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Macro-financial and geopolitical analysis of African equity capital markets

Odumodu, R. J. (2024). Macro-financial and geopolitical analysis of African equity capital markets. (Unpublished Doctoral thesis, City, University of London)


Over three chapters, this thesis pursues a research agenda that seeks to reconcile global risk appetite and perceptions rooted in narratives, with respect to Africa capital markets more broadly, and a global landscape defined by economic and financial shocks derived of, or determined by, geopolitical rivalries or alignments.

Our research effort seeks evidence of resilience, specifically in public equity capital markets in Africa, to identify patterns of its evolution that could be critical to future development. We collect an array of macroeconomic and financial market time series monthly data to build an eleven-country panel. We use standard econometric tools to perform rigorous empirical analysis on a combination of structural (push and pull) factors to consider key events and scenarios over a 13 year sample period. Our empirical analysis incorporates assessing individual capital markets, Africa as an economic bloc and various regional configurations.

We consider market resilience in the context of the transmission of policy, namely conventional and unconventional international monetary policy and global risk appetite through the Global Financial Cycle (GFCy). For external influence, beyond the US dollar dominant GFCy, we innovate to consider an initial 4 variations, kGFCy, represented by 3 other key centre economies (CHN, EU, UK). We also consider market resilience in the context of the transmission of shocks. For internal influence our innovation was initially constructing 3 geoeconomic zones from the country sample, representing regional ecosystem dynamics (ECO, ESA, RND).

In Decomposing the influence of the GFCy on local equity index performance in Africa we are able to reject the strongest form of our null hypothesis that African capital markets are sui generis. We develop a panel regression (pReg) model to estimate the influence of the k/GFCy, determine its effects over time, specifically before and after the GFC, using a set of grey rhino variables related to 2 of 3 policy objectives of the standard open economy trilemma, monetary independence (MI) and exchange stability (ERS). We find the GFCy (US) and one kGFCy variant (EU) are statistically significant influences and established a clearly different linear relationship pre- and post-GFC for the panel. We also find asymmetric integration to be a key driver of the heterogeneity evident in African equity capital markets. Structural break analysis highlights the importance of the exchange rate channel. Market size is a mediating factor in both cases.

In Analysing the geopolitical economy of public equity market behaviour in Africa we link to the previous chapter and continue to exploit the same data set with different tools to focus on the dynamics of responses. We use a series of panel vector autoregression (pVAR) GMM style estimations to analyse the interaction of a set of time invariant and time varying structural features of African economies and the behaviour of public equity markets. We construct 3 regional geoeconomic zones to help identify patterns. Through systematic tracking of forecasted response functions of local stock index variables to key economic bloc impulse variables, we find unexpected results about the relative influences of the US and China on African risk asset prices, but confirmatory results about the dominance of South Africa and the
importance of market size.

A proposal for capital market development in Africa: A geoeconomic solution to a macro-financial trilemma is structured as a white paper, given its applied nature. Our contribution in this chapter is a policy proposal to grow the supply and increase demand for African risk assets and on a regional basis. We present the proposal as the result of an integrated theory model we introduce, synthesising inferences from previous chapters, supplemented by nascent frameworks of geoeconomics, in the context of an evolving global macrofinancial system. We explore the implausibility of a de novo institution and the possibilities of monetary innovation before settling on the more probable but optimal solution, for which we offer a set of three recommendations we discuss and critique.

Publication Type: Thesis (Doctoral)
Subjects: D History General and Old World > DT Africa
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JZ International relations
Departments: Bayes Business School > Bayes Business School Doctoral Theses
Bayes Business School > Finance
Doctoral Theses
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