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An Empirical Test of the Validity of the Capital Asset Pricing Model on the Zimbabwe Stock Exchange
(2016) Nyangara, Melody; Nyangara, Davies; Ndlovu, Godfrey; Tyavambiza, Takawira
We test the empirical validity of the capital asset pricing model (CAPM) on the Zimbabwe Stock Exchange (ZSE) using cross-sectional stock returns on 31 stocks listed on the ZSE between March 2009 and February 2014. We conclude that, although the explanatory power of beta tends to fall rapidly for prediction horizons >6 months, beta significantly explains average monthly stock returns on the ZSE. Tests to validate the CAPM reject its validity for the ZSE however, primarily due to liquidity and skewness anomalies. We nevertheless fail to detect any size effects. There is encouraging evidence to suggest that the CAPM performs reasonably well in predicting average monthly returns over prediction horizons of between 3 and 6 months. We recommend that investors and analysts must exercise extreme caution in applying the CAPM. Furthermore, we discourage strategies based on the existence of a size premium on the ZSE. Instead, investors may consider neglected and negatively skewed stocks, albeit over appropriate horizons. Further research on other African Stock Markets will help verify if the optimal performance range of the CAPM is indeed 3-6 months. Development of standard continental proxy market portfolios will also improve the estimation of betas and enhance results of cross-country tests of the CAPM.
An Analysis of Determinants of Private Investment in Zimbabwe for the Period 2009- 2011
(Management Journals, 2013) Bayai, Innocent; Nyangara, Davis
The study set out to analyse the determinants of private investment post the introduction of the multi-currency system in Zimbabwe (2009-2011). This was prompted by the sluggish growth in private investment thereby crippling the economy’s growth on the large. Variables identified for the study include political risk, GDP, national savings, inflation, interest rates, public investment, trade terms and debt servicing. To enhance the analysis, the study assumed correlation analysis and multiple regression in an effort to examine how private investment related to each identified variable as well as the net effect of each variable on private investment. Though most results from correlation analysis are contrary to the research’s expectations, treating the variables for co and multicollinearity gave theory aligned results in regression analysis. The study, though not out rightly disregarding correlation results identifies political risk, interest rate, GDP, debt servicing and trade terms as key determinants of private investment over the study period. Key though is the realisation that, statistical significance of results is independent of the practicality of economic principles. In a bid to foster economic growth and increase private investment, the study recommends the promotion of political stability, the attraction of FDI, enabling a structured public-private dialogue and promoting Government investment in infrastructure development among others.
An Analysis of the Impact of Demutualization on Stock Market Liquidity
(OMICS Publishing Group, 2014) Nyangara, Davis; Mazviona, Batsirai Winmore
This paper analyzes the impact of demutualization on stock market liquidity using annual data available from 24 demutualized and 26 mutual stock exchanges for the period 1990 to 2011. We use a panel data regression model to examine the nature and significance of the relationship between stock exchange demutualization and two measures of stock market liquidity (turnover rate and the value of volume traded relative to Gross Domestic Product (GDP). The findings indicate that demutualized exchanges exhibit significantly greater liquidity compared to mutual exchanges after controlling for age, size, trading technology, and level of economic development. We also observe that, world-wide, the trend has been that automation of trading precedes demutualization, and that the time between automation and demutualization has a positive but statistically insignificant effect on liquidity. The study is a remarkable departure from the traditional focus on the exchange governance effects of demutualization. Furthermore, it contributes to the literature on financial market development by documenting some of the key drivers of stock market liquidity, which in itself is a widely acknowledged driver of economic growth.
Consumer payment choices, costs, and risks: Evidence from Zimbabwe.
(2021) Simatele, M.; Mbedzi, E.
Very little is known about payment choices in the African context and in developing countries in general. Their unique infrastructures and economic nuances suggest that both the availability of instruments and supporting structures in the payment system are different from the general perception. This exploratory study investigates the payment choices in Zimbabwe, a country that claims the existence of a near cashless society. Through a descriptive and logit analysis based on survey data, we find that a strong preference for cash, coupled with cash shortages and inadequate infrastructure for electronic payments, has resulted in a multitiered pricing system, with significant premiums for digital payments. This perverse effect counters the heavily lauded benefits of mobile payments in developing countries. We argue that the demand-side bias in government policies will not effectively counter persistent currency failures and the resultant inflation, both of which havea strong influence on payment choices. We recommend that the government should consider polices that will reduce merchant adoption costs to encourage widespread use of digital payment instruments, such as debit cards. Subjects: Microeconomics; Development Economics; Finance
Determinants of poverty alleviation: a relative panel data analysis between positive and negative poverty reduction economies
(2020) Madzimure, T.; Mbedzi, E.
