Granger-causal relationship between macroeconomic variables and stock prices: evidence from South Africa

Shawtari, Fekri Ali and Masih, Mansur (2017): Granger-causal relationship between macroeconomic variables and stock prices: evidence from South Africa.

Abstract

This paper investigates the Granger-causal relationship between the South African stock index and selected macroeconomic variables using the standard time series techniques. The tests of cointegraion, long run structural modeling (LRSM), VECM and VDC tend to indicate that industrial production is the most leading determinant of stock market prices. This suggests that the South Africa stock market is very sensitive to the industrial production of the country. Money supply, Inflation, exchange rates are the other determinants of stock index of South Africa but to a lesser extent compared to the industrial production. The findings have implications for the policy makers in the sense that any changes in the macroeconomic policy should take into consideration the impact of such changes on the most important institution in the country which is stock market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock price, macro economic variables, South Africa, Cointegration, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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