Are Macroeconomic Variables a Determinant of ETF Flow in South Africa Under Different Economic Conditions?

Fabian Moodley (), Babatunde Lawrence and Mosab I. Tabash
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Fabian Moodley: School of Economic Science, North-West University, Gauteng 1174, South Africa
Babatunde Lawrence: Trade Research Entity, North-West University, Gauteng 1174, South Africa
Mosab I. Tabash: College of Business, Al Ain University, Al Ain 64141, United Arab Emirates

Economies, 2025, vol. 13, issue 9, 1-21

Abstract: The objective of this study is to examine the effect of macroeconomic variables on exchange-traded funds (ETFs) returns under different market conditions. The growing prominence of ETFs in emerging markets has over the years drawn much relevance in the academic front for the ability to track the performance of prominent indices, which enhances return perspective. Despite this, ETF returns are influenced by many factors that dampen expected returns; these include macroeconomic variables and changing market conditions. To this extent, monthly data from November 2010 to December 2023 were used in the estimation of the Markov regime-switching model. The findings demonstrate that ETF returns are affected both positively and negatively by macroeconomic factors like inflation, money supply, interest rates, gross domestic product (GDP), and real effective exchange rate. More specifically, the effect tends to vary with market conditions such as bull and bear regimes. This implies there exists adaptive behavior among the ETF market in South Africa, suggesting there are periods of efficiencies and inefficiencies. The findings pose important implications to investors, portfolio managers, and policy makers, all of which is discussed herein.

Keywords: macroeconomic variables; Johannesburg stock exchange (JSE); bull market; bear market; exchange-traded funds (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2025
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