Relationship between oil price changes and the South African stock market returns: a nonlinear ARDL analysis
- Authors: Habana, Athenkosi
- Date: 2024-10-11
- Subjects: Stock market index South Africa , Stock exchanges South Africa , Petroleum products Prices South Africa , Autoregression (Statistics) , JSE Securities Exchange South Africa
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/462713 , vital:76328
- Description: Understanding the factors that influence oil price volatility and how they affect the stock market is crucial for decision-making, planning, and forecasting by governments, companies, and individuals. The aim of this study is to analyze the relationship between oil prices and stock market returns of selected JSE stock indices. A nonlinear ARDL model is used to study the interaction between changes in oil prices and the South African stock market. Monthly data covering the period from January 2010 to December 2022 is utilized in the study. The main findings of the study show that in the short run negative changes in oil prices have a statistically significant positive impact that on stock returns of the All-Share, Financials and Resources indices, while it is insignificant for the Industrials index stock returns. On the other hand, positive changes in oil prices have a negative and insignificant impact on all the stock returns of the indices. Therefore, in the short-run there is no nonlinear relationship between oil prices and the stock returns of the indices. In the long-run, the impact of oil prices on stock returns of the All Share, Financials and Resources indices is nonlinear or asymmetric. The impact of oil price changes on the stock indices varies across the indices. An increase in oil prices has a negative and statistically significant impact on stock returns of the All Share, Financials and Resources index. Conversely, a decrease in oil prices has a positive and significant impact on All Share, Financials and Resources index stock returns in the long-run. The impact of positive and negative changes in oil prices is insignificant for the Industrials index stock returns. Therefore, these finding makes it possible for investors or portfolio managers to better mitigate the negative consequences of unforeseen events and adapt their investment plans to hedge against variations in the price of oil. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2024
- Full Text:
- Date Issued: 2024-10-11
- Authors: Habana, Athenkosi
- Date: 2024-10-11
- Subjects: Stock market index South Africa , Stock exchanges South Africa , Petroleum products Prices South Africa , Autoregression (Statistics) , JSE Securities Exchange South Africa
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/462713 , vital:76328
- Description: Understanding the factors that influence oil price volatility and how they affect the stock market is crucial for decision-making, planning, and forecasting by governments, companies, and individuals. The aim of this study is to analyze the relationship between oil prices and stock market returns of selected JSE stock indices. A nonlinear ARDL model is used to study the interaction between changes in oil prices and the South African stock market. Monthly data covering the period from January 2010 to December 2022 is utilized in the study. The main findings of the study show that in the short run negative changes in oil prices have a statistically significant positive impact that on stock returns of the All-Share, Financials and Resources indices, while it is insignificant for the Industrials index stock returns. On the other hand, positive changes in oil prices have a negative and insignificant impact on all the stock returns of the indices. Therefore, in the short-run there is no nonlinear relationship between oil prices and the stock returns of the indices. In the long-run, the impact of oil prices on stock returns of the All Share, Financials and Resources indices is nonlinear or asymmetric. The impact of oil price changes on the stock indices varies across the indices. An increase in oil prices has a negative and statistically significant impact on stock returns of the All Share, Financials and Resources index. Conversely, a decrease in oil prices has a positive and significant impact on All Share, Financials and Resources index stock returns in the long-run. The impact of positive and negative changes in oil prices is insignificant for the Industrials index stock returns. Therefore, these finding makes it possible for investors or portfolio managers to better mitigate the negative consequences of unforeseen events and adapt their investment plans to hedge against variations in the price of oil. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2024
- Full Text:
- Date Issued: 2024-10-11
The stock market and the business cycle in South Africa
- Authors: Pokoo, Patience
- Date: 2024-10-11
- Subjects: Stock exchanges South Africa , Economic activity , Business cycles South Africa , Autoregression (Statistics) , Policymaker , Johannesburg Stock Exchange
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/462801 , vital:76336
