School of Economics

Bozdogan [8] [6] [7] developed a new model selection criteria called information measure of complexity (ICOMP) for model selection. In contrast to Akaike's [1] information criterion (AIC) and other AIC type criteria that are traditionally used for regression analysis, ICOMP takes into account the interdependencies of the parameter estimates.

This paper is divided into two parts. In the first part we compare and contrast ICOMP with AIC and other AIC type selection criterion for model selection in regression analysis involving stock market securities.

While in the second part we apply the definition of information theoretic measure of complexity to portfolio analysis. We compare the complexity of a portfolio of securities with its' measure of diversification (PDI) and examine the similarities and differences between the two quantities as it affects portfolio management.

We describe the income gap between self-employed individuals and wage earners. Since there is reasonable overlap between self-employment activities and the informal economy in developing countries we hypothesize that heterogeneity in the informal sector will have implications for the income gap between self-employed individuals and wage earners.  The mean income gap will not portray the true picture as it mask the heterogeneity in the income gap along the income distribution i.e. one should expect income gap to between the two categories of workers to vary over the income distribution. We therefore estimate the conditional and the unconditional quantile effect of being self-employed over the income distribution and further decompose the income gap at each quantile into its explained (endowment) and unexplained (returns) components. Our hypothesis is that heterogeneity in the wage gap should lead to differential effect of returns and characteristics at different portions of the income distribution. 
Our result show self-employed individuals enjoying a positive premium at the upper end of the income distribution while the result is mixed at the lower end. Our quantile effect result suggests that the positive premium observed at the mean for self-employed individuals after controlling for human capital characteristics can be attributed to superstar entrepreneurs (Rosen, 1981).  We also show by decomposing the earnings gap at each quantile that this heterogeneity implies that of the portion of the earning differential explained by human capital characteristics and returns to these characteristics differs at different parts of the earnings distribution. Furthermore, the result of our quantile decomposition shows that characteristics explain a higher percentage of the earnings gap at the lower quantiles while its effect dwindles at the upper end.  This result agrees with the finding of Tannuri-Pianto & Donald, (2002) that self-employment has more benefits only at the upper end of the earnings distribution.

This paper provides a plausible explanation for why the optimum number of stocks in a portfolio is elusive, and suggests a way to determine this optimal number. Diversification is dependent on the number of stocks in a portfolio and the correlation structure. Adding stocks to a portfolio increases the level of diversification, and consequently leads to risk reduction. However the risk reduction effect dissipates after a certain number of stocks, beyond which additional stocks do not contribute to risk reduction. To explain this phenomenon, this paper investigates the relationship between portfolio diversification and concentration using a genetic algorithm. To quantify diversification, we use the Portfolio Diversification Index (PDI). In the case of concentration, we introduce a new quantification method. Concentration is quantified as complexity of the correlation matrix 1 . The proposed method quantifies the level of dependency (or redundancy) between stocks in a portfolio. By contrasting the two methods it is shown that the optimal number of stocks that optimizes diversification depends on both number of stocks and average correlation. Our result shows that, for a given universe, there is a set of Pareto optimal portfolios each containing a different number of stocks that simultaneously maximizes diversification and minimizes concentration. The preferred portfolio among the Pareto set will depend on the preference of the investor. Our result also suggests that an ideal condition for the optimal number of stocks is when the variance reduction as a result of adding a stock is off-set by the the variance contribution of complexity.

This paper provides a plausible explanation for why the optimum number of stocks in a portfolio is elusive, and suggests a way to determine this optimal number. Diversification is dependent on the number of stocks in a portfolio and the correlation structure. Adding stocks to a portfolio increases the level of diversification, and consequently leads to risk reduction. However the risk reduction effect dissipates after a certain number of stocks, beyond which additional stocks do not contribute to risk reduction. To explain this phenomenon, this paper investigates the relationship between portfolio diversification and concentration using a genetic algorithm. To quantify diversification, we use the Portfolio Diversification Index (PDI). In the case of concentration, we introduce a new quantification method. Concentration is quantified as complexity of the correlation matrix 1 . The proposed method quantifies the level of dependency (or redundancy) between stocks in a portfolio. By contrasting the two methods it is shown that the optimal number of stocks that optimizes diversification depends on both number of stocks and average correlation. Our result shows that, for a given universe, there is a set of Pareto optimal portfolios each containing a different number of stocks that simultaneously maximizes diversification and minimizes concentration. The preferred portfolio among the Pareto set will depend on the preference of the investor. Our result also suggests that an ideal condition for the optimal number of stocks is when the variance reduction as a result of adding a stock is off-set by the the variance contribution of complexity.

