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Long-run equilibrium adjustment between inflation and stock market returns in South Africa: a nonlinear perspective

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  • Andrew Phiri

Abstract

Following the global financial crisis of 2007-2008, the empirical investigation into financial variables affecting the performance of stock markets gained prominence in empirical research. This study investigates the asymmetric cointegration effects of inflation on the stock market returns for the Johannesburg Stock Exchange (JSE) using monthly data collected from 2003:01 to 2014:12. The empirical model used in the study is the momentum threshold autoregressive (MTAR) model. Indeed, our results reveal a negative, nonlinear cointegration relationship between inflation and stock returns in South Africa with causality running unidirectional from inflation to stock returns. The results further suggest that investors cannot hedge against rising inflation by investing in equity stocks listed on the JSE. Second, monetary policy, through the use of inflation targets, can provide a stable financial environment for the growth of equity markets in South Africa.

Suggested Citation

  • Andrew Phiri, 2017. "Long-run equilibrium adjustment between inflation and stock market returns in South Africa: a nonlinear perspective," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(1), pages 19-33.
    • Handle: RePEc:ids:ijsuse:v:9:y:2017:i:1:p:19-33
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    Cited by:

    1. Ibrahim Abdulhamid Danlami, 2019. "Inflation Persistence in the West African Commonwealth Countries," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 80-89, September.
    2. Kolisi, Nwabisa & Phiri, Andrew, 2017. "Changes in the relationship between interest rates and housing prices in South Africa around the 2007 financial crisis," MPRA Paper 80173, University Library of Munich, Germany.
    3. Muhammad Kamran Khan & Jian-Zhou Teng & Javed Pervaiz & Sunil Kumar Chaudhary, 2017. "Nexuses between Economic Factors and Stock Returns in China," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(9), pages 182-191, September.
    4. Andrew Phiri, 2020. "Structural changes in exchange rate-stock returns dynamics in South Africa: examining the role of crisis and new trading platform," Economic Change and Restructuring, Springer, vol. 53(1), pages 171-193, February.
    5. Mustafa Hussein ABD-ALLAH & Nourhan Mohammed ELNAHAS & Nourhan Yehia DARKORY & Raghad Khalid Mohammed OKASHA, 2025. "Impact of Inflation on Stock Return and Investment Risk," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 16(3), pages 90-103, December.
    6. Fabian Moodley, 2025. "The macroeconomic determinants of South African sectoral returns: Evidence from Bull and Bear Regimes," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 14(7), pages 387-400, November.
    7. Sinazo Guduza & Andrew Phiri, 2017. "Efficient market hypothesis: Evidence from the JSE equity and bond markets," Working Papers 1718, Department of Economics, Nelson Mandela University, revised Dec 2017.
    8. Phiri, Andrew, 2017. "Threshold convergence between the federal fund rate and South African equity returns around the colocation period," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(01).
    9. Md. Qamruzzaman & Ananda Bardhan & Summatun Nasya, 2020. "Nexus between Remittance, Nonperforming Loan, Money Supply, and Financial Volatility: An Application of ARDL," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 8(1), pages 11-29.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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