Dynamics Between Foreign Portfolio Investment, Stock Price and Financial Development in South Africa: A SVAR Approach

Kazeem Abimbola Sanusi () and Zandri Dickason-Koekemoer
Additional contact information
Kazeem Abimbola Sanusi: Trade Research Unit, Economic and Management Sciences, North-West University, Potchefstroom 2520, South Africa
Zandri Dickason-Koekemoer: Trade Research Unit, Economic and Management Sciences, North-West University, Potchefstroom 2520, South Africa

Economies, 2025, vol. 13, issue 1, 1-16

Abstract: The goal of this study is to look into the dynamic relationship between stock prices, foreign portfolio investment, and financial development in the South African economy. Federal Reserve Economic Data (FRED) provided quarterly time series data from 1960 (Q1) to 2024 (Q2). This study uses a structural VAR estimation approach and dynamic conditional correlation (DCC GARCH model). The DCC GARCH approach displays time-varying correlations between stock prices, credit given to the private sector as a measure of financial growth, and foreign portfolio investments. The dynamic links between stock prices, financial development, and foreign private investment (FPI) are examined using the SVAR technique. Our findings show that a financial development shock encourages and provokes a substantial influx of foreign portfolio investment into the South African economy. This suggests that overseas portfolio investments react favorably and notably well to favorable shocks in the financial development process. We suggest that a stable financial system framework and lower credit costs would strengthen the impact of higher stock prices on private sector credit and guarantee that higher stock prices have a beneficial impact on other financial development metrics. Better financial development metrics, such as credit to the private sector, will therefore increase foreign portfolio investment.

Keywords: FPI; stock price; financial development; SVAR (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-7099/13/1/8/pdf (application/pdf)
https://www.mdpi.com/2227-7099/13/1/8/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:13:y:2025:i:1:p:8-:d:1559733

Access Statistics for this article

Economies is currently edited by Ms. Hongyan Zhang

More articles in Economies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().