In applied studies, the influence of balance measures on the performance of matching estimators is often taken for granted. This paper considers the performance of different balance measures that have been used in the literature when balance is being optimized. We also propose the use of the entropy measure in assessing balance. To examine the effect of balance measures, we conduct a series of simulation studies where we optimize balance using genetic algorithm (GenMatch). We found that balance measures do influence matching estimates under the GenMatch algorithm. The bias and root-mean-square error (RMSE) of the estimated treatment effect vary with the choice of balance measure. While the performance of different balance measures vary across simulation designs, some pattern did emerge. In an artificial data generating process (DGP) with one covariate, the proposed entropy balance measure has the lowest RMSE. However, in more realistic DGPs with many covariates, the standardized difference in means appear to be a very robust measure of balance, this measure either dominate other measures or come in as a close second in terms of bias or/and RMSE. The implication of these results is that sensitivity of matching estimates to the choice of balance measure should be given greater attention in empirical studies.

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BackgroundThe coronavirus disease 2019 (COVID-19) has resulted in an enormous dislocation of society especially in South Africa. The South African government has imposed a number of measures aimed at controlling the pandemic, chief being a nationwide lockdown. This has resulted in income loss for individuals and firms, with vulnerable populations (low earners, those in informal and precarious employment, etc.) more likely to be adversely affected through job losses and the resulting income loss. Income loss will likely result in reduced ability to access healthcare and a nutritious diet, thus adversely affecting health outcomes. Given the foregoing, we hypothesize that the economic dislocation caused by the coronavirus will disproportionately affect the health of the poor.MethodsUsing the fifth wave of the National Income Dynamics Study (NIDS) dataset conducted in 2017 and the first wave of the NIDS-Coronavirus Rapid Mobile Survey (NIDS-CRAM) dataset conducted in May/June 2020, this...

BackgroundThe coronavirus disease 2019 (COVID-19) has resulted in an enormous dislocation of society especially in South Africa. The South African government has imposed a number of measures aimed at controlling the pandemic, chief being a nationwide lockdown. This has resulted in income loss for individuals and firms, with vulnerable populations (low earners, those in informal and precarious employment, etc.) more likely to be adversely affected through job losses and the resulting income loss. Income loss will likely result in reduced ability to access healthcare and a nutritious diet, thus adversely affecting health outcomes. Given the foregoing, we hypothesize that the economic dislocation caused by the coronavirus will disproportionately affect the health of the poor.MethodsUsing the fifth wave of the National Income Dynamics Study (NIDS) dataset conducted in 2017 and the first wave of the NIDS-Coronavirus Rapid Mobile Survey (NIDS-CRAM) dataset conducted in May/June 2020, this...

Background: Widespread vaccine acceptance is key to achieving herd immunity through vaccination against COVID19, especially because the available vaccines do not have 100% efficacy. The continued infection amongst the unvaccinated can lead to heightened risk of further virus mutation, exposing even those vaccinated to new virus strains. Therefore, there are social benefits in minimising vaccine hesitancy. The objective of this study is to assess the level of COVID19 vaccine hesitancy in South Africa, identify the socio-economic patterns in vaccine hesitancy and to develop a targeted health communication strategy based on the HBM and EPPM models in order to improve vaccine acceptance. Methods: The study uses the nationally representative National Income Dynamics Study - Coronavirus Rapid Mobile Survey (NIDS-CRAM) survey. The analysis combines univariate and bivariate statistics together with multivariate regression models like binomial/ordinal logit and seemingly unrelated regression...

The study analysed the behaviour of potential output and output gap for the Namibian economyusing annual data from 1980 to 2016. The study employed the Hodrick-Prescott (HP) filter method and theproduction function approaches to estimate potential output before calculating the output gap. The resultssuggest an annual average growth rate of 3.6 percent in potential output. However, it has been noted that theaverage annual growth rate in potential output has been shifting during the period under review. In fact, theresults suggest an annual average growth rate of 1.6 percent between 1980 and 1985 and an increase to 2.5percent per year for the period 1986 to 1990. Potential output estimates obtained using the productionfunction approach was smooth and stable throughout the study period. The potential output estimatesobtained through the two methods follow the same cyclical movements. The output gap estimates from thetwo techniques are not different from each other, and they appear to m...

