Macroeconomic Variables, Leverage, Stock Returns and Stock Return Volatility
Godfrey Marozva () and
Margaret Rutendo Magwedere ()
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Margaret Rutendo Magwedere: Risk Management and Banking
Acta Universitatis Danubius. OEconomica, 2017, issue 13(4), 264-288
This paper investigates the relationship between the macroeconomic variables, leverage and the stock returns on the Johannesburg Stock Exchange using ARDL bounds testing approach and Vector error correction model. A further analysis on the effects of leverage on volatility was done using a generalized autoregressive conditional heteroscedasticity (GARCH 1,1) method. The study revealed that there is co-integrating relationship between macroeconomic variables and stock returns. Particularly, there is a long run relationship between stock returns and real GDP, and also between stock returns and interest rates. Additionally, this paper shows that leverage affects the volatility of stock prices. Finally, it is noted that after disequilibrium the economic model will always adjust to equilibrium at a rate of thirty-three percent within a year. Since leverage positively influence volatility in stock returns investors that are risk averse should avoid highly geared firms.
Keywords: Stock returns; volatility; leverage; Co-integration; Macroeconomic variables (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:dug:actaec:y:2017:i:4:p:264-288
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