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The Effects of Oil Price Volatility on South African Stock Market Returns

Author

Listed:
  • Kongolo Musampa

    (School of Economics, University of Johannesburg, Johannesburg P.O. Box 524, South Africa)

  • Joel Hinaunye Eita

    (School of Economics, University of Johannesburg, Johannesburg P.O. Box 524, South Africa)

  • Christelle Meniago

    (School of Economics and Management Sciences, Sol Plaatje University, Kimberley Private Bag X5008, South Africa)

Abstract

The aim of this study is to assess the response of the South African stock market returns to oil price volatility, based on the daily South African stock market index, using the GARCH-Copula modelling technique. The results of the analysis show evidence of an asymmetric impact of fluctuations in oil prices on South African stock market returns, using a copula model specification, particularly the bivariate symmetrized Joe-Clayton (SJC) copula. The results also revealed that the EGARCH process is the best univariate model to capture oil price volatility. Interestingly, this study also revealed that the tourism industry is most dependent on oil price fluctuations, due to its heavy reliance on transportation costs. The economic implications of this study also suggest that sectors affected by oil price fluctuations need specific long-term and short-term monetary policy strategies. It is recommended that in the short term, expansionary monetary policy could assist in mitigating the impact of higher oil prices, while in the long-term, policies aimed at reducing the volatility in oil prices would be of great help in alleviating its harmful effect on stock market returns.

Suggested Citation

  • Kongolo Musampa & Joel Hinaunye Eita & Christelle Meniago, 2023. "The Effects of Oil Price Volatility on South African Stock Market Returns," Economies, MDPI, vol. 12(1), pages 1-20, December.
    • Handle: RePEc:gam:jecomi:v:12:y:2023:i:1:p:4-:d:1305909
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    References listed on IDEAS

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    1. J A Swanepoel, 2006. "The Impact of External Shocks on South African Inflation at Different Price Stages," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 30(1), pages 1-22, April.
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    5. Aviral Kumar Tiwari & Ibrahim D. Raheem & Seref Bozoklu & Shawkat Hammoudeh, 2022. "The Oil Price‐Macroeconomic fundamentals nexus for emerging market economies: Evidence from a wavelet analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1569-1590, January.
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    1. Thi Minh Huong Le & Thi Nga My Nguyen & Thi Yen Vinh Tran, 2025. "Spillover Effects of Oil Price Fluctuations on the U.S and Asia–Pacific Stock Markets: A Multivariate EGARCH Analysis," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 32(3), pages 1049-1076, September.

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