African financial markets and economic and political uncertainties

• Autores: Albert A. Agyemang Badu
• Directores de la Tesis: Fernando Gallardo Olmedo (dir. tes.), José María Mella Márquez (dir. tes.)
• Lectura: En la Universidad Autónoma de Madrid ( España ) en 2022
• Idioma: inglés
• Número de páginas: 307
• Títulos paralelos:
  • Los mercados financieros africanos y las incertidumbres económicas y políticas
• Tribunal Calificador de la Tesis: Juan José Durán Herrera (presid.), Asunción López López (secret.), Mariano Méndez Suárez (voc.), Teodosio Pérez Amaral (voc.), José Luis Crespo Espert (voc.)
• Programa de doctorado: Programa de Doctorado en Economía y Empresa por la Universidad Autónoma de Madrid
• Materias:
  • Ciencias económicas
    • Economía general
• Enlaces
  • Tesis en acceso abierto en: Biblos-e Archivo
• Resumen

  • This study examines the interplay between the development of African financial markets and political uncertainties. Specifically, this thesis is structured to: (1) investigate the development of African financial markets; (2) explore the nature of relationship between economic growth and African financial development; (3) assess how conditional macroeconomic volatilities influence African stock market returns; and (4) examine the interactions between domestic political events and stock market returns within the African context.

    An extensive review of data from several sources revealed that African financial markets have undergone immense improvement, although they are not yet fully developed. Financial liberalisation, technological innovations, and improvements in supervision and regulation have aided African banking sector, insurance sector and capital markets in bridging the gap between developed and African economies. Also, the explosion of microfinance and Fintech services have significantly improve financial inclusion in the continent. Moreover, the flow of financial resources to Africa have undergone dramatic changes, resulting in considerable economic development and structural transformation in the region.

    Further, the study used panel data spanning from 1980 to 2019 from 37 African countries to determine the nexus between financial development, proxied by domestic credit, broad money, stock market capitalisation, bank overhead cost and bank deposits; with economic growth. Both static and dynamic linear models used in the estimation confirmed a positive relationship between financial development and economic growth. Also, threshold panel models revealed that the relationship between financial development and economic growth are nonlinear in nature from the bootstrap test of linearity. However, this study failed to confirm the ‘too much’ finance assumption in the African context. This suggest that economic growth is highly dependent on all sectors of African financial markets.

    In relation to the effect of macroeconomic volatilities on African stock markets (ASMs) returns, a general Markov switching model confirmed the existence of two regimes: an economic expansion or ‘tranquil’ state with less volatility and an economic decline or ‘crisis’ state with high volatility. It was observed that ASMs experienced more extended crisis episodes than tranquil episodes. Furthermore, the coefficients estimates are more significant in the crisis state than the tranquil state, which means that there are some opportunities for prudent investors in periods of turmoil. In general, the study found that macroeconomic volatilities significantly affect volatility of stock market returns in Africa. These findings are consistent with macroeconomic theory and points out policy implications for policy makers.

    To deal with the impact of political uncertainties on stock market returns in Africa, events linked to politics are investigated to determine its relationship with abnormal and volatility of stock market returns in Africa. Specifically, event study methodology is used to examine the extent to which elections and regime changes events affect abnormal stock returns. Subsequently, a series of methodologies based on GARCH modelling are adopted to analyse how political events affects volatility of stock returns. Results show that political events, such as elections, political regime changes, political orientation and terrorism are major determinants of daily stock price fluctuations. In terms of annual stock returns, the panel model revealed that in addition to macroeconomic variables, political uncertainties indicators such as years in office, political orientation, governments stability, internal conflict, military in politics, years in office and regime changes affect annual stock returns, volatility and Value at Risk. These findings suggest important implications for investors, managers as well as policy makers.

    In general, this study has significantly contributed to literature on the subject matter. First, this study extends empirical literature on finance and economic growth in post 2008 Global Financial Crisis period. Second, using the African context, the study contributes to the on-going debate on the determinants of stock returns. This study deviates from the linear model mostly used by previous authors. Specifically, a Markov switching model established a relationship between macroeconomic volatilities and stock market returns. Finally, no previous study has simultaneously analysed the effect of a number of political events and volatilities of returns within the African context. On the basis of these contributions, the thesis put forward recommendations for governments, policy makers and regulators, investors, development partners and African supranational institutions.