- Description: The relationship between the stock market and economic activity has long been a topic for research. Several studies done in both advanced and emerging economies including South Africa before COVID-19 found stock market prices predict the cycle of real economic activity and some found it to be the reversal. Therefore, this Study seeks to examine this topic and will extend beyond the post-covid period exploring the relationship between the stock market (proxied by the JSE All-Share Index) and the business cycle (represented by the Coincident Business Cycle Indicator of the SARB) in South Africa. The study also investigates if the relationship between the stock market and the business cycle is homogenous across the three selected sectors of the JSE using a combination of the “financial accelerator theory”, the “wealth effect theory”, the “traditional valuation model of stock prices”, the “stock prices as aggregators of expectations”, and the “cost of raising equity capital”. The Econometrics models employed include time-series and panel cointegration techniques, relying on the ARDL estimation model and a Granger-Causality Test. The findings of this study indicate that a long-run relationship exists between the stock market and the business cycle in South Africa. The findings support the notion that the stock market predicts economic activity, and this relationship is assumed to be homogenous across the selected Sectors of the JSE (namely, Resources, Financials, and Industrials). Again, the Granger-Causality Test confirms the relationship between the stock market and the business cycle in South Africa to be unidirectional. It is recommended that since the stock market affects South African economic activity positively in the long run which is consistent with findings of similar studies done on the JSE, the South African Reserve Bank (SARB) must strengthen existing policy to ensure financial system stability and sustainable economic growth in South Africa. Again, the stock market being a leading indicator of the business cycle is something different. As a recommendation, we need to look at ways to use the prediction ability in a business setting. Investors and Portfolio Managers can follow trends of the stock market to forecast the direction of the future economy to make educated decisions to hedge their investments and diversify their portfolios against huge losses in crises such as the Financial Crises and the Global Health Crisis (COVID-19), however, with the caveat that the stock market does not always accurately predict the business cycle. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2024
- Full Text:
- Date Issued: 2024-10-11
- Authors: Pokoo, Patience
- Date: 2024-10-11
- Subjects: Stock exchanges South Africa , Economic activity , Business cycles South Africa , Autoregression (Statistics) , Policymaker , Johannesburg Stock Exchange
- Language: English
- Type: Academic theses , Master's theses , text
- Identifier: http://hdl.handle.net/10962/462801 , vital:76336
- Description: The relationship between the stock market and economic activity has long been a topic for research. Several studies done in both advanced and emerging economies including South Africa before COVID-19 found stock market prices predict the cycle of real economic activity and some found it to be the reversal. Therefore, this Study seeks to examine this topic and will extend beyond the post-covid period exploring the relationship between the stock market (proxied by the JSE All-Share Index) and the business cycle (represented by the Coincident Business Cycle Indicator of the SARB) in South Africa. The study also investigates if the relationship between the stock market and the business cycle is homogenous across the three selected sectors of the JSE using a combination of the “financial accelerator theory”, the “wealth effect theory”, the “traditional valuation model of stock prices”, the “stock prices as aggregators of expectations”, and the “cost of raising equity capital”. The Econometrics models employed include time-series and panel cointegration techniques, relying on the ARDL estimation model and a Granger-Causality Test. The findings of this study indicate that a long-run relationship exists between the stock market and the business cycle in South Africa. The findings support the notion that the stock market predicts economic activity, and this relationship is assumed to be homogenous across the selected Sectors of the JSE (namely, Resources, Financials, and Industrials). Again, the Granger-Causality Test confirms the relationship between the stock market and the business cycle in South Africa to be unidirectional. It is recommended that since the stock market affects South African economic activity positively in the long run which is consistent with findings of similar studies done on the JSE, the South African Reserve Bank (SARB) must strengthen existing policy to ensure financial system stability and sustainable economic growth in South Africa. Again, the stock market being a leading indicator of the business cycle is something different. As a recommendation, we need to look at ways to use the prediction ability in a business setting. Investors and Portfolio Managers can follow trends of the stock market to forecast the direction of the future economy to make educated decisions to hedge their investments and diversify their portfolios against huge losses in crises such as the Financial Crises and the Global Health Crisis (COVID-19), however, with the caveat that the stock market does not always accurately predict the business cycle. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2024
- Full Text:
- Date Issued: 2024-10-11
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