Determinants of poverty: a relative panel data analysis among African regional economic communities Tariro Madzimure and Edson Mbedzi International Journal of Education Economics and Development, 2021, vol. 12, issue 3, 294-309 The study compares the effects of macroeconomic factors on poverty among African regional economic communities using panel data from 1991 to 2018. A fixed effects model results indicate that from the whole sample, all variables affect poverty. However, individualistic regional economic community characteristics affect poverty differently. The results show that while all factors are important when countries are considered as a single total sample, the effects of particular factors vary from one regional economic community to another signifying the importance of regional economic community characteristics heterogeneity. This implies different policies should be implemented to reduce poverty based on each country's regional belonging. Conclusively, intervening policies implemented to reduce poverty do not yield the same results for countries in different regional economic communities, meaning this classification of countries by regions matters and thus the determinant macroeconomic factors suitable for each region need to be identified first before implementation.
Does Firm Size Affect Stock Returns? Evidence from the Zimbabwe Stock Exchange
(Academy of Business and Retail Management, 2014-11) Mazviona, Batsirai Winmore; Nyangara, Davis
The objective of the study is to investigate the relationship between firm size and stock returns for firms listed on the Zimbabwe Stock Exchange (ZSE) between June 2009 and July 2013. We adopt the regression model employed by Banz in 1981, with innovations. The regression is based on constructed portfolios, with market capitalization as the basis for portfolio construction. The portfolios comprise at most 5 stocks, and stocks are sorted in ascending order by market capitalization for selection into portfolios. The sample period spans from June 2009 to July 2013. We select the sample period beginning from 2009 because that is when the government of Zimbabwe demonetized the Zimbabwean dollar and adopted a basket of foreign currencies as legal tender. The data prior to 2009 is also distorted by hyperinflation and therefore is not reliable. The sample size covers 64 companies listed on the ZSE, of which 60 are industrial and 4 are mining companies. We find that the estimated coefficient for the firm size factor is not significant at the 5% level of significance. Therefore, firm size has a positive yet insignificant effect on stock returns for companies listed on the ZSE for the period June 2009 to July 2013. Contrary to the general empirical findings, larger firms on the ZSE tend to exhibit higher risk-adjusted returns than smaller firms.
An Empirical Analysis of the Impact of Demutualization on Stock Exchange Performance: Lessons for Zimbabwe
(OMICS Publishing Group, 2014) Nyangara, Davis; Musikavanhu, Tariro P.
This paper evaluates the impact of ownership structure on stock exchange performance using data from 50 stock exchanges for the period 1990 to 2011. The study adopts the Least Squares Dummy Variable (LSDV) regression model to examine the nature and significance of the relationship between stock exchange ownership structure and performance. The findings indicate that demutualized exchanges tend to perform better than mutual exchanges in terms of value of trades, market capitalization, and listings. Surprisingly, the study reveals that while combining demutualization and automation has a positive effect on market capitalization, automation is associated with reduced trading volumes and listings, ostensibly due to information efficiency effects of automation. While the general trend globally has been that automation precedes demutualization, Zimbabwe has plans to automate and demutualize its stock exchange around the same time. Given the clearly negative effect of automation on listings and volumes of trades, questions are raised regarding the efficacy of the model that Zimbabwe has adopted to boost domestic and foreign investor participation on its bourse. The study contributes immensely to the mounting evidence on demutualization, and the contemporary debate on the merits of demutualizing and automating the Zimbabwe Stock Exchange.
An empirical test of the validity of the capital asset pricing model on the Zimbabwe stock exchange.
