Renee van Eyden - Profile on Academia.edu (original) (raw)

Papers by Renee van Eyden

Mathematics

Studying the question of whether macroeconomic predictors play a role in forecasting stock-market... more Studying the question of whether macroeconomic predictors play a role in forecasting stock-market volatility has a long and significant tradition in the empirical finance literature. We went beyond the earlier literature in that we studied whether the presidential approval rating can be used as a single-variable substitute in place of standard macroeconomic predictors when forecasting stock-market volatility in the United States (US). Political-economy considerations imply that the presidential approval rating should reflect fluctuations in macroeconomic predictors and, hence, may absorb or even improve on the predictive value for stock-market volatility of the latter. We studied whether the presidential approval rating has predictive value out-of-sample for realized stock-market volatility and, if so, which types of investors benefit from using it.

Impact of Oil Price Volatility on State-Level Consumption of the United States: The Role of Oil Dependence

RePEc: Research Papers in Economics, 2019

In this study, we analyse the impact of oil price uncertainty (as measured by an observable measu... more In this study, we analyse the impact of oil price uncertainty (as measured by an observable measure of oil price volatility, i.e. realised volatility) on United States state-level real consumption by accounting for oil dependency. We account for both the long- and short-run dynamics of the state-level consumption function using the panel Pooled Mean Group estimator. The analysis makes use of a novel dataset including housing and stock market wealth at the state level covering the quarterly period 1975:Q1 to 2012:Q2, supplemented with an annual dataset up to 2018. We simultaneously estimate the long-run relationship and short-run impact of oil price volatility at the state-level conditional upon their oil dependency. We find that the negative impact of volatility is most severe for the states of Wyoming, Alaska and New Mexico, while the negative impact is least for Illinois, New York and Nebraska. States with lower per capita income and consumption expenditure, notably in the Southeast and Southwest region of the country are exposed to be more vulnerable to the negative impact of adverse developments and uncertainty in the oil market, as they may have less access to a stock of wealth and other means as recourse. Heterogenous responses, therefore, necessitate additional state-level response besides the national response to oil uncertainty.

Climate risks and U.S. stock‐market tail risks: A forecasting experiment using over a century of data

International Review of Finance

Climate Risks and U.S. Stock-Market Tail Risks: A Forecasting Experiment Using over a Century of Data

Research Papers in Economics, Sep 1, 2021

This paper investigates the role of human empowerment and state capacity in forging political ins... more This paper investigates the role of human empowerment and state capacity in forging political institutions that are progressive and democratic. The education-democracy nexus has been thoroughly examined in the literature, but the empirical literature on the effect of the right kind and quality of education remains sparse. Generalised method of moments and probit methodology are employed for a sample of 105 countries over the period 1981 to 2015 to address these shortcomings. The results indicate that education is a necessary condition for democracy, but by itself, not sufficient. The analyses show that education of the right kind and quality, one that fosters emancipative mindsets and critical-liberal orientations, is a strong driver of progressive or democratic political institutions in a society. Trade openness (as a sub-index of formal rules), that signals societies’ openness to outside influence, also seems to matter, but when a more encompassing measure of regime-independent fo...

Contagion Across Financial Markets During COVID-19: A Look at Volatility Spillovers Between the Stock and Foreign Exchange Markets in South Africa

Annals of Financial Economics, 2022

The onset of the novel coronavirus pandemic (COVID-19) and previous financial and currency crises... more The onset of the novel coronavirus pandemic (COVID-19) and previous financial and currency crises have heightened interest in understanding the nature of the interaction of stock market and exchange rate volatility. This paper aims to investigate the interdependence and volatility transmissions between the stock and foreign exchange markets for South Africa over the period of 1979:01–2021:08, including the effect the COVID-19 pandemic has had on the interdependence and volatility transmissions. Through the use of bivariate Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) modeling, the empirical outcomes from this study provide strong evidence in support of the “stock-orientated” approach, where significant price and volatility spillovers propagate from the stock market into the foreign exchange market, whilst evidence of the “flow-orientated” approach is seen in the second moment and significant shock and asymmetric spillovers from the exchange to stock...

Theoretical and Applied Climatology, 2022

The purpose of this paper is to determine the impact of rare disaster risks, captured by the El N... more The purpose of this paper is to determine the impact of rare disaster risks, captured by the El Niño-Southern Oscillation (ENSO) cycle, on the volatility of Treasury securities of the United States (US) involving 1-to 360-month maturities. We use a random coefficients panel-databased heterogeneous autoregressive-realized variance (HAR-RV) model over the monthly period of 1961:06 to 2019:12, with the RV derived from the sum of squared daily changes in yield over a month. Our results show a positive and statistically significant (at the 1% level) impact of the ENSO cycle on RV, with the results being robust to alternative metrics of the ENSO, consideration of lagged impact, and decomposition of the ENSO cycle into El Niño and La Niña phases, with the former having a relatively stronger effect. With our panel estimation method using heterogeneous slope coefficients, we find that the effect on the entire term structure is positive, with higher impacts observed at the two-ends and the middle-part of the term-structure. Our results have important implications for investors in US Treasury securities.

