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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. Hussein Alzyoud & Eric Zengxiang Wang & Michael Glenn Basso, 2018. "Dynamics of Canadian Oil Price and its Impact on Exchange Rate and Stock Market," International Journal of Energy Economics and Policy, Econjournals, vol. 8(3), pages 107-114.
    2. 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.
    3. Hedi Arouri, Mohamed El & Khuong Nguyen, Duc, 2010. "Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade," Energy Policy, Elsevier, vol. 38(8), pages 4528-4539, August.
    4. 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.
    5. Andrew J. Patton, 2006. "Modelling Asymmetric Exchange Rate Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, May.
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