(International Journal of Economics and Financial Issues., 2016) Nyangara, Melody R.; Nyangara, Davis; Ndlovu, Godfrey
We test the empirical validity of the capital asset pricing model (CAPM) on the Zimbabwe Stock Exchange (ZSE) using cross-sectional stock returns on 31 stocks listed on the ZSE between March 2009 and February 2014. We conclude that, although the explanatory power of beta tends to fall rapidly for prediction horizons >6 months, beta significantly explains average monthly stock returns on the ZSE. Tests to validate the CAPM reject its validity for the ZSE however, primarily due to liquidity and skewness anomalies. We nevertheless fail to detect any size effects. There is encouraging evidence to suggest that the CAPM performs reasonably well in predicting average monthly returns over prediction horizons of between 3 and 6 months. We recommend that investors and analysts must exercise extreme caution in applying the CAPM. Furthermore, we discourage strategies based on the existence of a size premium on the ZSE. Instead, investors may consider neglected and negatively skewed stocks, albeit over appropriate horizons. Further research on other African Stock Markets will help verify if the optimal performance range of the CAPM is indeed 3-6 months. Development of standard continental proxy market portfolios will also improve the estimation of betas and enhance results of cross-country tests of the CAPM.
Enhanced Index Tracking-an Extension of the Elton and Gruber (1976) Model
(SCIENCEDOMAIN international, 2014-05) Nyangara, Davis; Mazviona, Batsirai Winmore; Chowa, Taonaziso
Aims: The purpose of the study is to make a case for the development of middle-range models for use in developing markets by modifying the Elton and Gruber (1976) model to come up with semi-optimized index-tracking models with desirable tracking and excess return features. Study Design: Non-experimental empirical design. Place and Duration of Study: Zimbabwe, Department of Finance and Department of Insurance and Actuarial Science, covering the period between February 2009 and June 2010. Methodology: We use weekly data of 71 industrial closing prices from the Zimbabwe Stock Exchange (ZSE) for the period starting February 2009 to June 2010 to compare the return and tracking performance of the adapted models against simple capitalization- based tracking models. Results: We find that the semi-optimized models yield tracking and excess return results that are not statistically significantly different from simple capitalization-based models, at the 1% significance level, yet only utilizing about half as many stocks. Conclusion: The use of semi-optimized index-tracking models has potential to significantly reduce transaction costs while keeping tracking error within reasonable limits. However, their use results in inferior excess return performance on a risk-adjusted basis when compared to simple capitalization-based models. The use of the correlation coefficient in filtering stocks to include in a tracking portfolio yields superior tracking error results but inferior excess return results compared to the use of the ratio of beta to idiosyncratic risk. Portfolios with higher Active Share measures produce poorer tracking error and excess return results compared to lower Active Share portfolios. The use of passive portfolio management strategies on the ZSE is supported by our findings.
An Essay on the Ethical and Corporate Governance Issues in the 2003/4 Zimbabwean Banking Crisis
(OMICS Publishing Group, 2014) Nyangara, Davis; Nyangara, Melody R.; Mazviona, Batsirai Winmore
This paper reviews the ethical and corporate governance issues that characterized the 2003/4 Zimbabwean banking crisis. There are contrasting views on the legal and moral roots of the crisis, and consequently, different analysts have come up with different assessments of the morality and professional propriety of measures adopted by the Reserve Bank of Zimbabwe (RBZ), as bank regulator, in response to the developments in the banking industry. While there is an almost universal acknowledgement among analysts that corporate governance and ethical shortcomings contributed to the crisis, there appears to be no universal theory justifying the response of the regulator. A critical review of the events surrounding the crisis, with some benefit of hindsight, points to a form of collective responsibility among bankers, regulators, and politicians. This analysis draws on deontological and teleological ethical theories to assess the resolution of the myriad of ethical dilemmas that characterized the period before and during the crisis. The analysis also relies on legal and prudential guidelines on good governance in banking institutions, in particular the Banking Act (Chapter 24:20).
Family Business Research through the Eyes of a Lender: A Cognitive Framework for Interpreting Research Findings on Family Firms
(2014) Nyangara, D.
Whereas most extant studies comparing the performance of family firms relative to non-family firms document contradicting results, only a rather limited number of recent studies have attempted to use family firm governance structures to reconcile the conflicting empirical findings. This paper fills this gap by developing a cognitive framework that connects family firm governance, resource endowment, and resource adaptation with a firm’s static default orientation. The cognitive framework is then used to propose lending criteria to a typical lender, and also to generate theoretical propositions regarding access to and cost of debt finance for different types of family firms. Apart from providing insights to lenders on the theoretical default characteristics of different types of family firms (and not family firms in general), the paper also presents a theoretical benchmark for the analysis of empirical findings on debt financing in family firms as well as observed default behavior among family firms.