Testing for fractional integration in SADC real exchange rates

We investigate the monetary transmission mechanism in South Africa, a small open country, in term... more We investigate the monetary transmission mechanism in South Africa, a small open country, in terms of both the “timing and the effect” of monetary policy. We use a modelling approach that has not been utilised yet to do this. The trade shares of South Africa’s trading partners changed considerably between 1980 and 2009. The country’s trade with China increased from none before 1993 to a three-year moving average of 14% in 2009. China thereby became the largest trading partner of South Africa in 2009, while trade with Germany, Japan, the UK and the USA decreased in the last few decades. We thus use time-varying trade weights to create the foreign variables. This is novel, since previous models either used data from the United States as a proxy for the rest of the world or created the foreign variables by weighing the data with the latest fixed trade shares of the main trading partners. The next step is to incorporate this model in a global vector autoregressive (GVAR) model for South...

Oil Price Volatility and Economic Growth: Evidence from Advanced OECD Countries using over One Century of Data

In this paper we make use of a number of different panel data estimators, including fixed effects... more In this paper we make use of a number of different panel data estimators, including fixed effects, bias-corrected least squares dummy variables (LSDVC), generalised methods of moments (GMM), feasible generalised least squares (FGLS), and random coefficients (RC) to analyse the impact of real oil price volatility on the growth in real GDP per capita for 17 member countries of the Organisation for Economic Co-operation and Development (OECD), over a 144-year time period from 1870 to 2013. Our main findings can be summarised as follows: overall, oil price volatility has a negative and statistically significant impact on economic growth of OECD countries in our sample. In addition, when allowing for slope heterogeneity, oil producing countries are significantly negatively impacted by oil price uncertainty, most notably Norway and Canada.

Effectiveness of Monetary Policy in the Euro Area: The Role of US Economic Policy Uncertainty

This paper examines the role of U.S. economic policy uncertainty on the effectiveness of monetary... more This paper examines the role of U.S. economic policy uncertainty on the effectiveness of monetary policy in the Euro area. Using a structural Interacted Vector Autoregressive (IVAR) model conditional on high and low levels of U.S. economic policy uncertainty, we find that uncertainty regarding policy changes in the U.S. dampens the effect of monetary policy shocks in the Euro area, with both price and output reacting more significantly to monetary policy shocks when the level of U.S. policy uncertainty is low. We argue that the U.S. government’s actions regarding policy changes in the U.S. is a source of uncertainty for Euro area investors and high levels of policy uncertainty that spill over from the U.S. drive Euro area investors to adopt a wait-and-see approach, leading to a relatively weaker (and sometimes insignificant) response of price and output to monetary tightening in the Euro area. The findings underscore the importance of market integration and coordination of economic ...

This paper utilises various recently developed econometric methods to obtain better approximation... more This paper utilises various recently developed econometric methods to obtain better approximations to the half-life for real exchange rates of ten South African Development Community (SADC) countries and to generate confidence intervals for half-life deviations from the purchasing power parity (PPP). The robust methods of Stock (1991), Elliott and Stock (2001), and Hansen (1999) imply that point estimates of less than 36 months exist, making them compatible with PPP. However, the results of ADF and ADF-GLS tests render the SADC real exchange rates as nonstationary processes, a result that is patently at odds with mean-reversion, implying at the same time the possibility of infinite half-lives. Therefore the empirical results appearing in this paper do not convincingly resolve the half-life version of the PPP puzzle and leaves room for future research in the directions of non-parametric methods and median unbiased confidence intervals.

The IUP Journal of Monetary Economics, 2008

The market microstructure approach has been applied to the three major puzzles of exchange rate e... more The market microstructure approach has been applied to the three major puzzles of exchange rate economics: The forward bias puzzle, the excess volatility puzzle, and the exchange rate determination puzzle. It claims that the imbalances between “buyer-initiated and seller-initiated trades” in foreign-exchange markets are indicative of the transmission link between exchange rates and fundamental determinants of exchange rates. In the context of the exchange rate determination puzzle, this paper discusses the market microstructure approach from the viewpoint of hybrid models that integrate order flow, fundamentals and non-fundamental variables to establish the determinants of the rand-dollar exchange rate. Among the non-fundamentals considered is the Economist commodity price index, the relevance of which is based on Chen and Rogoff (2002). Another non-fundamental variable is a proxy for country risk – the differential between the Emerging Market Bond Index Global and the South African...

