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Is the Stock Market A “Barometer” of the Economy? Based on South Africa Comprehensive Analysis

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Listed:
  • Bimenyimana Jean-Claude

    (School of Finance and Economics, Jiangsu University, China)

  • Mei-sheng Dong

    (School of Finance and Economics, Jiangsu University, China)

  • Jallow Momodou Lamin

    (School of Finance and Economics, Jiangsu University, China)

Abstract

An efficient stock market supports economic growth and is a barometer of South Africa’s financial health. Our research delves into how macroeconomic variables impact stock prices in South Africa by investigating yearly time series data ranging from 2000 to 2023. We utilise Johansen’s cointegration test and the Vector Error Correction Model (VECM) to investigate the equilibrium relationship between stock market prices and critical macroeconomic factors like inflation (INFL), trade rate (TR), money supply (MS) and exchange rate (EXCH). The study findings indicate that these factors are correlated in the long run, indicating a lasting correlation between specific macroeconomic indicators and stock market prices. Stock market prices are affected positively by exchange rates and inflation, as well as by the money supply; however, trade rates have a negative impact according to the analysis of short-term financial dynamics, which suggests that adjustments are made to reach a long-term equilibrium despite the lesser immediate effects of macroeconomic factors. Granger causality tests show that macroeconomic factors influence stock market prices over long and short-term periods. This highlights the importance of the stock market as an indicator of trends and signals potential shifts in the broader economy, which policymakers and investors should keep a close eye on as an early warning system.

Suggested Citation

  • Bimenyimana Jean-Claude & Mei-sheng Dong & Jallow Momodou Lamin, 2025. "Is the Stock Market A “Barometer” of the Economy? Based on South Africa Comprehensive Analysis," Economics, Sciendo, vol. 13(3), pages 409-427.
    • Handle: RePEc:vrs:econom:v:13:y:2025:i:3:p:409-427:n:1020
    DOI: 10.2478/eoik-2025-0072
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    References listed on IDEAS

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    1. Robert Engle & Clive Granger, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    2. Rakesh Kumar Verma & Rohit Bansal, 2021. "Impact of macroeconomic variables on the performance of stock exchange: a systematic review," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 16(7), pages 1291-1329, August.
    3. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2017. "Stock markets, credit markets, and technology-led growth," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 45-59.
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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