Macroeconomic Surprises and Stock Returns in South Africa

Stellenbosch Working Paper Series No. WP05/2012
 
Publication date: 2012
 
Author(s):
[protected email address] (Department of Economics, University of Pretoria)
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

The objective of this paper is to explore the sensitivity of industry-specific stock returns to monetary policy and macroeconomic news. The paper looks at a range of industry-specific South African stock market indices and evaluates the sensitivity of these indices to a various unanticipated macroeconomic shocks. We begin with an event study, which examines the immediate impact of macroeconomic shocks on the stock market indices, and then use a Bayesian Vector Autoregressive (BVAR) analysis, which provides insight into the dynamic effects of the shocks on the stock market indices, by allowing us to treat the shocks as exogenous through appropriate setting of priors defining the mean and variance of the parameters in the VAR. The results from the event study indicate that with the exception of the gold mining index, where the CPI surprise plays a significant role, monetary surprise is the only variable that consistently negatively affects the stock returns significantly, both at the aggregate and sectoral levels. The BVAR model based on monthly data, however, indicates that, in addition to the monetary policy surprises, the CPI and PPI surprises also affect aggregate stock returns significantly. However, the effects of the CPI and PPI surprises are quite small in magnitude and are mainly experienced at shorter horizons immediately after the shock.

 
JEL Classification:

C22, C32, E31, E44, G1

Keywords:

Bayesian Vector Autoregressive Model, Event Study, Macroeconomic Surprises, Stock Returns.

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13 September 2021
It was a data-heavy week in SA, with the 2021Q2 real GDP data indicating that the economy had better-than-expected recovery momentum in the first half of the year. While growth remained solid in the second quarter, both the survey and actual data released last week revealed the significant impact that the range of shocks at the start of the third quarter...

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BER Weekly

13 September 2021
It was a data-heavy week in SA, with the 2021Q2 real GDP data indicating that the economy had better-than-expected recovery momentum in the first half of the year. While growth remained solid in the second quarter, both the survey and actual data released last week revealed the significant impact that the range of shocks at the start of the third quarter...

Read the full issue