Browsing by Author "Ndlovu, Godfrey"

Now showing 1 - 7 of 7
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    Access to financial services: towards an understanding of the role and impact of financial exclusion in Sub-Saharan Africa
    (2018) Ndlovu, Godfrey; Toerien, Francois
    This thesis investigates the nature and extent of financial inclusion in Sub-Saharan Africa (SSA). It sequentially investigates this in three related studies. The first study examines the impact of access to finance on poverty, while the second investigates the extent to which cross-country structural and macroeconomic variations contribute to the observed variations in the levels of financial inclusion. Finally, because both financial inclusion and financial stability have been embraced as key policy initiatives over the past decade, the third study examines the nature of relationship between these two policy goals. The first paper uses household-level data from FinScope Surveys conducted in eight SSA countries between 2014 and 2015 to examine the impact of access to finance on household wealth. The few studies which have looked at this relationship in the past apply a linear estimation and thus inadvertently assume a uniform distribution across all levels of poverty. This study examines the heterogeneous impact of access to finance along the entire wealth distribution line using a Re-centered Influence Function (RIF) regression model. Further, to eliminate potential endogeneity, an instrumental variable quantile approach is implemented. Results from both estimations indicate that the unconditional effect of access to finance on poverty is non-monotonic. For most of the countries, the effect is highest at the median level, and very low at the bottom of the wealth index. This suggests that the extension of formal financial services disproportionately benefits the middle-class more than the very-poor and rich categories. The second paper uses macroeconomic data obtained from various World Bank databases over the period 2004-2014 to examine the extent to which the observed cross-country variations in financial inclusion are mirrored by country-specific structural and macroeconomic characteristics. To conceptualize, the study uses a benchmark model to establish the optimal level of financial inclusion given the country's fundamentals, and thus provide a meaningful cross-country comparison. The key structural and policy factors that determine the extent of the gap between the actual and predicted levels of access to finance are analysed via a fixed-effects model based on selected SSA countries. The results suggest the existence of a gap in access to finance within the region, compared to their potential. The gap is wider in banking systems with high concentration, low proportion of foreign banks and poor economic conditions. The final paper empirically examines the theoretical ambiguity between financial inclusion and stability. Theory provides conflicting views on whether the two are complimentary, or mutually exclusive. This paper examines this dynamic relationship via a system-GMM panel estimation model using a panel of 40 countries from the SSA region over the period 2004-2014, while controlling for both bank-specific and macroeconomic-wide factors. The results indicate that financial inclusion has a positive impact on bank stability, however, high market power within the banking systems and poor institutional framework tends to undermine the impact of financial inclusion on stability. Overall, the results provide evidence that the existing portfolio of formal financial services does not provide sustainable solutions to poverty eradication in terms of meeting the unique needs of the poorer members of the societies. This ultimately widens the gap between the poorest and the middle-class which further complicates the poverty structure. Therefore, there is a need for more investment on improving both the range of existing product offering and the financial capabilities of the poor, in order to improve their participation in financial markets. Demand-side policies should focus on increasing the bankable population by improving both awareness and usage of financial services and products. Supply-side policies should seek to eliminate market frictions by reducing concentration levels, improve competiveness through relaxation of entry restrictions, and opening the market to foreign institutes and non-banking players, and thus improve innovation in both new products offering and service delivery. This work further argues that financial inclusion is not only a developmental or welfare issue, but has positive ramifications on the banking system. Therefore, to be effective financial inclusion policies should adopt a market systems approach to development, which recognizes the importance of support structures and seek to benefit the poor by incentivizing service providers to improve product quality, variety and returns, and thus create value throughout the value chain. An effective approach should also embrace the role of macro-prudential regulatory and supervisory framework, as an indispensable tool, not only in governing the behavior of financial services providers, but because of its efficacy in building consumer confidence- a key element for increased access and usage of financial services.
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    Financial System Development and Economic Development in Malawi
    (2022) Chikafa, Scora; Ndlovu, Godfrey
    The financial system development and economic development nexus has been a debate for over a decade. Both theory and empirical evidence provides conflicting evidence on the direction and nature of the relationship between financial system development and economic development. Results vary widely depending on whether one uses bank-based or market-based indicators of financial development. This paper seeks to address by using the composite indicator of financial development, developed by the International Monetary Fund( IMF), which captures depth, access, and efficiency of the financial system. Using yearly data of the period range 1980 to 2019, and employing an Autoregressive Distributed Lag (ARDL) cointegration technique or bound cointegration technique, the paper finds a significant long run negative relationship between financial system development and economic development, which runs from financial system development to economic development of Malawi. Therefore, in order to improve economic development, Malawi has been advised to improve its financial system through easy credit access and boosting its forex market, improve infrastructure and implement financial literacy programs that would teach citizens how best they can utilize resources given to them.
