Analysis of the relationship between changes in macroeconomic variables and various sector price indices of JSE
- Mapanda, Tungamirai Chisvuvo
- Authors: Mapanda, Tungamirai Chisvuvo
- Date: 2020
- Subjects: Johannesburg Stock Exchange , Stock price indexes -- South Africa , Interest rates -- South Africa
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/147445 , vital:38637
- Description: Purpose- The purpose of this paper is to analyse the relationship between changes in domestic macroeconomic variables and various indices of the JSE during the full time period, June 1995 to December 2018 and the sub-periods, June 1995 to June 2007 and July 2007 to December 2018. Design/ methodology/ approach- The paper employs the Autoregressive Distributed Lag (ARDL) model approach to cointegration using monthly data from June 1995 to December 2018. Findings- In terms of the long run, the results show that the coincident indicator measure of domestic economic activity is positively and significantly related to the various JSE indices for all study periods. In terms of inflation, the results show no relationship between inflation rate and the various indices for both whole period and June 1995 to June 2007 sub period. However for the July 2007 to December 2018 sub period, JSE All Share Index and JSE Top 40 Index are negatively related. For the real effective exchange rate, only the Consumer Services Index is positively related to the exchange rate in terms of June 1995 to June 2007 sub period. However, JSE All Share Index and JSE Top 40 Index are negatively related to the exchange rate in all study periods. In terms of the short term interest rate, for the whole period, JSE All Share Index, JSE Top 40 Index, Health Care Index and Telecommunications Index are negatively related to interest rate. In terms of the June 1995 to June 2007 sub period, JSE All Share Index and Industrials Index are negatively related to the short term interest rate. For the July 2007 to December 2018 sub period, Telecommunications Index and Technology Index are negatively related. In terms of the short run, the coincident indicator is positively and significantly related to the various JSE indices for all study periods. Inflation is not significantly related to any index in the whole period. In terms of the June 1995 to June 2007 sub period, Industrials Index and Financials Index are positively related to inflation and in the July 2007 to December 2018 sub period, Consumer Goods Index, Health Index and Consumer Services Index are negatively related to the inflation rate. The real effective exchange rate is positively and significantly related to the various JSE indices in the different study periods. In terms of the short term interest rate, for the whole period and the June 1995 to June 2007 sub period only the Technology Index is not significantly and negatively related to the short term interest rate, but for the July 2007 to December 2018 sub period, Top 40 Index, Telecommunications Index and Technology Index are positively related to the interest rate. Only the Financial Index is negatively related to short term interest rates during this sub period. Research Limitations- Not a lot literature was found on the relationship between macroeconomic variables and the various sector indices of the JSE. Most previous work, in the South African context focused just on the JSE All Share Index. Practical Implications- The findings can help investors diversify their portfolios into indices that benefit from expected changes in macroeconomic variables, such as recessions, rising interest rates, rising inflation or a weakening exchange rate. Alternatively, they can hedge themselves against the negative implications of such macroeconomic changes on portfolio performance. In addition, the findings are important for the monetary authorities to better understand the implications of their policy changes on financial markets.
- Full Text:
- Authors: Mapanda, Tungamirai Chisvuvo
- Date: 2020
- Subjects: Johannesburg Stock Exchange , Stock price indexes -- South Africa , Interest rates -- South Africa
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/147445 , vital:38637
- Description: Purpose- The purpose of this paper is to analyse the relationship between changes in domestic macroeconomic variables and various indices of the JSE during the full time period, June 1995 to December 2018 and the sub-periods, June 1995 to June 2007 and July 2007 to December 2018. Design/ methodology/ approach- The paper employs the Autoregressive Distributed Lag (ARDL) model approach to cointegration using monthly data from June 1995 to December 2018. Findings- In terms of the long run, the results show that the coincident indicator measure of domestic economic activity is positively and significantly related to the various JSE indices for all study periods. In terms of inflation, the results show no relationship between inflation rate and the various indices for both whole period and June 1995 to June 2007 sub period. However for the July 2007 to December 2018 sub period, JSE All Share Index and JSE Top 40 Index are negatively related. For the real effective exchange rate, only the Consumer Services Index is positively related to the exchange rate in terms of June 1995 to June 2007 sub period. However, JSE All Share Index and JSE Top 40 Index are negatively related to the exchange rate in all study periods. In terms of the short term interest rate, for the whole period, JSE All Share Index, JSE Top 40 Index, Health Care Index and Telecommunications Index are negatively related to interest rate. In terms of the June 1995 to June 2007 sub period, JSE All Share Index and Industrials Index are negatively related to the short term interest rate. For the July 2007 to December 2018 sub period, Telecommunications Index and Technology Index are negatively related. In terms of the short run, the coincident indicator is positively and significantly related to the various JSE indices for all study periods. Inflation is not significantly related to any index in the whole period. In terms of the June 1995 to June 2007 sub period, Industrials Index and Financials Index are positively related to inflation and in the July 2007 to December 2018 sub period, Consumer Goods Index, Health Index and Consumer Services Index are negatively related to the inflation rate. The real effective exchange rate is positively and significantly