek, 2015). By and large, the results suggest that Basel III liquidity regulations have been effective in persuading banks in emerging market economies to fund their business activities with stable funding instruments. Based on this evidence, the study supports the adoption of Basel III liquidity regulations in emerging markets. Moreover, policymakers in emerging market economies should monitor competition for retail deposits to safeguard the benefits of the LCR rule and pay more attention to developing capital markets.

Financial liberalization and the behavior of reversals in emerging market economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ali Fayyaz Munir ◽  
Shahrin Saaid Shaharuddin ◽  
Mohd Edil Abd Sukor ◽  
Mohamed Albaity ◽  
Izlin Ismail
Keyword(s):  
Emerging Markets ◽  
Financial Liberalization ◽  
Emerging Market ◽  
Asia Pacific ◽  
Emerging Market Economies ◽  
Investment Strategies ◽  
Content Type ◽  
Market Economies ◽  
Contrarian Strategy ◽  
Fund Managers

PurposeThis paper investigates the behavior of contrarian strategy payoffs under varying degrees of financial liberalization in the context of Asia-Pacific emerging market namely China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines and Thailand for the period 1997–2017. These markets represent economies that display a gradual change in the degree of financial liberalization instead of fully opening their markets to foreign investors at once.Design/methodology/approachUsing a daily dataset of 2,468 firms and four different measures of the degree of financial liberalization, the paper employs portfolio formation, panel regressions and binary modeling methods to reveal the impact of partial and complete financial liberalization on contrarian returns.FindingsThis paper documents a negative relationship between the degree of financial liberalization and contrarian strategy payoffs. The results further indicate that small-sized emerging markets reveal more significant and higher contrarian returns as compared to their larger counterparts. Moreover, the returns are significantly higher during negative market states, higher volatility and crises periods. The study findings are consistent with the investor-base broadening hypothesis.Practical implicationsThe findings may serve as a useful input for investors and fund managers to devise contrarian investment strategies in emerging market economies. Together, the study provides additional insights for policymakers in managing financial liberalization and integration policies within their respective countries.Originality/valueThis study provides a novel viewpoint by examining the relationship between the degree of financial liberalization and contrarian strategy payoffs. The authors contribute to the existing debate by shifting the discussion to the investor-based broadening argument in which small and less liberalized emerging markets offer opportunities for investors and fund managers to produce abnormal contrarian returns that cannot be earned by other conventional investment strategies.

Sign in / Sign up

Export Citation Format

Share Document