Research Article
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Year 2020, , 189 - 203, 30.06.2020
https://doi.org/10.34109/ijefs.202012112

Abstract

References

  • Afonso, A., Furceri, D. & Gomes, P. (2011). Sovereign credit ratings and financial markets linkages: application to European data. Journal of International Money and Finance, 31, 606-638.
  • Afonso, A., Gomes, P. & Taamouti, A. (2014). Sovereign credit ratings, market volatility, and financial gains. Computational Statistics & Data Analysis, 76, 20-33.
  • Almahmoud, A.I. (2014). Country risk ratings and stock market movements: evidence from emerging economy. International Journal of Economics and Finance, 6(10), 88-96.
  • Bekaert, G., Harvey, C. & Lumsdaine, R. (2002). The dynamics of emerging market equity flows. Journal of International Money and Finance, 21, 295-350.
  • Bilson, C. M., Brailsford, T. J & Hooper, V.C. (2002). The explanatory power of political risk in emerging markets. International Review of Financial Analysis, 11, 1-27.
  • Brooks, R., R. Faff, D. Hillier, and J. Hillier. 2004. The national market impact of sovereign rating changes. Journal of Banking and Finance, 28, 233-250.
  • Christopher, R., Kim, S.J. & Wu, E. (2012). Do sovereign credit ratings influence regional stock and bond market interdependencies in emerging countries? Journal of International Financial Market, Institutions and Money, 22(4), 1070-1089.
  • Chow, S.C., Gupta, R., Suleman, T. & Wong (2017). Long-run movement and predictability of bond spread for BRICS and PIIGS: The role of economic, financial and political Risks. Working Papers 201773. University of Pretoria: Department of Economics.
  • Erb, C.B., Harvey, C.R. & Viskanta, T.E. (1996). The influence of political, economic and financial Risk on Fixed Income Returns. Journal of Fixed Income, 6(1), 7-30.
  • Ferreira, M., & Gama, P. 2007. Does sovereign debt ratings news spill over to international stock markets? Journal of Banking and Finance, 31, 3162-3182.
  • Granger, C.W. & Yoon, G. (2002). Hidden Cointegration. 2002-02. San Diego: University of California.
  • Hammoudeh, S., Sari, R. & Uzunkaya, M. (2013). The dynamics of BRICS’s country risk ratings and domestic stock markets, U.S. stock market and oil price. Mathematics and Computers in Simulation, 94, 277-294.
  • ICRG (2017). International Country Risk Guide (ICRG). http://www.prsgroup.com/about-us/our-two-methodologies/icrg.
  • IMF (International Monetary Fund). (2018). Challenges to Steady Growth. Chapter 3: Challenges for Monetary Policy in Emerging Economies as Global Financial Conditions Normalize. https://www.imf.org/en/Publications/WEO/ Issues/2018/09/24/world-economic-outlook-october-2018. Accessed 2019/06/27.
  • JSE (Johannesburg Stock Exchange). (2019). Products and services. Available: https://www.jse.co.za. Accessed 2019/04/15.
  • Li, H., Jeon, B.N. & Chiang, T.C. (2007). The impact of sovereign rating changes and financial contagion on stock market returns: Evidence from five Asian countries. Global Finance Journal, 19(1), 46-55.
  • Liu, T., Hammoudeh, S. & Thompson, M. A. 2013. A momentum threshold model of stock prices and country risk ratings: evidence from BRICS countries. Journal of International Financial Markets, Institutions and Money, 27, 99-112.
  • Mensi, W, Hammoudeh, S., Yoon, S. & Balcilar, M.M. (2017). Impact of macroeconomic factors and country risk ratings on GCC stock markets: Evidence from a dynamic panel threshold model with regime switching. Applied Economics, 49, 1255-72.
  • Mensi, W., Hammoudeh, S., Yoon, S & Nguyen, D. 2016. Asymmetric linkages between BRICS stock returns and country risk ratings: Evidence from dynamic panel threshold models. Review of International Economics, 24, 1-19.
  • Mutize, M. & Gossel, S.J. (2019). Sovereign credit rating announcement effects on foreign currency denominated bond and equity markets in Africa. Journal of African Business, 20(1), 135-152.
  • Nasr, A.B., Cunado, J., Demirer, R. & Gupta, R. (2018). Country risk ratings and stock market returns in Brazil, Russia, India, and China (BRICS) Countries: A nonlinear dynamic approach. Risks, Measuring and Modelling Financial Risk and Derivatives, 6(3), 94-116.
  • Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
  • Pesaran, M.H., Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis. In: Strøm, S. (Ed.), Econometrics and economic theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge
  • Pukthuanthong-Le, K., Elayan, F. A., & Rose, L. C. (2007). Equity and debt market responses to sovereign credit ratings announcement. Global Finance Journal, 18(1), 47-83.
  • Sari, R., Uzunkaya, M. & Hammoudeh, S. (2013). The relationship between disaggregated country risk ratings and stock market movements: An ARDL approach. Emerging Markets Finance and Trade, 49, 4-16.
  • Sensoy, A., Eraslan, V. & Erturk, M. (2016). Do sovereign rating announcements have an impact on regional stock market co-movements? The case of Central and Eastern Europe. Economic Systems, 40, 552-567.
  • Shin, Y., Yu, B. & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In: Horrace, W.C., Sickles, R.C. (Eds.), Festschrift in honor of Peter Schmidt: Econometric methods and applications. Springer Science And Business Media, New York, 281–314.
  • South African Reserve Bank (SARB). (2019). Financial stability review. https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/9276/FSR%20First%20Edition%202019. Accessed 2019/06/27.
  • World Investment Report. (2018). Investment and new industrial policies. United Nations conference on trade and development.

THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET

Year 2020, , 189 - 203, 30.06.2020
https://doi.org/10.34109/ijefs.202012112

Abstract

The relation between asset returns and country risk is an important issue for international investors seeking diversification opportunities in emerging markets, particularly in South Africa. This paper aims to evaluate the impact of economic, financial and political components of country risk on stock and bond returns. A non-linear autoregressive distributed lag (NARDL) model was used to analyse the time-varying dynamic relationship between the country risk components and the two financial asset markets for a sample of 15 years monthly data. We found an asymmetric relationship between country risk and asset returns of the two markets. Political risk has long-run and short-run implications on stock and bond returns, while economic risk only has short-run effects on bond returns. These results suggest that international investors should carefully consider different components of country risk when seeking diversification opportunities.

References

  • Afonso, A., Furceri, D. & Gomes, P. (2011). Sovereign credit ratings and financial markets linkages: application to European data. Journal of International Money and Finance, 31, 606-638.
  • Afonso, A., Gomes, P. & Taamouti, A. (2014). Sovereign credit ratings, market volatility, and financial gains. Computational Statistics & Data Analysis, 76, 20-33.
  • Almahmoud, A.I. (2014). Country risk ratings and stock market movements: evidence from emerging economy. International Journal of Economics and Finance, 6(10), 88-96.
  • Bekaert, G., Harvey, C. & Lumsdaine, R. (2002). The dynamics of emerging market equity flows. Journal of International Money and Finance, 21, 295-350.
  • Bilson, C. M., Brailsford, T. J & Hooper, V.C. (2002). The explanatory power of political risk in emerging markets. International Review of Financial Analysis, 11, 1-27.
  • Brooks, R., R. Faff, D. Hillier, and J. Hillier. 2004. The national market impact of sovereign rating changes. Journal of Banking and Finance, 28, 233-250.
  • Christopher, R., Kim, S.J. & Wu, E. (2012). Do sovereign credit ratings influence regional stock and bond market interdependencies in emerging countries? Journal of International Financial Market, Institutions and Money, 22(4), 1070-1089.
  • Chow, S.C., Gupta, R., Suleman, T. & Wong (2017). Long-run movement and predictability of bond spread for BRICS and PIIGS: The role of economic, financial and political Risks. Working Papers 201773. University of Pretoria: Department of Economics.
  • Erb, C.B., Harvey, C.R. & Viskanta, T.E. (1996). The influence of political, economic and financial Risk on Fixed Income Returns. Journal of Fixed Income, 6(1), 7-30.
  • Ferreira, M., & Gama, P. 2007. Does sovereign debt ratings news spill over to international stock markets? Journal of Banking and Finance, 31, 3162-3182.
  • Granger, C.W. & Yoon, G. (2002). Hidden Cointegration. 2002-02. San Diego: University of California.
  • Hammoudeh, S., Sari, R. & Uzunkaya, M. (2013). The dynamics of BRICS’s country risk ratings and domestic stock markets, U.S. stock market and oil price. Mathematics and Computers in Simulation, 94, 277-294.
  • ICRG (2017). International Country Risk Guide (ICRG). http://www.prsgroup.com/about-us/our-two-methodologies/icrg.
  • IMF (International Monetary Fund). (2018). Challenges to Steady Growth. Chapter 3: Challenges for Monetary Policy in Emerging Economies as Global Financial Conditions Normalize. https://www.imf.org/en/Publications/WEO/ Issues/2018/09/24/world-economic-outlook-october-2018. Accessed 2019/06/27.
  • JSE (Johannesburg Stock Exchange). (2019). Products and services. Available: https://www.jse.co.za. Accessed 2019/04/15.
  • Li, H., Jeon, B.N. & Chiang, T.C. (2007). The impact of sovereign rating changes and financial contagion on stock market returns: Evidence from five Asian countries. Global Finance Journal, 19(1), 46-55.
  • Liu, T., Hammoudeh, S. & Thompson, M. A. 2013. A momentum threshold model of stock prices and country risk ratings: evidence from BRICS countries. Journal of International Financial Markets, Institutions and Money, 27, 99-112.
  • Mensi, W, Hammoudeh, S., Yoon, S. & Balcilar, M.M. (2017). Impact of macroeconomic factors and country risk ratings on GCC stock markets: Evidence from a dynamic panel threshold model with regime switching. Applied Economics, 49, 1255-72.
  • Mensi, W., Hammoudeh, S., Yoon, S & Nguyen, D. 2016. Asymmetric linkages between BRICS stock returns and country risk ratings: Evidence from dynamic panel threshold models. Review of International Economics, 24, 1-19.
  • Mutize, M. & Gossel, S.J. (2019). Sovereign credit rating announcement effects on foreign currency denominated bond and equity markets in Africa. Journal of African Business, 20(1), 135-152.
  • Nasr, A.B., Cunado, J., Demirer, R. & Gupta, R. (2018). Country risk ratings and stock market returns in Brazil, Russia, India, and China (BRICS) Countries: A nonlinear dynamic approach. Risks, Measuring and Modelling Financial Risk and Derivatives, 6(3), 94-116.
  • Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
  • Pesaran, M.H., Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis. In: Strøm, S. (Ed.), Econometrics and economic theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge
  • Pukthuanthong-Le, K., Elayan, F. A., & Rose, L. C. (2007). Equity and debt market responses to sovereign credit ratings announcement. Global Finance Journal, 18(1), 47-83.
  • Sari, R., Uzunkaya, M. & Hammoudeh, S. (2013). The relationship between disaggregated country risk ratings and stock market movements: An ARDL approach. Emerging Markets Finance and Trade, 49, 4-16.
  • Sensoy, A., Eraslan, V. & Erturk, M. (2016). Do sovereign rating announcements have an impact on regional stock market co-movements? The case of Central and Eastern Europe. Economic Systems, 40, 552-567.
  • Shin, Y., Yu, B. & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In: Horrace, W.C., Sickles, R.C. (Eds.), Festschrift in honor of Peter Schmidt: Econometric methods and applications. Springer Science And Business Media, New York, 281–314.
  • South African Reserve Bank (SARB). (2019). Financial stability review. https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/9276/FSR%20First%20Edition%202019. Accessed 2019/06/27.
  • World Investment Report. (2018). Investment and new industrial policies. United Nations conference on trade and development.
There are 29 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Article
Authors