related to the various JSE indices in the different study periods. In terms of the short term interest rate, for the whole period and the June 1995 to June 2007 sub period only the Technology Index is not significantly and negatively related to the short term interest rate, but for the July 2007 to December 2018 sub period, Top 40 Index, Telecommunications Index and Technology Index are positively related to the interest rate. Only the Financial Index is negatively related to short term interest rates during this sub period. Research Limitations- Not a lot literature was found on the relationship between macroeconomic variables and the various sector indices of the JSE. Most previous work, in the South African context focused just on the JSE All Share Index. Practical Implications- The findings can help investors diversify their portfolios into indices that benefit from expected changes in macroeconomic variables, such as recessions, rising interest rates, rising inflation or a weakening exchange rate. Alternatively, they can hedge themselves against the negative implications of such macroeconomic changes on portfolio performance. In addition, the findings are important for the monetary authorities to better understand the implications of their policy changes on financial markets.
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An analysis of the influence of domestic macroeconomic variables on the performance of the South African stock market sectoral indices
- Authors: Hancocks, Ryan Lee
- Date: 2011
- Subjects: Johannesburg Stock Exchange , Stock price indexes -- South Africa , Interest rates -- South Africa , Macroeconomics -- Econometric models
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: vital:954
- Description: An econometric study was undertaken to determine the extent to which selected macroeconomic variables influenced stock market prices on the All-Share, Financial, Mining and Retail Indices of the Johannesburg Stock Exchange in South Africa from 1996:7 to 2008:12. The Johansen cointegration method was used to determine whether cointegrating relationships existed between the macroeconomic variables and the stock market indices. A Vector Error Correction model was estimated and found significant results that money supply, inflation, long and short- run interest rates, and the exchange rate all had an influence on stock market prices. Further, the VECM results for each sector indicated that certain macroeconomic variables had differing influences on each sector of the stock market. Impulse Response tests indicated that the selected macroeconomic variables caused shock to the sectoral indices in the short-run but that the effect was lagged. The Variance Decomposition tests conducted supported earlier evidence that the macroeconomic variables had a strong level of sectoral index determinacy in the long run. The results found that the All-Share and Financial Indices were negatively influenced by inflation and short term interest rates in the long run, while the Financial Index also had a negative relationship with long-run interest rates. Money supply was found to have a positive effect on all the indices. A weakening of the exchange rate was found to have a positive influence on both the Retail and Mining Indices, while it negatively affected the All-Share and Financial Indices. The long-run interest rate had a positive influence on both the Retail and Mining Indices. Overall the study finds that macroeconomic variables are important determinants of stock market prices in South Africa and that it is important to examine each sector of the stock market separately to capture what are different effects. The limitations of the study are that a different measure for exchange rates from the nominal rand/dollar exchange rate used here may yield more decisive results and provide insight into the link between exchange rate behaviour and performance of especially the retail sector.
- Full Text:
- Authors: Hancocks, Ryan Lee
- Date: 2011
- Subjects: Johannesburg Stock Exchange , Stock price indexes -- South Africa , Interest rates -- South Africa , Macroeconomics -- Econometric models
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: vital:954
- Description: An econometric study was undertaken to determine the extent to which selected macroeconomic variables influenced stock market prices on the All-Share, Financial, Mining and Retail Indices of the Johannesburg Stock Exchange in South Africa from 1996:7 to 2008:12. The Johansen cointegration method was used to determine whether cointegrating relationships existed between the macroeconomic variables and the stock market indices. A Vector Error Correction model was estimated and found significant results that money supply, inflation, long and short- run interest rates, and the exchange rate all had an influence on stock market prices. Further, the VECM results for each sector indicated that certain macroeconomic variables had differing influences on each sector of the stock market. Impulse Response tests indicated that the selected macroeconomic variables caused shock to the sectoral indices in the short-run but that the effect was lagged. The Variance Decomposition tests conducted supported earlier evidence that the macroeconomic variables had a strong level of sectoral index determinacy in the long run. The results found that the All-Share and Financial Indices were negatively influenced by inflation and short term interest rates in the long run, while the Financial Index also had a negative relationship with long-run interest rates. Money supply was found to have a positive effect on all the indices. A weakening of the exchange rate was found to have a positive influence on both the Retail and Mining Indices, while it negatively affected the All-Share and Financial Indices. The long-run interest rate had a positive influence on both the Retail and Mining Indices. Overall the study finds that macroeconomic variables are important determinants of stock market prices in South Africa and that it is important to examine each sector of the stock market separately to capture what are different effects. The limitations of the study are that a different measure for exchange rates from the nominal rand/dollar exchange rate used here may yield more decisive results and provide insight into the link between exchange rate behaviour and performance of especially the retail sector.
