Do Geopolitical Risk and Market Conditions Drive JSE Sector Returns?

Thuto Nkomo () and Fabian Moodley ()
Additional contact information
Thuto Nkomo: North-West University, South Africa
Fabian Moodley: North-West University, South Africa

Management and Economics Review, 2025, vol. 10, issue 2, 324-341

Abstract: Although equity markets contribute immensely to economic growth, they are susceptible to various risks, including geopolitical risks. Despite this, emerging markets such as South Africa have failed to examine geopolitical risk as a determinant of equity market returns under various market conditions. On this basis, this study aims to investigate the effect of geopolitical risk on South African sector returns under changing market conditions from February 1996 to December 2023. This study introduces the Markov regime-switching model, and the findings demonstrate that geopolitical risk has a regime-specific effect on the Johannesburg Stock Exchange (JSE) sector returns. Moreover, regardless of the effect of geopolitical risk, the consumable goods and consumables services index performed well. This implies that the JSE aggregated market can be used to track the performance of these two markets. The study concludes that the JSE All-share, Consumable goods, and Consumable services indices could be investors’ safe haven during geopolitical tension and equity market uncertainty. However, investors and portfolio managers should be strategic when investing in the JSE industrials and mining indices because they are highly volatile and produce the lowest returns.

Keywords: Markov model; geopolitical risk; stable regime; volatile regime; JSE. (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mer.ase.ro/files/2025-2/10-2-3.pdf (application/pdf)

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:rom:merase:v:10:y:2025:i:2:p:324-341

Access Statistics for this article

Management and Economics Review is currently edited by Ciocoiu Nadia Carmen

More articles in Management and Economics Review from Faculty of Management, Academy of Economic Studies, Bucharest, Romania Contact information at EDIRC.
Bibliographic data for series maintained by Ciocoiu Nadia Carmen ().