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    An Investigation of the Beta Anomaly in Emerging Markets: A South African Case
    (2022-05-08) Segojane, Mabekebeke; Ndlovu, Godfrey
    High-risk stocks tend to provide lower returns than low-risk stocks on a risk-adjusted basis. These results (referred to as the low-beta anomaly) run counter to theoretical expectations. This paper examines the beta anomaly in one of the largest emerging markets in Africa, the Johannesburg Stock Exchange (JSE). It employs both time-series and cross-sectional econometric techniques to analyze the risk–return relationship implied by the CAPM, using data that span over 5 years and 220 companies. To check for robustness, the analysis period was extended to 10 years, and we also applied the Fama–French three-factor model. The findings suggest the existence of the beta anomaly and a negatively sloped SML, indicating that beta is not the only determinant of risk in the South African stock market. We also found positive beta–idiosyncratic volatility (IVOL) correlations. However, after controlling for IVOL and the adverse effects of COVID-19 for an extended study period, the beta anomaly disappeared.
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    Investors' Fear and Herding in the Johannesburg Stock Exchange (JSE)
    (2021) Patel, Zubair; Ndlovu, Godfrey
    Investors herd when they follow the investment decisions of other market participants and ignore their own private information, causing asset valuations to deviate from their fundamentals. This paper examines herding in the South African equity market by examining the impact of investor fear on herding behavior, using a survivorship-bias free daily dataset of companies within the JSE All Share Index over the period: 3 May 2002 to 31 December 2019. Using the cross-sectional absolute deviation (CSAD), this study examines market-wide herding behavior over multiple sub-periods, which consists of before, during and after the global financial crisis of 2007/08. The results suggest no evidence of herding towards the market return; on the contrary there is evidence of ‘anti-herding' behaviour during periods of market stress. However, there is significant herding towards the domestic fear index, which becomes more pronounced during the crisis period. Furthermore, investor herd behaviour appears to be sensitive to spill-over effects from the US investor fear-gauge, suggesting interconnectedness with global financial markets. Therefore, these findings suggest that fear plays an important role in enforcing irrational behaviour.
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    LSTM prediction capability on the South African JSE Top 40 of historical and live data
    (2025) Elhag, Mohsen; Ndlovu, Godfrey
    This study evaluates the efficacy of Long Short-Term Memory (LSTM) models in stock price forecasting using data from the South African FTSE/JSE Top 40 index, a domain yet to be extensively explored, particularly in real-time data analysis. Addressing the gap in existing research, this study assesses LSTM model predictive capability in the South African stock market on historical data and its adaptability to the dynamic, real-time stock market environment over the period from January 2001 to January 2024. Various LSTM models were trained with different configurations, and the results show that a single-layer LSTM model performs better than its multilayer counterpart in processing historical data, in terms of the mean absolute error (MAE), the root mean square error (RMSE), Mean Absolute Percentage Error (MAPE) and the R-squared. However, when applied to real-time data, the accuracy of the single-layer model diminishes, underscoring the challenges posed by the dynamic and unpredictable nature of live stock market conditions. The findings contribute to the field of financial forecasting by demonstrating the strengths and limitations of the LSTM model in the context of the South African stock market. While showcasing significant potential in historical data analysis, performing on par with previous studies, the study underscores the need for further development of the model for real-time forecasting. Future research directions include extending the testing period, integrating diverse data sets, and exploring a combination of LSTM with other forecasting methodologies.
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    Monetary policy and the stock market in South Africa: how do South African equity prices respond to expected and unexpected changes in the repo rate?
    (2019) Ramatlo, Tshegofatso; Ndlovu, Godfrey
    This analyses the impact of unexpected changes in monetary policy on the South African equity market over the period 2005 -2018. In an attempt to understand this relationship, two main views have emerged. The wealth effect suggests that monetary policy changes have an indirect effect on the stock market, via changes in the value of private portfolios. On the other hand, it has been argued that the stock market is an independent source of macroeconomic volatility to which policy makers may wish to consider. This paper applies an event study approach to examine the stock market reaction to monetary policy. Furthermore, to understand the economic sources underpinning that reaction a Vector autoregressive model is estimated. The results suggest that on average, a surprise rate hike of 100 basis points causes short term JSE All Share index total returns to decline by 2.71%. We also find that the stock market reacts positively (negatively) to expansionary (contractionary) unexpected monetary policy actions due to revised market expectations about future dividends, excess premiums and the discount rate. The findings are crucial for central bank policy makers and JSE stock market investors.
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    The dynamic effect of macroeconomic factors on housing prices: Evidence from South Africa
    (2021) Lekhuleni, Thami Innocent; Ndlovu, Godfrey
    This study examines the dynamic short- and long-run causal relationship between South African real house prices and macroeconomic fundamentals (gross domestic product, mortgage rate, exchange rate-USDZAR, affordability, household debt to disposable income, unemployment rate, share prices (JSE ALL share index), foreign direct investment, and producer price index) over the 2000Q1-2019Q4 period. The study utilizes a vector error correction model (VECM) to estimate the short- and long-run causal relationships while accounting for endogeneity and reverse causality. The results suggest the existence of a significant short-run and long-run association between house prices and macroeconomic fundamental variables under review. More specifically, the empirical results presented reveal that the gross domestic product and producer price index had the most impact on house prices compared to all other variables. Furthermore, any disequilibrium of house prices from its fundamental determinants in the short-run always self-corrects in the long run.