African Finance Journal, 2010

Credit portfolio managers must be able to identify the interdependencies between exposures in a p... more Credit portfolio managers must be able to identify the interdependencies between exposures in a portfolio and be able to relate credit risk to tangible portfolio effects on which action could be taken. To these ends, this paper draws on the macroeconometric vector error correcting model (VECM) developed by De Wet et al. (2009) and applies the proposed methodology of Pesaran, Schuermann, Treutler and Weiner (2006) to a dummy credit portfolio within the South African economy. It illustrates the ability to link macroeconomic factors to a credit portfolio, that scenario analysis can be performed and that portfolio management and value enhancing applications can be pursued.

In this paper, we analyze the predictive role of firm-level business expectations and uncertainti... more In this paper, we analyze the predictive role of firm-level business expectations and uncertainties derived from a panel survey of U.S. 1,750 business executives from 50 states for the realized variance (sum of daily squared log-returns over a month) of the S&P500 over the monthly period of September, 2016 to July, 2021. Unlike standard models, our predictive framework adopts a timevarying approach due to the existence of multiple structural breaks in the relationship between volatility and the predictors in the model, which in turn leads to statistically insignificant causal effects in a constant parameter setup. Our time-varying results reveal the predictive power of firm-level business uncertainty is concentrated during the early part of the sample associated with the U.S.-China trade war, and towards the end of our data coverage in the wake of the outbreak of the COVID-19 pandemic. Since, in-sample predictability does not guarantee the same over an out-sample, we also conducted a full-fledged forecasting exercise to show that subjective expectations and uncertainties associated with sales growth rates and employment produces statistically significant predictability gains over January, 2020 to July, 2021, given an in-sample of September, 2016 to December, 2019. Our results suggest that subjective measures of business uncertainty at the firm-level indeed captures predictive information regarding aggregate stock market uncertainty which has important implications for investors and economic projections at the policy level.

Half-Life Deviations from PPP in the South African Development Community (SADC)

This study examines the importance of technological progress to aggregate economic growth in Sout... more This study examines the importance of technological progress to aggregate economic growth in South Africa. Quantifying the contribution of technological progress to economic growth has become imperative, considering the outcome of a simple growth accounting exercise. The findings of this exercise indicate that the contribution of technological growth to aggregate economic growth increased substantially, over the past three decades. Economic growth is modelled through a Cobb-Douglas production function, employing Kalman filter to determine the evolution of the Solow residual over time. The Solow residual represents both technological progress and structural change. According to the Kalman filter results, technological progress is characterised by an upward trend since the 1980s with a steeper slope during the 2000s. Our results show that technological progress has become a factor as important to production as capital stock and labour; fact that policy makers should take into consider...

Driven by intense competition for market share banks across the globe have increasingly allowed c... more Driven by intense competition for market share banks across the globe have increasingly allowed credit portfolios to become less diversified (across all dimensions country, industry, sector and size) and were willing to accept lesser quality assets on their books. As a result, even well capitalised banks could come under severe solvency pressure when global economic conditions turn. The banking industry have realised the need for more sophisticated loan origination, credit and capital management practices. To this end, the reforms introduced by the Bank of International Settlement through the New Basel Accord (Basel II) aim to include exposure specific credit risk characteristics within the regulatory capital requirement framework. The new regulatory capital framework still does not allow diversification and concentration risk to be fully recognised within the credit portfolio because it does not account for systematic and idiosyncratic risk in a multifactor framework. The core prin...

The study evaluates the forecasting ability of models of South Africa’s real fixed business nonre... more The study evaluates the forecasting ability of models of South Africa’s real fixed business nonresidential investment spending growth over the recent 2003:1–2011:4 out-of-sample period. The forecasting models are based on the Accelerator, Neoclassical, Cash-Flow, Average Q, Stock Price and Excess Stock Return Predictors models of investment spending. The Average Q, Stock Price and Return Predictors models appear more important in forecasting the behaviour of South Africa’s business investment spending growth over the recent 2003:1–2011:4 out-of-sample period. The results from this study point to the important role of the stock market in promoting investment growth in South Africa, underscoring the need for stock market development. Also, stock market variables seem to play an increasingly important role in predicting investment spending behaviour in recent times.

This paper analyses the empirical relationship between inflation and growth using a panel data es... more This paper analyses the empirical relationship between inflation and growth using a panel data estimation technique, Multiple Regime Panel Smooth Transition Regression (MR-PSTR), which takes into account the nonlinearities in the data. By using a panel data set for 10 African countries that permit us to control for unobserved heterogeneity at both country and time levels, we find that a statistically significant negative relationship exists between inflation and growth for the inflation rates above the critical threshold levels of 9% and 30% which are endogenously determined. Furthermore, we remedy the cross section dependence with the Common Correlated Effects (CCE) estimator. JEL Classification: C33, E31, O40