Family Business Research through the Eyes of a Lender: A Cognitive Framework for Interpreting Research Findings on Family Firms
(World Journal of Social Sciences, 2014-03) Nyangara, Davis
Whereas most extant studies comparing the performance of family firms relative to non-family firms document contradicting results, only a rather limited number of recent studies have attempted to use family firm governance structures to reconcile the conflicting empirical findings. This paper fills this gap by developing a cognitive framework that connects family firm governance, resource endowment, and resource adaptation with a firm’s static default orientation. The cognitive framework is then used to propose lending criteria to a typical lender, and also to generate theoretical propositions regarding access to and cost of debt finance for different types of family firms. Apart from providing insights to lenders on the theoretical default characteristics of different types of family firms (and not family firms in general), the paper also presents a theoretical benchmark for the analysis of empirical findings on debt financing in family firms as well as observed default behavior among family firms.
Financial and Monetary Reforms and the Finance-Growth Relationship in Zimbabwe
(EconJournals, 2015) Tyavambiza, Takawira; Nyangara, Davis
The study employs the Granger causality test in a multivariate cointegration and error correction environment to examine the relationship between financial development and economic growth in Zimbabwe. Using annual data from 1980 to 2012, and after controlling for financial and monetary reforms, the study demonstrates a unidirectional causal relationship that runs from financial development to economic growth. The evidence shows that financial development; banking sector development in particular, is not a passive response to economic growth. Instead, it is a critical tool for accelerating economic growth. Policy implications of this evidence are that the banking sector in Zimbabwe must be supported with policies that encourage credit expansion and innovation to support economic growth. The equities market, on the other hand, requires more investor-friendly innovations and policies, especially with regard to trading efficiency and foreign investor participation in the primary market. In combination, these policy interventions should be able to magnify the positive effect of financial development on economic growth.
Financial Sector Development and Economic Growth: Evidence from Zimbabwe
(EconJournals, 2013) Ndlovu, Godfrey
The relationship between financial system development and economic development has attracted interest of a number of researchers all over the world, however institutional differences and capital allocation variations between and within economies, make it very difficult to generalize findings and thus increasing the need for country-specific studies. This study examines the causal relation between financial system development and economic growth from a Zimbabwean perspective, based on two inter-related broad aims, the first being the established of cointegration relationship between the two and the ultimate direction of the causal relationship. Using multivariate Granger causality test the study finds existence of demand following financial development in Zimbabwe, there is unidirectional causality from economic growth to financial development. Financial system development is therefore an outcome of the pressure for institutional development in capital markets and introduction of modernized financial instruments. As such policy concern should focus on trade liberalization and other related activities in order to spur economic growth, since financial system development is a passive reaction to economic growth. Such policies might include investment promotion and removal of barriers for foreign investments.
Financing Structure and Financial Sustainability of Selected SADC Microfinance Institutions (MFIs)
(2018) Bayai, I.; Ikhide, S.
This study analyses selected Southern Africa Development Community (SADC) Microfinance Institutions (MFIs) in delineating how commercialized financing structure relates to financial sustainability given the need to control poverty through financially sustainable MFIs. The study takes from a recent SADC microfinance survey which recommended financial rescue packages for ailing MFIs to proffer financial sustainability. This survey failed to specify the form of financing which supports financial sustainability in addition to the inconclusive and little evidence in this regard. We note that though the financing structure and the level of financial sustainability varies with countries, MFIs are generally financially unsustainable. A robust probit model framework affirms the role of financing structure on financial sustainability. Portfolio at risk, cost efficiency and costs linked to deposit attraction explain financial sustainability. We suggest the availing of more donations, upgrading risk management and improving cost efficiency to induce financial sustainability.
Firm Financial Perfomance Prior to Delisting: A Case Study of Intefresh Holdings Limited and the Zimbabwe Stock Exchange
(International Journal of Development Research, 2014-03) Muyeche, Douglas; Murape, Chricencia; Mungwini, Norbert
This paper seeks to establish whether Interfresh Holding’s financials were relevant in signalling there being a probability of delisting prior to management’s decision at an Extra-Ordinary general meeting. The study makes use of the published financials from as far back as 2009 up to those published a year before the decision to delist. Key financial and performance indicators are analysed and the trend noted and contrasted to other findings in different economic set-ups. In the last two years of operation as a listed entity, Altman’s z-score is applied to the company’s financials to establish whether there were any signs of distress. This is done to establish the relevance of such findings in an environment such as Zimbabwe. Key findings suggest an increase in interest bearing debt to total shareholders funds from 21% in 2009 to 179% in 2012. Working capital indicators were signalling some stress as pronounced by the current and acid test ratios. The ability of the entity to raise equity capital through a rights issue was bound to be difficult given that the auditors in 2012 cast a slight doubt on the going concern probability. The capital structure was found to be past the optimal levels in 2012 which hence had an implication on the ability to raise equity through a rights offer.
