Browsing by Author "Gumede, Lungelo L"

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    Effect of monetary policy rate announcements on stock prices in Zambia
    (2017) Samate, Ireen Nunsa; Gumede, Lungelo L
    In many countries including Zambia, stock markets are perceived to be crucial for economic development because of the financial intermediary role that they have assumed in the financial system. Stock markets are sensitive to the arrival of new information, especially those that are macroeconomic like monetary policy announcements. This study sought to determine the extent to which the Lusaka Stock Exchange reacts to monetary policy actions by examining the response of all companies listed on the stock exchange to policy rate announcements, with the exception of ZCCM holdings. The study also aimed to look at the differential response of bank stock returns to policy rate announcements. In order to examine the impact of the policy rate announcement on the Lusaka Stock Exchange, the event study methodology was adopted to analyse data from January 2011 to June 2016. The data was collected from the LuSE daily trading reports and monetary policy publications from the Bank of Zambia. It was found that the policy rate announcement has an insignificant negative impact on stock prices in the event of a policy rate increase and an insignificant positive impact on stock prices when the policy rate is maintained. Similar findings were observed for bank stock prices and non-bank stock prices. The impact of the policy rate on stock prices has important implications for the monetary policy transmission mechanism, risk and investment management strategies of financial market participants, as well as government policy and actions towards financial markets. This study makes a unique contribution to existing literature because it is the only study in Zambia to have measured the impact of monetary policy on stock prices using the event study approach.
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    The impact of political events on the kwacha: a focus on elections
    (2017) Lungu, Chozi Dickens; Gumede, Lungelo L
    Political events can be described as events that affect a country's economic and regulatory environment. Such events may include changes in monetary and fiscal policy, changes in trade and foreign policy, cabinet reshuffles and changes in government. In emerging markets, political events can affect asset prices because of the impact they can have on foreign sentiment and investor confidence. Elections in particular can cause considerable uncertainty which can lead to herding behavior by investors, if outcomes do not reflect prior predictions. Unfavorable election results can lead to currency depreciation, stock market crashes and economic deterioration as investors change their expectations and demand higher premiums due to the perceived increase in sovereign as well as currency risk. This research focuses specifically on the effect of presidential elections on the exchange rate between U.S. Dollar and Zambian Kwacha. The study employs the event study methodology by dividing elections into two periods and these are; a month leading to the election and another month after the elections. The study will examine three distinct presidential elections that occurred in Zambia in 2011, 2015 and 2016 respectively. The research uses daily time series data for the periods September 2011, January 2015 and August 2016. The methodology makes use of the currency pair's daily mid-rate as inputs to the market model. The market model was used to calculate average abnormal returns and cumulative average abnormal returns. Test of significance was conducted using t-test with 5 percent level of significance using a two-tailed test. The results of the t-test show that political events represented by the presidential elections had a statistically significant effect on the Kwacha, with noteworthy observations concentrated around the days following the event. The study recommends that key policy makers and stakeholders should place more emphasis in ensuring a healthy and safe political environment in the country. Investors should also be cautioned against viewing emerging markets as one homogenous group. The results in this study are unique to Zambia, which has had a history of holding peaceful (and arguably), free and fair elections since becoming a multi-party democracy in 1991.
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    Relationship between AUM and Alpha in SA mutual funds
    (2017) Ziphethe-Makola, Sandiswa Masande; Gumede, Lungelo L
    Academics and financial media are divided on whether the size of assets under management (AUM) influences returns. In an attempt to seek clarity in the local context, this study investigates the effect of the size of assets under management on alpha in South African equity mutual funds over the three-year period to 31 December 2015. The study is based on secondary quantitative data reported on the Bloomberg Professional service database that includes mutual fund and benchmark indices, unit prices and fund asset sizes. The research sample comprises 69 South African equity mutual funds that existed for the three-year period under review. In this study, the relationship between AUM size and alpha is examined using the cross-sectional regression approach. No evidence of a linear relationship between AUM size and alpha was observed in the analysis based on the sample data. This finding is consistent with the semi-strong form efficient market hypothesis that securities reflect publicly available information. This finding implies that the exponential growth in AUM experienced in South Africa over the past two decades has neither enhanced nor come at the cost of returns. There does not seem to be a size effect that new investors and fund managers should be aware of.