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Does U.S. Macroeconomic News Make the South African Stock Market Riskier?

Author

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  • Esin Cakan

    () (Department of Economics, University of New Haven, USA)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria and IPAG Business School, Paris, France)

Abstract

This article analyzes the impactof US macroeconomic announcement surprises on the volatility of the South African equity market. We employ the asymmetric GJR-GARCH model that that allows for both positive and negative surprises about inflation and unemployment rate announcements in the U.S. By examining daily data on South African stock market returns from 31 May 1994 to 8 March 2016, we find that shocks to volatility are persistent and asymmetric. While bad news about US inflation does not affect the volatility of South African stock returns, good news tend to increase the volatility. Further, the South African stock market becomes more risky with an unexpected increase in the US unemployment rate and less risky with the an unexpected decrease in the US unemployment rate, with the latter effect being stronger than the former. Our findings demonstrate that US economic conditions may have an impact on the risk profile of the South African equity market.

Suggested Citation

  • Esin Cakan & Rangan Gupta, 2016. "Does U.S. Macroeconomic News Make the South African Stock Market Riskier?," Working Papers 201646, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201646
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    1. repec:eee:ecosys:v:42:y:2018:i:2:p:295-306 is not listed on IDEAS
    2. Balcilar, Mehmet & Bonato, Matteo & Demirer, Riza & Gupta, Rangan, 2018. "Geopolitical risks and stock market dynamics of the BRICS," Economic Systems, Elsevier, vol. 42(2), pages 295-306.
    3. Chuliá, Helena & Gupta, Rangan & Uribe, Jorge M. & Wohar, Mark E., 2017. "Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 178-191.

    More about this item

    Keywords

    Asymmetric GARCH; US macroeconomic news; surprises; South Africa;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G1 - Financial Economics - - General Financial Markets

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