Funding Civil Justice in the Age of Fiscal Austerity: The Case of Zimbabwe
(2014) Nyangara, Davis
This paper tackles the issue of civil court funding in Zimbabwe against a background of fiscal austerity. Having gone through a decade of economic meltdown and political transformation from 1999 to 2009, Zimbabwe has to fund a wide range of public services from a paltry public budget of less than 5 billion United States dollars each year. Fiscal constraints have meant that very few resources are available to fund critical public services such as defense and justice among others. This paper examines the pricing of civil court services in Zimbabwe with a view to determining the scope for improved user funding of the courts. Based on a survey of court accountants and magistrates, the study reveals that key court employees in Zimbabwe acknowledge, in principle, the need for enhanced measures to improve user funding of civil justice in Zimbabwe. It emerges that cost recovery rates of between 55% and 60% are attainable for Zimbabwe’s civil courts, without significantly compromising access to justice. The inclusion of key court employees in the survey is a significant departure from previous studies, which have focused unduly on the views of court users. The study recommends realignment of incentives within the civil justice system in order to improve the sharing of litigation risk between lawyers and consumers of civil justice services, and open more space for user funding of courts.
Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe
(2018) Sixpence, A.; Adeyeye, O.P.
This paper investigates the impact of negative earnings persistence on the value relevance of earnings before interest and taxes (EBIT) and book values for 27 non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Negative earnings are perceived to be persistent where firms reported losses in at least 25% of the time over the eight-year study period. Two-step System GMM was used, with the average debt-equity ratio and net asset value per share being additional regression instruments. The regressions were primarily done on the ZSE full sample, and then on a profit-reporting firms’ sample. The loss-reporting firms’ sample was too small for meaningful regressions. It was found that when loss-firms were removed from the sample, value relevance of EBIT and book value declined. This means that investors are very meticulous with firms they perceive to be persistent loss-makers but tend to be complacent with profit-firms.
The SAFEX-JIBAR Market Models
(Scientific Research, 2012-11) Gumbo, Victor
It is possible to construct an arbitrage-free interest rate model in which the LIBOR rates follow a log-normal process leading to Black-type pricing formulae for caps and floors. The key to their approach is to start directly with modeling observed market rates, LIBOR rates in this case, instead of instantaneous spot rates or forward rates. This model is known as the LIBOR Market Model. We formulate the SAFEX-JIBAR market model based on the fact that the forward JIBAR rates follow a log-normal process. Formulae of the Black-type are deduced.
A Test of the Weak Form Efficiency of the Zimbabwe Stock Exchange After Currency Reform
(2013-06) Mazviona, Batsirai Winmore; Nyangara, Davis
The Zimbabwean dollar lost its value and purpose as a medium of exchange as a result of the hyper inflation which had its greatest impact on the Zimbabwean economy between 2007 and 2008. The introduction of the multi-currency system, which entails the use of various foreign currencies to transact, resulted in the Zimbabwe Stock Exchange (ZSE) adopting the United States dollar (USD) as its main currency. The researchers investigated the weak form efficiency of the ZSE after introduction of the multi-currency system by testing if it is possible to create an excess return by the use of technical trading rules. According to the efficient market hypothesis (EMH) and the random walk theory, in an efficient market it is not possible to predict the future stock prices by analysing historical stock prices. The profitability of technical analysis and technical trading rules has been researched and debated extensively, but researchers are yet to reach a consensus. This article focuses exclusively on the ZSE. The purpose of this article is to test whether the ZSE exhibits weak form market efficiency. The data used to carry out the empirical study was obtained from the ZSE for the period 19 February 2009 to 28 June 2012. The efficiency of the ZSE is tested using the daily closing prices and indices over the aforementioned period. The data was then subjected to a number of tests namely auto-correlation, the runs test and the Q-statistic test. The results of the study provide evidence that the ZSE is not weak form efficient. This article adds to the existing body of knowledge and offers for the first time an investigation of the weak form efficiency on the ZSE following currency reform.

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