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An analysis of the turn-of-the-year effect in South African equity returns
- Authors: Potgieter, Damien
- Date: 2007
- Subjects: Johannesburg Stock Exchange , FTSE International , Stock exchanges -- South Africa , Stock price indexes -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1063 , http://hdl.handle.net/10962/d1007605 , Johannesburg Stock Exchange , FTSE International , Stock exchanges -- South Africa , Stock price indexes -- South Africa
- Description: This study investigates FTSE/JSE All Share index monthly and daily equity returns for evidence of the January and TY effect. Four different measures of monthly return are analysed for the 1995-2006 period, whilst daily returns are analysed during the 1995-2005 period. In addition to this, analysis is conducted on monthly Fama-MacBeth risk premium estimates tor the FTSE/JSE All Share Index. Descriptive statistics are first analysed, followed by ANOV A or Kruskai-Wallis tests, the paired t-test and finally dummy variable regression analysis in investigating the seasonality of FTSE/JSE All Share Index returns and risk premia. Analysis on monthly returns reveals an absence of the January effect, however a positive slightly statistically significant December effect is found. Thus, investors earn abnormal returns on equity during the month of December. The results from the Fama-MacBeth risk premia estimates reveals highly statistically significant negative risk premia seasonal patterns during March, July and September. Thus, investors are in fact penalised for investing in equities during these months. In addition, the analysis reveals an absence of a December effect in risk premia, which contradicts the risk-return trade-off central to modem finance. The daily return analysis reveals a highly significant Turn-of-the-Year effect (TY), which suggests that investors earn abnormal returns on days at the turn of the year. Therefore, it is concluded that a December effect is apparent in South African equity monthly returns, whilst a March, July and September effect is apparent in South African equity risk premia contradicting the risk-return trade-off central to modem finance. In addition to this, a TY effect is present in South African equity daily returns.
- Full Text:
- Authors: Potgieter, Damien
- Date: 2007
- Subjects: Johannesburg Stock Exchange , FTSE International , Stock exchanges -- South Africa , Stock price indexes -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1063 , http://hdl.handle.net/10962/d1007605 , Johannesburg Stock Exchange , FTSE International , Stock exchanges -- South Africa , Stock price indexes -- South Africa
- Description: This study investigates FTSE/JSE All Share index monthly and daily equity returns for evidence of the January and TY effect. Four different measures of monthly return are analysed for the 1995-2006 period, whilst daily returns are analysed during the 1995-2005 period. In addition to this, analysis is conducted on monthly Fama-MacBeth risk premium estimates tor the FTSE/JSE All Share Index. Descriptive statistics are first analysed, followed by ANOV A or Kruskai-Wallis tests, the paired t-test and finally dummy variable regression analysis in investigating the seasonality of FTSE/JSE All Share Index returns and risk premia. Analysis on monthly returns reveals an absence of the January effect, however a positive slightly statistically significant December effect is found. Thus, investors earn abnormal returns on equity during the month of December. The results from the Fama-MacBeth risk premia estimates reveals highly statistically significant negative risk premia seasonal patterns during March, July and September. Thus, investors are in fact penalised for investing in equities during these months. In addition, the analysis reveals an absence of a December effect in risk premia, which contradicts the risk-return trade-off central to modem finance. The daily return analysis reveals a highly significant Turn-of-the-Year effect (TY), which suggests that investors earn abnormal returns on days at the turn of the year. Therefore, it is concluded that a December effect is apparent in South African equity monthly returns, whilst a March, July and September effect is apparent in South African equity risk premia contradicting the risk-return trade-off central to modem finance. In addition to this, a TY effect is present in South African equity daily returns.
- Full Text:
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