Rethabile Nhlapho This is me 0000-0002-9679-0953

Paul-francois Muzindutsi This is me 0000-0002-4819-8218

Publication Date June 30, 2020
Published in Issue Year 2020

Cite

APA Nhlapho, R., & Muzindutsi, P.-f. (2020). THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET. International Journal of Economics and Finance Studies, 12(1), 189-203. https://doi.org/10.34109/ijefs.202012112
AMA Nhlapho R, Muzindutsi Pf. THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET. IJEFS. June 2020;12(1):189-203. doi:10.34109/ijefs.202012112
Chicago Nhlapho, Rethabile, and Paul-francois Muzindutsi. “THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET”. International Journal of Economics and Finance Studies 12, no. 1 (June 2020): 189-203. https://doi.org/10.34109/ijefs.202012112.
EndNote Nhlapho R, Muzindutsi P-f (June 1, 2020) THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET. International Journal of Economics and Finance Studies 12 1 189–203.
IEEE R. Nhlapho and P.-f. Muzindutsi, “THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET”, IJEFS, vol. 12, no. 1, pp. 189–203, 2020, doi: 10.34109/ijefs.202012112.
ISNAD Nhlapho, Rethabile - Muzindutsi, Paul-francois. “THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET”. International Journal of Economics and Finance Studies 12/1 (June 2020), 189-203. https://doi.org/10.34109/ijefs.202012112.
JAMA Nhlapho R, Muzindutsi P-f. THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET. IJEFS. 2020;12:189–203.
MLA Nhlapho, Rethabile and Paul-francois Muzindutsi. “THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET”. International Journal of Economics and Finance Studies, vol. 12, no. 1, 2020, pp. 189-03, doi:10.34109/ijefs.202012112.
Vancouver Nhlapho R, Muzindutsi P-f. THE IMPACT OF DISAGGREGATED COUNTRY RISK ON THE SOUTH AFRICAN EQUITY AND BOND MARKET. IJEFS. 2020;12(1):189-203.