This paper provides the first case study of Madagascar's response to the surge in foreign direct investment, which began in 2006 from two large mining projects. Several alternative monetary policy strategies were considered by the Malagasy authorities before employing the NFA (floor)-NDA (ceiling) approach, which was particularly well suited to balance the policy debate between controlling inflation and limiting exchange rate volatility and possible Dutch Disease. To implement those targets, the Malagasy monetary authorities shifted their traditional operational strategy for inflation and the exchange rate to a new policy of largescale sterilized intervention, which can be costly and raise interest rates. This case study may provide useful lessons for other low-income countries experiencing a surge in capital inflows, which has become increasingly common. This paper also examines the monetary transmission channels in Madagascar, which are characteristic of financially underdeveloped LIC economies, using a vector autoregression model. In this regard, the analysis found that the persistent excess liquidity of the banking sector had a very weak impact on economic targets, while the real interest rate was still important despite the limited amount of creditworthy borrowers. The analysis also found that the exchange rate was the most powerful mechanism of monetary transmission, but it also appeared to have an unexpected impact on real output. JEL Classification Numbers: E50, E51, E52

Discussions on introducing a deposit insurance scheme in South Africa have been floating around since 2000, without any official proposal being published or brought to Parliament. Globally, countries have increasingly adopted deposit insurance schemes with the understanding that they provide a public benefit of increasing confidence in the financial system. It is likely that, South African banks and government have resisted introduction of any scheme owing to costing issues. This paper estimates the cost of deposit insurance premiums for seven large South African banks for the first time, annually over the period 2000 to 2009 using an option-based model. The premiums exhibit high volatility over time and across banks but yield an average value that is internationally comparable. The authors also propose a risk-weighted, multi-tier premium structure to encourage appropriate pricing for different categories of risk.

Zimbabwe's 2008 hyperinflation is said to be the second highest in recorded history, and the reason for this policy failure needs to be understood. We explore possible several motivating factors behind the hyperinflation to understand why it happened and persisted for so long: (i) were government policy-makers ignorant of what they were doing; (ii) were government policy-makers trying to pursue an alternative strategy that went wrong; or (iii) was this a selfish action of policy-makers to allow the government to steal purchasing power from its private sector to reward certain favoured groups?

This paper addresses the issue of foreign exchange and capital controls in the context of the Southern African Development Community's goal of regional integration. It reviews the theory and evidence surrounding current and capital account liberalisation and argues that there is a lack of sufficiently refined de jure measures of capital account openness. A new index for measuring exchange control restrictiveness is created based on data from the International Monetary Fund's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) for the 15 SADC member states. It identifies substantial variation in the exchange control regulations across SADC countries that other existing, more indices fail to account for. The new index illustrates the considerable range of variation of exchange restrictiveness within SADC, as well as illustrating SADC's relative exchange restrictiveness compared with other countries, inside and outside of Africa. The new index also correlates with several measures of financial development, certain balance of payment items, and some measures of institutional development, which makes it a useful measure for SADC integration. The paper highlights the challenges for SADC monetary union in the sphere of exchange control.

Since its adoption of inflation targeting in 2000, the South African Reserve Bank has been accused of placing too great an emphasis on meeting its inflation target, and too small an emphasis on the high rate of unemployment in the country. On the other hand, the SARB has regularly missed its inflation target. We attempt to characterise the SARB's inflation targeting policy by analysing the Bank's interest rate setting behaviour before and after the adoption of inflation targeting, making use of Taylor-like rules to determine whether the SARB has emphasised inflation, the output gap, the real exchange rate, and asset price deviations in its monetary policy. We find that the SARB has significantly changed its behaviour with the adoption of inflation targeting, and show that the SARB runs a very flexible inflation targeting regime, with strong emphasis on the output gap. Indeed, we find evidence that the emphasis on inflation is too low, and potentially conducive to instability in the inflation process.

This paper focuses on the exchange rate transmission mechanism on inflation in South Africa in the post-2000 period.  It makes use of a recursive Vector Auto Regression (VAR) analysis to examine the pass-through of a change in the nominal exchange rate into domestic prices at each stage of the supply chain.
We find that the impulse responses of the nominal effective exchange rate leads to incomplete pass-through in the consumer price index, despite the larger pass-through into import prices. The exchange rate pass-through into consumer prices took place over eight quarters and is slightly lower than the average for a wide cross section of developing countries. This implies are that South Africa has is largely subject to competitive market pricing pressures and that monetary policy is cushioned by the low pass-through.