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Macroeconomic uncertainty and emerging market stock market volatility: The case for South Africa

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  • Z. Chinzara

Abstract

This paper analyses how systematic risk emanating from the macro-economy is transmitted into stock market volatility using augmented autoregressive GARCH (AR-GARCH) and Vector autoregression models. Also examined is whether the relationship between the two is bidirectional. By imposing dummies for the 1997-98 Asian and the 2007-2008 sub-prime financial crises, the study further analyses whether financial crises affect the relationship between macroeconomic uncertainty and stock market volatility. The findings show that macroeconomic uncertainty significantly influences stock market volatility. Although volatilities in inflation, the gold price and the oil price seem to play a role, it is found that volatility in short-term interest rates and exchange rates are the most important, suggesting that South African domestic financial markets are increasingly becoming interdependent. Finally, the results show that financial crises increase volatility in stock market and in most macroeconomic variables and, by so doing, strengthen the effects of changes in macroeconomic variables on the stock market.

Suggested Citation

  • Z. Chinzara, 2010. "Macroeconomic uncertainty and emerging market stock market volatility: The case for South Africa," Working Papers 187, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:187
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    File URL: http://www.econrsa.org/node/210
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    Cited by:

    1. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working papers 2012-27, University of Connecticut, Department of Economics.
    2. Tinashe Harry Dumile Kambadza & Zivanemoyo Chinzara, 2012. "Returns Correlation Structure and Volatility Spillovers Among the Major African Stock Markets," Working Papers 305, Economic Research Southern Africa.
    3. Ali Umar Ahmad & Adam Abdullah & Zunaidah Sulong & Ahmad Tijjani Abdullahi, 2015. "The Review of Stock Returns and Macroeconomic Variables," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(5), pages 154-181, May.
    4. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2015. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-varying Vector Autoregressive Model," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(2), pages 176-196, August.
    5. Rangan Gupta & Monique Reid, 2013. "Macroeconomic surprises and stock returns in South Africa," Studies in Economics and Finance, Emerald Group Publishing, vol. 30(3), pages 266-282, July.
    6. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2014. "A time-varying approach to analysing fiscal policy and asset prices in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 6(1), pages 46-63, April.
    7. Alexander Zimper, 2014. "The minimal confidence levels of Basel capital regulation," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(2), pages 129-143, April.

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