Ocran, Mathew and Mlambo, Chipo (2009): Excess co-movement in asset prices: The case of South Africa. Published in: Journal of Studies in Economics & Econometrics , Vol. 33, No. 1 (2009): pp. 25-39.
Download (170Kb) | Preview
The paper investigates excess co-movement in asset prices in South Africa between 1995 and 2005 using the definition of excess comovement as correlation between two asset prices beyond what could be explained by key economic fundamentals. The results of the study suggest that there is excess co-movement between returns on equities and bonds in South Africa. The findings suggest that there are considerable noise traders on the financial market in South Africa. The result of this behaviour would be the tendency for the equity and bond prices to move together more than would be predicted by their shared fundamentals. These results are consistent with the possibility that a fad or crowd psychology plays a role in the volatility on the market for the two asset classes.
|Item Type:||MPRA Paper|
|Original Title:||Excess co-movement in asset prices: The case of South Africa|
|Keywords:||Excess co-movement; Asset prices; equity market; bond market; South Africa|
|Subjects:||D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets
N - Economic History > N2 - Financial Markets and Institutions > N27 - Africa; Oceania
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||C Mlambo|
|Date Deposited:||12. Oct 2010 19:26|
|Last Modified:||16. Feb 2013 02:39|
Barberies, N, Shleifer, A and Wurgler, J (2002): “Comovement”, NBER Working Paper No. 8895, Cambridge, Massachusetts.
Barberies, N and Shleifer, A (2003): “Style Investing”, Journal of Financial Economics, 68(2), 161-199.
Barberies, N, Shleifer A and Wurgler J (2005): “Comovement”, Journal of Financial Economics, 75(2), 283-317.
Bekaert, G and Hodrik, R J (2002): “Expectations Hypothesis Tests”, NBER Working paper No. 7609, Cambridge, Massachusetts.
Branch, B (1974): “Common Stock Performance and Inflation: An International Comparison”, Journal of Business, 47(1), 48-52.
Cooper, R M and Lawrence, R Z (1975): “The 1972-75 Commodity Price Boom”, Brookings Papers on Economic Activity, 1975(3), 671-723.
Deb, P, Trivendi, P and Varganis, P (1996): “The Excess Comovement of Commodity PricesReconsidered”, Journal of Applied Econometrics, 11(3), 275-291.
Engsted, T and Tanggaard, C (2001): “The Danish Stock and Bond Markets: Comovement, Return Predictability and Variance Decomposition”, Journal of Empirical Finance, 8(3), 243-271.
Fama, E F and French, K R (1992): “The Cross-section of Expected Stock Returns”, Journal of Finance 47(2), 427-465.
Fama, E F and French, K R (1993): “Common Risk Factors in Returns on Stocks and Bonds”, Journalof Financial Economics 33, 3-56.
Fama, E F and French, K R (1995): “Size and Book-to-market Factors in Earnings and Returns”, Journal of Finance, 50(1), 131-155.
Finnerty, J E and Schneeweis, T (1979): “The Comovement of International Asset Returns”, Journal of International Business Studies, 10(3), 66-78.
Froot, K and Dabora, E (1999): “How are Stock Prices Affected by the Location of Trade?” Journal of Financial Economics, 53(2), 189-216.
Grubel, H G (1968): “Internationally Diversified Portfolios: Welfare Gains and Capital Flows” American Economic Review, 58(5), 1299-1314.
Hardouvelis, G, Rafael La Porta, A and Wizman, T A (1994): “What Moves the Discount on Country Equity Funds?” In J Frankel, ed, The Internationalization of Equity Markets, Chicago: University of Chicago Press.
Kallberg, J and Pasquariello, P (2003): Time-series and Cross-sectional Excess Comovement in Stock Indexes, Working paper, Stern School of Business, New York University.
Kyle, A and Xiong, W (2001): “Contagion as a Wealth Effect”, Journal of Finance, 56(4), 1401-1439.
Lee C, Shleifer, A and Thaler, R (1991): “Investor Sentiment and the Closed-end Fund Puzzle”, Journal of Finance, 46(1), 75-110.
Marilize, P (2006): “Bonds as Key Asset Class”, A paper presented at the Asset Allocation Summit, March 29-31, Bond Exchange of South Africa, Johannesburg.
Merton, R (1987): “An Intertemporal Capital Asset Pricing Model”, Econometrica, 41(5), 867-887.
Pindyck, R and Rotemberg, J (1990): “The Excess Comovement of Commodity Prices”, Economic Journal, 100(403), 1173-1189.
Pindyck, R and Rotemberg, J (1993): “The Comovement of Stock Prices”, Quarterly Journal of Economics, 108, 1073-1104.
Shiller, R J and Beltratti, A E (1992): “Stock Prices and Bond Yields: Can their Comovements be Explained in Terms of Present Value Models?” Journal of Monetary Economics, 30(1), 25-46.
Shohet, R (1974): “Investing in Foreign Securities”, Financial Analysts Journal, 30(5), 55-72.
Spiegel, M R, Schiller, R A and Srinivasa, RA (2000): Schaum’s Outline of Probability and Statistics (2ed), McGraw-Hill Publishers, New York.
Yuan, K (2000): “Asymmetric Price Movements and Borrowing Constraints: A REE Model of Crisis, Contagion, and Confusion”, Working paper, MIT.